As filed with the Securities and Exchange Commission on July 14, 2000.
File Nos. 333-____
811-1464
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
SMITH BARNEY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, NY 10013
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code: 800-451-2010
HEATH B. McLENDON
SSB CITI FUND MANAGEMENT LLC
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
(Name and Address of Agent for Service)
WITH COPIES TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Robert I. Frenkel, Esq. Christina T. Sydor, Esq. Roger P. Joseph, Esq. Burton M. Leibert, Esq.
SSB Citi Fund SSB Citi Fund Bingham Dana LLP Willkie Farr &
Management LLC Management LLC 150 Federal Street Gallagher
388 Greenwich Street 388 Greenwich Street Boston, MA 02110 787 Seventh Avenue
New York, NY 10013 New York, NY 10013 New York, NY 10019
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: as soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933
Title of Securities Being Registered:
Shares of Common Stock ($0.01 par value) of the Registrant
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The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940; accordingly, no fee is payable herewith because of reliance upon
Section 24(f).
It is proposed that this filing will become effective on August 14, 2000
pursuant to Rule 488 under the Securities Act of 1933.
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
21 Milk Street, 5th
Floor, Boston, Massachusetts 02109
________ __, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby substantially all of the assets of CitiFunds Growth & Income Portfolio
(the "CitiFund"), a series of CitiFunds Trust II, will be transferred in a
tax-free reorganization to Smith Barney Large Cap Value Fund (the "Smith Barney
Fund"), in exchange for shares of the Smith Barney Fund, a series of Smith
Barney Funds, Inc.
If the Agreement and Plan of Reorganization is approved and consummated,
you will no longer be a shareholder of the CitiFund; you will become a
shareholder of the Smith Barney Fund. You will receive shares of the
corresponding class of the Smith Barney Fund with an aggregate net asset value
equal to the aggregate net asset value of your shares in the CitiFund.
The Smith Barney Fund is advised by SSB Citi Fund Management LLC ("SSB
Citi"). SSB Citi, like Citibank, N.A. ("Citibank"), the adviser of the
CitiFund, is a subsidiary of Citigroup Inc. SSB Citi also currently manages the
CitiFund as subadviser. Citigroup has proposed the reorganization of the
CitiFund into the Smith Barney Fund in order to eliminate duplication in the
mutual fund investment advisory operations of SSB Citi and Citibank.
After carefully studying the merits of the proposal, the Board of
Trustees of the CitiFund has determined that the reorganization of the CitiFund
with the Smith Barney Fund will benefit the CitiFund shareholders.
The Smith Barney Fund will offer CitiFund shareholders a mutual fund with
similar investment objectives and policies. The Trustees of CitiFunds Trust II
believe that combining the assets of the CitiFund with the Smith Barney Fund
could result in more efficient mutual fund operations due to economies of scale
without substantially changing the investment profile of the CitiFund. As a
result of the reorganization, CitiFund shareholders will be part of a larger
fund family offering a wide array of mutual funds, and will be able to exchange
their shares among most or all of those Smith Barney funds.
The Board of Trustees of CitiFunds Trust II believes that the proposal
set forth in the notice of meeting for your fund is important and recommends
that you read the enclosed materials carefully and then vote for the proposal.
PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY ALSO CAST YOUR VOTE VIA THE INTERNET OR BY
TELEPHONE AS DESCRIBED IN THE ENCLOSeD PROXY VOTING MATERIALS. For more
information, please contact your service agent or call 1-800-625-4554. If your
account is held with Citicorp Investment Services, please call 1-800-846-5200;
in New York City, you will need to call 212-820-2380.
Respectfully,
Philip W. Coolidge
President
<PAGE>
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, OR CAST YOUR VOTE VIA THE INTERNET OR BY TELEPHONE, TO
ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER
OF SHARES YOU OWN.
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Telephone: (617) 423-1679
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders of CitiFunds
Growth & Income Portfolio (the "CitiFund"), a series of CitiFunds Trust II,
will be held at the offices of SSB CitiFund Management LLC, 7 World Trade
Center, 4th Floor, Balcony Dining, New York, New York 10048, on October 2, 2000
at 3:30 p.m., Eastern time, for the following purposes:
ITEM 1. To consider and act upon a proposal to approve an
Agreement and Plan of Reorganization which provides for and
contemplates: (1) the transfer of substantially all of the
assets and liabilities of the CitiFund to Smith Barney Large
Cap Value Fund (the "Smith Barney Fund"), a series of Smith
Barney Funds, Inc., solely in exchange for voting shares of
the corresponding class of Smith Barney Fund; (2) the
distribution of the shares to the shareholders of the
CitiFund in liquidation of the CitiFund; and (3) the
termination of the CitiFund.
ITEM 2. To transact such other business as may properly come
before the Special Meeting of Shareholders and any
adjournments thereof.
Item 1 is described in the attached Proxy Statement/Prospectus. THE BOARD
OF TRUSTEES OF THE CITIFUND RECOMMENDS THAT YOU VOTE IN FAVOR OF ITEM 1.
Only shareholders of record on August 11, 2000 will be entitled to vote
at the Special Meeting of Shareholders and at any adjournments thereof.
Robert I. Frenkel, Secretary
August 16, 2000
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING
AND RETURNING THE ENCLOSED PROXY, WHICH WILL HELP AVOID THE ADDITIONAL EXPENSE
OF A SECOND SOLICITATION. THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE
AND IS PROVIDED FOR YOUR CONVENIENCE. YOU ALSO MAY RETURN PROXIES BY TOUCHTONE
VOTING OVER THE TELEPHONE OR BY VOTING ON THE INTERNET.
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
August 16, 2000
Relating to the acquisition by
SMITH BARNEY LARGE CAP VALUE FUND, a series of
SMITH BARNEY FUNDS, INC.
388 Greenwich Street
New York, NY 10013
Telephone: (800) 451-2010
of the assets of
CITIFUNDS GROWTH & INCOME PORTFOLIO, a series of
CITIFUNDS TRUST II
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Telephone: (617) 423-1679
This Proxy Statement/Prospectus is furnished to shareholders of CitiFunds
Growth & Income Portfolio (the "CitiFund"), a series of CitiFunds Trust II (the
"CitiFunds Trust") in connection with the solicitation of proxies for a Special
Meeting of Shareholders of the CitiFund at which shareholders will be asked to
consider and approve a proposed Agreement and Plan of Reorganization (the
"Plan") between the CitiFunds Trust, on behalf of the CitiFund, and Smith
Barney Funds, Inc., on behalf of its series, Smith Barney Large Cap Value Fund
(the "Smith Barney Fund").
The Plan provides that substantially all of the assets and liabilities of
the CitiFund will be transferred to the Smith Barney Fund. In exchange for the
transfer of these assets and liabilities, the CitiFund will receive voting
shares of the Smith Barney Fund. Shares of the Smith Barney Fund so received
would then be distributed to the shareholders of the CitiFund in complete
liquidation of the CitiFund, and the CitiFund would be terminated. As a result
of these reorganization transactions, each shareholder of each class of the
CitiFund would receive that number of full and fractional shares of the
corresponding class of the Smith Barney Fund having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's shares of the
CitiFund held on the closing date of the reorganization transaction (the
"Reorganization").
The CitiFund and Smith Barney Fund are each a series of open-end,
management investment companies. The Smith Barney Fund has investment
objectives and policies similar to those of the CitiFund. Both Funds invest
primarily in common stocks of large cap U.S. issuers. Both Funds employ an
investment strategy called "value" investing, which means that they invest in
companies they believe are undervalued but have good longer-term prospects for
growth.
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about the Smith Barney Fund
that a prospective investor should know before investing. This Proxy
Statement/Prospectus is also accompanied by the Smith Barney Fund's annual
report to shareholders for the year ended December 31, 1999, which is
incorporated herein by reference. For a more detailed discussion of the
investment objectives, policies, restrictions and risks of the Smith Barney
Fund, see the Prospectus for the Smith Barney Fund, dated April 28, 2000, as
supplemented from time to time, which is incorporated herein by reference.
Additional information is set forth in the Statement of Additional Information
<PAGE>
of the Smith Barney Fund, dated April 28, 2000, which is incorporated herein by
reference. The Prospectus and Statement of Additional Information of the Smith
Barney Fund are on file with the Securities and Exchange Commission and are
available without charge upon request by writing or calling the Smith Barney
Fund at the address or telephone number indicated above.
Additional information is set forth in (a) the Statement of Additional
Information relating to this Proxy Statement/Prospectus, dated August 16, 2000,
(b) the Prospectus and Statement of Additional Information of the CitiFund,
dated March 1, 2000, (c) the Annual Report of the CitiFund for the fiscal year
ended October 31, 1999 and (d) the Semi-Annual Report of the CitiFund for the
six-month period ended April 30, 2000. Each of these documents is incorporated
herein by reference and is on file with the Securities and Exchange Commission.
You may obtain a copy of any of these documents without charge upon request by
writing or calling the CitiFund at the address or telephone number indicated
above.
This Proxy Statement/Prospectus is expected to be first sent to
shareholders on or about August 16, 2000.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CITIFUND OR THE SMITH
BARNEY FUND.
<PAGE>
TABLE OF CONTENTS
SYNOPSIS....................................................
Proposed Transaction.....................................
Comparison of Investment Objectives and Policies.........
Comparison of Investment Structure of the
CitiFund and Smith Barney Fund........................
Investment Advisory Services and Management Fees.........
Overall Expenses.........................................
Distribution of Shares and Other Services................
Sales Charges, Purchase Policies,
Redemption and Exchange Information...................
Dividends and Other Distributions........................
Tax Consequences.........................................
PRINCIPAL INVESTMENTS, RISK FACTORS AND INVESTMENT RESTRICTIONS
Principal Investments and Risk Factors...................
Fundamental Investment Restrictions......................
THE PROPOSED TRANSACTION....................................
Description of the Plan..................................
Reasons for the Proposed Transaction.....................
Description of the Securities to be Issued...............
Federal Income Tax Consequences..........................
Liquidation and Termination of the CitiFund..............
Portfolio Securities.....................................
Portfolio Turnover.......................................
Pro Forma Capitalization.................................
Performance..............................................
VOTING INFORMATION..........................................
General Information......................................
Quorum; Vote Required to Approve Proposal................
Outstanding Shareholders.................................
ADDITIONAL INFORMATION ABOUT THE FUNDS......................
OTHER MATTERS...............................................
<PAGE>
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/ Prospectus regarding the CitiFund and the Smith Barney Fund (each, a
"Fund," and collectively, the "Funds") and the proposed Reorganization. This
summary is qualified by reference to the more complete information contained
elsewhere in this Proxy Statement/Prospectus, the Prospectus of the Smith
Barney Fund, the Prospectus of the CitiFund, and the Plan, the form of which is
attached to this Proxy Statement/Prospectus as Exhibit A. Shareholders of the
CitiFund should read this entire Proxy Statement/Prospectus carefully.
Proposed Transaction
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
including the Trustees who are not "interested persons" of such Fund (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
(the "Non-Interested Trustees"), approved the Plan on July 13, 2000. The Plan
provides that substantially all of the assets and liabilities of the CitiFund
will be transferred to the Smith Barney Fund. The CitiFund holds its assets
through an underlying investment company (the "Underlying Portfolio"). As
part of the Reorganization, and prior to the transfer of assets to the Smith
Barney Fund, the CitiFund will receive a distribution in kind from the
Underlying Portfolio of the investment securities held by the Underlying
Portfolio on its behalf (and associated liabilities), and those investment
securities will be the assets transferred to the Smith Barney Fund. In
exchange for the transfer of those assets and liabilities, the CitiFund will
receive voting shares of the Smith Barney Fund. Shares of the Smith Barney Fund
so received will then be distributed to the shareholders of the CitiFund in
complete liquidation of the CitiFund, and the CitiFund will be terminated.
As a result of the Reorganization, each shareholder of each class of the
CitiFund will receive that number of full and fractional shares of the
corresponding class of the Smith Barney Fund having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's shares of
the CitiFund held as of the close of business on the closing date of the
Reorganization (the "Closing Date"). The Closing Date is expected to be
October 6, 2000 or such later date as the parties may agree in writing.
For the reasons described below under "The Proposed Transaction - Reasons
for the Proposed Transaction," the Board of Trustees of the CitiFund, including
the Non-Interested Trustees, has concluded that the Reorganization is in the
best interests of the CitiFund and its shareholders and that the interests of
the existing shareholders of the CitiFund will not be diluted as a result of
the Reorganization.
Accordingly, the Trustees recommend approval of the Plan. If the Plan is
not approved, the CitiFund will continue in existence unless other action is
taken by the Trustees; such other action may include resubmission of the plan
to shareholders, maintaining the status quo, of termination and liquidation of
the CitiFund.
Comparison of Investment Objectives and Policies
Goals
The goal of the CitiFund is to provide long-term capital growth and
current income. The goal of the Smith Barney Fund is to provide current income
and long-term growth of income and capital.
Investment Policies
Equity Securities. Each Fund's equity securities consist primarily of
common stocks of large cap U.S. issuers. For the CitiFund, companies with
market capitalizations within the top 1,000 stocks of the U.S. equity market
are considered to be large cap issuers. For the Smith Barney Fund, companies
with market capitalizations of at least $5 billion are considered to be large
cap issuers. Each Fund also may invest in preferred stocks, warrants, and
securities convertible into common stocks.
<PAGE>
Debt Securities. Each Fund may also invest in debt securities, including
securities issued by the U.S. government (or its agencies and
instrumentalities), corporate securities, mortgage-backed securities, and
asset-backed securities. The Smith Barney Fund's long-term non-convertible debt
securities must be investment grade (meaning securities rated Baa or better by
Moody's Investors Service ("Moody's") or BBB or better by Standard & Poor's
Rating Service ("Standard & Poor's") when the Fund purchases them.
The CitiFund may invest in investment-grade debt securities as well as
debt securities rated below investment grade. Below-investment-grade securities
are commonly known as "junk bonds" because they are rated in the lower rating
categories by a nationally recognized statistical rating organization or, if
unrated, are deemed by Citibank, N.A. ("Citibank"), the CitiFund's investment
manager, to be of similar credit quality. Investing in junk bonds may subject
this Fund to higher risks, as discussed under "Principal Investments, Risk
Factors and Investment Restrictions" below.
Foreign Securities. The CitiFund may invest up to 25% of its assets in
foreign equity and debt securities including depositary receipts (meaning
receipts representing the right to receive securities of foreign issuers
deposited in a U.S. bank or a local branch of a foreign bank). The CitiFund's
foreign securities may be issued by issuers in developing countries. The Smith
Barney Fund may invest without limit in foreign equity and debt securities,
although the Fund's investment manager, SSB Citi Fund Management LLC ("SSB
Citi"), currently intends to limit such investment to 5% of the Fund's assets.
An additional 10% of the Smith Barney Fund's assets may be invested in
sponsored American Depositary Receipts. (i.e., see "Principal Investments, Risk
Factors and Investment Restrictions" below for more information on the risks of
foreign securities).
