<PAGE>
Pursuant to Rule 497(b) File Nos: 333-41496 811-1464
CITIFUNDS GROWTH & INCOME PORTFOLIO
21 Milk Street, 5th Floor, Boston, Massachusetts 02109
August 16, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby substantially all of the assets of CitiFunds Growth & Income Portfolio
(the "CitiFund"), a series of CitiFunds Trust II, will be transferred in a
tax-free reorganization to Smith Barney Large Cap Value Fund (the "Smith
Barney Fund"), in exchange for shares of the Smith Barney Fund, a series of
Smith Barney Funds, Inc.
If the Agreement and Plan of Reorganization is approved and consummated,
you will no longer be a shareholder of the CitiFund; you will become a
shareholder of the Smith Barney Fund. You will receive shares of the
corresponding class of the Smith Barney Fund with an aggregate net asset value
equal to the aggregate net asset value of your shares in the CitiFund. Of
course, you may redeem your shares of the CitiFund or the Smith Barney Fund on
any business day.
The Smith Barney Fund is advised by SSB Citi Fund Management LLC ("SSB
Citi"). The CitiFund is advised by Citibank, N.A. ("Citibank"). SSB Citi and
Citibank are subsidiaries of Citigroup Inc. SSB Citi also currently manages
the CitiFund as subadviser. Citigroup has proposed the reorganization of the
CitiFund into the Smith Barney Fund in order to eliminate duplication in the
mutual fund investment advisory operations of SSB Citi and Citibank. SSB Citi
and Citibank will pay all of the expenses that are solely and directly related
to the reorganization.
After carefully studying the merits of the proposal, the Board of Trustees
of the CitiFund has determined that the reorganization of the CitiFund with
the Smith Barney Fund will benefit the CitiFund shareholders.
The Trustees of CitiFunds Trust II believe that combining the assets of
the CitiFund with the Smith Barney Fund could result in more efficient mutual
fund operations due to economies of scale. As a result of the reorganization,
CitiFund shareholders will be part of a larger fund family offering a wide
array of mutual funds, and will be able to exchange their shares among all of
those Smith Barney funds offered by their service agents.
The Board of Trustees of CitiFunds Trust II believes that the proposal set
forth in the notice of meeting for your fund is important and recommends that
you read the enclosed materials carefully and then vote for the proposal.
PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR PROXY CARD(s) IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY ALSO CAST YOUR VOTE VIA THE INTERNET, BY
TELEPHONE OR BY FACSIMILE AS DESCRIBED IN THE ENCLOSED PROXY VOTING MATERIALS.
For more information, please contact your service agent or call
1-888-347-2456. If your account is held with Citicorp Investment Services,
please call 1-800-846-5200; in New York City, you will need to call
212-820-2380.
Respectfully,
/s/ Philip W. Coolidge
Philip W. Coolidge
President
<PAGE>
WE URGE YOU TO VOTE BY ONE OF THE FOLLOWING MEANS TO ENSURE A QUORUM AT THE
MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO
VOTE:
By phone: Call toll-free 1-800-597-7836 and follow the automated
instructions. You will need the 14-digit control number located on
your proxy card.
By mail: Simply enclose your executed proxy card in the postage-paid
envelope found within your proxy package.
By internet: Visit https://vote.proxy-direct.com; once there, enter
the 14-digit control number located on your proxy card.
By fax: Simply fax your executed proxy card to 1-888-796-9932.
If you have any questions regarding the meeting agenda or the execution of
your proxy, please call 1-888-347-2456.
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Telephone: (617) 423-1679
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders of CitiFunds
Growth & Income Portfolio (the "CitiFund"), a series of CitiFunds Trust II,
will be held at the offices of SSB CitiFund Management LLC, 7 World Trade
Center, 4th Floor, Balcony Dining, New York, New York 10048, on October 2,
2000 at 3:30 p.m., Eastern time, for the following purposes:
ITEM 1. To consider and act upon a proposal to approve an Agreement and
Plan of Reorganization which provides for and contemplates: (1) the
transfer of substantially all of the assets and liabilities of the
CitiFund to Smith Barney Large Cap Value Fund (the "Smith Barney
Fund"), a series of Smith Barney Funds, Inc., solely in exchange
for voting shares of the corresponding class of Smith Barney Fund;
(2) the distribution of the shares to the shareholders of the
CitiFund in liquidation of the CitiFund; and (3) the termination of
the CitiFund.
ITEM 2. To transact such other business as may properly come before the
Special Meeting of Shareholders and any adjournments thereof.
Item 1 is described in the attached Proxy Statement/Prospectus. THE BOARD
OF TRUSTEES OF THE CITIFUND RECOMMENDS THAT YOU VOTE IN FAVOR OF ITEM 1.
Only shareholders of record on August 11, 2000 will be entitled to vote at
the Special Meeting of Shareholders and at any adjournments thereof.
Robert I. Frenkel, Secretary
August 16, 2000
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING AND
RETURNING THE ENCLOSED PROXY, WHICH WILL HELP AVOID THE ADDITIONAL EXPENSE OF
A SECOND SOLICITATION. THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE AND
IS PROVIDED FOR YOUR CONVENIENCE. YOU ALSO MAY RETURN PROXIES BY TOUCH-TONE
VOTING OVER THE TELEPHONE. BY FACSIMILE OR BY VOTING ON THE INTERNET.
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
August 16, 2000
Relating to the acquisition by
SMITH BARNEY LARGE CAP VALUE FUND, a series of
SMITH BARNEY FUNDS, INC.
388 Greenwich Street
New York, NY 10013
Telephone: (800) 451-2010
of the assets of
CITIFUNDS GROWTH & INCOME PORTFOLIO, a series of
CITIFUNDS TRUST II
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Telephone: (617) 423-1679
This Proxy Statement/Prospectus is furnished to shareholders of CitiFunds
Growth & Income Portfolio (the "CitiFund"), a series of CitiFunds Trust II
(the "CitiFunds Trust") in connection with the solicitation of proxies for a
Special Meeting of Shareholders of the CitiFund at which shareholders will be
asked to consider and approve a proposed Agreement and Plan of Reorganization
(the "Plan") between the CitiFunds Trust, on behalf of the CitiFund, and Smith
Barney Funds, Inc., on behalf of its series, Smith Barney Large Cap Value Fund
(the "Smith Barney Fund").
The Plan provides that substantially all of the assets and liabilities of
the CitiFund will be transferred to the Smith Barney Fund. In exchange for the
transfer of these assets and liabilities, the CitiFund will receive voting
shares of the Smith Barney Fund. Shares of the Smith Barney Fund so received
would then be distributed to the shareholders of the CitiFund in complete
liquidation of the CitiFund, and the CitiFund would be terminated. As a result
of these reorganization transactions, each shareholder of each class of the
CitiFund would receive that number of full and fractional shares of the
corresponding class of the Smith Barney Fund having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's shares of
the CitiFund held on the closing date of the reorganization transaction (the
"Reorganization").
The CitiFund and Smith Barney Fund are each a series of open-end,
management investment companies. Both Funds invest primarily in common stocks
of large cap U.S. issuers. Both Funds employ an investment strategy called
"value" investing, which means that they invest in companies they believe are
undervalued but have good longer-term prospects for growth.
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about the Smith Barney Fund
that a prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of
the Smith Barney Fund, see the Prospectus for the Smith Barney Fund, dated
April 28, 2000, as supplemented from time to time, which is included herewith
and incorporated herein by reference. This Proxy Statement/Prospectus is also
accompanied by the Smith Barney Fund's annual report to shareholders for the
year ended December 31, 1999, which is incorporated herein by reference.
Additional information is set forth in the Statement of Additional Information
of the Smith Barney Fund, dated April 28, 2000, which is incorporated herein
by reference. The Prospectus and Statement of Additional Information of the
Smith Barney Fund are on file with the Securities and Exchange Commission and
are available without charge upon request by writing or calling the Smith
Barney Fund at the address or telephone number indicated above.
Additional information is set forth in (a) the Statement of Additional
Information relating to this Proxy Statement/Prospectus, dated August 16,
2000, (b) the Prospectus and Statement of Additional Information of the
CitiFund, dated March 1, 2000, (c) the Annual Report of the CitiFund for the
fiscal year ended October 31, 1999 and (d) the Semi-Annual Report of the
CitiFund for the six-month period ended April 30, 2000. Each of these
documents is incorporated herein by reference and is on file with the
Securities and Exchange Commission. You may obtain a copy of any of these
documents without charge upon request by writing or calling the CitiFund at
the address or telephone number indicated above.
This Proxy Statement/Prospectus is expected to be first sent to
shareholders on or about August 16, 2000.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY STATEMENT/
PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CITIFUND OR THE SMITH BARNEY
FUND.
TABLE OF CONTENTS
SYNOPSIS .................................................................. 6
Proposed Transaction .................................................... 6
Comparison of Investment Objectives and Policies ........................ 6
Comparison of Investment Structure of the CitiFund and Smith Barney Fund 8
Investment Advisory Services and Management Fees ........................ 8
Overall Expenses ........................................................ 8
Distribution of Shares and Other Services ............................... 10
Sales Charges, Purchase Policies, Redemption and Exchange Information ... 10
Dividends and Other Distributions ....................................... 13
Tax Consequences ........................................................ 14
PRINCIPAL INVESTMENTS, RISK FACTORS AND INVESTMENT RESTRICTIONS ........... 14
Principal Investments and Risk Factors .................................. 14
Fundamental Investment Restrictions ..................................... 18
Non-Fundamental Investment Restrictions ................................. 19
THE PROPOSED TRANSACTION .................................................. 19
Description of the Plan ................................................. 19
Reasons for the Proposed Transaction .................................... 20
Description of the Securities to Be Issued .............................. 21
Federal Income Tax Consequences ......................................... 22
Liquidation and Termination of the CitiFund ............................. 23
Portfolio Securities .................................................... 23
Portfolio Turnover ...................................................... 23
Pro Forma Capitalization ................................................ 23
Performance ............................................................. 23
VOTING INFORMATION ........................................................ 24
General Information ..................................................... 24
Quorum; Vote Required to Approve Proposal ............................... 24
Outstanding Shareholders ................................................ 25
ADDITIONAL INFORMATION ABOUT THE FUNDS .................................... 26
OTHER MATTERS ............................................................. 26
<PAGE>
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/ Prospectus regarding the CitiFund and the Smith Barney Fund (each,
a "Fund," and collectively, the "Funds") and the proposed Reorganization. This
summary is qualified by reference to the more complete information contained
elsewhere in this Proxy Statement/Prospectus, the Prospectus of the Smith
Barney Fund, the Prospectus of the CitiFund, and the Plan, the form of which
is attached to this Proxy Statement/Prospectus as Exhibit A. Shareholders of
the CitiFund should read this entire Proxy Statement/Prospectus carefully.
PROPOSED TRANSACTION
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
including the Trustees who are not "interested persons" of such Fund (as defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) (the
"Non-Interested Trustees"), approved the Plan on July 13, 2000. The Plan
provides that substantially all of the assets and liabilities of the CitiFund
will be transferred to the Smith Barney Fund. The CitiFund holds its assets
through an underlying investment company (the "Underlying Portfolio"). As part
of the Reorganization, and prior to the transfer of assets to the Smith Barney
Fund, the CitiFund will receive a distribution in kind from the Underlying
Portfolio of the investment securities held by the Underlying Portfolio on its
behalf (and associated liabilities), in redemption of its interest in the
Underlying Portfolio, and those investment securities will be the assets
transferred to the Smith Barney Fund. In exchange for the transfer of those
assets and liabilities, the CitiFund will receive voting shares of the Smith
Barney Fund. Shares of the Smith Barney Fund so received will then be
distributed to the shareholders of the CitiFund in complete liquidation of the
CitiFund, and the CitiFund will be terminated. As a result of the
Reorganization, each shareholder of each class of the CitiFund will receive that
number of full and fractional shares of the corresponding class of the Smith
Barney Fund having an aggregate net asset value equal to the aggregate net asset
value of the shareholder's shares of the CitiFund held as of the close of
business on the closing date of the Reorganization (the "Closing Date"). The
Closing Date is expected to be October 6, 2000 or such later date as the parties
may agree in writing.
For the reasons described below under "The Proposed Transaction -- Reasons
for the Proposed Transaction," the Board of Trustees of the CitiFund,
including the Non-Interested Trustees, has concluded that the Reorganization
is in the best interests of the CitiFund and its shareholders and that the
interests of the existing shareholders of the CitiFund will not be diluted as
a result of the Reorganization.
Accordingly, the Trustees recommend approval of the Plan. If the Plan is
not approved, the CitiFund will continue in existence unless other action is
taken by the Trustees; such other action may include resubmission of the plan
to shareholders or termination and liquidation of the CitiFund.
If the Plan is approved, CitiFund shareholders who do not wish to become
shareholders of the Smith Barney Fund must redeem their shares prior to the
Closing Date.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
GOALS
The goal of the CitiFund is to provide long-term capital growth and
current income. The goal of the Smith Barney Fund is to provide current income
and long-term growth of income and capital.
PLEASE NOTE THAT ALTHOUGH THE FUNDS' INVESTMENT OBJECTIVES ARE SIMILAR,
THERE ARE DIFFERENCES IN THE FUNDS' INVESTMENT POLICIES AND THE MANNER IN
WHICH THE FUNDS SEEK TO ACHIEVE THEIR GOALS. THESE DIFFERENCES ARE DISCUSSED
IN MORE DETAIL BELOW.
INVESTMENT POLICIES
Equity Securities. Each Fund's equity securities consist primarily of
common stocks of large cap U.S. issuers. For the CitiFund, companies with
market capitalizations within the top 1,000 stocks of the U.S. equity market
are considered to be large cap issuers. For the Smith Barney Fund, companies
with market capitalizations of at least $5 billion are considered to be large
cap issuers. Each Fund also may invest in preferred stocks, warrants, and
securities convertible into common stocks.
Debt Securities. Each Fund may also invest in debt securities, including
securities issued by the U.S. government (or its agencies and
instrumentalities), corporate securities, mortgage-backed securities, and
asset-backed securities. The Smith Barney Fund's long-term non-convertible
debt securities must be investment grade (meaning securities rated Baa or
better by Moody's Investors Service ("Moody's") or BBB or better by Standard &
Poor's Rating Service ("Standard & Poor's") when the Fund purchases them.
