AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2000.
SECURITIES ACT FILE NO. 333-2627
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
SMITH BARNEY INVESTMENT SERIES
(FORMERLY, CONCERT INVESTMENT SERIES)
(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: Registrant proposes that the
Registration Statement become effective on October 18, 2000 pursuant to Rule
488 under the Securities Act of 1933, as amended.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest ($.01 par value) of the Registrant
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The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933, as amended, pursuant to Section 24(f) under the
Investment Company Act of 1940, as amended; accordingly, no fee is payable
herewith because of reliance upon Section 24(f).
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PART A
INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
SMITH BARNEY EQUITY FUNDS
Smith Barney Large Cap Blend Fund
388 Greenwich Street
New York, New York 10013
October [__], 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby all of the assets of the Smith Barney Large Cap Blend Fund (the "Fund"),
a series of Smith Barney Equity Funds ("Equity Funds"), would be transferred in
a tax-free reorganization to the Smith Barney Growth and Income Fund (the
"Acquiring Fund"), a series of Smith Barney Investment Series ("Investment
Series") (formerly Concert Investment Series), in exchange for shares of the
corresponding class of shares of beneficial interest of the Acquiring Fund, with
the exception of Class B shares of the Fund, which will be exchanged for Class P
shares of the Acquiring Fund, which are identical in all respects. If the
Agreement and Plan of Reorganization is approved and consummated, you would no
longer be a shareholder of the Fund, but would become a shareholder of the
corresponding class of shares of beneficial interest of the Acquiring Fund (with
the exception of Class B shares, as noted above), 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 (800) 451-2010. If you prefer, you can fax the signed proxy card
(both front and back sides) to (800) [_________];vote by telephone by calling
(800) [_________] using the [14]-digit control number located on your proxy
card; or vote through the Internet by going to www. [__________].com using the
[14] 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 or via the Internet will reduce the time and costs associated with
the proxy solicitation.] When the Fund records proxies by telephone or through
the Internet, 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
Smith Barney Equity Funds
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.
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SMITH BARNEY EQUITY FUNDS
Smith Barney Large Cap Blend Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Smith Barney Equity Funds ("Equity Funds"), on behalf of its
series, the Smith Barney Large Cap Blend 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 November 22, 2000, at [__]:00 a.m./p.m., Eastern time, for the
following purposes:
PROPOSAL 1: To approve an Agreement and Plan of Reorganization for the
Fund;
PROPOSAL 2: To transact such other business as may properly come before
the meeting or any adjournment(s) thereof.
The appointed proxies will vote in their discretion on any other business
as may properly come before the Special Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on October
13, 2000 are entitled to vote at the Special Meeting and at any adjournments
thereof.
If the necessary quorum to transact business or the vote required to
approve a Proposal is not obtained at the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's outstanding shares present in person or by proxy at
the Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
Proposal and will vote against any such adjournment those proxies to be voted
against the Proposal. For more information, please call (800) 451-2010.
By Order of the Board of Trustees
/s/ Chrisna T. Sydor
Christitina T. Sydor
Secretary
October [__], 2000
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 AND THE
FUND....................................................................... 4
INVESTMENT MANAGEMENT FEES AND EXPENSES ................................... 10
ANNUAL FUND OPERATING EXPENSES ............................................ 12
DISTRIBUTION OF SHARES AND OTHER SERVICES ................................. 14
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION ............................. 16
DIVIDENDS AND OTHER DISTRIBUTIONS ......................................... 16
TAX CONSEQUENCES .......................................................... 16
PRINCIPAL INVESTMENTS AND RISK FACTORS .................................... 17
THE PROPOSED TRANSACTION .................................................. 21
REASONS FOR THE PROPOSED TRANSACTION ...................................... 23
DESCRIPTION OF THE SECURITIES TO BE ISSUED ................................ 24
FEDERAL INCOME TAX CONSEQUENCES ........................................... 26
LIQUIDATION AND TERMINATION OF SERIES ..................................... 27
PORTFOLIO SECURITIES ...................................................... 27
PORTFOLIO TURNOVER ........................................................ 27
CAPITALIZATION AND PERFORMANCE ............................................ 27
ADDITIONAL INFORMATION ABOUT THE FUNDS .................................... 29
ADDITIONAL INFORMATION .................................................... 30
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ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated October [__], 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
February 28, 2000, as amended September 11, 2000.
2. The Statement of Additional Information for the Fund, dated May 30,
2000, as amended from time to time.
3. Annual Report of the Acquiring Fund for the year ended October 31,
1999 and the Semi-Annual Report of the Acquiring Fund for the six
months ended April 30, 2000.
4. Annual Report of the Fund for the year ended January 31, 2000 and the
Semi-Annual Report of the Fund for the six months ended July 31, 2000.
ii
Merger Q&A
Smith Barney Large Cap Blend Fund into Smith Barney Growth and Income Fund
The enclosed materials include a combined 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 combined 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 Growth and Income Fund on or
about December 1, 2000 ("Closing Date") and will no longer be a shareholder of
the Smith Barney Large Cap Blend Fund, which will be terminated pursuant to the
proposed reorganization. You will receive shares of the Smith Barney Growth and
Income Fund with a total net asset value equal to the total net asset value of
your investment in the Smith Barney Large Cap Blend Fund at the time of the
closing on the reorganization
If the reorganization is approved and you do not wish to become a shareholder of
the Smith Barney Growth and Income 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, which will
reduce annual expenses for shareholders of some classes of Smith Barney Large
Cap Blend Fund, while maintaining the levels of annual expenses for others. The
Funds' manager, SSB Citi Fund Management LLC ("SSB Citi") believes that a larger
asset base could provide portfolio management benefits such as greater
diversification and the ability to command more attention from brokers and
underwriters. The proposed reorganization is part of a broader initiative by SSB
Citi to restructure more efficiently its mutual fund product offerings.
As a shareholder of the Smith Barney Growth and Income Fund, you will be able to
exchange into the same class of certain Smith Barney mutual funds offered by the
Fund's distributor, provided that the Smith Barney Fund offers the relevant
class of shares.
Do the funds have similar investment objectives?
Yes. The principal investment objective of the Smith Barney Large Cap Blend Fund
is long-term capital growth, while the investment objective of the Smith Barney
Growth and Income Fund is reasonable growth and income. Michael Kagan, the
portfolio manager of the Funds, has over 17 years of securities business
experience, and has been the manager of the Smith Barney Large Cap Blend Fund
since August 14, 2000. Prior to this date R. Jay Gerken, managed the Smith
Barney Large Cap Blend Fund.
In both funds, the portfolio manager seeks to achieve the Funds' investment
objectives by investing primarily in equity securities. 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 Prospectus/Proxy Statement.
How does portfolio manager Michael Kagan identify growth opportunities?
Mr. Kagan emphasizes individual security selection while spreading the Fund's
investments among industries and sectors. Mr. Kagan uses a blend of growth and
oriented investment styles as the basis for his selection process. This
approach is commonly described as seeking "growth at a reasonable price." Mr.
Kagan uses quantitative analysis to find stocks with strong growth potential and
to determine whether these stocks are relatively undervalued or overvalued. Mr.
