As filed with the Securities and Exchange Commission on April 27,
2000
Registration Nos. 002-25890
811-01464
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 65
To The
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
and
AMENDMENT NO. 45
under
THE INVESTMENT COMPANY ACT OF 1940
SMITH BARNEY FUNDS, INC.
(Exact name of Registrant as specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices)
(212) 816-6474
(Registrant's telephone number)
Christina T. Sydor,Esq.
Secretary
Smith Barney Funds, Inc.
388 Greenwich Street, New York, New York 10013
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 28, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on April 28, 2000 pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
SMITH BARNEY FUNDS, INC.
LARGE CAP VALUE FUND
U.S. GOVERNMENT SECURITIES FUND
SHORT-TERM HIGH GRADE BOND FUND
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and
Documents:
Front Cover
Contents Page
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
Part A
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
P R O S P E C T U S
Large Cap
Value Fund
Class A, B, L and Y Shares
- ----------------------------------------
April 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Large Cap Value Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 7
Management.................................................................. 8
Choosing a class of shares to buy........................................... 9
Comparing the fund's classes................................................ 10
Sales charges............................................................... 11
More about deferred sales charges........................................... 13
Buying shares............................................................... 14
Exchanging shares........................................................... 15
Redeeming shares............................................................ 17
Other things to know
about share transactions.................................................... 19
Salomon Smith Barney
Retirement Programs......................................................... 21
Dividends, distributions, and taxes......................................... 22
Share price................................................................. 23
Financial highlights........................................................ 24
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
Current income and long-term growth of income and capital.
Principal investment strategies
Key investments The fund invests primarily in common stocks of U.S. com anies
having market capitalizations of at least $5 billion at the time of investment.
Selection process The manager 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 manager uses proprietary models and funda-
mental research to try to identify stocks that are underpriced in the market
relative to their fundamental value. Next, the manager looks for a positive
catalyst in the company's near term outlook which the manager believes will
accelerate earnings.
In selecting individual companies for investment, the manager looks for:
.Low market valuations measured by the manager's valuation models
.Above average dividend yields and established dividend records
.Positive changes in earnings prospects because of factors such as:
.New management
.Effective research, product development and marketing
.A business strategy not yet recognized by the marketplace
.Regulatory changes favoring the company
.High return on invested capital and strong cash flow
.Liquidity
Large Cap Value Fund
2
<PAGE>
Principal risks of investing in the fund
Investing in large capitalization value securities can bring added benefits,
but it may also involve additional risks. Investors could lose money on their
investment in the fund, or the fund may not perform as well as other invest-
ments, if:
.The U.S. stock market declines
.Value stocks or larger capitalization stocks are temporarily out of favor.
.The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect.
.An adverse event, such as negative press reports about a company in the fund,
depresses the value of the company's stock.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long-term growth potential of the U.S. stock
market
.Are looking for an investment with potentially greater return but higher risk
than fixed income investments
.Are willing to accept the risks of the stock market
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future. The bar chart shows
the performance of the fund's Class A shares for each of the past 10 calendar
years. Class B, L and Y shares had different performance because of different
expenses. The performance information in the chart does not reflect sales
charges, which would reduce your return.
Total Return for Class A Shares
[GRAPH]
90 -9.46%
91 26.57%
92 7.23%
93 16.38%
94 -4.31%
95 33.05%
96 16.06%
97 27.86%
98 14.61%
99 -0.91%
Calendar years ended December 31
Quarterly returns:
Highest: 15.25% in 2nd quarter 1997; Lowest: (11.76)% in 3rd quarter 1998
Large Cap Value Fund
4
<PAGE>
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Russell 1000 Large Cap Value Index, a broad-based unmanaged index of those com-
panies from among the 1000 largest publicly held companies which exhibit above
average value characteristics.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
A -5.86% 16.33% 11.29% 11.22% 5/18/67
B -6.31% 16.53% n/a 15.82% 11/7/94
L -3.54% 16.38% n/a 12.87% 12/2/92
Y -0.54% n/a n/a 13.79% 02/06/96
S&P 500 Index 21.03% 28.54% 18.19% 12.97% *
Russell Index 20.91% 28.04% 18.13% n/a
</TABLE>
*Index comparison begins on 05/31/67.
Smith Barney Mutual Funds
5
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% None
Annual fund operating expenses
<CAPTION>
(Expenses deducted from fund assets)
<S> <C> <C> <C> <C>
Management fee 0.55% 0.55% 0.55% 0.55%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses 0.10% 0.12% 0.11% 0.03%
----- ----- ----- -----
Total annual fund operating expenses 0.90% 1.67% 1.66% 0.58%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $587 $773 $ 974 $1,552
Class B (redemption at end of period) $670 $826 $1,007 $1,771
Class B (no redemption) $170 $526 $ 907 $1,771
Class L (redemption at end of period) $367 $618 $ 993 $2,046
Class L (no redemption) $267 $618 $ 993 $2,046
Class Y (with or without redemption) $ 59 $186 $ 324 $ 726
</TABLE>
Large Cap Value Fund
6
<PAGE>
More on the fund's investments
Other investments While the fund intends to be substantially fully invested in
equity securities of companies with total market capitalizations of at least $5
billion at the time of investment, the fund may maintain a portion of its
assets in equity securities of companies with total market capitalizations
below $5 billion and in money market instruments and/or cash to pay expenses
and meet redemption requests. Generally, the value of these fixed income obli-
gations will go down if interest rates go up, the issuer of the security has
its credit rating downgraded or the issuer defaults on its obligation to pay
principal or interest. The fund may also invest up to 10% of its net assets in
American Depositary Receipts (ADRs) which are U.S. dollar denominated securi-
ties representing an interest in foreign securities. The fund's investments in
ADRs involve greater risk than investments in securities of U.S. issuers.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Smith Barney Mutual Funds
7
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-
sor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney Inc.
The manager's address is 388 Greenwich Street, New York, New York 10013. The
manager selects the fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment banking and trading--and use diverse channels to make them available to
consumer and corporate customers around the world.
Ellen Cardozo Sonsino, investment officer of SSB Citi Management LLC and manag-
ing director of Salomon Smith Barney, has been responsible for the day-to-day
management of the fund since March 1998. Ms. Sonsino has 21 years of investment
management experience.
Management fees During the fiscal year ended December 31, 1999, the manager
received an advisory fee equal to 0.55% of the fund's average daily net
assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Large Cap Value Fund
8
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Individual Retirement Accounts, Self
Employed Retirement Plans, Uniform
Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Smith Barney Mutual Funds
9
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least
initial .Converts only 1 $15million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1.00% on Up to 5.00% 1.00% if None
purchases charged you redeem
of $500,000 when you within 1
or more if redeem year of
you redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1.00% of 1.00% of None
service fees average average average
daily net daily net daily net
assets assets assets
- ------------------------------------------------------------------------
Exchangeable into* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Large Cap Value Fund
10
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more 0.00 0.00
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current value of Class A shares
owned
.by you, or
.by members of your immediate family
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales
Smith Barney Mutual Funds
11
<PAGE>
charge, if any, as if all shares had been purchased at once. You may include
purchases on which you paid a sales charge made within 90 days before you
sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about the additional waivers of Class A initial sales
charges, contact your Salomon Smith Barney Financial Consultant or dealer rep-
resentative or consult the Statement of Additional Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
6th through
Year after purchase 1st 2nd 3rd 4th 5th 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued:
On reinvestment of Upon exchange from
Shares issued: dividends and another Smith Barney
At initial purchase distributions fund
<S> <C> <C>
Eight years after the date In same proportion On the date the
of purchase as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as
dividends)
</TABLE>
Large Cap Value Fund
12
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge
on Class L shares you buy before June 22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of or
redemption, whichever is less, and therefore, you do not pay a sales charge on
amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Smith Barney Mutual Funds
13
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected
representative
.Class of shares being bought
.Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's sub- are clients of a selling group members are eligible to buy
transfer shares directly from the fund.
agent
.Write the sub-transfer agent at the following address:
Large Cap Value Fund Smith Barney Funds, Inc.
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund to pay for the
shares. For initial purchases, complete and send an account
application.
.For more information, call the transfer agent at 1-800-451-
2010.
- --------------------------------------------------------------------------------
Large Cap Value Fund
14
<PAGE>
- --------------------------------------------------------------------------------
Through a
systematic You may authorize Salomon Smith Barney, your dealer represen-
investment tative or the sub-transfer agent to transfer funds automati-
plan cally from a regular bank account, cash held in a Salomon
Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly.
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-transfer agent may charge you a fee.
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small .Not all Smith Barney funds may be offered in your state of
investors residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund
(except for systematic exchanges).
.If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
Smith Barney Mutual Funds
15
<PAGE>
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time).
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail
If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the sub-trans-
fer agent at the address on the opposite page.
Large Cap Value Fund
16
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests
to the sub-transfer agent at the following address:
Large Cap Value Fund Smith Barney Funds, Inc.
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02490-9699
Your written request must provide the following:
.Your account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is
registered
Smith Barney Mutual Funds
17
<PAGE>
By telephone
If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You must submit a new authorization
form to change the bank account designated to receive wire
transfers and you may be asked to provide certain other docu-
ments.
- --------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of at least $10,000
($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Large Cap Value Fund
18
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-transfer agent to mail the check to an address different from
the one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Smith Barney Mutual Funds
19
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Large Cap Value Fund
20
<PAGE>
Salomon Smith Barney Retirement Programs
You may be eligible to participate in a retirement program sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers Class A and Class L
shares at net asset value to participating plans under the programs. You can
meet minimum investment and exchange amounts, if any, by combining the plan's
investments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment and/or the
date your account is opened. Once a class of shares is chosen, all additional
purchases must be of the same class.
.For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services (a "Paychex
plan"), Class A shares may be purchased regardless of the amount invested.
.For plans opened prior to March 1, 2000 and for Paychex plans, the class of
shares you may purchase depends on the amount of your initial investment.
.Class A shares may be purchased by plans investing at least $1 million.
.Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible to exchange into Class A shares not later than
8 years after the plan joined the program. They are eligible for exchange
in the following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1 million is
invested in Smith Barney Funds Class L shares (other than money market funds),
all Class L shares are eligible for exchange after the plan is in the program 5
years.
If the plan was opened before June 21, 1996 and a total of $500,000 is invested
in Smith Barney Funds Class L shares (other than money market funds) on Decem-
ber 31 in any year, all Class L shares are eligible for exchange on or about
March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Smith Barney Mutual Funds
21
<PAGE>
Dividends, distributions and taxes
Dividends The fund pays dividends quarterly from its net investment income. The
fund generally makes capital gain distributions, if any, once a year, typically
in December. The fund may pay additional distributions and dividends at other
times if necessary for the fund to avoid a federal tax. Capital gain distribu-
tions and dividends are reinvested in additional fund shares of the same class
you hold. The fund expects distributions to be primarily from capital gains.
You do not pay a sales charge on reinvested distributions or dividends. Alter-
natively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effec-
tive until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Large Cap Value Fund
22
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. The Fund's currency conversions are done when the London stock exchange
closes. When reliable market prices or quotations are not readily available, or
when the value of a security has been materially affected by events occurring
after a foreign exchange closes, the fund may price those securities at fair
value. Fair value is determined in accordance with procedures approved by the
fund's board. A fund that uses fair value to price securities may value those
securities higher or lower than another fund using market quotations to price
the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Smith Barney Mutual Funds
23
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years (or since inception if less than 5
years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent audi-
tors, whose report, along with the fund's financial statements, is included in
the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $18.28 $17.09 $14.79 $14.59 $12.18
- -------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.20 0.24 0.29 0.36 0.39
Net realized and
unrealized gain (loss) (0.37) 2.24 3.80 1.99 3.59
- -------------------------------------------------------------------------------
Total income (loss) from
operations (0.17) 2.48 4.09 2.35 3.98
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.20) (0.23) (0.29) (0.36) (0.39)
Net realized gains(/2/) (0.85) (1.06) (1.50) (1.79) (1.18)
Capital (0.06) -- -- -- --
- -------------------------------------------------------------------------------
Total distributions (1.11) (1.29) (1.79) (2.15) (1.57)
- -------------------------------------------------------------------------------
Net asset value, end of
year $17.00 $18.28 $17.09 $14.79 $14.59
- -------------------------------------------------------------------------------
Total return (0.91)% 14.61% 27.86% 16.06% 33.05%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $744,405 $821,003 $758,708 $645,935 $617,431
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 0.90% 0.90% 0.92% 0.95% 1.02%
Net investment income 1.09 1.29 1.71 2.28 2.78
- -------------------------------------------------------------------------------
Portfolio turnover rate 34% 48% 40% 49% 51%
- -------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) Net short-term gains, if any, are included and reported as ordinary
income for income tax purposes.
Large Cap Value Fund
24
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $18.21 $17.03 $14.74 $14.54 $12.15
- -------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.06 0.09 0.16 0.25 0.24
Net realized and unrealized
gain (loss) (0.37) 2.24 3.78 1.98 3.62
- -------------------------------------------------------------------------------
Total income (loss) from
operations (0.31) 2.33 3.94 2.23 3.86
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.05) (0.09) (0.15) (0.24) (0.29)
Net realized gains(/2/) (0.85) (1.06) (1.50) (1.79) (1.18)
Capital (0.06) -- -- -- --
- -------------------------------------------------------------------------------
Total distributions (0.96) (1.15) (1.65) (2.03) (1.47)
- -------------------------------------------------------------------------------
Net asset value, end of year $16.94 $18.21 $17.03 $14.74 $14.54
- -------------------------------------------------------------------------------
Total return (1.66)% 13.71% 26.83% 15.22% 32.07%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $118,477 $69,786 $28,525 $14,883 $6,605
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.67% 1.69% 1.71% 1.71% 1.73%
Net investment income 0.32 0.51 0.92 1.55 1.83
- -------------------------------------------------------------------------------
Portfolio turnover rate 34% 48% 40% 49% 51%
- -------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) Net short-term gains, if any, are included and reported as ordinary
income for income tax purposes.
Smith Barney Mutual Funds
25
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/)(/2/) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $18.22 $17.05 $14.76 $14.57 $12.18
- -------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.06 0.09 0.16 0.24 0.27
Net realized and
unrealized gain (loss) (0.37) 2.24 3.79 1.98 3.59
- -------------------------------------------------------------------------------
Total income (loss) from
operations (0.31) 2.33 3.95 2.22 3.86
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.05) (0.10) (0.16) (0.24) (0.29)
Net realized gains(/3/) (0.85) (1.06) (1.50) (1.79) (1.18)
Capital (0.06) -- -- -- --
- -------------------------------------------------------------------------------
Total distributions (0.96) (1.16) (1.66) (2.03) (1.47)
- -------------------------------------------------------------------------------
Net asset value, end of
year $16.95 $18.22 17.05 14.76 14.57
- -------------------------------------------------------------------------------
Total return (1.65)% 13.73% 26.85% 15.15% 32.01%
- -------------------------------------------------------------------------------
Net assets, end of year
(000)'s $97,745 $66,190 $42,115 $33,365 $29,758
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.66% 1.67% 1.69% 1.73% 1.79%
Net investment income 0.34 0.52 0.93 1.50 2.00
- -------------------------------------------------------------------------------
Portfolio turnover rate 34% 48% 40% 49% 51%
- -------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) On June 12, 1998, Class C shares were renamed Class L shares.
(/3/) Net short-term gains, if any, are included and reported as ordinary
income for income tax purposes.
Large Cap Value Fund
26
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996(/1/)(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of year $18.28 $17.09 $14.80 $15.06
- --------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.26 0.30 0.38 0.36
Net realized and unrealized
gain (loss) (0.36) 2.24 3.76 1.58
- --------------------------------------------------------------------------------
Total income (loss) from
operations (0.10) 2.54 4.14 1.94
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.26) (0.29) (0.35) (0.41)
Net realized gains(/3/) (0.85) (1.06) (1.50) (1.79)
Capital (0.06) -- -- --
- --------------------------------------------------------------------------------
Total distributions (1.17) (1.35) (1.85) (2.20)
- --------------------------------------------------------------------------------
Net assets value, end of
year $17.01 $18.28 $17.09 $14.80
- --------------------------------------------------------------------------------
Total return (0.54)% 14.96% 28.21% 12.86%(/4/)
- --------------------------------------------------------------------------------
Net assets, end of year
(000)'s $184,974 $159,084 $111,690 $30,169
- --------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 0.58% 0.58% 0.60% 0.66%(/5/)
Net investment income 1.41 1.61 2.06 3.02(/5/)
- --------------------------------------------------------------------------------
Portfolio turnover rate 34% 48% 40% 49%
- --------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from February 6, 1996 (inception date) to December 31,
1996.
(/3/) Net short-term gains, if any, are included and reported as ordinary
income for income tax purposes.
(/4/) Total return is not annualized, as it may not be representative of the
total return for the year.
(/5/) Annualized.
Smith Barney Mutual Funds
27
<PAGE>
(This page is intentionally left blank.)
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Large Cap
Value Fund
An investment portfolio of Smith Barney Funds, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-01464)
FD 2320 4/00
<PAGE>
[LOGO] Smith Barney
Mutual Funds
P R O S P E C T U S
Large Cap
Value Fund
Class Z Shares
- ------------------------
April 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Large Cap Value Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Buying, selling and exchanging Class Z shares............................... 8
Share price................................................................. 9
Distributions, dividends and taxes.......................................... 10
Financial highlights........................................................ 11
</TABLE>
The Class Z shares described in this prospectus are offered exclusively for
sale to tax-exempt employee benefit and retirement plans of Salomon Smith Bar-
ney Inc. or any of its affiliates.
You Should Know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
Current income and long-term growth of income and capital.
Principal investment strategies
Key investments The fund invests primarily in common stocks of U.S. companies
having market capitalizations of at least $5 billion at the time of investment.
Selection process The manager 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 manager uses proprietary models and funda-
mental research to try to identify stocks that are underpriced in the market
relative to their fundamental value. Next, the manager looks for a positive
catalyst in the company's near term outlook which the manager believes will
accelerate earnings.
In selecting individual companies for investment, the manager looks for:
.Low market valuations measured by the manager's valuation models
.Above average dividend yields and established dividend records
.Positive changes in earnings prospects because of factors such as:
.New management
.Effective research, product development and marketing
.A business strategy not yet recognized by the marketplace
.Regulatory changes favoring the company
.High return on invested capital and strong cash flow.
.Liquidity
Large Cap Value Fund--Class Z Shares
2
<PAGE>
Principal risks of investing in the fund
Investing in large capitalization value securities can bring added benefits,
but it may also involve additional risks. Investors could lose money on their
investment in the fund, or the fund may not perform as well as other invest-
ments, if:
.The U.S. stock market declines.
.Value stocks or larger capitalization stocks are temporarily out of favor.
.The manager's judgment about the attractiveness, value or potential apprecia-
tion of a particular stock proves to be incorrect.
.An adverse event, such as negative press reports about a company in the fund,
depresses the value of the company's stock.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long-term growth potential of the U.S. stock
market
.Are looking for an investment with potentially greater return but higher risk
than fixed income investments
.Are willing to accept the risks of the stock market
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future. The bar chart shows
the performance of the fund's Class Z shares for each of the past 5 full calen-
dar years.
Total Return for Class Z Shares
[BAR CHART]
95 96 97 98 99
33.41% 16.47% 28.27% 14.95% (0.54)%
Calendar years ended December 31
Quarterly returns:
Highest: 15.25% in 2nd quarter 1997; Lowest: (11.76)% in 3rd quarter 1998
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Russell 1000 Large Cap Value Index, a broad-based unmanaged index of those com-
panies from among the 1000 largest publicly held companies which exhibit above
average value characteristics (the "Russell Index"). This table assumes imposi-
tion of the maximum sales charge applicable to the class, redemption of shares
at the end of the period, and reinvestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
1 year 5 years Since Inception Inception Date
<S> <C> <C> <C> <C> <C>
Class Z (0.54)% 17.91% 17.17% 11/07/94
Russell Index 20.91 % 28.04% 27.88% *
</TABLE>
* Index comparison begins on 11/30/94.
Large Cap Value Fund--Class Z Shares
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
Annual fund operating expenses
(Expenses deducted from fund assets)
<S> <C>
Management fee 0.55%
Other expenses 0.03
Total annual fund operating expenses 0.58%
</TABLE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower.
The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 Year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class Z $59 $186 $324 $726
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Other investments While the fund intends to be substantially fully invested in
equity securities of companies with total market capitalizations of at least $5
billion at the time of investment, the fund may maintain a portion of its
assets in equity securities of companies with total market capitalizations
below $5 billion and in money market instruments and/or cash to pay expenses
and meet redemption requests. Generally, the value of these fixed income obli-
gations will go down if interest rates go up, the issuer of the security has
its credit rating downgraded or the issuer defaults on its obligation to pay
principal or interest. The fund may also invest up to 10% of its net assets in
American Depositary Receipts (ADRs) which are U.S. dollar denominated securi-
ties representing an interest in foreign securities. The fund's investments in
ADRs involve greater risk than investments in securities of U.S. issuers.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Large Cap Value Fund--Class Z Shares
6
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-
sor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney Inc.
The manager's address is 388 Greenwich Street, New York, New York 10013. The
manager selects the fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment banking and trading--and use diverse channels to make them available to
consumer and corporate customers around the world.
Ellen Cardozo Sonsino, investment officer of SSB Citi Fund Management LLC and
managing director of Salomon Smith Barney, has been responsible for the day-to-
day management of the fund since March 1998. Ms. Sonsino has 21 years of
investment management experience.
Management fees During the fiscal year ended December 31, 1999, the manager
received an advisory fee equal to 0.55% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
7
<PAGE>
Buying, selling and exchanging Class Z shares
Through a You may buy, sell or exchange Class Z shares only through a
qualified "qualified plan." A qualified plan is a tax-exempt employee
plan benefit or retirement plan of Salomon Smith Barney, Inc. or
one of its affiliates.
There are no minimum investment requirements for Class Z
shares. However, the fund reserves the right to change this
policy at any time.
- --------------------------------------------------------------------------------
Buying Orders to buy Class Z shares must be made in accordance with
the terms of a qualified plan. If you are a participant in a
qualified plan, you may place an order with your plan to buy
Class Z shares at net asset value, without any sales charge.
Payment is due to Salomon Smith Barney on settlement date,
which is the third business day after your order is accepted.
If you make payment prior to this date, you may designate a
temporary investment (such as a money market fund of the
Smith Barney Mutual Funds) for payment until settlement date.
The fund reserves the right to reject any order to buy shares
and to suspend the offering of shares for a period of time.
- --------------------------------------------------------------------------------
Selling Qualified plans may redeem their shares on any day on which
the fund calculates its net asset value. You should consult
the terms of your qualified plan for special redemption pro-
visions.
- --------------------------------------------------------------------------------
Exchanging You should consult your qualified plan for information about
available exchange options.
- --------------------------------------------------------------------------------
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Large Cap Value Fund--Class Z Shares
8
<PAGE>
Share price
Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order.
The fund's net asset value is the value of its assets minus its liabilities.
Net asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
The Exchange is closed on certain holidays listed in the SAI. This calculation
is done when regular trading closes on the Exchange (normally 4:00 p.m., East-
ern time).
The fund generally values its fund securities based on market prices or quota-
tions. The fund's currency conversions are done when the London stock exchange
closes. When reliable market prices or quotations are not readily available, or
when the value of a security has been materially affected by events occurring
after a foreign exchange closes, the fund may price those securities at fair
value. Fair value is determined in accordance with procedures approved by the
fund's board. A fund that uses fair value to price securities may value those
securities higher or lower than another fund that uses market quotations to
price the same securities.
International markets may be open on days when US markets are closed and the
value of foreign securities owned by the fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your qualified plan before the New York Stock Exchange closes.
If the New York Stock Exchange closes early, you must place your order with
your qualified plan prior to the actual closing time. Otherwise, you will
receive the next business day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
Smith Barney Mutual Funds
9
<PAGE>
Distributions, dividends and taxes
An investment in the fund will have the following consequences for a qualified
plan as the owner of shares in the fund. Qualified plan participants should
consult their plan document or tax advisors about the tax consequences of par-
ticipating in a qualified plan.
Dividends The fund generally pays dividends quarterly and makes capital gain
distributions if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional Class Z shares. The fund expects distributions to be primarily
from capital gains. No sales charge is imposed on reinvested distributions or
dividends.
Taxes Provided that a qualified plan has not borrowed to finance its investment
in the fund, it will not be taxable on the receipt of dividends and distribu-
tions from the fund.
Dividends and interest received by the fund from investing in foreign securi-
ties may give rise to withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes. The fund's foreign tax payments will reduce the amount of
its dividends and distributions.
Because each shareholder's circumstances are different and special tax rules
may apply, you should consult with your tax adviser about your investment in
the fund.
Large Cap Value Fund--Class Z Shares
10
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the perfor-
mance of Class Z shares for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment
of all dividends and distributions. The information in the following table was
audited by KPMG LLP, independent auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon
request).
For a Class Z share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 18.31 $ 17.12 $ 14.82 $ 14.61 $ 12.19
- ------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.26 0.30 0.35 0.42 0.43
Net realized and
unrealized gain
(loss)(/2/) (0.36) 2.24 3.80 1.99 3.59
- ------------------------------------------------------------------------------
Total income (loss) from
operations (0.10) 2.54 4.15 2.41 4.02
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.26) (0.29) (0.35) (0.41) (0.42)
Net realized gains (0.85) (1.06) (1.50) (1.79) (1.18)
Capital (0.06) -- -- -- --
- ------------------------------------------------------------------------------
Total distributions (1.17) (1.35) (1.85) (2.20) (1.60)
- ------------------------------------------------------------------------------
Net asset value, end of
year $ 17.04 $ 18.31 $ 17.12 $ 14.82 $ 14.61
- ------------------------------------------------------------------------------
Total return (0.54)% 14.95% 28.27% 16.47% 33.41%
- ------------------------------------------------------------------------------
Net assets, end of year
(000)'s $162,783 $187,352 $144,008 $113,160 $98,661
- ------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 0.58% 0.59% 0.60% 0.62% 0.69%
Net investment income
(loss) 1.40 1.61 2.03 2.62 3.11
- ------------------------------------------------------------------------------
Portfolio turnover rate 34% 48% 40% 49% 51%
- ------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) Net short term gains, if any, are included and reported in ordinary income
for tax purposes.
