AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 2000.
SECURITIES ACT FILE NO. 333-41616
811-3275
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1
POST-EFFECTIVE AMENDMENT NO. [_]
SMITH BARNEY INVESTMENT FUNDS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
388 GREENWICH STREET, NEW YORK, NY 10013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 451-2010
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
HEATH B. MCLENDON
SSB CITI FUND MANAGEMENT LLC
388 GREENWICH STREET
NEW YORK, NY 10013
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
BURTON M. LEIBERT, ESQ. CHRISTINA T. SYDOR, ESQ.
WILLKIE FARR & GALLAGHER SSB CITI FUND MANAGEMENT LLC
787 SEVENTH AVENUE 388 GREENWICH STREET
NEW YORK, NY 10019-6099 NEW YORK, NY 10013
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest ($.001 par value) of the Registrant
___________________
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940; accordingly, no fee is payable herewith because of reliance upon
Section 24(f).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended (the "1933 Act"), or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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PART A
INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
CONCERT INVESTMENT SERIES(R)
Small Cap Fund
388 Greenwich Street
New York, New York 10013
August 16, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby all of the assets of the Small Cap Fund (the "Fund"), a series of
Concert Investment Series(R) ("Investment Series"), would be transferred in a
tax-free reorganization to Smith Barney Small Cap Growth Fund (the "Acquiring
Fund"), a series of Smith Barney Investment Funds Inc. ("Investment Funds"),
in exchange for shares of the corresponding class of common stock of the
Acquiring Fund. If the Agreement and Plan of Reorganization is approved and
consummated, you would no longer be a shareholder of the Fund, but would
become a shareholder of the corresponding class of the Acquiring Fund, which
has similar investment objectives and policies to your Fund, except as
described in the Prospectus/Proxy Statement.
AFTER CAREFUL REVIEW, THE MEMBERS OF YOUR FUND'S BOARD HAVE APPROVED THE
PROPOSED REORGANIZATION. THE BOARD MEMBERS OF YOUR FUND BELIEVE THAT THE
PROPOSAL SET FORTH IN THE NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND
RECOMMEND THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE
PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT NOW TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. For more
information, please call 1-800-451-2010. If you prefer, you can fax the proxy
card (both sides) to (888) 796-9932 or vote by telephone by calling (800) 597-
7836 using the xx-digit control number located on your proxy card. The Fund
may also solicit proxies from shareholders by letter, telephone and/or
telegraph. Voting by fax or telephone will reduce the time and costs
associated with the proxy solicitation. When the Fund records proxies by
telephone, it will use procedures designed to (i) authenticate shareholders'
identities, (ii) allow shareholders to authorize the voting of their shares in
accordance with their instructions and (iii) confirm that their instructions
have been properly recorded.
Whichever voting method you choose, please read the full text of the
accompanying Prospectus/Proxy Statement before you vote.
Respectfully,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board, President and Chief Executive Officer
Concert Investment Series(R)
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN.
CONCERT INVESTMENT SERIES(R)
Small Cap Fund
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Concert Investment Series(R) ("Investment Series"), on behalf of
its series, the Small Cap Fund (the "Fund"), will be held at the offices of
SSB Citi Fund Management LLC, 7 World Trade Center, New York, New York 10048,
on September 25, 2000, at 10:00 a.m., Eastern time, for the following
purposes:
PROPOSAL 1:To approve an Agreement and Plan of Reorganization for the Fund;
PROPOSAL 2: To transact such other business as may properly come before
the meeting or any adjournment(s) thereof.
The appointed proxies will vote in their discretion on any other business as
may properly come before the Special Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on August
11, 2000 are entitled to vote at the Special Meeting and at any adjournments
thereof.
For your information, pursuant to Section 8.1 of Investment Series' By-laws,
the Board of Trustees has amended Section 1.4 thereof (relating to voting and
quorum) in order to conform such section to the corresponding provision of
Investment Series' Master Trust Agreement, as amended and restated as of the
date hereof.
If the necessary quorum to transact business or the vote required to approve
a Proposal 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 Fund's outstanding 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 which they are entitled to vote in favor of
the Proposal and will vote against any such adjournment those proxies to be
voted against the Proposal. For more information, please call 1-800-451-2010.
By Order of the Board of Trustees
Christina T. Sydor
Secretary
August 16, 2000
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IMPORTANT--WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND
IS INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY
CARD(S) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE
A QUORUM AT THE SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND
WISH TO VOTE YOUR SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
TABLE OF CONTENTS
GENERAL..................................................................... 1
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION.................. 3
SYNOPSIS.................................................................... 4
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND AND THE FUND........ 6
INVESTMENT MANAGEMENT FEES AND EXPENSES..................................... 8
DISTRIBUTION OF SHARES AND OTHER SERVICES................................... 12
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION............................... 13
DIVIDENDS AND OTHER DISTRIBUTIONS........................................... 13
TAX CONSEQUENCES............................................................ 14
PRINCIPAL INVESTMENTS AND RISK FACTORS...................................... 14
THE PROPOSED TRANSACTION.................................................... 17
REASONS FOR THE PROPOSED TRANSACTION........................................ 19
DESCRIPTION OF THE SECURITIES TO BE ISSUED.................................. 20
FEDERAL INCOME TAX CONSEQUENCES............................................. 22
LIQUIDATION AND TERMINATION OF SERIES....................................... 22
PORTFOLIO SECURITIES........................................................ 22
PORTFOLIO TURNOVER.......................................................... 23
CAPITALIZATION.............................................................. 23
ADDITIONAL INFORMATION ABOUT THE FUNDS...................................... 24
ADDITIONAL INFORMATION...................................................... 25
ii
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated August 16, 2000
relating to this Prospectus/Proxy Statement and the Reorganization, will be
sent to all shareholders of the Fund requesting a copy of such Statement of
Additional Information.
1. The Statement of Additional Information for the Acquiring Fund, dated
October 11, 1999.
2. The Statement of Additional Information for the Fund, dated February 28,
2000.
3. Semi-Annual Report of the Acquiring Fund for the six months ended March
31, 2000.
4. Annual Report of the Fund for the year ended October 31, 1999 and the
Semi-Annual Report of the Fund for the six months ended April 30, 2000.
iii
Merger Q&A
Concert Small Cap Fund Into Smith Barney Small Cap Growth Fund
The enclosed materials include a Prospectus/Proxy Statement containing
information you need to make a more informed decision. However, we thought it
would also be helpful for you to have, at the start, answers to some of the
important questions you might have about the proposed reorganization.
We hope you find these explanations useful as you review your materials
before voting. For more detailed information about the proposed
reorganization, please refer to the enclosed Prospectus/Proxy Statement.
What will happen to my shares if the proposed reorganization is approved?
You will become a shareholder of the Smith Barney Small Cap Growth Fund on
or about October 6, 2000 ("Closing Date") and will no longer be a shareholder
of the Concert Small Cap Fund, which will be terminated pursuant to the
proposed reorganization. You will receive shares of the Smith Barney Small Cap
Growth Fund with a total net asset value equal to the total net asset value of
your investment in the Concert Small Cap Fund at the time of the transaction.
If the reorganization is approved and you do not wish to become a
shareholder of the Smith Barney Small Cap Growth Fund, you may redeem your
shares prior to the Closing Date. Please note that any redemption will be
subject to applicable sales charges and redemption fees, and will result in a
taxable event for federal income tax purposes.
What is the key reason for this fund reorganization?
The proposed reorganization will create one single larger sized fund and
provide shareholders of Concert Small Cap with a fund that has lower annual
expenses. The proposed reorganization is part of a broader initiative by the
Funds' manager, SSB Citi Fund Management LLC, to restructure more efficiently
its mutual fund product offerings.
As a shareholder of the Smith Barney Small Cap Growth Fund, you will be able
to exchange into the same class of certain Smith Barney mutual funds offered
by the funds' distributor, provided that the Smith Barney Fund offers the
relevant class of shares.
Do the Funds have similar investment objectives?
Yes. The principal investment objective of the Concert Small Cap Fund is
capital appreciation, while the investment objective of the Smith Barney Small
Cap Growth Fund is long-term growth of capital. Timothy Woods, the portfolio
manager of the Smith Barney Small Cap Growth Fund, has over 15 years of
securities business experience and has been the manager of the Smith Barney
Small Cap Growth Fund since its inception in 1999.
In both Funds, the managers seek to achieve growth of capital by investing
in small sized companies in the early stages of their life cycles with
favorable growth prospects. However, the investment practices and limitation
of each Fund (and related risks) are not identical. For additional information
regarding the differences between the two Funds, please refer to the enclosed
proxy statement.
How does portfolio manager Tim Woods identify small cap growth opportunities?*
Tim selects individual stocks for investment by identifying those companies
which exhibit the most favorable growth prospects. In selecting individual
companies for investment, the manager considers:
- --------
* Small cap stocks involve more risk and greater price fluctuations than large
cap stocks.
. Growth characteristics, including high historic growth rates and high
forecasted growth of sales, profits and return on equity
. Innovative companies at the cutting edge of positive and dynamic
demographic and economic trends
. Products and services that give the company a competitive advantage
. Skilled management committed to long term growth
. Potential for a long-term investment by the fund
What are the tax consequences of this proposed reorganization?
Subject to shareholder approval, the proposed fund reorganization will not
be a taxable event. Shareholders will not realize any capital gain or loss as
a direct result of the proposed reorganization.
Will I enjoy the same privileges as a shareholder of the Smith Barney Small
Cap Growth Fund that I currently have as a shareholder of the Concert Small
Cap Fund?
Yes. You will continue to enjoy substantially the same shareholder
privileges such as systematic investment, automatic cash withdrawal and
dividend reinvestment as well as access to professional service
representatives.
How does the Board of Trustees recommend I vote?
The Trustees recommend that you vote FOR the reorganization. The Trustees
believe the reorganization is in the best interest of the Concert Small Cap
Fund and its shareholders.
Why is my vote important?
Shareholders have a responsibility to vote on important matters affecting
their fund investments. No matter how many shares you own, your vote--and its
timeliness--are also important. Please complete and sign the enclosed proxy
card today!
Please note if you sign and date your proxy card, but do not provide voting
instructions, your shares will be voted FOR the proposal. By voting promptly,
you will help us to avoid the expense of having to re-solicit your proxy.
Thank you in advance for your vote.
SUBJECT TO COMPLETION, DATED AUGUST 15, 2000
PROSPECTUS/PROXY STATEMENT
388 Greenwich Street
New York, New York 10013
(800) 451-2010
August 16, 2000
RELATING TO THE ACQUISITION BY THE
SMITH BARNEY SMALL CAP GROWTH FUND (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT FUNDS INC. ("INVESTMENT FUNDS")
OF THE ASSETS OF SMALL CAP FUND (THE "FUND"),
A SERIES OF CONCERT INVESTMENT SERIES(R) ("INVESTMENT SERIES").
GENERAL
This Prospectus/Proxy Statement is furnished to shareholders of the Fund in
connection with a proposed reorganization in which all of the assets of the
Fund would be acquired by Investment Funds, on behalf of the Acquiring Fund,
in exchange solely for voting shares of the corresponding class of shares of
common stock of the Acquiring Fund and the assumption by Investment Funds, on
behalf of the Acquiring Fund, of all of the stated liabilities of the Fund
(collectively, the "Reorganization"). Shares of the Acquiring Fund thereby
received would then be distributed to the shareholders of the Fund in complete
liquidation of the Fund, and the Fund would be terminated as a series of
Investment Series. As a result of the Reorganization, each shareholder of the
Fund would receive that number of full and fractional shares of the
corresponding class of the Acquiring Fund having an aggregate net asset value
equal to the aggregate net asset value of such shareholder's shares of the
Fund held as of the close of business on the Closing Date (as defined herein)
of the Reorganization. Shareholders of the Fund are being asked to vote on an
Agreement and Plan of Reorganization pursuant to which such transactions, as
described more fully below, would be consummated.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of
the Acquiring Fund, see the prospectus for the Acquiring Fund, dated October
11, 1999, as supplemented from time to time, which is included herewith and
incorporated herein by reference. This Prospectus/Proxy Statement is also
accompanied by the Acquiring Fund's semi-annual report to shareholders for the
six months ended March 31, 2000, which is included herewith and incorporated
herein by reference. For a more detailed discussion of the investment
objectives, policies,
(continued on next page)
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMI-
NAL OFFENSE. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY
STATEMENT 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 FUNDS.
1
restrictions and risks of the Fund, see the prospectus for the Fund, dated
February 28, 2000, the annual report to shareholders for the year ended
October 31, 1999 and the semi-annual report to shareholders for the six months
ended April 30, 2000, each of which is incorporated herein by reference and a
copy of which may be obtained without charge by writing to Smith Barney Mutual
Funds, 388 Greenwich Street, New York, New York 10013, or by calling toll-free
(800) 451-2010. A Statement of Additional Information of the Fund and the
Acquiring Fund dated August 16, 2000 containing additional information about
the Reorganization and the parties thereto has been filed with the Securities
and Exchange Commission (the "SEC" or the "Commission") and is incorporated by
reference into this Prospectus/Proxy Statement. A copy of the Statement of
Additional Information is available upon request and without charge by writing
to or calling Smith Barney Mutual Funds at the address or phone number listed
above. Shareholder inquiries regarding the Fund or the Acquiring Fund may also
be made by calling the phone number listed above. The information contained
herein concerning the Fund has been provided by, and is included herein in
reliance upon, Investment Series on behalf of the Fund. The information
contained herein concerning the Acquiring Fund has been provided by, and is
included herein in reliance upon, Investment Funds.
The Acquiring Fund is a diversified series of Investment Funds, an open-end
management investment company organized as a Maryland corporation. The Fund is
a diversified series of Investment Series, an open-end management investment
company organized as a Massachusetts business trust. The investment objective
of the Acquiring Fund is long-term growth of capital, and the investment
objective of the Fund is capital appreciation. The Acquiring Fund seeks to
achieve its objective by investing primarily in equity securities of companies
that have a market capitalization within the market capitalization range of
companies in the Russell 2000 Growth Index at the time of investment. The Fund
seeks to achieve its objective by investing in U.S. companies with market
capitalizations in the lowest 20% of all publicly-traded U.S. companies. Each
Fund employs a style of stock selection which emphasizes individual stock
selection based on high growth prospects.
----------------
In the description of the Proposal below, the word "fund" is sometimes used
to mean investment companies or series thereof in general, and not the Fund
whose proxy statement this is. The Fund and the Acquiring Fund may each be
referred to as a "Fund" and may also be referred to collectively as the
"Funds. " In addition, in this Proxy Statement/ Prospectus, for simplicity,
actions are described as being taken by the Fund, although all actions are
actually taken by Investment Funds, on behalf of the Acquiring Fund, and by
Investment Series, on behalf of the Fund.
This Prospectus/Proxy Statement, the Notice of Special Meeting and the proxy
card(s) are first being mailed to shareholders on or about August 16, 2000 or
as soon as practicable thereafter. Any shareholder of the Fund giving a proxy
has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of Investment Series at the address shown at the
beginning of this Prospectus/Proxy Statement) or in person at the Special
Meeting by executing a superseding proxy or by submitting a notice of
revocation to the Fund. 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 certain shareholders have purchased their shares through
service agents, these service agents are the shareholders of record of the
Fund. At the special meeting, a service agent may, as permitted by applicable
laws and regulations, 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.
2
The presence at any shareholders' meeting, in person or by proxy, of the
holders of shares of the Fund holding 20% of the outstanding shares of the
Fund entitled to vote shall be necessary and sufficient to constitute a quorum
for the transaction of business. If the necessary quorum to transact business
or the vote required to approve any Proposal 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 with respect to the Proposal that did not receive the
vote necessary for its passage or to obtain a quorum. Any such adjournment as
to a matter will require the affirmative vote of the holders of a majority of
the Fund's outstanding 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 which 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 which have not been voted. Broker non-
votes are proxies received by the Fund 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 Proposal requires the affirmative vote of the holders of not less than a
majority of the Fund's outstanding shares of beneficial interest entitled to
vote thereon. Abstentions and broker non-votes will have the effect of a "no"
vote on the Proposal.
Holders of record of the shares of the Fund 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 16,098,516.34 shares of
the Fund outstanding.
To the best of knowledge of Investment Funds as of August 11, 2000, [no
person owned beneficially more than 5% of any class of the Acquiring Fund's
outstanding shares]. To the best of knowledge of Investment Series, as of
August 11, 2000, no person owned beneficially more than 5% of any class of the
Fund's outstanding shares.
As of August 11, 2000, less than 1% of the outstanding shares of each of the
Fund and the Acquiring Fund were owned directly or beneficially by the
Trustees of Investment Series or the Directors of Investment Funds,
respectively.
Each of the Fund and the Acquiring Fund provides periodic reports to all of
its shareholders which highlight relevant information, including investment
results and a review of portfolio changes. You may receive an additional copy
of the most recent annual report for the Fund and a copy of any more recent
semi-annual report for each of the Fund and the Acquiring Fund, without
charge, by calling 800-451-2010 or writing to the Fund or the Acquiring Fund
at the address shown at the beginning of this Prospectus/Proxy Statement.
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of Trustees of Investment Series, on behalf of the Fund, and the
Board of Directors of Investment Funds, on behalf of the Acquiring Fund,
including all of the Trustees/Directors who are not "interested persons" of
such Funds (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) (the "Non-Interested Trustees" or "Non-Interested Board
Members"), approved on July 17, 2000, an Agreement and Plan of Reorganization
(the "Plan"). Subject to its approval by the shareholders of the Fund, the
Plan provides for (a)
3
the transfer of all of the assets and all of the stated liabilities of the
Fund to Investment Funds, on behalf of the Acquiring Fund, in exchange for
shares of the corresponding class of the Acquiring Fund and assumption by
Investment Funds, on behalf of the Acquiring Fund, of the Fund's liabilities;
(b) the distribution of such Acquiring Fund shares to the shareholders of the
Fund in complete liquidation of the Fund and the cancellation of the Fund's
outstanding shares; and (c) the termination of the Fund as a series of
Investment Series (collectively, the "Reorganization"). As a result of the
Reorganization, each shareholder of the Fund will become a shareholder of the
corresponding class of the Acquiring Fund and will hold, immediately after the
closing of the Reorganization (the "Closing"), that number of full and
fractional shares of the corresponding class of the Acquiring Fund having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares held in the Fund as of the close of business on the
Closing Date (as defined below). The Closing is expected to occur on October
6, 2000, or on such later date as the parties may agree in writing (the
"Closing Date").
SYNOPSIS
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary is qualified by reference to the more
complete information contained elsewhere in this Prospectus/Proxy Statement,
the Prospectus of the Acquiring Fund, the Prospectus of the Fund and the Plan,
the form of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Shareholders of the Fund should read this entire Prospectus/Proxy Statement
carefully.