Kagan looks for:
. Favorable growth characteristics, such as high historic growth rates and high
current or forecasted growth
. Favorable value characteristics, such as low price/earnings ratios and other
statistics indicating that a security is undervalued
Mr. Kagan also uses fundamental qualitative research to further evaluate a
security's growth potential. Mr. Kagan looks for:
. Management with established track records, or favorable change in current
management
. Improvement in a company's competitive position
. Positive changes in corporate strategy
What are the tax consequences of this proposed reorganization?
Subject to shareholder approval, the proposed reorganization will not be a
taxable event. Shareholders will not realize any capital gain or loss as a
direct result of the proposed reorganization.
Will I enjoy the same privileges as a shareholder of the Smith Barney Growth and
Income Fund that I currently have as a shareholder of the Smith Barney Large Cap
Blend Fund?
Yes. You will continue to enjoy many of the same shareholder privileges such as
systematic investment, automatic cash withdrawal and dividend reinvestment as
well as access to professional service representatives.
How does the Board of Trustees recommend I vote?
The Trustees recommend that you vote FOR the reorganization. The Trustees
believe the reorganization is in the best interest of the Smith Barney Large Cap
Blend 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, sign and return 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. Thank you in advance
for your vote.
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 COMBINED 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.
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2000
PROSPECTUS/PROXY STATEMENT
388 Greenwich Street
New York, New York 10013
(800) 451-2010
October [__], 2000
RELATING TO THE ACQUISITION BY
SMITH BARNEY GROWTH AND INCOME FUND (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT SERIES ("INVESTMENT SERIES")
OF THE ASSETS OF
SMITH BARNEY LARGE CAP BLEND FUND (THE "FUND"),
A SERIES OF SMITH BARNEY EQUITY FUNDS ("EQUITY FUNDS").
GENERAL
This Prospectus/Proxy Statement is furnished to shareholders of the Fund in
connection with a proposed reorganization in which all of the assets of the Fund
would be acquired by the Acquiring Fund in exchange solely for voting shares of
the corresponding class of shares of beneficial interest of the Acquiring Fund,
with the exception of Class B shares of the Fund, which will be exchanged for
Class P shares of the Acquiring Fund, which are identical in all respects, and
the assumption by 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 Equity
Funds. As a result of the Reorganization, each shareholder of the Fund would
receive that number of full and fractional shares of the corresponding class of
the Acquiring Fund (with the exception of Class B shares, as noted above) having
an aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of the Fund held as of the close of business on the Closing
Date (as defined herein) of the Reorganization. Shareholders of the Fund are
being asked to vote on an Agreement and Plan of Reorganization pursuant to which
such transactions, as described more fully below, would be consummated.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of the
Acquiring Fund, see the prospectus for the Acquiring Fund, dated February 28,
2000, as amended on September 11, 2000, and as supplemented from time to time,
the Acquiring Fund's Annual Report to shareholders for the fiscal year ended
October 31, 1999, and the Acquiring Fund's Semi-Annual Report to shareholders
for the six months ended April
30, 2000, each of 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 May 30, 2000, as supplemented from time to time, the Annual Report to
shareholders for the year ended January 31, 2000 and the Semi-Annual Report to
shareholders for the six months ended July 31, 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 October [__],
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, Equity Funds 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 Series on behalf of the
Acquiring Fund.
The Acquiring Fund is a diversified series of Investment Series, an open-
end management investment company organized as a Massachusetts business trust.
The Fund is a diversified series of Equity Funds, an open-end management
investment company also organized as a Massachusetts business trust. The
investment objective of the Acquiring Fund is reasonable growth and income, and
the investment objective of the Fund is long-term capital growth. The Acquiring
Fund seeks to achieve its objective by investing primarily in equity securities,
including convertible securities, that provide dividend or interest income. The
Fund seeks to achieve its objective by investing in common stocks and other
equity securities of U.S. companies with market capitalizations in excess of $5
billion at the time of investment. Each Fund employs a style of stock selection
that emphasizes individual stock selection while spreading investments among
industries and sectors. Both Funds benefit from advisory services rendered by
SSB CitiFund Management and have the same portfolio manager, Michael Kagan.
-----------------------
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 Prospectus/Proxy Statement this is. The Fund and the Acquiring Fund may
each be referred to as a "Fund" and may also be referred to collectively as the
"Funds." In addition, in this Prospectus/Proxy Statement, for simplicity,
actions are described as being taken by a Fund, although all actions are
actually taken by Investment Series, on behalf of the Acquiring Fund, and by
Equity Funds, on behalf of the Fund.
This Prospectus/Proxy Statement, the Notice of Special Meeting and the
proxy card(s) are first being mailed to shareholders on or about October 23,
2000 or as soon as practicable thereafter. Any shareholder of the Fund giving a
proxy has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of Equity Funds at the address shown at the beginning
of this Prospectus/Proxy Statement) or in person at the Special Meeting by
2
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 Prospectus/Proxy Statement.
In cases where certain shareholders have purchased their shares through
service agents, these service agents are the shareholders of record of the Fund.
At the special meeting, a service agent may, as permitted by applicable laws and
regulations, vote any shares of which it is the holder of record and for which
it does not receive voting instructions proportionately in accordance with the
instructions it receives for all other shares of which that service agent is the
holder of record.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of shares of the Fund holding a majority of the outstanding shares of
the Fund entitled to vote shall be necessary and sufficient to constitute a
quorum for the transaction of business. If the necessary quorum to transact
business or the vote required to approve any Proposal is not obtained at the
Special Meeting, the persons named as proxies may propose one or more
adjournments of the Special Meeting in accordance with applicable law to permit
further solicitation of proxies with respect to the Proposal that did not
receive the vote necessary for its passage or to obtain a quorum. Any such
adjournment as to a matter will require the affirmative vote of the holders of a
majority of the Fund's outstanding shares present in person or by proxy at the
Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
against that Proposal. For purposes of determining the presence of a quorum for
transacting business at the Special Meeting, abstentions and broker "non-votes"
will be treated as shares that are present but which have not been voted. Broker
non-votes are proxies received by the Fund from brokers or nominees when the
broker or nominee has neither received instructions from the beneficial owner or
other persons entitled to vote nor has discretionary power to vote on a
particular matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
The Proposal requires the affirmative vote of the holders of not less than
a majority of the Fund's outstanding shares of beneficial interest, entitled to
vote thereon. Abstentions and broker non-votes will have the effect of a "no"
vote on the Proposal.
Holders of record of the shares of the Fund at the close of business on
October 13, 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 October 13, 2000, there were [___________] shares of the
Fund outstanding.
To the best knowledge of Investment Series, as of October 13, 2000, [no
person owned beneficially more than 5% of any class of the Acquiring Fund's
outstanding shares]. To the best knowledge of Equity Funds, as of October 13,
2000, [no person owned beneficially more than 5% of any class of the Fund's
outstanding shares].
3
[As of October 13, 2000, less than 1% of the outstanding shares of each of
the Fund and the Acquiring Fund were owned directly or beneficially by the
Trustees of Equity Funds or Trustees of Investment Series, respectively.]