Smith Barney Mutual Funds
11
<PAGE>
(This page is intentionally left blank.)
<PAGE>
[SALOMON SMITH BARNEY LOGO APPEARS HERE]
Large Cap Value Fund
an investment portfolio of Smith Barney Funds, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your quali-
fied plan, by calling the fund at 1-800-451-2010, or by writing to the fund at
Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-01464)
FD 0661 4/00
<PAGE>
[LOGO] Smith Barney Mutual Funds
PROSPECTUS
Short-Term High
Grade Bond Fund
Class A and Y Shares
---------------------------------------
April 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Short-Term High Grade Bond Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Buying shares............................................................... 9
Exchanging shares........................................................... 10
Redeeming shares............................................................ 10
Other things to know
about share transactions.................................................... 13
Salomon Smith Barney Retirement Programs.................................... 15
Distributions, dividends and taxes.......................................... 16
Share price................................................................. 17
Financial highlights........................................................ 18
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks current income, preservation of capital and liquidity.
Principal investment strategies
Key investments The fund invests primarily in "high grade" fixed income securi-
ties. These are securities rated by a national ratings organization at the time
of purchase within one of the top three categories, or, if unrated, judged by
the manager to be of comparable credit quality. Securities in which the fund
invests include corporate debt securities, bank obligations and securities
issued by the U.S. government and its agencies and instrumentalities. The fund
may also invest in U.S. dollar denominated fixed income securities of foreign
issuers. The fund maintains an average dollar-weighted portfolio maturity of
between one and four years; the average duration of the fund's portfolio will
normally be no greater than 3.5 years.
Selection process The manager focuses on minimizing fluctuations in the fund's
net asset value by identifying short-term fixed income securities which the
manager believes are undervalued and which offer better protection of capital
given current interest rate and market conditions. In selecting individual
securities for investment, the manager:
.Monitors the spreads between U.S. Treasury and government agency or instrumen-
tality issuers and purchases agency and instrumentality issues that it
believes will provide a yield advantage
.Determines sector and maturity weightings based on assessments of the economic
environment and relative value factors based on interest rate outlook
.Measures the potential impact of supply/demand imbalances, yield curve shifts
and changing prepayment patterns to identify individual securities that bal-
ance potential return and risk
.Uses research to uncover inefficient sectors of the government securities and
mortgage markets and adjusts portfolio positions to take advantage of new
information
Short-Term High Grade Bond Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.Interest rates increase, causing the prices of fixed income securities to
decline which would reduce the value of the fund's portfolio. The fund has
less sensitivity to changes in interest rates than a fund investing in secu-
rities with intermediate or long-term maturities
.Prepayment or call risk: As interest rates decline, the issuers of mortgage-
related or callable securities held by the fund may pay principal earlier
than scheduled or exercise a right to call the securities, forcing the fund
to reinvest in lower yielding securities
.Extension risk: As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities, locking in
below-market interest rates and reducing the value of these securities
.The manager's judgment about interest rates or the attractiveness, value or
income potential of a particular security proves incorrect
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking current income while minimizing fluctuations in the value of your
investment
.Currently have exposure to stock markets and wish to diversify your investment
portfolio by adding an investment in investment grade fixed income securities
.Are seeking a higher level of current income than typically offered by money
market funds
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future. The bar chart shows
the performance of the fund's Class A shares for each of the past 8 full calen-
dar years. Class Y shares have different performance because of their different
expenses. The performance information in the chart does not reflect sales
charges, which would reduce your return.
Total Return for Class A Shares
[GRAPH]
92 5.92%
93 6.01%
94 -2.15%
95 13.16%
96 2.17%
97 6.73%
98 6.07%
99 0.76%
Calendar years ended December 31
Quarterly returns:
Highest: 4.19% in 1st quarter 1995; Lowest: (1.78)% in 1st quarter 1996
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
SSB Treasury/Government Sponsored/Corporate 1-5 year Index (the "SSB Index"), a
broad-based unmanaged index of short-term U.S. Treasury and corporate debt
securities. This table assumes imposition of the maximum sales charge applica-
ble to the class, redemption of shares at the end of the period, and reinvest-
ment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years Since inception Inception date
<S> <C> <C> <C> <C>
A 0.76% 5.71% 5.11% 11/11/91
Y 1.26% n/a 4.36% 2/7/96
SSB Index 2.15% 6.84% 6.10% *
</TABLE>
*Index comparison begins on 11/30/91.
Short-Term High Grade Bond Fund
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class Y
<S> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a % of offering price) None None
Maximum deferred sales charge (load) None* None
Annual fund operating expenses
<CAPTION>
(Expenses deducted from fund assets) Class A Class Y
<S> <C> <C>
Management fees .45% .45%
Distribution and service (12b-1) fees 0.35% None
Other expenses 0.21% 0.08%
----- -----
Total annual fund operating expenses 1.01% 0.53%
</TABLE>
*Class A Shares acquired through an exchange for shares of another Smith Barney
Mutual Fund which were originally acquired at net asset value subject to a con-
tingent deferred sales charge ("CDSC") remain subject to the original fund's
CDSC.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $103 $322 $558 $1,236
Class Y $ 54 $170 $296 $ 665
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Other investments Although the fund invests primarily in "high grade" securi-
ties, it may also invest in other fixed income securities provided that they
are at least "investment grade" at the time of purchase. This means that they
are rated within the top four categories, or if unrated, are considered by the
manager to be of comparable quality.
Derivatives contracts The fund may, but need not, use derivative contracts,
such as futures and options on interest rates, and options on interest rate
futures, for any of the following purposes:
.To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates
.As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can disproportion-
ately increase losses and reduce opportunities for gains when interest rates
are changing. The fund may not fully benefit from or may lose money on deriva-
tives if changes in their value do not correspond accurately to changes in the
value of the fund's holdings. The other parties to certain derivative contracts
present the same types of default risk as issuers of fixed income securities.
Derivatives can also make a fund less liquid and harder to value, especially in
declining markets.
Yankee obligations The fund may invest in Yankee obligations, including Yankee
obligations of foreign banks. Yankee obligations are U.S. dollar denominated
securities issued in the U.S. capital markets by foreign issuers. Yankee obli-
gations are subject to certain sovereign risks including the possibility that a
foreign government might prevent the U.S. dollars invested in the security from
flowing back across its borders. The price of Yankee obligations may also go
down because of political instability or the more limited availability of accu-
rate information about foreign companies.
Risk of high portfolio turnover The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Short-Term High Grade Bond Fund
6
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-
sor to SSBC Fund Management Inc.) an affiliate of Salomon Smith Barney Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The man-
ager selects the fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment banking and trading--and use diverse channels to make them available to
consumer and corporate customers around the world.
James E. Conroy, investment officer of SSB Citi Fund Management LLC and manag-
ing director of Salomon Smith Barney, has been responsible for the day to day
management of the fund since January 1996. Mr. Conroy has 21 years of invest-
ment management experience.
Management fees During the fiscal year ended December 31, 1999, the manager
received an advisory fee equal to 0.45% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A shares. Under the plan, Class A shares pay distribution and/or service
fees. The fees in Class A shares are an ongoing expense and, over time, it
increases the cost of your investment and may cost you more than other types of
sales charges.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You may purchase Class A shares which are sold at net asset value with no ini-
tial or deferred sales charge. Class A shares are subject to ongoing distribu-
tion and service fees.
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13 month period. To qualify, you
must initially invest $5,000,000.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Class A Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans, Uniform
Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Short-Term High Grade Bond Fund
8
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected
representative
.Class of shares being bought
.Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's sub- are clients of a selling group member are eligible to buy
transfer shares directly from the fund.
agent
.Write the transfer agent at the following address:
Smith Barney Funds, Inc.
Short-Term High Grade Bond Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund to pay for the
shares. For initial purchases, complete and send an account
application.
.For more information, call the transfer agent at 1-800-451-
2010.
- --------------------------------------------------------------------------------
Through a
systematic You may authorize Salomon Smith Barney, your dealer represen-
investment tative or the sub-transfer agent to transfer funds automati-
plan cally from a regular bank account, cash held in a Salomon
Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the sub-transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Smith Barney Mutual Funds
9
<PAGE>
Exchanging shares
Class A shares of the fund may be subject to a sales charge differential upon
the exchange of such shares for Class A shares of another Smith Barney Mutual
Fund sold with a sales charge. The sales charge differential is the sales
charge rate applicable to purchases of shares of the mutual fund being acquired
in the exchange. To the extent the fund shares relinquished in the exchange are
attributable to predecessor shares for which a sales charge was paid, the sales
charge differential does not apply. For purposes of the exchange privilege,
shares obtained through automatic reinvestment of dividends and capital gain
distributions are treated as having paid the same sales charges applicable to
the shares in which the dividends or distributions were paid; however, except
in the case of the Salomon Smith Barney Retirement Programs, if no sales charge
was imposed upon the initial purchase of shares, any shares obtained through
automatic reinvestment will be subject to a sales charge differential upon
exchange.
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the sub-transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
Short-Term High Grade Bond Fund
10
<PAGE>
By mail
For accounts held directly at the fund, send written requests
to the sub-transfer agent at the following address:
Smith Barney Funds, Inc.
Short-Term High Grade Bond Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
.Your account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is regis-
tered
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You must submit a new authorization
form to change the bank account designated to receive wire
transfers and you may be asked to provide certain other docu-
ments.
- --------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of at least $10,000
($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50. If your shares are subject
to a deferred sales charge, the sales charge will be waived
if your automatic payments do not exceed 1% per month of the
value of your shares subject to a deferred sales charge.
Smith Barney Mutual Funds
11
<PAGE>
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Short-Term High Grade Bond Fund
12
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the sub-transfer
agent
.Instruct the sub-transfer agent to mail the check to an address different from
the one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
Smith Barney Mutual Funds
13
<PAGE>
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Short-Term High Grade Bond Fund
14
<PAGE>
Salomon Smith Barney Retirement Programs
You may be eligible to participate in a retirement program sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers Class A at net asset
value to participating plans under the programs. You can meet minimum invest-
ment and exchange amounts, if any, by combining the plan's investments in any
of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the shares you may
purchase depends on the amount of your initial investment and/or the date your
account is opened. All additional purchases must be of the same class.
.For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services (a "Paychex
plan"), Class A shares may be purchased regardless of the amount invested.
.For plans opened prior to March 1, 2000 and for Paychex plans, the class of
shares you may purchase depends on the amount of your initial investment.
.Class A shares may be purchased by plans investing at least $1 million.
For more information, call your Salomon Smith Barney Financial Consultant or
the transfer agent, or consult the SAI.
Smith Barney Mutual Funds
15
<PAGE>
Distributions, dividends and taxes
Dividends The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year, typi-
cally in December. The fund may pay additional distributions and dividends at
other times if necessary for the fund to avoid a federal tax. Capital gain dis-
tributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends. Alterna-
tively, you can instruct your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent to have your distributions and/or divi-
dends paid in cash. You can change your choice at any time to be effective as
of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effec-
tive until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than
one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or
a dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Short-Term High Grade Bond Fund
16
<PAGE>
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
The fund generally values its fund securities based on market prices or quota-
tions. When reliable market prices or quotations are not readily available, the
fund may price those securities at fair value. Fair value is determined in
accordance with procedures approved by the fund's board. A fund that uses fair
value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Smith Barney Mutual Funds
17
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years (or since inception if less than 5
years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent audi-
tors, whose report, along with the fund's financial statements, is included in
the annual report (available upon request).
For a Class A share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $4.13 $4.09 $4.05 $4.19 $3.91
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.19 0.20 0.22 0.23 0.22
Net realized and unrealized gain
(loss) (0.16) 0.04 0.04 (0.14) 0.28
- -------------------------------------------------------------------------------
Total income (loss) from
operations 0.03 0.24 0.26 0.09 0.50
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.19) (0.20) (0.22) (0.23) (0.22)
- -------------------------------------------------------------------------------
Total distributions (0.19) (0.20) (0.22) (0.23) (0.22)
- -------------------------------------------------------------------------------
Net asset value, end of year $3.97 $4.13 $4.09 $4.05 $4.19
- -------------------------------------------------------------------------------
Total return 0.76% 6.07% 6.73% 2.17% 13.16%
- -------------------------------------------------------------------------------
Net assets, end of year
(millions) $53 $69 $71 $83 $107
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.01% 1.04% 0.95% 0.98% 0.98%
Net investment income 4.70% 4.94 5.53 5.62 5.29
- -------------------------------------------------------------------------------
Portfolio turnover rate 88% 150% 145% 130% 29%
- -------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
Short-Term High Grade Bond Fund
18
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997 1996(/2/)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $4.13 $4.09 $4.05 $4.19
- ------------------------------------------------------------------------------
Income (loss) from operations
Net investment income 0.21 0.22 0.24 0.22
Net realized and unrealized gain
(loss) (0.16) 0.04 0.04 (0.14)
- ------------------------------------------------------------------------------
Total income (loss) from operations 0.05 0.26 0.28 0.08
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.21) (0.22) (0.24) (0.22)
- ------------------------------------------------------------------------------
Total distributions (0.21) (0.22) (0.24) (0.22)
- ------------------------------------------------------------------------------
Net asset value, end of year $3.97 $4.13 $4.09 $4.05
- ------------------------------------------------------------------------------
Total return 1.26% 6.56% 7.20% 2.08%(/3/)
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $51 $45 $30 $32
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.53% 0.56% 0.50% 0.58%(/4/)
Net investment income 5.19 5.42 6.00 5.99(/4/)
- ------------------------------------------------------------------------------
Portfolio turnover rate 88% 150% 145% 130%
- ------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) For the period from February 7, 1996 (inception date) to December 31,
1996.
(/3/) Total return is not annualized, as it may not be representative of the
total return for the year.
(/4/) Annualized.
Smith Barney Mutual Funds
19
<PAGE>
(This page is intentionally left blank.)
<PAGE>
[LOGO OF SALOMON SMITH BARNEY]
Short-Term High Grade Bond Fund
An investment portfolio of Smith Barney Funds, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Commission's Public
Reference Room in Washington, D.C. In addition, information on the operation of
the Public Reference Room may be obtained by calling the Commission at 1-202-
942-8090. Reports and other information about the fund are available on the
EDGAR Database on the Commission's Internet site at http://www.sec.gov. Copies
of this information may be obtained for a duplicating fee by electronic request
at the following E-mail address: [email protected], or by writing the Commis-
sion's Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-01464)
FD2319 4/00
[LOGO] Smith Barney
Mutual Funds
PROSPECTUS
U.S.
Government
Securities Fund
Class A, B, L and Y Shares
-----------------------------------------------------
April 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
U.S. Government Securities Fund
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investments, risks and performance ............................2
More on the fund's investments ................................6
Management ....................................................7
Choosing a class of shares to buy .............................8
Comparing the fund's classes ..................................9
Sales charges ................................................10
More about deferred sales charges ............................12
Buying shares ................................................13
Exchanging shares ............................................14
Redeeming shares .............................................16
Other things to know about share transactions ................18
Salomon Smith Barney Retirement Programs .....................20
Dividends, distributions and taxes ...........................21
Share price ..................................................22
Financial highlights .........................................23
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds 1
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performance
- --------------------------------------------------------------------------------
Investment objective
The fund seeks high current income, liquidity and security of principal.
Principal Investment Strategies
Key investments The fund invests primarily in debt securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and in
related repurchase and reverse repurchase agreements. These U.S. government
securities in which the fund invests consist primarily of mortgage-related
securities and U.S. Treasury securities. Mortgage-related securities issued by
federal agencies or instrumentalities may be backed by the full faith and credit
of the U.S. Treasury, by the right of the issuer to borrow from the U.S.
government or only by the credit of the issuer itself.
Selection process The manager selects individual securities that it believes are
undervalued or will offer better protection of capital during periods of
changing market conditions. The manager spreads the fund's investments among
various sectors, focusing more heavily on sectors it believes will experience
less price volatility given prevailing interest rates and expected interest rate
movements. In selecting individual securities, the manager:
o Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and relative value
factors based on interest rate outlook
o Measures the potential impact of supply/demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual securities
that balance potential return and risk
o Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues
that it believes will provide a yield advantage
o Uses research to uncover inefficient sectors of the government securities
and mortgage markets and adjusts portfolio positions to take advantage of
new information
2 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Investments
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
o Interest rates increase, causing the prices of fixed income securities to
decline which would reduce the value of the fund's portfolio
o Prepayment or call risk: As interest rates decline, the issuers of
mortgage-related or callable securities held by the fund may pay principal
earlier than scheduled or exercise a right to call the securities, forcing
the fund to reinvest in lower yielding securities
o Extension risk: As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities, locking
in below-market interest rates and reducing the value of these securities
o The manager's judgment about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect
Payments of principal and interest on mortgage-backed securities issued by
instrumentalities of the U.S. government are guaranteed solely by the issuer and
not guaranteed by the U.S. government. Although payment of principal and
interest on mortgage-backed securities issued by U.S. agencies are guaranteed by
the full faith and credit of the U.S. government, this guarantee does not apply
to losses resulting from declines in the market value of these securities.
Who may want to invest The fund may be an appropriate investment if you:
o Are seeking income consistent with preservation of capital
o Are willing to accept the interest rate risks and market risks of
investing in government bonds and mortgage-related securities
o Prefer to invest in U.S. government securities rather than higher yielding
corporate or foreign securities
Smith Barney Mutual Funds 3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future. The bar chart
shows the performance of the fund's Class A shares for each of the past 10
calendar years. Class B, L and Y shares had different performance because of
their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
- --------------------------------------------------------------------------------
Total Return for Class A Shares
- --------------------------------------------------------------------------------
[The following table was depicted as a bar chart in the printed material.]
89 15.11
90 9.95
91 16.29
92 6.85
93 6.4
94 -1.48
95 16.52
96 3.97
97 9.67
98 6.04
99 -0.24
Quarterly returns: Highest: 8.49% in 2nd quarter 1989; Lowest: (2.18)% in 1st
quarter 1994
Risk return table
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Mortgage-Backed Securities Index (the "Lehman Index"), a broad-based
unmanaged index of mortgage-backed securities. This table assumes imposition of
the maximum sales charge applicable to the class, redemption of shares at the
end of the period, and reinvestment of distributions and dividends.
4 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1999
- --------------------------------------------------------------------------------
Since Inception
Class 1 year 5 years 10 years Inception Date
A (4.71)% 6.06% 6.75% 8.34% 10/09/84
B (4.92)% 6.38% n/a 6.75% 11/7/94
L (2.63)% 6.33% n/a 5.10% 12/2/92
Y 0.08% 7.37% n/a 5.82% 01/12/93
Lehman Index 1.86% 7.98% 7.78% 9.70% *
*Index comparison begins on 10/31/84.
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment) Class A Class B Class L Class Y
Maximum sales charge (load)
imposed on purchases 4.50% None 1.00% None
(as a % of offering price)
Maximum deferred sales charge
(load) (as a % of the lower of net
asset value at purchase or redemption) None* 4.50% 1.00% None
- --------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------
(Expenses deducted from fund assets) Class A Class B Class L Class Y
Management fee 0.48% 0.48% 0.48% 0.48%
Distribution and service (12b-1) fees 0.25% 0.75% 0.70% None
Other expenses 0.10% 0.10% 0.11% 0.06%
---- ---- ---- ----
Total annual fund operating expenses 0.83% 1.33% 1.29% 0.54%
==== ==== ==== ====
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Smith Barney Mutual Funds 5
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
Class A (with or without redemption) $ 531 $ 703 $ 890 $1,429
Class B (redemption at end of period) $ 585 $ 721 $ 829 $1,464
Class B (no redemption) $ 135 $ 421 $ 729 $1,464
Class L (redemption at end of period) $ 330 $ 505 $ 800 $1,641
Class L (no redemption) $ 230 $ 505 $ 800 $1,641
Class Y (with or without redemption) $ 55 $ 173 $ 302 $ 677
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Derivative contracts The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
o To hedge against the economic impact of adverse changes in the market
value of portfolio securities due to changes in interest rates
o As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
Risk of high portfolio turnover The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
lia-
6 U.S. Government Securities Fund
<PAGE>
bility. Frequent trading also increases transaction costs, which could detract
from the fund's performance.
Defensive investing The fund may depart from its principal investment strategies
in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSB Citi Fund Management LLC (successor
to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney Inc. The
manager's address is 388 Greenwich Street, New York, New York 10013. The manager
selects the fund's investments and oversees its operations. The manager and
Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses
produce a broad range of financial services -- asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading -- and use diverse channels to make them available to
consumer and corporate customers around the world.
James E. Conroy, investment officer of SSB CitiFund Management LLC. and managing
director of Salomon Smith Barney, has been responsible for the day to day
management of the fund since January 1996. Mr. Conroy has over 21 years of
investment management experience.
Management fees During the fiscal year ended December 31, 1999, the manager
received an advisory fee equal to 0.48% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer
agent (the "sub-transfer agent") to render certain shareholder record keeping
and accounting services and functions.
Smith Barney Mutual Funds 7
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
o If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
o For Class B shares, all of your purchase amount and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be
immediately invested. This may help offset the higher expenses of Class B
and Class L shares, but only if the fund performs well.
o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
- --------------------------------------------------------------------------------
Initial Additional
- --------------------------------------------------------------------------------
Classes A, B, L Class Y All Classes
General $1,000 $15 million $50
Individual Retirement Accounts,
Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $250 $15 million $50
Qualified Retirement Plans* $ 25 $15 million $25
Simple IRAs $ 1 n/a $1
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
The following revises and supersedes, as applocable, the information in the
Prospectus under "Sales charges."
8 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key features o Initial sales o No initial o Initial sales o No initial
charge sales charge charge is lower or deferred
o You may qualify o Deferred sales than Class A sales charge
for reduction or charge declines o Deferred sales o Must invest
waiver of initial over time charge for at least
sales charge o Converts to only 1 year $15 million
o Lower annual Class A o Does not convert o Lower annual
expenses than after 8 years to Class A expenses than
Class B and o Higher annual o Higher annual the other
Class L expenses than expenses than classes
Class A Class A
- ----------------------------------------------------------------------------------------------------
Initial sales Up to 4.50%; reduced None 1.00% None
charge for large purchases
and waived for
certain investors;
no charge for
purchases of
$500,000 or more
- ----------------------------------------------------------------------------------------------------
Deferred 1.00% on purchases Up to 4.50% charged 1.00% if you redeem None
sales charge of $500,000 or more when you redeem within 1 year of
if you redeem within shares. The charge purchase
1 year of purchase is reduced over
time and there
is no deferred
sales charge
after 6 years
- ----------------------------------------------------------------------------------------------------
Annual 0.25% of average 0.75% of average 0.70% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- ----------------------------------------------------------------------------------------------------
Exchangeable Class A shares of Class B shares of Class L shares of Class Y shares of
into* most Smith Barney most Smith Barney most Smith Barney most Smith Barney
funds funds. funds funds
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant, dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds 9
<PAGE>
- --------------------------------------------------------------------------------
Sales charges
- --------------------------------------------------------------------------------
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of:
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $25,000 4.50 4.71
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more 0.00 0.00
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege-- lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10 U.S. Government Securities Fund
<PAGE>
Letter of intent -- lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge, if any, as if
all shares had been purchased at once. You may include purchases on which you
paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD
o Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if the investor's Salomon Smith Barney Financial Consultant or
dealer representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- --------------------------------------------------------------------------------
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
- --------------------------------------------------------------------------------
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
- --------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- --------------------------------------------------------------------------------
Eight years In same proportion as On the date the shares
after the date the number of Class B originally acquired
of purchase shares converting is to would have converted
total Class B shares into Class A shares
you own (excluding
shares issued as
dividends)
Smith Barney Mutual Funds 11
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge
on Class L shares you buy before June 22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o On payments made through certain systematic withdrawal plans
o On certain distributions from a retirement plan
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
12 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a Salomon Smith Barney Financial Consultant or dealer representative
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to open a brokerage account and make arrangements to buy shares.
If you do not provide the following information, your order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no later than the
third business day after you place your order. Salomon Smith Barney or your
dealer representative may charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the fund's sub-transfer agent
Qualified retirement plans and certain other investors who are clients of a
selling group member are eligible to buy shares directly from the fund.
o Write the transfer agent at the following address:
Smith Barney Funds, Inc.
U.S. Government Securities Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
o Enclose a check made payable to the fund to pay for the shares. For
initial purchases, complete and send an account application.
o For more information, call the transfer agent at 1-800-451-2010.
- --------------------------------------------------------------------------------
Through a systematic investment plan
You may authorize Salomon Smith Barney, your dealer representative or the
sub-transfer agent to transfer funds automatically from a regular bank account,
cash held in a Salomon Smith Barney brokerage account or Smith Barney money
market fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25 monthly or $50 quarterly.
o If you do not have sufficient funds in your account on a transfer date,
Salomon Smith Barney, your dealer representative or the sub-transfer agent
may charge you a fee.
For more information, contact your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent or consult the SAI.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 13
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers a distinctive family of funds tailored to help meet the
varying needs of both large and small investors.
