AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 2000.
SECURITIES ACT FILE NO. 333-41602
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 [X]
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 Common Stock ($.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)
Government 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 Government Fund (the "Fund"), a series of
Concert Investment Series(R) ("Investment Series"), would be transferred in a
tax-free reorganization to the Smith Barney Government Securities 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 holder of shares of beneficial
interests in the Fund, but would become a shareholder of the corresponding
class of common stock 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 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)
Government 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 Government 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 9:15 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 beneficial interests in 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 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.................. 4
SYNOPSIS.................................................................... 4
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND..................... 6
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND............................... 7
INVESTMENT MANAGEMENT FEES AND EXPENSES..................................... 8
ANNUAL FUND OPERATING EXPENSES.............................................. 9
DISTRIBUTION OF SHARES AND OTHER SERVICES................................... 12
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION............................... 12
DIVIDENDS AND OTHER DISTRIBUTIONS........................................... 12
TAX CONSEQUENCES............................................................ 13
PRINCIPAL INVESTMENTS AND RISK FACTORS...................................... 13
THE PROPOSED TRANSACTION.................................................... 16
REASONS FOR THE PROPOSED TRANSACTION........................................ 17
DESCRIPTION OF THE SECURITIES TO BE ISSUED.................................. 19
FEDERAL INCOME TAX CONSEQUENCES............................................. 21
LIQUIDATION AND TERMINATION OF SERIES....................................... 22
PORTFOLIO SECURITIES........................................................ 22
PORTFOLIO TURNOVER.......................................................... 22
CAPITALIZATION AND PERFORMANCE.............................................. 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
April 28, 2000.
2. The Statement of Additional Information for the Fund, dated February 28,
2000.
3. Annual Report of the Acquiring Fund for the year ended December 31,
1999.
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 Government Fund into Smith Barney Government Securities 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 Government Securities Fund
on or about October 6, 2000 ("Closing Date") and will no longer be a
shareholder of the Concert Government Fund, which will be terminated pursuant
to the proposed reorganization. You will receive shares of the Smith Barney
Government Securities Fund with a total net asset value equal to the total net
asset value of your investment in the Concert Government 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 Government Securities Fund, you may redeem
your shares prior to the Closing Date. Please note that any redemption will be
subject to all 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 Government Fund 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.
Do the Funds have similar investment objectives?
Yes. Both Funds have similar investment objectives and policies and pursue
their objectives in a substantially similar manner. The Concert Government
Fund seeks high current return consistent with preservation of capital and the
Smith Barney Government Securities Fund seeks high current return. James E.
Conroy, the portfolio manager of your Fund, has also been the manager of the
Smith Barney Government Securities Fund since its inception in 1984. However,
the investment practices and limitations 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.
Do both Funds have the same dividend and other distribution payment schedules?
The Concert Government Fund declares dividends from net investment income
monthly and the Smith Barney Government Securities Fund declares dividends
from net investment income periodically. Each Fund pays distributions of net
realized capital gains, if any, annually.
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.
However, if the proposed reorganization is approved by the Concert
Government Fund's shareholders, then as soon as practicable before the Closing
Date, the Concert Government 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. We ask that you consult
your tax advisor or other tax professional for assistance.
Will I enjoy the same privileges as a shareholder of the Smith Barney
Government Securities Fund that I currently have as a shareholder of the
Concert Government 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. Although no
guarantees can be given, the Trustees believe the reorganization is in the
best interest of the Concert Government 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
GOVERNMENT SECURITIES FUND (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT FUNDS INC. ("INVESTMENT FUNDS")
OF THE ASSETS OF THE GOVERNMENT FUND (THE "FUND"),
A SERIES OF CONCERT INVESTMENT SERIES(R) ("INVESTMENT SERIES").
GENERAL
This Prospectus/Proxy Statement is furnished to holders of shares of
beneficial interests in 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 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 common stock of the Acquiring Fund having
an aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of beneficial interests in 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 April 28,
2000, as supplemented from time to time, which is included
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS 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
herewith and incorporated herein by reference. This Prospectus/Proxy Statement
is also accompanied by the Acquiring Fund's annual report to shareholders for
the year ended December 31, 1999, which is included herewith and incorporated
herein by reference. For a more detailed discussion of the investment
objectives, policies, 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,
on behalf of the Acquiring Fund.
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 to seek high current return. The Acquiring Fund seeks
to achieve its objective by investing primarily in debt securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities that SSB
Citi Fund Management LLC, the Acquiring Fund's investment adviser ("SSB
Citi"), believes are undervalued. The investment objective of the Fund is to
seek high current return consistent with preservation of capital. The Fund
invests in government debt issued or guaranteed by the U.S. government, its
agencies or instrumentalities that SSB Citi believes are undervalued.
----------------
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. In addition, in this Proxy Statement/
Prospectus, for simplicity, actions are described as being taken by either the
Fund or the Acquiring Fund (each, a "Fund," and collectively, the "Funds"),
although all actions are actually taken by Investment Series, on behalf of the
Fund, or by Investment Funds, on behalf of the Acquiring 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 holder of shares of beneficial
interests in 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.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of shares of beneficial interests in the Fund holding 20% of the votes
of the Fund entitled to be cast shall be necessary and sufficient to
constitute a quorum for the transaction of business. If the necessary quorum
to transact business or the vote
2
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
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 shares of beneficial interests outstanding and entitled
to vote thereon. Abstentions and broker non-votes will have the effect of a
"no" vote on the Proposal.
Holders of record of shares of beneficial interests in 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
16,210,968.88 shares of the Fund outstanding.
To the best knowledge of Investment Funds, as of August 11, 2000, except as
set forth in ANNEX A, no person owned beneficially more than 5% of any class
of the Acquiring Fund's outstanding shares. To the best 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 the Fund
and the Acquiring Fund were owned directly or beneficially by the trustees or
directors of Investment Series and Investment Funds, respectively.
Each of Investment Series and Investment Funds 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 each of the Fund and the
Acquiring Fund and a copy of any more recent semi-annual report, 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.
3
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The governing board of each of Investment Series and Investment Funds,
including all of the Trustees or Directors, as applicable, 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 Board Members"),
approved on July 17, 2000 an Agreement and Plan of Reorganization (the
"Plan"). Subject to its approval by the holders of shares of beneficial
interests in the Fund, the Plan provides for (a) 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 common stock 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 holders of shares of
beneficial interests in the Fund in complete liquidation of the Fund and the
cancellation of the Fund's outstanding shares of beneficial interests; and (c)
the termination of the Fund as a series of Investment Series (collectively,
the "Reorganization"). As a result of the Reorganization, each holder of
shares of beneficial interests in the Fund will become a shareholder of the
corresponding class of common stock 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 common
stock of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of beneficial interests
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.
Holders of shares of beneficial interests in the Fund should read this entire
Prospectus/Proxy Statement carefully.
Introduction. Like your Fund, the Acquiring Fund is managed by SSB Citi, an
affiliate of Salomon Smith Barney Inc. ("Salomon Smith Barney"), and has a
substantially similar investment objective. James E. Conroy, the portfolio
manager of your Fund, is also the portfolio manager of the Acquiring Fund.
Moreover, the distributor, custodian, transfer agent and sub-transfer agents
of each of the Fund and the Acquiring Fund are also identical. 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,
holders of shares of beneficial interests in the Fund will become shareholders
of the corresponding class of common stock 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 lower management fees and
a total annual expense ratio.
Holders of shares of beneficial interests in the Fund will continue to enjoy
many of the same shareholder privileges, such as systematic investment,
automatic redemption 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). Holders of Shares of beneficial
interests in the Fund have a more limited exchange option. Whereas the Fund
declares dividends from net investment income monthly, the
4
Acquiring Fund declares dividends from net investment income periodically
(which, in the past, has generally been monthly). Each Fund 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.
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 shares of beneficial interests
in 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 record
holders of shares of beneficial interests of the Fund on the Closing Date and
the shares of beneficial interests of the Fund will be cancelled.
For the reasons described below under "Reasons for the Proposed
Transaction," the Board of Investment Series, including the Non-Interested
Board Members, has concluded the following:
-- the Reorganization is in the best interests of the Fund and its holders
of shares of beneficial interests; and
-- the interests of the existing holders of shares of beneficial interests
of the Fund will not be diluted as a result of the Reorganization.
Accordingly, the Board recommends approval of the Plan. If the Plan is not
approved, the Fund will continue in existence unless other action is taken by
the Board; 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 to seek high current return. The Acquiring Fund seeks
to achieve its objective by investing primarily in debt securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities that SSB
Citi believes are undervalued. The Acquiring Fund may also enter into mortgage
roll transactions and use derivatives contracts, such as interest rate futures
and options on interest rate futures, as a hedge or as a substitute for buying
or selling securities.
The investment objective of the Fund is to seek high current return
consistent with preservation of capital. The Fund invests in government debt
issued or guaranteed by the U.S. government, its agencies or instrumentalities
that SSB Citi believes are undervalued. The Fund may also purchase or sell
options on U.S. government securities and enter into interest rate futures
contracts and options on these contracts as a hedge, as a substitute for
buying and selling securities or to enhance return.