Each of the Fund and the Acquiring Fund provides periodic reports to all of
its shareholders which highlight relevant information, including investment
results and a review of portfolio changes. You may receive a copy of the most
recent Annual Report and any more recent Semi-Annual report for each of the Fund
and the Acquiring Fund, without charge, by calling (800) 451-2010 or writing to
the Fund or the Acquiring Fund at the address shown at the beginning of this
Prospectus/Proxy Statement.
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of Trustees of Equity Funds, on behalf of the Fund, and the Board
of Trustees of Investment Series, on behalf of the Acquiring Fund, including all
of the Trustees who are not "interested persons" of such Funds (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) (the "Non-
Interested Trustees"), approved on September 7, 2000 and September 11, 2000,
respectively, an Agreement and Plan of Reorganization (the "Plan"). Subject to
its approval by the shareholders of the Fund, the Plan provides for (a) the
transfer of all of the assets of the Fund to the Acquiring Fund, in exchange for
shares of the corresponding class of shares of beneficial interest of the
Acquiring Fund, with the exception of Class B shares of the Fund, which will be
exchanged for Class P shares of the Acquiring Fund, which are identical in all
respects, and the assumption by the Acquiring Fund of all of the Fund's stated
liabilities; (b) the distribution of such Acquiring Fund shares to the
shareholders of the Fund in complete liquidation of the Fund and the
cancellation of the Fund's outstanding shares; and (c) the termination of the
Fund as a series of Equity Funds (collectively, the "Reorganization"). As a
result of the Reorganization, each shareholder of the Fund will become a
shareholder of the corresponding class of the Acquiring Fund and (with the
exception of Class B shares, as noted above) will hold, immediately after the
closing of the Reorganization (the "Closing"), that number of full and
fractional shares of the corresponding class of the Acquiring Fund having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares held in the Fund as of the close of business on the Closing
Date (as defined below). The Closing is expected to occur on December 1, 2000,
or on such later date as the parties may agree in writing (the "Closing Date").
SYNOPSIS
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary is qualified by reference to the more
complete information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Acquiring Fund, the Prospectus of the Fund and the Plan, the
form of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Shareholders of the Fund should read this entire Prospectus/Proxy Statement
carefully.
Introduction. Like your Fund, the Acquiring Fund is managed by SSB Citi
Fund Management LLC ("SSB Citi"), an affiliate of Salomon Smith Barney Inc.
("Salomon Smith Barney") and Michael Kagan is the individual at SSB Citi
responsible for the day-to-day
4
management of both Funds' portfolios. The distributor, custodian and transfer
agent of each of the Fund and the Acquiring Fund are identical (although the
Acquiring Fund has additionally retained PFS Distributors Inc. as a
co-distributor and PFS Shareholder Services as a sub- transfer agent). Whereas
your Fund has long-term capital growth as its investment objective, the
Acquiring Fund has reasonable growth and income as its investment objective. The
Fund has retained KPMG LLP as its independent auditors while the Acquiring Fund
has retained Ernst & Young LLP as its independent auditors. However, KPMG LLP
will serve as the independent auditors of the Acquiring Fund for the fiscal year
2001.
If the Plan is consummated, shareholders of the Fund will become
shareholders of the corresponding class of the Acquiring Fund, with the
exception of Class B shares of the Fund, which will be exchanged for Class P
shares of the Acquiring Fund, which are identical in all respects. 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 because the Funds
have substantially similar investment objectives and policies.
After the Reorganization, Shareholders of the Fund will continue to enjoy
many of the same shareholder privileges, such as systematic investment, exchange
privileges, automatic cash withdrawal, automatic dividend reinvestment, and
access to professional service representatives, upon becoming shareholders of
the Acquiring Fund. Many of the services provided by PFS Shareholder Services,
Inc. to the Acquiring Fund will become available to shareholders of the Fund.
While each Fund generally distributes capital gains, if any, annually, the Fund
generally pays dividends from net investment income, if any, annually, while the
Acquiring Fund pays dividends from net investment income, if any, quarterly. See
"Dividends and Other Distributions." It is a condition of the Reorganization
that each Fund receives 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 the Fund will be equal to the net
asset value of that class of the Fund as of the close of regular trading on the
Closing Date. Immediately following the transfer of Shares to the Fund, the
Shares received by the Fund will be distributed pro rata to the shareholders of
record of the Fund on the Closing Date and the shares of the Fund will be
cancelled.
For the reasons described below under "The Proposed Transaction-Reasons for
the Proposed Transaction," the Board of Trustees of Equity Funds on behalf of
the Fund, including the Non-Interested Trustees, has concluded the following:
- the Reorganization is in the best interests of the Fund and its
shareholders; and
- the interests of the existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Trustees recommend approval of the Plan. If the Plan is
not approved, the Fund will continue in existence unless other action is taken
by the Trustees;
5
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 reasonable growth and income. The investment objective
of the Fund is long-term capital growth. The Acquiring Fund seeks to achieve its
objective by investing primarily in equity securities, including convertible
securities, that provide dividend or interest income. The Fund seeks to achieve
its objective by investing in common stocks and other equity securities of U.S.
companies with market capitalizations in excess of $5 billion at the time of
investment. Each Fund employs a style of stock selection that emphasizes
individual security selection while spreading investments among industries and
sectors. Each Fund compares its performance against the Standard & Poor's 500
Index. The Fund's investment restrictions are substantially similar to those of
the Acquiring Fund, except as described in this Prospectus/Proxy Statement.
Each Fund has adopted substantially similar fundamental investment
restrictions with respect to its diversified status; underwriting securities;
industry concentration; borrowing money; lending money; and purchasing or
selling real estate, real estate mortgages, commodities or commodity contracts.
In addition, each Fund has adopted substantially similar investment
restrictions, which are fundamental to the Acquiring Fund and non-fundamental to
the Fund, with respect to pledging securities; purchasing securities on margin;
investing in a company whose securities are owned by the officers, trustees or
manager of the Fund; investments in oil or other mineral interests; investment
in companies for purposes of acquiring control or management thereof; and
purchasing restricted or illiquid securities. The Acquiring Fund has adopted
certain additional fundamental restrictions with respect to, among other things,
investing in companies with a record of less than three years' continuous
operation, and in securities of alcohol and tobacco manufacturers. Each Fund has
also adopted substantially similar non-fundamental investment policies with
respect to making short sales of securities. Each Fund's fundamental investment
restrictions may not be changed without the approval of the applicable Fund's
shareholders.
While both Funds may borrow money for temporary or emergency purposes, the
Fund may borrow up to 33 1/3% of its total assets, whereas the Acquiring Fund
may borrow up to 10% of its total assets. The Fund may enter into reverse
repurchase agreements, forward roll transactions and similar investment
strategies and techniques in an amount up to 33 1/3% of the value of its total
assets. Each Fund may enter into repurchase agreements, but the Acquiring Fund
will not invest in repurchase agreements maturing in more than seven days
(unless subject to a demand feature) if any such investment, together with any
illiquid securities held by the Fund, exceeds 10% of the Fund's total net
assets. While each Fund may lend portfolio securities, the Acquiring Fund may
only lend up to 10% of its total assets.