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to exchange into other Smith Barney funds. Be sure to read the
prospectus of the Smith Barney fund you are exchanging into. An exchange is a
taxable transaction.
o You may exchange shares only for shares of the same class of another Smith
Barney fund. Not all Smith Barney funds offer all classes.
o Not all Smith Barney funds may be offered in your state of
residence.Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent.
o You must meet the minimum investment amount for each fund (except for
systematic exchanges).
o If you hold share certificates, the sub-transfer agent must receive the
certificates endorsed for transfer or with signed stock powers (documents
transferring ownership of certificates) before the exchange is effective.
o The fund may suspend or terminate your exchange privilege if you engage in
an excessive pattern of exchanges.
- --------------------------------------------------------------------------------
14 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Waiver of additional sales charges
Your shares will not be subject to an initial sales charge at the time of the
exchange.
Your deferred sales charge (if any) will continue to be measured from the date
of your original purchase. If the fund you exchange into has a higher deferred
sales charge, you will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to exchange shares
through the transfer agent. You must complete an authorization form to authorize
telephone transfers. If eligible, you may make telephone exchanges on any day
the New York Stock Exchange is open. Call the transfer agent at 1-800-451- 2010
between 9:00 a.m. and 4:00 p.m. (Eastern time).
You can make telephone exchanges only between accounts that have identical
registrations.
- --------------------------------------------------------------------------------
By mail
If you do not have a Salomon Smith Barney brokerage account, contact your dealer
representative or write to the sub-transfer agent at the address on the opposite
page.
- --------------------------------------------------------------------------------
Smith Barney Mutual Funds 15
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally
Contact your Salomon Smith Barney Financial Consultant or dealer representative
to redeem shares of the fund.
If you hold share certificates, the sub-transfer agent must receive the
certificates endorsed for transfer or with signed stock powers before the
redemption is effective.
If the shares are held by a fiduciary or corporation, other documents may be
required.
Your redemption proceeds will be sent within three business days after your
request is received in good order. However, if you recently purchased your
shares by check, your redemption proceeds will not be sent to you until your
original check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your redemption proceeds
will be placed in your account and not reinvested without your specific
instruction. In other cases, unless you direct otherwise, your redemption
proceeds will be paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests to the
sub-transfer agent at the following address:
Smith Barney Funds, Inc.
U.S. Government Securities Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or number of shares to be
redeemed
o Signatures of each owner exactly as the account is registered
- --------------------------------------------------------------------------------
16 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to redeem shares
(except those held in retirement plans) in amounts up to $10,000 per day through
the transfer agent. You must complete an authorization form to authorize
telephone redemptions. If eligible, you may request redemptions by telephone on
any day the New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by check to your address of record or by
wire transfer to a bank account designated on your authorization form. You must
submit a new authorization form to change the bank account designated to receive
wire transfers and you may be asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic cash withdrawal plans
You can arrange for the automatic redemption of a portion of your shares on a
monthly or quarterly basis. To qualify you must own shares of the fund with a
value of at least $10,000 ($5,000 for retirement plan accounts) and each
automatic redemption must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if your automatic
payments do not exceed 1% per month of the value of your shares subject to a
deferred sales charge.
The following conditions apply:
o Your shares must not be represented by certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial Consultant or
dealer representative or consult the SAI.
Smith Barney Mutual Funds 17
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or
redeemed
o Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include a
signature guarantee if you:
o Are redeeming over $10,000 of shares
o Are sending signed share certificates or stock powers to the sub-transfer
agent
o Instruct the sub-transfer agent to mail the check to an address different
from the one on your account
o Changed your account registration
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
18 U.S. Government Securities Fund
<PAGE>
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the
New York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
o Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates The fund does not issue share certificates unless a
written request signed by all registered owners is made to the sub-transfer
agent. If you hold share certificates it will take longer to exchange or redeem
shares.
Smith Barney Mutual Funds 19
<PAGE>
- --------------------------------------------------------------------------------
Salomon Smith Barney Retirement Programs
- --------------------------------------------------------------------------------
You may be eligible to participate in a retirement program sponsored by Salomon
Smith Barney or one of its affiliates. The fund offers Class A and Class L
shares at net asset value to participating plans under the programs. You can
meet minimum investment and exchange amounts, if any, by combining the plan's
investments in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment and/or the
date your account is opened. Once a class of shares is chosen, all additional
purchases must be of the same class.
o For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services (a "Paychex
plan"), Class A shares may be purchased regardless of the amount invested.
o For plans opened prior to March 1, 2000 and for Paychex plans, the class
of shares you purchase depends on the amount of your initial investment.
o Class A shares may be purchased by plans investing at least $1
million.
o Class L shares may be purchased by plans investing less than $1
million. Class L shares are eligible to exchange into Class A shares
not later than 8 years after the plan joined the program. They are
eligible for exchange in the following circumstances:
If the plan was opened on or after June 21, 1996 and a total of $1 million is
invested in Smith Barney Funds Class L shares (other than money market funds),
all Class L shares are eligible for exchange after the plan is in the program 5
years.
If the account was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other than money market funds) on
December 31 in any year, all Class L shares are eligible for exchange on or
about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
20 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund generally pays dividends and makes capital gain
distributions, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from income. You do not pay a sales charge on
reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or a
dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
Smith Barney Mutual Funds 21
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices or quotations are not readily available,
or when the value of a security has been materially affected by events occurring
after a foreign exchange closes, the fund may price those securities at fair
value. Fair value is determined in accordance with procedures approved by the
fund's board. A fund that uses fair value to price securities may value those
securities higher or lower than another fund using market quotations to price
the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
22 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon request).
- --------------------------------------------------------------------------------
For a Class A share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.41 $13.61 $13.24 $13.59 $12.50
- ------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.75 0.71 0.85 0.84 0.92
Net realized and
unrealized gain (loss) (0.78) 0.08 0.38 (0.33) 1.09
- ------------------------------------------------------------------------------------------------------
Total income (loss)
from operations (0.03) 0.79 1.23 0.51 2.01
- ------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.71) (0.72) (0.86) (0.86) (0.92)
Net realized gains -- (0.27) (0.00)(2) -- --
Capital -- (0.00)(2) -- -- --
- ------------------------------------------------------------------------------------------------------
Total distributions (0.71) (0.99) (0.86) (0.86) (0.92)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.67 $13.41 $13.61 $13.24 $13.59
- ------------------------------------------------------------------------------------------------------
Total return (0.24)% 6.04% 9.67% 3.97% 16.52%
- ------------------------------------------------------------------------------------------------------
Net assets, end of
year (millions) $203 $251 $272 $312 $385
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.83% 0.81% 0.80% 0.79%(3) 0.79%
Interest expense -- 0.05 0.16 0.30 --
Net investment income 5.82% 5.22% 6.37 6.34 6.82
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 193% 268% 130% 265% 57%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Amount represents less than $0.01.
(3) Amount has been restated from the December 31, 1996 Annual Report.
Smith Barney Mutual Funds 23
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.42 $13.63 $13.26 $13.61 $12.51
- ------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.70 0.64 0.79 0.77 0.80
Net realized and
unrealized gain (loss) (0.79) 0.08 0.38 (0.33) 1.16
- ------------------------------------------------------------------------------------------------------
Total income (loss)
from operations (0.09) 0.72 1.17 0.44 1.96
- ------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.64) (0.66) (0.80) (0.79) (0.86)
Net realized gains -- (0.27) (0.00)(2) -- --
Capital -- (0.00)(2) -- -- --
- ------------------------------------------------------------------------------------------------------
Total distributions (0.64) (0.93) (0.80) (0.79) (0.86)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.69 $13.42 $13.63 $13.26 $13.61
- ------------------------------------------------------------------------------------------------------
Total return (0.66)% 5.47% 9.12% 3.44% 16.03
- ------------------------------------------------------------------------------------------------------
Net assets, end of
year (000)'s $13,558 $14,861 $12,238 $11,212 $11,116
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.33% 1.31% 1.31% 1.28%(3) 1.28
Interest expense -- 0.05 0.16 0.30 --
Net investment income 5.34 4.69 5.85 5.85 6.16
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 193% 268% 130% 265% 57
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Amount represents less than $0.01.
(3) Amount has been restated from the December 31, 1996 Annual Report.
24 U.S. Government Securities Fund
<PAGE>
- --------------------------------------------------------------------------------
For a Class L share of capital stock
outstanding throughout each year ended December 31:
<TABLE>
<CAPTION>
1999(1) 1998(1)(2) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.40 $13.60 $13.23 $13.58 $12.50
- ------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.70 0.65 0.77 0.78 0.86
Net realized and
unrealized gain (loss) (0.79) 0.08 0.40 (0.33) 1.09
- ------------------------------------------------------------------------------------------------------
Total income (loss)
from operations (0.09) 0.73 1.17 0.45 1.95
- ------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.64) (0.66) (0.80) (0.80) (0.87)
Net realized gains -- (0.27) (0.00)(3) -- --
Capital -- (0.00)(3) -- -- --
- ------------------------------------------------------------------------------------------------------
Total distributions (0.64) (0.93) (0.80) (0.80) (0.87)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.67 $13.40 $13.60 $13.23 $13.58
- ------------------------------------------------------------------------------------------------------
Total return (0.67)% 5.53% 9.18% 3.49% 15.93%
- ------------------------------------------------------------------------------------------------------
Net assets, end of
year (000)'s $14,308 $15,407 $14,464 $17,249 $21,559
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.29% 1.27% 1.27% 1.26%(4) 1.25%
Interest expense -- 0.05 0.16 0.30 --
Net investment income 5.38% 4.74 5.91 5.87 6.36
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 193% 268% 130% 265% 57%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) On June 12, 1998, the former Class C shares were renamed Class L shares.
(3) Amount represents less than $0.01.
(4) Amount has been restated from the December 31, 1996 Annual Report.
Smith Barney Mutual Funds 25
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of capital stock
outstanding throughout each year ended December 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.42 $13.64 $13.27 $13.61 $12.51
- ------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.79 0.75 0.88 0.88 1.00
Net realized and
unrealized gain (loss) (0.78) 0.08 0.39 (0.33) 1.06
- ------------------------------------------------------------------------------------------------------
Total income (loss)
from operations 0.01 0.83 1.27 0.55 2.06
- ------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.75) (0.78) (0.90) (0.89) (0.96)
Net realized gains -- (0.27) (0.00)(2) 0.00 0.00
Capital -- (0.00)(2) -- -- --
- ------------------------------------------------------------------------------------------------------
Total distributions (0.75) (1.05) (0.90) (0.89) (0.96)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.68 $13.42 $13.64 $13.27 $13.61
- ------------------------------------------------------------------------------------------------------
Total return 0.08% 6.29% 10.00% 4.30% 16.88%
- ------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $2,472 $3,447 $5,182 $5,589 $6,992
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.54% 0.52% 0.51% 0.50%(3) 0.49%
Interest expense -- 0.05 0.16 0.30 --
Net investment income 6.10% 5.52 6.65 6.64 7.22
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 193% 268% 130% 265% 57%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Amount represents less than $0.01.
(3) Amount has been restated from the December 31, 1996 Annual Report.
26 U.S. Government Securities Fund
<PAGE>
SOLOMONSMITHBARNEY
------------------
A member of citigroup[LOGO]
U.S. Government
Securities Fund
- --an investment portfolio of
Smith Barney Funds, Inc.
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013. Visit our web site. Our web
site is located at www.smithbarney.com
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company
Act file no. 811-01464)
FD02321 4/00
Part B
STATEMENT OF ADDITIONAL INFORMATION
April 28, 2000
SMITH BARNEY FUNDS, INC.
388 Greenwich Street
New York, New York 10013
STATEMENT OF ADDITIONAL INFORMATION
Smith Barney Funds, Inc. (the "fund") currently consists of three
portfolios: Large Cap Value Fund, U.S. Government Securities Fund and
Short-Term High Grade Bond Fund (collectively referred to as the
"portfolios" and individually as a "portfolio"). The Large Cap Value
Fund had been named the "Equity Portfolio" prior to February 20, 1998;
prior to December 11, 1995, it had been named the "Income and Growth
Portfolio." The Short-Term High Grade Bond Fund had been named Short-
Term U.S. Treasury Securities Fund prior to July 2, 1998.
This Statement of Additional Information ("SAI") is not a prospectus.
It is intended to provide more detailed information about Smith Barney
Funds, Inc. as well as matters already discussed in the associated
prospectuses, each dated April 28, 2000, as amended and/or
supplemented from time to time. Additional information about each
portfolio's investments is available in the portfolios' annual and
semi-annual reports to shareholders. Each portfolio's prospectus and
report may be obtained from the fund at the address listed above or by
calling (800) 421-2010, or from a Salomon Smith Barney Financial
Consultant.
TABLE OF CONTENTS PAGE
Investment Policies 2
Investment Restrictions 7
Directors and Officers 9
Additional Information Concerning Taxes 11
IRA and Other Prototype Retirement Plans 15
Performance Information 16
Valuation of Shares 19
Purchase and Redemption of Shares 19
Investment Management Agreement
and Other Services 27
Additional Information about the Manager 31
Custodian 32
Transfer Agent and Sub-Transfer Agent 32
Independent Auditors 32
Additional Information about the fund 33
Voting 33
Financial Statements 37
Appendix - Ratings of Debt Obligations 38
INVESTMENT POLICIES
The prospectus describes the investment objectives and policies
of each portfolio. The following discussion supplements the
description of each portfolio's investment policies in the prospectus.
The investment objectives and policies of each portfolio are non-
fundamental and thus may be modified by the Directors of the fund
provided that any modification is not prohibited by the portfolios'
investment restrictions or applicable laws. Each portfolio's
investment adviser is SSB Citi Fund Management LLC, successor to SSBC
Fund Management Inc. ("SSB Citi" or the "manager").
Large Cap Value Fund. The portfolio invests primarily in common
stocks offering a current return from dividends although the fund has
the authority to invest in some interest-paying debt obligations (such
as U.S. government obligations, investment grade bonds and
debentures), the portfolio manager under current market conditions has
no present intent to make such investments. The portfolio manager may
also invest in high quality short-term debt obligations (such as
commercial paper and repurchase agreements collateralized by U.S.
government securities with broker/dealers or other financial
institutions, including the fund's custodian). Under normal market
conditions, at least 65% and generally 80% or more of the portfolio's
assets will be invested in common stocks of companies that have a
market capitalization of at least $5 billion at the time of
investment. The portfolio may also purchase preferred stocks and
convertible securities. From time to time, a portion of the assets
may be invested in non-dividend paying stocks. The portfolio may make
investments in foreign securities, although the manager currently
intends to limit such investments to 5% of the portfolio's assets
(including European, Continental and Global Depositary Receipts). An
additional 10% of its assets may be invested in sponsored American
Depositary Receipts representing shares in foreign securities that are
traded in U.S. securities markets.
The portfolio may also invest in options (including swaps, caps,
collars and floors), unseasoned issuers, REITS and other investment
companies and may borrow money as a temporary measure for
extraordinary or emergency purposes.
U.S. Government Securities Fund. The portfolio invests
primarily in Government National Mortgage Association ("GNMA")
Certificates of the modified pass-through type and in mortgage
participation certificates issued by the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC") and will also normally include other "U.S. government
obligations," i.e., obligations issued or guaranteed by the United
States, its agencies or instrumentalities.
Under normal market conditions, the portfolio will seek to
invest substantially all of its assets - and the portfolio will invest
not less than 65% of its assets - in such securities. As a hedge
against changes in interest rates, the portfolio may enter into
agreements with dealers in GNMA Certificates to purchase or sell an
agreed-upon principal amount of GNMA Certificates at a specified price
on a certain date; provided, however, that settlement occurs within
120 days of the trade date.
Short-Term High Grade Bond Fund. The portfolio will seek to
achieve its objective by investing its assets primarily in high-grade
bonds, including U.S. Government securities and corporate obligations.
The portfolio's investments will be limited to debt securities that,
at the time of investment, are considered to be of "investment grade"
quality, i.e., securities rated by a nationally recognized statistical
rating organization ("NRSRO") within one of the four highest ratings
categories for debt securities, or securities deemed comparable
thereto by the manager. In addition, the portfolio will invest
primarily in the following securities: corporate bonds rated in one of
the three highest categories for debt securities by an NRSRO (such as
A or better by Moody's Investor Service, Inc. ("Moodys") or Standard &
Poor's Rating Group ("S&P")); U.S. government securities; and
negotiable bank certificates of deposit and bankers' acceptances
issued by domestic banks (but not their foreign branches) having total
assets in excess of $1 billion.
In an effort to minimize fluctuations in market value, the
dollar-weighted average maturity of the portfolio's securities shall
normally not be less than one nor more than four years, and the
average duration of the portfolio will typically be no greater than
3.5 years. The maximum remaining maturity of the securities in which
the portfolio shall normally invest will be no greater than ten years.
In calculating the maturity of a mortgage-backed security (such as a
GNMA Certificate, described below), the portfolio will use the average
life of the underlying mortgages in the pool backing the security,
which takes into account the expected rate of prepayments.
The portfolio may maintain a portion of its assets, which will
usually not exceed 10%, in money market obligations and in cash to
provide for payment of the portfolio's expenses and to meet redemption
requests. It is the policy of the portfolio to be as fully invested
in debt securities as practicable at all times. The portfolio
reserves the right, as a defensive measure, to hold money market
securities, including repurchase agreements or cash, in such
proportions as, in the opinion of management, prevailing market or
economic conditions warrant.
Credit Quality. Each portfolio may invest in investment grade
bonds, i.e. U.S. government securities or bonds rated, at the time of
purchase, in the four highest ratings categories by an NRSRO, such as
those rated Aaa, Aa, A and Baa by Moody's or AAA, AA, A and BBB by
S&P. Obligations rated in the lowest of the top four rating
categories (such as Baa by Moody's or BBB by S&P) may have speculative
characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments, including a greater possibility of
default or bankruptcy of the issuer, than is the case with higher
grade bonds. Subsequent to its purchase by a portfolio, an issue of
securities may cease to be rated or its rating may be reduced below
the minimum required for purchase by the portfolio. In addition, it
is possible that Moody's, S&P and other NRSROs might not timely change
their ratings of a particular issue to reflect subsequent events.
None of these events will require the sale of the securities by a
portfolio, although the manager will consider these events in
determining whether the portfolio should continue to hold the
securities.
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. Some U.S.
government securities, such as U.S. treasury bills and bonds, are
supported by the full faith and credit of the U.S. treasury; others
are supported by the right of the issuer to borrow from the United
States treasury; others, such as those of FNMA, are supported by the
discretionary authority of the U.S. government to purchase the
agency's obligations; still others, such as those of the Student Loan
Marketing Association and the FHLMC are supported only by the credit
of the instrumentality. GNMA is a government-chartered corporation
owned entirely by private stockholders, which is subject to general
regulation by the Secretary of Housing and Urban Development. FHLMC
is a U.S. government-created entity controlled by the Federal Home
Loan Banks.
GNMA Securities. GNMA Certificates are debt securities issued
by a mortgage banker or other mortgagee representing an interest in a
pool of mortgages insured by the Federal Housing Administration or the
Farmers Home Administration or guaranteed by the Veterans
Administration. The National Housing Act provides that the full faith
and credit of the United States is pledged to the timely payment of
principal and interest by GNMA of amounts due on these GNMA
Certificates. Scheduled payments of principal and interest are made
each month to holders of GNMA Certificates (such as the U.S.
Government Securities portfolio). Unscheduled prepayments of
mortgages are passed through to holders of GNMA Certificates at par
with the regular monthly payments of principal and interest, which
have the effect of reducing future payments on such Certificates and
either increasing or decreasing the yield realized by the portfolio,
depending on the cost of the underlying Certificate and its market
value at the time of prepayment. The income portions of monthly
payments received by these portfolios will be included in their net
investment income. The average life of GNMA Certificates varies with
the maturities of the underlying mortgages (with maximum maturities of
30 years) but is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result
of prepayments, refinancing of such mortgages or foreclosure.
GNMA Certificates have historically involved no credit risk,
however, due to fluctuations in interest rates, the market value of
such securities will vary during the period of a shareholder's
investment in the U.S. Government Securities portfolio. Prepayments
and scheduled payments of principal will be reinvested by the U.S.
Government Securities portfolio in then available GNMA Certificates
which may bear interest at a rate lower or higher than the Certificate
from which the payment was received. As with other debt securities,
the price of GNMA Certificates is likely to decrease in times of
rising interest rates; however, in periods of falling interest rates
the potential for prepayment may reduce the general upward price
increase of GNMA Certificates that might otherwise occur. If a
portfolio buys GNMA Certificates at a premium, mortgage foreclosures
or prepayments may result in a loss to the portfolio of up to the
amount of the premium paid since only timely payment of principal and
interest is guaranteed.
Zero Coupon Bonds. The U.S. Government Securities Fund and
Short-Term High Grade Bond Fund may each invest in zero-coupon debt
securities, which may be subject to greater volatility than other
types of debt securities. Because zero-coupon securities do not make
interest payments, such securities may fall more dramatically when
interest rates rise than securities paying out interest on a current
basis. However, when interest rates fall, zero-coupon securities may
rise more rapidly in value because the securities have locked-in a
particular rate of reinvestment that becomes more attractive the
further rates fall.
Repurchase and Reverse Repurchase Agreements. Each portfolio
may enter into repurchase agreements, wherein the seller agrees to
repurchase a security from the portfolio at an agreed-upon future
date, normally the next business day. The resale price is greater
than the purchase price, which reflects the agreed-upon rate of return
for the period the portfolio holds the security and which is not
related to the coupon rate on the purchased security. The fund
requires continual maintenance of the market value of the collateral
in amounts at least equal to the resale price, thus risk is limited to
the ability of the seller to pay the agreed-upon amount on the
delivery date; however, if the seller defaults, realization upon the
collateral by the portfolio may be delayed or limited or the portfolio
might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. A portfolio will only
enter into repurchase agreements with broker/dealers or other
financial institutions that are deemed creditworthy by the manager
under guidelines approved by the Board of Directors. It is the policy
of the fund not to invest in repurchase agreements that do not mature
within seven days if any such investment together with any other
illiquid assets held by a portfolio amount to more than 15% of that
portfolio's total assets.
Reverse repurchase agreements involve the sale of a portfolio's
securities with an agreement to repurchase the securities at an
agreed-upon price, date and interest payment and have the
characteristics of borrowing. Since the proceeds of borrowings under
reverse repurchase agreements are invested, this would introduce the
speculative factor known as "leverage." The securities purchased with
the funds obtained from the agreement and securities collateralizing
the agreement will have maturity dates no later than the repayment
date. Generally the effect of such a transaction is that a portfolio
can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep some of the
interest income associated with those securities. Such transactions
are only advantageous if the portfolio has an opportunity to earn a
greater rate of interest on the cash derived from the transaction than
the interest cost of obtaining that cash. Opportunities to realize
earnings from the use of the proceeds equal to or greater than the
interest required to be paid may not always be available, and the fund
intends to use the reverse repurchase technique only when the manager
believes it will be advantageous to the portfolio. The use of reverse
repurchase agreements may exaggerate any interim increase or decrease
in the value of the participating portfolio's assets. The fund's
custodian bank will maintain a separate account for the portfolio with
securities having a value equal to or greater than such commitments.
Securities Lending. Each portfolio may seek to increase its net
investment income by lending its securities provided such loans are
callable at any time and are continuously secured by cash or U.S.
government securities equal to no less than the market value,
determined daily, of the securities loaned. A portfolio will receive
amounts equal to dividends or interest on the securities loaned. It
will also earn income for having made the loan because cash collateral
pursuant to these loans will be invested in short-term money market
instruments. In connection with lending of securities a portfolio may
pay reasonable finders, administrative and custodial fees. Where
voting or consent rights with respect to loaned securities pass to the
borrower, management will follow the policy of calling the loan, in
whole or in part as may be appropriate, to permit the exercise of such
voting or consent rights if the issues involved have a material effect
on the portfolio's investment in the securities loaned. Apart from
lending its securities and acquiring debt securities of a type
customarily purchased by financial institutions, none of the foregoing
portfolios will make loans to other persons. The risks in lending
portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. Loans will only be
made to borrowers whom the manager deems to be of good standing and
will not be made unless, in the judgment of the manager, the interest
to be earned from such loans would justify the risk.
Short-Term Trading. U.S. Government Securities Fund and Short-
Term High Grade Bond Fund may, to a limited degree, each engage in
short-term trading to attempt to take advantage of short-term market
variations, or may dispose of a portfolio security prior to its
maturity if it believes such disposition advisable or it needs to
generate cash to satisfy redemptions. As the portfolio turnover rate
increases, so will a portfolio's dealer mark-ups and other transaction
related expenses. Investors should realize that risk of loss is
inherent in the ownership of any securities and that shares of a
portfolio will fluctuate with the market value of its securities.
When-Issued, Delayed Delivery and Forward Commitment
Investments. Each portfolio may purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis. Such
transactions arise when securities are purchased or sold by the
portfolio with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and
yield to the portfolio at the time of entering into the transaction.
Purchasing such securities involves the risk of loss if the value of
the securities declines prior to settlement date. The sale of
securities for delayed delivery involves the risk that the prices
available in the market on the delivery date may be greater than those
obtained in the sale transaction. The portfolio's custodian will
maintain, in a segregated account on behalf of the portfolio, cash,
U.S. government securities or other liquid securities that have a
value equal to or greater than the portfolio's purchase commitments;
the custodian will likewise segregate securities sold on a delayed
basis.