Derivative Securities. Each Fund may invest in derivative securities,
including options on securities, stock index options, forward currency
contracts, stock index futures contracts, and options on futures contracts (see
"Principal Investments, Risk Factors and Investment Restrictions" below for
more information on the risks of derivatives). The CitiFund also may purchase
call options on securities, purchase and write put and call options on a
foreign currency, invest in swap agreements, and invest in interest-only
securities ("IOs") and principal-only securities ("POs") (each a type of
collateralized mortgage obligation ("CMO")). The CitiFund may invest in
derivative securities for hedging purposes and to generate income. The Smith
Barney Fund is subject to certain limits on the amount of its assets that may
be invested or subject to puts, calls or combinations thereof and may not
purchase or sell options that are not listed on a national exchange. In
addition, the Smith Barney Fund may not invest in interest-rate futures
contracts or in listed put and call options on future contracts.
Zero Coupon Obligations. The CitiFund may invest in zero coupon
obligations, such as zero coupon bonds issued by companies and securities
representing future principal and interest installments on debt obligations of
the U.S. and foreign governments. The Smith Barney Fund may not invest in zero
coupon obligations (see "Principal Investments, Risk Factors and Investment
Restrictions" below for more information on the risks of zero coupon
obligations).
Defensive Investing. Each Fund may depart from its principal investing
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in money market and short-term debt
securities. If a Fund takes a temporary defensive position, it may not achieve
its investment goal.
Security Selection Process
In selecting investments for the CitiFund, Citibank uses a value-oriented
approach. The portfolio managers of the CitiFund look for securities that they
believe are currently undervalued, or priced below their true worth, but whose
issuers have good longer-term prospects. The portfolio managers look for
<PAGE>
securities that they believe are underpriced according to certain financial
measurements of their intrinsic worth or business prospects (such as the
company's cash flow, potential earnings prospects, growth rate and/or
dividend-paying ability).
In selecting investments for the Smith Barney Fund, SSB Citi employs a
two-step stock selection process in its search for undervalued stocks of
established, well-recognized but temporarily out-of-favor companies. First, the
portfolio manager uses proprietary models and fundamental research to try to
identify stocks that are underpriced in the market relative to their
fundamental value. Next, the portfolio manager looks for a positive catalyst in
the company's near-term outlook that the manager believes will accelerate
earnings.
Comparison of Investment Structure of the CitiFund and the Smith Barney Fund
The CitiFund is a feeder fund in a two-tier master/feeder structure. This
means that the CitiFund invests its assets in an underlying mutual fund, Large
Cap Value Portfolio (referred to as the "Underlying Portfolio"), which itself
invests directly in equity securities. The Underlying Portfolio is a mutual
fund with its own investment goals and policies. The Underlying Portfolio buys,
holds and sells securities in accordance with these goals and policies. Unless
otherwise indicated, references to the CitiFund include the Underlying
Portfolio.
The Smith Barney Fund invests directly in securities. This difference in
investment structure is not expected to affect in any material way CitiFunds
shareholders who receive shares of the Smith Barney Fund in the Reorganization.
Investment Advisory Services and Management Fees
Citibank, N.A., a wholly-owned subsidiary of Citigroup Inc., serves as
the investment manager of the CitiFund and the Underlying Portfolio. SSB Citi,
also a wholly-owned subsidiary of Citigroup Inc., serves as the subadviser to
the Underlying Portfolio. SSB Citi also serves as investment manager of the
Smith Barney Fund and will continue to serve as the investment manager of the
Smith Barney Fund after the consummation of the Reorganization. Citigroup
businesses provide a broad range of financial services and asset management,
banking and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading and use diverse channels to make them available
to consumer and corporate customers around the world.
The CitiFund pays an aggregate management fee, which is accrued daily and
paid monthly, of up to 0.80% of the CitiFund's average daily net assets on an
annualized basis for the CitiFund's then-current fiscal year. This aggregate
management fee includes fees payable to Citibank for the asset management and
administrative services it provides to the CitiFund and its underlying
portfolio and fees payable to SSB Citi for its sub-advisory services to Large
Cap Value Portfolio.
The Smith Barney Fund pays a management fee of 0.55% per annum of that
Fund's average daily net assets. Thus, the Smith Barney Fund pays a smaller
percentage of its average daily net assets in advisory and management fees than
does the CitiFund. For a comparison of the total annual operating expenses of
the CitiFund and Smith Barney Fund please review the expense tables under
"Overall Expenses" below.
Ellen Cardozo Sonsino, an investment officer of SSB Citi and a managing
director of Salomon Smith Barney, has been responsible for the day-to-day
management of the Smith Barney Fund's portfolio since March 1998. Ms. Sonsino
is also the portfolio manager for the Underlying Portfolio. She has 21 years of
investment management experience.
Overall Expenses
The total annual operating expenses for Class A and Class B shares of the
Smith Barney Fund, as determined for the Fund's most recent fiscal year, were
<PAGE>
lower than the total annual operating expenses of the Class A and Class B
shares of the CitiFund for its most recent fiscal year even after taking into
account waivers and reimbursements by service providers to the CitiFund.
Further information about the expenses of each class of the CitiFund and the
Smith Barney Fund for the fiscal years ended October 31, 1999 and December 31,
1999, respectively, and pro forma expenses following the proposed
Reorganization is outlined in the table below.
--------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM PRO FORMA
YOUR INVESTMENT SMITH BARNEY SMITH BARNEY
CITIFUND FUND FUND
SHARE CLASS Class A Class B Class A Class B Class A Class B
Maximum Sales Charge (Load)
Imposed on Purchases 5.00% None 5.00% None 5.00% None
Maximum Deferred Sales
Charge (Load) None1 5.00%2 None3 5.00%2 None3 5.00%2
--------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES(4)
EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
Management Fees 0.80% 0.80% 0.55% 0.55% 0.55% 0.55%
Distribution (12b-1) Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses (administrative,
shareholder servicing and 0.40% 0.40% 0.10% 0.12% 0.10% 0.12%
other expenses)
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.45%* 2.20%* 0.90% 1.67% 0.90% 1.67%
--------------------------------------------------------------------------------
* Because some of CitiFunds Growth & Income Portfolio's expenses were waived or
reimbursed, actual total operating expenses with respect to Class A and B
shares for the fiscal year ended October 31, 1999 were 1.30% and 2.05%,
respectively.
1 Except for investments of $500,000 or more.
2 Class B shares have a contingent deferred sales charge ("CDSC") that is
deducted from your sale proceeds if you sell your Class B shares within five
years of your original purchase of the shares. In the first year after
purchase, the CDSC is 5.00% of the price at which you purchased your shares,
or the price at which you sold your shares, whichever is less, declining to
1.00% in the fifth year after purchase.
3 You may buy Class A shares in amounts of $1,000,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares within
12 months of purchase you will pay a deferred sales charge of 1.00%.
4 CitiFunds Growth & Income Portfolio invests in securities through an
underlying mutual fund, Large Cap Value Portfolio. This table reflects the
expenses of the Fund and Large Cap Value Portfolio.
--------------------------------------------------------------------------------
<PAGE>
This example is intended to help you compare the cost of investing in
each of the Funds. The example assumes you invest $10,000 in each Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year and
that each Fund's annual operating expenses (before waivers and reimbursements)
remain the same. The expenses of the CitiFund's Underlying Portfolio are
reflected in the example. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
CITIFUNDS GROWTH & INCOME PORTFOLIO
--------------------------------------------------------------------------------
Class A $640 $936 $1,253 $2,148
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Assuming redemption at end of period $723 $988 $1,280 $2,344
--------------------------------------------------------------------------------
Assuming no redemption $223 $688 $1,180 $2,344
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SMITH BARNEY LARGE CAP VALUE FUND
--------------------------------------------------------------------------------
Class A $587 $773 $974 $1,552
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Assuming redemption at end of period $670 $826 $1,007 $1,771
--------------------------------------------------------------------------------
Assuming no redemption $170 $526 $907 $1,771
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PRO FORMA SMITH BARNEY LARGE CAP
VALUE FUND
--------------------------------------------------------------------------------
Class A $587 $773 $974 $1,552
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Assuming redemption at end of period $670 $826 $1,007 $1,771
--------------------------------------------------------------------------------
Assuming no redemption $170 $526 $907 $1,771
--------------------------------------------------------------------------------
Distribution of Shares and Other Services
Distributor
The distributor of the Smith Barney Fund is Salomon Smith Barney, Inc. A
selling group consisting of Salomon Smith Barney and other broker-dealers sells
shares of the Smith Barney Fund to the public. The distributor of the CitiFund
is CFBDS, Inc.
Both the CitiFund and the Smith Barney Fund have adopted Rule 12b-1
distribution plans for their Class A and B shares. Under the plans, each Fund
pays distribution and service fees. The distribution and service fees for Class
A and Class B shares of the CitiFund and the Smith Barney Fund are the same.
See "Overall Expenses" above for a comparison of the total fees for the
CitiFund and the Smith Barney Fund.
Other Service Providers
The CitiFund and Smith Barney Fund generally have different service
providers. Upon completion of the Reorganization, the Smith Barney Fund will
continue to engage its existing service providers. In all cases, the types of
services provided to the Funds under these service arrangements are
substantially similar.
<PAGE>
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SERVICE PROVIDER CITIFUND SMITH BARNEY FUND
---------------------------------------------------------------------------
Custodian State Street Bank and PNC Bank National
Trust Company Association
---------------------------------------------------------------------------
Auditors PricewaterhouseCoopers KPMG LLP
LLP
---------------------------------------------------------------------------
Transfer Agent State Street Bank and Citi Fiduciary Trust
Trust Company Company
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Sub-Transfer Agent N/A PFPC Global Fund Services
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Sales Charges, Purchase Policies, Redemption and Exchange Information
Sales Charges
Class A shares of the CitiFund and the Smith Barney Fund are sold at net
asset value plus a front-end sales charge. There will be no sales load charged
to Class A shareholders of the CitiFund on the Class A shares of the Smith
Barney Fund they receive in the Reorganization. See "Overall Expenses" for
tables comparing sales charges and other expenses of the Funds.
The front-end sales charge on purchases of less than $25,000 of Class A
shares of the CitiFund is the same as the front-end sales charge on such
purchases of Class A shares of the Smith Barney Fund; with respect to purchases
in larger amounts, the sales charge applicable Class A shares of the Smith
Barney Fund is higher than that of the CitiFund. You do not pay an initial
sales charge when you buy $500,000 or more of Class A shares of the CitiFund or
$1,000,000 or more of Class A shares of the Smith Barney Fund, but if you
redeem these Class A shares within one year of purchase you will pay a deferred
sales charge of 1%. For purposes of determining the one-year holding period, a
CitiFund shareholder will be deemed to have held the shares of the Smith Barney
Fund received in the Reorganization since the date of the shareholder's
original purchase of shares of the CitiFund.
Class B shares of the CitiFund and Smith Barney Fund are sold without a
front-end sales charge, but shareholders are charged a contingent deferred
sales charge (CDSC) if they sell their Class B shares within five years after
purchase. For each of the Funds, the rate of the CDSC goes down the longer you
hold your shares. For purposes of determining the holding period, a CitiFund
shareholder will be deemed to have held the shares of the Smith Barney Fund
received in the Reorganization since the date of the shareholder's original
purchase of shares of the CitiFund (or, if the shares of the CitiFund were
received in an exchange from an earlier purchase, the date of that earlier
purchase). Shareholders of the CitiFund are subject to the same contingent
deferred sales charge schedule as shareholders of the Smith Barney Fund.
After 8 years, Class B shares of each Fund automatically convert into
Class A shares. For each Fund, Class A shares have lower total annual operating
expenses than Class B shares.
The CitiFund and the Smith Barney Fund have established policies,
including rights of accumulation and letter of intent privileges, waiving the
Class A initial sales charge for certain classes of investors under certain
circumstances. Shareholders who wish to make purchases of Class A shares of the
Smith Barney Fund after the Reorganization should review the Prospectus of the
Smith Barney Fund for additional information about these waivers. As noted
above, the Smith Barney Fund will not impose any initial sales charge on the
Class A shares of the Smith Barney Fund that CitiFund shareholders receive in
the Reorganization.
Each Fund has established policies waiving the Class B contingent
deferred sales charge for certain classes of investors under certain
circumstances. Class B shareholders should review the CDSC waiver policies of
the Smith Barney Fund to determine whether a waiver may be applicable when they
<PAGE>
redeem their Class B shares of the Smith Barney Fund received in the
Reorganization. The CDSC on Class B shares of the Smith Barney Fund will
generally be waived for 12 months following the death or disability of a
shareholder. The CDSC will also be waived on certain distributions from a
retirement plan. You should review the Prospectus and Statement of Additional
Information of the Smith Barney Fund for a more complete description of the
waiver policies that may be applicable. These policies are generally similar to
the waiver policies in effect for the CitiFund.
Purchase Policies
You may purchase shares of each Fund at their net asset value, plus any
applicable sales charge, next determined after receipt of your purchase request
in good order. You may purchase shares of the CitiFund from the Fund's
distributor or a broker-dealer or financial institution (called a Service
Agent) that has entered into a sales or service agreement with the distributor
concerning the Fund. You may purchase shares of the Smith Barney Fund from a
Salomon Smith Barney Financial Consultant or an investment dealer in the
selling group or a broker that clears through Salomon Smith Barney (called a
dealer representative). Qualified retirement plans and certain other investors
who are clients of the selling group are eligible to buy shares directly from
the Smith Barney Fund by mailing a request to the Smith Barney Fund's
sub-transfer agent.
Smith Barney Fund shareholders may make additions to their accounts by
purchasing shares through a service known as the Systematic Investment Plan.
Under the Systematic Investment Plan, shareholders may authorize Salomon Smith
Barney or the sub-transfer agent to transfer funds automatically from a regular
bank account, a Salomon Smith Barney brokerage account or a Smith Barney money
market fund to buy shares of the Smith Barney Fund on a regular basis. Monthly
transfers must be at least $25 and quarterly transfers must be at least $50. If
a shareholder's account does not have sufficient funds on a transfer date, that
shareholder may be charged a fee.
The CitiFund does not impose any minimum initial or subsequent investment
requirements but a Service Agent may. The Smith Barney Fund imposes initial and
additional investment amounts that vary depending on the class of shares bought
and the nature of the investment account. Upon consummation of the
Reorganization, CitiFund shareholders will be subject to these minimum amounts
if they wish to purchase additional shares of the Smith Barney Fund. These
minimum initial and additional investment amounts are set forth in the table
below:
MINIMUM INITIAL MINIMUM ADDITIONAL
SMITH BARNEY FUND INVESTMENT INVESTMENT
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General $1,000 $50
---------------------------------------------------------------------------
IRAs, Self Employed Retirement $250 $50
Plans, Uniform Gift to Minor Accounts
---------------------------------------------------------------------------
Qualified Retirement Plans (under $25 $25
Section 403(b)(7) or Section 401(a) of
the Internal Revenue Code, including
401(k) plans)
---------------------------------------------------------------------------
Simple IRAs $1 $1
---------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 $25
---------------------------------------------------------------------------
Quarterly Systematic Investment $50 $50
Plans
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Redemptions
Shares of each Fund are redeemable on any business day at a price equal
to the net asset value of the shares the next time it is calculated after
<PAGE>
receipt of your redemption request in good order. The table below compares the
redemption procedures and policies of the CitiFund and the Smith Barney Fund,
which are generally similar.
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REDEMPTION CITIFUND SMITH BARNEY FUND
PROCEDURES AND
POLICIES
---------------------------------------------------------------------------
Through an To redeem shares, you may To redeem shares, you may
Appropriate Contact contact the Fund's contact a Salomon Smith
Person transfer agent, or for a Barney Financial
shareholder that holds Consultant or dealer
shares through a Service representative, or for
Agent, the Service Agent. accounts held directly
with the Smith Barney
Fund, the sub-transfer
agent.