Introduction. Like your Fund, the Acquiring Fund is managed by SSB Citi Fund
Management LLC ("SSB Citi"), an affiliate of Salomon Smith Barney Inc.
("Salomon Smith Barney"). However, while Sandip Bhagat is the portfolio
manager of your Fund, Timothy Woods is the portfolio manager of the Acquiring
Fund. Whereas your Fund has capital appreciation as its investment objective,
the Acquiring Fund has long-term growth of capital as its investment
objective. Moreover, the distributor, custodian and transfer agent of each of
the Fund and the Acquiring Fund are identical. Whereas the Acquiring Fund has
retained PFPC Global Financial Services, Inc. as a sub-transfer agent, the
Fund has additionally retained PFS Shareholder Services as a sub-transfer
agent. The Fund has retained Ernst & Young LLP as its independent auditors and
the Acquiring Fund has retained KPMG LLP as its independent auditors.
If the Plan is consummated, shareholders of the Fund will become
shareholders of the corresponding class of the Acquiring Fund. The
Reorganization has been proposed as part of a broader initiative by SSB Citi
to eliminate duplication and possible confusion in its mutual fund product
offerings. Specifically, this Reorganization has been proposed as the Funds
have substantially similar investment objectives, policies and overall risk
characteristics, and the Acquiring Fund is subject to a lower total annual
expense ratio. Shareholders of the Fund will continue to enjoy the same
shareholder privileges, such as systematic investment, automatic cash
withdrawal and automatic dividend reinvestment, and access to professional
service representatives upon becoming shareholders of the Acquiring Fund.
Further, shareholders of the Acquiring Fund may exchange into the same class
of any Smith Barney Fund (provided that the Smith Barney Fund offers the
relevant class of shares). Shareholders of the Fund have a more limited
exchange option. Moreover, although many of the services provided by PFS
Shareholder Services, Inc. to the Fund are available to shareholders of the
Acquiring Fund, PFS Shareholder Services, Inc. will not provide services to
the Acquiring Fund. Each of the Fund and the Acquiring Fund declares dividends
from net investment income and pays distributions of net realized capital
gains, if any, annually. See "Dividends and Other Distributions." It is a
condition of the Reorganization that each Fund receive an opinion of
independent legal counsel that the Reorganization will be tax-free. This means
that shareholders will not realize any capital gain or loss as a direct result
of the Reorganization.
4
Proposed transaction. The aggregate net asset value of each class of voting
shares of the Acquiring Fund (the "Shares") issued in exchange for the assets
and liabilities of the corresponding class of the Fund will be equal to the
net asset value of that class of the Fund as of the Closing Date. Immediately
following the transfer of Shares to the Fund, the Shares received by the Fund
will be distributed pro rata to the shareholders of record of the Fund on the
Closing Date and the shares of the Fund will be cancelled.
For the reasons described below under "The Proposed Transaction-Reasons for
the Proposed Transaction," the Board of Trustees of Investment Series on
behalf of the Fund, including the Non-Interested Trustees, has concluded the
following:
-- the Reorganization is in the best interests of the Fund and its
shareholders; and
-- the interests of the existing shareholders of the Fund 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 Fund will continue in existence unless other action is taken by
the Trustees; such other action may include resubmitting the Plan for
shareholder approval and termination and liquidation of the Fund.
Comparison of investment objectives and policies. The investment objective
of the Acquiring Fund is long-term growth of capital. The investment objective
of the Fund is capital appreciation. The Acquiring Fund seeks to achieve its
objective by investing primarily in equity securities of high growth companies
that have a market capitalization within the market capitalization range of
companies in the Russell 2000 Growth Index at the time of investment. The Fund
seeks to achieve its objective by investing in U.S. companies with market
capitalizations in the lowest 20% of all publicly-traded U.S. companies. Each
Fund employs a style of stock selection which emphasizes individual stock
selection based on high growth prospects. Whereas the Fund pursues "growth at
a reasonable price," the Acquiring Fund pursues growth. Accordingly, the
Acquiring Fund may be potentially more volatile and riskier than the Fund. The
Acquiring Fund compares its performance against the Russell 2000 Growth Index,
while the Fund compares its performance against the Russell 2000 Stock Index.
The Fund's investment restrictions are substantially similar to those of the
Acquiring Fund, except as described in this Prospectus/Proxy Statement.
The Acquiring Fund may invest up to 10% and the Fund may invest up to 20% of
its assets in foreign securities directly or in the form of depositary
receipts representing an interest in those securities. Each Fund has adopted
substantially similar fundamental investment restrictions with respect to its
diversified status; issuing senior securities; underwriting securities;
industry concentration; borrowing money; and purchasing or selling real
estate, real estate mortgages, commodities or commodity contracts. Each Fund's
fundamental investment restrictions may not be changed without the approval of
the applicable Fund's shareholders. Each Fund has also adopted substantially
similar non-fundamental investment policies with respect to investments in
illiquid and restricted securities or in oil or other mineral leases,
purchasing securities on margin, and investing in any company for the purpose
of exercising control of management. The Fund has adopted certain additional
non-fundamental restrictions with respect to, among other things, short sales,
warrants and alcohol and tobacco manufacturers. The Acquiring Fund has adopted
an additional non-fundamental restriction with respect to unseasoned issuers.
While both Funds may use derivative contracts, such as futures and options on
securities, securities indices and currencies; options on these futures;
forward currency contracts; and interest rate and currency swaps, (i) to hedge
against the economic impact of adverse changes in the market value of
portfolio securities and (ii) as a substitute for buying or selling
securities, the Fund may engage in such activities to enhance return and the
Acquiring Fund may engage in such activities as a cash management technique.
Whereas
5
the Fund may only lend up to 15% of the total value of its portfolio
securities, the Acquiring Fund may lend its portfolio securities to the
fullest extent permitted under the 1940 Act (in each case, these are
fundamental investment restrictions).
Each Fund may also invest in preferred stock and convertible securities,
short-term instruments, and repurchase and reverse repurchase agreements, each
in accordance with any 1940 Act or other applicable limitations. Investors
should refer to the respective prospectuses and statements of additional
information of the Fund and the Acquiring Fund for a fuller description of
each Fund's investment policies and restrictions. Whereas the Fund may only
lend up to 15% of the total value of its portfolio securities, the Acquiring
Fund may lend its portfolio securities to the fullest extent permitted under
the 1940 Act (in each case, these are fundamental investment restrictions).
INVESTMENT OBJECTIVE AND POLICIES
OF THE ACQUIRING FUND AND THE FUND
The Acquiring Fund
Investment objective. The Acquiring Fund seeks long-term growth of capital.
Key investments. The Acquiring Fund invests primarily in equity securities
of high growth companies. These companies possess a market capitalization
within the market capitalization range of companies in the Russell 2000 Growth
Index (the "Index") at the time of the Acquiring Fund's investment. The size
of the companies in the Index changes with market conditions and the
composition of the Index. As of September 30, 1999, the largest market
capitalization of a company in the Index was $3.5 billion. Equity securities
include exchange traded and over-the-counter common stocks, preferred stocks,
debt securities convertible into equity securities and warrants and rights
relating to equity securities. The Acquiring Fund may invest up to 35% of its
assets in equity securities of companies with market capitalizations outside
the range of companies in the Index.
Selection process. The manager focuses on small capitalization companies
that exhibit attractive growth characteristics. The manager selects individual
stocks for investment by identifying those companies which exhibit the most
favorable growth prospects. In selecting individual companies for investment,
the manager considers:
. Growth characteristics, including high historic growth rates and high
forecasted growth of sales, profits and return on equity
. Innovative companies at the cutting edge of positive and dynamic
demographic and economic trends
. Products and services that give the company a competitive advantage
. Skilled management committed to long-term growth
. Potential for a long-term investment by the fund
The manager uses a disciplined investment process to identify small
financially sound growth companies that exhibit the potential to become much
larger and more successful. Elements of this process include fundamental
research, evaluation of key management and screening techniques.
6
Principal risks of investing in the Acquiring Fund. Investors could lose
money on their investment in the Acquiring Fund, or the Acquiring Fund may not
perform as well as other investments, if:
. Key economic trends become materially unfavorable, such as rising
interest rates and levels of inflation or a slowdown of economic growth
. U.S. stock markets perform poorly relative to other types of investments
. An adverse company specific event, such as an unfavorable earnings
report, negatively affects the stock price of a company in which the
fund invests
. Small capitalization stocks underperform mid capitalization and large
capitalization stocks
. The manager's judgment about the attractiveness, growth prospects, value
or potential appreciation of a particular stock proves to be incorrect
Because the Acquiring Fund invests primarily in small capitalization growth
companies, an investment in the Acquiring Fund may be more volatile and more
susceptible to loss than an investment in a fund which invests primarily in
large capitalization companies. Small capitalization companies may have more
limited product lines, markets and financial resources than large
capitalization companies. They may have shorter operating histories and more
erratic businesses. In addition, small capitalization company stocks may be
less liquid than large capitalization company stocks.
Who may want to invest. The Acquiring Fund may be an appropriate investment
if you:
. Are seeking to participate in the long term potential of small
capitalization growth companies
. Are looking for an investment with potentially greater return but higher
risk than a fund that invests primarily in large cap companies
. Are willing to accept the risks of the stock market and the special
risks and potential long-term rewards of investing in smaller companies
with limited track records
. Are seeking diversification
The Fund
Investment objective. The Fund seeks capital appreciation.
Key investments. The Fund invests in common stocks of small sized companies
considered by the manager to be "emerging growth" companies. These are
primarily domestic companies, in the early stages of their life cycles,
characterized by relatively high earnings growth. The manager selects
investments from among companies that have market capitalizations in the
lowest 20% of all publicly traded U.S. companies.
How the manager selects the Fund's investments. The manager emphasizes
individual security selection while spreading investments among many
industries and sectors. The manager uses quantitative analysis to identify
individual companies that it believes offer exceptionally high prospects for
growth. The manager purchases these companies' stocks when it believes they
are reasonably priced. This style of stock selection is commonly known as
"growth at a reasonable price." Quantitative methods are also used to control
portfolio risk related to broad macroeconomic factors, such as interest rate
changes. The manager selects investments for their potential capital
appreciation; any ordinary income is incidental. In selecting individual
companies for investment, the manager looks for:
. Above average earnings growth
7
. A pattern of reported earnings that exceed market expectations
. Rising earnings estimates over the next several quarters
. High relative return on invested capital
. Reasonable price/earnings multiple
Principal risks of investing in the Fund. Investors could lose money on
their investment in the Fund, or the Fund may not perform as well as other
investments, if any of the following occurs:
. Stock prices decline generally
. Small cap companies fall out of favor with investors
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
. A particular product or service developed by a small cap company is
unsuccessful, the company does not meet earnings expectations or other
events depress the value of the company's stock
Compared to large, established companies, small cap companies are more
likely to have limited product lines, limited capital resources and less
experienced management. In addition, securities of small cap companies are
more likely to:
. Experience sharper swings in market value
. Be harder to sell at times and prices the manager believes appropriate
. Offer greater potential for gains and losses
Who may want to invest in the Fund. The Fund may be an appropriate
investment if you:
. Are seeking to participate in the long term growth potential of small
cap companies
. Currently have exposure to fixed income investments and less volatile
equity investments and wish to broaden your investment portfolio
. Are willing to accept the risks of investing in the stock market and the
special risks of investing in emerging growth companies with limited
track records
INVESTMENT MANAGEMENT FEES AND EXPENSES
Investment Series, on behalf of the Fund, and Investment Funds, on behalf of
the Acquiring Fund, each retain SSB Citi, pursuant to separate contracts, to
manage the daily investment and business affairs of the Fund and the Acquiring
Fund, respectively, subject to the policies established by their respective
governing boards. The expenses of each Fund are paid out of gross investment
income. Shareholders pay no direct charges or fees for investment services.
The Acquiring Fund
The Acquiring Fund's investment manager is SSB Citi. The manger's address is
388 Greenwich Street, New York, New York 10013. The manager selects the fund's
investments and oversees its operations. The manager and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range
of financial services--asset management, banking and consumer finance, credit
and charge cards, insurance,
8
investments, investment banking and trading--and use diverse channels to make
them available to consumer and corporate customers around the world. Under an
investment advisory agreement, the Acquiring Fund pays SSB Citi a fee computed
daily and paid monthly at an aggregate annual rate of 0.75% of the value of
its average daily net assets. The total investment management fee incurred and
paid by the Acquiring Fund for the six months ended March 31, 2000 was $ .
The Acquiring Fund's total expense ratio (total annual operating expenses as
a percentage of average net assets) for each class of its shares for the
fiscal year ending September 30, 2000 is set forth below under "Annual Fund
Operating Expenses." SSB Citi projects that if the proposed Reorganization is
effected, the expense ratio for each class of the Acquiring Fund will be
unchanged for the year ending September 30, 2000. The actual expense ratio for
the Acquiring Fund for the year ending September 30, 2000 may be higher or
lower than as set forth below, depending upon the Acquiring Fund's
performance, general stock market and economic conditions, sales and
redemptions of the Acquiring Fund's shares (including redemptions by former
shareholders of the Fund), and other factors.
Timothy Woods, CFA, investment officer of the manager and managing director
of Salomon Smith Barney, is responsible for the day-to-day management of the
Acquiring Fund's portfolio. Mr. Woods has more than 15 years of securities
business experience. Prior to July 1999, he was a Principal at Bankers Trust
Company and manager of the Small-Mid Cap Growth Team.
The Fund
The Fund's investment manager is also SSB Citi. SSB Citi has been in the
investment counseling business since 1968 and renders investment management
and administration services to a wide variety of individual, institutional and
investment company clients having aggregate assets under management as of
December 31, 1999 in excess of $119 billion. SSB Citi selects the Fund's
investments and oversees its operations. Under an investment advisory
agreement, the Fund pays SSB Citi a fee computed daily and paid monthly at the
annual rate of 0.65% of the Fund's average daily net assets. The total
investment management fees paid by the Fund for the fiscal year ended October
31, 1999 were $ .
Sandip Bhagat, President of Travelers Investment Management Company, an
affiliate of Salomon Smith Barney, has been responsible for the day-to-day
management of the Fund since 1997. Mr. Bhagat's management discussion and
analysis of the Fund's performance during the fiscal year ended December 31,
1999 is included in the Fund's Annual Report to Shareholders dated December
31, 1999.
9
The estimated expenses of the Acquiring Fund and the actual expenses for the
Fund for the fiscal years ended September 30, 2000 and October 31, 1999,
respectively, and pro forma expenses following the proposed restructuring are
outlined below. As set forth below, as of their most recent fiscal year end,
each class of shares of the Fund has higher total annual operating expenses
than the corresponding class of the Acquiring Fund. As a result of the
Reorganization, shareholders of the Fund will be investing in the
corresponding class of the Acquiring Fund with expenses that are currently
between 0.13% and 0.21% lower than those of the relevant class of the Fund.
ANNUAL FUND OPERATING EXPENSES
Small Cap Growth Fund* Class A Class B Class 1*
- ---------------------- ------- ------- --------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price)...................... 5.00% None 8.50%
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower)........... None** 5.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees..................................... 0.75% 0.75% 0.75%
12b-1 fees.......................................... 0.25% 1.00% 0.00%
Other expenses...................................... 0.34% 0.37% 0.37%
---- ---- ----
TOTAL ANNUAL FUND OPERATING EXPENSES.................. 1.34% 2.12% 1.12%
==== ==== ====
Small Cap Fund Class A Class B Class 1
- -------------- ------- ------- --------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price)...................... 5.00% None 8.50%
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower)........... None** 5.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees..................................... 0.65% 0.65% 0.65%
12b-1 fees.......................................... 0.25% 1.00% 0.00%
Other expenses...................................... 0.65% 0.66% 0.60%
---- ---- ----
TOTAL ANNUAL FUND OPERATING EXPENSES.................. 1.55% 2.31% 1.25%
==== ==== ====
10
Pro Forma Pro Forma Pro Forma
Small Cap Growth Fund (Pro Forma) Class A Class B Class 1*
- --------------------------------- --------- --------- ---------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price)................... 5.00% None 8.50%
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower)........ None** 5.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees.................................. 0.75% 0.75% 0.75%
12b-1 fees....................................... 0.25% 1.00% 0.00%
Other expenses................................... 0.21% 0.21% 0.37%
---- ---- ----
TOTAL FUND OPERATING EXPENSES...................... 1.21% 1.96% 1.12%
==== ==== ====
- --------
* Shares of the Acquiring Fund had not commenced operations as of September
30, 1999. The amounts shown are amounts estimated to be charged for the
fiscal year ending September 30, 2000.
** 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 their purchase, you will pay a deferred sales charge of
1.00%.
Example. 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 remain the same. Although
your actual costs maybe higher or lower, based on these assumptions your costs
would be:
Small Cap Growth Fund 1 year 3 years 5 years 10 years*
- --------------------- ------ ------- ------- ---------
An Investor would pay the following expenses
on a $10,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A.................................... $630 $ 903 $1,197 $2,032
Class B.................................... $715 $ 964 $1,239 $2,253
Class 1.................................... $954 $1,176 $1,414 $2,097
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A.................................... $630 $ 903 $1,197 $2,032
Class B.................................... $215 $ 604 $1,139 $2,253
Class 1.................................... $ 95 $1,176 $1,414 $2,097
11
Small Cap Fund 1 year 3 years 5 years 10 years*
- -------------- --------- --------- --------- ---------
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A............................... $650 $ 965 $1,302 $2,253
Class B............................... $734 $1,021 $1,335 $2,456
Class 1............................... $967 $1,213 $1,478 $2,233
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A............................... $650 $ 965 $1,302 $2,253
Class B............................... $234 $ 721 $1,235 $2,456
Class 1............................... $967 $1,213 $1,478 $2,233
Pro Forma Pro Forma Pro Forma Pro Forma
Small Cap Growth Fund (Pro Forma) 1 year 3 years 5 years 10 years*
- --------------------------------- --------- --------- --------- ---------
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A............................... $617 $ 865 $1,132 $1,893
Class B............................... $699 $ 915 $1,157 $2,091
Class 1............................... $954 $1,176 $1,414 $2,097
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A............................... $617 $ 865 $1,132 $1,893
Class B............................... $199 $ 615 $1,057 $2,091
Class 1............................... $954 $1,176 $1,414 $2,097
- --------
* Ten-year figures for Class B shares assume conversion of Class B shares to
Class A shares at the end of the eighth year following the date of purchase.
The above examples assume reinvestment of all dividends and distributions.
The examples should not be considered representations of past or future
expenses. Actual Fund expenses can vary from year to year and may be higher or
lower than those shown. Please refer to each Fund's prospectus and statement
of additional information for a more detailed discussion of the fees and
expenses applicable to each class of shares of a Fund.