Foreign Investments. The Large Cap Value Fund may invest in
securities of foreign issuers. Such investments involve certain risks
not ordinarily associated with investments in securities of domestic
issuers. Such risks include currency exchange control regulations and
costs, the possibility of expropriation, seizure, or nationalization
of foreign deposits, less liquidity and volume and more volatility in
foreign securities markets and the impact of political, social,
economic or diplomatic developments or the adoption of other foreign
government restrictions that might adversely affect the payment of
principal and interest on or market value of securities. If it should
become necessary, the fund might encounter greater difficulties in
invoking legal processes abroad than would be the case in the United
States. In addition, there may be less publicly available information
about a non-U.S. company, and non-U.S. companies are not generally
subject to uniform accounting and financial reporting standards,
practices and requirements comparable to those applicable to U.S.
companies. Furthermore, some of these securities may be subject to
foreign brokerage and withholding or other foreign taxes.
For many foreign securities, there are U.S. dollar-denominated
American Depositary Receipts ("ADRs"), which are traded in the United
States on exchanges or over the counter and are sponsored and issued
by domestic banks. ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank.
ADRs do not eliminate all the risk inherent in investing in the
securities of foreign issuers. However, by investing in ADRs rather
than directly in foreign issuers' stock, the portfolio can avoid
currency risks during the settlement period for either purchases or
sales. In general, there is a large, liquid market in the United
States for many ADRs. The information available for ADRs is subject
to the accounting, auditing and financial reporting standards of the
domestic market or exchange on which they are traded, which standards
are more uniform and more exacting that those to which many foreign
issuers may be subject.
The Short-Term High Grade Bond Fund may invest in Yankee
obligations, including Yankee obligations of foreign banks. Yankee
obligations are dollar denominated obligations issued in the U.S.
capital markets by foreign issuers. Yankee obligations are subject to
certain sovereign risks. One such risk is the possibility that a
foreign government might prevent dollar denominated funds from flowing
across its borders. Other risks include: adverse political and
economic developments in a foreign country; the extent and quality of
government regulation of financial markets and institutions; the
imposition of foreign withholding taxes; and expropriation or
nationalization of foreign issuers.
Options. A "call option" gives a holder the right to purchase a
specific stock at a specified price referred to as the "exercise
price," within a specific period of time (usually 3, 6, or 9 months).
A "put option" gives a holder the right to sell a specific stock at a
specified price within a specified time period. The initial purchaser
of a call option pays the "writer" a premium, which is paid at the
time of purchase and is retained by the writer whether or not such
option is exercised. Put and call options are currently traded on The
Chicago Board Options Exchange and several other national exchanges.
Institutions such as the fund that sell (or "write") call options
against securities held in their investment portfolios retain the
premium. If the writer determines not to deliver the stock prior to
the option's being exercised, the writer may purchase in the secondary
market an identical option for the same stock with the same price and
expiration date in fulfillment of the obligation. In the event the
option is exercised the writer must deliver the underlying stock to
fulfill the option obligation. The brokerage commissions associated
with the buying and selling of call options are normally
proportionately higher than those associated with general securities
transactions.
Futures Contracts and Related Options. A futures contract is an
agreement between two parties to buy and sell a security for a set
price on a future date. Futures contracts are traded on designated
"contracts markets" which, through their clearing corporations,
guarantee performance of the contracts. Futures contracts and options
thereon may be undertaken for hedging and other risk management
purposes in an effort to reduce the impact of several kinds of
anticipated price fluctuation risks on the securities held by a
portfolio. For example, put options on interest rate futures might be
purchased to protect against declines in the market values of debt
securities occasioned by higher interest rates. If these transactions
are successful, the futures or options positions taken by a portfolio
will rise in value by an amount which approximately offsets the
decline in value of the portion of the securities held by a portfolio
that is being hedged. On other occasions, a portfolio may enter into
contracts to purchase the underlying instrument. For example, futures
contracts for the purchase of debt securities might be entered into to
protect against an anticipated increase in the price of debt
securities to be purchased in the future resulting from decreased
interest rates.
The U.S. Government Securities Fund and Short-Term High Grade
Bond Fund may purchase and sell interest rate futures contracts
("futures contracts") and options thereon as a hedge against changes
in interest rates. Currently, there are interest rate futures
contracts based on securities such as long-term Treasury bonds,
Treasury notes, GNMA Certificates and three-month Treasury bills.
Generally, if market interest rates increase, the value of
outstanding debt securities declines (and vice versa). Entering into
a futures contract for the sale of securities has an effect similar to
the actual sale of securities, although the sale of the futures
contract might be accomplished more easily and quickly. If interest
rates increased and the value of a portfolio's securities declined,
the value of the portfolio's futures contracts would increase, thereby
protecting the portfolio by preventing the net asset value from
declining as much as it otherwise would have. Similarly, entering
into futures contracts for the purchase of securities has an effect
similar to actual purchase of the underlying securities, but permits
the continued holding of securities other than the underlying
securities. For example, if the manager expects interest rates to
decline, a portfolio might enter into futures contracts for the
purchase of securities, so that it could gain rapid market exposure
that may offset anticipated increases in the cost of securities it
intends to purchase.
The U.S. Government Securities Fund also may purchase and sell
listed put and call options on futures contracts. An option on a
futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is
a put), at a specified exercise price at any time during the option
period. When an option on a futures contract is exercised, delivery
of the futures position is accompanied by cash representing the
difference between the current market price of the futures contract
and the exercise price of the option. The U.S. Government Securities
Fund may purchase put options on interest rate futures contracts in
lieu of, and for the same purpose as, the sale of a futures contract.
It also may purchase such put options in order to hedge a long
position in the underlying futures contract in the same manner as it
purchases "protective puts" on securities. The purchase of call
options on interest rate futures contracts is intended to serve the
same purpose as the actual purchase of the futures contract, and the
portfolio will set aside cash or cash equivalents sufficient to
purchase the amount of portfolio securities represented by the
underlying futures contracts.
A portfolio will incur brokerage costs whether or not its
hedging is successful and will be required to post and maintain
"margin" as a good-faith deposit against performance of its
obligations under futures contracts and under options written by the
portfolio. Futures and options positions are marked to the market
daily and the portfolio may be required to make subsequent "variation"
margin payments depending upon whether its positions increase or
decrease in value. In this context margin payments involve no
borrowing on the part of the portfolio.
The Short-Term High Grade Bond Fund and U.S. Government
Securities Fund may not purchase futures contracts or options thereon
if, immediately thereafter, more than 10% and 30%, respectively, of
their total assets would be so invested. In purchasing and selling
futures contracts, each portfolio will comply with rules and
interpretations of the Commodity Futures Trading Commission ("CFTC"),
under which the fund is excluded from regulation as a "commodity
pool." CFTC regulations permit use of commodity futures for bona fide
hedging purposes without limitations on the amount of assets committed
to margin.
Neither the U.S. Government Securities Fund nor Short-Term High
Grade Bond Fund will engage in transactions involving futures
contracts or options thereon for speculation but only as a hedge
against changes in the market values of debt securities held, or
intended to be purchased, by the portfolio and where the transactions
are appropriate to reduce the portfolios' risks. Each portfolio's
futures, and options on futures, transactions will be entered into for
traditional hedging purposes - that is, futures contracts will be sold
to protect against a decline in the price of securities that the
portfolio owns, or futures contracts will be purchased to protect the
portfolio against an increase in the price of securities it is
committed to purchase.
There is no assurance that a portfolio will be able to close out
it futures positions at any time, in which case it would be required
to maintain the margin deposits on the contract. There can be no
assurance that hedging transactions will be successful, as there may
be an imperfect correlation (or no correlation) between movements in
the prices of the futures contracts and of the securities being
hedged, or price distortions due to market conditions in the futures
markets. Where futures contracts are purchased to hedge against an
increase in the price of securities, but the market declines and a
portfolio does not invest in securities, the portfolio would realize a
loss on the futures contracts, which would not be offset by a
reduction in the price of securities purchased. Where futures
contracts are sold to hedge against a decline in the price of the
portfolio's securities but the market advances, the portfolio would
lose part or all of the benefit of the advance due to offsetting
losses in its futures positions.
Portfolio Turnover. Each portfolio effects portfolio
transactions with a view towards attaining the investment objectives
of the portfolio and is not limited to a predetermined rate of
portfolio turnover. A high portfolio turnover results in
correspondingly greater transaction costs in the form of dealer
spreads or brokerage commissions and other transaction costs that a
portfolio will bear directly, and may result in the realization of net
capital gains, distributions of which are taxable to shareholders.
See "Financial Highlights" in the prospectus and "Investment
Management Agreement and Other Services - Brokerage" in this SAI.
Economic and Monetary Union (EMU). EMU began on January 1, 1999
when 11 European countries adopted a single currency-the Euro. EMU
may create new economic opportunities for investors, such as lower
interest rates, easier cross-border mergers, acquisitions and similar
restructurings, more efficient distribution and product packaging and
greater competition. Budgetary decisions remain in the hands of each
participating country, but are subject to each country's commitment to
avoid "excessive deficits" and other more specific budgetary criteria.
A European Central Bank is responsible for setting the official
interest rate within the Euro zone. EMU and the introduction of the
Euro, however, present unique risks and uncertainties for investors in
EMU-participating countries, including: (I) monetary and economic
union on this scale has never before been attempted; (ii) there is
uncertainty whether participating countries will remain committed to
EMU in the face of changing economic conditions; (iii) instability
within EMU may increase the volatility of European markets and may
adversely affect the prices of securities of European issuers in the
funds'portfolios; (iv) there is uncertainty concerning the fluctuation
of the Euro relative to non-Euro currencies during the transition
period from January 1, 1999 to December 31, 2000, and beyond; and (v)
there is no assurance that interest rate, tax and labor regimes of
EMU-participating countries will converge over time. These and other
factors may cause market disruption and could adversely affect
European securities and currencies held by the fund.
INVESTMENT RESTRICTIONS
Each of the portfolios is subject to certain restrictions and
policies that are "fundamental," which means that they may not be
changed without a "vote of a majority of the outstanding voting
securities" of the portfolio, as defined under the Investment Company
Act of 1940, as amended (the "1940 Act") and Rule 18f-2 thereunder
(see "Voting"). The portfolios are subject to other restrictions and
policies that are "non-fundamental" and which may be changed by the
fund's Board of Directors without shareholder approval, subject to any
applicable disclosure requirements.
Fundamental Policies - All portfolios. Without the approval of
a majority of its outstanding voting securities, no portfolio may:
1. invest in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules,
regulations and orders thereunder.
2. issue "senior securities" as defined in the 1940 Act and the
rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders
thereunder.
3. invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities in
the same industry. For purposes of this limitation, securities
of the U.S. government (including its agencies and
instrumentalities) and securities of state or municipal
governments and their political subdivisions are not considered
to be issued by members of any industry.
4. borrow money, except that (a) the portfolio may borrow from
banks for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might
otherwise require the untimely disposition of securities, and
(b) the portfolio may, to the extent consistent with its
investment policies, enter into reverse repurchase agreements,
forward roll transactions and similar investment strategies and
techniques. To the extent that it engages in transactions
described in (a) and (b), the portfolio will be limited so that
no more than 33 -1/3% of the value of its total assets
(including the amount borrowed), valued at the lesser of cost or
market, less liabilities (not including the amount borrowed), is
derived from such transactions.
5. make loans. This restriction does not apply to: (a) the purchase
of debt obligations in which the portfolio may invest consistent
with its investment objectives and policies; (b) repurchase
agreements; and (c) loans of its portfolio securities, to the
fullest extent permitted under the Act.
6. engage in the business of underwriting securities issued by
other persons, except to the extent that the portfolio may
technically be deemed to be an underwriter under the Securities
Act of 1933, as amended, in disposing of portfolio securities.
7. for the Large Cap Value Fund and the U.S. Government Securities
Fund: purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall
not prevent the portfolio from (a) investing in securities of
issuers engaged in the real estate business or the business of
investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate
business or the business of investing in real estate) and
securities which are secured by real estate or interests
therein; (b) holding or selling real estate received in
connection with securities it holds or held; (c) trading in
futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the funds'
investment objective and policies); or (d) investing in real
estate investment trust securities.
for the Short-Term High Grade Bond Fund only: purchase or sell
real estate, real estate mortgages, real estate investment
trust securities, commodities or commodity contracts, but this
restriction shall not prevent the fund from (a) investing in
securities of issuers engaged in the real estate business or the
business of investing in real estate (including interests in
limited partnerships owning or otherwise engaging in the real
estate business or the business of investing in real estate) and
securities which are secured by real estate or interests
therein; (b) holding or selling real estate received in
connection with securities it holds or held; or (c) trading in
futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the funds'
investment objective and policies).
Nonfundamental Policies. As a nonfundamental policy, no portfolio
may:
1. purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and
sales of portfolio securities) or sell any securities short
(except "against the box"). For purposes of this restriction,
the deposit or payment by the portfolio of underlying securities
and other assets in escrow and collateral agreements with
respect to initial or maintenance margin in connection with
futures contracts and related options and options on securities,
indexes or similar items is not considered to be the purchase of
a security on margin;
2. invest 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.
Additional Nonfundamental Policies - Large Cap Value Fund. As a
nonfundamental policy, the Large
Cap Value Fund may not:
1. invest more than 5% of its total assets in issuers with less
than three years of continuous operation (including that of
predecessors) or 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;
2. invest in any company for the purpose of exercising control of
management;
3. 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
4. invest in interests in oil or gas or other mineral exploration
or development programs.
All of the foregoing restrictions which are stated in terms of
percentages will apply at the time an investment is made; a subsequent
increase or decrease in the percentage that may result from changes in
values or net assets will not result in a violation of the
restriction.
DIRECTORS AND OFFICERS
LEE ABRAHAM, Director
Retired; Director/Trustee of twelve investment companies associated
with Citigroup, Inc. ("Citigroup"); formerly Chairman and Chief
Executive Officer of Associated Merchandising Corporation, a major
retail merchandising and sourcing organization; His address is 106
Barnes Road, Stamford, Connecticut 06902; 72.
ALLAN J. BLOOSTEIN, Director
President of Allan J. Bloostein Associates, a consulting firm;
Director/Trustee of nineteen investment companies associated with
Citigroup; Director of CVS Corporation, a drug store chain, and
Taubman Centers Inc., a real estate development company; Retired Vice
Chairman and Director of The May Department Stores Company; His
address is 27 West 67th Street, New York, New York 10023; 70.
JANE DASHER, Director
Investment Officer, Korsant Partners, 283 Greenwich Avenue, Greenwich,
Connecticut 06830; Director/Trustee of twelve investment companies
associated with Citigroup; Prior to 1997 Independent Financial
Consultant; 50.
DONALD R. FOLEY, Director
Retired; 3668 Freshwater Drive, Jupiter, Florida 33477.
Director/Trustee of twelve investment companies associated with
Citigroup. Formerly Vice President of Edwin Bird Wilson, Incorporated
(advertising); 77.
RICHARD E. HANSON, Jr., Director
Head of School, New Atlanta Jewish Community High School, Atlanta,
Georgia, since September 1996; Director/Trustee of twelve investment
companies associated with Citigroup; formerly Headmaster, The Peck
School, Morristown, New Jersey; His address is 58 Ivy Chase, Atlanta,
GA 30342; 59.
PAUL HARDIN, Director
Professor of Law at University of North Carolina at Chapel Hill, 12083
Morehead, Chapel Hill, North Carolina 27514, Director/Trustee of
fourteen investment companies associated with Citigroup; Director of
The Summit Bancorporation; Formerly, Chancellor of the University of
North Carolina at Chapel Hill, University of North Carolina; 69.
*HEATH B. McLENDON, Chairman of the Board, President and Chief
Executive Officer
Managing Director of Salomon Smith Barney Inc. ("Salomon Smith
Barney"); Director/Trustee of 71 investment companies associated
with Citigroup; Director and President of SSB Citi and Travelers
Investment Adviser, Inc. ("TIA"); former Chairman of the Board
of Smith Barney Strategy Advisors Inc.; 7 World Trade Center,
New York, NY 10048; 66.
RODERICK C. RASMUSSEN, Director
Investment Counselor; 9 Cadence Court, Morristown, New Jersey 07960.
Director/Trustee of twelve investment companies associated with
Citigroup. Formerly Vice President of Dresdner and Company Inc.
(investment counselors); 73.
JOHN P. TOOLAN, Director
Retired; 13 Chadwell Place, Morristown, New Jersey 07960.
Director/Trustee of twelve investment companies associated with
Citigroup. Trustee of John Hancock funds; Formerly, Director and
Chairman of Smith Barney Trust Company, Director of Salomon Smith
Barney Holdings Inc. ("Holdings") and SSB Citi and Senior Executive
Vice President, Director and Member of the Executive Committee of
Smith Barney; 69.
JAMES E. CONROY, Vice President
Managing Director of Salomon Smith Barney and Vice President of
certain investment companies associated with Citigroup;7 World Trade
Center, New York, New York 10048; 48.
ELLEN CARDOZO SONSINO, Vice President
Managing Director of Salomon Smith Barney and Vice President of
certain other investment companies associated with Citigroup, 7 World
Trade Center, New York, New York 10048; 47.
LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Salomon Smith Barney; Senior Vice President and
Treasurer of 61 investment companies associated with Citigroup;
Director and Senior Vice President of SSB Citi and TIA; 42.
PAUL BROOK, Controller
Director of Salomon Smith Barney and Controller or Assistant Treasurer
of 43 investment companies associated with Citigroup; Managing
Director of AMT Capital Services Inc. from 1997-1998; Partner with
Ernst & Young LLP prior to 1997; 46.
CHRISTINA T. SYDOR, Secretary
Managing Director of Salomon Smith Barney; Secretary of 61 investment
companies associated with Citigroup; Secretary and General Counsel of
SSB Citi and TIA; 49.
_________________________
* Designates a Director of the fund who is an "interested person" of
the fund as defined in the 1940 Act. The business address of each
such Director and of each officer listed above, is 388 Greenwich
Street, New York, New York 10013, unless otherwise indicated.
As of March 29, 2000, directors and officers owned in the
aggregate less than 1% of the outstanding shares of each portfolio.
The following table shows the compensation paid by the fund to
each Director during the fund's last fiscal year. None of the officers
of the fund received any compensation from the fund for such period.
Officers and interested directors of the fund are compensated by
Salomon Smith Barney. The fund pays each Director who is not an
officer, director or employee of Salomon Smith Barney or any of its
affiliates a fee of $60,000 per annum and are allocated based on
relative net assets of each fund in the group plus a per meeting fee
of $2500 with respect to in- person meetings. In addition, these
directors receive $100 per fund for each telephone meeting plus
reimbursement for travel and out-of-pocket expenses. For the fund's
fiscal year ended December 31, 1999, such fees and expenses totaled
$14,695.
COMPENSATION TABLE
Director/Trustee
Aggregate
Compensati
on from
fund
Pension or
Retirement
Benefits
Accrued as
part of fund
Expenses
Total
Compensat
ion from
fund
Complex
Number of
Funds for
Which
Person
Serves
Within
fund
Complex
(as of
4/30/00)
Lee Abraham
$828
$0
$71,133
12
Allan J. Bloostein
$828
$0
$112,483
19
Jane Dasher
$1219
$0
$65,733
12
Donald R. Foley+
$1795
$0
$71,300
12
Paul Hardin
$2,717
$0
$90,450
14
Richard E. Hanson, Jr.
$800
$0
$68,233
12
Heath B. McLendon*
$0
$0
$0
71
Roderick C. Rasmussen
$1,795
$0
$71,200
12
John P. Toolan+
$1,495
$0
$69,100
12
________________________
* Designates a Director who is an "interested person".
+ Pursuant to a deferred compensation plan, the indicated Directors
have elected to defer payment of the following amounts of their
compensation from the fund: Donald R. Foley - $424 and John P. Toolan
- - $1,495, and the following amounts of their compensation from the
fund Complex: Donald R. Foley: $21,600 and John P. Toolan: $69,100.
Upon attainment of age 72 the fund's current Directors may elect to
change to emeritus status. Any directors elected or appointed to the
Board in the future will be required to change to emeritus status upon
attainment of age 80. Directors Emeritus are entitled to serve in
emeritus status for a maximum of 10 years during which time they are
paid 50% of the annual retainer fee and meeting fees otherwise
applicable to the fund's Directors/Trustees together with reasonable
out-of-pocket expenses for each meeting attended. For the last Fiscal
year, the total paid to Emeritus Directors by the fund was $885 which
was paid to Joseph Fleiss.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and
disposition of shares of a portfolio of the fund. Each prospective
shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of
investing in a portfolio. The summary is based on the laws in effect
on the date of this SAI, which are subject to change.
The portfolios and their Investments
Each portfolio intends to continue to qualify to be treated as a
regulated investment company each taxable year under the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, a
portfolio must, among other things: (a) derive at least 90% of its
gross income in each taxable year from dividends, interest, payments
with respect to securities, loans and gains from the sale or other
disposition of stock or securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each quarter of a portfolio's taxable
year, (i) at least 50% of the market value of a portfolio's assets is
represented by cash, securities of other regulated investment
companies, United States government securities and other securities,
with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of a portfolio's assets and not greater
than 10% of the outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its assets is invested in the
securities (other than United States government securities or
securities of other regulated investment companies) of any one issuer
or any two or more issuers that a portfolio controls and which are
determined to be engaged in the same or similar trades or businesses
or related trades or businesses.
As a regulated investment company, each portfolio will not be
subject to United States federal income tax on its investment company
taxable income (i.e., income other than any excess of its net realized
long-term capital gains over its net realized short-term capital
losses ("net realized capital gains") or on its net realized capital
gains, if any, that it distributes to its shareholders, provided that
an amount equal to at least 90% the sum of its investment company
taxable income, plus or minus certain other adjustments as specified
in the Code, its net tax-exempt income for the taxable year is
distributed, but will be subject to tax at regular corporate rates on
any taxable income or gains that it does not distribute.
The Code imposes a 4% nondeductible excise tax on each portfolio
to the extent the portfolio does not distribute by the end of any
calendar year at least 98% of its net investment income for that year
and 98% of the net amount of its capital gains (both long-and short-
term) for the one-year period ending, as a general rule, on October 31
of that year. For this purpose, however, any income or gain retained
by a portfolio that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from the
previous year. Each portfolio anticipates that it will pay such
dividends and will make such distributions as are necessary in order
to avoid the application of this excise tax.
If, in any taxable year, a portfolio fails to qualify as a
regulated investment company under the Code or fails to meet the
distribution requirement, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not
be deductible by the portfolio in computing its taxable income. In
addition, in the event of a failure to qualify, a portfolio's
distributions, to the extent derived from the portfolio's current or
accumulated earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the shareholders'
hands as long-term capital gains. If a portfolio fails to qualify as
a regulated investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to qualify
again as a regulated investment company. In addition, if a portfolio
failed to qualify as a regulated investment company for a period
greater than one taxable year, the portfolio may be required to
recognize any net built-in gains (the excess of the aggregate gains,
including items of income, over aggregate losses that would have been
realized if it had been liquidated) with respect to certain of its
assets in order to qualify as a regulated investment company in a
subsequent year.
At December 31, 1999, the unused capital loss carryovers of the
portfolios were approximately as follows: Short-Term High Grade Bond
Fund: $7,757,000 and U.S. Government Securities Fund: $8,818,000
For Federal income tax purposes, these amounts are available to be
applied against future securities gains, if any, realized. The
carryovers expire as follows:
December 31,
(in thousands)
2002
2003
2004
2007
Short-Term High Grade Bond Fund
3,858
1,124
$971
$1,804
U.S. Government Securities Fund
- ------
- -------
- ------
$8,818
The U.S. Government Securities Fund and the Short-Term High
Grade Bond Fund may invest in zero coupons securities having an
original issue discount (that is, the discount represented by the
excess of the stated redemption price at maturity over the issue
price). Each year, each portfolio will be required to accrue as
income a portion of this original issue discount even though the
portfolio will receive no cash payment of interest with respect to
these securities. In addition, if the portfolio acquires a security
after its initial issuance at a discount that resulted from
fluctuations in prevailing interest rates ("market discount"), the
portfolio may elect to include in income each year a portion of this
market discount.
Each portfolio will be required to distribute substantially all
of its income (including accrued original issue and recognized market
discount) in order to qualify for "pass-through" federal income tax
treatment and also in order to avoid the imposition of 4% excise tax
referred to above. Therefore, a portfolio may be required in some
years to distribute an amount greater than the total cash income the
portfolio actually receives. In order to make the required
distribution in such a year, a portfolio may be required to borrow or
to liquidate securities. The amount of cash that a portfolio would
have to distribute, and thus the degree to which securities would need
to be liquidated or borrowing made would depend upon the number of
shareholders who chose not to have their dividends reinvested.
A portfolio's transactions in options and futures, will be
subject to special provisions of the Code (including provisions
relating to "hedging transactions" and "straddles") that, among other
things, may affect the character of gains and losses realized by a
portfolio (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to a portfolio and defer
portfolio losses. These rules could therefore affect the character,
amount and timing of distributions to shareholders. These provisions
also (a) will require a portfolio to mark-to-market certain types of
the positions in its portfolio (i.e., treat them as if they were
closed out) and (b) may cause a portfolio to recognize income without
receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes. Each portfolio will monitor its
transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any
option, futures contract or hedged investment in order to mitigate the
effect of these rules and prevent disqualification of a portfolio as a
regulated investment company.
A portfolio's investment in Section 1256 contracts, such as
regulated futures contracts and options on most stock indices, are
subject to special tax rules. All section 1256 contracts held by a
portfolio at the end of its taxable year are required to be marked to
their market value, and any unrealized gain or loss on those positions
will be included in the portfolio's income as if each position had
been sold for its fair market value at the end of the taxable year.
The resulting gain or loss will be combined with any gain or loss
realized by the portfolio from positions in section 1256 contracts
closed during the taxable year. Provided such positions were held as
capital assets and were not part of a "hedging transaction" nor part
of a "straddle," 60% of the resulting net gain or loss will be treated
as long-term capital gain or loss, and 40% of such net gain or loss
will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the portfolio.