By Mail You may send written For accounts held directly at
redemption requests to the Fund, you may send written
the Fund's transfer agent redemption requests to the sub-
or, if you hold shares transfer agent.
through a Service Agent,
your Service Agent.
By Telephone You may make redemption You may be eligible to
requests by telephone if redeem shares (except those
your application permits. held in retirement plans) in
amounts up to $10,000 per day
through the transfer agent.
---------------------------------------------------------------------------
Systematic You can arrange to for You can arrange for the
Withdrawal Plan automatic withdrawal of a automatic redemption of a
specified dollar amount portion of your shares on
from your account on a a monthly or quarterly
regular basis (no more basis. To qualify, you
frequently than must own shares of at
monthly). To qualify, least $10,000 ($5,000 for
you must have at least retirement plan accounts)
$10,000 in your account and each automatic
to participate in this redemption must be at
program and each least $50. If your
withdrawal must be at shares are subject to a
least $100. If your deferred sales charge,
shares are subject to a the sales charge will be
CDSC, you may only waived if your automatic
withdraw up to 10% of the payments do not exceed 1%
value of your account in per month of the value of
any year, but you will your shares subject to a
not be subject to a CDSC deferred sales charge.
on the shares withdrawn
under the Plan.
---------------------------------------------------------------------------
Automatic Your account balance with If your account falls
Redemptions the Fund may be subject below $500 because of
to a $500 minimum. If redemption of Fund
so, the Fund reserves the shares, the Fund may ask
right to close your you to bring your account
account if it falls below up to the minimum
$500 because of requirement. If your
redemptions. You will account balance is still
have 60 days to make an below $500 after 60 days,
additional investment. the Fund may close your
account and send you the
redemption proceeds.
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<PAGE>
Exchanges
Shareholders of the CitiFund may exchange Fund shares for shares of the
same class of certain other CitiFunds, subject to the limitation noted below.
Shareholders of the Smith Barney Fund may exchange shares for shares of the
same class of certain other Smith Barney funds. A shareholder of the Smith
Barney Fund must meet the minimum investment amount for each Smith Barney fund
(except for systematic exchanges). The CitiFund does not impose any similar
minimum investment amount for exchanges into the CitiFunds, but a shareholder's
Service Agent may.
When you exchange your Class A shares of the CitiFund, you generally are
required to pay the difference, if any, between the sales charge payable on the
shares to be acquired in the exchange and the sales charge paid in connection
with your original purchase of Class A shares. The Class A shares of the Smith
Barney Fund issued in connection with the Reorganization will not be subject to
an initial sales charge at the time of the exchange. CitiFund shareholders who
subsequently exchange the Class A shares of the Smith Barney Fund received in
connection with the Reorganization, however, will be required to pay the
difference, if any, between the sales charge applicable to the shares acquired
in the exchange and the sales charge they originally paid. CitiFund
shareholders who purchased Fund shares prior to January 4, 1999, will not have
to pay a sales charge when they exchange into a Smith Barney fund.
For exchanges for both Funds, your deferred sales charge (if any) will
continue to be measured from the date of your original purchase (which, for
CitiFund shareholders, will be deemed to be the date of original purchase of
shares of the CitiFund). For both Funds, if you exchange into another fund that
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.
Shareholders of the CitiFunds may place exchange orders through the
transfer agent or through their Service Agent, and may place exchange orders by
telephone if their account application permits. Shareholders of the Smith
Barney Fund may place exchange orders through Salomon Smith Barney Financial
Consultants or dealer representatives or through the transfer agent or
sub-transfer agent, and may be eligible to exchange shares by telephone. Until
September 11, 2000, CitiFund shareholders may continue to exchange their shares
of the CitiFund for share of other CitiFunds, as described above. On and after
the date, CitiFund shareholders may exchange their shares of the CitiFund only
for shares of certain Smith Barney funds, and these exchanges will be subject
to the minimum investment amounts pertaining to the applicable Smith Barney
fund or funds.
Dividends and Other Distributions
The CitiFund and the Smith Barney Fund have similar policies relating to
dividend and capital gain distributions to shareholders. For each Fund, capital
gain distributions and dividends are reinvested in additional shares of the
same class that you hold, unless you choose to receive your distributions and
dividends in cash. The Funds pay dividends and distribute capital gains, if
any, according to the following schedule.
---------------------------------------------------------------------------
INCOME DIVIDEND CAPITAL GAIN
FUND DISTRIBUTIONS DISTRIBUTIONS
---------------------------------------------------------------------------
CitiFunds Growth & quarterly (during annually (in December)
Income Portfolio March, June, September
and December)
---------------------------------------------------------------------------
Smith Barney Large Cap quarterly annually (typically in
Value Fund December)
---------------------------------------------------------------------------
<PAGE>
On or immediately prior to the Closing Date of the Reorganization, the
CitiFund will distribute (in the form of one or more dividends and/or other
distributions) to its shareholders substantially all of its investment company
taxable income and realized net capital gain, if any, for the current taxable
year through the date of such distribution or dividend. Unless otherwise
requested, such distributions or dividends will be reinvested in the manner
described above. Between the Closing Date and the end of its current taxable
year, it is expected that the Smith Barney Fund will make one or more similar
distributions to its shareholders, including the former CitiFund shareholders
who receive shares of the Smith Barney Fund in the Reorganization. Because such
a distribution will generally include income and gains accumulated by the Smith
Barney Fund prior to the Closing Date, the former CitiFund shareholders
receiving such a distribution will effectively receive a return of a portion of
their capital investment in the Smith Barney Fund in the form of a taxable
dividend.
Tax Consequences
The CitiFund and the Smith Barney Fund will each receive an opinion of
Bingham Dana LLP in connection with the Reorganization to the effect that,
based upon certain facts, assumptions and representations, (i) the distribution
of investment securities from the Underlying Portfolio in redemption of the
CitiFund's interest in the Underlying Portfolio will not result in the
recognition of gain or loss for federal income tax purposes, and (ii) the
transfer of substantially all of the assets and liabilities of the CitiFund
to the Smith Barney Fund in exchange for voting stock of the Smith Barney Fund,
followed by the distribution of such shares in complete liquidation of the
CitiFund, will constitute a reorganization within the meaning of section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). If the
Reorganization constitutes such a reorganization, no gain or loss will be
recognized by the CitiFund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction--Federal Income Tax
Consequences."
PRINCIPAL INVESTMENTS, RISK FACTORS, AND INVESTMENT RESTRICTIONS
Principal Investments and Risk Factors
The investment objectives and policies and risk factors of CitiFunds
Growth & Income Portfolio are, in many respects, similar to those of Smith
Barney Large Cap Value Fund. There are, however, certain differences. The
following discussion summarizes some of the more significant similarities and
differences in the investment policies and risk factors of each of the CitiFund
and the Smith Barney Fund and is qualified in its entirety by the Prospectuses
and Statements of Additional Information of each of the CitiFund and the Smith
Barney Fund incorporated herein by reference.
---------------------------------------------------------------------------
FUND(S) SUBJECT PRINCIPAL INVESTMENT AND ACCOMPANYING RISK FACTOR
TO RISK
---------------------------------------------------------------------------
BOTH FUNDS MARKET RISK:
The prices of securities will rise or fall due to changing
economic, political or market conditions, or due to the
company's individual situation. Some securities held by a
Fund may be quite volatile, meaning that their prices can
change significantly in a short time.
---------------------------------------------------------------------------
BOTH FUNDS VALUE INVESTING:
Value investing involves selecting stocks that are
inexpensive compared to other companies with similar
earnings or assets. However, value stocks may continue to be
inexpensive for long periods of time, and may never realize
their potential. A security may not achieve its expected
value because the circumstances causing it to be underpriced
stay the same or worsen. Or, value stocks as a class may be
out of favor with investors. In that case, a Fund may
underperform similar funds that do not use a value approach.
---------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------------------------
BOTH FUNDS PORTFOLIO SELECTION:
The success of each Fund's investment strategy depends in
large part on the investment process. The portfolio managers
may fail to pick securities that perform well because they
are unable to predict accurately the direction of interest
rates or to assess other economic factors. In that case, you
may lose money, or your investment may not do as well as an
investment in a mutual fund with a similar investment
strategy.
---------------------------------------------------------------------------
BOTH FUNDS FOREIGN SECURITIES:
A Fund's investments in foreign securities are subject to
the following additional risks:
o Investments in foreign securities may be subject to the
risks of expropriation of assets, confiscatory taxation,
withholding taxes, currency exchange limitations or other
limits on the transfer of assets, and political or social
instability.
o Foreign companies may not be subject to
accounting standards or governmental supervision
comparable to U.S. companies, and there may be less
public information about their operations.
o Foreign markets may be less liquid and more
volatile than U.S. markets. Rapid increases in
money supply may result in speculative investing,
contributing to volatility. Also, equity
securities may trade at price-earnings multiples
that are higher than those of comparable U.S.
companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of
foreign securities.
o Foreign markets may offer less protection to
investors. Enforcing legal rights may be
difficult, costly and slow. There may be special
problems enforcing claims against foreign
governments.
o Since foreign securities often trade in
currencies other than the U.S. dollar, changes in
currency exchange rates will affect a Fund's net
asset value, the value of dividends and interest
earned, and gains and losses realized on the sale
of securities. An increase in the U.S. dollar
relative to these other currencies will adversely
affect the value of a Fund. In addition, some
foreign currency values may be volatile and there
is the possibility of governmental controls on
currency exchanges or governmental intervention in
currency markets. Controls or intervention could
limit or prevent a Fund from realizing value in
U.S. dollars from its investment in foreign
securities. A Fund may also be adversely affected
by the conversion of European currencies to the
Euro.
All of the risks of investing in foreign securities are
heightened by investing in developing countries. The markets
of developing countries have been more volatile than the
markets of developed countries with more mature economies.
<PAGE>
---------------------------------------------------------------------------
The CitiFund may be subject to higher risks because it may
invest up to 25% of its assets in foreign securities.
Although the Smith Barney Fund's investment in foreign
securities is not similarly limited, SSB Citi currently
intends to invest no more than 5% of that Fund's assets in
foreign securities.
---------------------------------------------------------------------------
BOTH FUNDS INTEREST-RATE RISK:
In general, the prices of debt securities rise when interest
rates fall, and fall when interest rates rise. Longer-term
obligations are usually more sensitive to interest rate
changes. A change in interest rates could cause a Fund's
share price to go down.
---------------------------------------------------------------------------
BOTH FUNDS CREDIT RISK:
Some issuers may not make payments on debt securities held
by a Fund. Or, an issuer's financial condition may
deteriorate, leading to greater volatility in the price of
the security and making the security more difficult for the
Fund to sell. Lower-quality debt securities are more
susceptible to this risk than higher-quality debt
securities. The Smith Barney Fund invests only in investment
grade debt securities. As noted below, the CitiFund may
invest in lower-quality debt securities known as "junk
bonds." To the extent that the CitiFund's assets are
invested in lower-quality debt securities, the CitiFund may
be subject to greater risk.
---------------------------------------------------------------------------
CITIFUND JUNK BONDS:
The CitiFund may invest in debt securities of any grade,
including junk bonds. Junk bonds are considered to be
speculative investments and involve greater risks than
higher quality securities. The value of junk bonds will
usually fall substantially if the issuer defaults or goes
bankrupt. Even anticipation of defaults by certain issuers,
or the perception of economic or financial weakness, may
cause the market for junk bonds to fall. The price of a junk
bond may therefore fluctuate drastically due to bad news
about the issuer or the economy in general. Lower quality
debt securities, especially junk bonds, may be less liquid
and may be more difficult for the Fund to value and sell.
The Fund may incur additional expenses if an issuer defaults
and the Fund tries to recover some of its losses in a
bankruptcy or other similar proceeding.
The CitiFund may be subject to higher risks to the extent
that it invests in junk bonds. The Smith Barney Fund, by
contrast, may not invest in non-convertible debt securities
unless they are investment grade at the time of purchase.
---------------------------------------------------------------------------
BOTH FUNDS PREPAYMENT AND EXTENSION RISK:
The issuers of debt securities held by the Funds may be able
to call a bond or prepay principal due on the securities,
particularly during periods of declining interest rates. The
<PAGE>
Funds may not be able to reinvest that principal at
attractive rates, and the Funds may lose any premium paid.
On the other hand, rising interest rates may cause
prepayments to occur at slower than expected rates. This
makes securities more sensitive to interest rate changes.
---------------------------------------------------------------------------
BOTH FUNDS MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities typically represent interests in
pools of mortgage loans. Investments in mortgage-backed
securities are subject to prepayment and extension risk and
are, accordingly, sensitive to interest rate changes.
The Smith Barney Fund may invest in only those
mortgage-backed securities that are issued by or backed by
certain federal governmental agencies. The CitiFund, by
contrast, may invest in mortgage-backed securities issued by
private issuers as well as those issued by governmental
agencies. To the extent that the CitiFund invests in
mortgage-backed securities that are not backed by the U.S.
government or one of its agencies, the CitiFund may be
subject to more of the risks of investing in such
securities.
---------------------------------------------------------------------------
CITIFUND MORTGAGE "DOLLAR ROLL" TRANSACTIONS:
In a mortgage "dollar roll" transaction, a Fund sells
mortgage-backed securities for delivery in the future and
simultaneously contracts to repurchase substantially similar
securities on a specified future date. The Fund's dollar
rolls are "covered", meaning that the Fund establishes a
segregated account with liquid securities equal in value to
the securities it will repurchase. In entering into dollar
rolls, the Fund takes the risk that the market price of the
mortgage-backed security will drop below the future purchase
price. When the Fund uses a mortgage dollar roll, it is also
subject to the risk that the other party to the agreement
will not be able to perform.
---------------------------------------------------------------------------
SMITH BARNEY FUND U.S. GOVERNMENT SECURITIES:
U.S. government securities are obligations of, or are
guaranteed by, the United States government, its
agencies or instrumentalities. These include bills,
certificates of indebtedness, and notes and bonds
issued by the U.S. treasury or by agencies or
instrumentalities of the U.S. government. There can
be no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities
if it is not obligated to do so. As a general matter,
the value of debt instruments, including U.S.
Government obligations, declines when market interest
rates increase and rises when market interest rates
decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
---------------------------------------------------------------------------
BOTH FUNDS DERIVATIVES:
The Funds' use of derivatives, such as futures contracts,
options and forward foreign currency exchange contracts, may
be risky. This practice could result in losses that are not
<PAGE>
offset by gains on other portfolio assets. Losses would
cause the Funds' share price to go down. There is also the
risk that the counterparty may fail to honor its contract
terms. The risk becomes more acute when the Funds invest in
derivatives that are not traded on commodities exchanges or
boards of trade. The Funds' ability to use derivatives
successfully depends on a number of factors, including the
ability of the managers to accurately predict movements in
stock prices, interest rates and currency exchange rates. If
these predictions are wrong, the Funds could suffer greater
losses than if the Funds had not used derivatives.
The CitiFund may invest in derivatives for hedging and
non-hedging purposes. In addition, the CitiFund may invest
in certain types of derivatives in which the Smith Barney
Fund may not invest, including interest rate futures
contracts and listed put and call options on futures
contracts. Because the CitiFund may invest in more types of
derivative contracts than the Smith Barney Fund, it may be
more susceptible to the risks of investing in derivatives.