Each Fund may purchase short-term investments, money market instruments and
repurchase agreements; lend portfolio securities; and enter into derivative
transactions. Whereas the Fund may not lend portfolio securities in excess of
10% of its assets, the Acquiring Fund may lend its portfolio securities to the
fullest extent permitted by applicable law. Whereas the Fund may (as a
fundamental policy) invest up to 10% of its net assets in illiquid securities,
the Acquiring Fund may (as a non-fundamental policy) invest up to 15% of its
net assets in such securities. Additionally, whereas the Fund may borrow up to
10% of its assets, the Acquiring Fund may borrow up to 33 1/3% of its assets.
Further, the Acquiring Fund may borrow up to 25% of its assets for purposes of
leverage.
5
Each Fund has either identical or substantially similar fundamental
investment restrictions with respect to its diversified status; industry
concentration; purchasing or selling real estate, real estate mortgages,
commodities or commodity contracts; and underwriting securities. Each Fund
also has either identical or substantially similar non-fundamental investment
restrictions with respect to purchasing securities on margin; investing in oil
or other mineral leases; investing in companies for the purpose of acquiring
control; and unseasoned issuers. Investment restrictions of each Fund which
are fundamental policies may not be changed without the approval of the
applicable Fund's shareholders. The Fund's investment restrictions are
substantially similar to those of the Acquiring Fund, except as described in
this Prospectus/Proxy Statement. 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.
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND
The Acquiring Fund seeks high current return.
Principal investment strategies
Key investments. The Acquiring Fund invests primarily in debt securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. These securities include U.S. Treasury securities and
mortgage-related securities. Mortgage-related securities issued by federal
agencies or instrumentalities may be backed by the full faith and credit of
the U.S. Treasury, by the right of the issuer to borrow from the U.S.
government or only by the credit of the issuer itself.
The Acquiring Fund may also enter into mortgage dollar roll transactions
where the fund sells a mortgage related security and simultaneously agrees to
repurchase, at a future date, another mortgage-related security with the same
interest rate and maturity date but generally backed by a different pool of
mortgages. The benefits from these transactions depend on the manager's
ability to forecast mortgage prepayment patterns on different mortgage pools.
The fund may lose money if the securities to be repurchased decline in value
before the date of repurchase.
Selection process. SSB Citi focuses on identifying undervalued securities.
Specifically, SSB Citi:
. Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues
that it believes will provide a yield advantage
. Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and relative value
factors based on interest rate outlook
. Uses research to identify sectors of the government and mortgage markets
that are inefficiently priced, and adjusts portfolio positions to take
advantage of new information
. Measures the potential impact of supply/demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual
securities that balance potential return and risk
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:
6
. Interest rates increase, causing the prices of fixed income securities
to decline and reducing the value of the fund's portfolio
. As interest rates decline, the issuers of mortgage-related securities
held by the fund may pay principal earlier than scheduled or exercise a
right to call the securities, forcing the fund to reinvest in lower
yielding securities. This is known as prepayment or call risk.
. As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in below-
market interest rates and reducing the value of these securities. This
is known as extension risk.
. The manager's judgment about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect
. The fund may engage in active and frequent trading, resulting in high
portfolio turnover. This may lead to the realization and distribution to
shareholders of higher capital gains, increasing their tax liability.
Frequent trading also increases transaction costs, which could detract
from the fund's performance.
Payments of principal and interest on mortgage pools issued by
instrumentalities of the U.S. government are not guaranteed by the U.S.
government. Although mortgage pools issued by the U.S. agencies are guaranteed
with respect to payments of principal and interest, this guarantee does not
apply to losses resulting from declines in the market value of these
securities.
Who may want to invest in the Acquiring Fund
The Acquiring Fund may be an appropriate investment if you:
. Are seeking income consistent with preservation of capital
. Are willing to accept the interest rate risks and market risks of
investing in government bonds and mortgage-related securities
. Prefer to invest in U.S. government securities rather than higher
yielding corporate securities
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund's investment objective is to seek high current return consistent
with preservation of capital. As further set forth herein, the Fund and the
Acquiring Fund have substantially similar investment objectives and policies
and pursue their respective investment objectives using investment practices
(and subject to investment limitations and risks) which are also substantially
similar.
Key investments
The Fund invests primarily in government debt issued or guaranteed by the
U.S. government, its agencies or instrumentalities. These securities include
U.S. Treasury securities, mortgage-related and asset-backed securities. Some
government guaranteed mortgage-related securities are backed by the full faith
and credit of the U.S. Treasury, some are supported by the right of the issuer
to borrow from the U.S. government and some are backed only by the credit of
the issuer itself.
7
In order to hedge against changes in interest rates, the Fund also may
purchase or sell options on U.S. government securities and enter into interest
rate futures contracts and options on these contracts.
How the manager selects the Fund's investments
SSB Citi focuses on identifying undervalued sectors and securities and, in
doing so, employs a selection process substantially similar to that employed
by the Acquiring Fund (described above).
Principal risks of investing in the Fund
The principal risks of investing in the Fund are virtually identical to the
principal risks of investing in the Acquiring Fund set forth above.
Who may want to invest in the Fund
The factors which may make the Fund an appropriate investment for you are
virtually identical to the factors set forth above with respect to the
Acquiring Fund.
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. SSB Citi, located at 388 Greenwich Street, New York, New
York 10013, serves as the Acquiring Fund's investment adviser and
administrator. SSB Citi selects the Acquiring Fund's investments and oversees
its operations. SSB Citi and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial
services--asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading--and use diverse
channels to make them available to consumer and corporate customers around the
world. 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 May 31, 2000 in excess of $218 billion.
Under an investment advisory agreement, the Acquiring Fund currently pays
SSB Citi a monthly fee at the annual rate of 0.35% of the value of its average
daily net assets. As administrator, SSB Citi oversees all aspects of the
Acquiring Fund's administration and operation. For administration services
rendered to the Acquiring Fund, the Acquiring Fund currently pays SSB Citi a
fee at the annual rate of 0.20% of the value of the Acquiring Fund's average
daily net assets. For its management and administration services, SSB Citi
received an aggregate fee during the fund's last fiscal year equal to 0.55% of
the fund's average daily net assets. The total investment management and
administration fees incurred and paid by the Acquiring Fund for the year ended
December 31, 1999 were $[INSERT].
8
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 year
ended December 31, 1999 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 December 31, 2000. The actual expense ratio for the Acquiring
Fund for the year ending December 31, 2000 may be higher or lower than as set
forth below, depending upon the Acquiring Fund's performance, general bond
market and economic conditions, sales and redemptions of the Acquiring Fund
shares (including redemptions by former shareholders of the Fund), and other
factors.
James E. Conroy, investment officer of SSB Citi and managing director of
Salomon Smith Barney, has been responsible for the day-to-day management of the
Acquiring Fund's portfolio since its inception in 1984. Mr. Conroy's management
discussion and analysis of the Acquiring Fund's performance during the fiscal
year ended December 31, 1999 is included in the Acquiring Fund's Annual Report
to Shareholders dated December 31, 1999.
The Fund. The Fund's investment manager is SSB Citi. SSB Citi selects the
Fund's investments and oversees its operations. For its management and
administration services, SSB Citi received a fee during the fund's last fiscal
year equal to 0.60% of the fund's average daily net assets. The total
investment management fees incurred and paid by the Fund for the year ended
October 31, 1999 were $[INSERT].
James E. Conroy (described above) has been the portfolio manager of the Fund
since 1997.
The expenses of the Fund and the Acquiring Fund for the fiscal year ended
October 31, 1999 and December 31, 1999, respectively, and pro forma expenses
following the proposed Reorganization are outlined below. As set forth below,
as of their most recent fiscal year end, each class of shares of the Fund had a
higher management fee and higher gross operating expenses than the
corresponding class of the Acquiring Fund. As a result of the Reorganization,
holders of shares of beneficial interests in the Fund will be investing in the
corresponding class of the Acquiring Fund with expenses that are currently
between 0.21% and 0.53% lower than those of the corresponding class of the
Fund.
ANNUAL FUND OPERATING EXPENSES
The Acquiring Fund Class A Class B Class 1*
- ------------------ ------- ------- --------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases........... 4.50% None 6.75%
(as a percentage of offering price)
Maximum CDSC........................................ None** 4.50% None
(as a percentage of original cost or redemption
proceeds, whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees..................................... 0.55% 0.55% 0.55%
12b-1 fees.......................................... 0.25 0.75 0.00
Other expenses...................................... 0.13 0.11 0.13
---- ---- ----
TOTAL FUND OPERATING EXPENSES......................... 0.93% 1.41% 0.68%
==== ==== ====
9
The Fund Class A Class B Class 1
- -------- ------- ------- -------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases............ 4.50% None 6.75%
(as a percentage of offering price)
Maximum CDSC......................................... None** 4.50% None
(as a percentage of original cost or redemption
proceeds, whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees...................................... 0.60% 0.60% 0.60%
12b-1 fees........................................... 0.25 1.00 0.00
Other expenses....................................... 0.40 0.34 0.29
---- ---- ----
TOTAL FUND OPERATING EXPENSES.......................... 1.25% 1.94% .89%
==== ==== ====
Pro Forma Pro Forma Pro Forma
The Acquiring Fund (Pro Forma) Class A Class B Class 1*
- ------------------------------ --------- --------- ---------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases........ 4.50% None 6.75%
(as a percentage of offering price)
Maximum CDSC..................................... None** 4.50% None
(as a percentage of original cost or redemption
proceeds, whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees.................................. 0.55% 0.55% 0.55%
12b-1 fees....................................... 0.25 0.75 0.00
Other expenses................................... 0.13 0.11 0.13
---- ---- ----
TOTAL FUND OPERATING EXPENSES...................... 0.93% 1.41% 0.68%
==== ==== ====
- --------
* Class 1 Shares of the Acquiring Fund had not commenced operations as of
December 31, 1999. The amounts shown are amounts estimated to be charged
for the fiscal year ending December 31, 2001.