The CitiFund may invest in investment-grade debt securities as well as
debt securities rated below investment grade. Below-investment-grade
securities are commonly known as "junk bonds" because they are rated in the
lower rating categories by a nationally recognized statistical rating
organization or, if unrated, are deemed by Citibank, N.A. ("Citibank"), the
CitiFund's investment manager, to be of similar credit quality. Investing in
junk bonds may subject this Fund to higher risks, as discussed under
"Principal Investments, Risk Factors and Investment Restrictions" below.
Foreign Securities. The CitiFund may invest up to 25% of its assets in
foreign equity and debt securities including depositary receipts (meaning
receipts representing the right to receive securities of foreign issuers
deposited in a U.S. bank or a local branch of a foreign bank). The CitiFund's
foreign securities may be issued by issuers in developing countries. The Smith
Barney Fund may invest without limit in foreign equity and debt securities,
although the Fund's investment manager, SSB Citi Fund Management LLC ("SSB
Citi"), currently intends to limit such investment to 5% of the Fund's assets.
An additional 10% of the Smith Barney Fund's assets may be invested in
sponsored American Depositary Receipts. (i.e., see "Principal Investments,
Risk Factors and Investment Restrictions" below for more information on the
risks of foreign securities).
Derivative Securities. Each Fund may invest in derivative securities,
including options on securities, stock index options, forward currency
contracts, stock index futures contracts, swap agreements and options on
futures contracts (see "Principal Investments, Risk Factors and Investment
Restrictions" below for more information on the risks of derivatives). The
CitiFund also may purchase call options on securities, purchase and write put
and call options on a foreign currency, and invest in interest-only securities
("IOs") and principal-only securities ("POs") (each a type of collateralized
mortgage obligation ("CMO")). The CitiFund may invest in derivative securities
for hedging purposes and to generate income. The Smith Barney Fund is subject
to certain limits on the amount of its assets that may be invested or subject
to puts, calls or combinations thereof and may not purchase or sell options
that are not listed on a national securities exchange. Each Fund is subject to
certain limitations imposed by the Commodity Futures Trading Commission with
respect to its investments in derivatives.
Zero Coupon Obligations. The CitiFund may invest in zero coupon
obligations, such as zero coupon bonds issued by companies and securities
representing future principal and interest installments on debt obligations of
the U.S. and foreign governments. The Smith Barney Fund may not invest in zero
coupon obligations (see "Principal Investments, Risk Factors and Investment
Restrictions" below for more information on the risks of zero coupon
obligations).
Defensive Investing. Each Fund may depart from its principal investing
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in money market and short-term debt
securities. If a Fund takes a temporary defensive position, it may not achieve
its investment goal.
SECURITY SELECTION PROCESS
In selecting investments for the CitiFund, Citibank uses a value-oriented
approach. The portfolio managers of the CitiFund look for securities that they
believe are currently undervalued, or priced below their true worth, but whose
issuers have good longer-term prospects. The portfolio managers look for
securities that they believe are underpriced according to certain financial
measurements of their intrinsic worth or business prospects (such as the
company's cash flow, potential earnings prospects, growth rate and/or
dividend-paying ability).
In selecting investments for the Smith Barney Fund, SSB Citi employs a
two-step stock selection process in its search for undervalued stocks of
established, well-recognized but temporarily out-of-favor companies. First,
the portfolio manager uses proprietary models and fundamental research to try
to identify stocks that are underpriced in the market relative to their
fundamental value. Next, the portfolio manager looks for a positive catalyst
in the company's near-term outlook that the manager believes will accelerate
earnings.
Upon consummation of the Reorganization, SSB Citi will analyze and evaluate
the portfolio securities of the CitiFund. Based on the Smith Barney Fund's
investment objectives and policies, federal income tax considerations and the
interests of the Smith Barney Fund's shareholders (including the former CitiFund
shareholders), SSB Citi will determine whether to dispose of or maintain
investments in those securities. For more information, please see "The Proposed
Transaction -- Portfolio Securities" below.
COMPARISON OF INVESTMENT STRUCTURE OF THE CITIFUND AND THE
SMITH BARNEY FUND
The CitiFund is a feeder fund in a two-tier master/feeder structure. This
means that the CitiFund invests its assets in an underlying mutual fund, Large
Cap Value Portfolio (referred to above as the "Underlying Portfolio"), which
itself invests directly in equity securities. The Underlying Portfolio is a
mutual fund with its own investment goals and policies. The Underlying
Portfolio buys, holds and sells securities in accordance with these goals and
policies. Unless otherwise indicated, references to the CitiFund include the
Underlying Portfolio.
The Smith Barney Fund invests directly in securities. This difference in
investment structure is not expected to affect in any material way CitiFunds
shareholders who receive shares of the Smith Barney Fund in the
Reorganization.
INVESTMENT ADVISORY SERVICES AND MANAGEMENT FEES
Citibank, N.A., a wholly owned subsidiary of Citigroup Inc., serves as the
investment manager of the CitiFund and the Underlying Portfolio. SSB Citi,
also a wholly owned subsidiary of Citigroup Inc., serves as the subadviser to
the Underlying Portfolio. SSB Citi also serves as investment manager of the
Smith Barney Fund and will continue to serve as the investment manager of the
Smith Barney Fund after the consummation of the Reorganization. Citigroup
businesses provide a broad range of financial services and asset management,
banking and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading and use diverse channels to make them available
to consumer and corporate customers around the world.
The CitiFund pays an aggregate management fee, which is accrued daily and
paid monthly, of up to 0.80% of the CitiFund's average daily net assets on an
annualized basis for the CitiFund's then-current fiscal year. This aggregate
management fee includes fees payable to Citibank for the asset management and
administrative services it provides to the CitiFund and the Underlying
Portfolio and fees payable to SSB Citi for its sub-advisory services to the
Underlying Portfolio.
The Smith Barney Fund pays a management fee of 0.55% per annum of that
Fund's average daily net assets. Thus, the Smith Barney Fund pays a smaller
percentage of its average daily net assets in advisory and management fees
than does the CitiFund. For a comparison of the total annual operating
expenses of the CitiFund (including the expenses of the Underlying Portfolio)
and Smith Barney Fund, please review the expense tables under "Overall
Expenses" below.
Ellen Cardozo Sonsino, an investment officer of SSB Citi and a managing
director of Salomon Smith Barney, has been responsible for the day-to-day
management of the Smith Barney Fund's portfolio since March 1998. Ms. Sonsino
is also the portfolio manager for the Underlying Portfolio. She has 21 years
of investment management experience.
OVERALL EXPENSES
The total annual operating expenses for Class A and Class B shares of the
Smith Barney Fund, as determined for the Fund's most recent fiscal year, were
lower than the total annual operating expenses of the Class A and Class B
shares of the CitiFund for its most recent fiscal year by 0.55% and 0.53%,
respectively. After giving effect to waivers and reimbursements by the
CitiFund's service providers, which waivers and reimbursements may be
terminated at any time, the total annual operating expenses of the Class A and
Class B shares of the Smith Barney Fund were lower by 0.40% and 0.38%,
respectively.
Further information about the expenses of each class of the CitiFund and
the Smith Barney Fund for the fiscal years ended October 31, 1999 and December
31, 1999, respectively, and pro forma expenses following the proposed
Reorganization is outlined in the table below.
<TABLE>
<CAPTION>
PRO FORMA
CITIFUNDS SMITH BARNEY FUND SMITH BARNEY FUND
------------------------ ------------------------ ------------------------
SHARE CLASS CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
----------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM
YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on
Purchases 5.00% None 5.00% None 5.00% None
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2) None(3) 5.00%(2) None(3) 5.00%(2)
ANNUAL FUND
OPERATING EXPENSES(4)
EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
Management Fees 0.80% 0.80% 0.55% 0.55% 0.55% 0.55%
Distribution (12b-1) Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses (administrative, shareholder
servicing and other expenses) 0.40% 0.40% 0.10% 0.12% 0.10% 0.12%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.45%* 2.20%* 0.90% 1.67% 0.90% 1.67%
----------
* Because some of CitiFunds Growth & Income Portfolio's expenses were waived or reimbursed, actual total operating
expenses with respect to Class A and B shares for the fiscal year ended October 31, 1999 were 1.30% and 2.05%,
respectively.
(1) Except for investments of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge ("CDSC") that is deducted from your sale proceeds if you sell
your Class B shares within five years of your original purchase of the shares. In the first year after purchase, the
CDSC is 5.00% of the price at which you purchased your shares, or the price at which you sold your shares, whichever is
less, declining to 1.00% in the fifth year after purchase.
(3) You may buy Class A shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge) but if
you redeem those shares within 12 months of purchase you will pay a deferred sales charge of 1.00%.
(4) CitiFunds Growth & Income Portfolio invests in securities through an underlying mutual fund, Large Cap Value Portfolio.
This table reflects the expenses of the Fund and Large Cap Value Portfolio.
</TABLE>
This example is intended to help you compare the cost of investing in each
of the Funds. The example assumes you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year
and that each Fund's annual operating expenses (before waivers and
reimbursements) remain the same. The expenses of the CitiFund's Underlying
Portfolio are reflected in the example. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CITIFUNDS GROWTH & INCOME PORTFOLIO
Class A $640 $936 $1,253 $2,148
Class B
Assuming redemption at end of period $723 $988 $1,280 $2,344
Assuming no redemption $223 $688 $1,180 $2,344
SMITH BARNEY LARGE CAP VALUE FUND
Class A $587 $773 $ 974 $1,552
Class B
Assuming redemption at end of period $670 $826 $1,007 $1,771
Assuming no redemption $170 $526 $ 907 $1,771
PRO FORMA SMITH BARNEY LARGE CAP
VALUE FUND
Class A $587 $773 $ 974 $1,552
Class B
Assuming redemption at end of period $670 $826 $1,007 $1,771
Assuming no redemption $170 $526 $ 907 $1,771
</TABLE>
DISTRIBUTION OF SHARES AND OTHER SERVICES
DISTRIBUTOR
The distributor of the Smith Barney Fund is Salomon Smith Barney, Inc. A
selling group consisting of Salomon Smith Barney and other broker-dealers
sells shares of the Smith Barney Fund to the public. The distributor of the
CitiFund is CFBDS, Inc.
Both the CitiFund and the Smith Barney Fund have adopted Rule 12b-1
distribution plans for their Class A and B shares. Under the plans, each Fund
pays distribution and service fees. The distribution and service fees for
Class A and Class B shares of the CitiFund and the Smith Barney Fund are the
same. See "Overall Expenses" above for a comparison of the total fees for the
CitiFund and the Smith Barney Fund.
OTHER SERVICE PROVIDERS
As indicated below, the CitiFund and Smith Barney Fund generally have
different service providers. Upon completion of the Reorganization, the Smith
Barney Fund will continue to engage its existing service providers. The types
of services provided to the Funds under these service arrangements are
generally similar.
<TABLE>
<CAPTION>
SERVICE PROVIDER CITIFUND SMITH BARNEY FUND
---------------- -------- -----------------
<S> <C> <C>
Custodian State Street Bank and Trust Company PNC Bank National Association
Auditors PricewaterhouseCoopers LLP KPMG LLP
Transfer Agent State Street Bank and Trust Company Citi Fiduciary Trust Company
Sub-Transfer Agent N/A PFPC Global Fund Services
</TABLE>
SALES CHARGES, PURCHASE POLICIES, REDEMPTION AND EXCHANGE INFORMATION
SALES CHARGES
Class A shares of the CitiFund and the Smith Barney Fund are sold at net
asset value plus a front-end sales charge. There will be no sales load charged
to Class A shareholders of the CitiFund on the Class A shares of the Smith
Barney Fund they receive in the Reorganization. See "Overall Expenses" for
tables comparing sales charges and other expenses of the Funds.
The front-end sales charge on purchases of less than $25,000 of Class A
shares of the CitiFund is the same as the front-end sales charge on such
purchases of Class A shares of the Smith Barney Fund; with respect to
purchases in larger amounts, the sales charge applicable Class A shares of the
Smith Barney Fund is higher than that of the CitiFund. You do not pay an
initial sales charge when you buy $500,000 or more of Class A shares of the
CitiFund or $1,000,000 or more of Class A shares of the Smith Barney Fund, but
if you redeem these Class A shares within one year of purchase you will pay a
deferred sales charge of 1%. For purposes of determining the one-year holding
period, a CitiFund shareholder will be deemed to have held the shares of the
Smith Barney Fund received in the Reorganization since the date of the
shareholder's original purchase of shares of the CitiFund.
Class B shares of the CitiFund and Smith Barney Fund are sold without a
front-end sales charge, but shareholders are charged a contingent deferred
sales charge (CDSC) if they sell their Class B shares within five years after
purchase. For each of the Funds, the rate of the CDSC goes down the longer you
hold your shares. For purposes of determining the holding period, a CitiFund
shareholder will be deemed to have held the shares of the Smith Barney Fund
received in the Reorganization since the date of the shareholder's original
purchase of shares of the CitiFund (or, if the shares of the CitiFund were
received in an exchange from an earlier purchase, the date of that earlier
purchase). Shareholders of the CitiFund are subject to the same contingent
deferred sales charge schedule as shareholders of the Smith Barney Fund.
After 8 years, Class B shares of each Fund automatically convert into
Class A shares. For each Fund, Class A shares have lower total annual
operating expenses than Class B shares.
The CitiFund and the Smith Barney Fund have established policies,
including rights of accumulation and letter of intent privileges, waiving the
Class A initial sales charge for certain classes of investors under certain
circumstances. Shareholders who wish to make purchases of Class A shares of
the Smith Barney Fund after the Reorganization should review the Prospectus of
the Smith Barney Fund for additional information about these waivers. As noted
above, the Smith Barney Fund will not impose any initial sales charge on the
Class A shares of the Smith Barney Fund that CitiFund shareholders receive in
the Reorganization.
Each Fund has established policies waiving the Class B contingent deferred
sales charge for certain classes of investors under certain circumstances.
Class B shareholders should review the CDSC waiver policies of the Smith
Barney Fund to determine whether a waiver may be applicable when they redeem
their Class B shares of the Smith Barney Fund received in the Reorganization.