DISTRIBUTION OF SHARES AND OTHER SERVICES
As of June 5, 2000, Salomon Smith Barney distributes shares of each Fund as
principal underwriter and, as such, conducts a continuous offering pursuant to
a "best efforts" arrangement requiring Salomon Smith Barney to take and pay
for only such securities as may be sold to the public. Prior to that time,
CFBDS, Inc., located at 21 Milk Street, Boston, Massachusetts 02109-5408,
acted as distributor of each Fund's shares. With respect to the Fund, Salomon
Smith Barney has entered into a selling agreement with PFS Distributors, Inc.
(on behalf of PFS Investments, Inc.) and with one or more other service agents
giving the service agents the rights to sell shares of the Fund. Each Fund has
adopted a plan of distribution under Rule 12b-1 under the 1940 Act (a "Plan").
12
With respect to the Acquiring Fund, Salomon Smith Barney is paid a service
fee for Class A and Class B shares at the annual rate of 0.25% of the average
daily net assets of the respective Class under the Plan. Salomon Smith Barney
is also paid a distribution fee with respect to Class B shares of the
Acquiring Fund at the annual rate of 0.75% of the average daily net assets
attributable to that Class. The fees are used by Salomon Smith Barney to pay
its financial consultants for servicing shareholder accounts and, in the case
of Class B shares, to cover expenses primarily intended to result in the sale
of those shares.
With respect to Class A shares of the Fund, the Fund pays PFS Distributors,
Inc. and Salomon Smith Barney, as administrative agents for "PFS Accounts"
(i.e., accounts held by PFS Shareholder Services, Inc.) and other accounts,
respectively (the "Administrative Agents") 0.25% per annum of its average
daily net assets attributable to such class of shares as a service fee. The
service fee is intended to cover shareholder and account maintenance services
provided to Class A shareholders of the Fund by financial professionals. Class
B shares of the Fund are subject to a combined annual distribution fee and
service fee at the rate of 1.00% of the Fund's aggregate average daily net
assets attributable to such class of shares, which fees are paid to the
Administrative Agents. Payments are made by the Fund under the Class B Plan of
0.25% per annum, and distribution fee payments of 0.75% per annum, of the
aggregate average daily net assets attributable to Class B shares. The
distribution fee payments are used as compensation for sales and promotional
activities and marketing of the Class B shares of the Fund. These expenditures
may consist of sales commissions to financial professionals for selling Class
B shares, compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and promotional
activities, including advertising expenditures related to the Class B shares
of the Fund and the costs of preparing and distributing promotional materials
with respect to the Class B shares.
Class 1 shares of the Funds are not subject to any distribution fees. Class
B shares of each Fund that automatically convert to Class A shares eight years
after the date of original purchase will no longer be subject to a
distribution fee.
Payments under the above Plans are not tied exclusively to the distribution
and shareholder service expenses actually incurred by Salomon Smith Barney or
PFS Distributors, Inc. and the payments may exceed those distribution expenses
actually incurred by the Funds.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges with respect
to the Fund are substantially similar to those of the Acquiring Fund. However,
whereas shareholders of the Acquiring Fund may exchange into the same class of
any Smith Barney Fund (provided that the Smith Barney Fund offers the relevant
class of shares), shareholders of the Fund have a more limited exchange
option. Furthermore, while the Fund permitted telephone redemptions, and did
not require signature guarantees for mail redemptions, of $50,000 or less, the
Acquiring Fund limits such amounts to $10,000 or less. Moreover, although many
of the services provided by PFS Shareholder Services, Inc. to the Fund are
available to shareholders of the Acquiring Fund, PFS Shareholder Services,
Inc. will not provide services to the Acquiring Fund. Please refer to each
Fund's prospectus and statement of additional information for a more detailed
discussion of the purchase, redemption and exchange procedures and privileges
applicable to each class of a Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends from net investment income and pays
distributions of net realized capital gains, if any, annually. Each Fund
intends to distribute any net realized capital gains after utilization of
capital
13
loss carryforwards, if any, in November or December to prevent application of
a federal excise tax. An additional distribution may be made if necessary.
Whereas the Acquiring Fund expects distributions to be primarily from income,
the Fund expects distributions to be primarily from gain. Any dividends or
capital gains distributions declared in October, November or December with a
record date in such month and paid during the following January will be
treated by shareholders for federal income tax purposes as if received on
December 31 of the calendar year in which it is declared. Dividends and
distributions of each Fund will be invested in additional shares of the
applicable Fund at net asset value and credited to the shareholder's account
on the payment date or, at the shareholder's election, paid in cash.
If the Plan is approved by the Fund's shareholders, then as soon as
practicable before the Closing Date, the Fund will pay or have paid its
shareholders a cash distribution of substantially all undistributed 2000 net
investment income and undistributed realized net capital gains.
TAX CONSEQUENCES
The Fund and the Acquiring Fund will have received an opinion of Willkie
Farr & Gallagher in connection with the Reorganization, to the effect that,
based upon certain facts, assumptions and representations, the Reorganization
will constitute a tax-free reorganization within the meaning of section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). If
the Reorganization constitutes a tax-free reorganization, no gain or loss will
be recognized by the Fund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction--Federal Income Tax
Consequences."
PRINCIPAL INVESTMENTS AND RISK FACTORS
General. As described above, the Fund and the Acquiring Fund have
substantially similar investment objectives and policies and pursue their
respective objectives in a similar manner. Accordingly, the Funds engage in
investment practices and techniques that are substantially similar. A more
complete description of the investment practices and limitations of the
Acquiring Fund is contained in the prospectus and statement of additional
information of the Acquiring Fund, dated October 11, 1999, as supplemented
from time to time, a copy of which is included herewith, and in the Statement
of Additional Information of the Fund and the Acquiring Fund dated August 16,
2000 (relating to the proposed Reorganization) which is incorporated herein by
reference. Please refer to each Fund's prospectus and statement of additional
information for a more detailed discussion of the specific investment
practices and risks of the applicable Fund.
Because of their substantially similar investment policies, the Funds are
exposed to similar risks. The following summarizes those principal investment
policies and related risk factors:
Equity Securities. Common stocks represent an equity (ownership) interest in
a corporation. Although equity securities have a history of long-term growth
in value, their prices fluctuate based on changes in a company's financial
condition and on overall market and economic conditions.
Small Capitalization Companies. Small companies may (i) be subject to more
volatile market movements than securities of larger, more established
companies; (ii) have limited product lines, markets or financial resources;
and (iii) depend upon a limited or less experienced management group. The
securities of small companies may be traded only on the over-the-counter
market or on a regional securities exchange and may not
14
be traded daily or in the volume typical of trading on a national securities
exchange. Disposition by a Fund of small company securities in order to meet
redemptions may require the Fund to sell these securities at a discount from
market prices, over a longer period of time or during periods when disposition
is not desirable.
Preferred Stocks and Convertible Securities. The Funds may invest in
convertible debt and preferred stocks. Convertible debt securities and
preferred stock entitle the holder to acquire the issuer's stock by exchange
or purchase for a predetermined rate. Convertible securities are subject both
to the credit and interest rate risks associated with fixed income securities
and to the stock market risk associated with equity securities.
Warrants. Warrants acquired by the Funds entitle them to buy common stock
from an issuer at a specified price and time. Warrants are subject to the same
market risks as stocks, but may be more volatile in price. A Fund's investment
in warrants will not entitle it to receive dividends or exercise voting rights
and will become worthless if the warrants cannot be profitably exercised
before the expiration dates.
Illiquid and Restricted Securities. The Funds may invest up to 15% of their
assets in securities (excluding those subject to Rule 144A under the
Securities Act of 1933, as amended (the "1933 Act"), with contractual or other
restrictions on resale and other instruments that are not readily marketable,
including (a) repurchase agreements with maturities greater than seven days,
(b) time deposits maturing from two business days through seven calendar days,
(c) to the extent that a liquid secondary market does not exist for the
instruments, futures contracts and options on those contracts and (d) other
securities that are subject to restrictions on resale that the investment
adviser has determined are not liquid under guidelines established by a Fund's
governing board.
Foreign Securities. The Acquiring Fund may invest up to 10% and the Fund may
invest up to 20% of its assets in securities of foreign issuers, including
securities denominated in foreign currencies. These investments involve
certain risks not ordinarily associated with investments in securities of
domestic issuers. These risks include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investments in foreign countries
and potential restrictions on the flow of international capital. Additionally,
dividends or interest payable on foreign securities, and in some cases capital
gains, may be subject to foreign withholding or other foreign taxes. Foreign
securities often trade with less frequency and volume than domestic securities
and therefore may exhibit greater price volatility. Changes in foreign
exchange rates will affect the value of those securities which are denominated
or quoted in currencies other than U.S. dollars. Certain of the foreign
securities held by a Fund may not be registered with, nor will the issuers
thereof be subject to the reporting requirements of, the SEC. Accordingly,
there may be less publicly available information about the securities and the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment positions.
ADRs. The Funds may purchase ADRs or other securities representing
underlying shares of foreign companies. ADRs are publicly traded on exchanges
or over-the-counter in the United States and are issued through "sponsored" or
"unsponsored" arrangements. In a sponsored ADR arrangement, the foreign issuer
assumes the obligation to pay some or all of the depository's transaction
fees, whereas under an unsponsored arrangement, the foreign issuer assumes no
obligation and the depository's transaction fees are paid by the ADR holders.
In addition, less information is available in the United States about an
unsponsored ADR than about a sponsored ADR, and the financial information
about a company may not be as reliable for an unsponsored ADR
15
as it is for a sponsored ADR. A Fund may invest in ADRs through both sponsored
and unsponsored arrangements.
Repurchase Agreements. The Funds may enter into repurchase agreements. A
repurchase agreement is a contract under which a Fund acquires a security for
a relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Fund to resell such security at
a fixed time and price (representing the Fund's cost plus interest). It is the
Fund's present intention to enter into repurchase agreements only upon receipt
of fully adequate collateral and only with commercial banks (whether U.S. or
foreign) and registered broker-dealers. Repurchase agreements may also be
viewed as loans made by a Fund which are collateralized primarily by the
securities subject to repurchase. Each Fund bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its obligations and
each Fund is delayed in or prevent from exercising its rights to dispose of
the collateral securities. Pursuant to policies established by the Fund's
governing board, the investment adviser monitors the creditworthiness of all
issuers with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Funds may enter into reverse repurchase
agreements. A reverse repurchase agreement involves the sale of a money market
instrument by a Fund and its agreement to repurchase the instrument at a
specified time and price. A Fund will maintain a segregated account consisting
of U.S. government securities or cash or cash equivalents to cover its
obligations under reverse repurchase agreements with broker-dealers and other
financial institutions. The Fund will invest the proceeds in other money
market instruments or repurchase agreements maturing not later than the
expiration of the reverse repurchase agreement. Under the 1940 Act, reverse
repurchase agreements may be considered borrowing by the seller.
Short Term Instruments. The Funds may invest in short term and money market
instruments. Money market instruments in which a Fund may invest include: U.S.
government securities; certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks (including their branches located outside
the United States and subsidiaries located in Canada), domestic branches of
foreign banks, savings and loan associations and similar institutions; high
grade commercial paper; and repurchase agreements with respect to the
foregoing types of instruments.
Derivative Contracts. The Funds may, but need not, use derivative contracts,
such as futures and options on securities, securities indices and currencies;
options on these futures; forward currency contracts; and interest rate and
currency swaps for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market
value of portfolio securities, because of changes in stock market prices
. As a substitute for buying or selling securities
. In the case of the Fund, to enhance total return and in the case of the
Acquiring Fund, as a cash management technique
A derivative contract will obligate or entitle a Fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities
or indices. Even a small investment in derivative contracts can have a big
impact on a Fund's stock exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains. A Fund
may not fully benefit from or may lose money on derivatives if changes in
their value do not correspond accurately to changes in the value of the Fund's
holdings. The other parties to certain derivative contracts present the same
types of default risk as issuers of fixed income securities. Derivatives can
also make a Fund less liquid and harder to value, especially in declining
markets.
16
Special Risks of Using Futures Contracts. The prices of futures contracts
are volatile and are influenced by, among other things, actual and anticipated
changes in interest rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and
of the securities or currencies being hedged can be only approximate. The
degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for futures and for debt securities or
currencies, including technical influences in futures trading; and differences
between the financial instruments being hedged and the instruments underlying
the standard futures contracts available for trading, with respect to interest
rate levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
as well as gain, to the investor. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
Where a Fund enters into futures transactions for non-hedging purposes, it
will be subject to greater risks and could sustain losses which are not offset
by gains on other Fund assets.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
Defensive investing. The Funds may depart from their principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-
term debt securities. If a Fund takes a temporary defensive position, it may
be unable to achieve its investment goal. A Fund may engage in active and
frequent trading, resulting in high portfolio turnover. This may lead to the
realization and distribution to shareholders of higher capital gains,
increasing their tax liability. Frequent trading also increases transaction
costs, which could detract from a Fund's performance.
Investment goal. Each Fund's investment goal is not fundamental and may be
changed without shareholder approval by the Fund's board of trustees.
THE PROPOSED TRANSACTION
Description of the Plan
As stated above, the Plan provides for the transfer of all of the assets of
the Fund to the Acquiring Fund in exchange for that number of full and
fractional shares of the corresponding class of the Acquiring Fund having an
aggregate net asset value equal to the aggregate net asset value of the
shareholder's shares held in the Fund as of the close of business on the
business day preceding the date of the Closing. The Acquiring Fund will assume
17
all of the stated liabilities of the Fund. In connection with the Closing, the
Fund will distribute the shares of the corresponding class of shares of common
stock of the Acquiring Fund received in the exchange to the shareholders of
the Fund in complete liquidation of the Fund. The Fund will be terminated as a
series of Investment Series.
Upon completion of the Reorganization, each shareholder of the Fund will own
that number of full and fractional shares of the corresponding class of the
Acquiring Fund having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares held in the Fund immediately as of
the close of business on the Closing Date. Each Fund shareholder's account
with the Acquiring Fund will be substantially similar in all material respects
to the accounts currently maintained by the Fund's sub-transfer agent for such
shareholder. Some of the outstanding shares of beneficial interest of the Fund
are represented by physical certificates; however, in the interest of economy
and convenience, shares of the Fund generally are not represented by physical
certificates, and shares of the Acquiring Fund issued to Fund shareholders
similarly will be in uncertificated form. Certificates representing shares of
the Fund will be cancelled after the Closing.
Until the Closing, shareholders of the Fund will, of course, continue to be
able to redeem their shares at the net asset value next determined after
receipt by the Fund's sub-transfer agent of a redemption request in proper
form. Redemption requests received by the sub-transfer agent thereafter will
be treated as requests received for the redemption of shares of the Acquiring
Fund received by the shareholder in connection with the Reorganization.
The obligations of Investment Series, on behalf of the Fund, and Investment
Funds, on behalf of the Acquiring 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 SEC 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 Fund
and the Acquiring 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 by action of the Trustees/Directors of either
Investment Series or Investment Funds, notwithstanding the approval of the
Plan by the shareholders of the Fund. However, no amendment may be made that
materially adversely affects the interests of the shareholders of the Fund
without obtaining the approval of the Fund's shareholders. The Fund and the
Acquiring Fund may at any time waive compliance with certain of the covenants
and conditions contained in the Plan.
The Plan provides that the obligations of Investment Series are not
personally binding upon any of its Trustees, shareholders, nominees, officers,
agents, or employees, but binds only the property of the Fund as provided in
the Declaration of Trust of Investment Series. Moreover, no series of
Investment Series is responsible for the obligations of Investment Series
under the Plan, and all persons must look only to the assets of the Fund to
satisfy the obligations of Investment Series under the Plan. The execution and
the delivery of the Plan have been authorized by the Board of Trustees of
Investment Series, on behalf of the Fund, and the Plan has been signed by
authorized officers of Investment Series acting as such, and neither such
authorization by such Trustees, nor such execution and delivery by such
officers, shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally. For a complete description of
the terms and conditions of the Reorganization, see the Plan at Exhibit A.
SSB Citi will assume and pay all of the expenses that are solely and
directly related to the Reorganization, which expenses are estimated to be
approximately $388,250. Shareholders have no rights of appraisal.
18
REASONS FOR THE PROPOSED TRANSACTION
At a telephonic meeting of Investment Series' Board of Trustees held on July
17, 2000, the Trustees, including all of the Non-Interested Trustees, were
presented with materials discussing the benefits which would accrue to the
shareholders of the Fund if the Fund were to reorganize with and into the
Acquiring Fund. For the reasons discussed below, the Board of Trustees of
Investment Series, including all of the Non-Interested Trustees, has
determined that the proposed Reorganization is in the best interests of the
Fund and its shareholders and that the interests of the shareholders of the
Fund will not be diluted as a result of the proposed Reorganization.
The proposed combination of the Fund and the Acquiring Fund will allow the
shareholders of the Fund to continue to participate in a portfolio governed by
similar investment objectives and policies that is professionally managed by
SSB Citi. The Board of Trustees of Investment Series believes that
shareholders of the Fund will benefit from the proposed Reorganization because
the Acquiring Fund offers the following benefits:
Enhanced Flexibility with Respect to Portfolio Investments
As stated previously the Reorganization is being proposed as part of a
broader initiative by SSB Citi to eliminate duplication and possible confusion
in its mutual fund product offerings. SSB Citi believes that the combination
of the Funds which have substantially similar investment objectives and
policies into a single larger fund may increase economic and other
efficiencies for investors and SSB Citi, and may ultimately result in a lower
total annual expense ratio for investors. SSB Citi also believes that a larger
asset base could provide portfolio management benefits such as greater
diversification and the ability to command more attention from brokers and
underwriters. In light of the foregoing, it is anticipated that the Acquiring
Fund may achieve a higher level of return over a year's time than the Fund. As
discussed in detail herein, the total operating expenses of the Acquiring Fund
are also currently (and are projected to be following the Closing of the
Reorganization) lower than the corresponding expenses incurred by the Fund.
Lower Fees and Expenses
If the proposed transaction is approved, shareholders of the Fund may
benefit from lower total fund expenses. See "Investment Management Fees and
Expenses" and "Annual Fund Operating Expenses".
As set forth above, as of their most recent fiscal year end, each class of
shares of the Fund has higher total annual operating expenses than the
corresponding class of the Acquiring Fund. As a result of the Reorganization,
shareholders of the Fund will be investing in the corresponding class of the
Acquiring Fund with expenses that are currently between 0.13% and 0.21% lower
than those of the relevant class of the Fund. Reorganization is consummated,
the Acquiring Fund's net expense ratio for each class of its shares is
estimated. Going forward, shareholders should benefit from economies of scale
through lower expense ratios and higher net income distributions over time
since some of the fixed expenses currently paid by the Acquiring Fund, such as
accounting, legal and printing costs, would also be spread over a larger asset
base.
Due to a combination of factors, including the relatively small size of the
Fund, past and prospective sales of the Fund and current market conditions,
the Trustees and management of Investment Series believe the Fund and its
shareholders would benefit from a tax-free reorganization with a fund with
substantially similar investment objectives and policies and with a lower
total annual expense ratio. Accordingly, it is recommended that the
shareholders of the Fund approve the Reorganization with the Acquiring Fund.