** You may buy Class A Shares in amounts of $500,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge of
1.00%
Example. This Example 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:
10
The Acquiring 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.................................... $541 $733 $ 942 $1,542
Class B.................................... 594 746 871 1,560
Class 1.................................... 740 878 1,028 1,464
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A.................................... $541 $733 $ 942 $1,542
Class B.................................... 144 446 771 1,560
Class 1.................................... 740 878 1,028 1,464
The 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.................................... $572 $829 $1,105 $1,893
Class B.................................... 647 909 1,147 2,085
Class 1.................................... 760 940 1,135 1,697
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A.................................... $572 $829 $1,105 $1,893
Class B.................................... 197 609 1,047 2,085
Class 1.................................... 760 940 1,135 1,697
Pro Forma Pro Forma Pro Forma Pro Forma
The Acquiring 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............................. $541 $733 $ 942 $1,542
Class B............................. 594 746 871 1,560
Class 1............................. 740 878 1,028 1,464
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A............................. $541 $733 $ 942 $1,542
Class B............................. 144 446 771 1,560
Class 1............................. 740 878 1,028 1,464
- --------
* 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.
This example assumes reinvestment of all dividends and distributions. This
example should not be considered a representation 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.
11
DISTRIBUTION OF SHARES AND OTHER SERVICES
As of June 5, 2000, Salomon Smith Barney and PFS Distributors Inc. ("PFS")
distribute shares of each Fund as principal underwriter and as such conduct a
continuous offering pursuant to a "best efforts" arrangement requiring Salomon
Smith Barney and PFS 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.
Each Fund has adopted a plan of distribution under Rule 12b-1 under the 1940
Act (the "Plan"), pursuant to which Salomon Smith Barney and PFS, as
applicable, are paid a service fee with respect to Class A and Class B shares
of each Fund. Salomon Smith Barney and PFS, as applicable, are also paid a
distribution fee with respect to Class B shares of each Fund at the annual
rate of 0.75% in the case of the Fund and 0.50% in the case of the Acquiring
Fund of the average daily net assets attributable to those Classes. 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. Class 1 shares of each Fund do not pay a Rule 12b-1 fee or a
distribution fee. The fees are used by Salomon Smith Barney and PFS, as
applicable, to pay their respective 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.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Salomon Smith Barney or PFS
and the payments may exceed those distribution expenses actually incurred.
Please refer to each Fund's prospectus and statement of additional information
for a more detailed discussion of the distribution and shareholder servicing
arrangements applicable to each class of shares of a Fund.
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), holders of shares of beneficial interests in the Fund have a
more limited exchange option. 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
Whereas the Fund declares dividends from net investment income monthly, the
Acquiring Fund declares dividends from net investment income periodically
(which, in the past, has generally been monthly). Each Fund pays distributions
of net realized capital gains, if any, annually. Each Fund intends to
distribute any net realized capital gains after utilization of capital loss
carryforwards, if any, in November or December to prevent application of a
federal excise tax. An additional distribution may be made if necessary. 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.
12
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 "Federal Income Tax Consequences."
PRINCIPAL INVESTMENTS AND RISK FACTORS
As set forth herein, the Fund and the Acquiring Fund have substantially
similar investment objectives and policies and pursue their respective
objectives in a substantially similar manner. Accordingly, the Funds engage in
investments practices and techniques that are substantially similar. However,
the investment practices and limitations of each Fund (and the risks related
thereto) are not identical. For instance, the Acquiring Fund may engage in
leverage, is generally subject to more restrictive limitations in connections
with its use of options and futures contracts and is generally subject to less
restrictive limitations with respect to securities lending and borrowing. The
skill of each Fund's portfolio management team in choosing appropriate
investments for the relevant Fund will determine in large part its ability to
achieve its investment objective.
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 April 28, 2000, as supplemented from
time to time, a copy of which is included herewith, and in the Statement of
Additional Information of Investment Series and the Acquiring Fund dated ,
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.
An investment in each of the Acquiring Fund and the Fund includes certain
risks and special considerations, such as those described below:
Fixed Income Securities. Investments in fixed income securities may subject
a Fund to risks, including the following:
Interest Rate Risk. When interest rates decline, the market value of
fixed income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed income securities tends to decline. The
volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations, causing a Fund to sustain losses on such investments. A
default could impact both interest and principal payments.
13
Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may
exercise its right to pay principal on an obligation earlier than
scheduled, which would cause cash flows to be returned earlier than
expected. This typically results when interest rates have declined and a
Fund will suffer from having to reinvest in lower yielding securities.
Extension risk exists when the issuer may exercise its right to pay
principal on an obligation later than scheduled, which would cause cash
flows to be returned later than expected. This typically results when
interest rates have increased, and a Fund will suffer from the inability to
invest in higher yield securities.
Lower Rated and Below Investment Grade Fixed-Income Securities. Securities
rated in the fourth highest ratings category by a Nationally Recognized
Statistical Rating Organization (an "NRSRO"), such as those rated BBB by S&P
or Baa by Moody's, are generally regarded as having adequate capacity to pay
interest and repay principal, but may have some speculative characteristics.
Securities rated below the fourth highest ratings category by an NRSRO,
including those rated below Baa by Moody's or BBB by S&P, are not "investment
grade," and may have more speculative characteristics, including the
possibility of default or bankruptcy of the issuers of such securities, market
price volatility based upon interest rate sensitivity, questionable
creditworthiness and relative liquidity of the secondary trading market.
Because high yield bonds have been found to be more sensitive to adverse
economic changes or individual corporate developments and less sensitive to
interest rate changes than higher-rated investments, an economic downturn
could disrupt the market for high yield bonds and adversely affect the value
of outstanding bonds and the ability of issuers to repay principal and
interest. In addition, in a declining interest rate market, issuers of high
yield bonds may exercise redemption or call provisions, which may force a
Fund, to the extent it owns such securities, to replace those securities with
lower yielding securities. This could result in a decreased return.
Derivative Instruments. In accordance with its investment policies, a Fund
may invest in certain derivative instruments which are securities or contracts
that provide for payments based on or "derived" from the performance of an
underlying asset, index or other economic benchmark. Essentially, a derivative
instrument is a financial arrangement or a contract between two parties (and
not a true security like a stock or a bond). Transactions in derivative
instruments can be, but are not necessarily, riskier than investments in
conventional stocks, bonds and money market instruments. A derivative
instrument is more accurately viewed as a way of reallocating risk among
different parties or substituting one type of risk for another. Every
investment by the Fund, including an investment in conventional securities,
reflects an implicit prediction about future changes in the value of that
investment. Every Fund investment also involves a risk that the portfolio
manager's expectations will be wrong. Transactions in derivative instruments
often enable the Fund to take investment positions that more precisely reflect
the portfolio manager's expectations concerning the future performance of the
various investments available to the Fund. Derivative instruments can be a
legitimate and often cost-effective method of accomplishing the same
investment goals as could be achieved through other investment in conventional
securities.
Derivative contracts include options, futures contracts, forward contracts,
forward commitment and when-issued securities transactions, forward foreign
currency exchange contracts and interest rate, mortgage and currency swaps.
The following are the principal risks associated with derivative instruments:
Market risk: The instrument will decline in value or that an alternative
investment would have appreciated more, but this is no different from the
risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market changes,
but this risk may be consistent with the investment objective of even a
conservative fund in order to achieve an average portfolio volatility that
is within the expected range for that type of fund.
14
Credit risk: The issuer of the instrument may default on its obligation
to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are traded in
institutional markets rather than on an exchange. Nevertheless, many
derivative instruments are actively traded and can be priced with as much
accuracy as conventional securities. Derivative instruments that are custom
designed to meet the specialized investment needs of a relatively narrow
group of institutional investors such as the Fund are not readily
marketable and are subject to the Fund's restrictions on illiquid
investments.
Correlation risk: There may be imperfect correlation between the price of
the derivative and the underlying asset. For example, there may be price
disparities between the trading markets for the derivative contract and the
underlying asset.
Each derivative instrument purchased for a Fund's portfolio is reviewed and
analyzed by the Fund's portfolio manager to assess the risk and reward of each
such instrument in relation the Fund's portfolio investment strategy. The
decision to invest in derivative instruments or conventional securities is
made by measuring the respective instrument's ability to provide value to the
Fund and its shareholders.