Neither Fund may invest in real estate; however, the Fund is not prevented
from (a) investing in securities of issuers engaged in the real estate business
or the business of investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate business or the
business of investing in real estate) and securities which are secured by real
estate or interests therein; (b) holding or selling real estate received in
connection with securities it holds or held; or (c) investing in real estate
investment trust securities.
6
Each Fund may purchase illiquid securities (including repurchase agreements
with maturities of more than seven days). However, the Fund may invest up to 15%
of its total assets in such illiquid securities. The Acquiring Fund may invest
up to 5% of its assets in restricted securities (this limitation excludes shares
of other open-end investment companies owned by the Fund, but includes the
Fund's pro rata portion of the securities and other assets owned by any such
company, and excludes restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 (the "1933 Act") which the Trustees or SSB
Citi under Board approved guidelines may determine are liquid).
The Fund may not invest in gas exploration or development programs.
While the Fund may not write or sell puts, call, straddles, spreads or
combinations thereof, the Acquiring Fund may not engage in option writing for
speculative purposes or purchase call or put options on securities if, as a
result, more than 5% of its net assets would be invested in premiums on such
options. The Acquiring Fund may (a) write covered call options with respect to
any part or all of its portfolio securities, write secured put options, or enter
into closing purchase transactions with respect to such options, (b) purchase
and sell put options to the extent that the premiums paid for all such options
do not exceed 10% of its total assets and only if the Fund owns the securities
covered by the put option at the time of purchase, and (c) engage in futures
contracts and related options transactions as described herein. The Acquiring
Fund may purchase put and call options which are purchased on an exchange in
other markets, or currencies and, as developed from time to time, various
futures contracts on market indices and other instruments.
While the Fund may not make short sales of securities or maintain a short
position, the Acquiring Fund may make short sales "against the box." A short
sale is "against the box" to the extent that the Acquiring Fund
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. In a short sale, the Acquiring Fund does not
immediately deliver the securities sold and does not receive the proceeds from
the sale. The Acquiring Fund is said to have a short position in the securities
sold until it delivers the securities sold, at which time it receives the
proceeds of the sale. The Acquiring Fund may not make short sales or maintain a
short position if to do so would cause more than 25% of its total assets, taken
at market value, to be held as collateral for such sales. 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.
Because of their similar investment policies the Funds are exposed to
similar risks. For example, the prices of equity securities fluctuate based on
changes in a company's financial condition and on overall market and economic
conditions, and convertible securities are subject to both the credit and
interest rate risks associated with fixed income securities and to the stock
market risk associated with equity securities. Many of the Fund's investments
present similar types of risk, which may increase depending on the type of
investment. For a more detailed discussion of the principal risks of each Fund,
see "Principal Investments and Risk Factors," below.
7
INVESTMENT OBJECTIVE AND POLICIES
OF THE ACQUIRING FUND AND THE FUND
The Acquiring Fund
Investment objective. The Acquiring Fund seeks reasonable growth and
income.
Key investments. The Acquiring Fund invests in a portfolio consisting
principally of equity securities, including convertible securities, that provide
dividend or interest income. However, it may also invest in non-income producing
investments for potential appreciation in value. The Acquiring Fund emphasizes
U.S. stocks with large market capitalizations. The Acquiring Fund's convertible
securities may be of any credit quality and may include below investment grade
securities (commonly known as "junk bonds").
Selection process. SSB Citi emphasizes individual security selection while
spreading the Fund's investments among industries and sectors. The manager uses
a two-step selection process commonly known as "growth at a reasonable price."
First, the manager uses quantitative analysis to find stocks with strong
growth potential, and to determine whether these securities are relatively
undervalued or overvalued. Quantitative factors include:
. Growth characteristics, including high historic growth rates and high
relative growth compared with companies in the same industry or sector
. Value characteristics, including low price/earnings ratios and other
statistics indicating that a security is undervalued
Then, the manager uses fundamental qualitative research to verify these
equity securities' growth potential. Qualitative factors include:
. Management with established track records, or favorable changes in
current management
. Improvement in a company's competitive position
. Positive changes in corporate strategy
These quantitative and qualitative factors, as well as the expected dividends
and income, influence the Acquiring Fund's purchases and sales of securities.
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 any of the following occurs:
. Stock prices decline generally
8
. Large capitalization companies fall out of favor with investors
. Companies in which the Acquiring Fund invests suffer unexpected losses
or lower than expected earnings
. The manager's judgment about the attractiveness, growth prospects,
value or potential appreciation of a particular stock proves to be
incorrect
. The issuer of a debt security owned by the Acquiring Fund defaults on
its obligation to pay principal and/or interest or has its credit
rating downgraded. This risk is higher for below investment grade
securities. These securities are considered speculative because they
have a higher risk of issuer default, are subject to greater price
volatility and may be illiquid
The Acquiring 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.
The Fund
Investment objective. The Fund seeks long-term capital growth.
Key investments. The Fund invests primarily in common stocks and other
equity securities of U.S. companies with market capitalizations in excess of $5
billion at the time of investment. Equity securities include exchange traded and
over-the-counter common stocks and preferred shares, debt securities convertible
into equity securities and warrants and rights relating to equity securities.
How the manager selects the Fund's investments. The manager emphasizes
individual security selection while spreading the Fund's investments among
industries and sectors. The manager uses a blend of growth and value oriented
investment styles as the basis for its selection process. This approach is
commonly described as seeking "growth at a reasonable price."
The manager uses quantitative analysis to find stocks with strong growth
potential and to determine whether these stocks are relatively undervalued or
overvalued. The manager looks for:
. Favorable growth characteristics, such as high historic growth rates
and high current or forecasted growth
. Favorable value characteristics, such as low price/earnings ratios and
other statistics indicating that a security is undervalued
9
The manager also uses fundamental qualitative research to further evaluate a
security's growth potential. The manager looks for:
. Management with established track records, or favorable changes in
current management
. Improvement in a company's competitive position
. Positive changes in corporate strategy
In addition to determining stock selection, these quantitative and qualitative
factors influence the timing of the Fund's purchases and sales of stocks.
Principal risks of investing in the Fund. Investors could lose money on
their investment in the Fund, or the Fund may not perform as well as other
investments, if:
. Stock prices decline generally
. Large capitalization companies fall out of favor with investors
. Companies in which the Fund invests suffer unexpected losses or lower
than expected earnings
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
INVESTMENT MANAGEMENT FEES AND EXPENSES
Equity Funds, on behalf of the Fund, and Investment Series, on behalf of
the Acquiring Fund, each retain SSB Citi, pursuant to separate contracts, to
manage the daily investment and business affairs of each Fund, respectively,
subject to the policies established by their respective governing boards. The
expenses of each Fund are paid out of gross investment income. Shareholders pay
no direct charges or fees for investment services.