---------------------------------------------------------------------------
BOTH FUNDS CONVERTIBLE SECURITIES:
Convertible securities, which are debt securities that may
be converted into stock, are subject to the market risk of
stocks, and, like other debt securities, are also subject to
interest-rate risk and the credit risk of their issuers.
Call provisions may allow the issuer to repay the debt
before it matures.
---------------------------------------------------------------------------
BOTH FUNDS PORTFOLIO TURNOVER:
Each Fund is actively managed. Although the portfolio
managers attempt to minimize portfolio turnover, from time
to time a Fund's annual portfolio turnover rate may exceed
100%. The sale of securities may produce capital gains,
which, when distributed, are taxable to investors. Active
trading may also increase the amount of commissions or
mark-ups a Fund pays to brokers or dealers when it buys and
sells securities. Historically, the Smith Barney Fund's
portfolio turnover rate has been lower than that of the
CitiFund.
---------------------------------------------------------------------------
CITIFUND ZERO COUPON AND PAYMENT-IN-KIND OBLIGATIONS:
Zero coupon obligations pay no current interest. Although
payment-in-kind obligations may pay interest in cash, they
are similar to zero coupon obligations because the issuer
has the option of making interest payments in additional
debt obligations rather than in cash. As a result, the
prices of zero coupon obligations tend to be more volatile
than those of securities that offer regular payments of
interest. This makes the Fund's net asset value more
volatile. In order to pay cash distributions representing
income on zero coupon obligations, the Fund may have to sell
other securities on unfavorable terms. These sales may
generate taxable gains for Fund shareholders.
---------------------------------------------------------------------------
The foregoing describes the principal investments and related risks of
each Fund. Each Fund may invest in additional types of investments and may be
subject to additional risk factors that are described in the Statement of
<PAGE>
Additional Information of that Fund. Certain of these non-principal investments
and related risk factors may differ for each Fund. For example, the Smith
Barney Fund may invest in real estate investment trusts and Yankee obligations,
whereas the CitiFund does not invest in these types of securities. Both Funds
may lend their portfolio securities, subject to certain limitations. The value
of securities loaned by the CitiFund may not exceed 30% of the market value of
its total assets. The Smith Barney Fund may lend its securities to the extent
permitted by the 1940 Act. Additionally, whereas neither Fund may invest more
than 15% of its total assets in illiquid securities, the Smith Barney Fund is
also restricted from investing more than 5% of its total assets in issuers with
less than three years continuous operation or in unseasoned companies not
admitted for trading on a national stock exchange or regularly quoted in the
over-the-counter market. Certain of these transactions may subject a Fund to
greater risk than a fund that does not participate in these transactions. For a
further description of these investments and related risks, please consult the
Statement of Additional Information of the applicable Fund.
Fundamental Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions that
may not be changed without the affirmative vote of the holders of a majority of
the outstanding voting securities (as defined in the 1940 Act) of that Fund.
The Smith Barney Fund is subject to fundamental investment restrictions that,
in general, are similar to those of the CitiFund. These fundamental
restrictions limit the amounts that the Fund may borrow and prohibit the Fund
from investing in a manner that would cause it to fail to be a diversified
investment company under the 1940 Act, from investing more than 25% of the
Fund's total assets in securities of issuers in the same industry (with certain
exceptions), from lending money (with certain exceptions), from underwriting
securities issued by other persons, from purchasing or selling real estate,
commodities or commodity contracts (with certain exceptions), from investing in
oil, gas or mineral leases (with respect to the CitiFund only), or from issuing
"senior securities" (as defined in the 1940 Act) to the extent prohibited by
the 1940 Act.
Although these restrictions are similar, their parameters may be
different between the two Funds. For instance, with respect to the fundamental
limitation on borrowing described above, the Smith Barney Fund may only borrow
money from banks, whereas the CitiFund need not confine its borrowing to banks.
Additionally, whereas the CitiFund may not purchase securities when its
borrowings exceed 5% of its total assets, the Smith Barney Fund is not subject
to such a limitation. For additional information, you should consult the
Statement of Additional Information of the Smith Barney Fund.
Non-Fundamental Restrictions
In addition to the fundamental restrictions described above, the Smith
Barney Fund is subject to certain non-fundamental restrictions that may be
changed at any time by that Fund's Board of Directors without shareholder
approval. These non-fundamental restrictions provide that the Smith Barney 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"); (2) invest
in securities of another investment company except as permitted by Section
12(d)(1) of the Act or as part of a merger, consolidation, or acquisition; (3)
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; (4) invest
more than 5% of its total assets in issuers with less than three years of
continuous operation (including that of predecessors) or in so-called
"unseasoned" equity securities that are not either admitted for trading on a
national stock exchange or regularly quoted in the over-the-counter market; (5)
<PAGE>
invest in any company for the purpose of exercising control of management; (6)
have more than 15% of its net assets at any time invested in or subject to
puts, calls or combinations thereof and may not purchase or sell options that
are not listed on a national securities exchange; or (7) invest in interests in
oil or gas or other mineral exploration or development programs. Except for the
restrictions against investing more than 15% of its net assets invested in
illiquid securities and investing in interests in oil, gas or other minerals,
the CitiFund is not expressly subject to these restrictions.
THE PROPOSED TRANSACTION
Description of the Plan
As described above, the Plan provides that the CitiFund will receive a
distribution of investment securities from the Underlying Portfolio and that,
immediately thereafter, substantially all of the assets and liabilities of the
CitiFund will be transferred to the Smith Barney Fund. In exchange for the
transfer of those assets and liabilities, each class of the CitiFund will
receive voting shares of the corresponding class of the Smith Barney Fund
("Reorganization Shares"). Reorganization Shares of the Smith Barney Fund
received will then be distributed to the shareholders of the CitiFund in
complete liquidation of the CitiFund, and the CitiFund will be terminated.
As a result of the Reorganization, each shareholder of each class of the
CitiFund will receive that number of full and fractional shares of the
corresponding class of the Smith Barney Fund having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's shares of the
CitiFund held on the Closing Date. The Smith Barney Fund will establish an
account for each CitiFund shareholder that will reflect the number and class of
shares of the Smith Barney Fund distributed to that shareholder. The Smith
Barney Fund's shares issued in the Reorganization will be in uncertificated
form.
Until the closing of the Reorganization, shareholders of the CitiFund
will, of course, continue to be able to redeem their shares at the net asset
value next determined after receipt by the CitiFund's transfer agent of a
redemption request in proper form. Redemption requests received by the
CitiFund's transfer agent after the closing of the Reorganization will be
treated as requests received for the redemption of shares of the Smith Barney
Fund.
The obligations of the CitiFund and the Smith Barney Fund under the Plan
are subject to various conditions, as stated therein. Among other things, the
Plan requires that all filings be made with, and all authority be received
from, the Securities and Exchange Commission and state securities commissions
as may be necessary in the opinion of counsel to permit the parties to carry
out the transactions contemplated by the Plan. The CitiFund and the Smith
Barney Fund are in the process of making the necessary filings. The
Reorganization is also subject to the receipt of any necessary exemptive relief
or noaction assurances requested from the Securities and Exchange Commission or
its staff with respect to Section 17(a) of the 1940 Act.
To provide against unforeseen events, the Plan may be terminated or
amended at any time prior to the Closing Date by action of the Trustees or
directors, as applicable, of either the CitiFund or the Smith Barney Fund,
notwithstanding the approval of the Plan by the shareholders of the CitiFund.
However, no amendment may be made that materially adversely affects the
interests of the CitiFund shareholders without obtaining the approval of the
CitiFund shareholders. The CitiFund and the Smith Barney Fund may at any time
waive compliance with certain of the covenants and conditions contained in the
Plan.
Citibank and SSB Citi will assume and pay all of the expenses that are
solely and directly related to the Reorganization, which are estimated to be
approximately $93,000. Shareholders have no rights of appraisal.
Reasons for the Proposed Transaction
At a meeting of the Board of Trustees of the CitiFunds Trust held on July
13, 2000, the Trustees of the CitiFunds Trust, including a majority of the
Non-Interested Trustees, on behalf of the CitiFund, considered materials
discussing the potential benefits to the CitiFund shareholders if the CitiFund
<PAGE>
were to reorganize with and into the Smith Barney Fund. For the reasons
discussed below, the Board of Trustees of the CitiFunds Trust, including a
majority of the NonInterested Trustees, has determined that the proposed
Reorganization is in the best interests of the CitiFund and its shareholders
and that the interests of the CitiFund shareholders will not be diluted as a
result of the proposed Reorganization.
The proposed combination of the CitiFund into the Smith Barney Fund will
allow the shareholders of the CitiFund to continue to participate in a
professionally-managed portfolio governed by similar investment objectives and
policies. The Trustees of the CitiFunds Trust believe that CitiFund
shareholders will benefit from the proposed Reorganization for the following
reasons:
Compatible Investment Strategy
Both Funds employ a value-oriented approach to selecting securities.
Additionally, the same company, SSB Citi, is responsible for the day-to day
operations of each Fund, as investment manager of the Smith Barney Fund and as
subadviser of the CitiFund's underlying mutual fund. Thus, as a result of the
proposed Reorganization, the assets of the CitiFund will continue to be managed
by the same management organization, including, at least initially, the same
portfolio manager, and will continue to be invested according to the same
investment strategies currently in use.
Larger Family of Funds
The Reorganization offers CitiFund shareholders the opportunity to become
part of a larger and more diverse family of more than sixty mutual funds.
CitiFund shareholders will be able to exchange their shares among most or all
of those Smith Barney funds. In addition, the Reorganization offers CitiFund
shareholders the opportunity to invest in a family of funds that has
demonstrated ability to attract new investors. Successful marketing and
resulting fund growth, in turn, may afford investors the benefits of portfolio
diversification and economies of scale.
Economies of Scale; Fees and Expenses
Having determined that the offering of multiple funds with substantially
similar objectives and identical portfolio managers is both repetitious and
confusing, SSB Citi and Citibank believe that the combination of the Funds
which have substantially similar investment objectives and policies into a
single larger fund may increase economic and other efficiencies for investors
and may ultimately result in a lower total expense ratio. Some of the fixed
expenses currently paid by the Smith Barney Fund, such as accounting, legal and
printing costs, would be spread over a larger asset base upon the combination
of the CitiFund and Smith Barney Fund. Other things being equal, shareholders
may benefit from economies of scale through lower expense ratios and higher net
income distributions over time. SSB Citi also believes that a larger asset base
could provide portfolio-management benefits such as greater diversification and
the ability to command more attention from brokers and underwriters.
In addition, CitiFund shareholders will benefit from the lower total
annual operating expenses of the Smith Barney Fund (as determined for each
Fund's most recent fiscal year). The total annual operating expenses for Class
A and Class B shares of the Smith Barney Fund are lower than the total annual
operating of Class A and Class B shares of the CitiFund. For the Funds' most
recent fiscal years, the Smith Barney Fund's Class A and Class B expenses were
lower than those of the CitiFund's Class A and Class B shares by 0.55% and
0.53%, respectively. Even after taking into account waivers and reimbursements
by the CitiFund's service providers, which waivers and reimbursements may be
terminated at any time, the Smith Barney's Class A and Class B expenses were
0.40% and 0.38% lower than those of the corresponding classes of CitiFund
shares.
<PAGE>
Performance Results
The Smith Barney Fund has been in existence for more than 10 years. While
past performance is not necessarily indicative of future results, the Smith
Barney Fund had a cumulative total return of 206.81% for the ten-year period
ended December 31, 1999. The CitiFund is a relatively new fund that, as of its
fiscal year ended December 31, 1999, had never posted positive returns. For
more information about performance, see "The Proposed Transaction -
Performance" below.
Due to a combination of factors, including the benefits described above,
the Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
believes that the CitiFund and its shareholders would benefit from a tax-free
reorganization with the Smith Barney Fund. ACCORDINGLY, IT IS RECOMMENDED THAT
THE CITIFUND SHAREHOLDERS APPROVE THE REORGANIZATION WITH THE SMITH BARNEY
FUND.
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
in recommending the proposed transaction, considered a number of factors,
including the following:
(a) the compatibility of the CitiFund's investment objectives, policies
and restrictions with those of the acquiring Smith Barney Fund;
(b) the benefits to CitiFund shareholders of becoming shareholders of a
larger fund family with a wide array of mutual funds;
(c) the advisory, distribution, and other servicing arrangements of the
Smith Barney Fund;
(d) the tax-free nature of the Reorganization;
(e) the total annual expense ratios of the Smith Barney Fund as
compared to the CitiFund;
(f) the terms and conditions of the Reorganization and that it should
not result in a dilution of CitiFund shareholder interests;
(g) the level of costs and expenses to the CitiFund of the proposed
Reorganization; and
(h) a variety of alternatives available to the CitiFund, including
maintaining the status quo or liquidating the CitiFund.
Description of the Securities to Be Issued
The CitiFund is a diversified series of the CitiFunds Trust, which was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 13, 1984 and is registered with the Securities and
Exchange Commission as an open-end management investment company. The Smith
Barney Fund is a diversified series of Smith Barney Funds, Inc. (the "Smith
Barney Corporation"), which was incorporated in Maryland on December 2, 1966
and is registered with the Securities and Exchange Commission as an open-end
management investment company.
Each Fund currently offers Class A and Class B shares, and the Smith
Barney Fund also offers Class L and Class Y shares. Each Class of shares
represents an identical pro rata interest in the relevant Fund's investment
portfolio. As a result, the Classes of a Fund have the same rights, privileges
and preferences, except with respect to: (a) the designation of each Class; (b)
the amount of the respective sales charges, if any, for each Class; (c) the
<PAGE>
distribution and/or service fees borne by each Class; (d) the expenses
allocable exclusively to each Class; (e) voting rights on matters exclusively
affecting a single Class; (f) the exchange privilege of each Class; and (g) the
conversion feature of the Class B Shares.
Each share of each Class of a Fund represents an interest in that Class
of the Fund that is equal to and proportionate with each other share of that
Class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote.
Neither Fund is required to hold shareholder meetings annually, although
shareholder meetings may be called for purposes such as electing or removing
Trustees or Directors, as applicable, changing fundamental policies or
approving an investment management contract. Shareholders of the CitiFund have,
under certain circumstances (e.g., upon the application and submission of
certain specified documents to the Trustees by a specified number of
shareholders), the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have under certain circumstances the right to
remove one or more Trustees without a meeting by a declaration in writing by a
specified number of shareholders. The Directors of the Smith Barney Fund must
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon removal of any Director of the Smith Barney Fund when requested to
do so in writing by shareholders holding not less than 10% of the shares then
outstanding.