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. For example, if at the time of purchase, 10%
of the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess
of the amount invested in the futures contract. A Fund, however, would
presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying financial instrument and sold it
after the decline. Where the 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.
Furthermore, in the case of a futures contract purchase, in order to be
certain that a Fund has sufficient assets to satisfy its obligations under a
futures contract, the Fund segregates and commits to back the futures contract
an amount of cash and liquid securities equal in value to the current value of
the underlying instrument less the margin deposit.
15
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.
As with options on debt securities, the holder of an option may terminate
his position by selling an option of the same series. There is no guarantee
that such closing transactions can be effected. A Fund will be required to
deposit initial margin and maintenance margin with respect to put and call
options on futures contracts described above, and, in addition, net option
premiums received will be included as initial margin deposits.
In addition to the risks which apply to all option transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain
that this market will develop. A Fund will not purchase options on futures
contracts on any exchange unless and until, in SSB Citi's opinion, the market
for such options had developed sufficiently that the risks in connection with
options on futures contracts are not greater than the risks in connection with
futures contracts. Compared to the use of futures contracts, the purchase of
options on futures contracts involves less potential risk to the Fund because
the maximum amount of risk is the premium paid for the options (plus
transaction costs). Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as described above.
Defensive Investing. Each Fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-
term debt securities. If a Fund takes a temporary defensive position, it may
be unable to achieve its investment objective.
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 common
stock of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of the holder's shares of beneficial interests in
the Fund as of the close of business on the business day preceding the date of
the Closing. The Acquiring Fund will assume all of the stated liabilities of
the Fund. In connection with the Closing, the Fund will distribute the shares
of the corresponding class 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 holder of shares of beneficial
interests in 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 holder's shares of
beneficial interests in the Fund immediately as of the close of business on
the Closing Date. Each Fund shareholder's account with Investment Series as a
shareholder of the Acquiring Fund will be substantially similar in all
material respects to the accounts
16
currently maintained by the Fund's transfer agent for such shareholder. Some
of the outstanding shares of beneficial interests 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, holders of shares of beneficial interests in 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. Investment
Series and Investment Funds 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 or
Directors of either Fund, notwithstanding the approval of the Plan by the
holders of shares of beneficial interests in the Fund. However, no amendment
may be made that materially adversely affects the interests of the holders of
shares of beneficial interests in the Fund without obtaining the approval of
the Fund's shareholders. Investment Series and Investment Funds 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 $133,625. Shareholders have no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
At a telephonic meeting of the Board of Trustees of Investment Series held
on July 17, 2000, the Trustees of the Fund, including all of the Non-
Interested Board Members, were presented with materials discussing the
benefits which would accrue to the holders of shares of beneficial interests
in 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 Board Members, has determined that the
proposed
17
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
substantially similar investment objectives and policies that is
professionally managed by the same portfolio manager. The Board of Trustees of
Investment Series believes that the proposed Reorganization 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. Having determined that the offering of multiple
funds with substantially similar objectives and identical portfolio managers
is both repetitious and confusing, 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.
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 management fees and 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 fees and
expenses incurred by the Fund.
While past performance is not necessarily indicative of future results, the
Acquiring Fund has generally produced better total returns than the Fund over
the periods ended December 31, 1999. See "Capitalization and Performance".
[During each of these periods, the Acquiring Fund has ranked 161 out of 188 in
its Lipper Category, while the Fund has ranked 165 out of 189 in its Lipper
Category. However, while the Acquiring Fund has a one-star Morningstar rating,
the Fund has a two-star Morningstar rating in their respective rating
categories.]
Lower Fees and Expenses. If the proposed transaction is approved, holders of
shares of beneficial interests in the Fund may benefit from both lower
management fees and 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 had a higher management fee and higher gross operating
expenses than the corresponding class of the Acquiring Fund. As a result of
the Reorganization, holders of shares of beneficial interests in the Fund will
be investing in the corresponding class of the Acquiring Fund with expenses
that are currently between [0.23%] and 0.53% lower than those of the
corresponding class of the Fund. [If the Reorganization is approved by
shareholders of the Fund, the Acquiring Fund's net expense ratio for each
class of its shares is estimated to remain unchanged for the year ending
December 31, 2001.]
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. Other things being equal, shareholders should benefit from economies of
scale through lower expense ratios and higher net income distributions over
time.
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
holders of shares of beneficial interests would benefit from a tax-free
reorganization with a larger fund
18
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.
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 managed by the
same portfolio manager, which may increase economic and other efficiencies
(for example, 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;
(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 return levels;
(6) the lower management fees and 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 interests
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 a Fund have the same
rights, privileges and preferences, except with respect to: (a) the
designation of each Class; (b) the amount of the respective sales charges, if
any, for each Class; (c) the distribution and/or service fees borne by each
Class; (d) the expenses allocable exclusively to each Class; (e) voting rights
on matters exclusively affecting a single Class; (f) the exchange privilege of
each Class; and (g) the conversion feature of the Class B Shares.
Each share of each Class of a Fund represents an interest in that Class of
the Fund that is equal to and proportionate with each other share of that
Class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote.
19
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.
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
20
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.
The foregoing is only a summary of certain characteristics of the operations
of Investment Series and Investment Funds. The foregoing is not a complete
description of the documents cited. Shareholders should refer to the
provisions of the corporate and 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 beneficial interests in 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 beneficial
interests in 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
holders of beneficial interests in the Fund upon the receipt of Shares solely
in exchange for their shares of beneficial interests in the Fund as part of
the transaction; (vii) the basis of Shares received by the holders of shares
of beneficial interests in the Fund will be the same as the basis of shares of
beneficial interests in the Fund exchanged therefor; and (viii) the holding
period of Shares received by the holders of shares of beneficial interests in
the Fund will include the holding period during which the shares of beneficial
interests in the Fund exchanged therefor were held, provided that at the time
of the exchange the shares of beneficial interests in the Fund were held as
capital assets in the hands of the holders of shares of beneficial interests
in 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.
21
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 securities
will be maintained by the Acquiring Fund. Currently, a significant rebalancing
of the Fund portfolio securities in connection with the Reorganization is not
anticipated. 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 year
ended December 31, 1999 was [161%]. The portfolio turnover rate for the Fund
for the year ended October 31, 1999 was 201%.
22
CAPITALIZATION AND PERFORMANCE
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 Citifunds Pro Forma Pro Forma
Fund The Fund Series(2) Adjustments(2) Combined
------------ ------------ ----------- -------------- ------------
(Actual) (Actual) (Actual)
Class A
Net Assets.............. $269,993,291 $ 19,279,947 $38,653,438 $327,926,676
Net Asset Value Per
Share.................. $9.07 $9.60 $9.18 $9.07
Shares Outstanding...... 29,755,825 2,007,327 4,211,626 6,387,363 36,143,188
Class B
Net Assets.............. $ 50,297,784 $ 14,504,159 $ 1,685,554 $ 66,487,497
Net Asset Value Per
Share(3)............... $9.08 $9.63 $9.20 $9.08
Shares Outstanding...... 5,538,032 1,506,227 183,225 1,783,008 7,321,040
Class 1(3)
Net Assets.............. -- $131,224,333 -- $131,224,333
Net Asset Value Per
Share.................. $9.07 $9.63 -- $9.07
Shares Outstanding...... 13,623,918 -- 14,467,953 14,467,953
- --------
(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.
(2) Assumes the consummation of a reorganization pursuant to which the assets
of CitiFunds Intermediate Income portfolio, a series of CitiFunds Fixed
Income Trust, are acquired by the Acquiring Fund.
(3) Assumes subscriptions of Class 1 shares in acquiring fund at Class A NAV.
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.
23
The following table reflects the average annual total returns of Class B
Shares of the Fund (not including sales charges) and the Acquiring Fund
(including sales charges) for the 1, 5 and 10 year and since inception
periods, as applicable, ending December 31, 1999:
The Fund The Acquiring Fund
-------- ------------------
Average Annual Total Return:(1)
1-year............................................ (9.77%) (9.42%)
5-year............................................ N/A 5.25%
10-year........................................... N/A 6.20%
Since Inception................................... 2.69% 7.27%
(8/08/96) (3/20/84)
- --------
(1) The average annual total returns for other classes of each Fund's shares
would be similar to the returns of the Class B Shares of the relevant
Fund, but would differ to the extent that the other class of shares had a
higher or lower total annual expense ratio during the relevant periods.
For example, the average annual total returns of Class 1 Shares of the
Fund, which are subject to a lower total annual expense ratio, were as
follows: 1-year: (11.16%); 5-year: 4.34%; 10-year: 5.46%; and since
inception: 5.94% (4/14/87). Class 1 Shares of the Acquiring Fund had not
been issued as of the date of this Prospectus/Proxy Statement.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about Investment Series with respect
to the Fund, 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 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, holders of shares of beneficial
interests in the Fund may submit the proxy card originally sent with this
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
ANNEX:5% Shareholders of the Acquiring Fund
Exhibit A:Form of Agreement and Plan of Reorganization
ANNEX A
5% SHAREHOLDERS OF THE ACQUIRING FUND
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 Government 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 Government Securities Fund (the "Acquired 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 the stated 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.