The CDSC on Class B shares of the Smith Barney Fund will generally be waived
for 12 months following the death or disability of a shareholder. The CDSC
will also be waived on certain distributions from a retirement plan. You
should review the Prospectus and Statement of Additional Information of the
Smith Barney Fund for a more complete description of the waiver policies that
may be applicable. These policies are generally similar to the waiver policies
in effect for the CitiFund.
PURCHASE POLICIES
You may purchase shares of each Fund at their net asset value, plus any
applicable sales charge, next determined after receipt of your purchase
request in good order. You may purchase shares of the CitiFund from the Fund's
distributor or a broker-dealer or financial institution (called a Service
Agent) that has entered into a sales or service agreement with the distributor
concerning the Fund. You may purchase shares of the Smith Barney Fund from a
Salomon Smith Barney Financial Consultant or an investment dealer in the
selling group or a broker that clears through Salomon Smith Barney (called a
dealer representative). Qualified retirement plans and certain other investors
who are clients of the selling group are eligible to buy shares directly from
the Smith Barney Fund by mailing a request to the Smith Barney Fund's sub-
transfer agent.
Smith Barney Fund shareholders may make additions to their accounts by
purchasing shares through a service known as the Systematic Investment Plan.
Under the Systematic Investment Plan, shareholders may authorize Salomon Smith
Barney or the sub-transfer agent to transfer funds automatically from a
regular bank account, a Salomon Smith Barney brokerage account or a Smith
Barney money market fund to buy shares of the Smith Barney Fund on a regular
basis. Monthly transfers must be at least $25 and quarterly transfers must be
at least $50. If a shareholder's account does not have sufficient funds on a
transfer date, that shareholder may be charged a fee.
The CitiFund does not impose any minimum initial or subsequent investment
requirements but a Service Agent may. The Smith Barney Fund imposes initial
and additional investment amounts that vary depending on the class of shares
bought and the nature of the investment account. Upon consummation of the
Reorganization, CitiFund shareholders will be subject to these minimum amounts
if they wish to purchase additional shares of the Smith Barney Fund. These
minimum initial and additional investment amounts are set forth in the table
below:
MINIMUM MINIMUM
INITIAL ADDITIONAL
SMITH BARNEY FUND INVESTMENT INVESTMENT
----------------- ---------- ----------
General $1,000 $50
IRAs, Self Employed Retirement Plans, Uniform
Gift to Minor Accounts $ 250 $50
Qualified Retirement Plans (under Section
403(b)(7) or Section 401(a) of the Internal
Revenue Code, including 401(k) plans) $ 25 $25
Simple IRAs $ 1 $ 1
Monthly Systematic Investment Plans $ 25 $25
Quarterly Systematic Investment Plans $ 50 $50
REDEMPTIONS
Shares of each Fund are redeemable on any business day at a price equal to
the net asset value of the shares the next time it is calculated after receipt
of your redemption request in good order. The table below compares the
redemption procedures and policies of the CitiFund and the Smith Barney Fund,
which are generally similar.
<TABLE>
<CAPTION>
REDEMPTION
PROCEDURES AND
POLICIES CITIFUND SMITH BARNEY FUND
------------------------------ -------------------------------------------- --------------------------------------------
<S> <C> <C>
Through an Appropriate To redeem shares, you may contact the Fund's To redeem shares, you may contact a Salomon
Contact Person transfer agent, or if you hold shares Smith Barney Financial Consultant or dealer
through a Service Agent, your Service Agent. representative, or for accounts held
directly with the Smith Barney Fund, the
sub-transfer agent.
By Mail You may send written redemption requests to For accounts held directly at the Fund, you
the Fund's transfer agent or, if you hold may send written redemption requests to the
shares through a Service Agent, your Service sub-transfer agent.
Agent.
By Telephone You may make redemption requests by You may be eligible to redeem shares (except
telephone if your application permits. those held in retirement plans) by telephone
in amounts up to $10,000 per day through the
transfer agent.
Systematic Withdrawal Plan You can arrange to for automatic withdrawal You can arrange for the automatic redemption
of a specified dollar amount from your of a portion of your shares on a monthly or
account on a regular basis (no more quarterly basis. To qualify, you must own
frequently than monthly). To qualify, you shares of at least $10,000 ($5,000 for
must have at least $10,000 in your account retirement plan accounts) and each automatic
and each withdrawal must be at least $100. redemption must be at least $50. If your
If your shares are subject to a CDSC, you shares are subject to a CDSC, the sales
may only withdraw up to 10% of the value of charge will be waived if your automatic
your account in any year, but you will not payments do not exceed 1% per month of the
be subject to a CDSC on the shares withdrawn value of your shares subject to a CDSC.
under the Plan.
Automatic Redemptions Your account balance with the Fund may be If your account falls below $500 because of
subject to a $500 minimum. If so, the Fund redemption of Fund shares, the Fund may ask
reserves the right to close your account if you to bring your account up to the minimum
it falls below $500 because of redemptions. requirement. If your account balance is
You will have 60 days to make an additional still below $500 after 60 days, the Fund may
investment. close your account and send you the
redemption proceeds.
</TABLE>
EXCHANGES
Shareholders of the CitiFund may exchange Fund shares for shares of the
same class of certain other CitiFunds, subject to the limitation noted below.
Shareholders of the Smith Barney Fund may exchange shares for shares of the
same class of certain other Smith Barney funds. A shareholder of the Smith
Barney Fund must meet the minimum investment amount for each Smith Barney fund
(except for systematic exchanges). The CitiFund does not impose any similar
minimum investment amount for exchanges into the CitiFunds, but a
shareholder's Service Agent may.
When you exchange your Class A shares of the CitiFund, you generally are
required to pay the difference, if any, between the sales charge payable on
the shares to be acquired in the exchange and the sales charge paid in
connection with your original purchase of Class A shares. The Class A shares
of the Smith Barney Fund issued in connection with the Reorganization will not
be subject to an initial sales charge at the time of the exchange. CitiFund
shareholders who subsequently exchange the Class A shares of the Smith Barney
Fund received in connection with the Reorganization, however, will be required
to pay the difference, if any, between the sales charge applicable to the
shares acquired in the exchange and the sales charge they originally paid.
CitiFund shareholders who purchased Fund shares prior to January 4, 1999 will
not have to pay a sales charge when they exchange those shares for shares of a
Smith Barney fund.
For exchanges for both Funds, your deferred sales charge (if any) will
continue to be measured from the date of your original purchase (which, for
CitiFund shareholders, will be deemed to be the date of original purchase of
shares of the CitiFund). For both Funds, if you exchange into another fund
that has a higher deferred sales charge, you will be subject to that charge.
If you exchange at any time into a fund with a lower charge, the sales charge
will not be reduced.
Shareholders of the CitiFunds may place exchange orders through the
transfer agent or through their Service Agent, and may place exchange orders
by telephone if their account application permits. Shareholders of the Smith
Barney Fund may place exchange orders through Salomon Smith Barney Financial
Consultants or dealer representatives or through the transfer agent or sub-
transfer agent, and may be eligible to exchange shares by telephone. Until
September 11, 2000, CitiFund shareholders may continue to exchange their
shares of the CitiFund for share of other CitiFunds, as described above. On
and after the date, CitiFund shareholders may exchange their shares of the
CitiFund only for shares of certain Smith Barney funds, and these exchanges
will be subject to the minimum investment amounts pertaining to the applicable
Smith Barney fund or funds.
DIVIDENDS AND OTHER DISTRIBUTIONS
The CitiFund and the Smith Barney Fund have similar policies relating to
dividend and capital gain distributions to shareholders. For each Fund,
capital gain distributions and dividends are reinvested in additional shares
of the same class that you hold, unless you choose to receive your
distributions and dividends in cash. The Funds pay dividends and distribute
capital gains, if any, according to the following schedule:
<TABLE>
<CAPTION>
INCOME DIVIDEND CAPITAL GAIN
FUND DISTRIBUTIONS DISTRIBUTIONS
---- ---------------------------------------- -------
<S> <C> <C>
CitiFunds Growth & Income Portfolio quarterly (during March, June, September annually (in December)
and December)
Smith Barney Large Cap Value Fund quarterly annually (typically in December)
</TABLE>
On or immediately prior to the Closing Date of the Reorganization, the
CitiFund will distribute (in the form of one or more dividends and/or other
distributions) to its shareholders substantially all of its investment company
taxable income and realized net capital gain, if any, for the current taxable
year through the date of such distribution or dividend. Unless otherwise
requested, such distributions or dividends will be reinvested in the manner
described above. Between the Closing Date and the end of its current taxable
year, it is expected that the Smith Barney Fund will make one or more similar
distributions to its shareholders, including the former CitiFund shareholders
who receive shares of the Smith Barney Fund in the Reorganization. Because
such a distribution will generally include income and gains accumulated by the
Smith Barney Fund prior to the Closing Date, the former CitiFund shareholders
receiving such a distribution will effectively receive a return of a portion
of their capital investment in the Smith Barney Fund in the form of a taxable
dividend.
TAX CONSEQUENCES
The CitiFund and the Smith Barney Fund will each receive an opinion of
Bingham Dana LLP in connection with the Reorganization to the effect that,
based upon certain facts, assumptions and representations, (i) the
distribution of investment securities from the Underlying Portfolio in
redemption of the CitiFund's interest in the Underlying Portfolio will not
result in the recognition of gain or loss for federal income tax purposes, and
(ii) the transfer of substantially all of the assets and liabilities of the
CitiFund to the Smith Barney Fund in exchange for voting stock of the Smith
Barney Fund, followed by the distribution of such shares in complete
liquidation of the CitiFund, will constitute a reorganization within the
meaning of section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Reorganization constitutes such a reorganization, no gain
or loss will be recognized by the CitiFund or its shareholders as a direct
result of the Reorganization. See "The Proposed Transaction -- Federal Income
Tax Consequences."
PRINCIPAL INVESTMENTS, RISK FACTORS, AND
INVESTMENT RESTRICTIONS
PRINCIPAL INVESTMENTS AND RISK FACTORS
The investment objectives and policies and risk factors of CitiFunds
Growth & Income Portfolio are, in many respects, similar to those of Smith
Barney Large Cap Value Fund. There are, however, certain differences. The
following discussion summarizes some of the more significant similarities and
differences in the investment policies and risk factors of each of the
CitiFund and the Smith Barney Fund and is qualified in its entirety by the
Prospectuses and Statements of Additional Information of each of the CitiFund
and the Smith Barney Fund incorporated herein by reference.
<TABLE>
<CAPTION>
FUND(s) SUBJECT TO RISK PRINCIPAL INVESTMENT AND ACCOMPANYING RISK FACTOR
----------------------- -------------------------------------------------
<S> <C>
BOTH FUNDS MARKET RISK:
The prices of securities will rise or fall due to changing economic, political or market
conditions, or due to the company's individual situation. Some securities held by a Fund
may be quite volatile, meaning that their prices can change significantly in a short
time.
BOTH FUNDS VALUE INVESTING:
Value investing involves selecting stocks that are inexpensive compared to other
companies with similar earnings or assets. However, value stocks may continue to be
inexpensive for long periods of time, and may never realize their potential. A security
may not achieve its expected value because the circumstances causing it to be underpriced
stay the same or worsen. Or, value stocks as a class may be out of favor with investors.
In that case, a Fund may underperform similar funds that do not use a value approach.
BOTH FUNDS PORTFOLIO SELECTION:
The success of each Fund's investment strategy depends in large part on the investment
process. The portfolio managers may fail to pick securities that perform well because
they are unable to predict accurately the direction of interest rates or to assess other
economic factors. In that case, you may lose money, or your investment may not do as well
as an investment in a mutual fund with a similar investment strategy.
BOTH FUNDS FOREIGN SECURITIES:
A Fund's investments in foreign securities are subject to the following additional risks:
o Investments in foreign securities may be subject to the risks of expropriation of
assets, confiscatory taxation, withholding taxes, currency exchange limitations or
other limits on the transfer of assets, and political or social instability.
o Foreign companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and there may be less public information
about their operations.
o Foreign markets may be less liquid and more volatile than U.S. markets. Rapid
increases in money supply may result in speculative investing, contributing to
volatility. Also, equity securities may trade at price-earnings multiples that are
higher than those of comparable U.S. companies and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign securities.
o Foreign markets may offer less protection to investors. Enforcing legal rights may be
difficult, costly and slow. There may be special problems enforcing claims against
foreign governments.
o Since foreign securities often trade in currencies other than the U.S. dollar, changes
in currency exchange rates will affect a Fund's net asset value, the value of
dividends and interest earned, and gains and losses realized on the sale of
securities. An increase in the U.S. dollar relative to these other currencies will
adversely affect the value of a Fund. In addition, some foreign currency values may be
volatile and there is the possibility of governmental controls on currency exchanges
or governmental intervention in currency markets. Controls or intervention could limit
or prevent a Fund from realizing value in U.S. dollars from its investment in foreign
securities. A Fund may also be adversely affected by the conversion of European
currencies to the Euro.
All of the risks of investing in foreign securities are heightened by investing in
developing countries. The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
The CitiFund may be subject to higher risks because it may invest up to 25% of its
assets in foreign securities. Although the Smith Barney Fund's investment in foreign
securities is not similarly limited, SSB Citi currently intends to invest no more than
5% of that Fund's assets in foreign securities.
BOTH FUNDS INTEREST-RATE RISK:
In general, the prices of debt securities rise when interest rates fall, and fall when
interest rates rise. Longer-term obligations are usually more sensitive to interest rate
changes. A change in interest rates could cause a Fund's share price to go down.
BOTH FUNDS CREDIT RISK:
Some issuers may not make payments on debt securities held by a Fund. Or, an issuer's
financial condition may deteriorate, leading to greater volatility in the price of the
security and making the security more difficult for the Fund to sell. Lower-quality debt
securities are more susceptible to this risk than higher-quality debt securities. The
Smith Barney Fund invests only in investment grade debt securities. As noted below, the
CitiFund may invest in lower-quality debt securities known as "junk bonds." To the extent
that the CitiFund's assets are invested in lower-quality debt securities, the CitiFund
may be subject to greater risk.