Foreign Investments. Dividends or other income (including, in
some cases, capital gains) received by the Large Cap Value Fund from
investments in foreign securities may be subject to withholding and
other taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate such
taxes in some cases. The Large Cap Value Fund will not be eligible to
elect to treat any foreign taxes it pays as paid by its shareholders,
who therefore will not be entitled to credits for such taxes on their
own tax returns. Foreign taxes paid by the Large Cap Value Fund will
reduce the return from its investments.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by a
portfolio in October, November or December of any calendar year and
payable to shareholders of record on a specified date in such a month
shall be deemed to have been received by each shareholder on December
31 of such calendar year and to have been paid by a portfolio not
later than such December 31, provided that such dividend is actually
paid by a portfolio during January of the following calendar year.
Each portfolio intends to distribute annually to its shareholders
substantially all of its investment company taxable income, and any
net realized long-term capital gains in excess of net realized short-
term capital losses (including any capital loss carryovers). Each
portfolio currently expects to distribute any such excess annually to
its shareholders. However, if a portfolio retains for investment an
amount equal to all or a portion of its net long-term capital gains in
excess of its net short-term capital losses and capital loss
carryovers, it will be subject to a corporate tax (currently at a rate
of 35%) on the amount retained. In that event, a portfolio will
designate such retained amounts as undistributed capital gains in a
notice to its shareholders who (a) will be required to include in
income for United Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount,
(b) will be entitled to credit their proportionate shares of the 35%
tax paid by the portfolio on the undistributed amount against their
United States federal income tax liabilities, if any, and to claim
refunds to the extent their credits exceed their liabilities, if any,
and (c) will be entitled to increase their tax basis, for United
States federal income tax purposes, in their shares by an amount equal
to 65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal
income tax on such capital gains will be entitled to a refund of their
pro rata share of such taxes paid by a portfolio upon filing
appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS").
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United States
shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that a portfolio
designates as capital gains dividends are taxable as long-term capital
gains, whether paid in cash or in shares and regardless of how long a
shareholder has held shares of a portfolio. Dividends and
distributions paid by a portfolio (except for the portion thereof, if
any, attributable to dividends on stock of U.S. corporations received
by a portfolio) will not qualify for the deduction for dividends
received by corporations. Distributions in excess of a portfolio's
current and accumulated earnings and profits will, as to each
shareholder, be treated as a tax-free return of capital, to the extent
of a shareholder's basis in his shares of a portfolio, and as a
capital gain thereafter (if the shareholder holds his shares of a
portfolio as capital assets).
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of
shares just purchased at that time may reflect the amount of the
forthcoming distribution, such dividend or distribution may
nevertheless be taxable to them.
If a portfolio is the holder of record of any stock on the
record date for any dividends payable with respect to such stock, such
dividends are included in a portfolio's gross income not as of the
date received but as of the later of (a) the date such stock became
ex-dividend with respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the declared, but
unpaid, dividends) or (b) the date a portfolio acquired such stock.
Accordingly, in order to satisfy its income distribution requirements,
a portfolio may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year
than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the
difference between the amount realized and his basis in his shares.
Such gain or loss will be treated as capital gain or loss, if the
shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more than
one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced,
including replacement through the reinvesting of dividends and capital
gains distributions in a portfolio, within a 61-day period beginning
30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a shareholder on
the sale of a portfolio share held by the shareholder for six months
or less will be treated for United States federal income tax purposes
as a long-term capital loss to the extent of any distributions or
deemed distributions of long-term capital gains received by the
shareholder with respect to such share.
Backup Withholding. Each portfolio may be required to withhold,
for United States federal income tax purposes, 31% of the dividends
and distributions payable to shareholders who fail to provide a
portfolio with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that
they are subject to backup withholding. Certain shareholders are
exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a
shareholder's United States federal income tax liabilities.
Notices. Shareholders will be notified annually by a portfolio
as to the United States federal income tax status of the dividends,
distributions and deemed distributions attributable to undistributed
capital gains (discussed above in "Dividends and Distributions") made
by a portfolio to its shareholders. Furthermore, shareholders will
also receive, if appropriate, various written notices after the close
of a portfolio's taxable year regarding the United States federal
income tax status of certain dividends, distributions and deemed
distributions that were paid (or that are treated as having been paid)
by a portfolio to its shareholders during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
The foregoing is only a summary of certain tax consequences affecting
the portfolios and their shareholders. Shareholders are advised to
consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the portfolios.
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust agreements
have been approved by the IRS and are available from the fund or
Salomon Smith Barney; investors should consult with their own tax or
retirement planning advisors prior to the establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Small Business Job Protection Act of 1996 changed the
eligibility requirements for participants in Individual Retirement
Accounts ("IRAs"). Under these new provisions, if you or your spouse
have earned income, each of you may establish an IRA and make maximum
annual contributions equal to the lesser of earned income or $2,000.
As a result of this legislation, married couples where one spouse is
non-working may now contribute a total of $4,000 annually to their
IRAs.
The Taxpayer Relief Act of 1997 changed the requirements for
determining whether or not you are eligible to make a deductible IRA
contribution. If you are considered an active participant in an
employer-sponsored retirement plan, you may still be eligible for a
full or partial deduction depending upon your combined adjusted gross
income ("AGI"). For married couples filing jointly for 2000, a full
deduction is permitted if your combined AGI is $52,000 or less
($32,000 or less for unmarried individuals); a partial deduction will
be allowed when AGI is between $52,000-$62,000 ($32,000-$42,000 for an
unmarried individual); and no deduction will be allowed when AGI is
above $62,000 ($42,000 for an unmarried individual). However, if you
are married and your spouse is covered by a employer-sponsored
retirement plan, but you are not, you will be eligible for a full
deduction if your combined AGI is $150,000 or less. A partial
deduction is permitted if your combined AGI is between $150,000-
$160,000 and no deduction is permitted after $160,000.
The rules applicable to so-called "Roth IRAs" differ from those
described above.
A Rollover IRA is available to defer taxes on lump sum payments
and other qualifying rollover amounts (no maximum) received from
another retirement plan.
An employer who has established a Simplified Employee Pension -
IRA ("SEP-IRA") on behalf of eligible employees may make a maximum
annual contribution to each participant's account of 15% (up to
$25,500) of each participant's compensation. Compensation is capped
at $170,000 for 2000.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and non-
corporate entities may purchase shares of the fund through the Smith
Barney Prototype Paired Defined Contribution Plan. The prototype
permits adoption of profit-sharing provisions, money purchase pension
provisions, or both, to provide benefits for eligible employees and
their beneficiaries. The prototype provides for a maximum annual tax
deductible contribution on behalf of each Participant of up to 25% of
compensation, but not to exceed $30,000 (provided that a money
purchase pension plan or both a profit-sharing plan and a money
purchase pension plan are adopted thereunder).
PERFORMANCE INFORMATION
From time to time the fund may advertise a portfolio's total
return, average annual total return and yield in advertisements. In
addition, in other types of sales literature the fund may also
advertise a portfolio's current dividend return. These figures are
based on historical earnings and are not intended to indicate future
performance. The total return shows what an investment in the
portfolio would have earned over a specified period of time (one, five
or ten years) assuming the payment of the maximum sales load when the
investment was first made, that all distributions and dividends by the
portfolio were reinvested on the reinvestment dates during the period
less the maximum sales load charged upon reinvestment and less all
recurring fees. The average annual total return is derived from this
total return, which provides the ending redeemable value. The Fund
may also quote a portfolio's total return for present shareholders
that eliminates the sales charge on the initial investment.
A portfolio's "average annual total return," is computed
according to a formula prescribed by the SEC. The formula can be
expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a
hypothetical $1,000 investment made at
the beginning of a 1-, 5- or 10- year
period at the end of a 1-, 5- or 10-year
period (or fractional portion thereof),
assuming reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A portfolio's net
investment income changes in response to fluctuations in interest
rates and the expenses of the portfolio.
Each portfolio's average annual total return with respect to its
Class A Shares for the one-year period, five-year period, ten-year
period (if applicable), and for the life of the portfolio ended
December 31, 1999 is as follows:
One Year
Five Years
Ten Years
Life
Inception
Date
Large Cap Value
(5.86)%
16.33%
11.29%
11.22%
5/18/67
U.S. Government
(4.71)%
6.06%
6.75%
8.34%
10/9/84
Short-Term High
Grade
0.76%
5.71%
- --
5.11%
11/11/91
Each portfolio's average annual total return with respect to its
Class B Shares (where applicable)for the one-year period, five year
and the life of such portfolio's Class B shares through December 31,
1999 is as follows:
Portfolio One Year Five Years Life Inception
Date
Large Cap Value (6.31)% 16.53%
15.82 11/7/94
U.S. Government (4.92)% 6.38% 6.75
11/7/94
Each portfolio's average annual total return with respect to its
Class L Shares for the one-year period, five-year period and for the
life of such portfolio's Class L shares through December 31, 1999 is
as follows:
Portfolio One Year Five Years Life Inception
Date
Large Cap Value (3.54)% 16.38%
12.87% 12/2/92
U.S. Government (2.63)% 6.33% 5.10%
12/2/92
Each portfolio's average annual total return with respect to its
Class Y Shares* for the one-year period, five year period and for the
life of such portfolio's Class Y shares through December 31, 1999 is
as follows:
Portfolio One Year Five Years Life Inception
Date
Large Cap Value (0.54)% -- 13.79%
2/06/96
U.S. Government 0.08% 7.37% 5.82%
1/12/93
Short-Term High Grade 1.26% -- 4.36%
2/07/96
*Class Y shares do not incur sales charges nor deferred sales charges.
Each portfolio's average annual total return with respect to its
Class Z Shares** (where applicable) for the one-year period, five year
period and for the life of such portfolio's Class Z shares through
December 31, 1999 is as follows:
Portfolio One Year Five Years Life
Inception Date
Large Cap Value 0.54% 17.91%
17.17% 11/07/94
**Class Z shares do not incur sales charges nor deferred sales
charges.
If the maximum sales charges or applicable CDSCs had not been
deducted, the average annual total returns would have been as follows:
Each portfolio's average annual total return with respect to its
Class A Shares for the one-year period, five-year period, ten-year
period (if applicable), and for the life of the portfolio ended
December 31, 1999 is as follows:
One Year
Five Years
Ten Years
Life
Inception
Date
Large Cap Value
(0.91)%
17.53%
11.86%
12.47%
5/18/67
U.S. Government
(0.24)%
7.05%
7.25%
8.67%
10/9/84
Short-Term High
Grade
0.76%
5.71%
- --
5.11%
11/11/91
Each portfolio's average annual total return with respect to its
Class B Shares (where applicable) for the one-year period and the life
of such portfolio's Class B shares through December 31, 1999 is as
follows:
Portfolio One Year Five Years Life Inception
Date
Large Cap Value (1.66)% 16.63 15.82%
11/7/94
U.S. Government (0.67)% 6.53% 6.75%
11/7/94
Each portfolio's average annual total return with respect to its
Class L Shares for the one-year period, five-year period and for the
life of such portfolio's Class L shares through December 31, 1999 is
as follows:
Portfolio One Year Five Years Life
Inception Date
Large Cap Value (1.65)% 16.61%
13.03% 12/2/92
U.S. Government (0.66)% 6.55%
5.25% 12/2/92
Note that effective October 10, 1994 Class C shares were
reclassified as additional Class A shares with respect to the Large
Cap Value Fund and that effective November 7, 1994 Class C shares were
redesignated Class Y shares with respect to the U.S. Government
Securities Fund. In addition, effective November 7, 1994 then existing
Class B shares of each portfolio were designated as Class C shares.
Each portfolio (except the Short-Term High Grade Bond Fund) began to
offer new Class B shares on November 7, 1994. Each portfolio's Class
C shares were reclassified as Class L shares on June 12, 1998.
Each portfolio's yield is computed by dividing the net
investment income per share earned during a specified thirty day
period by the maximum offering price per share on the last day of such
period and annualizing the result. For purposes of the yield
calculation, interest income is determined based on a yield to
maturity percentage for each long-term debt obligation in the
portfolio; income on short-term obligations is based on current
payment rate. For the 30-day period ended December 31, 1999, U.S.
Government Fund's Class A share, Class B, Class L share and Class Y
share yields were 5.82%, 5.60%, 5.58% and 6.41%, respectively. For
the 30-day period ended December 31, 1999, Short-Term High Grade Bond
Fund's Class A share and Class Y share yields were 5.50% and 6.01%,
respectively.
The Fund calculates current dividend return for the U.S.
Government Securities Fund by analyzing the most recent quarterly
distribution from investment income, including net equalization
credits or debits, and dividing by the net asset value or the maximum
public offering price (including sales charge) on the last day of the
period for which current dividend return is presented. The Fund
calculates current dividend return for the Large Cap Value Fund by
dividing the dividends from investment income declared during the most
recent twelve months by the net asset value or the maximum public
offering price (including sales charge) on the last day of the period
for which current dividend return is presented. The Fund calculates
current dividend return for the Short-Term High Grade Bond Fund by
analyzing the most recent monthly distribution, including net
equalization credits and debits, and dividing by the net asset value
or the maximum public offering price (including sales charge) on the
last day of the period for which current dividend return is presented.
From time to time, the fund may include a portfolio's current dividend
return in information furnished to present or prospective shareholders
and in advertisements.
A portfolio's current dividend return may vary from time to time
depending on market conditions, the composition of its investment
portfolio and operating expenses. These factors and possible
differences in the methods used in calculating current dividend return
should be considered when comparing the portfolio's current dividend
return to yields published for other investment companies in other
investment vehicles. Current dividends return should also be
considered relative to changes in the value of the portfolio's shares
and to the risks associated with the portfolio's investment objective
and policies. For example, in comparing current dividend returns with
those offered by Certificates of Deposit ("CDs"), it should be noted
that CDs are insured (up to $100,000) and offer a fixed rate of
return.
Performance information may be useful in evaluating a portfolio
and for providing a basis for comparison with other financial
alternatives. Since the performance of each portfolio changes in
response to fluctuations in market conditions, interest rates and
portfolio expenses, no performance quotation should be considered a
representation as to the portfolio's performance for any future
period.
VALUATION OF SHARES
The net asset value of each portfolio's classes of shares will
be determined on any day that the New York Stock Exchange is open.
The New York Stock Exchange is closed on the following holidays: New
Year's Day, Martin Luther King, Jr's. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Because of the differences in distribution fees
and class-specific expenses, the per share net asset value of each
class of a portfolio may differ.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
Detailed information about the purchase, redemption and exchange
of fund shares appears in the prospectus.
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through Salomon Smith
Barney ("Dealer Representative"). In addition, certain investors,
including qualified retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from the funds. When
purchasing shares of the funds, investors must specify whether the
purchase is for Class A, Class B, Class L or Class Y shares. Salomon
Smith Barney and Dealer Representatives may charge their customers an
annual account maintenance fee in connection with a brokerage account
through which an investor purchases or holds shares. Accounts held
directly at PFPC Global Fund Services (the "sub-transfer agent") are
not subject to a maintenance fee.
Purchases of the fund's Class Z shares must be made in
accordance with the terms of a Qualified Plan or a Salomon Smith
Barney UIT. There are no minimum investment requirements for Class Z
shares; however the Fund reserves the right to vary this policy at any
time. Shareholders acquiring Class Z shares through a Qualified Plan
or a Salomon Smith Barney UIT should consult the terms of their
respective plans for redemption provisions.
Investors in Class A, Class B and Class L shares may open an
account in the funds, where offered, by making an initial investment
of at least $1,000 for each account, or $250 for an IRA or a Self-
Employed Retirement Plan, in the fund. Investors in Class Y shares may
open an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all Classes.
For participants in retirement plans qualified under Section 403(b)(7)
or Section 401(c) of the Code, the minimum initial investment required
for Class A, Class B and Class L shares and the subsequent investment
requirement for all Classes in the fund is $25. For shareholders
purchasing shares of the funds through the Systematic Investment Plan
on a monthly basis, the minimum initial investment requirement for
Class A, Class B and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders purchasing
shares of the fund through the Systematic Investment Plan on a
quarterly basis, the minimum initial investment required for Class A,
Class B and Class L shares and the subsequent investment requirement
for all Classes is $50. There are no minimum investment requirements
for Class A shares for employees of Citigroup and its subsidiaries,
including Salomon Smith Barney, unitholders who invest distributions
from a UIT sponsored by Salomon Smith Barney, and Directors/Trustees
of any of the Smith Barney Mutual Funds, and their spouses and
children. The funds reserve the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering
of shares from time to time. Shares purchased will be held in the
shareholder's account by the sub-transfer agent. Share certificates
are issued only upon a shareholder's written request to the sub-
transfer agent.
Purchase orders received by the funds or a Salomon Smith Barney
Financial Consultant prior to the close of regular trading on the
NYSE, on any day the fund calculates its net asset value, are priced
according to the net asset value determined on that day (the ''trade
date''). Orders received by a Dealer Representative prior to the
close of regular trading on the NYSE on any day the fund calculates
its net asset value, are priced according to the net asset value
determined on that day, provided the order is received by the funds or
the funds' agent prior to its close of business. For shares purchased
through Salomon Smith Barney or a Dealer Representative purchasing
through Salomon Smith Barney, payment for shares of the funds is due
on the third business day after the trade date. In all other cases,
payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to
their accounts at any time by purchasing shares through a service
known as the Systematic Investment Plan. Under the Systematic
Investment Plan, Salomon Smith Barney or the sub-transfer agent is
authorized through preauthorized transfers of at least $25 on a
monthly basis or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other financial institution
on a monthly or quarterly basis as indicated by the shareholder, to
provide for systematic additions to the shareholder's fund account. A
shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Salomon Smith Barney or the sub-
transfer agent. The Systematic Investment Plan also authorizes
Salomon Smith Barney to apply cash held in the shareholder's Salomon
Smith Barney brokerage account or redeem the shareholder's shares of a
Smith Barney money market fund to make additions to the account.
Additional information is available from the fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Volume Discounts
The schedules of sales charges described in the prospectus apply
to purchases of shares of the U.S. Government Securities Fund or Large
Cap Value Fund made by any "purchaser," which term is defined to
include the following: (a) an individual; (b) an individual's spouse
and his or her children purchasing shares for his or her own account;
(c) a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account; (d) a pension, profit-sharing or
other employee benefit plan qualified under Section 401(a) of the
Internal Revenue Code (the "Code") and qualified employee benefit
plans of employers who are "affiliated persons" of each other within
the meaning of the 1940 Act; (e) tax-exempt organizations enumerated
in Section 501(c)(3) or (13) of the Code; or (f) any other organized
group of persons, provided that the organization has been in existence
for at least six months and was organized for a purpose other than the
purchase of investment company securities at a discount. Purchasers
who wish to combine purchase orders to take advantage of volume
discounts should contact a Salomon Smith Barney Financial Consultant.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares of
the U.S. Government Securities Fund or Large Cap Value Fund may be
made at net asset value without a sales charge in the following
circumstances: (a) sales to (i) Board Members and employees of
Citigroup and its subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including retired Board
Members and employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan for
such persons and (ii) employees of members of the National Association
of Securities Dealers, Inc., provided such sales are made upon the
assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to any other
investment company to effect the combination of such company with the
fund by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Salomon Smith Barney
Financial Consultant (for a period up to 90 days from the commencement
of the Financial Consultant's employment with Salomon Smith Barney),
on the condition the purchase of Class A shares is made with the
proceeds of the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer, (ii) was sold
to the client by the Financial Consultant and (iii) was subject to a
sales charge; (d) purchases by shareholders who have redeemed Class A
shares in the fund (or Class A shares of another Smith Barney Mutual
Fund that is offered with a sales charge) and who wish to reinvest
their redemption proceeds in the fund, provided the reinvestment is
made within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory subsidiaries of
Citigroup; (f) direct rollovers by plan participants of distributions
from a 401(k) plan offered to employees of Citigroup or its
subsidiaries or a 401(k) plan enrolled in the Smith Barney 401(k)
Program (Note: subsequent investments will be subject to the
applicable sales charge); (g) purchases by a separate account used to
fund certain unregistered variable annuity contracts; (h) investments
of distributions from or proceeds from a sale of a UIT sponsored by
Salomon Smith Barney; (i) purchases by investors participating in a
Salomon Smith Barney fee-based arrangement; and (j) purchases of
Class A shares by Section 403(b) or Section 401(a) (k) accounts
associated with Copeland Retirement Programs and (l) Travelers
Indemnity Company under the Collateral Choice Program. In order to
obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales charge.
Right of Accumulation
Class A shares of the U.S. Government Securities Fund and Large
Cap Value Fund may be purchased by "any person," which includes an
individual and his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary account, at a
reduced sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net asset value of
all Class A shares of the portfolio and of portfolios sponsored by
Salomon Smith Barney which are offered with a sales charge listed
under "Exchange Privilege" below then held by such person and applying
the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at
the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge. The right of accumulation is
subject to modification or discontinuance at any time with respect to
all shares purchased thereafter.
Group Purchases
Upon completion of certain automated systems, a reduced sales
charge or purchase at net asset value will also be available to
employees (and partners) of the same employer purchasing as a group,
provided each participant makes the minimum initial investment
required. The sales charge applicable to purchases by each member of
such a group will be determined in accordance with the schedule in the
prospectus and will be based upon the aggregate sales of Class A
shares of the Smith Barney funds offered with a sales charge to, and
share holdings of, all members of the group. To be eligible for such
reduced sales charges or to purchase at net asset value, all purchases
must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan
must be open to specified partners or employees of the employer and
its subsidiaries, if any. Such plan may, but is not required to,
provide for payroll deductions, IRAs or investments pursuant to
retirement plans under Sections 401 or 408 of the Code. Salomon Smith
Barney may also offer a reduced sales charge or net asset value
purchase for aggregating related fiduciary accounts under such
conditions that Salomon Smith Barney will realize economies of sales
efforts and sales related expenses. An individual who is a member of
a qualified group may also purchase Class A shares at the reduced
sales charge applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of Class A shares offered with a
sales charge that have been previously purchased and are still owned
by the group, plus the amount of the current purchase. A "qualified
group" is one which (a) has been in existence for more than six
months, (b) has a purpose other than acquiring fund shares at a
discount and (c) satisfies uniform criteria which enable Salomon Smith
Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be
available to arrange for group meetings between representatives of the
portfolio and the members, and must agree to include sales and other
materials related to the fund in its publications and mailing to
members at no cost to Salomon Smith Barney. In order to obtain such
reduced sales charge or to purchase at net asset value, the purchaser
must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to
the discretion of Salomon Smith Barney.
Letter of Intent
Class A Shares. A Letter of Intent for amounts of $50,000 or
more provides an opportunity for an investor to obtain a reduced sales
charge by aggregating investments over a 13 month period, provided
that the investor refers to such Letter when placing orders. For
purposes of a Letter of Intent, the "Amount of Investment" as referred
to in the sales charge table in the prospectus includes purchases of
all Class A shares of a portfolio and other Smith Barney funds offered
with a sales charge over the 13 month period based on the total amount
of intended purchases plus the value of all Class A shares previously
purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter
of Intent. Each investment made during the period receives the
reduced sales charge applicable to the total amount of the investment
goal. If the goal is not achieved within the period, the investor
must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed. Please contact a Salomon
Smith Barney Financial Consultant or Citi Fiduciary Trust Company (the
"Transfer Agent") to obtain a Letter of Intent application.
Class Y Shares. A Letter of Intent may also be used as a way
for investors to meet the minimum investment requirement for Class Y
shares. Such investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of a portfolio and agree to purchase a
total of $15,000,000 of Class Y shares of the portfolio within 13
months from the date of the Letter. If a total investment of
$15,000,000 is not made within the thirteen-month period, all Class Y
shares purchased to date will be transferred to Class A shares, where
they will be subject to all fees (including a service fee of 0.25%)
and expenses applicable to the fund's Class A shares, which may
include a CDSC of 1.00%. Each portfolio expects that such transfer
will not be subject to Federal income taxes. Please contact a Salomon
Smith Barney Financial Consultant or the Transfer Agent for further
information.
Salomon Smith Barney Retirement Programs
You may be eligible to participate in a retirement program
sponsored by Salomon Smith Barney or one of its affiliates. The fund
offers Class A and Class L shares at net asset value to participating
plans under the programs. You can meet minimum investment and exchange
amounts, if any, by combining the plan's investments in any of the
Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the
class of shares you may purchase depends on the amount of your initial
investment and/or the date your account is opened. Once a class of
shares is chosen, all additional purchases must be of the same class.
For plans opened on or after March 1, 2000 that are not part of
the Paychex offering, Class A shares may be purchased regardless of
the amount invested.
For plans opened prior to March 1, 2000 and for plans that are
part of the Paychex offering, the class of shares you may purchase
depends on the amount of your initial investment:
Class A Shares. may be purchased by plans investing at least $1
million.
Class L Shares. Class L shares may be purchased by plans
investing less than $1 million. Class L shares are eligible to
exchange into Class A shares not later than 8 years after the plan
joined the program. They are eligible for exchange in the following
circumstances:
If the plan was opened on or after June 21, 1996 and a total of
$1 million is invested in Smith Barney Funds Class L shares (other
than money market funds), all Class L shares are eligible for exchange
after the plan is in the program 5 years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares (other than
money market funds) on December 31 in any year, all Class L shares are
eligible for exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial
Consultant or the transfer agent.