A-1
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.
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.
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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 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.
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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 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 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 year ended October 31, 1999,
has 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
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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 October 31, 1999, 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 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
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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 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
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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 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 year ended December 31,
1999 has 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 December 31, 1999, 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 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;
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(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;
(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.
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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 December 31, 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.
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.
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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 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
A-10
(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.
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;
A-11
(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 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;
A-12
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 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
A-13
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.
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
A-14
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.
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 Smith Barney
Government Fund
By: _________________________________
Name:
Title:
Attest: Smith Barney Investment Funds Inc.
on behalf of the Smith Barney
Government Securities Fund
By: _________________________________
Name:
Title:
Attest: SSB Citi Fund Management LLC
By: _________________________________
Name:
Title:
A-16
(This page is intentionally left blank.)
THE PROSPECTUS AND ANNUAL REPORT OF THE ACQUIRING FUND
DATED APRIL 28, 2000 AND DECEMBER 31, 1999, RESPECTIVELY,
ARE INCORPORATED BY REFERENCE TO THE MOST RECENT
FILINGS THEREOF BY INVESTMENT FUNDS
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
GOVERNMENT SECURITIES FUND (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT FUNDS INC.
("INVESTMENT FUNDS")
OF THE ASSETS OF
GOVERNMENT 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(R), to the Acquiring Fund, a series of Investment Funds, in exchange for
shares of the corresponding class of common stock 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 April
28, 2000.
2. Statement of Additional Information for the Fund, dated February 28,
2000.
3. Annual Report of the Acquiring Fund for the year ended December 31,
1999.
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 Annual Report of Investment Funds for the year ended December 31, 1999
and the Annual Report of Investment Series for the year ended October 31, 1999,
each 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 Government Fund & CitiFunds Intermediate
Income Portfolio Into Smith Barney Government Securities Fund
Smith Barney Concert Investment Series
Government Securities Fund Government Fund
-------------------------- -------------------------
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (unaudited) As of As of
4/30/2000 4/30/2000
ASSETS:
Investments, at value $ 610,913,166 $169,272,131
Cash 912 75,180
Dividends & interest receivable 2,957,853 830,220
Receivable for Fund shares sold 817,824 6,182
Receivable from Sub-administrator - -
Other assets - 83,359
--------------------- -------------------
Total Assets $ 614,689,755 $170,267,072
--------------------- -------------------
LIABILITIES:
Allocation of assets and liabilities of Hub (net) -
Payable for Fund shares redeemed -
Payable for securities purchased - 200
Trustees retirement plan - 88,194
Management fees payable 268,100 99,807
Distribution costs payable 260,822 24,081
Dividend payable 3,040,134 867,336
Accrued expenses and other liabilities 77,394 251,866
--------------------- -------------------
Total Liabilities 3,646, 450 1,331,484
--------------------- -------------------
Net Assets $ 611,043,305 $168,935,588
===================== ===================
NET ASSETS:
Par value of capital shares 67,860 176,700
Capital paid in excess of par value 710,405,672 217,072,459
Undistributed net investment income (loss) 861,552 626,760
Accumulated net realized gain (loss) (100,191,141) (48,757,423)
Net unrealized appreciation of investments (100,638) (182,908)
--------------------- -------------------
Net Assets $ 611,043,305 $168,935,588
===================== ===================
Outstanding Shares:
- ------------------
CLASS A 30,250,188 2,098,195
===================== ===================
CLASS B 6,111,045 1,513,046
===================== ===================
CLASS L 696,410 -
===================== ===================
CLASS Y 24,117,467 -
===================== ===================
CLASS Z 6,684,786 -
===================== ===================
CLASS 1 - 14,058,758
===================== ===================
Net Asset Value
- ---------------
CLASS A (and redemption price) $ 9.00 $ 9.54
===================== ===================
CLASS B $ 9.01 $ 9.56
===================== ===================
CLASS L $ 9.01 -
===================== ===================
CLASS Y $ 9.00 -
===================== ===================
CLASS Z $ 9.00 -
===================== ===================
CLASS 1 - $ 9.56
===================== ===================
CLASS A MAXIMUM OFFERING PRICE $ 9.42 $ 9.99
===================== ===================
CLASS L MAXIMUM OFFERING PRICE $ 9.10 -
===================== ===================
CLASS 1 MAXIMUM OFFERING PRICE - $ 10.25
===================== ===================
Smith Barney
Government
CitiFunds Intermediate Securities Fund
Income Portfolio Adjustments Pro Forma
------------------------ ----------- ---------------
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (unaudited) As of
4/30/2000
ASSETS:
Investments, at value $48,791,162 $ - $ 828,976,459
Cash - - 76,092
Dividends & interest receivable - - 3,788,073
Receivable for Fund shares sold 6,001 - 830,007
Receivable from Sub-administrator 60,396 - 60,396
Other assets - - 83,359
------------------------ ----------- --------------
Total Assets $48,857,559 0 $ 833,814,386
------------------------ ----------- --------------
LIABILITIES:
Allocation of assets and liabilities of Hub (net) 6,132,873 - 6,132,873
Payable for Fund shares redeemed 68,520 - 68,520
Payable for securities purchased - - 200
Trustees retirement plan - - 88,194
Management fees payable - - 367,907
Distribution costs payable - - 284,903
Dividend payable 22,591 - 3,930,061
Accrued expenses and other liabilities 59,322 388,582
------------------------ ----------- --------------
Total Liabilities 6,283,306 0 11,261,240
------------------------ ----------- --------------
Net Assets $42,574,253 $166,089 $ 822,553,146
======================== =========== ==============
NET ASSETS:
Par value of capital shares - - $ 244,560
Capital paid in excess of par value 49,624,363 - 977,102,494
Undistributed net investment income (loss) 143,118 - 1,631,430
Accumulated net realized gain (loss) (5,449,486) - (154,398,050)
Net unrealized appreciation of investments (1,743,742) - (2,027,288)
------------------------ ----------- --------------
Net Assets $42,574,253 $ 0 $ 822,553,146
======================== =========== ==============
Outstanding Shares:
- ------------------
CLASS A 4,468,938 6,747,645 36,997,833
========================
CLASS B 206,477 1,814,634 7,925,679
========================
CLASS L - - 696,410
========================
CLASS Y - - 24,117,467
========================
CLASS Z - - 6,684,786
========================
CLASS 1 - 14,933,525 * 14,933,525
========================
Net Asset Value
- ---------------
CLASS A (and redemption price) $ 9.11 $ 9.00
========================
CLASS B $ 9.13 $ 9.01
========================
CLASS L - $ 9.01
========================
CLASS Y - $ 9.00
========================
CLASS Z - $ 9.00
========================
CLASS 1 - $ 9.00
========================
CLASS A MAXIMUM OFFERING PRICE $ 9.54 $ 9.42
======================== ==============
CLASS L MAXIMUM OFFERING PRICE - $ 9.10
======================== ==============
CLASS 1 MAXIMUM OFFERING PRICE - $ 9.65
======================== ==============
a) Due to elimination of fee waivers and decrease in expenses
* 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 Government Fund & CitiFunds Intermediate
Income Portfolio Into Smith Barney Government Securities Fund
Smith Barney Concert Investment Series CitiFunds Intermediate
Government Securities Fund Government Fund Income Portfolio
------------------------- --------------- ----------------
PRO FORMA STATEMENT OF OPERATIONS (unaudited) For the For the For the
12 Months 12 Months 12 Months
04/30/2000 04/30/2000 04/30/2000
INVESTMENT INCOME:
Interest $42,290,973 $13,296,694 $3,790,530
Dividends - - 85,321
Less: Interest expense - (12,009) -
------------- ------------- -------------
Total Investment Income $42,290,973 13,284,685 3,875,851
EXPENSES:
Allocated HUB Management Fee - - 198,262
Allocated HUB Expenses - - 29,926
Management fees 3,578,196 1,178,098 198,518
Distribution costs 1,315,476 218,369 153,846
Shareholder & system servicing fees 318,057 326,927 64,360
Shareholder communications 82,036 48,795 37,655
Registration fees 67,048 20,828 -
Custodian fees/Fund Accounting 37,939 16,161 38,271
Legal and auditing fees 41,543 28,675 60,130
Directors' fees 52,329 15,848 12,990
Other 25,585 784 20,330
- - -
Total Expenses 5,518,209 1,854,485 814,288
------------- ------------- -------------
Less: Management Fee Waivers - - (291,785)
Net Expenses 5,518,209 1,854,485 522,503
------------- ------------- -------------
NET INVESTMENT INCOME 36,772,764 11,430,200 3,353,348
============= ============= =============
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) From:
Security Transactions (excluding short term securities) (55,384,865) (18,095,764) (3,305,174)
Futures contracts (2,894,658) (724,880) 190,117
Net Change in Unrealized Appreciation of Investments 9,986,341 3,973,737 (1,100,074)
------------- ------------- -------------
Net Gain (Loss) On Investments (48,293,182) (14,846,907) (4,215,131)
Increase (Decrease) in Net Assets Resulting from Operations ($11,520,418) ($3,416,707) ($861,783)
============= ============= =============
Smith Barney
Government Securities
Fund
Adjustments Pro Forma
----------- ---------
INVESTMENT INCOME:
Interest
Dividends - $ 59,378,197
Less: Interest expense - 85,321
- (12,009)
Total Investment Income ------------- --------------
- 59,451,509
EXPENSES:
Allocated HUB Management Fee
Allocated HUB Expenses (198,262) a) -
Management fees (29,926) a) -
Distribution costs 23,658 a) 4,978,470
Shareholder & system servicing fees - 1,687,691
Shareholder communications (21,521) b) 687,823
Registration fees (64,399) c) 104,087
Custodian fees/Fund Accounting (15,828) c) 72,048
Legal and auditing fees (44,248) c) 48,123
Directors' fees (70,348) c) 60,000
Other (21,000) c) 60,167
(16,000) c) 30,699
Total Expenses -
(457,874) 7,729,108
------------ --------------
Less: Management Fee Waivers 291,785 -
Net Expenses (166,089) 7,729,108
------------ --------------
NET INVESTMENT INCOME 166,089 51,722,401
------------ ==============
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) From:
Security Transactions (excluding short term securities) - ($76,785,803)
Futures contracts - (3,429,421)
Net Change in Unrealized Appreciation of Investments - 12,860,004
------------ -
Net Gain (Loss) On Investments - ($67,355,220)
Increase (Decrease) in Net Assets Resulting from Operations $ 166,089 $ (15,632,819)
============ ==============
(a) Reflects elimination of allocated Hub Expenses and recalculation of
Management fees at 0.55% (0.35% advisory, 0.20% admin.)