19
The Board of Trustees of Investment Series, in recommending the proposed
transaction, considered a number of factors, including the following:
(1) the Reorganization will result in a single larger fund, which may
increase economic and other efficiencies (e.g., eliminating one of the two
sets of prospectuses, annual reports and other documents required for two
Funds), and may result in a lower expense ratio;
(2) a larger asset base could provide portfolio management benefits, such
as greater diversification and the ability to command more attention from
brokers and underwriters;
(3) the positive compatibility of the Acquiring Fund's investment
objectives, policies and restrictions with those of the Fund;
(4) the tax-free nature of the Reorganization;
(5) the potential opportunity for higher income levels and higher annual
return;
(6) the lower total annual expense ratio of the Acquiring Fund;
(7) the terms and conditions of the Reorganization and that it should not
result in a dilution of Fund shareholder interests; and
(8) the level of costs and expenses to the Fund of the proposed
Reorganization.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
General
The Fund is a diversified series of Investment Series, a business trust
organized under the laws of The Commonwealth of Massachusetts on January 29,
1987, and is registered with the SEC as an open-end management investment
company. The Acquiring Fund is a diversified series of Investment Funds, a
corporation incorporated under the laws of the State of Maryland on September
29, 1981, and is registered with the SEC as a diversified, open-end management
investment company. The Fund currently offers shares of beneficial interest
classified into three Classes: A, B and 1. The Acquiring Fund currently offers
shares of common stock classified into four Classes: A, B, L and Y and will
offer Class 1 shares prior to the closing of the Reorganization. Each Class of
shares represents an identical pro rata interest in the relevant Fund's
investment portfolio. As a result, the Classes of each 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.
Voting Rights. 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. In the
event that shareholders of a Fund wish to communicate with other shareholders
concerning the removal of any Trustee or Director, as applicable, such
shareholders shall be assisted in communicating with other shareholders for
the purpose of obtaining signatures to request a meeting of shareholders, all
in the manner provided in Section 16(c) of the 1940 Act as if Section 16(c)
were applicable.
20
Board. The By-Laws of Investment Funds and of Investment Series provide that
the term of office of each Director/Trustee shall be from the time of his or
her election and qualification until the next annual meeting of shareholders
and until his or her successor shall have been elected and shall have
qualified. Any Director/Trustee of Investment Funds or Investment Series may
be removed by the vote of at least a majority of the outstanding shares then
entitled to be cast for the election of Directors/Trustees. Vacancies on the
Boards of Investment Funds or Investment Series may be filled by the
Directors/Trustees remaining in office. A meeting of shareholders will be
required for the purpose of electing additional Directors/Trustees whenever
fewer than a majority of the Directors/Trustees then in office were elected by
shareholders and to fill vacancies if less than two-thirds of the
Directors/Trustees then holding office have been elected by the shareholders.
Liquidation or Termination. In the event of the liquidation or termination
of the Acquiring Fund or the Fund, the shareholders of each Fund are entitled
to receive, when and as declared by the Directors/Trustees, the excess of the
assets over the liabilities belonging to the relevant Fund. In either case,
the assets so distributed to shareholders will be distributed among the
shareholders in proportion to the number of shares of the class held by them
and recorded on the books of the relevant Fund. The net asset value of the
classes of shares would differ due to differences in expense ratios.
Liability of Directors/Trustees. The Articles of Incorporation of Investment
Funds and the Declaration of Trust of Investment Series provide that the
Directors/Trustees and officers shall not be liable for monetary damages for
breach of fiduciary duty as a Director/Trustee or officer, except to the
extent such exemption is not permitted by law.
Rights of Inspection. Maryland law permits any shareholder of the Acquiring
Fund or any agent of such shareholders to inspect and copy, during usual
business hours, the By-Laws, minutes of shareholder proceedings, annual
statements of the affairs and voting trust agreements (if any) of the
Acquiring Fund on file at its principal office. The Declaration of Trust of
Investment Series permits any shareholder of the Fund or his agent to inspect
and copy during normal business hours the By-Laws, minutes of the proceedings
of shareholders and annual financial statements of the Fund (including a
balance sheet and financial statements of operations) on file, at its
principal offices.
Shareholder Liability. Under Maryland law, shareholders of the Acquiring
Fund do not have personal liability for corporate acts and obligations. Under
Massachusetts law, shareholders of a Massachusetts business trust could, under
certain circumstances, be held personally liable for obligations of a fund.
The Declaration of Trust for Investment Series, however, disclaims shareholder
liability for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by that Fund or its Trustees. Moreover, the Declaration of Trust
provides for indemnification out of the Fund's property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund and the Fund will be covered by insurance which the Trustees consider
adequate to cover foreseeable tort claims. Thus, the risk of a shareholder of
the Fund incurring financial loss on account of shareholder liability is
considered by SSB Citi remote and not material, since it is limited to
circumstances in which a disclaimer is inoperative and the Fund itself is
unable to meet its obligations.
Shares of the Acquiring Fund issued to the holders of shares of beneficial
interests in the Fund pursuant to the Reorganization will be fully paid and
nonassessable when issued, transferable without restrictions and will have no
preemptive rights.
21
The foregoing is only a summary of certain characteristics of the operations
of Investment Funds and Investment Series. The foregoing is not a complete
description of the documents cited. Shareholders should refer to the
provisions of trust documents and state laws governing each Fund for a more
thorough description.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by Investment Series, on
behalf of the Fund, and by Investment Funds, on behalf of the Acquiring Fund,
of an opinion from Willkie Farr & Gallagher, substantially to the effect that,
based upon certain facts, assumptions and representations of the parties, for
federal income tax purposes: (i) the transfer to the Acquiring Fund of all or
substantially all of the assets of the Fund in exchange solely for Shares and
the assumption by the Acquiring Fund of all of the liabilities of the Fund,
followed by the distribution of such Shares to Fund shareholders in exchange
for their shares of the Fund in complete liquidation of the Fund, will
constitute a "reorganization" within the meaning of Section 368(a)(1) of the
Code, and the Acquiring Fund and the Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by the Fund upon the transfer of the Fund's assets
to the Acquiring Fund in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of liabilities of the Fund or upon the
distribution (whether actual or constructive) of the Acquiring Fund Shares to
the Fund's shareholders in exchange for their shares of the Fund; (iii) the
basis of the assets of the Fund in the hands of the Acquiring Fund will be the
same as the basis of such assets of the Fund immediately prior to the
transfer; (iv) the holding period of the assets of the Fund in the hands of
the Acquiring Fund will include the period during which such assets were held
by the Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Fund in exchange for Shares and the
assumption by the Acquiring Fund of all of the liabilities of the Fund; (vi)
no gain or loss will be recognized by the shareholders of the Fund upon the
receipt of Shares solely in exchange for their shares of the Fund as part of
the transaction; (vii) the basis of Shares received by the shareholders of the
Fund will be the same as the basis of the shares of the Fund exchanged
therefor; and (viii) the holding period of Shares received by the shareholders
of the Fund will include the holding period during which the shares of the
Fund exchanged therefor were held, provided that at the time of the exchange
the shares of the Fund were held as capital assets in the hands of the
shareholders of the Fund.
While neither Investment Series nor Investment Funds is 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 SERIES
If the Reorganization is effected, the Fund will be liquidated and
terminated as a series of Investment Series, and the Fund's outstanding shares
will be cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, SSB Citi will analyze and evaluate the
portfolio securities of the Fund being transferred to the Acquiring Fund.
Consistent with the Acquiring Fund's investment objective and policies, any
restrictions imposed by the Code and the best interests of the Acquiring
Fund's shareholders (including former shareholders of the Fund), SSB Citi will
determine the extent and duration to which the Fund's portfolio
22
securities will be maintained by the Acquiring Fund. It is possible that there
may be a significant rebalancing of the Fund's portfolio securities in
connection with the Reorganization. Subject to market conditions at the time
of any such rebalancing, the disposition of the Fund's 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
security(ies) being sold.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund (i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less)), for the four
months ended March 31, 2000 was 27%. The portfolio turnover rate for the Fund
for the year ended October 31, 1999 was 115%.
CAPITALIZATION
Pro Forma Capitalization (Unaudited)
The following table sets forth the unaudited capitalization of each class of
each of the Acquiring Fund and the Fund as of June 30, 2000 as adjusted giving
effect to the Reorganization discussed herein:(1)
Acquiring Pro Forma Pro Forma
Fund The Fund Adjustments Combined
------------ ------------ ----------- ------------
(Actual) (Actual)
Class A
Net Assets.................. $ 47,824,273 $179,546,700 -- $227,371,063
Net Asset Value Per Share... 16.79 23.06 -- 16.79
Shares Outstanding.......... 2,848,533 7,786,206 $10,693,674 13,542,207
Class B
Net Assets.................. 74,823,594 177,574,558 -- 252,398,152
Net Asset Value Per Share... 16.73 21.85 -- 16.73
Shares Outstanding.......... 4,472,943 8,126,209 10,614,140 15,087,082
Class 1*
Net Assets.................. -- 13,230,406 -- 13,230,406
Net Asset Value Per Share... 16.79 23.43 -- 16.79
Shares Outstanding.......... -- 564,587 787,993 787,993
Class L
Net Assets.................. 56,476,668 -- -- 56,476,668
Net Asset Value Per Share... 16.73 -- -- 16.73
Shares Outstanding.......... 3,375,915 -- -- 3,375,915
Class Y
Net Assets.................. 111,628,505 -- -- 111,628,505
Net Asset Value Per Share... 16.81 -- -- 16.81
Shares Outstanding.......... 6,640,334 -- -- 6,640,334
- --------
(1) Assumes the Reorganization had been consummated on June 30, 2000, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by shareholders of the Fund
on the date the Reorganization takes place, and the foregoing should not
be relied upon to reflect the number of shares of the Acquiring Fund that
actually will be received on or after such date.
* Assumes subscriptions of Class 1 shares in acquiring fund at Class A NAV.
23
Total return is a measure of the change in value of an investment in a fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the fund rather than
paid to the investor in cash. The formula for total return used by a fund is
prescribed by the SEC and includes three steps: (1) adding to the total number
of shares of the fund that would be purchased by a hypothetical $1,000
investment in the fund all additional shares that would have been purchased if
all dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the redemption value of the
hypothetical initial investment as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset value
per share on the last trading day of the period; and (3) dividing this account
value for the hypothetical investor by the amount of the initial investment,
and annualizing the result for periods of less than one year. Total return may
be stated with or without giving effect to any expense limitations in effect
for a fund.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about Investment Series, with respect
to the Fund, and Investment Funds, with respect to the Acquiring Fund, and the
Reorganization has been filed with the SEC and may be obtained without charge
by writing to Smith Barney Mutual Funds, 388 Greenwich Street, New York, New
York 10013, or by calling (800) 451-2010.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith, files
reports, proxy material and other information about the applicable Fund with
the Commission.
Such reports, proxy material and other information can be inspected and
copied at the Public Reference Room (202-942-8090) 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 publicinfo@sec.gov. Copies of such material can
also be obtained from Smith Barney Mutual Funds, 388 Greenwich Street, New
York, New York 10013, or by calling (800) 451-2010.
Interests of certain persons. SSB Citi and certain of the Acquiring Fund's
service providers have a financial interest in the Reorganization, arising
from the fact that their respective fees under their respective agreements
with the Acquiring Fund will increase as the amount of the Acquiring Fund's
assets increases; the amount of those assets will increase by virtue of the
Reorganization.
THE BOARD MEMBERS OF INVESTMENT SERIES RECOMMEND THAT THE
SHAREHOLDERS OF THE FUND VOTE IN FAVOR OF THIS PROPOSAL.
24
ADDITIONAL INFORMATION
General
The cost of preparing, printing and mailing the enclosed proxy card(s) and
Prospectus/Proxy Statement and all other costs incurred in connection with the
solicitation of proxies, including any additional solicitation made by letter,
telephone or telegraph, will be paid by SSB Citi. In addition to solicitation
by mail, certain officers and representatives of Investment Series, officers
and employees of SSB Citi and certain financial services firms and their
representatives, who will receive no extra compensation for their services,
may solicit proxies by telephone, telegram or personally.
When the Fund records proxies by telephone, it will use procedures designed
to (i) authenticate shareholders' identities, (ii) allow shareholders to
authorize the voting of their shares in accordance with their instructions and
(iii) confirm that their instructions have been properly recorded.
To participate in the Special Meeting, the shareholder may submit the proxy
card originally sent with the Prospectus/Proxy Statement or attend in person.
Any proxy given by a shareholder is revocable until voted at the Special
Meeting.
Proposals of Shareholders
Shareholders wishing to submit proposals for inclusion in a proxy statement
for a shareholder meeting subsequent to the Special Meeting, if any, should
send their written proposals to the Secretary of Investment Series, c/o Smith
Barney Mutual Funds, 388 Greenwich Street, New York, New York 10013, within a
reasonable time before the solicitation of proxies for such meeting. The
timely submission of a proposal does not guarantee its inclusion.
Other Matters to Come Before the Special Meeting
No Board member 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 Investment Series and/or the Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Trustees,
Christina T. Sydor
Secretary
25
INDEX OF EXHIBITS
Exhibit A: Form of Agreement and Plan of Reorganization
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 2000, between Concert Investment Series(R) ("Investment
Series"), a Massachusetts business trust with its principal place of business
at 388 Greenwich Street, New York, New York 10013, on behalf of its series,
the Small Cap Fund (the "Acquired Fund"), and Smith Barney Investment Funds
Inc. ("Investment Funds"), a Maryland corporation with its principal place of
business at 388 Greenwich Street, New York, New York 10013, on behalf of its
series, the Smith Barney Small Cap Growth Fund (the "Acquiring Fund") and
solely for purposes of Section 10.2 hereof, SSB Citi Fund Management LLC ("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"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to Investment Funds, on behalf of the Acquiring Fund, in
exchange solely for voting shares of the corresponding class of common stock
($.001 par value per share) of the Acquiring Fund (the "Acquiring Fund
Shares"), the assumption by Investment Funds, on behalf of the Acquiring Fund,
of all of stated the liabilities of the Acquired Fund and the distribution of
the Acquiring Fund Shares to the holders of shares of beneficial interests in
the Acquired Fund in complete liquidation of the Acquired Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
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 Acquired Fund to the Acquiring Fund in Exchange
for the Acquiring Fund Shares, the Assumption of all Acquired Fund Stated
Liabilities and the Liquidation of the Acquired Fund
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Investment Series, on
behalf of the Acquired Fund, agrees to transfer to Investment Funds, on behalf
of the Acquiring Fund, all of the Acquired Fund's assets as set forth in
section 1.2, and Investment Funds, on behalf of the Acquiring Fund, agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined by dividing the value of the
Acquired Fund's assets, computed in the manner and as of the time and date set
forth in section 2.1, by the net asset value of one Acquiring Fund Share,
computed in the manner and as of the time and date set forth in section 2.2;
and (ii) to assume all of the stated liabilities of the Acquired Fund, 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 Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash equivalents, securities, commodities and futures
interests and dividends or interest or other receivables that are owned by the
Acquired Fund and any deferred or prepaid expenses shown on the unaudited
statement of assets and liabilities of the Acquired Fund prepared as of the
effective time of the closing (the "Effective Time Statement"), prepared in
accordance with generally accepted accounting principles ("GAAP") applied
consistently with those of the Acquired Fund's most recent audited balance
sheet.
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
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.
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1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund 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 assets provided for in section 1.1
(the "Liquidation Time"), Investment Series will distribute to the Acquired
Fund's shareholders of record (the "Acquired Fund Shareholders"), determined
as of the Valuation Time (as defined herein), on a pro rata basis, the
Acquiring Fund Shares received by the Acquired Fund pursuant to section 1.1
and will completely liquidate. Such distribution and liquidation will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the
Acquired Fund Shareholders. The aggregate net asset value of Acquiring Fund
Shares to be so credited to Acquired Fund Shareholders shall be equal to the
aggregate net asset value of each class of the Acquired Fund shares owned by
such shareholders as of the Valuation Time (as defined herein). All issued and
outstanding shares of the Acquired Fund will simultaneously be cancelled on
the books of Investment Series with respect to the Acquired Fund, although
share certificates representing interests in shares of the Acquired Fund will
represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with section 2.3. The Acquiring Fund will not issue
certificates representing Acquiring Fund Shares in connection with such
exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of
Investment Funds with respect to the Acquiring Fund. Shares of the Acquiring
Fund will be issued in the manner described in the Acquiring Fund's then-
current prospectus and statement of additional information.
1.7. Any reporting responsibility of the Acquired Fund 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 Acquired Fund.
1.8. All books and records of the Acquired Fund, 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 Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the closing
date.
2. Valuation
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. ("NYSE") on the Closing Date, as
defined in Section 3.1 (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 set forth in
the Acquiring Fund's Articles of Incorporation, as amended, and then-current
prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share of each class computed as of the Valuation Time using the
valuation procedures referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of each
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class of the Acquired Fund determined in accordance with section 2.1 by the
net asset value by class of an Acquiring Fund Share 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 respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants.
3. Closing and Closing Date
3.1. The Closing of the transactions contemplated by this Agreement shall be
October 6, 2000, or such 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 [Willkie Farr & Gallagher] or at such other place and time as the
parties may agree.
3.2 Investment Series, on behalf of Acquired Fund, shall deliver to
Investment Funds, on behalf of the Acquiring Fund, on the Closing Date a
schedule of assets.
3.3. PNC Bank, National Association, as custodian for the Investment Series,
shall deliver at the Closing a certificate of an authorized officer stating
that (a) the Assets shall have been delivered in proper form to PNC Bank,
National Association, custodian for the Acquiring Fund, prior to or on the
Closing Date and (b) all necessary taxes in connection with the delivery of
the Assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made. The Acquired
Fund's portfolio securities represented by a certificate or other written
instrument shall be presented by Custodian for Acquired Fund to Custodian for
Acquiring Fund for examination no later than five business days preceding the
Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund'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 Custodian for
Acquiring Fund. The cash to be transferred by the Acquired Fund shall be
delivered by wire transfer of federal funds on the Closing Date.
3.4. Citi Fiduciary Trust Company (the "Transfer Agent"), on behalf of the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the
Acquired Fund Shareholders and the number and percentage ownership (to three
decimal places) of outstanding Acquired Fund Shares owned by each such
shareholder immediately prior to the Closing. Investment Funds, on behalf of
the Acquiring Fund, shall issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the Acquired Fund
or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund
Shares have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, 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.
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 Acquiring
Fund or the Acquired Fund shall be closed to trading or trading thereupon
shall be restricted, or (b) trading or the reporting of trading on such
Exchange or elsewhere shall be disrupted so that, in the judgment of the Board
of Directors/Trustees of either Fund, accurate appraisal of the
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value of the net assets with respect to the Acquiring Fund Shares or the
Acquired Fund 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.