Retirement Programs Opened On or After June 21, 1996. If, at
the end of the fifth year after the date the participating plan
enrolled in the Smith Barney 401(k) Program or ExecChoiceTM Program, a
participating plan's total Class L holdings in all non-money market
Smith Barney Mutual Funds equal at least $1,000,000, the participating
plan will be offered the opportunity to exchange all of its Class L
shares for Class A shares of the fund. (For participating plans that
were originally established through a Salomon Smith Barney retail
brokerage account, the five-year period will be calculated from the
date the retail brokerage account was opened.) Such participating
plans will be notified of the pending exchange in writing within 30
days after the fifth anniversary of the enrollment date and, unless
the exchange offer has been rejected in writing, the exchange will
occur on or about the 90th day after the fifth anniversary date. If
the participating plan does not qualify for the five-year exchange to
Class A shares, a review of the participating plan's holdings will be
performed each quarter until either the participating plan qualifies
or the end of the eighth year.
Retirement Programs Opened Prior to June 21, 1996. In any year
after the date a participating plan enrolled in the Smith Barney
401(k) Program, if its total Class L holdings in all non-money market
Smith Barney Mutual Funds equal at least $500,000 as of the calendar
year-end, the participating plan will be offered the opportunity to
exchange all of its Class L shares for Class A shares of the same
fund. Such Plans will be notified in writing within 30 days after the
last business day of the calendar year and, unless the exchange offer
has been rejected in writing, the exchange will occur on or about the
last business day of the following March.
Any participating plan in the Smith Barney 401(k) or ExecChoiceTM
Program, whether opened before or after June 21, 1996, that has not
previously qualified for an exchange into Class A shares will be
offered the opportunity to exchange all of its Class L shares for
Class A shares of the same fund regardless of asset size, at the end
of the eighth year after the date the participating plan enrolled in
the Smith Barney 401(k) or ExecChoiceTM Program. Such plans will be
notified of the pending exchange in writing approximately 60 days
before the eighth anniversary of the enrollment date and, unless the
exchange has been rejected in writing, the exchange will occur on or
about the eighth anniversary date. Once an exchange has occurred, a
participating plan will not be eligible to acquire additional Class L
shares, but instead may acquire Class A shares of the same fund. Any
Class L shares not converted will continue to be subject to the
distribution fee.
Participating plans wishing to acquire shares of the fund
through the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program must purchase such shares directly from the
transfer agent. For further information regarding these Programs,
investors should contact a Salomon Smith Barney Financial Consultant.
Retirement Programs Investing in Class B Shares: Class B
shares of a fund are not available for purchase by participating plans
opened on or after June 21, 1996, but may continue to be purchased by
any participating plan in the Smith Barney 401(k) Program opened prior
to such date and originally investing in such Class. Class B shares
acquired are subject to a deferred sales charge of 3.00% of redemption
proceeds if the participating plan terminates within eight years of
the date the participating plan first enrolled in the Smith Barney
401(k) Program.
At the end of the eighth year after the date the participating
plan enrolled in the Smith Barney 401(k) Program, the participating
plan will be offered the opportunity to exchange all of its Class B
shares for Class A shares of the same fund. Such participating plan
will be notified of the pending exchange in writing approximately 60
days before the eighth anniversary of the enrollment date and, unless
the exchange has been rejected in writing, the exchange will occur on
or about the eighth anniversary date. Once the exchange has occurred,
a participating plan will not be eligible to acquire additional Class
B shares, but instead may acquire Class A shares of the same fund. If
the participating plan elects not to exchange all of its Class B
shares at that time, each Class B share held by the participating plan
will have the same conversion feature as Class B shares held by other
investors. See "Purchase of Shares-Deferred Sales Charge
Alternatives."
No deferred sales charge is imposed on redemptions of Class B
shares to the extent that the net asset value of the shares redeemed
does not exceed the current net asset value of the shares purchased
through reinvestment of dividends or capital gain distributions, plus
the current net asset value of Class B shares purchased more than
eight years prior to the redemption, plus increases in the net asset
value of the shareholder's Class B shares above the purchase payments
made during the preceding eight years. Whether or not the deferred
sales charge applies to the redemption by a participating plan depends
on the number of years since the participating plan first became
enrolled in the Smith Barney 401(k) Program, unlike the applicability
of the deferred sales charge to redemptions by other shareholders,
which depends on the number of years since those shareholders made the
purchase payment from which the amount is being redeemed.
The deferred sales charge will be waived on redemptions of Class
B shares in connection with lump-sum or other distributions made by a
participating plan as a result of: (a) the retirement of an employee
in the participating plan; (b) the termination of employment of an
employee in the participating plan; (c) the death or disability of an
employee in the participating plan; (d) the attainment of age 591/2 by
an employee in the participating plan; (e) hardship of an employee in
the participating plan to the extent permitted under Section 401(k) of
the Code; or (f) redemptions of shares in connection with a loan made
by the participating plan to an employee.
Determination of Public Offering Price
Each portfolio offers its shares to the public on a continuous
basis. The public offering price for a Class A and Class Y share of
each portfolio is equal to the net asset value per share at the time
of purchase, plus for Class A shares of Large Cap Value Fund and U.S.
Government Securities Fund an initial sales charge based on the
aggregate amount of the investment. The public offering price for a
Class L share (and Class A share purchases, including applicable
rights of accumulation, equaling or exceeding $500,000) is equal to
the net asset value per share at the time of purchase and no sales
charge is imposed at the time of purchase. A contingent deferred
sales charge ("CDSC"), however, is imposed on certain redemptions of
Class L shares, and Class A shares of Large Cap Value Fund and U.S.
Government Securities Fund when purchased in amounts exceeding
$500,000. The method of computation of the public offering price is
shown in each fund's financial statements, incorporated by reference
in their entirety into this SAI.
REDEMPTION OF SHARES
The right of redemption of shares of a portfolio may be
suspended or the date of payment postponed (a) for any periods during
which the New York Stock Exchange, Inc. (the "NYSE") is closed (other
than for customary weekend and holiday closings), (b) when trading in
the markets the portfolio normally utilizes is restricted, or an
emergency exists, as determined by the SEC, so that disposal of the
portfolio's investments or determination of its net asset value is not
reasonably practicable or (c) for any other periods as the SEC by
order may permit for the protection of the portfolio's shareholders.
If the shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or be accompanied by
an endorsed stock power) and must be submitted to the sub-transfer
agent together with the redemption request. Any signature appearing
on a share certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or
member firm of a national securities exchange. Written redemption
requests of $10,000 or less do not require a signature guarantee
unless more than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an address other
than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. The sub-
transfer agent may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees
or guardians. A redemption request will not be deemed properly
received until the sub-transfer agent receives all required documents
in proper form.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being redeemed. In the
event of a failure to specify which Class, or if the investor owns
fewer shares of the Class than specified, the redemption request will
be delayed until the Transfer Agent receives further instructions from
Salomon Smith Barney, or if the shareholder's account is not with
Salomon Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third business day
following receipt of proper tender, except on any days on which the
NYSE is closed or as permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds are remitted to
a Salomon Smith Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific instruction
and Salomon Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check,
other than a certified or official bank check, will be remitted upon
clearance of the check, which may take up to ten days or more.
Distribution in Kind
The Fund has committed itself to pay in cash all requests for
redemption by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net asset value
of the fund at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. Redemptions in
excess of the above limit may be paid in portfolio securities, in cash
or any combination or both, as the Board of Directors may deem
advisable; however, payments shall be made wholly in cash unless the
Board of Directors believes that economic conditions exist that would
make such a practice detrimental to the best interests of the fund and
its remaining shareholders. If a redemption is paid in portfolio
securities, such securities will be valued in accordance with the
procedures described under "Valuation of Shares" in the Prospectus and
a shareholder would incur brokerage expenses if these securities were
then converted to cash.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders of a portfolio who own shares of the
portfolio with a value of at least $10,000 and who wish to receive
specific amounts of cash monthly or quarterly. Withdrawals of at
least $50 may be made under the Withdrawal Plan by redeeming as many
shares of the fund as may be necessary to cover the stipulated
withdrawal payment. Any applicable CDSC will not be waived on amounts
withdrawn by shareholders that exceed 1.00% per month of the value of
a shareholder's shares at the time the Withdrawal Plan commences.
(With respect to Withdrawal Plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on amounts withdrawn that do not
exceed 2.00% per month of the value of a shareholder's shares at the
time the Withdrawal Plan commences). To the extent that withdrawals
exceed dividends, distributions and appreciation of a shareholder's
investment in a portfolio, continued withdrawal payments will reduce
the shareholder's investment, and may ultimately exhaust it.
Withdrawal payments should not be considered as income from investment
in a portfolio. Furthermore, as it generally would not be
advantageous to a shareholder to make additional investments in the
portfolio at the same time he or she is participating in the
Withdrawal Plan, purchases by such shareholders in amounts of less
than $5,000 ordinarily will not be permitted.
Shareholders of a portfolio who wish to participate in the
Withdrawal Plan and who hold their shares of the portfolio in
certificate form must deposit their share certificates with the
transfer agent as agent for Withdrawal Plan members. All dividends
and distributions on shares in the Withdrawal Plan are reinvested
automatically at net asset value in additional shares of the fund
involved. A shareholder who purchases shares directly through the
transfer agent may continue to do so and applications for
participation in the Withdrawal Plan must be received by the transfer
agent no later than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal. For additional
information, shareholders should contact a Salomon Smith Barney
Financial Consultant.
ADDITIONAL INFORMATION REGARDING TELEPHONE REDEMPTION AND EXCHANGE
PROGRAM.
None of the portfolios nor their agents will be liable for
following instructions communicated by telephone that are reasonably
believed to be genuine. Each portfolio and its agents will employ
procedures designed to verify the identity of the caller and
legitimacy of instructions (for example, a shareholder's name and
account number will be required and phone calls may be recorded).
Each portfolio reserves the right to suspend, modify or discontinue
the telephone redemption and exchange program or to impose a charge
for this service at any time following at least seven (7) days prior
notice to shareholders.
Waivers of CDSC
The CDSC for Large Cap Value Fund and U.S. Government Securities Fund
will be waived on: (a) exchanges (see ''Exchange Privilege'' in the
respective prospectus); (b) automatic cash withdrawals in amounts
equal to or less than 1.00% per month of the value of the
shareholder's shares at the time the withdrawal plan commences (see
''Automatic Cash Withdrawal Plan'' in the respective prospectus)
(provided, however, that automatic cash withdrawals in amounts equal
to or less than 2.00% per month of the value of the shareholder's
shares will be permitted for withdrawal plans established prior to
November 7, 1994); (c) redemptions of shares within 12 months
following the death or disability of the shareholder; (d) redemptions
of shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 591/2; (e)
involuntary redemptions; and (f) redemptions of shares to effect a
combination of the fund with any investment company by merger,
acquisition of assets or otherwise. In addition, a shareholder who has
redeemed shares from other Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the redemption proceeds
within 60 days and receive pro rata credit for any CDSC imposed on the
prior redemption. CDSC waivers will be granted subject to confirmation
(by Salomon Smith Barney in the case of shareholders who are also
Salomon Smith Barney clients or by the sub-transfer agent in the case
of all other shareholders) of the shareholder's status or holdings, as
the case may be.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any of the Smith Barney
funds may exchange all or part of their shares for shares of the same
Class of other Smith Barney funds, on the basis of relative net asset
value per share at the time of exchange as follows:
1 Class A and Class Y shares of a portfolio may be exchanged
without a sales charge for the respective shares of any of the Smith
Barney funds.
2 Class B shares of a portfolio may be exchanged without a
sales charge. Class B shares of the portfolio exchanged for Class B
shares of another Smith Barney Mutual fund will be subject to the
higher applicable CDSC of the two funds and, for purposes of
calculating CDSC rates and conversion periods, will be deemed to have
been held since the date the shares being exchanged were deemed to be
purchased.
3 Class L shares of any portfolio may be exchanged without a
sales charge. For purposes of CDSC applicability, Class L shares of
the portfolio exchanged for Class C shares of another Smith Barney
Mutual fund will be deemed to have been owned since the date the
shares being exchanged were deemed to be purchased.
Dealers other than Salomon Smith Barney must notify the Transfer
Agent of the investor's prior ownership of Class A shares of Smith
Barney High Income Fund and the account number in order to accomplish
an exchange of shares of Smith Barney High Income Fund under paragraph
1 above.
The exchange privilege enables shareholders in any Smith Barney
Mutual fund to acquire shares of the same Class in a portfolio with
different investment objectives when they believe a shift between
portfolios is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the portfolio
shares being acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current prospectus
of each fund into which an exchange is being considered. Prospectuses
may be obtained from a Salomon Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-
current net asset value and, subject to any applicable CDSC, the
proceeds are immediately invested, at a price as described above, in
shares of the fund being acquired. Salomon Smith Barney reserves the
right to reject any exchange request. The exchange privilege may be
modified or terminated at any time after written notice to
shareholders.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit, excessive
exchange transactions can be detrimental to the fund's performance and
its shareholders. The manager may determine that a pattern of
frequent exchanges is excessive and contrary to the best interests of
the fund's other shareholders. In this event, the fund may, at its
discretion, decide to limit additional purchases and/or exchanges by a
shareholder. Upon such a determination, the fund will provide notice
in writing or by telephone to the shareholder at least 15 days prior
to suspending the exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her shares in the
fund or (b) remain invested in the fund or exchange into any of the
funds of the Smith Barney Mutual funds ordinarily available, which
position the shareholder would be expected to maintain for a
significant period of time. All relevant factors will be considered
in determining what constitutes an abusive pattern of exchanges.
INVESTMENT MANAGEMENT AGREEMENT AND OTHER SERVICES
Manager
For the fiscal years ended December 31, 1997, 1998 and 1999, the
investment management fees paid by each portfolio were as follows:
Portfolio 1997 1998 1999
U.S. Government $ 1,571,535 $1,471,185 $1,260,250
Large Cap Value $ 5,536,984 $6,734,520 $7,651,395
Short-Term High Grade $ 538,831 $ 470,058 $ 495,532
Pursuant to the Management Agreement, the management fee for the
Large Cap Value Fund is calculated at a rate in accordance with the
following schedule: 0.60% of the first $500 million of average daily
net assets; 0.55% of the next $500 million; and 0.50% of average daily
net assets over $1 billion. The management fee for the U.S.
Government Securities Fund is calculated at a rate in accordance with
the following schedule: 0.50% of the first $200 million of aggregate
average daily net assets of the portfolio, and 0.40% of the aggregate
average daily net assets of the portfolio in excess of $200 million.
The management fee for the Short-Term High Grade Bond Fund is
calculated at the annual rate of 0.45% of such portfolio's average
daily net assets.
The Management Agreement for each of the portfolios further
provides that all other expenses not specifically assumed by the
manager under the Management Agreement on behalf of a portfolio are
borne by the portfolio or the fund. Expenses payable by a portfolio
or the fund include, but are not limited to, all charges of custodians
(including sums as custodian and sums for keeping books and for
rendering other services to the fund) and shareholder servicing
agents, expenses of preparing, printing and distributing all
prospectuses, proxy material, reports and notices to shareholders, all
expenses of shareholders' and directors' meetings, filing fees and
expenses relating to the registration and qualification of the fund's
shares and the fund under Federal or state securities laws and
maintaining such registrations and qualifications (including the
printing of the fund's registration statements), fees of auditors and
legal counsel, costs of performing portfolio valuations, out-of-pocket
expenses of directors and fees of directors who are not "interested
persons" as defined in the Act, interest, taxes and governmental fees,
fees and commissions of every kind, expenses of issue, repurchase or
redemption of shares, insurance expense, association membership dues,
all other costs incident to the fund's existence and extraordinary
expenses such as litigation and indemnification expenses. Direct
expenses are charged to each portfolio; general corporate expenses are
allocated among the various portfolios on the basis of relative net
assets.
Code of Ethics Pursuant to Rule 17j-1 of the 1940 Act, the
fund, its investment advisers and principal underwriter have adopted
codes of ethics that permit personnel to invest in securities for
their own accounts, including securities that may be purchased or held
by the fund. All personnel must place the interests of clients first
and avoid activities, interests and relationships that might interfere
with the duty to make decisions in the best interests of the clients.
All personal securities transactions by employees must adhere to the
requirements of the codes and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the appearance of
such a conflict, or the abuse of an employee's position of trust and
responsibility.
A copy of the fund's code of ethics is on file with the SEC.
DISTRIBUTOR
CFBDS, Inc. ("CFBDS") located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the fund's distributor on a best
efforts basis pursuant to a distribution agreement dated October 8,
1998 (the "Distribution Agreement") which was approved by the fund's
Board of Directors. Prior to the merger of Travelers Group, Inc. and
Citicorp Inc. on October 8, 1998, Salomon Smith Barney served as the
fund's distributor.
To compensate Salomon Smith Barney for the service it provides and for
the expense it bears under the Distribution Agreement, the fund has
adopted a services and distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the fund pays Salomon Smith
Barney a service fee, accrued daily and paid monthly, calculated at
the annual rate of 0.25% of the value of the fund's average daily net
assets attributable to the Class A, Class B and Class L shares. In
addition, the fund pays Salomon Smith Barney a distribution fee with
respect to Class B and Class L shares , calculated at the annual rate
of 0.75% of the value of the fund's average daily net assets
attributable to those classes primarily intended to compensate Salomon
Smith Barney for its initial expense of paying Financial Consultants a
commission upon sales of those shares. Class B shares that
automatically convert to Class A shares eight years after the date of
original purchase will no longer be subject to a distribution fee.
For the year ended December 31, 1999, the fees which have been
paid to Salomon Smith Barney pursuant to Rule 12b-1 for the fund are
set out in the table below. Distribution expenses included
compensation of Financial Consultants, printing costs of prospectuses
and marketing materials.
Portfolio Class A Class B Class L
Class Y Total
Large Cap Value $2,037,311 $1,087,146 $918,308 N/A
$4,042,765
U.S. Government $582,092 $106,934 $103,873 N/A
$792,899
Short-Term High Grade $213,085 N/A N/A N/A
$213,085
For the fiscal year ended December 31, 1999, Salomon Smith Barney
incurred the following distribution expenses for the fund:
Portfolio
Salomon
Smith
Barney
Financial
Consultant
s
Branch
Expenses
Marketing
and
Advertisin
g
Printing
Expense
Interest
Expense
Total
Large Cap
Value
$4,051,568
$2,092,931
$296,796
$13,330
$145,909
$6,600,53
5
U.S. Gov't
Securities
$449,442
$163,788
$46,168
$1,940
$15,818
$918,910
Short-Term
High Grade
$103,122
$186,438
$19,301
$4,056
$0
$312,917
Commissions on Class A Shares. For the 1997 fiscal year, the
aggregate dollar amount of commissions on Class A shares, all of which
was paid to Salomon Smith Barney, is as follows:
Name of Fund
Fiscal Year
Ended 12/31/97
Large Cap Value
$458,000
U.S. Government
$105,000
Short-Term High Grade
$0
For the period January 1, 1998 through October 7, 1998 and for the
period October 8, 1998 through December 31, 1998, the aggregate dollar
amounts of commissions on Class A shares, are as follows:
Name of Fund
01/01/98
through
10/07/98*
10/08/98
through
12/31/98**
Large Cap Value
$591,000
$101,000
U.S. Government
$117,000
$40,000
Short-Term High Grade
$0
$0
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $90,900,
$36,000, and $0, respectively.
For the fiscal year ended December 31, 1999, the aggregate dollar
amounts of commissions on Class A shares, are as follows:
Name of Fund
Fiscal Year
Ended
12/31/99*
Large Cap Value
$820,000
U.S. Government
$113,000
Short-Term High Grade
$0
* The following amounts were paid to Salomon Smith Barney: $738,000,
$101,700 and $0, respectively.
Commissions on Class L Shares. For the period June 12, 1998 through
October 7, 1998 and for the period October 8, 1998 through October 31,
1998, the aggregate dollar amounts of commission on Class L shares are
as follows:
Class L
(On June 12, 1998, Class
C shares were renamed
Class L Shares)*
Name of Fund
06/12/98
through
10/07/98*
10/08/98
through
10/31/98**
Large Cap Value
$103,000
$42,000
U.S. Government
$7,000
$9,000
Short-Term High Grade
$0
$0
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $37,800,
$8,100, and $0, respectively.
For the fiscal year ended December 31, 1999, the aggregate dollar
amounts of commissions on Class L shares, are as follows:
Name of Fund
Fiscal Year
Ended
12/31/99*
Large Cap Value
$453,000
U.S. Government
$20,000
Short-Term High Grade
$0
* The following amounts were paid to Salomon Smith Barney: $407,700,
$18,000 and $0, respectively.
As set forth in the prospectus, a contingent deferred sales charge
("CDSC") may be imposed on certain redemptions of Class A, Class B and
Class L shares. The amount of the CDSC will depend on the number of
years since the shareholder made the purchase payment from which the
amount is being redeemed. For Class B shares of the Large Cap Value
Fund the maximum CDSC is 5.00% of redemption proceeds, declining by
1.00% each year after the date of purchase to zero. For Class B shares
of the U.S. Government Securities Fund the maximum CDSC is 4.50% of
redemption proceeds, declining by 0.50% the first year after purchase
and by 1.00% each year thereafter to zero. A CDSC of 1.00% is imposed
on redemptions of Class A shares which when combined with Class A
shares offered with a sales charge currently held by an investor equal
or exceed $500,000 in the aggregate and Class L shares if such
redemptions occur within 12 months from the date such investment was
made. Any sales charge imposed on redemptions is paid to the
distributor of the fund shares.
For the fiscal years ended December 31, 1997, 1998 and 1999, the CDSC
paid by each portfolio were as follows:
Class A
Portfolio 1997 1998 1999
U.S. Government $0 $13,000 $2,000
Large Cap Value $ 5,536,984 $2,000 $4,000
Short-Term High Grade N/A N/A N/A
Class B
Portfolio 1997 1998 1999
U.S. Government $29,000 $33,000 $26,000
Large Cap Value $43,000 $60,000 $176,000
Short-Term High Grade N/A N/A N/A
Class L*
Portfolio 1997 1998 1999
U.S. Government $1,000 $0 $3,000
Large Cap Value $2,000 $7,000 $27,000
Short-Term High Grade N/A N/A N/A
*Prior to 1998, each portfolio's Class L shares were named Class C
shares.
Portfolio Transactions
Large Cap Value Fund - Brokerage
The manager is responsible for allocating the Large Cap Value
Fund's brokerage transactions in equity securities. Orders may be
directed to any broker including, to the extent and in the manner
permitted by applicable law, Salomon Smith Barney. Salomon Smith
Barney has acted as the fund's principal broker on behalf of the Large
Cap Value Fund and has received a substantial portion of brokerage
fees paid by such portfolio. The portfolio will not deal with Salomon
Smith Barney in any transaction in which Smith Barney acts as
principal.
The fund attempts to obtain the most favorable execution of each
portfolio transaction, that is, the best combination of net price and
prompt reliable execution. In the opinion of the manager, however, it
is not possible to determine in advance that any particular broker
will actually be able to effect the most favorable execution because,
in the context of a constantly changing market, order execution
involves judgments as to price, commission rates, volume, the
direction of the market and the likelihood of future change. In
making its decision as to which broker or brokers are most likely to
provide the most favorable execution, the manager takes into account
the relevant circumstances. These include, in varying degrees, the
size of the order, the importance of prompt execution, the breadth and
trends of the market in the particular security, anticipated
commission rates, the broker's familiarity with such security
including its contacts with possible buyers and sellers and its level
of activity in the security, the possibility of a block transaction
and the general record of the broker for prompt, competent and
reliable service in all aspects of order processing, execution and
settlement.
Commissions are negotiated and take into account the difficulty
involved in execution of a transaction, the time it took to conclude,
the extent of the broker's commitment of its own capital, if any, and
the price received. Anticipated commission rates are an important
consideration in all trades and are weighed along with the other
relevant factors affecting order execution set forth above. In
allocating brokerage among those brokers who are believed to be
capable of providing equally favorable execution, the manager takes
into consideration the fact that a particular broker may, in addition
to execution capability, provide other services to the portfolio such
as research and statistical information. It is not possible to place
a dollar value on such services nor does their availability reduce the
expenses of the manager or Smith Barney in connection with services
rendered to other advisory clients and not all such services may be
used in connection with the portfolio.
Shown below are the total brokerage fees paid by the Large Cap
Value Fund during 1997, 1998 and 1999. Also shown is the portion paid
to Salomon Smith Barney and the portion paid to other brokers for the
execution of orders allocated in consideration of research and
statistical services or solely for their ability to execute the order.
During fiscal year 1999, the total amount of commissionable
transactions was $976,030,162; $23,942,126 (2.5%) of which was
directed to Salomon Smith Barney and executed by unaffiliated brokers
and $952,088,036 (97.5%) of which was directed to other brokers.
Total
For
Execution
Only To
Smith
Barney
To Others
To Others For
Execution,
Research
and Statistical
Services
199
7
$892,140
$279,132*
31.3%
$572,298
64.1
%
$40,710
4.6%
199
8
$1,365,675
$346,078*
25.3%
$1,019,597
74.7
%
$0
0%
199
9
$1,041,437
$21,216*
2.0%
$995,729
95.6
%
$24,492
2.4%
_________________
*Directed to Salomon Smith Barney and executed by unaffiliated
brokers.
The Board of Directors of the fund has adopted certain policies
and procedures incorporating the standards of Rule 17e-1 issued by the
SEC under the 1940 Act which requires that the commissions paid to
Salomon Smith Barney must be "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by
other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." The Rule and
the policy and procedures also contain review requirements and require
the manager to furnish reports to the Board of Directors and to
maintain records in connection with such reviews.