(b) Reflects adjustment for lower T/A fees.
(c) Decrease due to duplicate services
See accompanying notes to pro forma financial statements.
Merger of Concert Investment Series Government Fund & CitiFunds Intermediate
Income Portfolio Into Smith Barney Government Securities Fund
- ------------------------------------------------------------------------------------------------------------------
Adjustment to Management Fee Calculation:
Average Net Assets
------------------
Concert Investment Series Government Fund - old rate 198,020,069 0.60% (1,178,098)
CitiFunds Intermediate Income - old rate 56,574,243 0.35% (198,518)
Concert Investment Series Government Fund - new rate 198,020,069 0.55% 1,089,110
CitiFunds Intermediate Income - new rate 56,574,243 0.55% 311,158
------------------
adjustment to Management fees 23,653
==================
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Transfer Agent Fees: (Shareholder and system servicing fees)
Concert Investment Series Government Fund T/A should not change, PFS will remain the primary T/A for the
accounts from that Fund.
Average Net Assets
------------------
CitiFunds Intermediate Income - old rate (64,360)
CitiFunds Intermediate Income - new rate Class A 54,170,663 0.075% 40,628
CitiFunds Intermediate Income - new rate Class B 2,403,580 0.092% 2,211
------------------
adjustment to T/A fees (21,521)
==================
- ------------------------------------------------------------------------------------------------------------------
Adjustment to Custody Fee Calculation:
Average Net Assets
------------------
Concert Investment Series Government Fund - old rate 198,020,069 (16,161)
CitiFunds Intermediate Income - old rate 56,574,243 (38,271)
Concert Investment Series Government Fund - new rate 198,020,069 0.004% * 7,921
CitiFunds Intermediate Income - new rate 56,574,243 0.004% * 2,263
------------------
adjustment to Management fees (44,248)
==================
* assumes rate of .0035% plus allowance for transactions
- ------------------------------------------------------------------------------------------------------------------
Pro Forma Footnotes of Merger Between Smith Barney Government Securities Fund,
Concert Investment Series (R) ("CIS") Government Fund and CitiFunds Intermediate
Income Portfolio.
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 the
CIS Government Fund and CitiFunds Intermediate Income Portfolio ("the Acquired
Funds") by the Smith Barney Government Securities Fund ("Fund" or "Government
Fund") in exchange for shares of Government Fund and the assumption by
Government Fund of substantially all of the liabilities of the Acquired Funds 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 Funds for shares of Government 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 Funds in exchange for shares of Government 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 Funds as that date is more recent
than the most recently filed financial statements for Government Fund.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedule of investments of the Acquired Funds
and Government Fund which are included in their respective annual reports dated
October 31, 1999 and December 31, 1999, respectively. The expense of the
reorganization, including the cost of the proxy solicitation, will be borne by
SSB Citi Fund Management LLC ("SSBC"), Government 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
Government Fund, a series of Investment Funds, 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 Government 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 and
administration agreements 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 Government Fund. Government Fund pays SSBC an
advisory fee calculated at the following annual rates of average daily net
assets: 0.35% up to $2 billion, 0.30% of the next $2 billion, 0.25% of the next
$2 billion and 0.15% of the remaining average daily net assets. This fee is
calculated daily and paid monthly.
Under an administration agreement, SSBC also acts as Government Fund's
administrator for which Government Fund pays a fee calculated at an annual rate
of 0.20% of the average daily net assets. This fee is also calculated daily and
paid monthly.
Under these agreements, Government Fund pays SSBC a maximum annual combined fee
of 0.55% of average net assets for both investment advisory and administration
services. Under an agreement between Citibank, N.A., a subsidiary of Citigroup
and CitiFunds Intermediate Income Portfolio, Citibank, N. A. receives a combined
annual fee of 0.75% for such services. Under an agreement between SSBC and CIS
Government Fund, SSBC receives 0.60% for such services.
Citi Fiduciary Trust Company ("CFTC"), a subsidiary of Citigroup, is Government
Fund's transfer agent. Salomon Smith Barney Inc., another subsidiary of
Citigroup, acts as Government Fund's distributor.
SCHEDULE OF INVESTMENTS
Portfolio of Investments April 30, 2000 (Unaudited)
Smith Barney Government Securities Fund,
Concert Investment Series Government Fund &
CitiFunds Intermediate Income Portfolio
Pro Forma Schedule of Investments (unaudited)
FACE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS - 17.7%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT SECURITIES SECURITY
GOVERNMENT INVESTMENT SERIES INTERMEDIATE FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
- - $ 1,105,000 $ 1,105,000 U.S. Treasury Bonds, 8.125% due 8/15/19
- - 835,000 835,000 U.S. Treasury Bonds, 3.625% due 4/15/28
- - 526,000 526,000 U.S. Treasury Bonds, 3.875% due 4/15/29
- - 321,000 321,000 U.S. Treasury Bonds, 6.125% due 8/15/29
- - 22,000 22,000 U.S. Treasury Notes, 5.500% due 12/31/00
- - 235,000 235,000 U.S. Treasury Notes, 6.50% due 5/31/01
- - 61,000 61,000 U.S. Treasury Notes, 5.875% due 11/15/04
- - 710,000 710,000 U.S. Treasury Notes, 6.875% due 5/15/06
- - 926,000 926,000 U.S. Treasury Notes, 6.625% due 5/15/07
- - 1,277,000 1,277,000 U.S. Treasury Notes, 6.500% due 2/15/10
$ 98,562,000 $ 29,800,000 - 128,362,000 U.S. Treasury Strips, zero Coupon, due 11/15/09
7,000,000 2,500,000 - 9,500,000 U.S. Treasury Strips, zero Coupon, due 11/15/18
166,000,000 50,000,000 - 216,000,000 U.S. Treasury Strips, zero Coupon, due 2/15/19
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL U. S. TREASURY OBLIGATIONS
====================================================================================================================================
ASSET - BACKED SECURITIES - 1.3%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT SECURITIES
GOVERNMENT INVESTMENT SERIES INTERMEDIATE FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
- - 691,000 691,000 Aames Mortgage Trust, 6.590% due 6/15/24
- - 1,020,000 1,020,000 Aircraft Financial Trust, 8.000% due 5/15/24
- - 606,000 606,000 Amresco Residential Securities, 6.245% due 4/25/22
- - 714,000 714,000 Asset Securitization Corp., Series 95, due 7.384% due 8/13/29
- - 467,000 467,000 Asset Securitization Corp., Series 97, due 6.500% due 2/14/41
- - 650,000 650,000 First Union, Lehman Brothers, 6.479% due 3/18/04
- - 408,000 408,000 GE Capital Mortgage Services, Inc., 5.905% due 10/25/13
- - 404,000 404,000 GE Capital Mortgage Services, Inc., 7.000% due 10/25/23
- - 620,000 620,000 GMAC Commercial Mortgage Inc., 6.830% due 12/15/03
- - 226,000 226,000 GMAC Commercial Mortgage Inc., 6.420% due 8/15/08
- - 918,000 918,000 GMAC Commercial Mortgage Inc., 7.724% due 12/15/09
- - 1,020,000 1,020,000 Green Tree Financial Corp., 8.050% due 10/15/27
- - 785,000 785,000 Green Tree Financial Corp., 6.710% due 8/15/29
- - 612,000 612,000 Green Tree Financial Corp., 8.410% due 12/1/30
- - 294,000 294,000 IMC Home Equity Loan Trust, 6.160% due 5/20/14
- - 393,000 393,000 JP Morgan Commercial Mortgage Financial, 6.373% due 1/15/30
- - 318,000 318,000 Merrill Lynch Mortgage Co., 6.950% due 6/18/29
- - 665,000 665,000 Morgan Stanley Capital Investment Inc., 6.440% due 11/15/02
- - 150,000 150,000 Nissan Auto Receivables Grantor, 6.150% due 2/15/03
- - 612,000 612,000 Nomura Asset Securitization Corp., 8.150% due 3/04/20