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by each of the Smith
Barney Fund and the CitiFund of an opinion from Bingham Dana LLP, substantially
to the effect that, based upon certain facts, assumptions and representations
of the parties, for federal income tax purposes: (i) the distribution of
investment securities from the Underlying Portfolio in redemption of the
CitiFund's interest in the Underlying Portfolio will not result in the
recognition of gain or loss; (ii) the transfer to the Smith
Barney Fund of all or substantially all of the assets of the CitiFund in
exchange solely for Reorganization Shares and the assumption by the Smith
Barney Fund of all of the liabilities of the CitiFund, followed by the
distribution of such Reorganization Shares to the shareholders of the CitiFund
in exchange for their shares of the CitiFund in complete liquidation of the
CitiFund, will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and the Smith Barney Fund and the CitiFund will each be
"a party to a reorganization" within the meaning of Section 368(b) of the Code;
(iii) no gain or loss will be recognized by the CitiFund upon the transfer of
the CitiFund's assets to the Smith Barney Fund solely in exchange for the
Reorganization Shares and the assumption by the Smith Barney Fund of
liabilities of the CitiFund or upon the distribution (whether actual or
constructive) of the Reorganization Shares to the CitiFund's shareholders in
exchange for their shares of the CitiFund; (iv) the basis of the assets of the
CitiFund in the hands of the Smith Barney Fund will be the same as the basis of
such assets in the hands of the CitiFund immediately prior to the transfer;
(v) the holding period of the assets of the CitiFund in the hands of the Smith
Barney Fund will include the period during which such assets were held by the
CitiFund; (vi) no gain or loss will be recognized by the Smith Barney Fund upon
the receipt of the assets of the CitiFund solely in exchange for Reorganization
Shares and the assumption by the Smith Barney Fund of all of the liabilities of
the CitiFund; (vii) no gain or loss will be recognized by the shareholders of
the CitiFund upon the receipt of Reorganization Shares solely in exchange for
their shares of the CitiFund as part of the transaction; (viii) the basis of
Reorganization Shares received by the shareholders of the CitiFund will be, in
the aggregate, the same as the basis, in the aggregate, of the shares of the
CitiFund exchanged therefor; and (ix) the holding period of Reorganization
Shares received by the shareholders of the CitiFund will include the holding
period during which the shares of the CitiFund exchanged therefor were held,
provided that at the time of the exchange the shares of the CitiFund were held
as capital assets in the hands of the shareholders of the CitiFund.
As described above, although the CitiFund will, immediately prior to or
on the Closing Date, distribute substantially all of its investment company
taxable income and net realized capital gain to its shareholders as one or more
taxable dividends, the Smith Barney Fund will not make such a distribution
immediately prior to or on the Closing Date. As a result, when the Smith
Barney Fund subsequently makes a similar distribution or distributions to
its shareholders, including the CitiFund shareholders who receive
Reorganization Shares of the Smith Barney Fund, those former CitiFund
shareholders will effectively be receiving a return of a portion of their
capital investment in the Smith Barney Fund (on which they may have already
paid taxes) in the form of a taxable dividend.
While the Smith Barney Fund is not aware of any adverse state or local
tax consequences of the proposed Reorganization, the Fund has not requested any
<PAGE>
ruling or opinion with respect to such consequences and shareholders may wish
to consult their own tax adviser with respect to such matters.
Liquidation and Termination of the CitiFund
If the Reorganization is effected, the CitiFund will be liquidated and
terminated, and the Fund's outstanding shares will be cancelled.
Portfolio Securities
If the Reorganization is effected, the CitiFund will redeem its interest
in its Underlying Portfolio and will receive its proportionate share of
the portfolio securities of the Underlying Portfolio. The CitiFund will then
transfer these portfolio securities to the Smith Barney Fund. If the
Reorganization is effected, SSB Citi will analyze and evaluate the portfolio
securities of the CitiFund being transferred to the Smith Barney Fund.
Consistent with the Smith Barney Fund's investment objectives and policies, any
restrictions imposed by the Code and the best interests of the Smith Barney
Fund's shareholders (including former shareholders of the CitiFund), SSB Citi
will determine whether to maintain an investment in these portfolio securities.
Subject to market conditions, the disposition of portfolio securities may
result in a capital gain or loss. The actual tax consequences of any
disposition of portfolio securities will vary depending upon the specific
securities being sold.
Portfolio Turnover
The portfolio turnover rate of Large Cap Value Portfolio, the underlying
fund in which the CitiFund invests all of its investable assets, was 74% for
the year ended October 31, 1999. The portfolio turnover rate for the Smith
Barney Fund for the fiscal year ended December 31, 1999 was 34%. Active and
frequent trading may result in the realization and distribution to a Fund of
higher capital gains, which could increase the tax liability for the Fund's
shareholders. Frequent trading also increases transaction costs, which could
detract from a Fund's performance.
Pro Forma Capitalization
Because the CitiFund will be combined in the Reorganization of the
CitiFund with the Smith Barney Fund, the total capitalization of the Smith
Barney Fund after such Reorganization is expected to be greater than the
current capitalization of the CitiFund. The following table sets forth as of
June 30, 2000: (a) the capitalization of the CitiFund and the Smith Barney
Fund, and (b) the pro forma capitalization of the Smith Barney Fund as adjusted
to give effect to the Reorganization proposed with respect to the Smith Barney
Fund. If the Reorganization is consummated, the capitalization of the CitiFund
and the Smith Barney Fund is likely to be different at the effective time of
their Reorganization as a result of daily share purchase and redemption
activity. Due to the net asset value of the CitiFund being less than ten
percent of the Smith Barney Fund's value, pro forma financial statements are
not required to be and have not been prepared for inclusion in the Statement of
Additional Information filed in connection with the Reorganization.
SHARES NET ASSET VALUE
TOTAL NET ASSETS OUTSTANDING PER SHARE
---------------------------------------------------------------------------
CITIFUNDS GROWTH &
INCOME PORTFOLIO
Class A $22,308,310 2,257,747 $9.88
Class B $754,595 76,312 $9.89
<PAGE>
SMITH BARNEY LARGE CAP
VALUE FUND
Class A $641,427,362 38,302,245 $16.75
Class B $98,481,064 5,900,205 $16.69
PRO FORMA SMITH BARNEY
LARGE CAP VALUE FUND
Class A $663,735,672 39,634,084 $16.75
Class B $99,235,659 5,954,417 $16.69
---------------------------------------------------------------------------
Performance
Performance shown below is as of December 31, 1999 and is based on
historical earnings and is not predictive of future performance. Performance
reflects reinvestment of dividends and other earnings. Performance also
reflects the highest sales charge applicable to each class of shares. For more
information about the applicable sales charges and other fund expenses, please
refer to "Overall Expenses" above. Both Funds had negative average annual total
returns for their most recent fiscal years. For that year, the performance of
the Smith Barney Fund was lower than that of the CitiFund. The table below
shows the average annual total returns for each Fund over each period
indicated.
CITIFUNDS GROWTH & SMITH BARNEY LARGE
INCOME PORTFOLIO CAP VALUE FUND
------------------------ ---------------------------
Class A Class B Class A Class B
One Year (0.59)% (1.57)%1 (5.86)% (6.31)%
Five Years n/a n/a 16.33% 16.53%
Ten Years n/a n/a 11.29% n/a
Life of Fund2 (1.06)% (1.57)% 11.22% 15.82%
Best Quarter3 12.70% (6/99) n/a 15.25% (6/97) n/a
Worst Quarter3 (11.75)% (9/99) n/a (11.76)% (9/98) n/a
1 Class B shares of the CitiFund were first offered on January 4, 1999.
2 With respect to the CitiFund, March 2, 1998 (Class A shares) and January 4,
1999 (Class B shares); with respect to the Smith Barney Fund, May 18, 1967
(Class A shares) and November 7, 1994 (Class B shares).
3 Best and Worst Quarter information does not include applicable sales
charges. Were such charges included, the performance figures would be
lower. Additionally, such information is shown for Class shares A of the
Funds only.
VOTING INFORMATION
General Information
The Board of Trustees of the CitiFund is furnishing this combined Proxy
Statement/ Prospectus in connection with the solicitation of proxies for a
Special Meeting of Shareholders of the CitiFund at which shareholders will be
asked to consider and approve the proposed Plan. It is expected that the
solicitation of proxies will be primarily by mail. Officers and service
contractors of the CitiFund and the Smith Barney Fund may also solicit proxies
<PAGE>
by telephone or otherwise. Georgeson Shareholder Communications, Inc. has been
retained to assist in the solicitation of proxies, at a cost of approximately
$7,000. Any shareholder of the CitiFund giving a proxy has the power to revoke
it by submitting a written notice of revocation to the CitiFund or by attending
the Special Meeting and voting in person. All properly executed proxies
received in time for the Special Meeting will be voted as specified in the
proxy or, if no specification is made, in favor of the proposals referred to in
the Proxy Statement.
In cases where CitiFund shareholders have purchased their shares through
Service Agents, these Service Agents are the shareholders of record of the
CitiFund. At the Special Meeting, a Service Agent may vote any shares of which
it is the holder of record and for which it does not receive voting
instructions proportionately in accordance with the instructions it receives
for all other shares of which that Service Agent is the holder of record.
Quorum; Vote Required to Approve Proposal
The holders of a majority of the outstanding shares entitled to vote of
the CitiFund present in person or by proxy shall constitute a quorum at any
meeting of shareholders for the transaction of business by the CitiFund. If the
quorum necessary to transact business or the vote required to approve the Plan
is not obtained at the Special Meeting, the persons named as proxies may
propose one or more adjournments of the Special Meeting in accordance with
applicable law to permit further solicitation of proxies. Any such adjournment
as to a matter will require the affirmative vote of the holders of a majority
of the CitiFund's shares present in person or by proxy at the Special Meeting.
The persons named as proxies will vote in favor of such adjournment those
proxies that they are entitled to vote in favor of that proposal and will vote
against any such adjournment those proxies to be voted against that proposal.
For purposes of determining the presence of a quorum for transacting
business at the Special Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but that have not been voted. Broker
non-votes are proxies received by the CitiFund from brokers or nominees when
the broker or nominee has neither received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on
a particular matter. Accordingly, shareholders are urged to forward their
voting instructions promptly.
The Plan must be approved by the vote of (a) 67% or more of the voting
securities of the Fund present at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of the CitiFund are present or
represented by proxy; or (b) more than 50% of the outstanding voting securities
of the CitiFund, whichever is less. Abstentions and broker non-votes will have
the effect of a "no" vote on the proposal to approve the Plan.
Outstanding Shareholders
Holders of record of the shares of the CitiFund at the close of business
on August 11, 2000 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of the
Special Meeting. As of August 11, 2000, there were ________ outstanding Class A
shares and ________ outstanding Class B shares entitled to vote.
Listed below are the name, address and share ownership of each person
known to the CitiFund to own 5% or more of any class of shares of the CitiFund
as of August 11, 2000. The table also indicates the percentage of the Smith
Barney Fund's shares to be owned by such persons upon consummation of the
Reorganization on the basis of present holdings and commitments.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP POST-
NAME AND ADDRESS OWNERSHIP REORGANIZATION
--------------------------------------------------------
<PAGE>
Listed below are the name, address and share ownership of each person
known to the Smith Barney Fund to own 5% or more of any class of shares of the
Smith Barney Fund as of August 11, 2000. The table also indicates the
percentage of the Smith Barney Fund's shares to be owned by such persons upon
consummation of the Reorganization on the basis of present holdings and
commitments. [**The type of ownership of each person listed below is record
ownership.**]
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP POST-
NAME AND ADDRESS OWNERSHIP REORGANIZATION
--------------------------------------------------------
[**If any shareholder beneficially owns more than 25% of the voting
securities of a Fund, note that the shareholder may be presumed to control that
Fund and provide jurisdiction of organization and list all parent companies, if
applicable.**]
As of August 11, 2000, the officers and Trustees of the CitiFund as a
group owned less than 1% of any class of the CitiFund's outstanding shares. As
of August 11, 2000, the officers and Directors of the Smith Barney Fund as a
group owned less than 1% of any class of the Smith Barney Fund's outstanding
shares.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about the CitiFund, the Smith
Barney Fund and the Reorganization has been filed with the Securities and
Exchange Commission and may be obtained without charge by writing or calling
the CitiFund, 21 Milk Street, 5th Floor, Boston, Massachusetts 02109, telephone
number (617) 423-1679, or the Smith Barney Fund, 388 Greenwich Street, New
York, New York 10013, telephone number (800) 451-2010. Information included in
this Proxy Statement/Prospectus concerning the CitiFund was provided by the
CitiFunds Trust, on behalf of the CitiFund, and information concerning the
Smith Barney Fund was provided by Smith Barney Funds, Inc., on behalf of the
Smith Barney Fund.
Each Fund files reports, proxy materials and other information about the
applicable Fund with the Securities and Exchange Commission. Such reports,
proxy material and other information can be inspected and copied at the Public
Reference Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C.
20549 at prescribed rates or without charge from the Commission at
[email protected].
OTHER MATTERS
No Trustee is aware of any matters that will be presented for action at
the Special Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
<PAGE>
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest
of the CitiFund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATeS. YOU MAY ALSO CAST YOUR VOTE
VIA THE INTERNET OR BY TELEPHONE.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ____ day of _____________, 2000, between CitiFundsSM Trust II, a
Massachusetts business trust with its principal place of business at 21 Milk
Street, Boston, Massachusetts 02109 (the "CitiFund Trust"), on behalf of its
series, CitiFunds Growth & Income Portfolio (the "CitiFund"), and Smith Barney
Funds, Inc., a Maryland corporation with its principal place of business at
388 Greenwich Street, New York, New York 10013 (the "Corporation"), on behalf
of its series, Smith Barney Large Cap Value Fund (the "Smith Barney Fund," and
together with the CitiFund, the "Funds"), and, solely for purposes of Section
10.2 below, Citibank, N.A., a national banking association ("Citibank"), and
SSB Citi Fund Management LLC, a Delaware limited liability company ("SSB
Citi").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), with respect to the
CitiFund and the Smith Barney Fund, with which the CitiFund will reorganize, as
provided herein. The reorganization will consist of the transfer of
substantially all of the assets of the CitiFund to the Corporation, on behalf
of the Smith Barney Fund, in exchange solely for voting shares of the
corresponding classes of shares of beneficial interest ($0.01 par value per
share) of the Smith Barney Fund (the "Smith Barney Fund Shares"), the
assumption by the Corporation, on behalf of the Smith Barney Fund, of all of
the liabilities of the CitiFund and the distribution of the Smith Barney Fund
Shares to the shareholders of the CitiFund in complete liquidation of the
CitiFund as provided herein, all upon the terms and conditions hereinafter set
forth in this Agreement (collectively, the "Reorganization").
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE CITIFUND TO THE SMITH BARNEY FUND IN EXCHANGE
FOR SMITH BARNEY FUND SHARES, THE ASSUMPTION OF ALL CITIFUND
LIABILITIES AND THE LIQUIDATION OF THE CITIFUND
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the CitiFund
Trust, on behalf of the CitiFund, agrees to transfer to the Smith Barney Fund
substantially all of the CitiFund's assets as set forth in section 1.2, and the
Corporation, on behalf of the Smith Barney Fund, agrees in exchange therefor
(i) to deliver to the CitiFund that number of full and fractional Class A and
Class B Smith Barney Fund Shares determined by dividing the value of the
CitiFund's net assets allocated to each class, computed in the manner and as of
the time and date set forth in section 2.1, by the net asset value of one Smith
Barney Fund Share of the applicable class, computed in the manner and as of the
time and date set forth in section 2.2; and (ii) to assume all of the
liabilities of the CitiFund, as set forth in section 1.3. Such transactions
shall take place at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the CitiFund to be acquired by the Smith Barney Fund
(collectively, "Assets") shall consist of all property and assets of every kind
and nature of the CitiFund, including, without limitation, all cash, cash
equivalents, securities, commodities, futures, claims (whether absolute or
contingent, known or unknown), receivables (including dividend, interest and
<PAGE>
other receivables), good will and other intangible property, any deferred or
prepaid expenses, and all interests, rights, privileges and powers, other than
cash in an amount necessary to pay dividends and distributions as provided in
section 1.4 hereof and the CitiFund's rights under this Agreement.