All portfolios - Other portfolio Transactions
The fund's fixed income securities ordinarily are purchased from
and sold to parties acting as either principal or agent. Newly issued
securities ordinarily are purchased directly from the issuer or from
an underwriter; other purchases and sales usually are placed with
those dealers from which the manager determines that the best
execution will be obtained. (Newly issued U.S. Treasury securities
would be purchased through the auction process.) Usually no brokerage
commissions, as such, are paid for purchases and sales of fixed-income
securities, which are typically undertaken through principal
transactions, although the price paid usually includes compensation to
the dealer acting in the form of a spread or mark-up. The prices paid
to underwriters of newly issued securities (other than U.S. Treasury
Securities) typically include a concession paid by the issuer to the
underwriter, and purchasers of after-market fixed-income securities
from dealers ordinarily are executed at a price between the bid and
asked price.
Transactions in fixed-income securities are allocated to various
broker-dealers by the manager in its best judgment. The primary
consideration is prompt and effective execution of orders at the most
favorable price. Subject to that primary consideration, broker-
dealers may be selected for research, statistical or other services to
enable the manager to supplement its own research and analysis with
the views and information of other securities firms. The Fund may
utilize Salomon Smith Barney as a commodities broker in connection
with entering into options and futures contracts.
Research services furnished by broker-dealers through which the
fund effects securities transactions may be used by the manager in
managing other investment funds and, conversely, research services
furnished to the manager by broker-dealers in connection with other
funds the manager advises may be used by the manager in advising the
fund. Although it is not possible to place a dollar value on these
services, the manager is of the view that the receipt of the services
should not reduce the overall costs of its research services.
Investment decisions for each portfolio are made independently
from those of other portfolios, and other investment companies managed
by the manager. If those investment companies are prepared to invest
in, or desire to dispose of, investments at the same time as the fund,
however, available investments or opportunities for sales will be
allocated equitably to each client of the manager. In some cases,
this procedure may adversely affect the size of the position obtained
for or disposed of by the fund or the price paid or received by the
fund.
ADDITIONAL INFORMATION ABOUT THE MANAGER
SSB Citi Fund Management LLC, successor to SSBC Fund Management Inc.,
388 Greenwich Street, New York, NY 10013 was formed in 1999 and
renders investment management advice to investment companies with
aggregate assets under management in excess of $134 billion as of
March 31, 2000. The manager is an affiliate of Salomon Smith Barney.
The manager and Salomon Smith Barney are subsidiaries of Citigroup, a
financial services company that uses diverse channels to offer a broad
range of financial services to consumer and corporate customers around
the world. Among these businesses are Citibank, Commercial Credit,
Primerica Financial Services, Salomon Smith Barney, SSB Citi Asset
Management, Travelers Life & Annuity, and Travelers Property Casualty.
CUSTODIAN
Portfolio securities and cash owned by the fund are held in the
custody of PNC Bank, National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103 (foreign securities, if any, will be
held in the custody of the Barclays Bank, PLC)
In the event of the liquidation or dissolution of the fund,
shares of a portfolio are entitled to receive the assets belonging to
that portfolio that are available for distribution and a proportionate
distribution, based upon the relative net assets of the respective
portfolios, of any general assets not belonging to any particular
portfolio that are available for distribution.
TRANSFER AGENT AND SUB-TRANSFER AGENT
Citi Fiduciary Trust Company (the "Transfer Agent"), located at 388
Greenwich Street, New York, New York 10013 serves as the transfer
agent and shareholder services agent for the fund.
PFPC Global Fund Services ("PFPC" or "sub-transfer agent"), located at
Exchange Place, Boston, Massachusetts 02109, serves as the trust's
sub-transfer agent. Under the transfer agency agreement, the sub-
transfer agent maintains the shareholder account records for the
trust, handles certain communications between shareholders and the
trust and distributes dividends and distributions payable by the
trust. For these services, the sub-transfer agent receives a monthly
fee computed on the basis of the number of shareholder accounts it
maintains for the trust during the month, and is reimbursed for out-
of-pocket expenses.
INDEPENDENT AUDITORS
KPMG LLP, 757 Third Avenue, New York, New York 10017, has been
selected as the fund's independent auditors for its fiscal year ending
December 31, 2000 to examine and report on the fund's financial
statements and highlights.
ADDITIONAL INFORMATION ABOUT THE FUND
The fund, an open-end, diversified investment company, was
incorporated in Maryland on December 2, 1966. The fund has an
authorized capital of 2,000,000,000 shares with a par value of $.01
per share. The Fund has outstanding three series of shares, each
representing shares in separate portfolios, and the Board of Directors
may authorize the issuance of additional series of shares in the
future. The assets of each portfolio are segregated and separately
managed and a shareholder's interest is in the assets of the portfolio
in which he or she holds shares. Class A, Class B, Class L, Class Y
and Class Z (where available) shares of any portfolio represent
interests in the assets of the portfolio and have identical voting,
dividend, liquidation and other rights on the same terms and
conditions except that expenses related to the distribution of each
Class of shares are borne solely by each Class and each Class of
shares has exclusive voting rights with respect to provisions of the
Rule 12b-1 distribution plan which pertain to a particular Class.
Shares do not have cumulative voting rights or preemptive rights and
are fully paid, transferable and nonassessable when issued for payment
as described in this Prospectus.
The Articles of Incorporation of the fund permit the Board of
Directors to establish additional portfolios of the fund from time to
time. The investment objectives, policies and restrictions applicable
to additional portfolios would be established by the Board of
Directors at the time such portfolios were established and may differ
from those set forth in the prospectus and this Statement of
Additional Information.
VOTING
As permitted by Maryland law, there will normally be no meetings
of shareholders for the purpose of electing directors unless and until
such time as less than a majority of the directors holding office have
been elected by shareholders. At that time, the directors then in
office will call a shareholders' meeting for the election of
directors. The directors must call a meeting of shareholders for the
purpose of voting upon the question of removal of any director when
requested in writing to do so by the record holders of not less than
10% of the outstanding shares of the fund. At such a meeting, a
director may be removed after the holders of record of not less than a
majority of the outstanding shares of the fund have declared that the
director be removed either by declaration in writing or by votes cast
in person or by proxy. Except as set forth above, the directors shall
continue to hold office and may appoint successor directors.
As used in the prospectus and this SAI, a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the
lesser of (a) more than 50% of the outstanding shares of the fund (or
the affected portfolio or class) or (b) 67% or more of such shares
present at a meeting if more than 50% of the outstanding shares of the
fund (or the affected portfolio or class) are represented at the
meeting in person or by proxy. A portfolio or class shall be deemed
to be affected by a matter unless it is clear that the interests of
each portfolio or class in the matter are identical or that the matter
does not affect any interest of the portfolio or class. The approval
of a management agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to a portfolio
only if approved by a "vote of a majority of the outstanding voting
securities" of the portfolio affected by the matter; however, the
ratification of independent accountants, the election of directors,
and the approval of a distribution agreement that is submitted to
shareholders are not subject to the separate voting requirements and
may be effectively acted upon by a vote of the holders of a majority
of all fund shares voting without regard to portfolio.
As of March 29, 2000, the following table contains a list of
shareholders who of record or beneficially own at least 5% of the
outstanding shares of a particular class of shares of a portfolio of
the fund:
Large Cap Value Fund
Class Y
Holder % of shares
Smith Barney Concert Series, Inc. 42.46%
Growth Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 18.75%
High Growth Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 13.06%
Select Growth Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 12.53%
Balanced Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 5.06%
Select Balanced Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Large Cap Value Fund
Class Z
Holder
State Street Bank & Trust Cust 100%
The Travelers Group 401(k)
Savings Plan
Attn: Rick West
225 Franklin Street
Boston, MA 02101
%of shares
Short-Term High Grade Bond Fund
Class A
Holder
Travelers Insurance Company 5.16%
Separate Acct QPN 401(k) -TIC
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
Class Y
Holder
Smith Barney Concert Series, Inc. 46.75%
Balanced Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 17.09%
Select Balanced Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 11.85%
Conservative Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
Smith Barney Concert Series, Inc. 11.44%
Income Portfolio
PNC Bank
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113
U.S. Government Securities Fund
Class A
Holder
Travelers Insurance Company 5.83%
Separate Acct QPN 401(k) -TIC
Attn: Roger Ferland 5 MS
One Tower Square
Hartford, CT 06183
% of shares
Class Y
Holder
Virginia P. Swindal TR 32.4058%
UAD 4-09-92
Virginia P. Swindal Rev Trust
5111 South Nichols Street
Tampa, FL 33611 - 4132
Luby Enterprises Inc. 18.5054%
Attn: Chester Luby
1500 Lincoln
Suite 488
Denver, CO 80203 - 1506
Frederick L. Swindal TTEE 15.2495%
UAD 4-9-92
Frederick L. Swindal Rev Trust
5111 S. Nichols Street
Tampa, FL 33611 - 4132
Avron J. Wahl 12.7085%
SSB SEP IRA Custodian
717 Ocean Avenue
Unit 1003
Long Branch, NJ 07740
E. J. Browder and 12.5769%
Mrs. Peggy J. Browder JTWROS
2208 Kristin Ln.
Bartlesville, OK 74006 - 6313
Baxter P. Freeze & 5.0412%
Anne Freeze TRS
U/A/D 4/24/92
Baxter P. Freeze Charitable TR
201 Greensboro Road #C254
High Point NC 27260 - 3482
Styles of fund management In an industry where the average portfolio
manager has seven years of experience (source: ICI, 1998), the
portfolio managers of Smith Barney Mutual Funds average 21 years in
the industry and 15 years with the firm.
Smith Barney Mutual Funds offers more than 60 mutual funds. We
understand that many investors prefer an active role in allocating the
mix of funds in their portfolio, while others want the asset
allocation decisions to be made by experienced managers.
That's why we offer four "styles" of fund management that can be
tailored to suit each investor's unique financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested within their asset
class and investment style, enabling investors to make asset
allocation decisions in conjunction with their Salomon Smith Barney
Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range of equity and fixed
income strategies that seek to capture opportunities across asset
classes and investment styles using disciplined investment approaches.
The Concert Allocation Series
As a fund of funds, investors can select a Concert Portfolio that may
help their investment needs. As needs change, investors can easily
choose another long-term, diversified investment from our Concert
family.
Special Discipline Series
Our Special Discipline Series funds are designed for investors who are
looking beyond more traditional market categories: from natural
resources to a roster of state-specific municipal funds.
FINANCIAL STATEMENTS
The Fund's financial information is incorporated by reference to
the fund's Annual Reports to Shareholders for the fiscal year ended
December 31, 1999. The annual reports were filed March 3, 2000 with
the SEC, accession number 91155-00-000170.
APPENDIX - RATINGS FOR DEBT OBLIGATIONS
BOND (AND NOTES) RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to be of high quality
by all standards. Together with the "Aaa" group they comprise what
are generally known as high grade bonds. They rated lower than the
best bonds because margins of protection may not be as large as in
"AAA" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make the
long term risks appear somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate by elements may be present that suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger
with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree.
Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest class of bonds and
issues so rated can be regarded
as having extremely poor prospects of ever attaining any real
investment standing.
Con (..) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Standard & Poor's Ratings Group
AAA - Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in
small
degree.
A- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than in
higher rated categories.
BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. 'BB' indicates the lowest degree of
speculation and 'C' the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or Minus (-): The ratings from 'AA' to 'B' may be
modified by the addition of a plus or minus sign to show relative
standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion
of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or
the risk of default upon failure of, such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds where the underlying deposit
collateral is fully insured by the Federal Savings & Loan Insurance
Corp. or the Federal Deposit Insurance Corp.
+ Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.
* Continuance of the rating is contingent upon S&P's receipt of
an executed copy of the escrow agreement.
NR Indicates no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting institutions) have
a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment will normally be evidenced by the
following characteristics: leading market positions in well-
established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of
fixed financial changes and high internal cash generation; well-
established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated "Prime-2" (or related supporting institutions) have
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Ratings Group
A-1 - This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issuers determined to possess overwhelming safety characteristics will
be denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation
is strong. However, the
relative degree of safety is not as high as for
issues designated A-1.
41
G:\Fund Accounting\Legal\FUNDS\SBFI\2000\Secdocs\SAI 2000.doc
G:\Fund Accounting\Legal\FUNDS\SBFI\2000\Secdocs\SAI 2000.doc
PART C OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles Supplementary dated November 16, 1992 are
incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 49.
(2) Articles Supplementary dated October 29, 1992 are
incorporated by reference to Exhibit 1(b) to Post-
Effective Amendment No. 49.
(3) Articles of Amendment dated October 29, 1992 are
incorporated by reference to Exhibit 1(c) to Post-
Effective Amendment No. 49.
(4) Articles Supplementary dated September 6, 1991 are
incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 46.
(5) Articles Supplementary dated October 31, 1990 are
incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 43.
(6) 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.
(7) Articles of Incorporation dated December 1, 1966 are
incorporated by reference to Exhibit 1(h) to Post-
Effective Amendment No. 39.
(8) Articles Supplementary dated December 14, 1993 are
incorporated by reference to Exhibit 1(h) to Post-
Effective Amendment No. 54.
(9) Articles of Amendment, dated June 12, 1998, is
incorporated by reference to Post-Effective
Amendment No. 63.
(10) Articles of Amendment, dated July 2, 1998, is
incorporated by reference to Post-Effective
Amendment No. 63.
(b) Bylaws of the Fund are incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 39.
(c) (1) Specimen Stock Certificates for the Income and Growth
Portfolio (now, Large Cap Value Fund), and the U.S.
Government Securities Portfolio are incorporated by
reference to Exhibit 4 to Post-Effective Amendment No. 39.
(2) Specimen Stock Certificate for the Short-Term U.S.
Treasury Securities Portfolio is incorporated by
reference to Exhibit 4(c) to Post-Effective Amendment
No.53.
(d) (1) 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.
(2) Management Agreement between the Income and Growth
Portfolio and Smith, Barney Advisers, Inc. is
incorporated by reference to Post-Effective Amendment
No. 43.
(3) Management Agreement between U.S. Government
Securities Portfolio and Smith, Barney Advisers,
Inc. is incorporated by reference to Post-Effective
Amendment No. 43.
(e) (1) Distribution Agreement between the Registrant and
Smith Barney, Harris Upham & Co. Incorporated is
incorporated by reference to Exhibit 6(a) to Post-
Effective Amendment No. 39.
(2) Distribution Agreement between Smith Barney Funds,
Inc. and Smith Barney Shearson Inc.
(3) Distribution Agreement with CFBDS, Inc. is
incorporated by reference to Post-Effective
Amendment No. 63.
(f) Not applicable.
(g) Custodian Agreement between Registrant and Provident
National Bank is incorporated by reference to Exhibit
8 to Post-Effective Amendment No. 39.
(h) Transfer Agency Agreement between Registrant and
Provident Financial Processing Corp. is incorporated
herein by reference to Exhibit 9 to Post-Effective
Amendment No. 39.
(i) Not applicable.
(j) Auditors' Consent is filed herewith.
(k) Not applicable.
(l) Not applicable
(m) (1) 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.
(2) 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.
(3) 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.
(4) Form of Amended and Restated Shareholder Services and
Distribution Plan is incorporated by reference to
Post-Effective Amendment No. 63.
(n) Financial Data Schedules are filed herewith.
(o) Rule 18f-3 Plan is incorporated by reference to Post-
Effective Amendment No. 63.
(p) Code of Ethics filed herewith.
Item 24. Persons Controlled by or under Common Control with
Registrant
(None)
Item 25. Indemnification
Reference is made to 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 26. Business and other Connections of Investment Adviser
See the material under the caption "Management of the Fund"
included in Part A (Prospectus) of this Registration Statement and
the material appearing under the caption "Management Agreement"
included in Part B (Statement of Additional Information) of this
Registration Statement.
Information as to the Directors and Officers of SSB Citi Fund
Management LLC, successor to SSBC Fund Management Inc., is included
in its Form ADV (File No. 801-8314), filed with the Commission,
which is incorporated herein by reference thereto.
Item 27. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also the
distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio,
CitiFundsSM Large Cap Growth Portfolio,
CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves,
CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves,
CitiFundsSM Institutional U.S. Treasury Reserves,
CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves,
CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio,
CitiFundsSM Growth & Income Portfolio,
CitiFundsSM Small Cap Growth Portfolio,
CitiFundsSM National Tax Free Income Portfolio,
CitiFundsSM New York Tax Free Income Portfolio,
CitiSelect VIP Folio 200,
Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400,
CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio,
CitiSelect (Folio 200,
CitiSelect (Folio 300,
CitiSelect (Folio 400,
and CitiSelect (Folio 500.
CFBDS is also the placement agent for
Large Cap Value Portfolio,
International Portfolio,
Foreign Bond Portfolio,
Intermediate Income Portfolio,
Short-Term Portfolio,
Growth & Income Portfolio,
Large Cap Growth Portfolio,
Small Cap Growth Portfolio,
International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio,
Emerging Asian Markets Equity Portfolio,
Tax Free Reserves Portfolio,
Cash Reserves Portfolio
and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. is also the distributor for the following Smith
Barney Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Investment Funds Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
CFBDS, Inc is also the distributor for the Centurion Funds, Inc.
(b) The information required by this Item 27 with respect to
each director, officer and partner of CFBDS, Inc. is
incorporated by reference to Schedule A of Form BD filed by
CFBDS, Inc. pursuant to the Securities Exchange Act of 1934
(SEC File No. 8-32417).
Item 28. Location of Accounts and Records
All accounts, books and other documents of Registrant are
maintained at the offices of:
(1) With respect to the Registrant's Investment Adviser:
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
(2) With respect to the Registrant's Custodian:
PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(2) With respect to the Registrant's Transfer Agent:
Citi Fiduciary Trust Company
388 Greenwich Street
New York, New York 10013
(4) With respect to the Registrant's Sub-Transfer Agent:
PFPC Global Fund Services
Exchange Place
Boston, Massachusetts 02109
Item 29. Management Services
Not applicable
Item 30. Undertakings
(a) Not applicable
(b) Registrant undertakes, if requested to do
so by the holders of at least 10% of
Registrant's outstanding shares, to call a
meeting of shareholders for the purpose of
voting upon the questions of removal of a
director or directors and to assist in
communications with other shareholders as
required by Section 16(c).
(c) Registrant undertakes to furnish each
person to whom a prospectus is delivered with
a copy of Registrant's latest report to
shareholders, upon request and without charge.
SIGNATURES PRIVATE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on
its behalf by the undersigned, and where applicable, the true and
lawful attorney-in-fact, thereto duly authorized, in the City of New
York and State of New York on the 27th day of April, 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
Post-Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the date
indicated.
Signatures Title Date
/s/ Heath B. McLendon Director, Chairman, April 27, 2000
(Heath B. McLendon) President and Chief
Executive Officer
/s/ Lee Abraham* Director April 27, 2000
(Lee Abraham)
/s/ Allan J. Bloostein* Director April 27, 2000
(Allan J. Bloostein)
/s/ Jane Dasher* Director April 27, 2000
(Jane Dasher)
/s/ Donald R. Foley* Director April 27, 2000
(Donald R. Foley)
/s/ Richard E. Hanson, Jr.* Director April 27, 2000
(Richard E. Hanson, Jr.)
/s/ Paul Hardin* Director April 27, 2000
(Paul Hardin III)
/s/ Roderick C. Rasmussen * Director April 27, 2000
(Roderick C. Rasmussen)
/s/ John P. Toolan* Director April 27, 2000
(John P. Toolan)
/s/ Lewis E. Daidone Treasurer April 27, 2000
(Lewis E. Daidone) and Principal
Financial Officer
*By: /s/ Christina T. Sydor April 27, 2000
Christina T. Sydor
Pursuant to Power of Attorney
Previously filed
EXHIBITS
(j) Consent of Independent Auditors
(n) Financial Data Schedules
(p) Code of Ethics
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
Smith Barney Funds, Inc.:
We consent to the incorporation by reference, with respect to the
Funds listed below for the Smith Barney Funds, Inc. (the Funds), in
the respective Prospectus and Statement of Additional Information,
of our report dated February 11, 2000, on the statement of assets
and liabilities as of December 31, 1999 and the related statement of
operations for the year then ended, the statements of changes in net
assets for each of the years in the two-year period then ended and
the financial highlights for each of the years in the five-year
period then ended. These financial statements and financial
highlights and our report thereon are included in the Annual Report
of the Funds as filed on Form N-30D.
We also consent to the references to our firm under the headings
"Financial Highlights" in the respective Prospectus and "Independent
Auditors" in the Statement of Additional Information.
Fund
Large Cap Value Fund
U.S. Government Securities Fund
Short-Term High Grade Bond Fund
KPMG LLP
New York, New York
April 25, 2000
Page
PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
SSB Citi Asset Management Group ("SSB Citi") , and those U.S.-registered
investment companies advised or managed by SSB Citi that have adopted
this policy ("Funds"), have adopted this policy on securities
transactions in order to accomplish two goals: first, to minimize
conflicts and potential conflicts of interest between employees of SSB
Citi and SSB Citi's clients (including the Funds), and between Fund
directors or trustees and their Funds, and second, to provide policies
and procedures consistent with applicable law, including Rule 17j-1
under the Investment Company Act of 1940, to prevent fraudulent or
manipulative practices with respect to purchases or sales of securities
held or to be acquired by client accounts. All U.S. employees of SSB
Citi, including employees who serve as Fund officers or directors, and
all directors or trustees ("directors") of each Fund, are Covered
Persons under this policy. Other Covered Persons are described in
Section II below.
I. Statement of Principles - All SSB Citi employees owe a fiduciary
duty to SSB Citi's clients when conducting their personal
investment transactions. Employees must place the interests of
clients first and avoid activities, interests and relationships
that might interfere with the duty to make decisions in the best
interests of the clients. All Fund directors owe a fiduciary
duty to each Fund of which they are a director and to that Fund's
shareholders when conducting their personal investment
transactions. At all times and in all matters Fund directors
shall place the interests of their Funds before their personal
interests. The fundamental standard to be followed in personal
securities transactions is that Covered Persons may not take
inappropriate advantage of their positions.
All personal securities transactions by Covered Persons shall
adhere to the requirements of this policy and shall be conducted
in such a manner as to avoid any actual or potential conflict of
interest, the appearance of such a conflict, or the abuse of the
person's position of trust and responsibility. While this policy
is designed to address both identified conflicts and potential
conflicts, it cannot possibly be written broadly enough to cover
all potential situations. In this regard, Covered Persons are
expected to adhere not only to the letter, but also the spirit of
the policies contained herein.
Employees are reminded that they also are subject to other
Citigroup policies, including policies on insider trading, the
purchase and sale of securities listed on any applicable SSB Citi
restricted list, the receipt of gifts and service as a director
of a publicly traded company. Employees must never trade in a
security or commodity while in possession of material, non-public
information about the issuer or the market for those securities
or commodities, even if the employee has satisfied all other
requirements of this policy.
The reputation of SSB Citi and its employees for straightforward
practices and integrity is a priceless asset, and all employees
have the duty and obligation to support and maintain it when
conducting their personal securities transactions.
II. Applicability - SSB Citi Employees - This policy applies to all
U.S. employees of SSB Citi, including part-time employees. Each
employee, including employees who serve as Fund officers or
directors, must comply with all of the provisions of the policy
applicable to SSB Citi employees unless otherwise indicated.
Certain employees are considered to be "investment personnel"
(i.e., portfolio managers, traders and research analysts (and
each of their assistants)), and as such, are subject to certain
additional restrictions outlined in the policy. All other
employees of SSB Citi are considered to be "advisory personnel."
Generally, temporary personnel and consultants working in any SSB
Citi business are subject to the same provisions of the policy as
full-time employees, and their adherence to specific requirements
will be addressed on a case-by-case basis.
The personal investment policies, procedures and restrictions
referred to herein also apply to an employee's spouse and minor
children. The policies also apply to any other account over which
the employee is deemed to have beneficial ownership. This
includes: accounts of any immediate family members sharing the
same household as the employee; accounts of persons or other
third parties for whom the employee exercises investment
discretion or gives investment advice; a legal vehicle in which
the employee has a direct or indirect beneficial interest and has
power over investment decisions; accounts for the benefit of a
third party (e.g., a charity) which may be directed by the
employee (other than in the capacity of an employee); and any
account over which the employee may be deemed to have control.
For a more detailed description of beneficial ownership, see
Exhibit A attached hereto.
These policies place certain restrictions on the ability of an
employee to purchase or sell securities that are being or have
been purchased or sold by an SSB Citi managed fund or client
account. The restrictions also apply to securities that are
"related" to a security being purchased or sold by an SSB Citi
managed fund or client account. A "related security" is one
whose value is derived from the value of another security (e.g.,
a warrant, option or an indexed instrument).
Fund Directors - This policy applies to all directors of Funds
that have adopted this policy. The personal investment policies,
procedures and restrictions that specifically apply to Fund
directors apply to all accounts and securities in which the
director has direct or indirect beneficial ownership. See
Exhibit A attached hereto for a more detailed description of
beneficial ownership.
Securities are defined as stocks, notes, bonds, closed-end mutual
funds, debentures, and other evidences of indebtedness, including
senior debt, subordinated debt, investment contracts, commodity
contracts, futures and all derivative instruments such as
options, warrants and indexed instruments, or, in general, any
interest or instrument commonly known as a "security."
III. Enforcement - It is the responsibility of each Covered Person to
act in accordance with a high standard of conduct and to comply
with the policies and procedures set forth in this document. SSB
Citi takes seriously its obligation to monitor the personal
investment activities of its employees. Any violation of this
policy by employees will be considered serious, and may result in
disciplinary action, which may include the unwinding of trades,
disgorgement of profits, monetary fine or censure, and suspension
or termination of employment. Any violation of this policy by a
Fund director will be reported to the Board of Directors of the
applicable Fund, which may impose such sanctions as it deems
appropriate.