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSET - BACKED SECURITIES
April 30, 2000
MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT SECURITIES
GOVERNMENT INVESTMENT SERIES INTERMEDIATE FUND
SECURITY SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8.125% due 8/15/19 - - $ 1,327,315 $ 1,327,315
U.S. Treasury Bonds, 3.625% due 4/15/28 - - 799,907 799,907
U.S. Treasury Bonds, 3.875% due 4/15/29 - - 527,514 527,514
U.S. Treasury Bonds, 6.125% due 8/15/29 - - 322,052 322,052
U.S. Treasury Notes, 5.500% due 12/31/00 - - 22,293 22,293
U.S. Treasury Notes, 6.50% due 5/31/01 - - 234,452 234,452
U.S. Treasury Notes, 5.875% due 11/15/04 - - 59,584 59,584
U.S. Treasury Notes, 6.875% due 5/15/06 - - 721,456 721,456
U.S. Treasury Notes, 6.625% due 5/15/07 - - 932,236 932,236
U.S. Treasury Notes, 6.500% due 2/15/10 - - 1,302,376 1,302,376
U.S. Treasury Strips, zero Coupon, due 11/15/09 $ 53,004,67 $ 16,025,844 - 69,030,516
U.S. Treasury Strips, zero Coupon, due 11/15/18 2,260,932 807,475 - 3,068,405
U.S. Treasury Strips, zero Coupon, due 2/15/19 52,892,580 15,931,500 - 68,824,080
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL U. S. TREASURY OBLIGATIONS 108,158,182 32,764,819 6,249,185 147,172,186
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
GOVERNMENT
SMITH BARNEY CONCERT CITIFUNDS SECURITIES
GOVERNMENT INVESTMENT SERIES INTERMEDIATE FUND
SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
Aames Mortgage Trust, 6.590% due 6/15/24 - - 686,420 686,420
Aircraft Financial Trust, 8.000% due 5/15/24 - - 933,035 933,035
Amresco Residential Securities, 6.245% due 4/25/22 - - 601,565 601,565
Asset Securitization Corp., Series 95, due 7.384% due 8/13/29 - - 697,557 697,557
Asset Securitization Corp., Series 97, due 6.500% due 2/14/41 - - 458,740 458,740
First Union, Lehman Brothers, 6.479% due 3/18/04 - - 636,503 636,503
GE Capital Mortgage Services, Inc., 5.905% due 10/25/13 - - 401,721 401,721
GE Capital Mortgage Services, Inc., 7.000% due 10/25/23 - - 378,973 378,973
GMAC Commercial Mortgage Inc., 6.830% due 12/15/03 - - 616,739 616,739
GMAC Commercial Mortgage Inc., 6.420% due 8/15/08 - - 208,440 208,440
GMAC Commercial Mortgage Inc., 7.724% due 12/15/09 - - 917,204 917,204
Green Tree Financial Corp., 8.050% due 10/15/27 - - 1,002,782 1,002,782
Green Tree Financial Corp., 6.710% due 8/15/29 - - 728,969 728,969
Green Tree Financial Corp., 8.410% due 12/1/30 - - 580,060 580,060
IMC Home Equity Loan Trust, 6.160% due 5/20/14 - - 292,523 292,523
JP Morgan Commercial Mortgage Financial, 6.373% due 1/15/30 - - 381,783 381,783
Merrill Lynch Mortgage Co., 6.950% due 6/18/29 - - 313,051 313,051
Morgan Stanley Capital Investment Inc., 6.440% due 11/15/02 - - 653,797 653,797
Nissan Auto Receivables Grantor, 6.150% due 2/15/03 - - 148,390 148,390
Nomura Asset Securitization Corp., 8.150% due 3/04/20 - - 617,985 617,985
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSET - BACKED SECURITIES - - 11,256,237 11,256,237
Smith Barney Government Securities Fund,
Concert Investment Series Government Fund, &
CitiFunds Intermediate Income Portfolio
ProForma Schedule of Investments (unaudited) April 30, 2000
FACE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
- - $ 510,000 $ 510,000 Asset Backed Securitization Corp., 6.640% due 12/25/27
- - 110,000 110,000 CMC Securitization Corp., Series 97, 7.000% due 10/25/27
- - 433,000 433,000 CWMBS Inc., Series 98, 6.500% due 7/25/13
- - 402,000 402,000 Chase Mortgage Financial Trust 6.500% due 9/25/13
- - 510,000 510,000 Chase Mortgage Financial Trust, 7.250% due 2/25/30
- - 796,000 796,000 Credit Suisse First Boston Mortgage, 7.290% due 9/15/09
- - 204,000 204,000 Federal Home Loan Mortgage Corp., 6.000% due 1/15/24
- - 702,000 702,000 Federal Home Loan Mortgage Corp., 6.250% due 6/15/24
- - 600,000 600,000 Federal National Mortgage Association, 7.412% due 8/17/21
- - 173,000 173,000 Government National Mortgage Association, 7.250% due 10/16/22
- - 55,000 55,000 Residential Asset Securitization Trust, 7.000% due 2/25/08
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
DOMESTIC CORPORATIONS - 1.0%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
- - 543,000 543,000 Abitibi Consolidated Inc., 8.500% due 8/1/29
- - 364,000 364,000 Ahold Financial U.S.A Inc., 6.875% due 5/1/29
- - 465,000 465,000 BB&T Corp., 6.375% due 6/30/05
- - 135,000 135,000 Conseco Inc., 6.400% due 6/15/01
- - 449,000 449,000 Dayton Hudson Corp., 6.650% due 8/1/28
- - 612,000 612,000 Delta Airlines Inc., 8.300% due 12/15/29
- - 385,000 385,000 Donaldson, Lufkin & Jenrette, 5.875% due 4/1/02
- - 427,000 427,000 Dynegy Inc., 7.450% due 7/15/06
- - 472,000 472,000 Ford Motor Co., 7.375% due 10/28/09
- - 480,000 480,000 Knight Ridder Inc., 6.875% due 3/15/29
- - 426,000 426,000 Lehman Brothers Holdings, Inc., 7.75% due 1/15/05
- - 444,000 444,000 Lockheed Martin Corp., 7.950% due 12/1/05
- - 469,000 469,000 MCI Communications Corp., 6.500% due 4/15/10
- - 479,000 479,000 Morgan Stanley Dean Witter & Co., 5.625% due 1/20/04
- - 416,000 416,000 National Rural Utilities, 6.200% due 2/1/08
- - 453,000 453,000 Osprey Trust Inc., 8.310% due 1/15/03
- - 448,000 448,000 Popular North America, Inc., 6.875% due 6/15/01
- - 460,000 460,000 Raytheon Co., 7.900% due 3/1/03
- - 439,000 439,000 St. Paul Cos Inc., 7.875% due 4/15/05
- - 493,000 493,000 Saks Inc., 8.250% due 11/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Backed Securitization Corp., 6.640% due 12/25/27 - - 462,667 462,667
CMC Securitization Corp., Series 97, 7.000% due 10/25/27 - - 109,495 109,495
CWMBS Inc., Series 98, 6.500% due 7/25/13 - - 400,212 400,212
Chase Mortgage Financal Trust 6.500% due 9/25/13 - - 371,065 371,065
Chase Mortgage Financal Trust, 7.250% due 2/25/30 - - 481,782 481,782
Credit Suisse First Boston Mortgage, 7.290% due 9/15/09 - - 772,772 772,772
Federal Home Loan Mortgage Corp., 6.000% due 1/15/24 - - 187,935 187,935
Federal Home Loan Mortgage Corp., 6.250% due 6/15/24 - - 662,047 662,047
Federal National Mortgage Association, 7.412% due 8/17/21 - - 591,874 591,874
Government National Mortgage Association, 7.250% due 10/16/22 - - 172,567 172,567
Residential Asset Securitization Trust, 7.000% due 2/25/08 - - 55,324 55,324
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CMO's - - 4,267,740 4,267,740
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
Abitibi Consolidated Inc., 8.500% due 8/1/29 - - 498,594 498,594
Ahold Financial U.S.A Inc., 6.875% due 5/1/29 - - 305,473 305,473
BB&T Corp., 6.375% due 6/30/05 - - 434,320 434,320
Conseco Inc., 6.400% due 6/15/01 - - 95,594 95,594
Dayton Hudson Corp., 6.650% due 8/1/28 - - 376,485 376,485
Delta Airlines Inc., 8.300% due 12/15/29 - - 547,354 547,354
Donaldson, Lufkin & Jenrette, 5.875% due 4/1/02 - - 370,885 370,885
Dynegy Inc., 7.450% due 7/15/06 - - 408,406 408,406
Ford Motor Co., 7.375% due 10/28/09 - - 456,496 456,496
Knight Ridder Inc., 6.875% due 3/15/29 - - 416,895 416,895
Lehman Brothers Holdings, Inc., 7.75% due 1/15/05 - - 426,624 426,624
Lockheed Martin Corp., 7.950% due 12/1/05 - - 434,631 434,631
MCI Communications Corp., 6.500% due 4/15/10 - - 427,164 427,164
Morgan Stanley Dean Witter & Co., 5.625% due 1/20/04 - - 449,509 449,509
National Rural Utilities, 6.200% due 2/1/08 - - 380,341 380,341
Osprey Trust Inc., 8.310% due 1/15/03 - - 449,076 449,076
Popular North America, Inc., 6.875% due 6/15/01 - - 443,013 443,013
Raytheon Co., 7.900% due 3/1/03 - - 452,089 452,089
St. Paul Cos Inc., 7.875% due 4/15/05 - - 429,319 429,319
Saks Inc., 8.250% due 11/15/08 - - 444,626 444,626
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DOMESTIC CORPORATIONS - - 8,246,894 8,246,894
Page 2
Smith Barney Government Securities Fund,
Concert Investment Series Government Fund &
CitiFunds Intermediate Income Portfolio
Pro Forma Schedule of Investments (unaudited)
FACE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN CORPORATIONS - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
- - $ 493,000 $ 493,000 Merita Bank PLC, 6.500% due 4/1/09
- - 444,000 444,000 Pemex Financial Ltd., 9.030% due 2/15/11