CITIFUND JUNK BONDS:
The CitiFund may invest in debt securities of any grade, including junk bonds. Junk bonds
are considered to be speculative investments and involve greater risks than higher
quality securities. The value of junk bonds will usually fall substantially if the issuer
defaults or goes bankrupt. Even anticipation of defaults by certain issuers, or the
perception of economic or financial weakness, may cause the market for junk bonds to
fall. The price of a junk bond may therefore fluctuate drastically due to bad news about
the issuer or the economy in general. Lower quality debt securities, especially junk
bonds, may be less liquid and may be more difficult for the Fund to value and sell. The
Fund may incur additional expenses if an issuer defaults and the Fund tries to recover
some of its losses in a bankruptcy or other similar proceeding.
The CitiFund may be subject to higher risks to the extent that it invests in junk bonds.
The Smith Barney Fund, by contrast, may not invest in non-convertible debt securities
unless they are investment grade at the time of purchase.
BOTH FUNDS PREPAYMENT AND EXTENSION RISK:
The issuers of debt securities held by the Funds may be able to call a bond or prepay
principal due on the securities, particularly during periods of declining interest rates.
The Funds may not be able to reinvest that principal at attractive rates, and the Funds
may lose any premium paid. On the other hand, rising interest rates may cause prepayments
to occur at slower than expected rates. This makes securities more sensitive to interest
rate changes.
BOTH FUNDS MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities typically represent interests in pools of mortgage loans.
Investments in mortgage-backed securities are subject to prepayment and extension risk
and are, accordingly, sensitive to interest rate changes.
The Smith Barney Fund may invest in only those mortgage-backed securities that are issued
by or backed by certain federal governmental agencies. The CitiFund, by contrast, may
invest in mortgage-backed securities issued by private issuers as well as those issued by
governmental agencies. To the extent that the CitiFund invests in mortgage-backed
securities that are not backed by the U.S. government or one of its agencies, the
CitiFund may be subject to more of the risks of investing in such securities.
CITIFUND MORTGAGE "DOLLAR ROLL" TRANSACTIONS:
In a mortgage "dollar roll" transaction, a Fund sells mortgage-backed securities for
delivery in the future and simultaneously contracts to repurchase substantially similar
securities on a specified future date. The Fund's dollar rolls are "covered", meaning
that the Fund establishes a segregated account with liquid securities equal in value to
the securities it will repurchase. In entering into dollar rolls, the Fund takes the risk
that the market price of the mortgage-backed security will drop below the future purchase
price. When the Fund uses a mortgage dollar roll, it is also subject to the risk that the
other party to the agreement will not be able to perform.
SMITH BARNEY FUND U.S. GOVERNMENT SECURITIES:
U.S. government securities are obligations of, or are guaranteed by, the United States
government, its agencies or instrumentalities. These include bills, certificates of
indebtedness, and notes and bonds issued by the U.S. treasury or by agencies or
instrumentalities of the U.S. government. There can be no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities if it is
not obligated to do so. As a general matter, the value of debt instruments, including
U.S. Government obligations, declines when market interest rates increase and rises when
market interest rates decrease. Certain types of U.S. Government obligations are subject
to fluctuations in yield or value due to their structure or contract terms.
BOTH FUNDS DERIVATIVES:
The Funds' use of derivatives, such as futures contracts, options and forward foreign
currency exchange contracts, may be risky. This practice could result in losses that are
not offset by gains on other portfolio assets. Losses would cause the Funds' share price
to go down. There is also the risk that the counterparty may fail to honor its contract
terms. The risk becomes more acute when the Funds invest in derivatives that are not
traded on commodities exchanges or boards of trade. The Funds' ability to use
derivatives successfully depends on a number of factors, including the ability of the
managers to accurately predict movements in stock prices, interest rates and currency
exchange rates. If these predictions are wrong, the Funds could suffer greater losses
than if the Funds had not used derivatives.
The CitiFund may invest in derivatives for hedging and non-hedging purposes. In
addition, the CitiFund may invest in certain types of derivatives in which the Smith
Barney Fund may not invest, including interest rate futures contracts and listed put and
call options on futures contracts. Because the CitiFund may invest in more types of
derivative contracts than the Smith Barney Fund, it may be more susceptible to the risks
of investing in derivatives.
BOTH FUNDS CONVERTIBLE SECURITIES:
Convertible securities, which are debt securities that may be converted into stock, are
subject to the market risk of stocks, and, like other debt securities, are also subject
to interest-rate risk and the credit risk of their issuers. Call provisions may allow the
issuer to repay the debt before it matures.
BOTH FUNDS PORTFOLIO TURNOVER:
Each Fund is actively managed. Although the portfolio managers attempt to minimize
portfolio turnover, from time to time a Fund's annual portfolio turnover rate may exceed
100%. The sale of securities may produce capital gains, which, when distributed, are
taxable to investors. Active trading may also increase the amount of commissions or mark-
ups a Fund pays to brokers or dealers when it buys and sells securities. Historically,
the Smith Barney Fund's portfolio turnover rate has been lower than that of the CitiFund.
CITIFUND ZERO COUPON AND PAYMENT-IN-KIND OBLIGATIONS:
Zero coupon obligations pay no current interest. Although payment-in-kind obligations may
pay interest in cash, they are similar to zero coupon obligations because the issuer has
the option of making interest payments in additional debt obligations rather than in
cash. As a result, the prices of zero coupon obligations tend to be more volatile than
those of securities that offer regular payments of interest. This makes the Fund's net
asset value more volatile. In order to pay cash distributions representing income on zero
coupon obligations, the Fund may have to sell other securities on unfavorable terms.
These sales may generate taxable gains for Fund shareholders.
</TABLE>
The foregoing describes the principal investments and related risks of
each Fund. Each Fund may invest in additional types of investments and may be
subject to additional risk factors that are described in the Statement of
Additional Information of that Fund. Certain of these non-principal
investments and related risk factors may differ for each Fund. For example,
the Smith Barney Fund may invest in real estate investment trusts and Yankee
obligations, whereas the CitiFund does not invest in these types of
securities. Both Funds may lend their portfolio securities, subject to certain
limitations. The value of securities loaned by the CitiFund may not exceed 30%
of the market value of its total assets. The Smith Barney Fund may lend its
securities to the extent permitted by the 1940 Act. Additionally, whereas
neither Fund may invest more than 15% of its total assets in illiquid
securities, the Smith Barney Fund is also restricted from investing more than
5% of its total assets in issuers with less than three years continuous
operation or in unseasoned companies not admitted for trading on a national
stock exchange or regularly quoted in the over-the-counter market. Certain of
these transactions may subject a Fund to greater risk than a fund that does
not participate in these transactions. For a further description of these
investments and related risks, please consult the Statement of Additional
Information of the applicable Fund.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions that may
not be changed without the affirmative vote of the holders of a majority of
the outstanding voting securities (as defined in the 1940 Act) of that Fund.
The Smith Barney Fund is subject to fundamental investment restrictions that,
in general, are similar to those of the CitiFund. These fundamental
restrictions limit the amounts that the Fund may borrow and prohibit the Fund
from investing in a manner that would cause it to fail to be a diversified
investment company under the 1940 Act, from investing more than 25% of the
Fund's total assets in securities of issuers in the same industry (with
certain exceptions), from lending money (with certain exceptions), from
underwriting securities issued by other persons, from purchasing or selling
real estate, commodities or commodity contracts (with certain exceptions),
from investing in oil, gas or mineral leases (with respect to the CitiFund
only), or from issuing "senior securities" (as defined in the 1940 Act) to the
extent prohibited by the 1940 Act.
Although these restrictions are similar, their parameters may be different
between the two Funds. For instance, with respect to the fundamental
limitation on borrowing described above, the Smith Barney Fund may only borrow
money from banks, whereas the CitiFund need not confine its borrowing to
banks. Additionally, whereas the CitiFund may not purchase securities when its
borrowings exceed 5% of its total assets, the Smith Barney Fund is not subject
to such a limitation. For additional information, you should consult the
Statement of Additional Information of the Smith Barney Fund.
NON-FUNDAMENTAL RESTRICTIONS
In addition to the fundamental restrictions described above, the Smith
Barney Fund is subject to certain non-fundamental restrictions that may be
changed at any time by that Fund's Board of Directors without shareholder
approval. These non-fundamental restrictions provide that the Smith Barney Fund
may not: (1) purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except "against the box"); (2) invest
in securities of another investment company except as permitted by Section
12(d)(1) of the Act or as part of a merger, consolidation, or acquisition; (3)
purchase or otherwise acquire any security if, as a result, more than 15% of its
net assets would be invested in securities that are illiquid; (4) invest more
than 5% of its total assets in issuers with less than three years of continuous
operation (including that of predecessors) or in so-called "unseasoned" equity
securities that are not either admitted for trading on a national stock exchange
or regularly quoted in the over-the-counter market; (5) invest in any company
for the purpose of exercising control of management; (6) have more than 15% of
its net assets at any time invested in or subject to puts, calls or combinations
thereof and may not purchase or sell options that are not listed on a national
securities exchange; or (7) invest in interests in oil or gas or other mineral
exploration or development programs. Except for the restrictions against
investing more than 15% of its net assets invested in illiquid securities and
investing in interests in oil, gas or other minerals, the CitiFund is not
expressly subject to these restrictions.
THE PROPOSED TRANSACTION
DESCRIPTION OF THE PLAN
As described above, the Plan provides that the CitiFund will receive a
distribution of investment securities from the Underlying Portfolio and that,
immediately thereafter, substantially all of the assets and liabilities of the
CitiFund will be transferred to the Smith Barney Fund. In exchange for the
transfer of those assets and liabilities, each class of the CitiFund will
receive voting shares of the corresponding class of the Smith Barney Fund
("Reorganization Shares"). Reorganization Shares of the Smith Barney Fund
received will then be distributed to the shareholders of the CitiFund in
complete liquidation of the CitiFund, and the CitiFund will be terminated.
As a result of the Reorganization, each shareholder of each class of the
CitiFund will receive that number of full and fractional shares of the
corresponding class of the Smith Barney Fund having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's shares of
the CitiFund held on the Closing Date. The Smith Barney Fund will establish an
account for each CitiFund shareholder that will reflect the number and class
of shares of the Smith Barney Fund distributed to that shareholder. The Smith
Barney Fund's shares issued in the Reorganization will be in uncertificated
form.
Until the closing of the Reorganization, shareholders of the CitiFund
will, of course, continue to be able to redeem their shares at the net asset
value next determined after receipt by the CitiFund's transfer agent of a
redemption request in proper form. Redemption requests received by the
CitiFund's transfer agent after the closing of the Reorganization will be
treated as requests received for the redemption of shares of the Smith Barney
Fund.
The obligations of the CitiFund and the Smith Barney Fund under the Plan
are subject to various conditions, as stated therein. Among other things, the
Plan requires that all filings be made with, and all authority be received
from, the Securities and Exchange Commission and state securities commissions
as may be necessary in the opinion of counsel to permit the parties to carry
out the transactions contemplated by the Plan. The CitiFund and the Smith
Barney Fund are in the process of making the necessary filings.
To provide against unforeseen events, the Plan may be terminated or
amended at any time prior to the Closing Date by action of the Trustees or
directors, as applicable, of either the CitiFund or the Smith Barney Fund,
notwithstanding the approval of the Plan by the shareholders of the CitiFund.
However, no amendment may be made that materially adversely affects the
interests of the CitiFund shareholders without obtaining the approval of the
CitiFund shareholders. The CitiFund and the Smith Barney Fund may at any time
waive compliance with certain of the covenants and conditions contained in the
Plan.
Citibank and SSB Citi will assume and pay all of the expenses that are
solely and directly related to the Reorganization, which are estimated to be
approximately $93,000. Shareholders have no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
At a meeting of the Board of Trustees of the CitiFunds Trust held on July
13, 2000, the Trustees of the CitiFunds Trust, including a majority of the
Non-Interested Trustees, on behalf of the CitiFund, considered materials
discussing the potential benefits to the CitiFund shareholders if the CitiFund
were to reorganize with and into the Smith Barney Fund. For the reasons
discussed below, the Board of Trustees of the CitiFunds Trust, including a
majority of the Non-Interested Trustees, has determined that the proposed
Reorganization is in the best interests of the CitiFund and its shareholders
and that the interests of the CitiFund shareholders will not be diluted as a
result of the proposed Reorganization.
The proposed combination of the CitiFund into the Smith Barney Fund will
allow the shareholders of the CitiFund to continue to participate in a
professionally managed portfolio governed by similar investment objectives.
The Trustees of the CitiFunds Trust believe that the CitiFund shareholders
will benefit from the proposed Reorganization for the following reasons:
COMPATIBLE INVESTMENT STRATEGY
Both Funds employ a value-oriented approach to selecting securities.
Additionally, the same company, SSB Citi, is responsible for the day-to day
operations of each Fund, as investment manager of the Smith Barney Fund and as
subadviser of the CitiFund's Underlying Portfolio. Thus, as a result of the
proposed Reorganization, the assets of the CitiFund will continue to be
managed by the same management organization and will continue to be invested
according to the same investment strategies currently in use.
LARGER FAMILY OF FUNDS
The Reorganization offers CitiFund shareholders the opportunity to become
part of a larger and more diverse family of more than sixty mutual funds.
CitiFund shareholders will be able to exchange their shares among most or all
of those Smith Barney funds. In addition, the Reorganization offers CitiFund
shareholders the opportunity to invest in a family of funds that has
demonstrated the ability to attract new investors. Successful marketing and
resulting fund growth, in turn, may afford investors the benefits of portfolio
diversification and economies of scale.
ECONOMIES OF SCALE; FEES AND EXPENSES
SSB Citi and Citibank believe that the combination of funds which have
substantially similar investment objectives and policies into a single larger
fund may increase economic and other efficiencies for investors and may
ultimately result in a lower total expense ratio. Some of the fixed expenses
currently paid by the Smith Barney Fund, such as accounting, legal and
printing costs, would be spread over a larger asset base upon the combination
of the CitiFund and Smith Barney Fund. Other things being equal, shareholders
may benefit from economies of scale through lower expense ratios and higher
net income distributions over time. SSB Citi also believes that a larger asset
base could provide portfolio-management benefits such as greater
diversification.