The Acquiring Fund. The Acquiring Fund's investment manager is SSB Citi,
which is located at 388 Greenwich Street, New York, New York 10013. SSB Citi
selects the Fund's investments and oversees its operations. 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
June 30, 2000 in excess of $388 billion. SSB Citi and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses provide a broad range of
financial
10
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. Under an investment advisory agreement, the Acquiring Fund pays SSB Citi
a fee computed daily and paid monthly (as a percentage of average daily net
assets) at an aggregate annual rate of 0.65% of the first $1 billion; 0.60% of
the next $1 billion; 0.55% of the next $1 billion; 0.50% of the next $1 billion;
and 0.45% of the average daily net assets over $4 billion. The total investment
management fee incurred and paid by the Acquiring Fund for the fiscal year ended
October 31, 1999 was $9,381,462.
The Acquiring Fund's total expense ratio (total annual operating expenses
as a percentage of average net assets) for each class of its shares for the
fiscal year ending October 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 October 31, 2000, although some classes of the
Acquiring Fund will have lower expense ratios for the year ending October 31,
2001. The actual expense ratio for the Acquiring Fund for the year ending
October 31, 2000 may be higher or lower than as set forth below, depending upon
the Acquiring Fund's performance, general stock market and economic conditions,
sales and redemptions of the Acquiring Fund's shares (including redemptions by
former shareholders of the Fund), and other factors.
Michael Kagan, investment officer of SSB Citi and director of Salomon Smith
Barney, is responsible for the day-to-day management of the Acquiring Fund's
portfolio. Mr. Kagan has more than 17 years of securities business experience.
Mr. Kagan assumed management of the Acquiring Fund on August 14, 2000. Prior to
this, R. Jay Gerken managed the Acquiring Fund. Mr. Gerken's management
discussion and analysis of the Acquiring Fund's performance during the fiscal
year ended October 31, 1999 is included in the Acquiring Fund's Annual Report to
Shareholders for the fiscal year ended October 31, 1999.
The Fund. The Fund's investment manager is also SSB Citi. SSB Citi selects
the Fund's investments and oversees its operations. Under an investment advisory
agreement, the Fund pays SSB Citi a fee computed daily and paid monthly at the
annual rate of 0.45% of the Fund's average daily net assets. SSB Citi also
serves as the Fund's Administrator, receiving a fee computed daily and paid
monthly at the annual rate of 0.20% of the Fund's average daily net assets. The
total investment management fees (advisory and administration) paid by the Fund
for the fiscal year ended January 31, 2000 were $3,470,648 and for the six
months ended April 30, 2000 was $4,842,647.
Michael Kagan, investment officer of SSB Citi and director of Salomon Smith
Barney, is responsible for the day-to-day management of the Fund's portfolio.
Mr. Kagan has more than 17 years of securities business experience. Mr. Kagan
assumed management of the Fund on August 14, 2000. Prior to this, R. Jay Gerken
managed the Fund. Mr. Gerken's discussion and analysis of the Fund's
performance during the fiscal year ended January 31, 2000 is included in the
Fund's Annual Report to Shareholders dated January 31, 2000.
The expenses of the Acquiring Fund and the Fund for the six months ended
April 30, 2000 and the fiscal year ended January 31, 2000, respectively, and pro
forma expenses following the proposed
11
restructuring are outlined below. As set forth below, as of their most recent
fiscal year end, Class A, B, L, O and Y shares of the Fund had a higher
management fee than Class A, P, L, O and Y shares of the Acquiring Fund,
respectively; Class A and Y shares of the Acquiring Fund had higher, and Class L
and O shares of the Acquiring Fund had lower, total annual operating expenses
than the corresponding classes of the Fund; and Class P shares of the Acquiring
Fund had the same total annual operating expenses as Class B shares of the Fund.
As a result of the Reorganization, holders of shares of beneficial interest in
Classes A, B L, O and Y of the Fund will be investing in shares of beneficial
interest in Classes A, P, L, O and Y of the Acquiring Fund, respectively, and
expenses should be as much as 0.07% lower than those of the relevant class of
the Fund.
ANNUAL FUND OPERATING EXPENSES
Smith Barney Growth and Income Fund Class A Class P* Class L* Class O* Class Y*
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases 5.00% None 1.00% None None
(as a % of offering price)
Maximum deferred sales charge (load) 5.00% 1.00% None None
(as a % of the lower of net asset value at purchase or
redemption) None**
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees 0.63% 0.63% 0.63% 0.63% 0.63%
Distribution and service (12b-1) fees 0.25% 0.75% 1.00% 0.70% None
Other expenses 0.24% 0.23% 0.24% 0.23% 0.10%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.12% 1.61% 1.87% 1.56% 0.73%
=================================================================================================================================
Smith Barney Large Cap Blend Fund Class A Class B Class L Class O Class Y
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases 5.00% None 1.00% 1.00% None
(as a % of offering price)
Maximum deferred sales charge (load) None** 5.00% 1.00% 1.00% None
(as a % of the lower of net asset value at purchase or
redemption)
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees 0.65% 0.65% 0.65% 0.65% 0.65%
Distribution and service (12b-1) fees 0.25% 0.75% 1.00% 0.70% None
Other expenses 0.21% 0.21% 0.27% 0.28% 0.06%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.11% 1.61% 1.92% 1.63% 0.71%
=================================================================================================================================
12
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Smith Barney Growth and Income Fund (Pro Forma) Class A Class P* Class L* Class O* Class Y*
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases 5.00% None 1.00% None None
(as a % of offering price)
Maximum deferred sales charge (load) 5.00% 1.00% None None
(as a % of the lower of net asset value at purchase or
redemption) None**
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees 0.63% 0.63% 0.63% 0.63% 0.63%
Distribution and service (12b-1) fees 0.25% 0.75% 1.00% 0.70% None
Other expenses 0.23% 0.23% 0.23% 0.23% 0.05%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.11% 1.61% 1.86% 1.56% 0.68%
=================================================================================================================================
* Class L, Class O, Class Y and Class P Shares of the Acquiring Fund
commenced operations as of September 11, 2000 and September [__],
2000, respectively. The amounts shown are amounts estimated to be
charged for the fiscal year ending October 31, 2000. The pro forma
expenses for the Acquiring Fund show you what the sales charges and
expenses are estimated to be assuming the Reorganization takes place
and are based on what estimated combined expenses of the Acquiring
Fund would have been for the 12 months ended October 31, 2000.