4. Representations and Warranties
4.1. Investment Series, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) Investment Series is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts with power
under its Declaration of Trust, as amended, to own all of its properties
and assets and to carry on its business as it is now being conducted;
(b) Investment Series 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 Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and such
as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, Investment Series is not, and the execution,
delivery and performance of this Agreement by Investment Series will not
result, in violation of Massachusetts law or of its Declaration of Trust,
as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which
the Acquired Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquired 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 Acquired Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets
held by it. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business 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 business or its ability to
consummate the transactions herein contemplated;
(f) The unaudited Statements of Assets and Liabilities, including the
Investment Portfolio, Operations, and Changes in Net Assets, and the
Financial Highlights of the Acquired Fund at and for the six-months ended
March 31, 2000, which have not been audited by Ernst & Young LLP,
independent certified public accountants, and are in accordance with GAAP
consistently applied, and such statements (copies of which have been
furnished to the Acquiring Fund) present fairly, in all material respects,
the financial position, results of operations, changes in net assets and
financial highlights of the Acquired Fund as of such date in accordance
with GAAP, and there are no known contingent liabilities of the Acquired
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 March 31, 2000, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of
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business, or any incurrence by the Acquired 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 Investment Funds, on
behalf of the Acquiring Fund. For purposes of this subsection (g), a
decline in net asset value per share of the Acquired Fund due to declines
in market values of securities in the Acquired Fund's portfolio, the
discharge of Acquired Fund liabilities, or the redemption of Acquired Fund
shares by Acquired 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 Acquired Fund required by law to have been filed
by such dates (including any extensions) 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 Acquired Fund'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 Acquired 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 have distributed all of its investment company taxable income and
net capital gain (as defined in the Code) that has accrued through the
Closing Date;
(j) All issued and outstanding shares of the Acquired 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, (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 Transfer Agent, as provided in
section 3.3. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquired
Fund shares, nor is there outstanding any security convertible into any of
the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to section 1.2 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
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and the 1940 Act, except those restrictions as to which the Acquiring
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 Investment Series, and, subject to the approval
of the Acquired Fund Shareholders, this Agreement constitutes a valid and
binding obligation of Investment Series, on behalf of the Acquired Fund,
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 equity
principles;
(m) The information to be furnished by the Acquired Fund 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 in connection with the
transactions contemplated hereby, shall be accurate and
A-5
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
and
(n) The current prospectus and statement of additional information of the
Acquired 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 of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, 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 Acquiring Fund for use therein.
4.2. Investment Funds, on behalf of the Acquiring Fund, represents and
warrants to Investment Series, on behalf of the Acquired Fund, as follows:
(a) Investment Funds is a corporation duly organized and validly existing
under the laws of the State of Maryland with power under its Articles of
Incorporation, as amended, to own all of its properties and assets and to
carry on its business as it is now being conducted;
(b) Investment Funds 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 Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) Investment Funds is not, and the execution, delivery and performance
of this Agreement by Investment Funds will not result, in violation of
Maryland law or of the Investment Funds' Articles of Incorporation, as
amended, or By-Laws, or of any material agreement, indenture, instrument,
contract, lease or other undertaking known to counsel to which the
Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring 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 Acquiring Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business 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 business or its ability to
consummate the transactions herein contemplated;
(f) The unaudited Statements of Assets and Liabilities, including the
Investment Portfolio, Operations, and Changes in Net Assets, and the
Financial Highlights of the Acquiring Fund at and for the six-months
A-6
ended March 31, 2000, which have not been audited by KPMG LLP, independent
certified public accountants, and are in accordance with GAAP consistently
applied, and such statements (copies of which have been furnished to the
Acquired Fund) present fairly, in all material respects, the financial
position, results of operations, changes in net assets and financial
highlights of the Acquiring Fund as of such date in accordance with GAAP,
and there are no known contingent liabilities of the Acquiring 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 March 31, 2000, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring 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 Investment Series(R) on behalf of
the Acquired Fund. For purposes of this subsection (g), a decline in net
asset value per share of the Acquiring Fund due to declines in market
values of securities in the Acquiring Fund's portfolio, the discharge of
Acquiring Fund liabilities, or the redemption of Acquiring Fund shares by
Acquiring 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 Acquiring Fund required by law to have been
filed by such dates (including any extensions) 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 Acquiring Fund'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 Acquiring 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;
(j) All issued and outstanding shares of the Acquiring 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. The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquiring
Fund shares, nor is there outstanding any security convertible into any of
the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-
assessable;
(l) At the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) 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 Investment Funds and this Agreement will
constitute a valid and binding obligation of Investment Funds on behalf of
the Acquiring Fund, 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 equity principles;
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(n) The information to be furnished by the Acquiring Fund 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 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;
(o) The current prospectus and statement of additional information of the
Acquiring 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;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, 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 Acquired Fund for use therein; and
(q) Investment Funds, on behalf of the Acquiring Fund, agrees 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 may be
necessary in order to continue its operations after the Closing Date.
5. Covenants of the Acquiring Fund and the Acquired Fund
5.1. Investment Funds, on behalf of the Acquiring Fund, and Investment
Series, on behalf of the Acquired Fund, each 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, Investment Funds' officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. Investment Series, on behalf of the Acquired Fund, covenants to call a
meeting of the Acquired Fund Shareholders entitled to vote thereon 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 September 25, 2000 (or such other date as the
Acquired Fund and the Acquiring Fund may agree to in writing).
5.4. Investment Series, on behalf of the Acquired Fund, covenants that the
Acquiring 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.
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5.5. Investment Series, on behalf of the Acquired Fund, covenants that it
will assist Investment Funds in obtaining such information as Investment Funds
reasonably requests concerning the beneficial ownership of the Acquired Fund
Shares and will provide Investment Funds with a list of affiliates of the
Acquired Fund.
5.6. Subject to the provisions of this Agreement, Investment Funds, on
behalf of the Acquiring Fund, and Investment Series, on behalf of the Acquired
Fund, 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.
5.7. Each Fund covenants to prepare the Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. Investment Funds, on behalf of the Acquiring Fund, will
file the Registration Statement, including the Proxy Statement, with the
Commission. Investment Series, on behalf of the Acquired Fund, will provide
the Acquiring Fund with information reasonably necessary for the preparation
of a prospectus, which will include the Proxy Statement referred to in section
4.1(o), all to be included in the Registration Statement, in compliance in all
material respects with the 1933 Act, the 1934 Act and the 1940 Act.
5.8. Investment Series, on behalf of the Acquired Fund, covenants that it
will, from time to time, as and when reasonably requested by Investment Funds,
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 Investment Funds may reasonably deem necessary or desirable in order to
vest in and confirm the Acquiring Fund's title to and possession of all the
assets and otherwise to carry out the intent and purpose of this Agreement.
5.9. Investment Funds, on behalf of the Acquiring Fund, covenants to use all
reasonable efforts to obtain the approvals and authorizations required by the
1933 Act and 1940 Act, and such of the state securities laws as it deems
appropriate in order to continue its operations after the Closing Date and to
consummate the transactions contemplated herein; provided, however, that
Investment Funds may take such actions it reasonably deems advisable after the
Closing Date as circumstances change.
5.10. Investment Funds, on behalf of the Acquiring Fund, covenants that it
will, from time to time, as and when reasonably requested by Investment
Series, 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 Investment Series may
reasonably deem necessary or desirable in order to (i) vest and confirm to the
Acquired Fund title to and possession of all Acquiring Fund shares to be
transferred to Acquired Fund pursuant to this Agreement and (ii) assume the
liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. Investment Funds, on behalf of the Acquiring Fund, and Investment
Series, on behalf of the Acquired Fund, shall each 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 Acquired Fund
The obligations of Investment Series, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by Investment Funds, on behalf of the
A-9
Acquiring Fund, of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of Investment Funds, with respect to
the Acquiring Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, 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 (other than Acquired Fund, its adviser or any of their affiliates)
against the Acquiring Fund, the Acquired Fund or their advisers, trustees or
officers arising out of this Agreement and (ii) no facts known to the Acquired
Fund which the Acquired Fund reasonably believes might result in such
litigation.
6.2. Investment Funds, on behalf of the Acquiring Fund, shall have delivered
to the Acquired Fund on the Closing Date a certificate executed in its name by
its President or a Vice President, in a form reasonably satisfactory to the
Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Investment Funds, with respect to the
Acquiring Fund, made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request;
6.3. Investment Series, on behalf of the Acquired Fund, shall have received
on the Closing Date an opinion of Willkie Farr & Gallagher, in a form
reasonably satisfactory to the Acquired Fund, and dated as of the Closing
Date, to the effect that:
(a) Investment Funds has been duly organized and is a validly existing
corporation;
(b) Investment Funds, with respect to the Acquiring Fund, has the
corporate power to carry on its business as presently conducted in
accordance with the description thereof in Investment Funds' registration
statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Investment Funds, on behalf of the Acquiring Fund, and constitutes a valid
and legally binding obligation of Investment Funds, on behalf of the
Acquiring Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the exchange
of the Acquired Fund's assets for Acquiring Fund Shares pursuant to the
Agreement will not, violate the Articles of Incorporation, as amended, or
By-laws of Investment Funds; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the Federal laws of the United States or the laws of
the State of Maryland for the exchange of the Acquired Fund's assets for
Acquiring Fund Shares pursuant to the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of Investment
Series, its Trustees and its officers. Such counsel may rely as to matters
governed by the laws of the State of Maryland on an opinion of Maryland
counsel and/or certificates of officers or Directors of the Acquiring Fund.
Such opinion also shall include such other matters incident to the transaction
contemplated hereby as the Acquired Fund may reasonably request.
6.4. Investment Funds, on behalf of the Acquiring 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 the Acquiring Fund on or before
the Closing Date.
A-10
7. Conditions Precedent to Obligations of the Acquiring Fund
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquired Fund of all of the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of Investment Series, with respect
to the Acquired Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, 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 (other than Acquiring Fund, its adviser or any of their affiliates)
against the Acquired Fund, the Acquiring Fund or their advisers, trustees or
officers arising out of this Agreement and (ii) no facts known to the
Acquiring Fund which the Acquiring Fund reasonably believes might result in
such litigation.
7.2. Investment Series shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing
Date, certified by the Treasurer of Investment Series;
7.3. Investment Series shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated
as of the Closing Date, to the effect that the representations and warranties
of Investment Series, with respect to the Acquired Fund, made in this
Agreement are true and correct on and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as the Acquiring Fund shall reasonably request;
7.4. Investment Funds, on behalf of the Acquiring Fund, shall have received
on the Closing Date an opinion of Sullivan & Worcester LLP, in a form
reasonably satisfactory to the Acquiring Fund, and dated as of the Closing
Date, to the effect that:
(a) Investment Series has been duly formed and is an existing business
trust;
(b) Investment Series, with respect to the Acquired Fund, has the
corporate power to carry on its business as presently conducted in
accordance with the description thereof in Investment Series' registration
statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Investment Series, on behalf of the Acquired Fund, and constitutes a valid
and legally binding obligation of Investment Series, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the exchange
of the Acquired Fund's assets for Acquiring Fund Shares pursuant to the
Agreement will not, violate the Declaration of Trust, as amended, or By-
laws of Investment Series; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquired Fund under the Federal laws of the United States or the laws of
The Commonwealth of Massachusetts for the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement have been
obtained or made.
Such opinion may state that it is solely for the benefit of the Acquiring
Fund, its Directors and its officers. Such counsel may rely as to matters
governed by the laws of The Commonwealth of Massachusetts on an opinion
A-11
of Massachusetts counsel and/or certificates of officers or Trustees of
Investment Series. Such opinion also shall include such other matters incident
to the transaction contemplated hereby, as the Acquiring Fund may reasonably
request.
7.5. Investment Series, on behalf of the Acquired 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 the Acquired Fund on or before
the Closing Date.
8. Further Conditions Precedent to Obligations of the Acquiring Fund and the
Acquired Fund
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions 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
beneficial interests in the Acquired Fund in accordance with the provisions of
the Declaration of Trust, as amended, and By-Laws of Investment Series,
applicable Massachusetts law and the 1940 Act, and certified copies of the
resolutions evidencing such approval shall have been delivered to the
Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set forth in
this section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its 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
Investment Funds or Investment Series 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
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act 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; and
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to Investment Series and Investment Funds substantially to the
effect that, based upon certain facts, assumptions and representations, for
Federal income tax purposes: (i) the transfer to the Acquiring Fund of all of
the assets of the Acquired Fund in exchange solely for Shares and the
assumption by the Acquiring Fund of all of the stated liabilities of the
Acquired Fund, followed by the distribution of such Shares to Acquired Fund
shareholders in exchange for their shares of the Acquired Fund in complete
liquidation of the Acquired Fund, will constitute a "reorganization" within
the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the
Acquired Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring
Fund in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of liabilities of the
A-12
Acquired Fund or upon the distribution (whether actual or constructive) of the
Acquiring Fund Shares to the Acquired Fund's shareholders in exchange for
their shares of the Acquired Fund; (iii) the basis of the assets of the
Acquired Fund in the hands of the Acquiring Fund will be the same as the basis
of such assets of the Acquired Fund immediately prior to the transfer; (iv)
the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which such assets were held by
the Acquired Fund; (v) no gain or loss will be recognized by the Acquiring
Fund upon the receipt of the assets of the Acquired Fund in exchange for
Shares and the assumption by the Acquiring Fund of all of the liabilities of
the Acquired Fund; (vi) no gain or loss will be recognized by the holders of
shares of beneficial interests in the Acquired Fund upon the receipt of Shares
solely in exchange for their shares of the Acquired Fund as part of the
transaction; (vii) the basis of Shares received by the holders of shares of
beneficial interests in the Acquired Fund will be the same as the basis of the
shares of beneficial interests in the Acquired Fund exchanged therefor; and
(viii) the holding period of Shares received by the holders of shares of
beneficial interests in the Acquired Fund will include the holding period
during which the shares of beneficial interests in the Acquired Fund exchanged
therefor were held, provided that at the time of the exchange the shares of
beneficial interests in the Acquired Fund were held as capital assets in the
hands of the holders of shares of beneficial interests in the Acquired Fund.
The delivery of such opinion is conditioned upon receipt by Willkie Farr &
Gallagher of representations it shall request of each of Investment Series and
Investment Funds. Notwithstanding anything herein to the contrary, neither
Investment Series nor Investment Funds may waive the condition set forth in
this section 8.5.
9. Indemnification
9.1. Investment Funds, on the behalf of the Acquiring Fund, agrees to
indemnify and hold harmless Investment Series and each of its trustees and
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 jointly and severally
Investment Series or any of its trustees or officers 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 Acquiring Fund
of any of its representations, warranties, covenants or agreements set forth
in this Agreement.
9.2. Investment Series, on behalf of the Acquired Fund, agrees to indemnify
and hold harmless Investment Funds and each of its directors and 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 jointly and severally Investment
Funds or any of its trustees or officers 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 Acquired Fund of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
10. Fees and Expenses
10.1. Investment Funds, on behalf of the Acquiring Fund, and Investment
Series, on behalf of the Acquired Fund, 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 that relate to the Acquiring Fund and
the Acquired Fund will be borne by SSB Citi. Any such expenses which are so
borne by SSB Citi will be solely and directly related to the Reorganization.
A-13
11. Entire Agreement; Survival of Warranties
11.1. Investment Funds, on behalf of the Acquiring Fund, and Investment
Series, on behalf of the Acquired Fund, 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 Investment Funds, on behalf of the Acquiring Fund, and Investment Series,
on behalf of the Acquired 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, or
(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
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
Investment Series and Investment Funds; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to section 5.3 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund
Shares to be issued to the Acquired Fund shareholders 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
provisions 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 Acquired Fund, c/o Concert Investment Series(R), Inc., 388 Greenwich
Street, New York, New York 10013, with a copy to Willkie Farr & Gallagher, 787
Seventh Avenue, New York, New York 10019-6099, Attn.: Burton M. Leibert, Esq.,
or to the Acquiring Fund, c/o Smith Barney Investment Funds Inc., 388
Greenwich Street, New York, New York 10013, with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, New York 10019-6099, Attn.: Burton M.
Leibert, Esq., or to any other address that Investment Series or Investment
Funds 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.
A-14
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, other than the parties hereto and the
shareholders of the Acquiring Fund and the Acquired Fund and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
15.4. Investment Series is organized as a Massachusetts business trust, and
references in this Agreement to Investment Series mean and refer to the
Trustees from time to time serving under the Declarations of Trust on file
with the Secretary of State of The Commonwealth of Massachusetts, as the same
may be amended from time to time, pursuant to which Investment Series conducts
its business. It is expressly agreed that the obligations of Investment Series
hereunder shall not be binding upon any of its Trustees, shareholders,
nominees, officers, agents, or employees of Investment Series personally, but
bind only the property of the Acquired Fund as provided in the Declaration of
Trust of Investment Series. Moreover, no series of Investment Series other
than the Acquired Fund shall be responsible for the obligations of Investment
Series hereunder, and all persons shall look only to the assets of the
Acquired Fund to satisfy the obligations of Investment Series hereunder. The
execution and the delivery of this Agreement have been authorized by the Board
of Trustees of Investment Series, on behalf of the Acquired Fund, and this
Agreement has been signed by authorized officers of Investment Series acting
as such, and neither such authorization by such Trustees, nor such execution
and delivery by such officers, shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but
shall bind only the property of the Acquired Fund as provided in the
Declaration of Trust of Investment Series.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to its
principles of conflicts of laws.
A-15
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President, Vice President or in the case of SSB Citi, an
authorized person and attested by its Secretary, Assistant Secretary or in the
case of SSB Citi, an authorized person.
Attest: CONCERT INVESTMENT SERIES(R) on behalf of
the Small Cap Fund
By: ______________________________________
Name:
Title:
Attest: SMITH BARNEY INVESTMENT FUNDS INC. on
behalf of the Smith Barney Small Cap
Growth Fund
By: ______________________________________
Name:
Title:
Attest: SSB CITI FUND MANAGEMENT LLC
By: ______________________________________
Name:
Title:
A-16
(This page is intentionally left blank.)
THE PROSPECTUS AND SEMI-ANNUAL REPORT OF THE ACQUIRING FUND
DATED OCTOBER 11, 1999 AND MARCH 31, 2000, RESPECTIVELY, ARE
INCORPORATED BY REFERENCE TO THE MOST RECENT
FILINGS THEREOF BY THE ACQUIRING FUND
PART B
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION, DATED AUGUST 15, 2000
STATEMENT OF ADDITIONAL INFORMATION
388 Greenwich Street
New York, New York 10013
(800) 451-2010
RELATING TO THE ACQUISITION BY THE
SMITH BARNEY SMALL CAP GROWTH FUND, INC. (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT FUNDS INC. ("INVESTMENT FUNDS")
OF THE ASSETS OF SMALL CAP FUND (THE "FUND"),
A SERIES OF CONCERT INVESTMENT SERIES(R) ("INVESTMENT SERIES").