In addition, CitiFund shareholders will benefit from the lower total
annual operating expenses of the Smith Barney Fund (as determined for each
Fund's most recent fiscal year). The total annual operating expenses for Class
A and Class B shares of the Smith Barney Fund are lower than the total annual
operating of Class A and Class B shares of the CitiFund. For the Funds' most
recent fiscal years, the Smith Barney Fund's Class A and Class B expenses were
lower than those of the CitiFund's Class A and Class B shares by 0.55% and
0.53%, respectively. Even after taking into account waivers and reimbursements
by the CitiFund's service providers, which waivers and reimbursements may be
terminated at any time, the Smith Barney's Class A and Class B expenses were
0.40% and 0.38% lower than those of the corresponding classes of CitiFund
shares.
PERFORMANCE RESULTS
The Smith Barney Fund has been in existence for more than 10 years. While
past performance is not necessarily indicative of future results, the Smith
Barney Fund had a cumulative total return of 206.81% for the ten-year period
ended December 31, 1999. The CitiFund is a relatively new fund that, as of its
fiscal year ended December 31, 1999, had never posted positive annual returns.
For more information about performance, see "The Proposed Transaction --
Performance" below.
Due to a combination of factors, including the benefits described above,
the Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
believes that the CitiFund and its shareholders would benefit from a tax-free
reorganization with the Smith Barney Fund. ACCORDINGLY, IT IS RECOMMENDED THAT
THE CITIFUND SHAREHOLDERS APPROVE THE REORGANIZATION WITH THE SMITH BARNEY
FUND.
The Board of Trustees of the CitiFunds Trust, on behalf of the CitiFund,
in recommending the proposed transaction, considered a number of factors,
including the following:
(a) the compatibility of the CitiFund's investment objectives, policies and
restrictions with those of the acquiring Smith Barney Fund;
(b) the benefits to CitiFund shareholders of becoming shareholders of a larger
fund family with a wide array of mutual funds;
(c) the advisory, distribution, and other servicing arrangements of the Smith
Barney Fund;
(d) the tax-free nature of the Reorganization;
(e) the total annual expense ratios of the Smith Barney Fund as compared to the
CitiFund;
(f) the terms and conditions of the Reorganization and that it should not result
in a dilution of CitiFund shareholder interests;
(g) the level of costs and expenses to the CitiFund of the proposed
Reorganization; and
(h) a variety of alternatives available to the CitiFund, including maintaining
the status quo or liquidating the CitiFund.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The CitiFund is a diversified series of the CitiFunds Trust, which was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 13, 1984 and is registered with the Securities and
Exchange Commission as an open-end management investment company. The Smith
Barney Fund is a diversified series of Smith Barney Funds, Inc. (the "Smith
Barney Corporation"), which was incorporated in Maryland on December 2, 1966
and is registered with the Securities and Exchange Commission as an open-end
management investment company.
Each Fund currently offers Class A and Class B shares, and the Smith
Barney Fund also offers Class L and Class Y shares. Each Class of shares
represents an identical pro rata interest in the relevant Fund's investment
portfolio. As a result, the Classes of a Fund have the same rights, privileges
and preferences, except with respect to: (a) the designation of each Class;
(b) the amount of the respective sales charges, if any, for each Class; (c)
the distribution and/or service fees borne by each Class; (d) the expenses
allocable exclusively to each Class; (e) voting rights on matters exclusively
affecting a single Class; (f) the exchange privilege of each Class; and (g)
the conversion feature of the Class B Shares.
Each share of each Class of a Fund represents an interest in that Class of
the Fund that is equal to and proportionate with each other share of that
Class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote.
Neither Fund is required to hold shareholder meetings annually, although
shareholder meetings may be called for purposes such as electing or removing
Trustees or Directors, as applicable, changing fundamental policies or
approving an investment management contract. Shareholders of each Fund have,
under certain circumstances (e.g., upon the application and submission of
certain specified documents to the Trustees or Directors, as applicable, by a
specified number of shareholders), the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees or Directors, as applicable. CitiFund
shareholders also have under certain circumstances the right to remove one or
more Trustees without a meeting by a declaration in writing by a specified
number of shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by each of the Smith
Barney Fund and the CitiFund of an opinion from Bingham Dana LLP,
substantially to the effect that, based upon certain facts, assumptions and
representations of the parties, for federal income tax purposes: (i) the
distribution of investment securities from the Underlying Portfolio in
redemption of the CitiFund's interest in the Underlying Portfolio will not
result in recognition of gain or loss by the CitiFund;
(ii) the transfer to the Smith Barney Fund of all or substantially all of the
assets of the CitiFund in exchange solely for Reorganization Shares and the
assumption by the Smith Barney Fund of all of the liabilities of the CitiFund,
followed by the distribution of such Reorganization Shares to the shareholders
of the CitiFund in exchange for their shares of the CitiFund in complete
liquidation of the CitiFund, will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Smith Barney Fund and the
CitiFund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (iii) no gain or loss will be recognized by the
CitiFund upon the transfer of the CitiFund's assets to the Smith Barney Fund
solely in exchange for the Reorganization Shares and the assumption by the
Smith Barney Fund of liabilities of the CitiFund or upon the distribution
(whether actual or constructive) of the Reorganization Shares to the
CitiFund's shareholders in exchange for their shares of the CitiFund; (iv) the
basis of the assets of the CitiFund in the hands of the Smith Barney Fund will
be the same as the basis of such assets in the hands of the CitiFund
immediately prior to the transfer, which will be determined by reference to
the basis of the CitiFund in its interest in the Underlying Portfolio; (v) the
holding period of the assets of the CitiFund in the hands of the Smith Barney
Fund will include the period during which such assets were held by the
CitiFund and the period during which such assets were held by the Underlying
Portfolio; (vi) no gain or loss will be recognized by the Smith Barney Fund
upon the receipt of the assets of the CitiFund solely in exchange for
Reorganization Shares and the assumption by the Smith Barney Fund of all of
the liabilities of the CitiFund; (vii) no gain or loss will be recognized by
the shareholders of the CitiFund upon the receipt of Reorganization Shares
solely in exchange for their shares of the CitiFund as part of the
transaction; (viii) the basis of Reorganization Shares received by the
shareholders of the CitiFund will be, in the aggregate, the same as the basis,
in the aggregate, of the shares of the CitiFund exchanged therefor; and (ix)
the holding period of Reorganization Shares received by the shareholders of
the CitiFund will include the holding period during which the shares of the
CitiFund exchanged therefor were held, provided that at the time of the
exchange the shares of the CitiFund were held as capital assets in the hands
of the shareholders of the CitiFund.
As described above, although the CitiFund will, immediately prior to or on
the Closing Date, distribute substantially all of its investment company
taxable income and net realized capital gain to its shareholders as one or
more taxable dividends, the Smith Barney Fund will not make such a
distribution immediately prior to or on the Closing Date. As a result, when
the Smith Barney Fund subsequently makes a similar distribution or
distributions to its shareholders, including the former CitiFund shareholders
who receive Reorganization Shares of the Smith Barney Fund, those former
CitiFund shareholders will effectively be receiving a return of a portion of
their capital investment in the Smith Barney Fund (on which they may have
already paid taxes) in the form of a taxable dividend.
While the Smith Barney Fund and the CitiFund are not aware of any adverse
state or local tax consequences of the proposed Reorganization, they have not
requested any ruling or opinion with respect to such consequences and
shareholders may wish to consult their own tax adviser with respect to such
matters.
LIQUIDATION AND TERMINATION OF THE CITIFUND
If the Reorganization is effected, the CitiFund will be liquidated and
terminated, and the Fund's outstanding shares will be cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, the CitiFund will redeem its interest
in the Underlying Portfolio and will receive its proportionate share of the
portfolio securities of the Underlying Portfolio. The CitiFund will then
transfer these portfolio securities to the Smith Barney Fund. If the
Reorganization is effected, SSB Citi will analyze and evaluate the portfolio
securities of the CitiFund being transferred to the Smith Barney Fund.
Consistent with the Smith Barney Fund's investment objectives and policies,
any restrictions imposed by the Code and the best interests of the Smith
Barney Fund's shareholders (including former shareholders of the CitiFund),
SSB Citi will determine whether to maintain an investment in these portfolio
securities. Subject to market conditions, the disposition of portfolio
securities may result in a capital gain or loss. The actual tax consequences
of any disposition of portfolio securities will vary depending upon the
specific securities being sold.
PORTFOLIO TURNOVER
The portfolio turnover rate of the Underlying Portfolio in which the
CitiFund invests all of its investable assets was 74% for the year ended
October 31, 1999. The portfolio turnover rate for the Smith Barney Fund for
the fiscal year ended December 31, 1999 was 34%. Active and frequent trading
may result in the realization and distribution to a Fund of higher capital
gains, which could increase the tax liability for the Fund's shareholders.
Frequent trading also increases transaction costs, which could detract from a
Fund's performance.
PRO FORMA CAPITALIZATION
Because the CitiFund will be combined in the Reorganization of the
CitiFund with the Smith Barney Fund, the total capitalization of the Smith
Barney Fund after such Reorganization is expected to be greater than the
current capitalization of the CitiFund. The following table sets forth as of
June 30, 2000: (a) the capitalization of the CitiFund and the Smith Barney
Fund, and (b) the pro forma capitalization of the Smith Barney Fund as
adjusted to give effect to the Reorganization proposed with respect to the
Smith Barney Fund. If the Reorganization is consummated, the capitalization of
the CitiFund and the Smith Barney Fund is likely to be different at the
effective time of their Reorganization as a result of daily share purchase and
redemption activity. Due to the net asset value of the CitiFund being less
than ten percent of the Smith Barney Fund's value, pro forma financial
statements are not required to be and have not been prepared for inclusion in
the Statement of Additional Information filed in connection with the
Reorganization.
<TABLE>
<CAPTION>
NET ASSET
TOTAL SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
---------- ----------- ---------
<S> <C> <C> <C>
CITIFUNDS GROWTH & INCOME PORTFOLIO
Class A $ 22,308,310 2,257,747 $ 9.88
Class B $ 754,595 76,312 $ 9.89
SMITH BARNEY LARGE CAP VALUE FUND
Class A $641,427,362 38,302,245 $16.75
Class B $ 98,481,064 5,900,205 $16.69
PRO FORMA SMITH BARNEY LARGE CAP VALUE FUND
Class A $663,735,672 39,634,084 $16.75
Class B $ 99,235,659 5,954,417 $16.69
</TABLE>
PERFORMANCE
Performance shown below is as of December 31, 1999 and is based on
historical earnings and is not predictive of future performance. Performance
reflects reinvestment of dividends and other earnings. Performance also
reflects the highest sales charge applicable to each class of shares. For more
information about the applicable sales charges and other fund expenses, please
refer to "Overall Expenses" above. Both Funds had negative average annual
total returns for their most recent fiscal years. For that year, the
performance of the Smith Barney Fund was lower than that of the CitiFund. The
table below shows the average annual total returns for each Fund over each
period indicated.
<TABLE>
<CAPTION>
CITIFUNDS GROWTH & SMITH BARNEY LARGE
INCOME PORTFOLIO CAP VALUE FUND
-------------------------------------- ------------------------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
One Year (0.59)% (1.57)%(1) (5.86)% (6.31)%
Five Years n/a n/a 16.33% 16.53%
Ten Years n/a n/a 11.29% n/a
Life of Fund(2) (1.06)% (1.57)% 11.22% 15.82%
Best Quarter(3) 12.70% (6/99) n/a 15.25% (6/97) n/a
Worst Quarter(3) (11.75)% (9/99) n/a (11.76)% (9/98) n/a
----------
(1) Class B shares of the CitiFund were first offered on January 4, 1999.
(2) With respect to the CitiFund, since March 2, 1998 (Class A shares) and January 4, 1999 (Class B shares); with respect to
the Smith Barney Fund, since May 18, 1967 (Class A shares) and November 7, 1994 (Class B shares).
(3) Best and Worst Quarter information does not include applicable sales charges. Were such charges included, the performance
figures would be lower. Additionally, such information is shown for Class shares A of the Funds only.
</TABLE>
VOTING INFORMATION
GENERAL INFORMATION
The Board of Trustees of the CitiFund is furnishing this combined Proxy
Statement/Prospectus in connection with the solicitation of proxies for a
Special Meeting of Shareholders of the CitiFund at which shareholders will be
asked to consider and approve the proposed Plan. It is expected that the
solicitation of proxies will be primarily by mail. Officers and service
contractors of the CitiFund and the Smith Barney Fund may also solicit proxies
by telephone or otherwise. Shareholder Communications, Inc. has been retained
to assist in the solicitation of proxies, at a cost of approximately $7,000.
Shareholders may vote (1) by mail, by marking, signing, dating and returning
the enclosed proxy ballot(s) in the enclosed postage-paid envelope or via
facsimile, (2) by touch-tone voting over the telephone, or (3) by voting via
the internet. Any shareholder of the CitiFund giving a proxy has the power to
revoke it by submitting a written notice of revocation to the CitiFund or by
attending the Special Meeting and voting in person. All properly executed
proxies received in time for the Special Meeting will be voted as specified in
the proxy or, if no specification is made, in favor of the proposals referred
to in the Proxy Statement.
In cases where CitiFund shareholders have purchased their shares through
Service Agents, these Service Agents are the shareholders of record of the
CitiFund. At the Special Meeting, a Service Agent may, except as prohibited by
law, vote any shares of which it is the holder of record and for which it does
not receive voting instructions proportionately in accordance with the
instructions it receives for all other shares of which that Service Agent is
the holder of record.
QUORUM; VOTE REQUIRED TO APPROVE PROPOSAL
The holders of a majority of the outstanding shares entitled to vote of
the CitiFund present in person or by proxy shall constitute a quorum at any
meeting of shareholders for the transaction of business by the CitiFund. If
the quorum necessary to transact business or the vote required to approve the
Plan is not obtained at the Special Meeting, the persons named as proxies may
propose one or more adjournments of the Special Meeting in accordance with
applicable law to permit further solicitation of proxies. Any such adjournment
as to a matter will require the affirmative vote of the holders of a majority
of the CitiFund's shares present in person or by proxy at the Special Meeting.
The persons named as proxies will vote in favor of such adjournment those
proxies that they are entitled to vote in favor of that proposal and will vote
against any such adjournment those proxies to be voted against that proposal.
For purposes of determining the presence of a quorum for transacting
business at the Special Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but that have not been voted. Broker non-
votes are proxies received by the CitiFund from brokers or nominees when the
broker or nominee has neither received instructions from the beneficial owner
or other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
The Plan must be approved by the vote of (a) 67% or more of the voting
securities of the Fund present at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of the CitiFund are present or
represented by proxy; or (b) more than 50% of the outstanding voting
securities of the CitiFund, whichever is less. Abstentions and broker non-
votes will have the effect of a "no" vote on the proposal to approve the Plan.