** You may buy Class A Shares in amounts of $1 million 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%.
Examples. These Examples are intended to help you compare the cost of
investing in each of the Funds and for the Acquiring Fund pro forma, assuming
the Reorganization takes place, and are for illustration only. The Example
assumes you invest $10,000 in each Fund for the time periods indicated and that
you reinvest all dividends and distributions. The Examples also assume your
investment has a 5% return each year and that each Fund's annual operating
expenses remain the same. Although actual Fund expenses can vary from year to
year and your actual costs maybe higher or lower, based on these assumptions
your costs would be:
Smith Barney Growth and Income 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 ..................................................................... $ 608 $ 838 $1,086 $1,795
Class P** ................................................................... $ 664 $ 808 $ 976 $1,777
Class L** ................................................................... $ 388 $ 682 $1,101 $2,268
Class O** ................................................................... $ 357 $ 588 $ 941 $1,938
Class Y** ................................................................... $ 75 $ 233 $ 406 $ 906
An investor would pay the following expenses on the same investment, assuming
the same annual return and no redemption:
Class A ..................................................................... $ 608 $ 838 $1,086 $1,795
Class P** ................................................................... $ 164 $ 508 $ 876 $1,777
Class L** ................................................................... $ 288 $ 682 $1,101 $2,268
Class O** ................................................................... $ 257 $ 588 $ 941 $1,938
Class Y** ................................................................... $ 75 $ 233 $ 406 $ 906
- ------------------------------------------------------------------------------------------------------------------------
13
Smith Barney Large Cap Blend 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...................................................................... $608 $835 $1,081 $1,784
Class B...................................................................... $664 $808 $ 976 $1,777
Class L...................................................................... $393 $697 $1,126 $2,321
Class O...................................................................... $364 $609 $ 978 $2,013
Class Y...................................................................... $ 73 $227 $ 395 $ 883
An investor would pay the following expenses on the same investment, assuming
the same annual return and no redemption:
Class A...................................................................... $608 $835 $1,081 $1,784
Class B...................................................................... $164 $508 $ 876 $1,777
Class L...................................................................... $293 $697 $1,126 $2,321
Class O...................................................................... $264 $609 $ 978 $2,013
Class Y...................................................................... $ 73 $227 $ 395 $ 883
- ------------------------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Smith Barney Growth and Income 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...................................................................... $608 $835 $1,081 $1,784
Class P...................................................................... $664 $808 $ 976 $1,777
Class L...................................................................... $357 $588 $ 941 $1,938
Class O...................................................................... $357 $588 $ 941 $1,938
Class Y...................................................................... $ 69 $218 $ 379 $ 847
An investor would pay the following expenses on the same investment, assuming
the same annual return and no redemption:
Class A...................................................................... $608 $838 $1,086 $1,795
Class P...................................................................... $164 $508 $ 876 $1,777
Class L...................................................................... $257 $588 $ 941 $1,938
Class O...................................................................... $257 $588 $ 941 $1,938
Class Y...................................................................... $ 69 $218 $ 379 $ 847
- ------------------------------------------------------------------------------------------------------------------------------
* Ten-year figures for Class B and Class P shares assume conversion of
Class B and Class P shares to Class A shares at the end of the eighth year
following the date of purchase.
** The amounts shown are estimated for the periods shown.
Examples should not be considered representations of past or future expenses.
Please refer to each Fund's prospectus and statement of additional information
for a more detailed discussion of the fees and expenses applicable to each class
of shares of a Fund.
DISTRIBUTION OF SHARES AND OTHER SERVICES
As of June 5, 2000, Salomon Smith Barney and PFS Distributors Inc. ("PFS")
distribute shares of the Acquiring Fund, and Salomon Smith Barney distributes
shares of the Fund, as principal underwriter and, as such, conduct a continuous
offering pursuant to a "best efforts" arrangement requiring Salomon Smith Barney
and PFS, as applicable, to take and pay for only such securities as may be sold
to the public. Prior to that time, CFBDS, Inc., located at 21 Milk Street,
Boston, Massachusetts 02109-5408, acted as distributor of each Fund's shares.
With
14
respect to the Acquiring Fund, Salomon Smith Barney has entered into a selling
agreement with PFS (on behalf of PFS Investments, Inc.) and with one or more
other service agents giving the service agents the rights to sell shares of the
Acquiring Fund. Each Fund has adopted plans of distribution under Rule 12b-1
under the 1940 Act (a "Plan").
With respect to the Fund, Salomon Smith Barney is paid a service fee for
Class A and Class B shares at the annual rate of 0.25% of the average daily net
assets of the respective Class under the Plan. Salomon Smith Barney is also paid
a distribution fee with respect to Class B shares of the Fund at the annual rate
of 0.50% of the average daily net assets attributable to that Class. The fees
are used by Salomon Smith Barney to pay its financial consultants for servicing
shareholder accounts and, in the case of Class B shares, to cover expenses
primarily intended to result in the sale of those shares.
With respect to Class A shares of the Acquiring Fund, the Acquiring Fund
pays PFS Distributors, Inc. and Salomon Smith Barney, as administrative agents
for "PFS Accounts" (i.e., accounts held by PFS Shareholder Services, Inc.) and
other accounts, respectively (the "Administrative Agents") 0.25% per annum of
its average daily net assets attributable to such class of shares as a service
fee. The service fee is intended to cover shareholder and account maintenance
services provided to Class A shareholders of the Acquiring Fund by financial
professionals. Class L shares of the Acquiring Fund are subject to a combined
annual distribution fee and service fee at the rate of [1.00]% of the Acquiring
Fund's aggregate average daily net assets attributable to such class of shares,
which fees are paid to the Administrative Agents. Payments are made by the
Acquiring Fund under the Class P Plan of [0.25]% per annum, and distribution fee
payments of [0.75]% per annum, of the aggregate average daily net assets
attributable to Class L shares. Class P shares of the Acquiring Fund are subject
to a combined annual distribution fee and service fee at the rate of [0.75]% of
the Acquiring Fund's aggregate average daily net assets attributable to such
class of shares, which fees are paid to the Administrative Agents. Payments are
made by the Acquiring Fund under the Class P Plan of [0.25]% per annum, and
distribution fee payments of [0.50]% per annum, of the aggregate average daily
net assets attributable to Class P shares. The distribution fee payments are
used as compensation for sales and promotional activities and marketing of the
Class L and Class P shares of the Acquiring Fund. These expenditures may consist
of sales commissions to financial professionals for selling Class L and Class P
shares, compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and promotional
activities, including advertising expenditures related to the Class L and Class
P shares of the Acquiring Fund and the costs of preparing and distributing
promotional materials with respect to the Class L and Class P shares.
Class B and Class P shares of the Fund and the Acquiring Fund,
respectively, 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 the Acquiring Fund, which are not involved in the Reorganization,
are also not subject to any distribution fees.
Payments under the above Plans are not tied exclusively to the distribution
and shareholder service expenses actually incurred by Salomon Smith Barney or
PFS Distributors, Inc. and the payments may exceed those distribution expenses
actually incurred by the Funds.
15
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 Fund may exchange into the same class of
any Smith Barney fund (provided that the Smith Barney fund offers the relevant
class of shares), shareholders of the Acquiring Fund have a more limited option.
Furthermore, while the Acquiring Fund permits telephone redemptions, and does
not require signature guarantees for mail redemptions, of $50,000 or less, the
Fund limits such amounts to $10,000 or less. Moreover, although many of the
services provided by PFS Shareholder Services, Inc. to the Acquiring Fund are
available to shareholders of the Fund, PFS Shareholder Services, Inc. does not
provide services to the Fund. Please refer to each Fund's prospectus and
statement of additional information for a more detailed discussion of the
purchase, redemption and exchange procedures and privileges applicable to each
class of a Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
While each Fund generally distributes capital gains, if any, annually, the
Fund generally pays dividends from net investment income, if any, annually,
while the Acquiring Fund pays dividends from net investment income, if any,
quarterly. 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. Whereas the Acquiring Fund expects distributions to be from
income and gain, the Fund expects distributions to be primarily from gain. Any
dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
will be treated by shareholders for federal income tax purposes as if received
on December 31 of the calendar year in which it is declared. Dividends and
distributions of each Fund will be invested in additional shares of the
applicable Fund at net asset value and credited to the shareholder's account on
the payment date or, at the shareholder's election, paid in cash.