Dated: August 16, 2000
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Fund, a series of Investment
Series, to the Acquiring Fund in exchange for shares of the corresponding class
of the Acquiring Fund and the assumption by the Acquiring Fund of stated
liabilities of the Fund, consists of this cover page and the following described
documents, each of which accompanies this Statement of Additional Information
and is incorporated herein by reference.
1. Statement of Additional Information for the Acquiring Fund, dated
October 11, 1999.
2. Statement of Additional Information for the Fund, dated February 28,
2000.
3. Semi-Annual Report of the Acquiring Fund for the six months ended
March 31, 2000.
4. Annual Report of the Fund for the year ended October 31, 1999, and the
Semi-Annual Report of the Fund for the six months ended April 30,
2000.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement, dated August 16, 2000, relating to the above-referenced matter may be
obtained without charge by calling or writing the Acquiring Fund at the
telephone number or address set forth above. This Statement of Additional
Information should be read in conjunction with the Prospectus/Proxy Statement.
B-1
FINANCIAL STATEMENTS
The Semi-Annual Report (unaudited) of the Acquiring Fund for the six months
ended March 31, 2000 and the Annual Report of the Fund for the year ended
October 31, 1999, including audited financial statements, notes to the financial
statements and report of the independent auditors, are incorporated by reference
herein. To obtain a copy of the Annual Reports (and, as applicable, any more
recent semi-annual report) without charge, please call 1-800-451-2010.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following tables set forth the unaudited pro forma condensed Statement
of Assets and Liabilities as of April 30, 2000, and the unaudited pro forma
condensed Statement of Operations for the twelve month period ended April 30,
2000 for the Acquiring Fund and the Fund as adjusted giving effect to the
Reorganization.
PRO FORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 30, 2000 (UNAUDITED)
Merger of Concert Investment Series Small Cap Fund into Smith Barney Small Cap
Growth Fund
Concert Adjustments
Smith Barney Investment -------------- Smith Barney
Small Cap Series Concert Small Cap
Growth Fund Small Cap Fund Investment Growth Fund
Series Pro Forma
04/30/2000 04/30/2000 Small Cap Fund 04/30/2000
------------ -------------- -------------- -------------
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
ASSETS:
Investments, at value (cost $242,449,158 and $258,154,281 $361,993,459 $620,147,740
$355,363,485)
Cash 833 902 1,735
Collateral for securities on loan 0 43,848,459 43,848,459
Dividends & interest receivable 8,439 37,756 46,195
Due from broker 0 358,875 358,875
Receivable for securities sold 1,055,782 0 1,055,782
Receivable for Fund shares sold 1,535,751 117,631 1,653,382
Other Assets 0 0 0
Deferred organization costs - 5,552 5,552
------------- ------------- ----------- -------------
Total Assets 260,755,086 406,362,634 0 668,064,407
------------- ------------- ----------- -------------
LIABILITIES:
Payable for securities on loan - 43,848,459 43,848,459
Payable for securities purchased 1,584,168 - 1,584,168
Trustees' retirement plan - 16,611 16,611
Management fees payable 135,495 180,855 316,350
Distribution costs payable 157,883 230,591 388,474
Accrued expenses and other liabilities 66,035 276,511 342,546
------------ ------------ ---------- ------------
Total Liabilities 1,943,581 44,553,027 0 46,406,608
------------ ------------ ---------- ------------
Net Assets $258,811,505 $361,809,607 $ 0 $620,621,112
============ ============ ========== ============
NET ASSETS:
Par value of capital shares $ 15,970 $ 160,272 ($ 137,940)d $ 38,302
Capital paid in excess of par value 268,270,702 314,954,350 137,940 d 583,362,992
Undistributed net investment income (loss) (733,635) (1,710,418) (2,444,053)
Accumulated net realized gain (loss) (24,446,655) 42,160,540 17,713,885
Net unrealized appreciation of investments 15,705,123 6,244,863 21,949,986
------------ ------------ ---------- ------------
Net Assets $258,811,505 $361,809,607 $ 969,364 $620,621,112
============ ============ ========== ============
Outstanding Shares:
- -------------------
CLASS A 2,879,371 7,632,848 10,889,279 13,768,650
============ ============ ============
CLASS B 4,292,565 7,848,100 10,651,686 14,944,251
============ ============ ============
CLASS L 3,307,835 - 3,307,835
============ ============ ============
CLASS Y 5,490,324 - 5,490,324
============ ============ ============
CLASS 1 - 546,232 791,060 * 791,060
============ ============ ============
Net Asset Value
- ---------------
CLASS A (and redemption price) $ 16.22 $ 23.14 $ 16.24
============ ============
CLASS B $ 16.18 $ 21.96 $ 16.18
============ ============
CLASS L $ 16.18 - $ 16.18
============ ============
CLASS Y $ 16.23 - $ 16.23
============ ============
CLASS 1 - $ 23.49 $ 16.22
============ ============
CLASS A MAXIMUM OFFERING PRICE $ 17.07 $ 24.36 $ 17.07
============ ============
CLASS L MAXIMUM OFFERING PRICE $ 16.34 - $ 16.34
============ ============
CLASS 1 MAXIMUM OFFERING PRICE - $ 25.67 $ 17.73
============ ============
* Assumes subscriptions of Class 1 shares in acquiring Fund at Class A NAV
See accompanying notes to pro forma financial statements.
Merger of Concert Investment Series Small Cap Fund Into Smith Barney Small Cap
Growth Fund
Concert Adjustments
Smith Barney Investment -------------- Smith Barney
Small Cap Series Concert Small Cap
Growth Fund Small Cap Fund Investment Growth Fund
Series Pro Forma
04/30/2000 04/30/2000 Small Cap Fund 04/30/2000
------------ -------------- -------------- -------------
PRO FORMA STATEMENT OF OPERATIONS
INVESTMENT INCOME:
Dividends $ 11,568 $ 1,009,433 - $ 1,021,001
Interest 310,821 1,449,242 - 1,760,063
Less: Foreign withholding tax - (3,565) - (3,565)
------------ ------------- ------------- -------------
Total Investment Income 322,389 2,455,110 - 2,777,499
EXPENSES:
Investment advisory fees 454,359 2,010,074 $ 319,869 a 2,784,302
Distribution fees 381,815 1,830,671 - 2,212,486
Shareholder and system servicing fees 55,102 1,448,618 (1,131,233) b 372,487
Shareholder communications 42,999 256,962 (75,000) c 224,961
Registration fees 35,347 87,540 (40,000) c 82,887
Custody 13,710 25,755 39,465
Audit and legal 15,574 62,060 (30,000) c 47,634
Directors' fees 3,524 20,298 (10,000) c 13,822
Amortization of deferred organization costs - 4,168 - 4,168
Other 3,698 15,343 (3,000) c 16,041
------------ ------------- ------------- -------------
Total Expenses 1,006,128 5,761,489 (969,364) 5,798,253
Less: Management Fee Waivers - - - -
------------ ------------- ------------- -------------
Net Expenses 1,006,128 5,761,489 (969,364) 5,798,253
------------ ------------- ------------- -------------
NET INVESTMENT LOSS (683,739) (3,306,379) 969,364 (3,020,754)
------------ ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) From:
Security Transactions (excluding short term securities) (24,471,130) 101,347,229 - 76,876,099
Futures contracts 24,475 272,618 297,093
Net Change in Unrealized Appreciation of Investments 15,705,123 (36,094,796) - (20,389,673)
------------ ------------- ------------- -------------
Net Gain (Loss) On Investments (8,741,532) 65,525,051 - 56,783,519
Increase (Decrease) in Net Assets Resulting from Operations ($9,425,271) $ 62,218,672 $ 969,364 $53,762,765
============ ============= ============= =============
(a) Reflects recalculation of Management fees at 0.75%.
(b) Reflects adjustment for lower T/A fees.
(c) Decrease due to duplicate services.
(d) Reflects adjustment for difference in par value per share.
See accompanying notes to pro forma financial statements.
Merger of Concert Investment Series Small Cap Fund into Smith Barney Small Cap
Growth Fund
- ----------------------------------------------------------------------------------------------------
Adjustment to Management Fee Calculation:
Average net assets Concert Investment Series Small Cap Fund: 310,659,059
new rate 310,659,059 0.75% $2,329,943
==========
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Transfer Agent Fees:
Smith Barney Small Cap Growth Fund Rates
Concert
Investment
Series
Small Cap Fund Transfer
TSSG Class Fee Average Net Assets Agent Fee Class
0.1000% 155,042,511 155,043 A
0.1000% 145,170,293 145,170 B
----------
300,213
Actual Transfer Agent fees of Class 1 17,172
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Adjustment to Management Fee Calculation:
Average net assets Concert Investment Series Small Cap Fund: 310,659,059
new rate 310,659,059 0.75% $2,329,943
==========
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Transfer Agent Fees:
Smith Barney Small Cap Growth Fund Rates
Concert
Investment
Series
Small Cap Fund Transfer
TSSG Class Fee Average Net Assets Agent Fee Class
0.1000% 155,042,511 155,043 A
0.1000% 145,170,293 145,170 B
----------------
300,213
Actual Transfer Agent fees of Class 1 17,172
________________________________________________________________________________
Shares Outstanding Net Assets Allocation of Income Adj. Net Assets Adj. NAV
A 13,768,650 223,327,500 340,680.45 223,668,181 16.24
B 14,944,251 241,797,978 368,856.69 242,166,834 16.20
L 3,307,835 53,520,770 81,644.58 53,602,415 16.20
Y 5,490,324 89,107,959 135,931.93 89,243,890 16.25
Z 791,060 12,830,990 19,573.35 12,850,563 16.24
---------------------------------------------------------------------------------
38,302,119 620,585,197 946,687 621,531,884
NAVs before $16.22 946,687
income adj. $16.18
$16.18
$16.23
$16.22
SMITH BARNEY SMALL CAP GROWTH FUND
STATEMENT OF OPERATIONS
5-Months Ended 5/31/00
5-Months
Balance As Of Ended
----------------------------
03/31/2000 04/30/2000 04/30/2000
----------------------------------------------
Dividends 6,276 5,292 11,568
Interest 218,852 91,969 310,821
Less: Foreign withholding tax 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Total Investment Income 225,128 97,261 322,389
- -------------------------------------------------------------------------------------------------------------------
Investment advisory fees 318,946 135,413 454,359
Distribution fees 285,756 96,059 381,815
Administration fees 0 0 0
Registration fees 29,682 5,665 35,347
Shareholder and system servicing fees 41,976 13,126 55,102
Audit and legal 13,432 2,142 15,574
Shareholder communications 39,990 3,009 42,999
Custody 11,415 2,295 13,710
Directors' fees 2,707 817 3,524
Other 3,162 536 3,698
- -------------------------------------------------------------------------------------------------------------------
Total Expenses 747,066 259,062 1,006,128
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income (521,938) (161,801) (683,739)
- -------------------------------------------------------------------------------------------------------------------
Realized Gain From:
Security Transactions (5,631,538) (18,839,592) (24,471,130)
Futures Contracts 24,475 0 24,475
- -------------------------------------------------------------------------------------------------------------------
Net Realized Gain (5,607,063) (18,839,592) (24,446,655)
- -------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and Futures Contracts:
Beginning of period 0
End of Period 15,705,123
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 15,705,123
- -------------------------------------------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts (8,741,532)
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations (9,425,271)
- -------------------------------------------------------------------------------------------------------------------
SMITH BARNEY SMALL CAP GROWTH FUND
CONCERT INVESTMENT SERIES SMALL CAP FUND
Average Net Assets Calculation
Concert Investment Series Small Cap Fund
-----------------------------------------------------------------------------------------------
Class A Class B Class 1 Fund
-----------------------------------------------------------------------------------------------
Cum. Net Assets 10/31/99 $ 46,906,223,381.60 $ 42,032,546,417.04 $ 3,164,794,998.54 $ 92,103,564,797.18
Less: Cum. Net Assets 4/30/99 (22,040,692,965.13) (19,161,364,076.73) (1,489,207,179.64) (42,691,264,221.50)
Add: Cum. Net Assets 4/30/00 31,880,028,700.82 30,261,144,747.02 2,147,741,615.48 64,288,915,063.32
-----------------------------------------------------------------------------------------------
Total $ 56,745,559,117.29 $ 53,132,327,087.33 $ 3,823,329,434.38 $113,701,215,639.00
-----------------------------------------------------------------------------------------------
Avg. (5/1/99-4/30/00)(366 days) $ 155,042,511.25 $ 145,170,292.59 $ 10,446,255.29 $ 310,659,059.12
===============================================================================================
Smith Barney Small Cap Growth Fund
----------------------------------------------------------------------------------------------
Class A Class B Class L Class Y Fund
----------------------------------------------------------------------------------------------
Cum. Net Assets 12/31/99 $0.00 $0.00 $0.00 $0.00 $0.00
Less: Cum. Net Assets 4/30/99 0.00 0.00 0.00 0.00 0.00
Add: Cum. Net Assets 4/30/00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------------
Total $0.00 $0.00 $0.00 $0.00 $0.00
----------------------------------------------------------------------------------------------
Avg. (5/1/99-4/30/00)(366 days) $0.00 $0.00 $0.00 $0.00 $0.00
==============================================================================================
CONCERT INVESTMENT SERIES SMALL CAP FUND
STATEMENT OF OPERATIONS
12-Months Ended 4/30/00
12-Months
Balance As Of Ended
-------------------------------------------
04/30/1999 10/31/1999 04/30/2000 04/30/2000
-------------------------------------------------------------
Dividends 410,986 891,807 528,612 1,009,433
Interest 251,737 806,399 894,580 1,449,242
Less: Foreign withholding tax (358) (1,853) (2,070) (3,565)
- ----------------------------------------------------------------------------------------------------------------------
Total Investment Income 662,365 1,696,353 1,421,122 2,455,110
- -----------------------------------------------------------------------------------------------------------------------
Investment advisory fees 763,020 1,632,814 1,140,280 2,010,074
Distribution fees 678,301 1,465,913 1,043,059 1,830,671
Registration fees 35,717 71,119 52,138 87,540
Shareholder and system servicing fees 570,730 1,253,153 766,195 1,448,618
Audit and legal 11,660 53,377 20,343 62,060
Shareholder communications 18,524 198,973 76,513 256,962
Custody 17,648 35,599 7,804 25,755
Directors' fees 8,485 16,963 11,820 20,298
Organization costs 2,084 4,168 2,084 4,168
Other 10,389 20,379 5,353 15,343
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses 2,116,558 4,752,458 3,125,589 5,761,489
- ----------------------------------------------------------------------------------------------------------------------
Net Investment Income (1,454,193) (3,056,105) (1,704,467) (3,306,379)
- ----------------------------------------------------------------------------------------------------------------------
Realized Gain From:
Security Transactions 18,954,636 76,911,975 43,389,890 101,347,229
Futures Contracts (114,533) 1,197,481 (1,039,396) 272,618
- ----------------------------------------------------------------------------------------------------------------------
Net Realized Gain 18,840,103 78,109,456 42,350,494 101,619,847
- ----------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and Futures Contracts:
Beginning of period (4/30/99) 42,339,659
End of Period (4/30/00) 6,244,863
- ----------------------------------------------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (36,094,796)
- ----------------------------------------------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 65,525,051
- ----------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 62,218,672
- ----------------------------------------------------------------------------------------------------------------------
Pro Forma Footnotes of Merger Between Smith Barney Small Cap Fund and Concert
Investment Series ("CIS") Small Cap Fund.
April 30, 2000 (unaudited)
1. General
The accompanying unaudited pro forma financial statements are presented to show
the effect of the proposed acquisition of substantially all of the assets of CIS
Small Cap Fund ("the Acquired Fund") by the Smith Barney Small Cap Growth Fund
("Fund") in exchange for shares of Smith Barney Small Cap Growth Fund and the
assumption by Smith Barney Small Cap Growth Fund of substantially all of the
liabilities of the Acquired Fund as described elsewhere in this Prospectus/Proxy
Statement.
Under the terms of the Agreement and Plan of Reorganization, the exchange of
assets of the Acquired Fund for shares of Smith Barney Small Cap Growth Fund
will be treated as a tax-free reorganization and accordingly will be accounted
for as a tax-free merger. The acquisition would be accomplished by an
acquisition of the net assets of the Acquired Fund in exchange for shares of
Smith Barney Small Cap Growth Fund at net asset value. The unaudited pro forma
schedule of investments and the unaudited pro forma statement of assets and
liabilities have been prepared as though the acquisition had been effective
April 30, 2000. The unaudited pro forma statement of operations has been
prepared as though the acquisition had been effective May 1, 1999. The
unaudited pro forma financial statements are as of the semi-annual period end of
the Acquired Fund as that date is more recent than the most recently filed
financial statements for Smith Barney Small Cap Growth Fund.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedule of investments of the Acquired Fund
and Smith Barney Small Cap Growth Fund which are included in their respective
shareholder reports dated October 31, 1999 and March 31, 2000, respectively.
The expense of the reorganization, including the cost of the proxy solicitation,
will be borne by SSB Citi Fund Management LLC ("SSBC"), Smith Barney Small Cap
Growth Fund's Investment Manager. SSBC is a subsidiary of Salomon Smith Barney
Holdings Inc., which in turn is a subsidiary of Citigroup Inc.
2. Significant Accounting Policies
The Smith Barney Small Cap Growth Fund, a series of Smith Barney Investment
Funds, Inc., a Maryland corporation is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company.
The significant accounting policies consistently followed by Smith Barney Small
Cap Growth Fund are:
(a) securities transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing price on
such markets; securities traded in the over-the-counter market and listed
securities for which no sales price was reported and U.S. government and
government agency obligations are valued at the bid price, or in the
absence of a recent bid price, at the bid equivalent obtained from one or
more of the
major market makers; (c) securities maturing within 60 days are valued at
cost plus accreted discount, or minus amortized premium, which approximates
value; (d) interest income adjusted for accretion of original issue
discount, is recorded on the accrual basis; (e) realized gains or losses on
the sale of securities are calculated by using the specific identification
method; (f) dividends and distributions to shareholders are recorded on the
ex-dividend date; (g) direct expenses are charged to each portfolio and
each class; management fees and general expenses are allocated on the basis
of relative net assets; (h) the Fund intends to comply with the applicable
provisions of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise
taxes; (i) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles; and (j) estimates and assumptions
are required to be made regarding assets, liabilities and changes in net
assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other
parameters used in determining these estimates could cause actual results
to differ.
3. Pro-Forma Adjustments
The accompanying unaudited pro forma schedule of investments and pro forma
financial statements reflect changes in shares and fund expenses as if the
merger had taken place on May 1, 1999. Adjustments were made to reduce certain
expenses for duplicated services and to reflect new investment advisory
agreement as if they had been in place as of May 1, 1999.