OUTSTANDING SHAREHOLDERS
Holders of record of the shares of the CitiFund at the close of business
on August 11, 2000 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of
the Special Meeting. As of August 11, 2000, there were 2,080,059.922
outstanding Class A shares and 50,617.358 outstanding Class B shares entitled
to vote.
Listed below are the name, address and share ownership of each person
known to the CitiFund to own 5% or more of any class of shares of the CitiFund
as of August 11, 2000. The table also indicates the percentage of the Smith
Barney Fund's shares to be owned by such persons upon consummation of the
Reorganization on the basis of present holdings and commitments. The type of
ownership of each person listed below is record ownership.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP POST-
NAME AND ADDRESS OWNERSHIP REORGANIZATION
---------------- --------- --------------
Class A
Fiserv Securities, Inc. 98.50% 3.12%
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, Pa. 19103-7084
Class B
Fiserv Securities, Inc. 99.92% 0.53%
Attn: Mutual Funds Dept.
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, Pa. 19103-7084
Listed below are the name, address and share ownership of each person
known to the Smith Barney Fund to own 5% or more of any class of shares of the
Smith Barney Fund as of August 11, 2000. The table also indicates the
percentage of the Smith Barney Fund's shares to be owned by such persons upon
consummation of the Reorganization on the basis of present holdings and
commitments. The type of ownership of each person listed below is record
ownership.
PRO FORMA
PERCENTAGE
PERCENTAGE OWNERSHIP POST-
NAME AND ADDRESS OWNERSHIP REORGANIZATION
---------------- --------- --------------
Class Y
Smith Barney Concert Series, Inc.*
Growth Portfolio 41.19% 41.19%
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
(Maryland corporation)
Smith Barney Concert Series, Inc.
High Growth Portfolio 19.65% 19.65%
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
Smith Barney Concert Series, Inc.
Select Growth Portfolio 12.24% 12.24%
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
Smith Barney Concert Series, Inc.
Balanced Portfolio 10.94% 10.94%
PNC Bank, N.A.
Attn: Beverly Timson
200 Stevens Drive North, Suite 440
Lester, PA 19113-1522
Class Z
State Street Bank & Trust Cust.
The Travelers Group 401 (k) Savings Plan 100% 100%
btAttn: Rick Vest
225 Franklin Street
Boston, MA 02101
* Shareholders beneficially owning more than 25% of the voting securities of a
Fund may be presumed to control that Fund.
As of August 11, 2000, the officers and Trustees of the CitiFund as a
group owned less than 1% of any class of the CitiFund's outstanding shares. As
of August 11, 2000, the officers and Directors of the Smith Barney Fund as a
group owned less than 1% of any class of the Smith Barney Fund's outstanding
shares.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about the CitiFund, the Smith Barney
Fund and the Reorganization has been filed with the Securities and Exchange
Commission and may be obtained without charge by writing or calling the
CitiFund, 21 Milk Street, 5th Floor, Boston, Massachusetts 02109, telephone
number (617) 423-1679, or the Smith Barney Fund, 388 Greenwich Street, New
York, New York 10013, telephone number (800) 451-2010. Information included in
this Proxy Statement/Prospectus concerning the CitiFund was provided by the
CitiFunds Trust, on behalf of the CitiFund, and information concerning the
Smith Barney Fund was provided by Smith Barney Funds, Inc., on behalf of the
Smith Barney Fund.
Each Fund files reports, proxy materials and other information about the
applicable Fund with the Securities and Exchange Commission. Such reports,
proxy material and other information can be inspected and copied at the Public
Reference Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C.
20549 at prescribed rates or without charge from the Commission at
[email protected].
OTHER MATTERS
No Trustee is aware of any matters that will be presented for action at the
Special Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest
of the CitiFund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(s) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU MAY ALSO CAST YOUR
VOTE VIA THE INTERNET, BY TELEPHONE OR BY FACSIMILE.
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
day of , 2000, between CitiFunds(SM) Trust II, a Massachusetts
business trust with its principal place of business at 21 Milk Street, Boston,
Massachusetts 02109 (the "CitiFund Trust"), on behalf of its series, CitiFunds
Growth & Income Portfolio (the "CitiFund"), and Smith Barney Funds, Inc., a
Maryland corporation with its principal place of business at 388 Greenwich
Street, New York, New York 10013 (the "Corporation"), on behalf of its series,
Smith Barney Large Cap Value Fund (the "Smith Barney Fund," and together with
the CitiFund, the "Funds"), and, solely for purposes of Section 10.2 below,
Citibank, N.A., a national banking association ("Citibank"), and SSB Citi Fund
Management LLC, a Delaware limited liability company ("SSB Citi").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), with respect to the
CitiFund and the Smith Barney Fund, with which the CitiFund will reorganize,
as provided herein. The reorganization will consist of the transfer of
substantially all of the assets of the CitiFund to the Corporation, on behalf
of the Smith Barney Fund, in exchange solely for voting shares of the
corresponding classes of shares of beneficial interest ($0.01 par value per
share) of the Smith Barney Fund (the "Smith Barney Fund Shares"), the
assumption by the Corporation, on behalf of the Smith Barney Fund, of all of
the liabilities of the CitiFund and the distribution of the Smith Barney Fund
Shares to the shareholders of the CitiFund in complete liquidation of the
CitiFund as provided herein, all upon the terms and conditions hereinafter set
forth in this Agreement (collectively, the "Reorganization").
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE CITIFUND TO THE SMITH BARNEY FUND IN EXCHANGE
FOR SMITH BARNEY FUND SHARES, THE ASSUMPTION OF ALL CITIFUND LIABILITIES
AND THE LIQUIDATION OF THE CITIFUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the CitiFund Trust, on
behalf of the CitiFund, agrees to transfer to the Smith Barney Fund
substantially all of the CitiFund's assets as set forth in section 1.2, and the
Corporation, on behalf of the Smith Barney Fund, agrees in exchange therefor (i)
to deliver to the CitiFund that number of full and fractional Class A and Class
B Smith Barney Fund Shares determined by dividing the value of the CitiFund's
net assets allocated to each class, computed in the manner and as of the time
and date set forth in section 2.1, by the net asset value of one Smith Barney
Fund Share of the applicable class, computed in the manner and as of the time
and date set forth in section 2.2; and (ii) to assume all of the liabilities of
the CitiFund, as set forth in section 1.3. Such transactions shall take place at
the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the CitiFund to be acquired by the Smith Barney Fund
(collectively, "Assets") shall consist of all property and assets of every kind
and nature of the CitiFund, including, without limitation, all cash, cash
equivalents, securities, commodities, futures, claims (whether absolute or
contingent, known or unknown), receivables (including dividend, interest and
other receivables), good will and other intangible property, any deferred or
prepaid expenses, and all interests, rights, privileges and powers, other than
cash in an amount necessary to pay dividends and distributions as provided in
section 1.4 hereof and the CitiFund's rights under this Agreement.
1.3. The Smith Barney Fund shall assume all liabilities of the CitiFund,
whether accrued or contingent, existing at the Valuation Time as defined in
section 2.1. The CitiFund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date as defined in section 3.1,
other than those liabilities and obligations which would otherwise be discharged
at a later date in the ordinary course of business.
1.4. On or as soon as practicable prior to the Closing Date, the CitiFund
will declare and pay to its shareholders of record one or more dividends and/ or
other distributions so that it will have distributed substantially all of its
investment company taxable income (computed without regard to any deduction for
dividends paid) and realized net capital gain, if any, for the current taxable
year through the Closing Date.
1.5. Immediately after the transfer of its assets provided for in section
1.1, the CitiFund will distribute to its shareholders of record (the "CitiFund
Shareholders"), determined as of the Valuation Time as defined in section 2.1,
on a pro rata basis, the Smith Barney Fund Shares received by the CitiFund
pursuant to section 1.1 and will completely liquidate. Such distribution and
liquidation will be accomplished by the transfer of the Smith Barney Fund Shares
then credited to the account of the CitiFund on the books of the Smith Barney
Fund to open accounts on the share records of the Smith Barney Fund in the names
of the CitiFund Shareholders. The aggregate net asset value of each class of
Smith Barney Fund Shares to be so credited to CitiFund Shareholders shall be
equal to the aggregate net asset value of the corresponding class of shares of
the CitiFund (the "CitiFund Shares") owned by such shareholders as of the
Valuation Time. All issued and outstanding shares of the CitiFund will
simultaneously be cancelled on the books of the CitiFund. The Smith Barney Fund
will not issue certificates representing Smith Barney Fund Shares in connection
with such exchange.
1.6. Ownership of Smith Barney Fund Shares will be shown on the Smith Barney
Fund's books. Shares of the Smith Barney Fund will be issued in the manner
described in the Smith Barney Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the CitiFund, including, without
limitation, the responsibility for filing of regulatory reports, tax returns or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the CitiFund.
1.8. All books and records of the CitiFund, including all books and records
required to be maintained under the Investment Company Act of 1940, as amended
(the "1940 Act"), and the rules and regulations thereunder, shall be available
to the Smith Barney Fund from and after the Closing Date and shall be turned
over to the Smith Barney Fund as soon as practicable following the Closing Date.
2. VALUATION
2.1. The value of the net assets of each class of the CitiFund shall be
computed as of the close of regular trading on the New York Stock Exchange, Inc.
("NYSE") on the Closing Date (such time and date also being hereinafter called
the "Valuation Time"), after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures described in
the Smith Barney Fund's then-current prospectus and statement of additional
information.
2.2. The net asset value of a Class A Smith Barney Fund Share shall be the
net asset value of a Class A share of the Smith Barney Fund computed as of the
Valuation Time using the valuation procedures set forth in the Smith Barney
Fund's then-current prospectus and statement of additional information. The net
asset value of a Class B Smith Barney Fund Share shall be the net asset value of
a Class B share of the Smith Barney Fund computed as of the Valuation Time using
the valuation procedures set forth in the Smith Barney Fund's then-current
prospectus and statement of additional information.
2.3. The number of Class A and Class B Smith Barney Fund Shares to be issued
(including fractional shares, if any) in exchange for the Assets of the
CitiFund, less the value of the liabilities of the CitiFund assumed, shall be
determined by dividing the value of the Assets allocated to each class of the
CitiFund less the value of the liabilities allocated to that class of the
CitiFund as determined in accordance with section 2.1, by the net asset value of
a Smith Barney Fund Share of the corresponding class determined in accordance
with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's investment adviser in accordance with its regular
practice and the requirements of the 1940 Act, and shall be subject to
confirmation by each Fund's Board of Trustees or Directors and independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the Reorganization contemplated by this Agreement shall
be October 6, 2000, or such earlier or later date as the parties may agree in
writing (the "Closing Date"). All acts taking place at the Closing shall be
deemed to take place simultaneously as of 4:00 P.M., Eastern time, on the
Closing Date, unless otherwise agreed to by the parties. The Closing shall be
held at the offices of Bingham Dana LLP, 399 Park Avenue, New York, New York, or
at such other place and time as the parties may agree.
3.2. The CitiFund Trust shall furnish to the Corporation a statement of the
CitiFund's net assets, together with a list of portfolio holdings with values as
determined in section 2.1, all as of the Valuation Time, certified by the
CitiFund Trust's President (or any Vice President) and Treasurer (or any
Assistant Treasurer).
3.3. State Street Bank and Trust Company ("State Street"), as custodian for
the CitiFund, shall deliver at the Closing a certificate of an authorized
officer stating that (a) the Assets of the CitiFund have been delivered in
proper form to PNC Bank, National Association ("PNC Bank"), custodian for the
Smith Barney Fund, prior to or on the Closing Date and (b) all necessary taxes
in connection with the delivery of such Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made. The CitiFund's portfolio securities represented by a certificate
or other written instrument shall be presented by State Street to PNC Bank for
examination no later than five business days preceding the Closing Date and
transferred and delivered by the CitiFund as of the Closing Date for the account
of the Smith Barney Fund duly endorsed in proper form for transfer in such
condition as to constitute good delivery thereof. The CitiFund's portfolio
securities and instruments deposited with a securities depository, as defined in
Rule 17f-4 under the 1940 Act, shall be delivered as of the Closing Date by book
entry in accordance with the customary practices of such depositories and State
Street. The cash to be transferred by the CitiFund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. State Street, as transfer agent of the CitiFund, on behalf of the
CitiFund, shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the CitiFund
Shareholders and the number and percentage ownership (to three decimal places)
of outstanding CitiFund Shares of each class owned by each such shareholder
immediately prior to the Closing. The Smith Barney Fund shall issue and deliver
a confirmation evidencing the Smith Barney Fund Shares of each class to be
credited on the Closing Date to the CitiFund or provide evidence satisfactory to
the CitiFund that such Smith Barney Fund Shares have been credited to the
CitiFund's account on the books of the Smith Barney Fund.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Smith Barney
Fund or the CitiFund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that, in the judgment of the Board of Trustees of the
CitiFund Trust or the Board of Directors of the Corporation, accurate appraisal
of the value of the net assets with respect to the Smith Barney Fund Shares or
the CitiFund Shares is impracticable, the Closing Date shall be postponed until
the first business day after the day when trading shall have been fully resumed
and reporting shall have been restored.