- - 456,000 456,000 Quebec Providence CDA, 7.500% due 9/15/29
- - 481,000 481,000 Telefonica de Argentina, 9.125% due 5/7/08
- - 495,000 495,000 YPF Sociedad Anonima, 7.250% due 3/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN CORPORATIONS
====================================================================================================================================
MORTGAGE - BACKED SECURITIES - 76.7%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
- - 204,000 204,000 FHMLC, 6.000% due TBA
- - 314,000 314,000 FHMLC, 6.000% due 8/1/00
- - 755,000 755,000 FHMLC, 7.500% due TBA
- - 1,000 1,000 FHMLC, 8.500% due 4/1/01
- - 1,020,000 1,020,000 FNMA, 5.500% due TBA
$ 1,482 - - 1,482 FNMA, 6.000% due 8/1/04
- - 1,428,000 1,428,000 FNMA, 6.500% due TBA
- - 1,659,000 1,659,000 FNMA, 6.500% due 5/1/29*
- - 90,000 90,000 FNMA, 7.000% due 7/1/03*
- - 3,489,000 3,489,000 FNMA, 7.500% due TBA*
- $ 2,068,729 - 2,068,729 FNMA, 7.500%, due 8/1/12*
- - 1,000 1,000 FNMA, 8.000% due 6/1/02
- - 2,530,000 2,530,000 GNMA, 6.500% due TBA
44,144,056 12,910,356 705,000 57,759,412 GNMA, 7.000%, due 2/15/30*
163,498,597 39,782,088 - 203,280,685 GNMA, 7.500%, due 3/15/30*
- - 408,000 408,000 GNMA, 8.000% due TBA
282,896,855 82,616,983 7,000 365,520,838 GNMA, 8.000%, due 4/15/30*
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE - BACKED SECURITIES
April 30, 2000
MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
Merita Bank PLC, 6.500% due 4/1/09 - - $ 444,389 $ 444,389
Pemex Financial Ltd., 9.030% due 2/15/11 - - 451,993 451,993
Quebec Providence CDA, 7.500% due 9/15/29 - - 445,841 445,841
Telefonica de Argentina, 9.125% due 5/7/08 - - 457,368 457,368
YPF Sociedad Anonima, 7.250% due 3/15/08 - - 477,127 477,127
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN CORPORATIONS - - 2,276,718 2,276,718
====================================================================================================================================
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
FHMLC, 6.000% due TBA - - 185,066 185,066
FHMLC, 6.000% due 8/1/00 - - 312,180 312,180
FHMLC, 7.500% due TBA - - 737,462 737,462
FHMLC, 8.500% due 4/1/01 - - 694 694
FNMA, 5.500% due TBA - - 888,356 888,356
FNMA, 6.000% due 8/1/04 $ 1,406 - - 1,406
FNMA, 6.500% due TBA - - 1,332,495 1,332,495
FNMA, 6.500% due 5/1/29* - - 1,548,637 1,548,637
FNMA, 7.000% due 7/1/03* - - 88,939 88,939
FNMA, 7.500% due TBA* - - 3,428,812 3,428,812
FNMA, 7.500%, due 8/1/12* - $ 2,058,385 - 2,058,385
FNMA, 8.000% due 6/1/02 - - 871 871
GNMA, 6.500% due TBA - - 2,369,129 2,369,129
GNMA, 7.000%, due 2/15/30* 42,488,654 12,426,218 680,842 55,595,714
GNMA, 7.500%, due 3/15/30* 160,892,430 39,147,961 - 200,040,391
GNMA, 8.000% due TBA - - 408,893 408,893
GNMA, 8.000%, due 4/15/30* 283,779,494 82,874,748 6,966 366,661,208
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE - BACKED SECURITIES 487,161,984 136,507,312 11,989,342 635,658,638
Page 3
Smith Barney Government Securities Fund,
Concert Investment Series Government Fund &
CitiFunds Intermediate Income Portfolio
Pro Forma Schedule of Investments (unaudited)
FACE AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS - 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
- - $ 445,000 $ 445,000 Corporacion Andina de Fomento, 7.750% due 3/1/04
- - 225,000 225,000 Empresa Nacional, 7.750% due 7/15/08
- - 552,000 552,000 Imperial Tobacco Overseas, 7.125% due 4/1/09
- - 266,000 266,000 TPSA Financial, 7.750% due 12/10/08
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS
====================================================================================================================================
PREFERRED STOCK - 0.4%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
- - 28 28 Comed Financing I
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
====================================================================================================================================
REPURCHASE AGREEMENT - 1.9%
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND# INCOME PORTFOLIO# PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs 5.670% due 5/1/00;
$ 15,593,000 - - 15,593,000 Proceeds at maturity - $15,600,368 (Fully collateralized by U.S.
Treasury Notes & Bonds, 6.500% to 11.125%, due 10/31/01 to
2/15/21;
Total market value-$15,904,860) (Cost- $15,593,000)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT VALUE - 100%
(Cost -$611,013,804)** (Cost -$169,455,039)** (Cost-$47,977,533)** (Total Cost - $ 828,446,376)**
- ------------------------------------------------------------------------------------------------------------------------------------
April 30, 2000
MARKET VALUE
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ----------------------------------------------------------------------------------------------------------------------------
Corporacion Andina de Fomento, 7.750% due 3/1/04 - - $ 437,587 $ 437,587
Empresa Nacional, 7.750% due 7/15/08 - - 209,413 209,413
Imperial Tobacco Overseas, 7.125% due 4/1/09 - - 482,191 482,191
TPSA Financial, 7.750% due 12/10/08 - - 254,103 254,103
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS - - 1,383,294 1,383,294
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ----------------------------------------------------------------------------------------------------------------------------
Comed Financing I - - 3,121,752 3,121,752
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK - - 3,121,752 3,121,752
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY
SMITH BARNEY CONCERT CITIFUNDS GOVERNMENT
GOVERNMENT INVESTMENT SERIES INTERMEDIATE SECURITIES FUND
SECURITIES FUND GOVERNMENT FUND INCOME PORTFOLIO PRO FORMA
- ----------------------------------------------------------------------------------------------------------------------------
Goldman Sachs 5.670% due 5/1/00;
Proceeds at maturity - $15,600,368 (Fully
collateralized by U.S. Treasury Notes & Bonds,
6.500% to 11.125%, due 10/31/01 to 2/15/21;
Total market value- $15,904,860) (Cost-
$15,593,000) $ 15,593,000 - - 15,593,000
============================================================================================================================
TOTAL INVESTMENTS AT VALUE - 100% $ 610,913,166 $ 169,272,131 $ 48,791,162 $ 828,976,459
(Total Cost - $ 828,446,376)**
============================================================================================================================
# The Concert Investment Series Government Fund and the CitiFunds Intermediate
Income Portfolio do not anticipate that they will be required to divest any
securities upon completion of the Reorganization.
* Date shown represents the last in range of maturity dates of mortgage
certificates owned.
** Aggregate cost for Federal income tax purposes is
substantially the same.
Page 4
THE ANNUAL REPORT AND STATEMENT OF ADDITIONAL INFORMATION OF THE
ACQUIRING FUND DATED DECEMBER 31, 1999 AND APRIL 28, 2000,
RESPECTIVELY, ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY
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 made to 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.
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.
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 the Registrant's
registration statement 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.
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) Annual Report of Registrant, dated December 31, 1999, is
incorporated herein by reference.
17(e) Prospectus and statement of additional information of Registrant,
dated April 28, 2000, 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.
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 15 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
- ------------------------------------------ President and Chief
Heath B. McLendon 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
- ------------------------------------------ and Principal
Lewis E. Daidone 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.
** Signed by Heath B. McLendon, their duly authorized attorney-in-fact, pursuant
to power of attorney dated April 15, 1998.