4. Investment Advisory Agreement and Other Transactions
SSBC acts as investment advisor of Smith Barney Small Cap Growth Fund. Smith
Barney Small Cap Growth Fund pays SSBC an advisory fee calculated at an annual
rate of 0.75% of the average daily net assets. This fee is calculated daily and
paid monthly. SSBC also acts as investment adviser for the Acquired Fund. The
Acquired Fund pays SSBC an advisory fee calculated at an annual rate of 0.65% of
the average daily net assets. This fee is calculated daily and paid monthly.
It is expected that the overall expense ratio for the Acquired Fund's
shareholders will be reduced because of economies of scale recognized in
connection with the merger.
Citi Fiduciary Trust Company ("CFTC"), a subsidiary of Citigroup, is Smith
Barney Small Cap Growth Fund's transfer agent. Salomon Smith Barney Inc.,
another subsidiary of Citigroup, acts as Government Fund's distributor.
SCHEDULE OF INVESTMENTS
Portfolio of Investments at April 30, 2000 (Unaudited)
Smith Barney Small Cap Growth Fund
Concert Investment Series Small Cap Fund
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------
Concert Concert Smith
Investment Smith Investment Smith Barney
Series Barney Series Barney Small Cap
Small Cap Small Cap Small Cap Small Cap Growth Fund
Fund # Growth Fund Fund Growth Fund Pro Forma
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK --- 92.3%
Auto & Transportation --- 1.0%
96,600 American Axle & Manufacturing Holdings, Inc.* $ 1,449,000 $ 1,449,000
107,100 Aviation Sales Co.+* 408,319 408,319
24,300 CNF Transportation Inc. 678,881 678,881
99,900 Dura Automotive Systems, Inc., Class B Shares* 1,623,375 1,623,375
33,800 Hayes Lemmerz International, Inc.* 532,350 532,350
39,300 Mesaba Holdings, Inc. * 491,250 491,250
20,500 SkyWest, Inc. 863,563 863,563
- --------------------------------------------------------------------------------------------------------------------------
6,046,738 6,046,738
- --------------------------------------------------------------------------------------------------------------------------
Business Services --- 0.4%
24,100 Catalina Marketing Corp.* $ 2,440,125 2,440,125
- --------------------------------------------------------------------------------------------------------------------------
2,440,125 2,440,125
- --------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary --- 12.5%
65,066 99 Cents Only Stores* 2,448,108 2,448,108
61,400 The Ackerley Group, Inc. 798,200 798,200
32,100 Action Performance Co., Inc+* 296,925 296,925
44,900 Apollo Group, Inc., Class A Shares* 1,302,100 1,302,100
35,700 bebe stores, inc.+* 325,763 325,763
79,100 BJ's Wholesale Club, Inc.* 2,803,106
29,700 Blyth Industries, Inc. 881,719 881,719
113,900 The Bombay Company, Inc.* 412,887 412,887
41,400 Borders Group, Inc.* 657,225 657,225
57,600 CEC Entertainment Inc. * 1,728,000 1,728,000
21,100 Central Newspapers, Inc., Class A shares 647,506 647,506
53,700 Church & Dwight Co., Inc. 959,887 959,887
32,900 Citadel Communications Corp.* 1,285,156 1,285,156
20,600 Claire's Stores, Inc. 379,813 379,813
40,500 Complete Business Solutions, Inc. * 926,437 926,437
100,500 Copart, Inc.* 1,733,625 1,733,625
15,600 Cox Radio, Inc., Class A Shares* 1,131,000 1,131,000
57,000 The Dial Corp. 794,437 794,437
20,600 23,100 Dollar Tree Stores, Inc.* 1,192,225 1,336,913 2,529,138
43,700 Emmis Communications Corp., Class A shares+* 1,857,250 1,857,250
57,010 Encompass Services Corp.* 395,507 395,507
47,300 Ethan Allen Interiors Inc. 1,262,319 1,262,319
58,100 Furniture Brands International, Inc.* 1,085,744 1,085,744
43,600 Hot Topic, Inc.* 1,340,700
24,400 Houghton Mifflin Co. 1,014,125 1,014,125
70,000 Interim Services Inc.* 1,198,750 1,198,750
31,912 International Game Technology +* 777,855 777,855
62,800 Jack in the Box Inc.* 1,538,600 1,538,600
48,600 Jones Apparel Group, Inc.* 1,442,813 1,442,813
44,700 Jostens, Inc. 1,103,531 1,103,531
44,600 Launch Media, Inc.* 465,513 465,513
38,200 71,800 Linens 'n Things, Inc.* 1,179,425 2,216,825 3,396,250
64,300 The Men's Warehouse, Inc.* 1,378,431 1,378,431
40,000 Metamor Worldwide, Inc.* 775,000 775,000
27,900 Michaels Stores, Inc.* 1,100,306
45,100 Navigant Consulting, Inc.* $ 448,181 $ 448,181
21,900 Outback Steakhouse, Inc.* 717,225 717,225
54,987 103,800 Pacific Sunwear of California, Inc.+* 1,872,995 $ 3,535,688 5,408,683
30,800 Performance Food Group Co.* 812,350 812,350
18,200 PowerTel, Inc.* 1,223,950
42,600 Pre-paid Legal Services, Inc.* 1,363,200 1,363,200
16,500 Radio One, Inc.* 957,000 957,000
30,650 Regis Corp. 358,222 358,222
52,200 Rent-Way, Inc.* 1,353,938 1,353,938
51,200 Ross Stores, Inc. 1,062,400 1,062,400
100,900 Samsonite Corp.+* 529,725 529,725
54,800 Shaw Industries, Inc. 866,525 866,525
51,400 Sirius Satellite Radio Inc.+* 2,039,937 2,039,937
21,600 Sotheby's Holdings, Inc., Class A shares 357,750 357,750
See Notes to Financial Statements
Proforma Schedule of Investments (unaudited)
April 30, 2000
SHARES/FACE AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------
Concert Concert Smith
Investment Smith Investment Smith Barney
Series Barney Series Barney Small Cap
Small Cap Small Cap Small Cap Small Cap Growth Fund
Fund # Growth Fund Fund Growth Fund Pro Forma
- -----------------------------------------------------------------------------------------------------------------------------
119,500 The Source Information Management Co.+* 1,762,625 1,762,625
90,700 Station Casinos, Inc.* 2,584,950
61,800 Talbot's, Inc. 3,124,763
56,000 TeleTech Holdings, Inc.* 1,827,000 1,827,000
29,200 Tupperware Corp. 551,150 551,150
30,300 United Stationers Inc. 1,011,263 1,011,263
11,400 Universal Access, Inc.* 233,700
45,000 Westwood One, Inc.* 1,591,875 1,591,875
109,700 Williams-Sonoma, Inc.* 3,798,363
106,800 WMS Industries Inc. 934,500 934,500
- -----------------------------------------------------------------------------------------------------------------------------
53,793,737 23,299,264 77,093,001
- -----------------------------------------------------------------------------------------------------------------------------
Consumer Staples --- 0.2%
108,600 The Earthgrains Co. 1,527,188 1,527,188
- -----------------------------------------------------------------------------------------------------------------------------
1,527,188 - 1,527,188
- -----------------------------------------------------------------------------------------------------------------------------
Finance --- 5.5%
54,300 Affiliated Mangers Group, Inc.* 2,178,788 2,178,788
119,000 AmeriCredit Corp.* 2,223,813 2,223,813
12,400 Astoria Financial Corp. 341,775 341,775
22,045 Commerce Bancorp, Inc. 874,911 874,911
38,000 Community First Bankshares, Inc. 641,250 641,250
21,000 37,200 Dain Rauscher Corp. 1,300,687 2,304,075 3,604,762
67,000 Doral Financial Corp. 799,812 799,812
32,700 55,700 Eaton Vance Corp. 1,383,619 2,356,806 3,740,425
31,210 Fidelity National Financial, Inc. 460,347 460,347
20,000 The FINOVA Group, Inc. 256,250 256,250
30,600 FPIC Insurance Group, Inc.+* 439,875 439,875
15,800 Greater Bay Bancorp 671,747 671,747
31,600 GreenPoint Financial Corp. 588,550 588,550
48,800 HCC Insurance Holdings, Inc. 573,400 573,400
40,800 HSB Group, Inc. 1,183,200 1,183,200
25,435 Hudson United Bancorp 573,877 573,877
32,700 37,800 Metris Cos., Inc. 1,226,250 1,417,500 2,643,750
73,200 National Discount Broker Group, Inc.* 2,136,525
54,000 North Fork Bancorp., Inc. 874,125 874,125
40,800 Oriental Financial Group Inc. 693,600 693,600
84,000 Pacific Century Financial Corp. 1,727,250 1,727,250
33,200 Queens County Bancorp Inc. 674,375 674,375
26,200 Radian Group Inc. 1,334,562 1,334,562
20,900 S1 Corp.* $ 1,135,131 $ 1,135,131
19,300 Silicon Valley Bancshares 1,191,775 1,191,775
18,300 Southwest Securities Group, Inc. 752,587 752,587
49,700 Sovereign Bancorp, Inc. 341,687 341,687
52,600 United Bankshares, Inc. 1,147,337 1,147,337
- -----------------------------------------------------------------------------------------------------------------------------
25,590,580 $ 8,214,906 33,805,486
- -----------------------------------------------------------------------------------------------------------------------------
Health Care --- 12.7%
10,300 17,800 Abgenix, Inc. * 922,494 1,594,212 2,516,706
10,550 16,800 Affymetrix, Inc.+* 1,424,909 2,269,050 3,693,959
25,400 Akamai Technologies, Inc.* 2,511,425
51,000 Allaire Corp.* 2,808,188
10,000 Allscripts Inc.* 310,000
14,300 13,400 Alkermes, Inc.+* 761,475 713,550 1,475,025
54,300 Bergen Brunswig Corp., Class A shares 271,500 271,500
35,600 Cephalon Inc.* 2,002,500
68,100 CONMED Corp.* 1,779,113 1,779,113
42,500 The Cooper Companies, Inc. 1,429,062 1,429,062
119,000 Covance Inc.* 1,093,313 1,093,313
25,000 Curagen Corp.* 665,625
42,800 71,500 Cytyc Corp.+* 1,915,300 3,199,625 5,114,925
46,000 DSP Group, Inc.* 3,271,750
6,300 Enzo Biochem, Inc.* 255,150 255,150
46,000 Enzon, Inc.+* 1,713,500 1,713,500
25,000 Gene Logic Inc.* 671,875
33,100 Gilead Sciences, Inc.* 1,793,606 1,793,606
70,700 Hanger Orthopedic Group, Inc.* 353,500 353,500
31,760 Human Genome Sciences, Inc.* 2,431,625 2,431,625
42,800 IDEC Pharmaceuticals Corp.+* 2,739,200 2,739,200
See Notes to Financial Statements
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------
Concert Concert Smith
Investment Smith Investment Smith Barney
Series Barney Series Barney Small Cap
Small Cap Small Cap Small Cap Small Cap Growth Fund
Fund # Growth Fund Fund Growth Fund Pro Forma
- -----------------------------------------------------------------------------------------------------------------------
Healthcare (cont'd.) --- 12.8%
17,500 ImClone Systems Inc.* 1,592,500 1,592,500
73,800 InfoCure Corp.* 673,425 673,425
62,425 Jones Pharma Inc.+ 1,798,620 1,798,620
38,260 King Pharmaceuticals, Inc.+* 1,889,087 1,889,087
94,600 Ligand Pharmaceuticals Inc., Class B Shares* 1,265,275 1,265,275
52,250 Medicis Pharmaceuticals Corp., Class A Shares* 2,285,938 2,285,938
42,600 MedQuist Inc.* 1,509,637 1,509,637
65,800 Mentor Corp. 1,163,838 1,163,838
45,400 Millennium Pharmaceuticals, Inc.* 3,603,625 3,603,625
21,500 MiniMed, Inc.* 2,643,156
31,100 Ocular Sciences, Inc. * 515,094 515,094
66,300 Omnicare, Inc. 1,006,931 1,006,931
67,800 Orthodontic Centers of America, Inc.* 1,436,513 1,436,513
120,200 Oxford Health Plans, Inc.* 2,283,800
86,100 Pharmaceutical Product Development, Inc.* 1,447,556 1,447,556
28,500 Priority Healthcare Corp.* 1,578,187
10,000 Protein Design Labs, Inc.* 1,015,000
67,225 PSS World Medical, Inc.* 577,715 577,715
21,100 QLT, Inc.* 1,172,369
38,150 Res-Care, Inc.+* 417,266 417,266
219,400 SICOR Inc.+* 2,481,963 2,481,963
36,800 STERIS Corp.* 331,200 331,200
43,600 Sunrise Assisted Living, Inc.* 686,700 686,700
52,100 Sybron International Corp.* $ 1,621,613 $ 1,621,613
35,900 Transkaryotic Therapies, Inc.+* 1,074,756 1,074,756
64,700 Trigon Healthcare Inc.* $ 2,325,156
15,200 Universal Health Services, Inc., Class B
Shares* 832,200 832,200
- -----------------------------------------------------------------------------------------------------------------------
47,095,199 31,035,468 78,130,667
- -----------------------------------------------------------------------------------------------------------------------
Materials & Processing --- 2.1%
117,200 Airgas, Inc. * 688,550 688,550
32,900 Centex Construction Products, Inc. 1,015,788 1,015,788
29,100 CoStar Group Inc.* 697,945 697,945
22,200 Cousins Properties, Inc. 871,350 871,350
23,700 Federal Realty Investment Trust 503,625 503,625
34,600 NL Industries, Inc. 562,250 562,250
23,400 NVR, Inc.* 1,456,650 1,456,650
26,500 Reckson Associates Realty Corp. 531,656 531,656
19,700 The Rouse Co. 461,719 461,719
52,700 Spartech Corp. 1,831,325 1,831,325
63,950 Stillwater Mining Co.* 1,790,600 1,790,600
17,900 USG Corp. 747,325 747,325
32,300 Vornado Realty Trust 1,114,350 1,114,350
62,700 Wausau-Mosinee Paper Corp. 760,238 760,238
- -----------------------------------------------------------------------------------------------------------------------
13,033,371 - 13,033,371
- -----------------------------------------------------------------------------------------------------------------------
Other Energy --- 4.6%
47,600 Barrett Resources Corp. * 1,511,300 1,511,300
40,400 Basin Exploration, Inc.* 565,600 565,600
45,500 BJ Services Co.* 3,196,375
33,400 Cooper Cameron Corp.* 2,505,000
16,600 12,800 Devon Energy Corp.+ 799,913 616,800 1,416,713
73,700 Ensco International Inc. 2,445,919
47,600 Grant Prideco, Inc.* 916,300
82,900 Marine Drilling Cos., Inc.* 2,155,400
29,264 Ocean Energy Inc.* 378,603 378,603
91,200 Plains Resources Inc.* 1,293,900 1,293,900
49,900 R&B Falcon Corp.* 1,035,425 1,035,425
39,300 Smith International, Inc.* 2,986,800
50,900 Stone Energy Corp.* 2,405,025
39,000 Tidewater Inc. 1,160,250
68,600 UTI EnergyCorp.* 2,383,850
47,600 Weatherford International, Inc.* 1,933,750
- -----------------------------------------------------------------------------------------------------------------------
5,584,741 22,705,469 28,290,210
- -----------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
Concert Concert Smith
Investment Smith Investment Smith Barney
Series Barney Series Barney Small Cap
Small Cap Small Cap Small Cap Small Cap Growth Fund
Fund # Growth Fund Fund Growth Fund Pro Forma
- ----------------------------------------------------------------------------------------------------------------------------------
Producer Durables --- 2.7%
76,200 Astec Industries, Inc.* 1,914,525 1,914,525
24,800 C&D Technologies, Inc. 1,598,050 1,598,050
49,400 CommScope, Inc.* 2,346,500 2,346,500
21,200 Fastenal Corp.* 1,238,875
19,600 Jacobs Engineering Group Inc. * 613,725 613,725
45,300 Kellstrom Industries, Inc.+* 183,323 183,323
43,500 The Kroll-O' Gara Co.* 334,406 334,406
35,200 Lennar Corp.+ 655,600 655,600
41,800 The Manitowoc Co., Inc. 1,387,238 1,387,238
55,100 Mettler-Toledo International Inc. * 1,900,950 1,900,950
19,000 Nordson Corp. 849,063 849,063
40,400 PerkinElmer, Inc. 2,211,900 2,211,900
106,700 Waste Connections, Inc.* $ 1,333,750 $ 1,333,750
- -----------------------------------------------------------------------------------------------------------------------------------
15,329,030 $ 1,238,875 16,567,905
- -----------------------------------------------------------------------------------------------------------------------------------
Technology --- 48.1%
52,400 Actuate Corp.* 1,568,725
33,500 ADTRAN, Inc.* 2,263,344 2,263,344
44700 Advanced Energy Industries, Inc.* 3,084,300
70,300 65,700 Advanced Fibre Communication, Inc.+* 3,211,831 3,001,669 6,213,500
47,400 Advent Software Inc.* 2,488,500 2,488,500
43,400 70,000 Alpha Industries, Inc. 2,256,800 3,640,000 5,896,800
64,800 American Management Systems, Inc.* 2,397,600 2,397,600
103,400 41,400 Amkor Technology, Inc.+* 6,326,787 2,533,162 8,859,949
16,300 41,800 ANADIGICS, Inc.* 1,226,575 3,145,450 4,372,025
29,200 Ancor Communications, Inc.* 881,475 881,475
89,500 AnswerThink Consulting Group, Inc.+* 1,722,875 1,722,875
Antec Corp.