3.6. At the Closing, each party shall deliver to the other such bills of
sale, checks, assumption agreements, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request to effect the transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. The CitiFund Trust, on behalf of itself and the CitiFund, represents
and warrants to the Corporation and the Smith Barney Fund as follows:
(a) The CitiFund Trust is a business trust duly established and validly
existing under the laws of the Commonwealth of Massachusetts with power
under its Declaration of Trust to own all of its properties and assets and
to carry on its business as it is now being conducted. The CitiFund has been
duly established as a series of the CitiFund Trust;
(b) The CitiFund Trust is registered with the Commission as an open- end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the CitiFund
Trust, on behalf of the CitiFund, of the transactions contemplated herein,
except such as may be required under the Securities Act of 1933, as amended
(the "1933 Act"), the Securities Exchange Act of 1934 (the "1934 Act"), the
1940 Act, and state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the CitiFund which shall terminate on or prior
to the Closing Date, the CitiFund is not, and the execution, delivery and
performance of this Agreement by the CitiFund Trust on behalf of the
CitiFund will not result, in violation of Massachusetts law or of the
CitiFund Trust's Declaration of Trust or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking known
to counsel to which the CitiFund is a party or by which it is bound, and the
execution, delivery and performance of this Agreement by the CitiFund Trust
on behalf of the CitiFund will not result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the
CitiFund is a party or by which it is bound;
(e) To the CitiFund Trust's knowledge, there is no material litigation
or administrative proceeding or investigation of or before any court or
governmental body presently pending or threatened against the CitiFund or
any properties or assets held by it. The CitiFund Trust knows of no facts
which might form the basis for the institution of such proceedings or which
would materially and adversely affect its business or the business of the
CitiFund, and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects its or the CitiFund's business or its or the CitiFund's
ability to consummate the transactions herein contemplated;
(f) The financial statements of the CitiFund at and for the year ended
October 31, 1999 have been audited by PricewaterhouseCoopers LLP,
independent certified public accountants, and are in accordance with
generally accepted accounting principles ("GAAP") consistently applied. The
financial statements of the CitiFund at and for the six-month period ended
April 30, 2000, which are unaudited, are in accordance with GAAP
consistently applied. All of such statements (copies of which have been
furnished to the Smith Barney Fund) present fairly, in all material
respects, the financial position, results of operations, changes in net
assets and financial highlights of the CitiFund as of the dates thereof in
accordance with GAAP, and there are no known contingent liabilities of the
CitiFund required to be reflected on a statement of assets and liabilities
(including the notes thereto) in accordance with GAAP as of such dates not
disclosed therein;
(g) Since April 30, 2000, there has not been any material adverse change
in the CitiFund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence
by the CitiFund of indebtedness maturing more than one year from the date
such indebtedness was incurred except as otherwise disclosed to and accepted
in writing by the Smith Barney Fund. For purposes of this subsection (g), a
decline in net asset value per share of the CitiFund due to declines in
market values of securities in the CitiFund's portfolio, the discharge of
CitiFund liabilities, or the redemption of CitiFund Shares by CitiFund
Shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the CitiFund required by law to have been filed
by such dates (including any extensions) have or shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the CitiFund Trust's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns;
(i) For each taxable year of its operation, the CitiFund has met the
requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, and has been
eligible to and has computed its federal income tax under Section 852 of the
Code. At Closing, the CitiFund will have distributed all of its investment
company taxable income and net capital gain (as defined in the Code) that
has accrued up to the Closing Date;
(j) All issued and outstanding shares of the CitiFund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non- assessable,
and (iii) will be held at the time of the Closing by the persons and in the
amounts set forth in the records of the CitiFund's transfer agent, as
provided in section 3.3. There are no outstanding options, warrants or other
rights to subscribe for or purchase any CitiFund Shares, nor is there
outstanding any security convertible into any CitiFund Share;
(k) At the Closing Date, the CitiFund Trust, on behalf of the CitiFund,
will have good and marketable title to the CitiFund's Assets and full right,
power and authority to sell, assign, transfer and deliver such Assets
hereunder free of any liens or other encumbrances, except those liens or
encumbrances as to which the Corporation, on behalf of the Smith Barney
Fund, has received notice at or prior to the Closing, and upon delivery and
payment for such Assets, the Smith Barney Fund will acquire good and
marketable title thereto, subject to no restrictions on the full transfer
thereof, except those restrictions as to which the Smith Barney Fund has
received notice and necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Trustees of the CitiFund Trust, and, subject to the approval
of the CitiFund Shareholders, this Agreement constitutes a valid and binding
obligation of the CitiFund Trust, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general principles of equity;
(m) The information to be furnished by the CitiFund Trust for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of Securities
Dealers, Inc.), which may be necessary or appropriate in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the CitiFund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder, and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not materially misleading; and
(o) The proxy statement of the CitiFund to be included in the
Registration Statement referred to in section 5.6 (the "Proxy Statement"),
insofar as it relates to the CitiFund, will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been furnished
by the Corporation for use therein.
4.2. The Corporation, on behalf of itself and the Smith Barney Fund,
represents and warrants to the CitiFund Trust and the CitiFund as follows:
(a) The Corporation is a corporation duly formed and validly existing
under the laws of the State of Maryland with power under its Articles of
Incorporation to own all of its properties and assets and to carry on its
business as it is now being conducted. The Smith Barney Fund has been duly
established as a series of the Corporation;
(b) The Corporation is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Corporation,
on behalf of the Smith Barney Fund, of the transactions contemplated herein,
except such as may be required under the 1933 Act, the 1934 Act, the 1940
Act, and state securities laws;
(d) The Smith Barney Fund is not, and the execution, delivery and
performance of this Agreement by the Corporation on behalf of the Smith
Barney Fund will not result, in violation of Maryland law or of the
Corporation's Articles of Incorporation or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking known
to counsel to which the Smith Barney Fund is a party or by which it is
bound, and the execution, delivery and performance of this Agreement by the
Corporation on behalf of the Smith Barney Fund will not result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, indenture, instrument, contract, lease, judgment or decree to
which the Smith Barney Fund is a party or by which it is bound;
(e) To the Corporation's knowledge, there is no material litigation or
administrative proceeding or investigation of or before any court or
governmental body presently pending or threatened against the Smith Barney
Fund or any properties or assets held by it. The Corporation knows of no
facts which might form the basis for the institution of such proceedings or
which would materially and adversely affect its business or the business of
the Smith Barney Fund, and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects its or the Smith Barney Fund's business or
its or the Smith Barney Fund's ability to consummate the transactions herein
contemplated;
(f) The financial statements of the Smith Barney Fund at and for the
year ended December 31, 1999 have been audited by KPMG LLP, independent
certified public accountants, and are in accordance with GAAP consistently
applied. All such statements (copies of which have been furnished to the
CitiFund) present fairly, in all material respects, the financial position,
results of operations, changes in net assets and financial highlights of the
Smith Barney Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Smith Barney Fund required to be
reflected on a statement of assets and liabilities (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(g) Since December 31, 1999, there has not been any material adverse
change in the Smith Barney Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business,
or any incurrence by the Smith Barney Fund of indebtedness maturing more
than one year from the date such indebtedness was incurred except as
otherwise disclosed to and accepted in writing by the CitiFund. For purposes
of this subsection (g), a decline in net asset value per share of the Smith
Barney Fund due to declines in market values of securities in the Smith
Barney Fund's portfolio, the discharge of Smith Barney Fund liabilities, or
the redemption of Smith Barney Fund Shares by Smith Barney Fund Shareholders
shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Smith Barney Fund required by law to have
been filed by such dates (including any extensions) have or shall have been
filed and are or will be correct in all material respects, and all federal
and other taxes shown as due or required to be shown as due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Corporation's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns;
(i) For each taxable year of its operation, the Smith Barney Fund has
met the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will do so for the taxable year including the Closing Date. At
Closing, the Smith Barney Fund will have distributed all of its investment
company taxable income and net capital gain (as defined in the Code) that
has accrued up to the Closing Date;
(j) All issued and outstanding shares of the Smith Barney Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws, and (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable. There are no outstanding options, warrants or other
rights to subscribe for or purchase any Smith Barney Fund Shares, nor is
there outstanding any security convertible into any Smith Barney Fund Share.
The Smith Barney Fund Shares to be issued and delivered to the CitiFund for
the account of the CitiFund Shareholders pursuant to the terms of this
Agreement, at the Closing Date, will have been duly authorized and, when so
issued and delivered, will be duly and validly issued and outstanding Smith
Barney Fund Shares, and will be fully paid and non-assessable;
(k) At the Closing Date, the Corporation, on behalf of the Smith Barney
Fund, will have good and marketable title to the Smith Barney Fund's assets,
free of any liens or other encumbrances, except those liens or encumbrances
as to which the CitiFund Trust, on behalf of the CitiFund, has received
notice at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Directors of the Corporation, and this Agreement will
constitute a valid and binding obligation of the Corporation, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general principles of
equity;
(m) The information to be furnished by the Corporation for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of Securities
Dealers, Inc.), which may be necessary or appropriate in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional information of
the Smith Barney Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder, and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The Proxy Statement, insofar as it relates to the Smith Barney Fund,
and the Registration Statement will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been furnished
by the CitiFund Trust for use therein.
5. COVENANTS
5.1. Each Fund covenants to operate its business in the ordinary course
between the date hereof and the Closing Date, it being understood that (a) such
ordinary course of business will include (i) the declaration and payment of
customary dividends and other distributions and (ii) such changes as are
contemplated by the Funds' normal operations; and (b) each Fund shall retain
exclusive control of the composition of its portfolio until the Closing Date.
5.2. Upon reasonable notice, the Smith Barney Fund's officers and agents
shall have reasonable access to the CitiFund's books and records necessary to
maintain current knowledge of the CitiFund and to ensure that the
representations and warranties made by the CitiFund are accurate.
5.3. The CitiFund Trust and the CitiFund covenant to call a meeting of the
shareholders of the CitiFund to consider and act upon this Agreement and to take
all other reasonable action necessary to obtain approval of the transactions
contemplated herein. Such meeting shall be scheduled for no later than October
2, 2000 (or such other date as the parties may agree to in writing).
5.4. The CitiFund Trust and the CitiFund covenant that the Smith Barney Fund
Shares to be issued hereunder are not being acquired for the purpose of making
any distribution thereof other than in accordance with the terms of this
Agreement.
5.5. Subject to the provisions of this Agreement, the parties hereto will
each take, or cause to be taken, all actions, and do or cause to be done, all
things reasonably necessary, proper, and/or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.6. The Corporation will file a Registration Statement on Form N-14 (the
"Registration Statement") under the 1933 Act, and the CitiFund Trust will file
the Proxy Statement contained therein, in connection with the meeting of
CitiFund Shareholders to consider approval of this Agreement and the
transactions contemplated herein, with the Commission as promptly as
practicable. The CitiFund Trust and the CitiFund will provide the Smith Barney
Fund with information relating to it that is required by the 1933 Act, the 1934
Act and the 1940 Act to be included in the Registration Statement, including the
Proxy Statement.
5.7. Each of the CitiFund Trust and the CitiFund covenants that it will,
from time to time, as and when reasonably requested by the Corporation, execute
and deliver or cause to be executed and delivered all such assignments and other
instruments, and will take or cause to be taken such further action, as the
Corporation may reasonably deem necessary or desirable in order to vest in and
confirm the Corporation title to and possession of the Assets and otherwise to
carry out the intent and purpose of this Agreement.
5.8. Each of the Corporation and the Smith Barney Fund covenants that it
will, from time to time, as and when reasonably requested by the CitiFund Trust,
execute and deliver or cause to be executed and delivered all such assignments,
assumption agreements, releases and other instruments, and will take or cause to
be taken such further action, as the CitiFund Trust may reasonably deem
necessary or desirable in order to (i) vest and confirm the CitiFund Trust's
title to and possession of all Smith Barney Fund Shares to be transferred to the
CitiFund pursuant to this Agreement and (ii) assume the assumed liabilities of
the CitiFund.
5.9. The CitiFund Trust, the Corporation and each Fund covenant to use all
reasonable efforts to obtain the approvals and authorizations required by the
1933 Act, the 1940 Act and such of the state securities laws as it deems
appropriate in order to consummate the transactions contemplated herein and, in
the case of the Smith Barney Fund, to continue its operations after the Closing
Date.
5.10. As soon as reasonably practicable after the Closing, the CitiFund
shall make a liquidating distribution to its shareholders consisting of the
Smith Barney Fund Shares received at the Closing.
5.11. Each of the Smith Barney Fund and the CitiFund shall use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CITIFUND TRUST
The obligations of the CitiFund Trust and the CitiFund to consummate the
transactions provided for herein shall be subject, at the CitiFund Trust's
election, to the performance by the Corporation and the Smith Barney Fund of all
the obligations to be performed by them hereunder on or before the Closing Date,
and, in addition thereto, the following further conditions:
6.1. All representations and warranties of the Corporation, on behalf of
itself and the Smith Barney Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the Closing
Date, with the same force and effect as if made on and as of the Closing Date;
and there shall be (i) no pending or threatened litigation brought by any person
against the Corporation or the Smith Barney Fund, the CitiFund Trust or the
CitiFund, or the advisers, trustees or officers of any of the foregoing, arising
out of this Agreement and (ii) no facts known to the CitiFund Trust or the
CitiFund, or the Corporation or the Smith Barney Fund, which any of such persons
reasonably believes might result in such litigation.
6.2. The Corporation shall have delivered to the CitiFund Trust on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the CitiFund Trust and dated as
of the Closing Date, to the effect that the representations and warranties of
the Corporation and the Smith Barney Fund made in this Agreement are true and
correct on and as of the Closing Date and as to such other matters as the
CitiFund Trust shall reasonably request.
6.3. The CitiFund Trust shall have received on the Closing Date an opinion
of Willkie Farr & Gallagher, in a form reasonably satisfactory to the CitiFund
Trust, and dated as of the Closing Date, to the effect that:
(a) the Corporation has been duly formed and is a validly existing
Maryland corporation, and the Smith Barney Fund has been duly established as
a series of the Corporation;
(b) the Corporation, with respect to the Smith Barney Fund, has the
power as a Maryland corporation to carry on its business as presently
conducted in accordance with the description thereof in the Corporation's
registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
the Corporation, and constitutes a valid and legally binding obligation of
the Corporation, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium,
marshaling, or other laws and rules of law affecting the enforcement
generally of creditors' rights and remedies (including such as may deny
giving effect to waivers of debtors' or guarantors' rights), and
considerations of public policy.
(d) the execution and delivery of the Agreement did not, and the
exchange of the CitiFund's assets for Smith Barney Fund Shares pursuant to
the Agreement will not, violate the Corporation's Articles of Incorporation
or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Corporation under the Federal laws of the United States or the laws of the
State of Maryland for the exchange of the CitiFund's assets for Smith Barney
Fund Shares pursuant to the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of the CitiFund
Trust, its Trustees and its officers, and counsel may rely as to matters
governed by the laws of the State of Maryland on an opinion of Maryland
counsel. Such opinion also shall include such other matters incident to the
transaction contemplated hereby as the CitiFund Trust may reasonably request.