1.3. The Smith Barney Fund shall assume all liabilities of the
CitiFund, whether accrued or contingent, existing at the Valuation Time as
defined in section 2.1. The CitiFund will endeavor to discharge all of its
known liabilities and obligations prior to the Closing Date as defined in
section 3.1, other than those liabilities and obligations which would otherwise
be discharged at a later date in the ordinary course of business.
1.4. On or as soon as practicable prior to the Closing Date, the
CitiFund will declare and pay to its shareholders of record one or more
dividends and/or other distributions so that it will have distributed
substantially all of its investment company taxable income (computed without
regard to any deduction for dividends paid) and realized net capital gain, if
any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of its assets provided for in
section 1.1, the CitiFund will distribute to its shareholders of record (the
"CitiFund Shareholders"), determined as of the Valuation Time as defined in
section 2.1, on a pro rata basis, the Smith Barney Fund Shares received by the
CitiFund pursuant to section 1.1 and will completely liquidate. Such
distribution and liquidation will be accomplished by the transfer of the Smith
Barney Fund Shares then credited to the account of the CitiFund on the books of
the Smith Barney Fund to open accounts on the share records of the Smith Barney
Fund in the names of the CitiFund Shareholders. The aggregate net asset value
of each class of Smith Barney Fund Shares to be so credited to CitiFund
Shareholders shall be equal to the aggregate net asset value of the
corresponding class of shares of the CitiFund (the "CitiFund Shares") owned by
such shareholders as of the Valuation Time. All issued and outstanding shares
of the CitiFund will simultaneously be cancelled on the books of the CitiFund.
The Smith Barney Fund will not issue certificates representing Smith Barney
Fund Shares in connection with such exchange.
1.6. Ownership of Smith Barney Fund Shares will be shown on the Smith
Barney Fund's books. Shares of the Smith Barney Fund will be issued in the
manner described in the Smith Barney Fund's then-current prospectus and
statement of additional information.
1.7. Any reporting responsibility of the CitiFund, including, without
limitation, the responsibility for filing of regulatory reports, tax returns or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain the
responsibility of the CitiFund.
1.8. All books and records of the CitiFund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Smith Barney Fund from and after the Closing Date and shall be
turned over to the Smith Barney Fund as soon as practicable following the
Closing Date.
2. VALUATION
2.1. The value of the net assets of each class of the CitiFund shall be
computed as of the close of regular trading on the New York Stock Exchange,
Inc. ("NYSE") on the Closing Date (such time and date also being hereinafter
called the "Valuation Time"), after the declaration and payment of any
<PAGE>
dividends and/or other distributions on that date, using the valuation
procedures described in the Smith Barney Fund's then-current prospectus and
statement of additional information.
2.2. The net asset value of a Class A Smith Barney Fund Share shall be
the net asset value of a Class A share of the Smith Barney Fund computed as of
the Valuation Time using the valuation procedures set forth in the Smith Barney
Fund's then-current prospectus and statement of additional information. The net
asset value of a Class B Smith Barney Fund Share shall be the net asset value
of a Class B share of the Smith Barney Fund computed as of the Valuation Time
using the valuation procedures set forth in the Smith Barney Fund's
then-current prospectus and statement of additional information.
2.3. The number of Class A and Class B Smith Barney Fund Shares to be
issued (including fractional shares, if any) in exchange for the Assets of the
CitiFund, less the value of the liabilities of the CitiFund assumed, shall be
determined by dividing the value of the Assets allocated to each class of the
CitiFund less the value of the liabilities allocated to that class of the
CitiFund as determined in accordance with section 2.1, by the net asset value
of a Smith Barney Fund Share of the corresponding class determined in
accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's investment adviser in accordance with its regular
practice and the requirements of the 1940 Act, and shall be subject to
confirmation by each Fund's Board of Trustees or Directors and independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the Reorganization contemplated by this Agreement
shall be _______ ___, 2000, or such earlier or later date as the parties may
agree in writing (the "Closing Date"). All acts taking place at the Closing
shall be deemed to take place simultaneously as of 4:00 P.M., Eastern time, on
the Closing Date, unless otherwise agreed to by the parties. The Closing shall
be held at the [**New York offices of Bingham Dana LLP**] or at such other
place and time as the parties may agree.
3.2. The CitiFund Trust shall furnish to the Corporation a statement of
the CitiFund's net assets, together with a list of portfolio holdings with
values as determined in section 2.1, all as of the Valuation Time, certified by
the CitiFund Trust's President (or any Vice President) and Treasurer (or any
Assistant Treasurer).
3.3. State Street Bank and Trust Company ("State Street"), as custodian
for the CitiFund, shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets of the CitiFund have been delivered in
proper form to PNC Bank, National Association ("PNC Bank"), custodian for the
Smith Barney Fund, prior to or on the Closing Date and (b) all necessary taxes
in connection with the delivery of such Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or provision
for payment has been made. The CitiFund's portfolio securities represented by a
certificate or other written instrument shall be presented by State Street to
PNC Bank for examination no later than five business days preceding the Closing
Date and transferred and delivered by the CitiFund as of the Closing Date for
the account of the Smith Barney Fund duly endorsed in proper form for transfer
in such condition as to constitute good delivery thereof. The CitiFund's
portfolio securities and instruments deposited with a securities depository, as
<PAGE>
defined in Rule 17f4 under the 1940 Act, shall be delivered as of the Closing
Date by book entry in accordance with the customary practices of such
depositories and State Street. The cash to be transferred by the CitiFund shall
be delivered by wire transfer of federal funds on the Closing Date.
3.4. State Street, as transfer agent of the CitiFund, on behalf of the
CitiFund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the CitiFund
Shareholders and the number and percentage ownership (to three decimal places)
of outstanding CitiFund Shares of each class owned by each such shareholder
immediately prior to the Closing. The Smith Barney Fund shall issue and deliver
a confirmation evidencing the Smith Barney Fund Shares of each class to be
credited on the Closing Date to the CitiFund or provide evidence satisfactory
to the CitiFund that such Smith Barney Fund Shares have been credited to the
CitiFund's account on the books of the Smith Barney Fund.
3.5. In the event that immediately prior to the Valuation Time (a) the
NYSE or another primary trading market for portfolio securities of the Smith
Barney Fund or the CitiFund shall be closed to trading or trading thereupon
shall be restricted, or (b) trading or the reporting of trading on the NYSE or
elsewhere shall be disrupted so that, in the judgment of the Board of Trustees
of the CitiFund Trust or the Board of Directors of the Corporation, accurate
appraisal of the value of the net assets with respect to the Smith Barney Fund
Shares or the CitiFund Shares is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
3.6. At the Closing, each party shall deliver to the other such bills
of sale, checks, assumption agreements, assignments, share certificates, if
any, receipts or other documents as such other party or its counsel may
reasonably request to effect the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. The CitiFund Trust, on behalf of itself and the CitiFund,
represents and warrants to the Corporation and the Smith Barney Fund as
follows:
(a) The CitiFund Trust is a business trust duly established and
validly existing under the laws of the Commonwealth of Massachusetts
with power under its Declaration of Trust to own all of its properties
and assets and to carry on its business as it is now being conducted.
The CitiFund has been duly established as a series of the CitiFund
Trust;
(b) The CitiFund Trust is registered with the Commission as an
openend management investment company under the 1940 Act, and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by the
CitiFund Trust, on behalf of the CitiFund, of the transactions
contemplated herein, except such as may be required under the
Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934 (the "1934 Act"), the 1940 Act, and state
securities laws;
(d) Other than with respect to contracts entered into in
connection with the portfolio management of the CitiFund which shall
terminate on or prior to the Closing Date, the CitiFund is not, and the
<PAGE>
execution, delivery and performance of this Agreement by the CitiFund
Trust on behalf of the CitiFund will not result, in violation of
Massachusetts law or of the CitiFund Trust's Declaration of Trust or
By-Laws, or of any material agreement, indenture, instrument, contract,
lease or other undertaking known to counsel to which the CitiFund is a
party or by which it is bound, and the execution, delivery and
performance of this Agreement by the CitiFund Trust on behalf of the
CitiFund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the CitiFund is a party or
by which it is bound;
(e) To the CitiFund Trust's knowledge, there is no material
litigation or administrative proceeding or investigation of or before
any court or governmental body presently pending or threatened against
the CitiFund or any properties or assets held by it. The CitiFund Trust
knows of no facts which might form the basis for the institution of
such proceedings or which would materially and adversely affect its
business or the business of the CitiFund, and is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects its or the
CitiFund's business or its or the CitiFund's ability to consummate the
transactions herein contemplated;
(f) The financial statements of the CitiFund at and for the year
ended October 31, 1999 have been audited by PricewaterhouseCoopers LLP,
independent certified public accountants, and are in accordance with
generally accepted accounting principles ("GAAP") consistently applied.
The financial statements of the CitiFund at and for the six-month
period ended April 30, 2000, which are unaudited, are in accordance
with GAAP consistently applied. All of such statements (copies of which
have been furnished to the Smith Barney Fund) present fairly, in all
material respects, the financial position, results of operations,
changes in net assets and financial highlights of the CitiFund as of
the dates thereof in accordance with GAAP, and there are no known
contingent liabilities of the CitiFund required to be reflected on a
statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such dates not disclosed therein;
(g) Since April 30, 2000, there has not been any material
adverse change in the CitiFund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the CitiFund of indebtedness
maturing more than one year from the date such indebtedness was
incurred except as otherwise disclosed to and accepted in writing by
the Smith Barney Fund. For purposes of this subsection (g), a decline
in net asset value per share of the CitiFund due to declines in market
values of securities in the CitiFund's portfolio, the discharge of
CitiFund liabilities, or the redemption of CitiFund Shares by CitiFund
Shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and
other tax returns and reports of the CitiFund required by law to have
been filed by such dates (including any extensions) have or shall have
been filed and are or will be correct in all material respects, and all
federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have
been made for the payment thereof, and, to the best of the CitiFund
Trust's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
<PAGE>
(i) For each taxable year of its operation, the CitiFund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, and
has been eligible to and has computed its federal income tax under
Section 852 of the Code. At Closing, the CitiFund will have distributed
all of its investment company taxable income and net capital gain (as
defined in the Code) that has accrued up to the Closing Date;
(j) All issued and outstanding shares of the CitiFund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws, (ii) are, and
on the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable, and (iii) will be held at the time of the
Closing by the persons and in the amounts set forth in the records of
the CitiFund's transfer agent, as provided in section 3.3. There are no
outstanding options, warrants or other rights to subscribe for or
purchase any CitiFund Shares, nor is there outstanding any security
convertible into any CitiFund Share;
(k) At the Closing Date, the CitiFund Trust, on behalf of the
CitiFund, will have good and marketable title to the CitiFund's Assets
and full right, power and authority to sell, assign, transfer and
deliver such Assets hereunder free of any liens or other encumbrances,
except those liens or encumbrances as to which the Corporation, on
behalf of the Smith Barney Fund, has received notice at or prior to the
Closing, and upon delivery and payment for such Assets, the Smith
Barney Fund will acquire good and marketable title thereto, subject to
no restrictions on the full transfer thereof, except those restrictions
as to which the Smith Barney Fund has received notice and necessary
documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all
necessary action on the part of the Trustees of the CitiFund Trust,
and, subject to the approval of the CitiFund Shareholders, this
Agreement constitutes a valid and binding obligation of the CitiFund
Trust, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general principles of equity;
(m) The information to be furnished by the CitiFund Trust for
use in applications for orders, registration statements or proxy
materials or for use in any other document filed or to be filed with
any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be
necessary or appropriate in connection with the transactions
contemplated hereby, shall be accurate and complete in all material
respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional
information of the CitiFund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder, and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading; and
<PAGE>
(o) The proxy statement of the CitiFund to be included in the
Registration Statement referred to in section 5.6 (the "Proxy
Statement"), insofar as it relates to the CitiFund, will, on the
effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements are made, not materially misleading; provided, however, that
the representations and warranties in this section shall not apply to
statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with
information that was furnished or should have been furnished by the
Corporation for use therein.
4.2. The Corporation, on behalf of itself and the Smith Barney Fund,
represents and warrants to the CitiFund Trust and the CitiFund as follows:
(a) The Corporation is a corporation duly formed and validly
existing under the laws of the State of Maryland with power under its
Articles of Incorporation to own all of its properties and assets and
to carry on its business as it is now being conducted. The Smith Barney
Fund has been duly established as a series of the Corporation;
(b) The Corporation is registered with the Commission as an
openend management investment company under the 1940 Act, and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by the
Corporation, on behalf of the Smith Barney Fund, of the transactions
contemplated herein, except such as may be required under the 1933 Act,
the 1934 Act, the 1940 Act, and state securities laws;
(d) The Smith Barney Fund is not, and the execution, delivery
and performance of this Agreement by the Corporation on behalf of the
Smith Barney Fund will not result, in violation of Maryland law or of
the Corporation's Articles of Incorporation or By-Laws, or of any
material agreement, indenture, instrument, contract, lease or other
undertaking known to counsel to which the Smith Barney Fund is a party
or by which it is bound, and the execution, delivery and performance of
this Agreement by the Corporation on behalf of the Smith Barney Fund
will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Smith Barney Fund is a
party or by which it is bound;
(e) To the Corporation's knowledge, there is no material
litigation or administrative proceeding or investigation of or before
any court or governmental body presently pending or threatened against
the Smith Barney Fund or any properties or assets held by it. The
Corporation knows of no facts which might form the basis for the
institution of such proceedings or which would materially and adversely
affect its business or the business of the Smith Barney Fund, and is
not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its or the Smith Barney Fund's business or its or the
Smith Barney Fund's ability to consummate the transactions herein
contemplated;
<PAGE>
(f) The financial statements of the Smith Barney Fund at and for
the year ended December 31, 1999 have been audited by KPMG LLP,
independent certified public accountants, and are in accordance with
GAAP consistently applied. All such statements (copies of which have
been furnished to the CitiFund) present fairly, in all material
respects, the financial position, results of operations, changes in net
assets and financial highlights of the Smith Barney Fund as of such
date in accordance with GAAP, and there are no known contingent
liabilities of the Smith Barney Fund required to be reflected on a
statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since December 31, 1999, there has not been any material
adverse change in the Smith Barney Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Smith Barney Fund of
indebtedness maturing more than one year from the date such
indebtedness was incurred except as otherwise disclosed to and accepted
in writing by the CitiFund. For purposes of this subsection (g), a
decline in net asset value per share of the Smith Barney Fund due to
declines in market values of securities in the Smith Barney Fund's
portfolio, the discharge of Smith Barney Fund liabilities, or the
redemption of Smith Barney Fund Shares by Smith Barney Fund
Shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and
other tax returns and reports of the Smith Barney Fund required by law
to have been filed by such dates (including any extensions) have or
shall have been filed and are or will be correct in all material
respects, and all federal and other taxes shown as due or required to
be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the
best of the Corporation's knowledge, no such return is currently under
audit and no assessment has been asserted with respect to such returns;
(i) For each taxable year of its operation, the Smith Barney
Fund has met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has elected to be
treated as such, has been eligible to and has computed its federal
income tax under Section 852 of the Code, and will do so for the
taxable year including the Closing Date. At Closing, the Smith Barney
Fund will have distributed all of its investment company taxable income
and net capital gain (as defined in the Code) that has accrued up to
the Closing Date;
(j) All issued and outstanding shares of the Smith Barney Fund
(i) have been offered and sold in every state and the District of
Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws,
and (ii) are, and on the Closing Date will be, duly and validly issued
and outstanding, fully paid and non-assessable. There are no
outstanding options, warrants or other rights to subscribe for or
purchase any Smith Barney Fund Shares, nor is there outstanding any
security convertible into any Smith Barney Fund Share. The Smith Barney
Fund Shares to be issued and delivered to the CitiFund for the account
of the CitiFund Shareholders pursuant to the terms of this Agreement,
at the Closing Date, will have been duly authorized and, when so issued
and delivered, will be duly and validly issued and outstanding Smith
Barney Fund Shares, and will be fully paid and non-assessable;
<PAGE>
(k) At the Closing Date, the Corporation, on behalf of the Smith
Barney Fund, will have good and marketable title to the Smith Barney
Fund's assets, free of any liens or other encumbrances, except those
liens or encumbrances as to which the CitiFund Trust, on behalf of the
CitiFund, has received notice at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all
necessary action on the part of the Directors of the Corporation, and
this Agreement will constitute a valid and binding obligation of the
Corporation, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general principles of equity;
(m) The information to be furnished by the Corporation for use
in applications for orders, registration statements or proxy materials
or for use in any other document filed or to be filed with any federal,
state or local regulatory authority (including the National Association
of Securities Dealers, Inc.), which may be necessary or appropriate in
connection with the transactions contemplated hereby, shall be accurate
and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations
applicable thereto;
(n) The current prospectus and statement of additional
information of the Smith Barney Fund conform in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder, and do not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading; and
(o) The Proxy Statement, insofar as it relates to the Smith
Barney Fund, and the Registration Statement will, on the effective date
of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not materially misleading; provided, however, that the
representations and warranties in this section shall not apply to
statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with
information that was furnished or should have been furnished by the
CitiFund Trust for use therein.