54,900 Apex Inc.* 1,622,981 1,622,981
32,300 Applied Micro Circuits Corp.* 4,162,663
49,400 AppliedTheory Corp.* 543,400 543,400
3,750 ArrowPoint Communications, Inc.* 367,500
39,500 Art Technology Group, Inc.* 2,399,625
51,800 ASM International N.V.* 1,787,100
28,000 57,300 Aspect Development, Inc.* 1,935,500 3,960,862 5,896,362
45,300 Aspen Technology, Inc.* 1,602,487 1,602,487
28,600 Avanex Corp.* 3,485,625
80,300 AVT Corp.* 888,319 888,319
72,600 Bea Systems, Inc.* 3,502,950
51,200 BindView Development Corp.* 412,800 412,800
22,400 Black Box Corp.* 1,723,400 1,723,400
23,000 BreezeCom Ltd.* 632,500
120,100 BroadVision, Inc. +* 5,276,894 5,276,894
53,000 52,850 Burr-Brown Corp.+* 3,610,625 3,600,406 7,211,031
30,100 Business Objects S.A., Sponsored ADR 2,946,038
46,400 CACI International Inc., Class A Shares* 1,087,500 1,087,500
29,800 Carrier Access Corp.+* 1,300,025 1,300,025
52,900 C-Cube Microsystems Inc.* 3,398,825 3,398,825
16,822 CIBER, Inc. +* 303,847 303,847
24,200 Clarent Corp.* 1,645,600
22,100 Cognex Corp.* 1,256,938 1,256,938
41,200 Cognizant Technology Solutions Corp.* 1,890,050 1,890,050
69,000 Com21 Inc.* 1,932,000
73,000 Computer Network Technology Corp.* 1,177,125 1,177,125
28,100 Concentric Network Corp. * 1,222,350 1,222,350
36,500 Copper Mountain Networks, Inc.* 3,043,188
20,700 Credence Systems Corp.* 2,954,925 2,954,925
11,600 22,700 Cree, Inc.+* 1,687,800 3,302,850 4,990,650
89,100 Cypress Semiconductor Corp.* 4,627,631 4,627,631
37,300 Dallas Semiconductor Corp. 1,601,569 1,601,569
46,300 Diamond Technology Partners, Inc., Class A shares * 3,663,488 3,663,488
49,600 82,600 Digital Microwave Corp.* 1,832,100 3,051,037 4,883,137
48,300 Dycom Industries, Inc.* 2,511,600 2,511,600
26,700 Efficient Networks, Inc.* 1,755,525
54,600 Electro Scientific Industries, Inc.* 3,443,212 3,443,212
See Notes to Financial Statements
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Concert Concert Smith
Investment Smith Investment Smith Barney
Series Barney Series Barney Small Cap
Small Cap Small Cap Small Cap Small Cap Growth Fund
Fund Growth Fund Fund Growth Fund Pro Forma
- ------------------------------------------------------------------------------------------------------------------------------------
Technology (cont'd.) --- 48.1%
35,700 22,700 Emulex Corp.* $ 1,619,888 $ 1,030,012 $ 2,649,900
5,000 Exar Corp.* 400,859
59,700 Exchange Applications, Inc.* 727,594 727,594
18,193 Flextronics International Ltd.* 1,278,058 1,278,058
44,100 Getty Images, Inc.+* 1,339,537 1,339,537
39,100 GlobeSpan, Inc.* 3,714,500
15,200 30,800 Harmonic Inc.+* 1,121,950 2,273,425 3,395,375
32,600 Helix Technology Corp. 1,664,638 1,664,638
3,600 31,400 hi/fn, inc.* 122,175 1,065,638 1,187,813
21,945 Hyperion Solutions Corp.* 665,551 665,551
47,000 iGATE Capital Corp.* 1,410,000 1,410,000
45,300 In Focus Systems, Inc.* 1,356,169 1,356,169
176,100 Informix Corp.* 1,937,100 1,937,100
50,800 Inter-Tel, Inc., Class A Shares 1,028,700 1,028,700
31,400 InterDigital Communications Corp.* 649,588 649,588
77,400 InterVoice-Brite, Inc.* 1,233,562 1,233,562
264,500 Iomega Corp.* 942,281 942,281
32,100 ISS Group, Inc.* 2,903,044 2,903,044
32,500 Juno Online Services, Inc.+* 322,969 322,969
95,500 72,600 Lam Research Corp.+* 4,381,062 3,330,525 7,711,587
27,700 44,900 Lattice Semiconductor Corp.+* 1,866,287 3,025,137 4,891,424
32,100 MasTec, Inc.* 2,772,637 2,772,637
8,050 MatrixOne, Inc.* 265,650
47,300 Mattson Technology, Inc.* 2,323,613
58,900 MCK Communications, Inc.* 1,840,625
125,600 Mentor Graphics Corp.* 1,648,500 1,648,500
64,400 43,500 Mercury Interactive Corp.* 5,796,000 3,915,000 9,711,000
17,600 38,300 Micrel, Inc.* 1,522,400 3,312,950 4,835,350
12,900 27,800 Micromuse Inc.* 1,265,812 2,727,875 3,993,687
51,000 MircoStrategy Inc.+* 1,319,625 1,319,625
44,300 MRV Communications, Inc.* 3,053,931
60,100 National Computer Systems, Inc. 3,091,394 3,091,394
39,700 Natural Microsystems Corp.* 2,585,463
60,700 Novellus Systems, Inc.* 4,047,931
84,900 Oak Technology, Inc.* 1,193,906
25,400 Open Market, Inc.* 261,937 261,937
26,550 Orbotech Ltd.* 2,263,388
38,000 Orckit Communications Ltd.* 1,681,500
31,600 Peregrine Systems, Inc.* 760,375 760,375
77,600 Photronics, Inc.* 2,585,050
41,400 Policy Management Systems Corp.* 548,550 548,550
28,400 Polycom, Inc.* 2,247,150 2,247,150
8,900 16,200 Powerwave Technologies, Inc. * 1,851,756 3,370,613 5,222,369
48,000 PRI Automation, Inc.* 3,834,000
12,900 Quantum Effect Devices, Inc.* 751,425
53,500 RadiSys Corp.* 2,213,562 2,213,562
40,000 Rare Medium Group, Inc.* 822,500 822,500
30,700 Redback Networks, Inc.* 2,436,812
19,100 Register.com, Inc.* 974,100
27,200 RSA Security, Inc.* 1,596,300
55,700 RWD Technologies, Inc. * 445,600 445,600
34,800 Sanchez Computer Associates, Inc. +* 674,250 674,250
30,100 24,300 SanDisk Corp.* $ 2,757,913 $ 2,226,488 $ 4,984,401
18,100 Sapient Corp.* 1,433,294
40,400 Sawtek Inc. * 1,931,625 1,931,625
21,000 SCM Microsystems, Inc. +* 1,661,625 1,661,625
68,000 Sensormatic Electronics Corp.* 1,134,750 1,134,750
10,800 Silicon Laboratories, Inc.* 939,600
52,900 SpeedFam-IPEC, Inc.* 836,481 836,481
9,000 Terayon Communication Systems, Inc.* 837,000 837,000
11,000 Tollgrade Communications Corp.* 726,000
37,000 55,150 TranSwitch Corp.* 3,258,313 4,856,646 8,114,959
36,800 41,500 TriQuint Semiconductor, Inc.* 3,783,500 4,266,718 8,050,218
18,800 Turnstone Systems, Inc.* 2,068,000
32,300 Varian Semiconductor Equipment Associates, Inc.* 2,172,175 2,172,175
See Notes to Financial Statements
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY VALUE
====================================================================================================================================
Concert Concert Smith
Investment Smith Investment Smith Barney
Series Barney Series Barney Small Cap
Small Cap Small Cap Small Cap Small Cap Growth Fund
Fund Growth Fund Fund Growth Fund Pro Forma
====================================================================================================================================
Technology (cont'd.) --- 0.0%
41,400 Vignette Corp.* 1,994,962
19,200 Virata Corp.* 2,404,800
25,600 Visual Networks, Inc.* 998,400 998,400
3,200 webMethods, Inc.* 288,000
122,500 Westell Technologies, Inc.* 3,483,594
68,000 Wind River Systems, Inc.+* 2,902,750 2,902,750
12,200 WorldGate Communications, Inc.+* 287,462 287,462
30,900 Xircom, Inc. * 1,218,619 1,218,619
33,800 Zebra Technologies Corp. * 1,926,600 1,926,600
- ------------------------------------------------------------------------------------------------------------------------------------
151,382,092 145,325,605 296,707,697
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities --- 2.5%
32,400 Calpine Corp.* 2,964,600
19,500 Commonwealth Telephone Enterprises Inc.* 946,969 946,969
204,800 e.spire Communications, Inc.* 1,036,800 1,036,800
58,300 Intermedia Communications Inc.* 2,375,725 2,375,725
53,900 ITC/ \Deltacom, Inc.* 1,771,962 1,771,962
26,700 Leap Wireless International, Inc.* 1,371,712 1,371,712
47,000 MGC Communications, Inc.* 2,303,000 2,303,000
35,700 Pinnacle Holdings Inc.* 2,005,894 2,005,894
20,500 US LEC Corp., Class A shares * 535,563 535,563
- ------------------------------------------------------------------------------------------------------------------------------------
11,400,656 3,911,569 15,312,225
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost --- $550,296,856) 330,783,332 238,171,281 568,954,613
U.S. TREASURY BILLS --- 0.3%
$ 1,920,000 U.S. Treasury Bills, due 06/15/00 (Cost-$1,905,787) 1,905,787 1,905,787
====================================================================================================================================
SUB-TOTAL INVESTMENTS
(Cost --- $552,202,643) 332,689,119 238,171,281 570,860,400
====================================================================================================================================
REPURCHASE AGREEMENT --- 7.4%
$ 25,627,000 Chase Securities Inc., 5.550% dated 04/28/00, due
5/1/00; Proceeds at maturity - $25,638,850; (Fully
collateralized by U.S. Treasury Notes, 4.750% due
11/15/08; Market value - $26,141,550) $ 25,627,000 $ 25,627,000
19,983,000 Goldman Sachs, 5.670% due 5/1/00; Proceeds at
maturity - $19,992,442; (Fully collateralized by U.S.
Treasury Notes and Bonds, 6.500% to 11.125% due
10/31/01 to 2/15/21 Market value - $20,382,660) $ 19,983,000 19,983,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost --- $45,610,000) 25,627,000 19,983,000 45,610,000
====================================================================================================================================
TOTAL INVESTMENTS ---100%
(Cost - $597,812,643)** $ 358,316,119 $258,154,281 $616,470,400
====================================================================================================================================
# The Concert Investment Series Small Cap Fund does not anticipate that it
will be required to divest any securities upon completion of the
Reorganization.
+ All or a portion of this security is on loan (See Note 12).
* Non income producing securities.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements
THE SEMI-ANNUAL REPORT AND STATEMENT OF ADDITIONAL INFORMATION
OF THE ACQUIRING FUND DATED MARCH 31, 2000 AND OCTOBER 11, 1999,
RESPECTIVELY, ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY
SMITH BARNEY INVESTMENT FUNDS
THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, ANNUAL
REPORT AND SEMI-ANNUAL REPORT OF THE FUND DATED FEBRUARY 28,
2000, OCTOBER 31, 1999 AND APRIL 30, 2000, RESPECTIVELY, ARE
INCORPORATED BY REFERENCE TO THE MOST RECENT FILINGS
THEREOF BY CONCERT INVESTMENT SERIES(R)
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION -- The response to this item is incorporated by
reference to Section 9 of the Agreement and Plan of Reorganization. Reference
is also made to the Registrant's Articles of Restatement, dated September 17,
1993. Registrant is a named assured on a joint insured bond pursuant to Rule
17g-1 of the Investment Company Act of 1940. Other assureds include SSB Citi
Fund Management LLC (Registrant's Adviser) and affiliated investment companies.
The response to this item is further incorporated by reference to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-14 filed on October 8,
1993 (File No. 33-50153).
ITEM 16. EXHIBITS
1(a) Articles of Restatement dated September 17, 1993 to Registrant's
Articles of Incorporation dated September 28, 1981, Articles of
Amendment dated October 14, 1994, Articles Supplementary, Articles of
Amendment dated October 14, 1994, Articles Supplementary, Articles of
Amendments and Certificates of Correction dated November 7, 1994, are
incorporated by reference to Post-Effective Amendment No. 37 to the
Registration Statement filed on November 7, 1994.
1(b) Articles of Amendment dated October 23, 1997 are incorporated by
reference to Post-Effective Amendment No. 46 filed on October 23, 1997
("Post-Effective Amendment No. 46").
1(c) Articles of Amendment dated February 27, 1998 are incorporated by
reference to Post-Effective Amendment No. 48 dated April 29, 1998.
1(d) Articles of Amendment dated June 1, 1998 are incorporated by reference
to Post-Effective Amendment No. 49 filed on July 16, 1998 ("Post-
Effective Amendment No. 49").
2 Registrant's By-Laws, as amended on September 30, 1992 are
incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement filed on April 30, 1993.
3 Not applicable.
4 Form of Agreement and Plan of Reorganization is included in Part A to
the Registration Statement on Form N-14.
5 Registrant's form of stock certificate for Smith Barney Hansberger
Global Value Fund ("Global Value Fund") and Smith Barney Hansberger
Global Value Small Cap Fund ("Small Cap Fund") is incorporated by
reference to Post-Effective Amendment No. 46.
C-1
6(a) Investment Advisory Agreement dated July 30, 1993, between the
Registrant on behalf of Smith Barney Investment Grade Bond Fund, Smith
Barney Government Securities Fund and Smith Barney Special Equities
Fund and Greenwich Street Advisors is incorporated by reference to the
Registration Statement filed on Form N-14 on September 2, 1993, File
No. 33-50153.
6(b) Investment Advisory Agreements on behalf of Smith Barney Growth
Opportunity Fund and Smith Barney Managed Growth Fund is incorporated
by reference to Post-Effective Amendment No. 40 filed on June 27, 1995
("Post-Effective Amendment No. 40").
6(c) Investment Management Agreements on behalf of Global Value Fund and
Global Small Cap Fund between Registrant and Smith Barney Mutual Funds
Management Inc. is incorporated by reference to Post-Effective
Amendment No. 46.
6(d) Sub-Advisory Agreement on behalf of Global Value Fund and Global Small
Cap Fund between MMC and Hansberger Global Investors Inc. is
incorporated by reference to Post-Effective Amendment No. 46.
6(e) Investment Management Agreements on behalf of Smith Barney Small Cap
Growth Fund and Smith Barney Small Cap Value Fund between Registrant
and Mutual Management Corp. is incorporated by reference to Post-
Effective Amendment No. 49.
7(a) Distribution Agreement dated July 30, 1993, between the Registrant and
Smith Barney Shearson Inc. is incorporated by reference to the
Registration Statement filed on Form N-14 on September 2, 1993, File
33-50153.
7(b) Form of Distribution Agreement between the Registrant and PFS
Distributors on behalf of Smith Barney Investment Funds Inc. is
incorporated by reference to Post-Effective Amendment No. 40.
7(c) Form of Distribution Agreement between the Registrant and CFBDS, Inc.
is incorporated by reference to Post-Effective Amendment No. 49.
7(d) Selling Group Agreement is incorporated by reference to Post-Effective
Amendment No. 56 filed on February 26, 1999.
8 Not applicable.
9(a) Custodian Agreement with PNC Bank, National Association is
incorporated by reference to Post-Effective Amendment No. 44 filed on
April 29, 1997.
9(b) Custodian Agreement with Chase Manhattan Bank is incorporated by
reference to Post-Effective Amendment No. 46.
C-2
10(a) Amended Services and Distribution Plans pursuant to Rule 12b-1
between the Registrant on behalf of Smith Barney Investment Grade Bond
Fund, Smith Barney Government Securities Fund, Smith Barney Special
Equities Fund and Smith Barney European Fund and Smith Barney, Inc.
("Smith Barney") are incorporated by reference to Post-Effective
Amendment No. 37 filed on November 3, 1994 ("Post-Effective Amendment
No. 37").
10(b) Form of Services and Distribution Plans pursuant to Rule 12b-1
between the Registrant on behalf of Smith Barney Growth Opportunity
Fund and Smith Barney Managed Growth Fund is incorporated by reference
to Post-Effective Amendment No. 40.
10(c) Form of Services and Distribution Plans pursuant to Rule 12b-1
between the Registrant on behalf of the Global Value Fund and Small
Cap Fund is incorporated by reference to Post-Effective Amendment No.
46.
10(d) Form of Amended and Restated Shareholder Services and Distribution
Plan pursuant to Rule 12b-1 between the Registrant on behalf of each
of its series is incorporated by reference to Post-Effective Amendment
No. 49.
10(e) Form of Plan pursuant to Rule 18f-3 is incorporated by reference to
Post-Effective Amendment No. 50 to Registration Statement.
11 Opinion and consent of Counsel as to the legality of the securities
being registered is incorporated by reference to Registrant's
Registration Statement on Form N-14 as filed on July 17, 2000.
12 Opinion and consent of Counsel supporting tax matters and consequences
to shareholders discussed in the prospectus is incorporated by
reference to Registrant's Registration Statement on Form N-14 as filed
on July 17, 2000.
13(a) Transfer Agency and Registrar Agreement dated August 5, 1993 with
First Data Investor Services Group, Inc. (formerly The Shareholder
Services Group, Inc.) is incorporated by reference to Post-Effective
Amendment No. 31 as filed on December 22, 1993.
13(b) Sub-Transfer Agency Agreement between the Registrant and PFS
Shareholders Services on behalf of Smith Barney Investment Funds Inc.
is incorporated by reference to Post-Effective Amendment No. 40.
14 Auditors' Consent is incorporated by reference to Registrant's
Registration Statement on Form N-14 as filed on July 17, 2000.
15 Not applicable.
16 Powers of Attorney are incorporated by reference to Registrant's
registration statement filed on Form N-1A.
17(a) Form of proxy card is incorporated by reference to Registrant's
Registration Statement on Form N-14 as filed on July 17, 2000.
C-3
17(b) Annual Report of Concert Investment Series(R), dated October 31,
1999, and Semi-Annual Report dated April 30, 2000, are incorporated
herein by reference.
17(c) Prospectus and statement of additional information of Concert
Investment Series(R), dated February 28, 2000, are incorporated herein
by reference.
17(d) Semi-Annual Report of Registrant, dated March 31, 2000, is
incorporated herein by reference.
17(e) Prospectus and statement of additional information of Registrant,
dated October 11, 1999, are incorporated herein by reference.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other terms of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of a n amendment to the
registration statements and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-4
SIGNATURES
As required by the Securities Act of 1933, this amendment to the registration
statement has been signed on behalf of the Registrant, in the City of New York
and State of New York on the 15th day of August, 2000.
SMITH BARNEY INVESTMENT FUNDS, INC.
BY /s/Heath B. McLendon
------------------------------------
Heath B. McLendon, Chief Executive Officer
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the date indicated.
Signatures Title Date
/s/Heath B. McLendon Director, Chairman, August 15, 2000
- -----------------------------
Heath B. McLendon President and Chief
Executive Officer
/s/Paul R. Ades* Director August 15, 2000
- -----------------------------
Paul R. Ades
/s/Herbert Barg* Director August 15, 2000
- -----------------------------
Herbert Barg
/s/Dwight B. Crane* Director August 15, 2000
- -----------------------------
Dwight B. Crane
/s/Frank Hubbard* Director August 15, 2000
- -----------------------------
Frank Hubbard
/s/Jerome Miller** Director August 15, 2000
- -----------------------------
Jerome Miller
/s/Ken Miller* Director August 15, 2000
- -----------------------------
Ken Miller
/s/Lewis E. Daidone Treasurer August 15, 2000
- -----------------------------
Lewis E. Daidone and Principal
Financial Officer
/s/Heath B. McLendon August 15, 2000
---------------------
Heath B. McLendon
Pursuant to Power of Attorney
Previously filed
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact, pursuant
to power of attorney dated November 3, 1994.
C-5
** Signed by Heath B. McLendon, their duly authorized attorney-in-fact, pursuant
to power of attorney dated April 15, 1998.
C-6