6.4. The Corporation and the Smith Barney Fund shall have performed all of
the covenants and complied with all of the provisions required by this Agreement
to be performed or complied with by them on or before the Closing Date.
6.5. The Corporation, on behalf of the Smith Barney Fund, shall have
executed and delivered an assumption agreement in form reasonably satisfactory
to the CitiFund Trust pursuant to which the Corporation, on behalf of the Smith
Barney Fund, will assume all of the liabilities of the CitiFund existing at the
Valuation Time.
6.6. An endorsement to the CitiFund Trust's existing errors and omissions
and directors and officers liability insurance policy, or other evidence of
insurance, satisfactory in all respects to the CitiFund Trust's Board of
Trustees shall have been obtained at no cost to the CitiFund Trust or the
CitiFund and shall be in full force and effect.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CORPORATION
The obligations of the Corporation and the Smith Barney Fund to consummate
the transactions provided for herein shall be subject, at the Corporation's
election, to the performance by the CitiFund Trust and the CitiFund of all of
the obligations to be performed by them hereunder on or before the Closing Date
and, in addition thereto, the following further conditions:
7.1. All representations and warranties of the CitiFund Trust, on behalf of
itself and the CitiFund, contained in this Agreement shall be true and correct
in all material respects as of the date hereof and as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person against
the CitiFund Trust or the CitiFund, the Corporation or the Smith Barney Fund, or
the advisers, trustees or officers of any of the foregoing, arising out of this
Agreement and (ii) no facts known to the Corporation or the Smith Barney Fund,
or the CitiFund Trust or the CitiFund, which any of such persons reasonably
believes might result in such litigation.
7.2. The CitiFund Trust shall have delivered to the Corporation the
statements of net assets described in section 3.2.
7.3. The CitiFund Trust shall have delivered to the Corporation on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Corporation and dated as of
the Closing Date, to the effect that the representations and warranties of the
CitiFund Trust and the CitiFund made in this Agreement are true and correct on
and as of the Closing Date and as to such other matters as the Corporation shall
reasonably request.
7.4. The Corporation shall have received on the Closing Date an opinion of
Bingham Dana LLP, in a form reasonably satisfactory to the Corporation, and
dated as of the Closing Date, to the effect that:
(a) The CitiFund Trust, with respect to the CitiFund, Trust has been
duly established as a voluntary association with transferable shares of
beneficial interest commonly referred to as a Massachusetts business trust
and is existing under the laws of the Commonwealth of Massachusetts, and the
CitiFund has been duly designated as a series of the CitiFund Trust;
(b) The CitiFund Trust, with respect to the CitiFund, has the power to
carry on its business as presently conducted in accordance with the
description thereof in the CitiFund Trust's registration statement under the
1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
the CitiFund Trust, and constitutes a valid and legally binding obligation
of the CitiFund Trust, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium,
marshaling, or other laws and rules of law affecting the enforcement
generally of creditors' rights and remedies (including such as may deny
giving effect to waivers of debtors' or guarantors' rights), and
considerations of public policy;
(d) the execution and delivery of the Agreement did not, and the
exchange of the CitiFund's assets for Smith Barney Fund Shares pursuant to
the Agreement will not, violate the CitiFund Trust's Declaration of Trust or
By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
CitiFund Trust under the Federal laws of the United States or the laws of
the Commonwealth of Massachusetts for the exchange of the CitiFund's assets
for Smith Barney Fund Shares pursuant to the Agreement have been obtained or
made.
Such opinion may state that it is solely for the benefit of the Corporation,
its Directors and its officers. Such opinion also shall include such other
matters incident to the transaction contemplated hereby as the Corporation may
reasonably request.
7.5. The CitiFund Trust and the CitiFund shall have performed all of the
covenants and complied with all of the provisions required by this Agreement to
be performed or complied with by them on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT
If any of the conditions set forth below have not been met on or before the
Closing Date, either party to this Agreement shall, at its option, not be
required to consummate the Reorganization of the Funds contemplated by this
Agreement.
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
CitiFund in accordance with the provisions of the CitiFund Trust's Declaration
of Trust and By-Laws, applicable Massachusetts law and the 1940 Act, and
certified copies of the resolutions evidencing such approval shall have been
delivered to the Smith Barney Fund. Notwithstanding anything herein to the
contrary, neither party may waive the condition set forth in this section 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to either party's knowledge threatened before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
material damages or other relief in connection with, this Agreement or the
transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Corporation and the Smith Barney Fund or the CitiFund Trust and the CitiFund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of the Smith Barney Fund or the CitiFund.
8.4. The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5. The CitiFund Trust and the Corporation shall have received an order
from the Commission exempting the Reorganizations from the provisions of Section
17(a) of the 1940 Act or a "no-action" letter from the staff of the Commission
to the effect that the staff will not recommend that the Commission take
enforcement action under Section 17(a) of the 1940 Act if the parties hereto
proceed with the transactions described herein.
8.6. The parties shall have received an opinion of Bingham Dana LLP
addressed to the CitiFund Trust, the CitiFund, the Corporation and the Smith
Barney Fund substantially to the effect that, based upon certain facts,
assumptions and representations, for Federal income tax purposes: (i) the
distribution of investment securities from the underlying mutual fund (the
"Underlying Portfolio") in which the CitiFund invests all of its investable
assets in redemption of the CitiFund's interest in the Underlying Portfolio will
not result in the recognition of gain or loss by the CitiFund; (ii) the transfer
to the Smith Barney Fund of all or substantially all of the assets of the
CitiFund in exchange solely for Smith Barney Fund Shares and the assumption by
the Smith Barney Fund of all of the liabilities of the CitiFund, followed by the
distribution of the Smith Barney Fund Shares to CitiFund Shareholders in
exchange for their shares of the CitiFund in complete liquidation of the
CitiFund, will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and the Smith Barney Fund and the CitiFund will each be "a
party to a reorganization" within the meaning of Section 368(b) of the Code;
(iii) no gain or loss will be recognized by the CitiFund upon the transfer of
the CitiFund's assets to the Smith Barney Fund solely in exchange for the Smith
Barney Fund Shares and the assumption by the Smith Barney Fund of liabilities of
the CitiFund or upon the distribution (whether actual or constructive) of the
Smith Barney Fund Shares to the CitiFund's shareholders in exchange for their
shares of the CitiFund; (iv) the basis of the assets of the CitiFund in the
hands of the Smith Barney Fund will be the same as the basis of such assets in
the hands of the CitiFund immediately prior to the transfer, which will be
determined by reference to the basis of the CitiFund in its interest in the
Underlying Portfolio; (v) the holding period of the assets of the CitiFund in
the hands of the Smith Barney Fund will include the period during which such
assets were held by the CitiFund and the period during which such assets were
held by the Underlying Portfolio; (vi) no gain or loss will be recognized by the
Smith Barney Fund upon the receipt of the assets of the CitiFund solely in
exchange for Smith Barney Fund Shares and the assumption by the Smith Barney
Fund of all of the liabilities of the CitiFund; (vii) no gain or loss will be
recognized by the shareholders of the CitiFund upon the receipt of Smith Barney
Fund Shares solely in exchange for their shares of the CitiFund as part of the
transaction; (viii) the basis of Smith Barney Fund Shares received by the
shareholders of the CitiFund will be, in the aggregate, the same as the basis,
in the aggregate, of the shares of the CitiFund exchanged therefor; and (ix) the
holding period of Smith Barney Fund Shares received by the shareholders of the
CitiFund will include the holding period during which the shares of the CitiFund
exchanged therefor were held, provided that at the time of the exchange the
shares of the CitiFund were held as capital assets in the hands of the
shareholders of the CitiFund. The delivery of such opinion is conditioned upon
receipt by Bingham Dana LLP of representations it shall request of each Fund.
Notwithstanding anything herein to the contrary, neither party may waive the
condition set forth in this section 8.6.
9. INDEMNIFICATION
9.1. The Corporation agrees to indemnify and hold harmless the CitiFund
Trust, its Trustees and its officers from and against any and all losses,
claims, damages, liabilities or expenses (including, without limitation, the
payment of reasonable legal fees and reasonable costs of investigation) to which
any such indemnified party may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Corporation or the Smith Barney Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
9.2. The CitiFund Trust agrees to indemnify and hold harmless the
Corporation, its Directors and its officers from and against any and all losses,
claims, damages, liabilities or expenses (including, without limitation, the
payment of reasonable legal fees and reasonable costs of investigation) to which
any such indemnified party may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the CitiFund Trust or the CitiFund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
10. FEES AND EXPENSES
10.1. The Corporation and the CitiFund Trust each represents and warrants to
the other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Expenses of the Reorganization will be borne equally by Citibank and
SSB Citi.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The parties agree that neither party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.
The covenants to be performed after the Closing and the obligations of each
of the CitiFunds Trust, on behalf of the CitiFund, and the Corporation, on
behalf of the Smith Barney Fund, in sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, (ii) by
either party if the Closing shall not have occurred on or before January 1,
2001, unless such date is extended by mutual agreement of the parties, or (iii)
by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective directors, trustees or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
CitiFund Trust and the Corporation; provided, however, that following the
meeting of CitiFund Shareholders called by the CitiFund pursuant to section 5.3
of this Agreement, no such amendment may have the effect of reducing the number
of the Smith Barney Fund Shares to be issued to the shareholders of the CitiFund
under this Agreement to the detriment of such shareholders without their further
approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
CitiFund Trust or the CitiFund, c/o CitiFunds Trust II, 21 Milk Street, 5th
Floor, Boston, Massachusetts 02109, with a copy to Bingham Dana LLP, 150 Federal
Street, Boston, Massachusetts 02110, Attention: Roger P. Joseph, Esq., or to the
Corporation or the Smith Barney Fund, c/o Smith Barney Funds, Inc., 388
Greenwich Street, New York, New York 10013, with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, N.Y. 10019-6099, Attn.: Burton M.
Leibert, Esq., or to any other address that the CitiFund Trust or the
Corporation shall have last designated by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation (including the shareholders of any Fund) any rights or
remedies under or by reason of this Agreement, other than the parties hereto and
their successor and permitted assigns. Nothing in this section is intended to
limit the rights of shareholders of the CitiFund Trust to maintain derivative
actions with respect to this Agreement, subject to and in accordance with
applicable law.
15.4. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
15.5. The CitiFund Trust is a business trust organized under Massachusetts
law and under a Declaration of Trust, to which reference is hereby made and a
copy of which, with amendments, is on file with the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law. It is expressly
acknowledged and agreed that the obligations of CitiFunds Trust II entered into
in the name or on behalf of the CitiFund Trust by any of its Trustees, officers,
employees or agents are not made individually, but in such capacities, that the
CitiFund Trust's obligations under this Agreement bind only that portion of the
trust estate consisting of assets of the CitiFund and not any Trustee, officer,
employee, agent or shareholder individually, and that any liability of the
CitiFund Trust under this Agreement or in connection with the transactions
contemplated herein shall be discharged only out of the assets of the CitiFund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and attested by its Secretary or
Assistant Secretary.
CITIFUNDS TRUST II
on behalf of CitiFunds Growth & Income
Portfolio
By: -----------------------------------------
Name:
Title:
SMITH BARNEY FUNDS, INC.
on behalf of Smith Barney Large Cap Value
Fund
By: -----------------------------------------
Name:
Title:
Solely for purposes of Section 10.2:
CITIBANK, N.A.
By: -----------------------------------------
Name:
Title:
SSB CITI FUND MANAGEMENT LLC
By: -----------------------------------------
Name:
Title:
<PAGE>
Pursuant to Rule 497(b) File Nos. 33-41496 811-1464
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY LARGE CAP VALUE FUND (THE "SMITH BARNEY FUND"),
A SERIES OF SMITH BARNEY FUNDS, INC.
(THE "CORPORATION")
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OF THE ASSETS OF
CITIFUNDS GROWTH & INCOME PORTFOLIO (THE "CITIFUND"),
A SERIES OF CITIFUNDS TRUST II (THE "CITIFUNDS TRUST").
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
Dated: August 16, 2000
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus, dated August 16, 2000, relating to the above-referenced
matter may be obtained without charge by calling or writing the Smith Barney
Fund at the telephone number or address set forth above. This Statement of
Additional Information should be read in conjunction with the Proxy
Statement/Prospectus. Each of the following documents accompanies this Statement
of Additional Information and is incorporated herein by reference:
1. Statement of Additional Information for the Smith Barney Fund, dated
April 28, 2000.
2. Statement of Additional Information for the CitiFund, dated March 1,
2000.
3. Annual Report for the Smith Barney Fund for the year ended December 31,
1999.
4. Annual Report of the CitiFund for the year ended October 31, 1999 and
Semi-Annual Report of the CitiFund for the six-month period ended April
30, 2000.
GENERAL INFORMATION
This Statement of Additional Information relates to the proposed transfer
of substantially all of the assets and liabilities of the CitiFund to the
Corporation, on behalf of Smith Barney Fund, in exchange for shares of the
Smith Barney Fund (the "Reorganization"). The shares issued by the Smith
Barney Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the CitiFund that were outstanding immediately
before the effective time of the Reorganization.
After the transfer of substantially all of its assets and liabilities in
exchange for the Smith Barney Fund shares, the CitiFund will distribute such
shares to its shareholders in liquidation of the CitiFund. Each shareholder
owning shares of the CitiFund at the effective time of the Reorganization will
receive shares of the corresponding class from the Smith Barney Fund of equal
value, and will receive any unpaid dividends or distributions that were
declared before the effective time of the Reorganization on shares of the
CitiFund. The Smith Barney Fund will establish an account for each former
shareholder of the CitiFund reflecting the appropriate number of shares
distributed to such shareholder. These accounts will be substantially
identical to the accounts maintained by the CitiFund for each shareholder.
Upon completion of the Reorganization with respect to the CitiFund, all
outstanding shares of the CitiFund will have been redeemed and cancelled in
exchange for shares distributed by the Smith Barney Fund, and the CitiFund
will wind up its affairs and be terminated as a series of the CitiFunds Trust.
Due to the net asset value of the CitiFund being less than ten percent of
the Smith Barney Fund's value, pro forma financial statements are not required
to be and have not been prepared for inclusion in this Statement of Additional
Information.
FOR FURTHER INFORMATION ABOUT THE TRANSACTION, SEE THE COMBINED PROXY
STATEMENT/PROSPECTUS.