5. COVENANTS
5.1. Each Fund covenants to operate its business in the ordinary course
between the date hereof and the Closing Date, it being understood that (a) such
ordinary course of business will include (i) the declaration and payment of
customary dividends and other distributions and (ii) such changes as are
contemplated by the Funds' normal operations; and (b) each Fund shall retain
exclusive control of the composition of its portfolio until the Closing Date.
5.2. Upon reasonable notice, the Smith Barney Fund's officers and
agents shall have reasonable access to the CitiFund's books and records
<PAGE>
necessary to maintain current knowledge of the CitiFund and to ensure that the
representations and warranties made by the CitiFund are accurate.
5.3. The CitiFund Trust and the CitiFund covenant to call a meeting of
the shareholders of the CitiFund to consider and act upon this Agreement and to
take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than ___________, 2000 (or such other date as the parties may agree to in
writing).
5.4. The CitiFund Trust and the CitiFund covenant that the Smith Barney
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof other than in accordance with the terms of this
Agreement.
5.5. Subject to the provisions of this Agreement, the parties hereto
will each take, or cause to be taken, all actions, and do or cause to be done,
all things reasonably necessary, proper, and/or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6. The Corporation will file a Registration Statement on Form N14
(the "Registration Statement") under the 1933 Act, and the CitiFund Trust will
file the Proxy Statement contained therein, in connection with the meeting of
CitiFund Shareholders to consider approval of this Agreement and the
transactions contemplated herein, with the Commission as promptly as
practicable. The CitiFund Trust and the CitiFund will provide the Smith Barney
Fund with information relating to it that is required by the 1933 Act, the 1934
Act and the 1940 Act to be included in the Registration Statement, including
the Proxy Statement.
5.7. Each of the CitiFund Trust and the CitiFund covenants that it
will, from time to time, as and when reasonably requested by the Corporation,
execute and deliver or cause to be executed and delivered all such assignments
and other instruments, and will take or cause to be taken such further action,
as the Corporation may reasonably deem necessary or desirable in order to vest
in and confirm the Corporation title to and possession of the Assets and
otherwise to carry out the intent and purpose of this Agreement.
5.8. Each of the Corporation and the Smith Barney Fund covenants that
it will, from time to time, as and when reasonably requested by the CitiFund
Trust, execute and deliver or cause to be executed and delivered all such
assignments, assumption agreements, releases and other instruments, and will
take or cause to be taken such further action, as the CitiFund Trust may
reasonably deem necessary or desirable in order to (i) vest and confirm to the
CitiFund Trust's title to and possession of all Smith Barney Fund Shares to be
transferred to the CitiFund pursuant to this Agreement and (ii) assume the
assumed liabilities of the CitiFund.
5.9. The CitiFund Trust, the Corporation and each Fund covenant to use
all reasonable efforts to obtain the approvals and authorizations required by
the 1933 Act, the 1940 Act and such of the state securities laws as it deems
appropriate in order to consummate the transactions contemplated herein and, in
the case of the Smith Barney Fund, to continue its operations after the Closing
Date.
5.10. As soon as reasonably practicable after the Closing, the CitiFund
shall make a liquidating distribution to its shareholders consisting of the
Smith Barney Fund Shares received at the Closing.
<PAGE>
5.11. Each of the Smith Barney Fund and the CitiFund shall use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CITIFUND TRUST
The obligations of the CitiFund Trust and the CitiFund to consummate
the transactions provided for herein shall be subject, at the CitiFund Trust's
election, to the performance by the Corporation and the Smith Barney Fund of
all the obligations to be performed by them hereunder on or before the Closing
Date, and, in addition thereto, the following further conditions:
6.1. All representations and warranties of the Corporation, on behalf
of itself and the Smith Barney Fund, contained in this Agreement shall be true
and correct in all material respects as of the date hereof and as of the
Closing Date, with the same force and effect as if made on and as of the
Closing Date; and there shall be (i) no pending or threatened litigation
brought by any person against the Corporation or the Smith Barney Fund, the
CitiFund Trust or the CitiFund, or the advisers, trustees or officers of any of
the foregoing, arising out of this Agreement and (ii) no facts known to the
CitiFund Trust or the CitiFund, or the Corporation or the Smith Barney Fund,
which any of such persons reasonably believes might result in such litigation.
6.2. The Corporation shall have delivered to the CitiFund Trust on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the CitiFund Trust and dated as
of the Closing Date, to the effect that the representations and warranties of
the Corporation and the Smith Barney Fund made in this Agreement are true and
correct on and as of the Closing Date and as to such other matters as the
CitiFund Trust shall reasonably request.
6.3. The CitiFund Trust shall have received on the Closing Date an
opinion of Willkie Farr & Gallagher, in a form reasonably satisfactory to the
CitiFund Trust, and dated as of the Closing Date, to the effect that:
(a) the Corporation has been duly formed and is a validly
existing Maryland corporation, and the Smith Barney Fund has been duly
established as a series of the Corporation;
(b) the Corporation, with respect to the Smith Barney Fund, has
the power as a Maryland corporation to carry on its business as
presently conducted in accordance with the description thereof in the
Corporation's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and
delivered by the Corporation, and constitutes a valid and legally
binding obligation of the Corporation, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, marshaling, or other laws and rules of law
affecting the enforcement generally of creditors' rights and remedies
(including such as may deny giving effect to waivers of debtors' or
guarantors' rights), and considerations of public policy.
(d) the execution and delivery of the Agreement did not, and the
exchange of the CitiFund's assets for Smith Barney Fund Shares pursuant
<PAGE>
to the Agreement will not, violate the Corporation's Articles of
Incorporation or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the Corporation under the Federal laws of the United States or the laws
of the State of Maryland for the exchange of the CitiFund's assets for
Smith Barney Fund Shares pursuant to the Agreement have been obtained
or made.
Such opinion may state that it is solely for the benefit of the CitiFund Trust,
its Trustees and its officers, and counsel may rely as to matters governed by
the laws of the State of Maryland on an opinion of Maryland counsel. Such
opinion also shall include such other matters incident to the transaction
contemplated hereby as the CitiFund Trust may reasonably request.
6.4. The Corporation and the Smith Barney Fund shall have performed all
of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by them on or before the Closing
Date.
6.5. The Corporation, on behalf of the Smith Barney Fund, shall have
executed and delivered an assumption agreement in form reasonably satisfactory
to the CitiFund Trust pursuant to which the Corporation, on behalf of the Smith
Barney Fund, will assume all of the liabilities of the CitiFund existing at the
Valuation Time.
6.6. An endorsement to the CitiFund Trust's existing errors and
omissions, and directors and officers liability insurance policy, or other
evidence of insurance, satisfactory in all respects to the CitiFund Trust's
Board of Trustees shall have been obtained at no cost to the CitiFund Trust or
the CitiFund and shall be in full force and effect.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CORPORATION
The obligations of the Corporation and the Smith Barney Fund to
consummate the transactions provided for herein shall be subject, at the
Corporation's election, to the performance by the CitiFund Trust and the
CitiFund of all of the obligations to be performed by them hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the CitiFund Trust, on
behalf of itself and the CitiFund, contained in this Agreement shall be true
and correct in all material respects as of the date hereof and as of the
Closing Date, with the same force and effect as if made on and as of the
Closing Date; and there shall be (i) no pending or threatened litigation
brought by any person against the CitiFund Trust or the CitiFund, the
Corporation or the Smith Barney Fund, or the advisers, trustees or officers of
any of the foregoing, arising out of this Agreement and (ii) no facts known to
the Corporation or the Smith Barney Fund, or the CitiFund Trust or the
CitiFund, which any of such persons reasonably believes might result in such
litigation.
7.2. The CitiFund Trust shall have delivered to the Corporation the
statements of net assets described in section 3.2.
7.3. The CitiFund Trust shall have delivered to the Corporation on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Corporation and dated as of
<PAGE>
the Closing Date, to the effect that the representations and warranties of the
CitiFund Trust and the CitiFund made in this Agreement are true and correct on
and as of the Closing Date and as to such other matters as the Corporation
shall reasonably request.
7.4. The Corporation shall have received on the Closing Date an opinion
of Bingham Dana LLP, in a form reasonably satisfactory to the Corporation, and
dated as of the Closing Date, to the effect that:
(a) The CitiFund Trust, with respect to the CitiFund, Trust has
been duly established as a voluntary association with transferable
shares of beneficial interest commonly referred to as a Massachusetts
business trust and is existing under the laws of the Commonwealth of
Massachusetts, and the CitiFund has been duly designated as a series of
the CitiFund Trust;
(b) The CitiFund Trust, with respect to the CitiFund, has the
power to carry on its business as presently conducted in accordance
with the description thereof in the CitiFund Trust's registration
statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and
delivered by the CitiFund Trust, and constitutes a valid and legally
binding obligation of the CitiFund Trust, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, marshaling, or other laws and
rules of law affecting the enforcement generally of creditors' rights
and remedies (including such as may deny giving effect to waivers of
debtors' or guarantors' rights), and considerations of public policy;
(d) the execution and delivery of the Agreement did not, and the
exchange of the CitiFund's assets for Smith Barney Fund Shares pursuant
to the Agreement will not, violate the CitiFund Trust's Declaration of
Trust or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by
the CitiFund Trust under the Federal laws of the United States or the
laws of the Commonwealth of Massachusetts for the exchange of the
CitiFund's assets for Smith Barney Fund Shares pursuant to the
Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of the Corporation,
its Directors and its officers. Such opinion also shall include such other
matters incident to the transaction contemplated hereby as the Corporation may
reasonably request.
7.5. The CitiFund Trust and the CitiFund shall have performed all of
the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by them on or before the Closing
Date.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below have not been met on or before
the Closing Date, either party to this Agreement shall, at its option, not be
required to consummate the Reorganization of the Funds contemplated by this
Agreement.
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the CitiFund in accordance with the provisions of the CitiFund Trust's
<PAGE>
Declaration of Trust and By-Laws, applicable Massachusetts law and the 1940
Act, and certified copies of the resolutions evidencing such approval shall
have been delivered to the Smith Barney Fund. Notwithstanding anything herein
to the contrary, neither party may waive the condition set forth in this
section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to either party's knowledge threatened before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
material damages or other relief in connection with, this Agreement or the
transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Corporation and the Smith Barney Fund or the CitiFund Trust and the
CitiFund to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the assets or properties of the Smith Barney Fund or the
CitiFund.
8.4. The Registration Statement shall have become effective under the
1933 Act and applicable Blue Sky provisions, and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5. The CitiFund Trust and the Corporation shall have received an
order from the Commission exempting the Reorganizations from the provisions of
Section 17(a) of the 1940 Act or a "no-action" letter from the staff of the
Commission to the effect that the staff will not recommend that the Commission
take enforcement action under Section 17(a) of the 1940 Act if the parties
hereto proceed with the transactions described herein.
8.6. The parties shall have received an opinion of Bingham Dana LLP
addressed to the CitiFund Trust, the CitiFund, the Corporation and the Smith
Barney Fund substantially to the effect that, based upon certain facts,
assumptions and representations, for Federal income tax purposes: (i) the
transfer to the Smith Barney Fund of all or substantially all of the assets of
the CitiFund in exchange solely for Smith Barney Fund Shares and the assumption
by the Smith Barney Fund of all of the liabilities of the CitiFund, followed by
the distribution of the Smith Barney Fund Shares to CitiFund Shareholders in
exchange for their shares of the CitiFund in complete liquidation of the
CitiFund, will constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code, and the Smith Barney Fund and the CitiFund will each be
"a party to a reorganization" within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the CitiFund upon the transfer of
the CitiFund's assets to the Smith Barney Fund solely in exchange for the Smith
Barney Fund Shares and the assumption by the Smith Barney Fund of liabilities
of the CitiFund or upon the distribution (whether actual or constructive) of
the Smith Barney Fund Shares to the CitiFund's shareholders in exchange for
their shares of the CitiFund; (iii) the basis of the assets of the CitiFund in
the hands of the Smith Barney Fund will be the same as the basis of such assets
in the hands of the CitiFund immediately prior to the transfer; (iv) the
holding period of the assets of the CitiFund in the hands of the Smith Barney
Fund will include the period during which such assets were held by the
CitiFund; (v) no gain or loss will be recognized by the Smith Barney Fund upon
<PAGE>
the receipt of the assets of the CitiFund solely in exchange for Smith Barney
Fund Shares and the assumption by the Smith Barney Fund of all of the
liabilities of the CitiFund; (vi) no gain or loss will be recognized by the
shareholders of the CitiFund upon the receipt of Smith Barney Fund Shares
solely in exchange for their shares of the CitiFund as part of the transaction;
(vii) the basis of Smith Barney Fund Shares received by the shareholders of the
CitiFund will be, in the aggregate, the same as the basis, in the aggregate, of
the shares of the CitiFund exchanged therefor; and (viii) the holding period of
Smith Barney Fund Shares received by the shareholders of the CitiFund will
include the holding period during which the shares of the CitiFund exchanged
therefor were held, provided that at the time of the exchange the shares of the
CitiFund were held as capital assets in the hands of the shareholders of the
CitiFund. The delivery of such opinion is conditioned upon receipt by Bingham
Dana LLP of representations it shall request of each Fund. Notwithstanding
anything herein to the contrary, neither party may waive the condition set
forth in this section 8.6.