If the Plan is approved by the Fund's shareholders, then as soon as
practicable before the Closing Date, the Fund will pay or have paid its
shareholders a cash distribution of substantially all undistributed net
investment income and undistributed realized net capital gains, if any, for the
current taxable year through the closing date.
TAX CONSEQUENCES
The Fund and the Acquiring Fund will have received an opinion of Willkie
Farr & Gallagher in connection with the Reorganization, to the effect that,
based upon certain facts, assumptions and representations, the Reorganization
will constitute a tax-free reorganization within the meaning of section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). If the
Reorganization constitutes a tax-free reorganization, no gain or loss will be
recognized by the Fund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction -- Federal Income Tax
Consequences."
16
PRINCIPAL INVESTMENTS AND RISK FACTORS
General. As described above, the Fund and the Acquiring Fund have similar
investment objectives and policies and pursue their respective objectives in a
similar manner. 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 February 28, 2000, as
amended in September 11, 2000, a copy of which is included herewith, and in the
Statement of Additional Information of the Fund and the Acquiring Fund dated
October [__], 2000 (relating to the proposed Reorganization) which is
incorporated herein by reference. Please refer to each Fund's prospectus and
statement of additional information for a more detailed discussion of the
specific investment practices and risks of the applicable Fund.
Because of their similar investment policies, the Funds are exposed to
similar risks. The following summarizes those principal investment policies and
related risk factors:
Equity Securities. Although equity securities have a history of long-term
growth in value, their prices fluctuate based on changes in a company's
financial condition and on overall market and economic conditions.
Preferred Stocks and Convertible Securities. The Funds may invest in
convertible debt securities and preferred stocks. Convertible debt securities
and preferred stock entitle the holder to acquire the issuer's stock by exchange
or purchase for a predetermined rate. Convertible securities are subject to both
the credit and interest rate risks associated with fixed income securities and
to the stock market risk associated with equity securities.
Warrants. Warrants acquired by the Funds entitle them to buy shares from an
issuer at a specified price and time. Warrants are subject to the same market
risks as stocks, but may be more volatile in price. A Fund's investment in
warrants will not entitle it to receive dividends or exercise voting rights and
will become worthless if the warrants cannot be profitably exercised before the
expiration dates.
REITs. Real estate investment trusts ("REITs") are pooled investment
vehicles that invest in real estate or real estate loans or interests. Investing
in REITs involves risks similar to those associated with investing in equity
securities of small capitalization companies. REITs are dependent upon
management skills, are not diversified, and are subject to risks of project
financing, default by borrowers, self-liquidation, and the possibility of
failing to qualify for the exemption from taxation on distributed amounts under
the Internal Revenue Code of 1986, as amended (the "Code").
Corporate Debt Obligations. Corporate debt obligations are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations and may also be subject to price volatility due to such factors as
market interest rates, market perception of the creditworthiness of the issuer
and general market liquidity. Zero coupon securities are securities sold at a
discount to par value and on which interest payments are not made during the
life of the security.
U.S. Government Securities. The U.S. Government securities in which the
Funds may invest include bills, certificates of indebtedness, and notes and
bonds issued by the U.S. Treasury
17
or by agencies or instrumentalities of the U.S. Government. Some U.S. Government
securities, such as U.S. Treasury bills and bonds, are supported by the full
faith and credit of the U.S. Treasury; others are supported by the right of the
issuer to borrow from the U.S. Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others are supported only by the credit of the
instrumentality.
Short-Term Investments. In certain circumstances the Funds may invest
without limitation in all types of short-term money market instruments,
including U.S. Government securities; certificates of deposit, time deposits and
bankers' acceptances issued by domestic banks (including their branches located
outside the Untied States and subsidiaries located in Canada), domestic branches
of foreign banks, savings and loan associations and similar institutions; high
grade commercial paper; and repurchase agreements. To the extent a Fund is
investing in short-term investments as a temporary defensive posture, the
applicable Fund's investment objective may not be achieved.
Commercial Paper. Commercial paper consists of short-term (usually 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender, such as one of the Funds
pursuant to which the lender may determine to invest varying amounts. Transfer
of such notes is usually restricted by the issuer, and there is no secondary
trading market for such notes. Each Fund therefore, may only invest in a master
demand note to the extent that the investment would not violate the Fund's
limits on restricted and illiquid securities.
Illiquid and Restricted Securities. The Fund may invest up to 15% of its
assets, and the Acquiring Fund may invest up to 5% of its net assets in
securities (excluding those subject to Rule 144A under the 1933 Act), with
contractual or other restrictions on resale and other instruments that are not
readily marketable, including (a) repurchase agreements with maturities greater
than seven days, (b) futures contracts and options thereon for which a liquid
secondary market does not exist, (c) time deposits maturing in more than seven
calendar days, and (d) securities of new and early stage companies whose
securities are not publicly traded.
Foreign Securities. Each Fund may invest its assets in securities of
foreign issuers, including securities denominated in foreign currencies. The
Acquiring Fund may invest up to 20% of its assets in foreign securities, while
the Fund has no such limit. These investments involve certain risks not
ordinarily associated with investments in securities of domestic issuers. These
risks include differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign portfolio transactions,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries and potential restrictions on the
flow of international capital. Additionally, dividends or interest payable on
foreign securities, and in some cases capital gains, may be subject to foreign
withholding or other foreign taxes. Foreign securities often trade with less
frequency and volume than domestic securities and therefore may exhibit greater
price volatility. Changes in foreign exchange rates will affect the value of
those securities which are denominated or quoted in currencies other than U.S.
dollars. Certain of the foreign securities held by a Fund may not be
18
registered with, nor will the issuers thereof be subject to the reporting
requirements of, the SEC. Accordingly, there may be less publicly available
information about the securities and the foreign company or government issuing
them than is available about a domestic company or government entity. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payment
positions.
ADRs. The Funds may purchase American Depository Receipts ("ADRs") or other
securities representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depository's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depository's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR, and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. A Fund may invest in ADRs through both
sponsored and unsponsored arrangements.
Repurchase Agreements. The Funds may enter into repurchase agreements. A
repurchase agreement is a contract under which a Fund acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Fund to resell such security at a
fixed time and price (representing the Fund's cost plus interest). It is the
Fund's present intention to enter into repurchase agreements only upon receipt
of fully adequate collateral and only with commercial banks (whether U.S. or
foreign) and registered broker-dealers. The Acquiring Fund may enter into
repurchase agreements only with domestic banks and broker-dealers. Repurchase
agreements may also be viewed as loans made by a Fund which are collateralized
primarily by the securities subject to repurchase. Each Fund bears a risk of
loss in the event that the other party to a repurchase agreement defaults on its
obligations and each Fund is delayed in or prevented from exercising its rights
to dispose of the collateral securities. Pursuant to policies established by the
Fund's governing board, the investment adviser monitors the creditworthiness of
all issuers with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements, while the Acquiring Fund may not. A reverse repurchase agreement
involves the sale of a money market instrument by a Fund and its agreement to
repurchase the instrument at a specified time and price. A Fund will maintain a
segregated account consisting of U.S. government securities or cash or cash
equivalents to cover its obligations under reverse repurchase agreements with
broker-dealers and other financial institutions. The Fund will invest the
proceeds in other money market instruments or repurchase agreements maturing not
later than the expiration of the reverse repurchase agreement. Under the 1940
Act, reverse repurchase agreements may be considered borrowing by the seller.