IV. Opening and Maintaining Employee Accounts - All employee
brokerage accounts, including spouse accounts, accounts for which
the employee is deemed to have beneficial ownership, and any
other accounts over which the employee and/or spouse exercise
control, must be maintained either at Salomon Smith Barney
("SSB") or at Citicorp Investment Services ("CIS"). For spouses
or other persons who, by reason of their employment, are required
to conduct their securities, commodities or other financial
transactions in a manner inconsistent with this policy, or in
other exceptional circumstances, employees may submit a written
request for an exemption to the Compliance Department. If
approval is granted, copies of trade confirmations and monthly
statements must be sent to the Compliance Department. In
addition, all other provisions of this policy will apply.
V. Excluded Accounts and Transactions - The following types of
accounts/transactions need not be maintained at SSB or CIS, nor
are they subject to the other restrictions of this policy:
1. Accounts at outside mutual funds that hold only shares
of open-end funds purchased directly from that fund
company. Note: transactions relating to closed-end
funds are subject to the pre-clearance, blackout period
and other restrictions of this policy;
2. Estate or trust accounts in which an employee or related
person has a beneficial interest, but no power to affect
investment decisions. There must be no communication
between the account(s) and the employee with regard to
investment decisions prior to execution. The employee
must direct the trustee/bank to furnish copies of
confirmations and statements to the Compliance
Department;
3. Fully discretionary accounts managed by either an
internal or external registered investment adviser are
permitted and may be custodied away from SSB and CIS if
(i) the employee receives permission from the Regional
Director of Compliance and the unit's Chief Investment
Officer, and (ii) there is no communication between the
manager and the employee with regard to investment
decisions prior to execution. The employee must
designate that copies of trade confirmations and monthly
statements be sent to the Compliance Department;
4. Employees may participate in direct investment programs
which allow the purchase of securities directly from the
issuer without the intermediation of a broker/dealer
provided that the timing and size of the purchases are
established by a pre-arranged, regularized schedule
(e.g., dividend reinvestment plans). Employees must
pre-clear the transaction at the time that the dividend
reinvestment plan is being set up. Employees also must
provide documentation of these arrangements and direct
periodic (monthly or quarterly) statements to the
Compliance Department; and
5. In addition to the foregoing, the following types of
securities are exempted from pre-clearance, blackout
periods, reporting and short-term trading requirements:
open-ended mutual funds; open-end unit investment
trusts; U.S. Treasury bills, bonds and notes; mortgage
pass-throughs (e.g. Ginnie Maes) that are direct
obligations of the U.S. government; bankers acceptances;
bank certificates of deposit; commercial paper; and high
quality short-term debt instruments (meaning any
instrument that has a maturity at issuance of less than
366 days and that is rated in one of the two highest
rating categories by a nationally recognized statistical
rating organization, such as S&P or Moody's), including
repurchase agreements.
VI. Securities Holding Period/Short-Term Trading - Securities
transactions must be for investment purposes rather than for
speculation. Consequently, employees may not profit from the
purchase and sale, or sale and purchase, of the same or
equivalent securities within sixty (60) calendar days, calculated
on a First In, First Out (FIFO) basis (i.e., the security may be
sold on the 61st day). Citigroup securities received as part of
an employee's compensation are not subject to the 60-day holding
period. All profits from short-term trades are subject to
disgorgement. However, with the prior written approval of both a
Chief Investment Officer and the Regional Director of Compliance,
and only in rare and/or unusual circumstances, an employee may
execute a short-term trade that results in a significant loss or
in break-even status.
VII. Pre-Clearance - All SSB Citi employees must pre-clear all
personal securities transactions (see Section V for a listing of
accounts, transactions and securities that do not require pre-
clearance). A copy of the pre-clearance form is attached as
Exhibit B. In addition, employees are prohibited from engaging
in more than twenty (20) transactions in any calendar month,
except with prior written approval from their Chief Investment
Officer, or designee. A transaction must not be executed until
the employee has received the necessary approval. Pre-clearance
is valid only on the day it is given. If a transaction is not
executed on the day pre-clearance is granted, it is required that
pre-clearance be sought again on a subsequent day (i.e., open
orders, such as limit orders, good until cancelled orders and
stop-loss orders, must be pre-cleared each day until the
transaction is effected). In connection with obtaining approval
for any personal securities transaction, employees must describe
in detail any factors which might be relevant to an analysis of
the possibility of a conflict of interest. Any trade that
violates the pre-clearance process may be unwound at the
employee's expense, and the employee will be required to absorb
any resulting loss and to disgorge any resulting profit.
In addition to the foregoing, the CGAM NA Director of Global
Equity Research, or his designate, must approve all personal
securities transactions for members of the CGAM Research
Department prior to pre-clearance from the Compliance Department
as set forth in this section. Pre-approval by the Director of
Research, or his designate, is in addition to and does not
replace the requirement for the pre-clearance of all personal
securities transactions.
VIII. Blackout Periods - No Covered Person shall purchase or sell,
directly or indirectly, any security in which he/she has, or by
reason of the transaction acquires, any direct or indirect
beneficial ownership if he/she has knowledge at the time of such
transaction that the security is being purchased or sold, or is
being considered for purchase or sale, by a managed fund or
client account or in the case of a Fund director, by the
director's Fund. In addition, the following Blackout Periods
apply to the categories of SSB Citi employees listed below:
1. Portfolio Managers and Portfolio Manager Assistants - may
not buy or sell any securities for personal accounts seven
(7) calendar days before or after managed funds or client
accounts he/she manages trade in that security.
2. Traders and Trader Assistants - may not buy or sell any
securities for personal accounts three (3) calendar days
before or seven (7) calendar days after managed funds or
client accounts he/she executes trades for trade in that
security.
3. Research Analysts and Research Assistants - may not buy or
sell any securities for personal accounts: seven (7)
calendar days before or after the issuance of or a change in
any recommendation; or seven (7) calendar days before or
after any managed fund or client account about which the
employee is likely to have trading or portfolio information
(as determined by the Compliance Department) trades in that
security.
4. Advisory Personnel (see Section II for details) - may not
buy or sell any securities for personal accounts on the same
day that a managed fund or client account about which the
employee is likely to have trading or portfolio information
(as determined by the Compliance Department) trades in that
security.
5. Unit Trust Personnel - all employees assigned to the Unit
Trust Department are prohibited from transacting in any
security when a SSB Citi-sponsored Unit Trust portfolio is
buying the same (or a related) security, until seven
business days after the later of the completion of the
accumulation period or the public announcement of the trust
portfolio. Similarly, all UIT employees are prohibited from
transacting in any security held in a UIT (or a related
security) seven business days prior to the liquidation
period of the trust.
Employees in the above categories may also be considered
Advisory Personnel for other accounts about which the employee
is likely to have trading or portfolio information (as
determined by the Compliance Department).
Any violation of the foregoing provisions will require the
employee's trade to be unwound, with the employee absorbing
any resulting loss and disgorging any resulting profit.
Advisory personnel are subject to the unwinding of the trade
provision; however, they may not be required to absorb any
resulting loss (at the discretion of the Compliance Department
and the employee's supervisor). Please be reminded that,
regardless of the provisions set forth above, all employees
are always prohibited from effecting personal securities
transactions based on material, non-public information.
Blackout period requirements shall not apply to any purchase
or sale, or series of related transactions involving the same
or related securities, involving 500 or fewer shares in the
aggregate if the issuer has a market capitalization
(outstanding shares multiplied by the current price per share)
greater than $10 billion and is listed on a U.S. Stock
Exchange or NASDAQ. Note: Pre-clearance is still required.
Under certain circumstances, the Compliance Department may
determine that an employee may not rely upon this "Large
Cap/De Minimis" exemption. In such a case, the employee will
be notified prior to or at the time the pre-clearance request
is made.
IX. Prohibited Transactions - The following transactions by SSB Citi
employees are prohibited without the prior written approval from
the Chief Investment Officer, or designee, and the Regional
Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an initial public
offering (new issues of municipal debt securities may be
acquired subject to the other requirements of this policy
(e.g., pre-clearance).)
X. Transactions in Options and Futures - SSB Citi employees may buy
or sell derivative instruments such as individual stock options,
options and futures on indexes and options and futures on fixed-
income securities, and may buy or sell physical commodities and
futures and forwards on such commodities. These transactions
must comply with all of the policies and restrictions described
in this policy, including pre-clearance, blackout periods,
transactions in Citigroup securities and the 60-day holding
period. However, the 60-day holding period does not apply to
individual stock options that are part of a hedged position where
the underlying stock has been held for more than 60 days and the
entire position (including the underlying security) is closed
out.
XI. Prohibited Recommendations - No Covered Person shall recommend or
execute any securities transaction by any managed fund or client
account, or, in the case of a Fund director, by the director's
Fund, without having disclosed, in writing, to the Chief
Investment Officer, or designee, any direct or indirect interest
in such securities or issuers, except for those securities
purchased pursuant to the "Large Cap/De Minimis" exemption
described in Section VIII above. Prior written approval of such
recommendation or execution also must be received from the Chief
Investment Officer, or designee. The interest in personal
accounts could be in the form of:
1. Any direct or indirect beneficial ownership of any
securities of such issuer;
2. Any contemplated transaction by the person in such
securities;
3. Any position with such issuer or its affiliates; or
4. Any present or proposed business relationship between
such issuer or its affiliates and the person or any
party in which such person has a significant interest.
XII. Transactions in Citigroup Securities - Unless an SSB Citi
employee is a member of a designated group subject to more
restrictive provisions, or is otherwise notified to the contrary,
the employee may trade in Citigroup securities without
restriction (other than the pre-clearance and other requirements
of this policy), subject to the limitations set forth below.
Employees whose jobs are such that they know about
Citigroup's quarterly earnings prior to release may not
engage in any transactions in Citigroup securities during
the "blackout periods" beginning on the first day of a
calendar quarter and ending on the second business day
following the release of earnings for the prior quarter.
Members of the SSB Citi Executive Committee and certain
other senior SSB Citi employees are subject to these
blackout periods.
Stock option exercises are permitted during a blackout
period (but the simultaneous exercise of an option and sale
of the underlying stock is prohibited). With regard to
exchange traded options, no transactions in Citigroup
options are permitted except to close or roll an option
position that expires during a blackout period. Charitable
contributions of Citigroup securities may be made during
the blackout period, but an individual's private foundation
may not sell donated Citigroup common stock during the
blackout period. "Good 'til cancelled" orders on Citigroup
stock must be cancelled before entering a blackout period
and no such orders may be entered during a blackout period.
No employee may engage at any time in any personal
transactions in Citigroup securities while in possession of
material non-public information. Investments in Citigroup
securities must be made with a long-term orientation rather
than for speculation or for the generation of short-term
trading profits. In addition, please note that employees
may not engage in the following transactions:
? Short sales of Citigroup securities;
? Purchases or sales of options ("puts" or "calls") on
Citigroup securities, except writing a covered call at a
time when the securities could have been sold under this
policy;
? Purchases or sales of futures on Citigroup securities; or
? Any transactions relating to Citigroup securities that
might reasonably appear speculative.
The number of Citigroup shares an employee is entitled to
in the Citigroup Stock Purchase Plan is not treated as a
long stock position until such time as the employee has
given instructions to purchase the shares of Citigroup.
Thus, employees are not permitted to use options to hedge
their financial interest in the Citigroup Stock Purchase
Plan.
Contributions into the firm's 401(k) Plan are not subject
to the restrictions and prohibitions described in this
policy.
XIII. Acknowledgement and Reporting Requirements - SSB Citi Employees -
All new SSB Citi employees must certify that they have received a
copy of this policy, and have read and understood its provisions.
In addition, all SSB Citi employees must:
1. Acknowledge receipt of the policy and any modifications
thereof, in writing (see Exhibit C for the form of
Acknowledgement);
2. Within 10 days of becoming an SSB Citi employee,
disclose in writing all information with respect to all
securities beneficially owned and any existing personal
brokerage relationships (employees must also disclose
any new brokerage relationships whenever established).
Such information should be provided on the form attached
as Exhibit D;
3. Direct their brokers to supply, on a timely basis,
duplicate copies of confirmations of all personal
securities transactions (Note: this requirement may be
satisfied through the transmission of automated feeds);
4. Within 10 days after the end of each calendar quarter,
provide information relating to securities transactions
executed during the previous quarter for all securities
accounts (Note: this requirement may be satisfied
through the transmission of automated feeds);
5. Submit an annual holdings report containing similar
information that must be current as of a date no more
than 30 days before the report is submitted, and confirm
at least annually all brokerage relationships and any
and all outside business affiliations (Note: this
requirement may be satisfied through the transmission of
automated feeds or the regular receipt of monthly
brokerage statements); and
6. Certify on an annual basis that he/she has read and
understood the policy, complied with the requirements of
the policy and that he/she has pre-cleared and disclosed
or reported all personal securities transactions and
securities accounts required to be disclosed or reported
pursuant to the requirements of the policy.
Fund Directors - Fund Directors shall deliver the information
required by Items 1 through 6 of the immediately preceding
paragraph, except that a Fund director who is not an "interested
person" of the Fund within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, and who would be required to make
reports solely by reason of being a Fund Director, is not
required to make the initial and annual holdings reports required
by Items 2 and 5. Also, a "non-interested" Fund Director need
not supply duplicate copies of confirmations of personal
securities transactions required by Item 3, and need only make
the quarterly transactions reports required by Item 4 as to any
security if at the time of a transaction by the Director in that
security, he/she knew or in the ordinary course of fulfilling
his/her official duties as a Fund Director should have known
that, during the 15-day period immediately preceding or following
the date of that transaction, that security is or was purchased
or sold by that Director's Fund or was being considered for
purchase or sale by that Director's Fund.
Disclaimer of Beneficial Ownership - The reports described in
Items 4 and 5 above may contain a statement that the reports
shall not be construed as an admission by the person making the
reports that he/she has any direct or indirect beneficial
ownership in the securities to which the reports relate.
XIV. Handling of Disgorged Profits - Any amounts that are
paid/disgorged by an employee under this policy shall be donated
by SSB Citi to one or more charities. Amounts donated may be
aggregated by SSB Citi and paid to such charity or charities at
the end of each year.
XV. Confidentiality - All information obtained from any Covered
Person pursuant to this policy shall be kept in strict
confidence, except that such information will be made available
to the Securities and Exchange Commission or any other regulatory
or self-regulatory organization or to the Fund Boards of
Directors to the extent required by law, regulation or this
policy.
XVI. Other Laws, Rules and Statements of Policy - Nothing contained in
this policy shall be interpreted as relieving any person subject
to the policy from acting in accordance with the provision of any
applicable law, rule or regulation or, in the case of SSB Citi
employees, any statement of policy or procedure governing the
conduct of such person adopted by Citigroup, its affiliates and
subsidiaries.
XVII. Retention of Records - All records relating to personal
securities transactions hereunder and other records meeting the
requirements of applicable law, including a copy of this policy
and any other policies covering the subject matter hereof, shall
be maintained in the manner and to the extent required by
applicable law, including Rule 17j-1 under the 1940 Act. The
Compliance Department shall have the responsibility for
maintaining records created under this policy.
XVIII. Monitoring - SSB Citi takes seriously its obligation to
monitor the personal investment activities of its employees and
to review the periodic reports of all Covered Persons. Employee
personal investment transaction activity will be monitored by the
Compliance Department. All noted deviations from the policy
requirements will be referred back to the employee for follow-up
and resolution (with a copy to be supplied to the employee's
supervisor). Any noted deviations by Fund directors will be
reported to the Board of Directors of the applicable Fund for
consideration and follow-up as contemplated by Section III
hereof.
XIX. Exceptions to the Policy - Any exceptions to this policy must
have the prior written approval of both the Chief Investment
Officer and the Regional Director of Compliance. Any questions
about this policy should be directed to the Compliance
Department.
XX. Board Review - Fund management and SSB Citi shall provide to the
Board of Directors of each Fund, on a quarterly basis, a written
report of all material violations of this policy, and at least
annually, a written report and certification meeting the
requirements of Rule 17j-1 under the 1940 Act.
XXI. Other Codes of Ethics - To the extent that any officer of any
Fund is not a Covered Person hereunder, or an investment
subadviser of or principal underwriter for any Fund and their
respective access persons (as defined in Rule 17j-1) are not
Covered Persons hereunder, those persons must be covered by
separate codes of ethics which are approved in accordance with
applicable law.
XXII. Amendments - SSB Citi Employees - Unless otherwise noted herein,
this policy shall become effective as to all SSB Citi employees
on March 30, 2000. This policy may be amended as to SSB Citi
employees from time to time by the Compliance Department. Any
material amendment of this policy shall be submitted to the Board
of Directors of each Fund for approval in accordance with Rule
17j-1 under the 1940 Act.
Fund Directors - This policy shall become effective as to a Fund
upon the approval and adoption of this policy by the Board of
Directors of that Fund in accordance with Rule 17j-1 under the
1940 Act or at such earlier date as determined by the Secretary
of the Fund. Any material amendment of this policy that applies
to the directors of a Fund shall become effective as to the
directors of that Fund only when the Board of Directors of that
Fund has approved the amendment in accordance with Rule 17j-1 or
at such earlier date as determined by the Secretary of the Fund.
March 15, 2000
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of Securities if you
have or share a direct or indirect "Pecuniary Interest" in the
Securities.
You have a "Pecuniary Interest" in Securities if you have the
opportunity, directly or indirectly, to profit or share in any profit
derived from a transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in
Securities:
1. Securities held by members of your immediate family sharing
the same household; however, this presumption may be
rebutted by convincing evidence that profits derived from
transactions in these Securities will not provide you with
any economic benefit.
"Immediate family" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-
law, father-in-law, son-in-law, daughter-in-law, brother-in-
law, or sister-in-law, and includes any adoptive
relationship.
2. Your interest as a general partner in Securities held by a
general or limited partnership.
3. Your interest as a manager-member in the Securities held by
a limited liability company.
You do not have an indirect Pecuniary Interest in Securities held by
a corporation, partnership, limited liability company or other entity
in which you hold an equity interest, unless you are a controlling
equityholder or you have or share investment control over the
Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of
Securities held by a trust:
1. Your ownership of Securities as a trustee where either you
or members of your immediate family have a vested interest
in the principal or income of the trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the consent of
all of the beneficiaries is required in order for you to
revoke the trust.
The foregoing is a summary of the meaning of "beneficial ownership".
For purposes of the attached policy, "beneficial ownership" shall be
interpreted in the same manner as it would be in determining whether a
person is subject to the provisions of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder
SSB CITI ASSET MANAGEMENT GROUP ("SSB CITI") EXHIBIT
B EMPLOYEE TRADE PRE-APPROVAL FORM
(PAGE 1)
Instructions:
All employees are required to submit this form to the Compliance
Department prior to placing a trade. The Compliance Department will
notify the employee as to whether or not pre-approval is granted. Pre-
approval is effective only on the date granted.
I. Employee Information
Employee Name:
Phone Number:
Account Title:
Account Number:
Managed Account(s)/Mutual Fund(s) for which employee is a
Covered Person:
II. Security Information
IPO
?
Yes
? No
Private Placement
? Yes
? No
Security Name
Security
Type-e.g.,
common stock,
etc.
Tick
er
Buy/Se
ll
If Sale, Date
First Acquired1
No.
Shares/U
nits
Large Cap
Stock?2
III. Your position with the Firm:
(Please check one of the
following)
? Portfolio Manager / Portfolio Manager
Assistant
? Research Analyst / Research Analyst
Assistant
? Trader / Trader Assistant
? Unit Trust Personnel
? Other (Advisory Personnel)
NOTE:
? All Portfolio Managers must complete the reverse side of this form.
? All Research Analysts and Research Analyst Assistants located in
Connecticut must provide an
additional form signed by Rama Krishna or one of his designees.
IV. Certification
I certify that I will not effect the transaction(s) described above
unless and until pre-clearance approval is obtained from the Compliance
Department. I further certify that, except as described on an attached
page, to the best of my knowledge, the proposed transaction(s) will not
result in a conflict of interest with any account managed by SSB Citi
(including mutual funds managed by SSB Citi). I further certify that,
to the best of my knowledge, there are no pending orders for any
security listed above or any related security for any Managed Accounts
and/or Mutual Funds for which I am considered a Covered Person. The
proposed transaction(s) are consistent with all firm policies regarding
employee personal securities transactions.
Signature Date
For Use By the Compliance Department
Are Securities
Restricted?
? Ye
s
? No
Pre-approval
Granted?
? Yes
? No
Reason not
granted:
Compliance Department Signature:
Date:
Time:
1. All securities sold must have been held for at least 60 days.
2. For purposes of SSB Citi's personal trading policies, a Large Cap
Exemption applies to transactions involving 500 or fewer shares in
aggregate and the stock is one that is listed on a U.S. stock
exchange or NASDAQ and whose issuer has a market capitalization
(outstanding shares multiplied by current price) of more than $10
billion.
SSB CITI ASSET MANAGEMENT GROUP ("SSB CITI")
PAGE 2 - PORTFOLIO MANAGER CERTIFICATION
All portfolio managers must answer the following questions in order to
obtain pre-approval. All questions must be answered or the form will
be returned. If a question is not applicable, please indicate "N/A".
1. Have your client accounts purchased or sold the securities (or
related securities) in the past seven calendar days?
Yes ? No ?
2. Do you intend to purchase or sell the securities (or related
securities) for any client accounts in the next seven calendar days?
Yes ? No ?
3. Do any of your client accounts currently own the securities (or
related securities)? Yes ? No ?
3a. If yes, and you are selling the securities for your personal
account, please explain why the sale of the securities was
rejected for client accounts but is appropriate for your personal
account:
4. Have you, in the past 7 calendar days, considered purchasing the
securities (or related securities) for your client accounts? Yes
? No ?
4a. If yes, and you are purchasing securities for your personal
account, please explain why the purchase of the securities is
appropriate for your account but has been rejected for your
client accounts:
4b. If no, and you are purchasing securities for your personal
account, please explain why the purchase of the securities has
not been considered for your client accounts:
Certification
I certify that I will not effect the transaction(s) described above
unless and until pre-clearance approval is obtained from the Compliance
Department. I further certify that, except as described on an attached
page, to the best of my knowledge, the proposed transaction(s) will not
result in a conflict of interest with any account managed by SSB Citi
(including mutual funds managed by SSB Citi). I further certify that,
to the best of my knowledge, there are no pending orders for any
security listed above or any related securities for any Managed
Accounts and/or Mutual Funds for which I am considered a Covered
Person. The proposed transaction(s) are consistent with all firm
policies regarding employee personal securities transactions.
Signature Date
For Use By the Compliance Department
Are Securities
Restricted?
? Ye
s
? No
Pre-approval
Granted?
? Yes
? No
Reason not
granted:
Compliance Department Signature:
Date:
Time:
PERSONAL INVESTMENT POLICY EXHIBIT
C
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
ACKNOWLEDGMENT
I acknowledge that I have received and read the Personal
Investment Policy for SSB Citi Asset Management Group - North
America and Certain Registered Investment Companies dated March
15, 2000. I understand the provisions of the Personal Investment
Policy as described therein and agree to abide by them.
Employee Name (Print):
Signature:
Date:
Social Security
Number:
Date of Hire:
Job Function &
Title:
Supervisor:
Location:
Floor and/or
Zone:
Telephone
Number:
NASD Registered Employee (Please check
one)
? Yes
? No
If registered, list Registration \ License:
This Acknowledgment form must be completed and returned no later
than March 30, 2000 to the Compliance Department - Attention:
Vera Sanducci-Dendy, 388 Greenwich Street, 23rd Floor, New York,
NY 10013.
EXHIBIT D
SSB Citi Asset Management Group - North America Personal Investment
Policy
Financial Services Firm Disclosure and Initial Report of Securities
Holdings
This report must be signed, dated and returned within 10 days of
employment to the Compliance Department - Attention: Vera Sanducci-
Dendy, 388 Greenwich Street, 23rd Floor
Employee Name: ____________________________ Date of Employment:
_____________________
Brokerage Accounts:
? I do not have a beneficial interest in any account(s) with any
financial services firm.
? I maintain the following account(s) with the financial services
firm(s) listed below (attach additional information if necessary-
e.g., a brokerage statement). Please include the information
required below for any broker, dealer or bank where an account is
maintained which holds securities for your direct or indirect
benefit as of the date you began your employment.
Name of Financial Service(s) Firm and Address Account
Title Account Number
Securities Holdings:
Complete the following (or attach a copy of your most recent
statement(s)) listing all of your securities holdings, with the
exception of open-ended mutual funds and U.S Government securities if:
? You own securities which are held by financial services firm(s) as
described above. If you submit a copy of a statement, it must
include all of the information set forth below. Please be sure to
include any additional securities purchased since the date of the
brokerage statement which is attached. Use additional sheets if
necessary.
? Your securities are not held with a financial service(s) firm
(e.g., dividend reinvestment programs and private placements).
Title of
Security
Ticker
Symbol
# of
Shares
Principal
Amt.
Held
Since
Financial
Services Firm
? I have no securities holdings to report.
I certify that I have received the SSB Citi - North America Personal
Investment Policy and have read it and understood its contents. I
further certify that the above represents a complete and accurate
description of my brokerage account(s) and securities holdings as of
my date of employment.
Signature: _________________________________________ Date of
Signature: _________________
The investment advisory entities of SSB Citi covered by this policy
include: Salomon Brothers Asset
Management Inc.; SSB Citi Fund Management LLC; Smith Barney Asset Management
Division of
Salomon Smith Barney Inc.; Travelers Investment Management Company; and the
Citibank Global Asset
Management Division of Citibank, N.A. and Citicorp Trust, N.A.-California.
This requirement will become effective as to all employees on a date to be
determined by the Compliance
Department and may be subject to a phase-in implementation process.
G:\Fund Accounting\Legal\FUNDS\PRTF\2000\Secdocs\Ex. Code of Ethics.doc 1
Z:/Compliance/Charlie/BP2PIPmarked 11
12
18
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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