9. INDEMNIFICATION
9.1. The Corporation agrees to indemnify and hold harmless the CitiFund
Trust, its Trustees and its officers from and against any and all losses,
claims, damages, liabilities or expenses (including, without limitation, the
payment of reasonable legal fees and reasonable costs of investigation) to
which any such indemnified party may become subject, insofar as any such loss,
claim, damage, liability or expense (or actions with respect thereto) arises
out of or is based on any breach by the Corporation or the Smith Barney Fund of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
9.2. The CitiFund Trust agrees to indemnify and hold harmless the
Corporation, its Directors and its officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which any such indemnified party may become subject, insofar
as any such loss, claim, damage, liability or expense (or actions with respect
thereto) arises out of or is based on any breach by the CitiFund Trust or the
CitiFund of any of its representations, warranties, covenants or agreements set
forth in this Agreement.
10. FEES AND EXPENSES
10.1. The Corporation and the CitiFund Trust each represents and
warrants to the other that it has no obligations to pay any brokers or finders
fees in connection with the transactions provided for herein.
10.2. Expenses of the Reorganization will be borne equally by Citibank
and SSB Citi.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The parties agree that neither party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this
section 11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall not survive the consummation of the transactions contemplated
hereunder.
The covenants to be performed after the Closing and the obligations of
each of the CitiFunds Trust, on behalf of the CitiFunds Trust, on behalf of the
CitiFund, and the Corporation, on behalf of the Smith Barney Fund, in sections
11.2 and 11.2 shall survive the Closing.
<PAGE>
12. TERMINATION
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the parties,
(ii) by either party if the Closing shall not have occurred on or before
January 1, 2001, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and
intentional misrepresentation herein or in connection herewith. In the event of
any such termination, this Agreement shall become void and there shall be no
liability hereunder on the part of any party or their respective directors,
trustees or officers, except for any such material breach or intentional
misrepresentation, as to each of which all remedies at law or in equity of the
party adversely affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
CitiFund Trust and the Corporation; provided, however, that following the
meeting of CitiFund Shareholders called by the CitiFund pursuant to section 5.3
of this Agreement, no such amendment may have the effect of reducing the number
of the Smith Barney Fund Shares to be issued to the shareholders of the
CitiFund under this Agreement to the detriment of such shareholders without
their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
CitiFund Trust or the CitiFund, c/o CitiFunds Trust II, 21 Milk Street, 5th
Floor, Boston, Massachusetts 02109, with a copy to Bingham Dana LLP, 150
Federal Street, Boston, Massachusetts 02110, Attention: Roger P. Joseph, Esq.,
or to the Corporation or the Smith Barney Fund, c/o Smith Barney Funds, Inc.,
388 Greenwich Street, New York, New York 10013, with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, N.Y. 10019-6099, Attn.: Burton M.
Leibert, Esq., or to any other address that the CitiFund Trust or the
Corporation shall have last designated by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation (including the shareholders of any Fund) any rights or
remedies under or by reason of this Agreement, other than the parties hereto
<PAGE>
and their successor and permitted assigns. Nothing in this section is intended
to limit the rights of shareholders of the CitiFund Trust to maintain
derivative actions with respect to this Agreement, subject to and in accordance
with applicable law.
15.4. This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the Commonwealth of Massachusetts, without
regard to its principles of conflicts of laws.
15.5 The CitiFund Trust is a business trust organized under
Massachusetts law and under a Declaration of Trust, to which reference is
hereby made and a copy of which, with amendments, is on file with the Secretary
of the Commonwealth of Massachusetts and elsewhere as required by law. It is
expressly acknowledged and agreed that the obligations of CitiFunds Trust II
entered into the name or on behalf of the CitiFund Trust by any of its
Trustees, officers, employees or agents are not made individually, but in such
capacities, that the CitiFund Trust's obligations under this Agreement bind
only that portion of the trust estate consisting of assets of the CitiFund and
not any Trustee, officer, employee, agent or shareholder individually, and that
any liability of the CitiFund Trust under this Agreement or in connection with
the transactions contemplated herein shall be discharged only out of the assets
of the CitiFund.
[Signatures follow]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or Vice President and attested by its
Secretary or Assistant Secretary.
CITIFUNDS TRUST II
on behalf of CitiFunds Growth & Income Portfolio
By:______________________________
Name:
Title:
SMITH BARNEY FUNDS, INC.
on behalf of Smith Barney Large Cap Value Fund
By:______________________________
Name:
Title:
Soley for purposes of Section 10.2:
CITIBANK, N.A.
By:______________________________
Name:
Title:
SSB CITI FUND MANAGEMENT LLC
By:______________________________
Name:
Title:
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY LARGE CAP VALUE FUND (THE "SMITH BARNEY FUND"), A SERIES
OF SMITH BARNEY FUNDS, INC. (the "CORPORATION")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
CITIFUNDS GROWTH & INCOME PORTFOLIO (THE "CITIFUND"), A SERIES OF
CITIFUNDS TRUST II ("CITIFUNDS TRUST").
21 Milk Street, 5th Floor
Boston, MA 02109
Dated: August 16, 2000
This Statement of Additional Information is not a prospectus. A Proxy
Statement/ Prospectus, dated August 16, 2000, relating to the above-referenced
matter may be obtained without charge by calling or writing the Smith Barney
Fund at the telephone number or address set forth above. This Statement of
Additional Information should be read in conjunction with the Proxy
Statement/Prospectus. Each of the following documents accompanies this
Statement of Additional Information and is incorporated herein by reference:
1. Prospectus and Statement of Additional Information for the Smith
Barney Fund, dated April 28, 2000.
2. Prospectus and Statement of Additional Information for the
CitiFund, dated March 1, 2000.
3. Annual Report for the Smith Barney Fund for the year ended December
31, 1999.
4. Annual Report of the CitiFund for the year ended October 31, 1999
and Semi-Annual Report of the CitiFund for the six-month period
ended April 30, 2000.
GENERAL INFORMATION
This Statement of Additional Information relates to the proposed transfer
of substantially all of the assets and liabilities of the CitiFund to the
Corporation, on behalf of Smith Barney Fund, in exchange for shares of the
Smith Barney Fund (the "Reorganization"). The shares issued by the Smith Barney
Fund will have an aggregate net asset value equal to the aggregate net asset
value of the shares of the CitiFund that were outstanding immediately before
the effective time of the Reorganization.
After the transfer of substantially all of its assets and liabilities in
exchange for the Smith Barney Fund shares, the CitiFund will distribute such
shares to its shareholders in liquidation of the CitiFund. Each shareholder
<PAGE>
owning shares of the CitiFund at the effective time of the Reorganization will
receive shares of the corresponding class from the Smith Barney Fund of equal
value, and will receive any unpaid dividends or distributions that were
declared before the effective time of the Reorganization on shares of the
CitiFund. The Smith Barney Fund will establish an account for each former
shareholder of the CitiFund reflecting the appropriate number of shares
distributed to such shareholder. These accounts will be substantially identical
to the accounts maintained by the CitiFund for each shareholder. Upon
completion of the Reorganization with respect to the CitiFund, all outstanding
shares of the CitiFund will have been redeemed and cancelled in exchange for
shares distributed by the Smith Barney Fund, and the CitiFund will wind up its
affairs and be terminated as a series of the CitiFunds Trust under
Massachusetts law.
Due to the net asset value of the CitiFund being less than ten percent of
the Smith Barney Fund's value, pro forma financial statements are not required
to be and have not been prepared for inclusion in this Statement of Additional
Information.
For further information about the transaction, see the Combined Proxy
Statement/ Prospectus.
<PAGE>
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated by reference to Section 9 of
the Agreement and Plan of Reorganization and Article SEVENTH, paragraph 7(e) of
Registrant's Articles of Incorporation for a complete statement of its terms.
Registrant is a named assured on a joint insured bond pursuant to Rule
17g-1 of the Investment Company Act of 1940. Other assureds include SSB Citi
Fund Management LLC (Registrant's Adviser) and affiliated investment companies.
ITEM 16. EXHIBITS
1(a) Articles Supplementary dated November 16, 1992 are incorporated
by reference to Exhibit 1(a) to Post-Effective Amendment No. 49
to Registrant's Registration Statement on Form N-1A.
1(b) Articles Supplementary dated October 29, 1992 are incorporated by
reference to Exhibit 1(b) to Post-Effective Amendment No. 49 to
Registrant's Registration Statement on Form N-1A.
1(c) Articles of Amendment dated October 29, 1992 are incorporated by
reference to Exhibit 1(c) to Post-Effective Amendment No. 49 to
Registrant's Registration Statement on Form N-1A.
1(d) Articles Supplementary dated September 6, 1991 are incorporated
by reference to Exhibit 1(a) to Post-Effective Amendment No. 46
to Registrant's Registration Statement on Form N-1A.
1(e) Articles Supplementary dated October 31, 1990 are incorporated by
reference to Exhibit 1(a) to Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A.
1(f) Articles Supplementary dated March 27, 1986, May 15, 1985,
December 28, 1984, August 2, 1984, June 8, 1984, February 26,
1972 and April 25, 1967 are incorporated by reference to Exhibits
1(a) through (g) to Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A.
1(g) Articles Supplementary dated December 14, 1993 are incorporated
by reference to Exhibit 1(h) to Post-Effective Amendment No. 54
to Registrant's Registration Statement on Form N-1A.
1(h) Articles of Amendment, dated June 12, 1998, is incorporated by
reference to Post-Effective Amendment No. 63 to Registrant's
Registration Statement on Form N-1A.
1(i) Articles of Amendment, dated July 2, 1998, is incorporated by
reference to Post-Effective Amendment No. 63 to Registrant's
Registration Statement on Form N-1A.
1(j) Articles of Incorporation dated December 1, 1966 are incorporated
by reference to Exhibit 1(h) to Post-Effective Amendment No. 39
to Registrant's Registration Statement on Form N-1A.
2 Bylaws of the Registrant are incorporated by reference to Exhibit
2 to Post-Effective Amendment No. 39 to Registrant's Registration
Statement on Form N-1A.
<PAGE>
3 Not Applicable
4 Form of Agreement and Plan of Merger is attached as Exhibit A to
the Proxy Statement/Prospectus filed herewith.
5 Not Applicable
6(a) Management Agreement between Short-Term U.S. Treasury
Securities Portfolio and Smith, Barney Advisers, Inc. is
incorporated by reference to Post-Effective Amendment No.
46 to Registrant's Registration Statement on Form N-1A.
6(b) Management Agreement between the Income and Growth
Portfolio and Smith, Barney Advisers, Inc. is
incorporated by reference to Post-Effective Amendment No.
43 to Registrant's Registration Statement on Form N-1A.
6(c) Management Agreement between U.S. Government Securities
Portfolio and Smith, Barney Advisers, Inc. is
incorporated by reference to Post-Effective Amendment No.
43 to Registrant's Registration Statement on Form N-1A.
7 Form of Distribution Agreement between the Registrant and
Salomon Smith Barney, Inc. is filed herewith.
8 Not Applicable
9 Custodian Agreement between Registrant and Provident
National Bank is incorporated by reference to Exhibit 8
to Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A.
10(a) Amended Plan of Distribution Pursuant to Rule 12b-1 on behalf of
the Short-Term U.S. Treasury Securities Portfolio is incorporated
by reference to Exhibit 15(h) to Post-Effective Amendment No. 56
to Registrant's Registration Statement on Form N-1A.
10(b) Amended Plan of Distribution Pursuant to Rule 12b-1 on behalf of
the Income and Growth Portfolio is incorporated by reference to
Exhibit 15(j) to Post-Effective Amendment No. 56 to Registrant's
Registration Statement on Form N-1A.
10(c) Amended Plan of Distribution Pursuant to Rule 12b-1 on behalf of
the U.S. Government Securities Portfolio is incorporated by
reference to Exhibit 15(k) to Post-Effective Amendment No. 56 to
Registrant's Registration Statement on Form N-1A.
10(d) Form of Amended and Restated Shareholder Services and
Distribution Plan is incorporated by reference to Post-Effective
Amendment No. 63 to Registrant's Registration Statement on Form
N-1A.
10(e) Rule 18f-3 Plan is incorporated by reference to Post-Effective
Amendment No. 63 to Registrant's Registration Statement on Form
N-1A.
11 Opinion and Consent of Willkie Farr & Gallagher is filed
herewith.
12 Opinion of Bingham Dana LLP supporting the tax matters and
consequences to shareholders discussed in the prospectus will be
filed by amendment.
<PAGE>
13 Transfer Agency Agreement between Registrant and Provident
Financial Processing Corp. is incorporated herein by reference to
Exhibit 9 to Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A.
13(a) Transfer Agency Agreement between the Registrant and
Provident Financial Processing Corp. is incorporated by
reference to Post-Effective Amendment No. 39 to the
Registration Statement.
14 Consent of Independent Public Accountants is filed herewith.
15 Not Applicable.
16 Not Applicable.
17(a) Form of proxy card is filed herewith.
17(b) Annual Report of CitiFunds Growth & Income Portfolio, dated
October 31, 1999, is incorporated by reference to the Annual
Report filed for CitiFunds Trust II (File Nos. 2-90519 and
811-4007) on December 30, 1999.
17(c) Semi-Annual Report of CitiFunds Growth & Income Portfolio, dated
April 30, 2000, is incorporated by reference to the Semi-Annual
Report for CitiFunds Trust II (File Nos.2-90519 and 811-4007)
filed on June 21, 2000.
17(d) Prospectus and statement of additional information of CitiFunds
Growth & Income Portfolio, dated March 1, 2000, are incorporated
by reference the filing made pursuant to Rule 497 on March 3,
2000 for CitiFunds Trust II (File Nos. 2-90519 and 811-4007).
17(e) Annual Report of the Registrant, dated December 31, 1999, is
incorporated by reference to the Annual Report filed on March 2,
2000.
17(f) Prospectus and statement of additional information of the
Registrant, dated April 28, 2000, are incorporated by reference
to Post-Effective Amendment No. 65 to Registrant's Registration
Statement on Form N-1A filed on April 27, 2000.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which
is a part of this registration statement by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c) of the Securities Act
[17 C.F.R. 230.145c], the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
<PAGE>
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, this Registration Statement has been signed on behalf of the
Registrant in the City of New York and the State of New York on the 13th day of
July 2000.
SMITH BARNEY FUNDS, INC.
By: /s/ Heath B. McLendon
-------------------------
Heath B. McLendon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacity on the date indicated.
/s/ Heath B. McLendon Chairman of the Board, July 13, 2000
------------------------ President and Chief
Heath B. McLendon Executive Officer
/s/ Lewis E. Daidone Treasurer and Principal July 13, 2000
------------------------ Financial Officer
Lewis E. Daidone
/s/ Lee Abraham* Director July 13, 2000
------------------------
Lee Abraham
/s/ Allan J. Bloostein* Director July 13, 2000
------------------------
Allan J. Bloostein
/s/ Jane F. Dasher* Director July 13, 2000
------------------------
Jane F. Dasher
/s/ Donald R. Foley* Director July 13, 2000
------------------------
Donald R. Foley
/s/ Richard E. Hanson, Jr.* Director July 13, 2000
------------------------
Richard E. Hanson, Jr.
/s/ Paul Hardin* Director July 13, 2000
------------------------
Paul Hardin
/s/ Roderick Rasmussen* Director July 13, 2000
------------------------
Roderick Rasmussen
/s/ John P. Toolan* Director July 13, 2000
------------------------
John P. Toolan
*By: /s/ Christina T. Sydor
-----------------------
Christina T. Sydor
Executed by Christina T. Sydor, pursuant to powers of attorney previously
filed.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
7 Form of Distribution Agreement
11 Opinion and Consent of Willkie Farr & Gallagher
14 Consent of Independent Public Accountants
17(a) Form of proxy card