Short Term Instruments. The Funds may invest in short term and money market
instruments. Money market instruments in which a Fund may invest include: U.S.
government securities; certificates of deposit, time deposits and bankers'
acceptances issued by domestic banks (including their branches located outside
the United States and subsidiaries located in
19
Canada), domestic branches of foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and repurchase agreements
with respect to the foregoing types of instruments.
Derivative contracts. The Funds may, but need not, use derivative
contracts, such as futures and options on securities; securities indices and,
with regard to the Acquiring Fund, currencies; options on these futures; forward
currency contracts; and interest rate and currency swaps for any of the
following purposes:
. To hedge against the economic impact of adverse changes in the market
value of portfolio securities, because of changes in stock market
prices or interest rates and, with regard to the Acquiring Fund, also
because of changes in currency exchange rates
. As a substitute for buying or selling securities
. To enhance total return
A derivative contract will obligate or entitle a Fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities or
indices. Even a small investment in derivative contracts can have a big impact
on a Fund's stock market or interest rate exposure, and with regard to the
Acquiring Fund, currency exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains. A Fund
may not fully benefit from or may lose money on derivatives if changes in their
value do not correspond accurately to changes in the value of the Fund's
holdings. The other parties to certain derivative contracts present the same
types of default risk as issuers of fixed income securities. Derivatives can
also make a Fund less liquid and harder to value, especially in declining
markets.
Special Risks of Using Futures Contracts. The prices of futures contracts
are volatile and are influenced by, among other things, actual and anticipated
changes in interest rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and
of the securities or currencies being hedged can be only approximate. The degree
of imperfection of correlation depends upon circumstances such as: variations in
speculative market demand for futures and for debt securities or currencies,
including technical influences in futures trading; and differences between the
financial instruments being hedged and the instruments underlying the standard
futures contracts available for trading, with respect to interest rate levels,
maturities, and creditworthiness of issuers. A decision of whether, when, and
how to hedge involves skill and judgment, and even a well- conceived hedge may
be unsuccessful to some degree because of unexpected market behavior or interest
rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. A purchase or sale of a
20
futures contract may result in losses in excess of the amount invested in the
futures contract. Where a Fund enters into futures transactions for non-hedging
purposes, it will be subject to greater risks and could sustain losses which are
not offset by gains on other Fund assets.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of futures contract,
no trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Defensive investing. The Funds may depart from their principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If a Fund takes a temporary defensive position, it may be
unable to achieve its investment goal. A Fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from a Fund's performance.
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 beneficial interest of the
corresponding class of the Acquiring Fund, with the exceptions of Class B shares
of the Fund, which will be exchanged for Class P shares of the Acquired Fund,
which are identical in all respects, having an aggregate net asset value equal
to the aggregate net asset value of the shareholder's shares held in the Fund as
of the close of regular trading on the New York Stock Exchange, Inc. on the
Closing Date. 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
beneficial interest of the corresponding class of the Acquiring Fund (with the
exception of Class B shares, as noted above) 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 Equity Funds.
Upon completion of the Reorganization, each shareholder of the Fund will
own that number of full and fractional shares of beneficial interest of the
corresponding class of the Acquiring Fund (with the exception or Class B shares,
as noted above) having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares held in the Fund as of the close of
regular trading on the Closing Date. Each Fund shareholder's account with the
Acquiring Fund will be substantially similar in all material respects to the
accounts currently maintained by the Fund's transfer agent for such shareholder.
Some of the outstanding shares of beneficial interest of the Fund are
represented by physical certificates; however, in the interest of
21
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.
Until the Closing, shareholders of the Fund will, of course, continue to be
able to redeem their shares at the net asset value next determined after receipt
by the Fund's transfer agent of a redemption request in proper form. Redemption
requests received by the 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 Equity Funds, on behalf of the Fund, and Investment
Series, on behalf of the Acquiring Fund, under the Plan are subject to various
conditions, as stated therein. Among other things, the Plan requires that all
filings be made with, and all authority be received from, the SEC and state
securities commissions as may be necessary in the opinion of counsel to permit
the parties to carry out the transactions contemplated by the Plan. The Fund and
the Acquiring Fund are in the process of making the necessary filings. To
provide against unforeseen events, the Plan may be terminated or amended at any
time prior to the Closing by action of the Trustees of either Equity Funds or
Investment Series, notwithstanding the approval of the Plan by the shareholders
of the Fund. However, no amendment may be made that materially adversely affects
the interests of the shareholders of the Fund without obtaining the approval of
the Fund's shareholders. The Fund and the Acquiring Fund may at any time waive
compliance with certain of the covenants and conditions contained in the Plan.
The Plan provides that the obligations of Equity Funds and of Investment
Series are not personally binding upon any of their Trustees, shareholders,
nominees, officers, agents, or employees, but binds only the property of the
Fund or the Acquiring Fund as provided in the Master Trust Agreement of Equity
Funds and the Declaration of Trust of Investment Series, respectively. Moreover,
no other series of Equity Funds or Investment Series, respectively, is
responsible for the obligations of Equity Funds and of Investment Series under
the Plan, and all persons must look only to the assets of the Fund or the
Acquiring Fund to satisfy the obligations of Equity Funds and of Investment
Series under the Plan. The execution and the delivery of the Plan have been
authorized by the Board of Trustees of Equity Funds, on behalf of the Fund, and
by the Board of Trustees of Investment Series, on behalf of the Acquiring Fund,
and the Plan has been signed by authorized officers of Equity Funds and
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 $_______. Shareholders have no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
Prior to a telephonic meeting of Equity Funds' Board of Trustees held on
September 7, 2000, the Trustees, including all of the Non-Interested Trustees,
were presented with materials
22
discussing the benefits which would accrue to the shareholders of the Fund if
the Fund were to reorganize with and into the Acquiring Fund. These materials
and other matters of concern to the Trustees were discussed at the meeting on
September 7, 2000, where the Trustees were assisted by independent counsel. For
the reasons discussed below, the Board of Trustees of Equity Funds, including
all of the Non-Interested Trustees, has determined that the proposed
Reorganization is in the best interests of the Fund and its shareholders and
that the interests of the shareholders of the Fund will not be diluted as a
result of the proposed Reorganization.
The proposed combination of the Fund and the Acquiring Fund will allow the
shareholders of the Fund to continue to participate in a portfolio governed by
similar investment objectives and policies that is professionally managed by SSB
Citi. The Board of Trustees of Equity Funds believes that shareholders of the
Fund will benefit from the proposed Reorganization because the Acquiring Fund
offers the following benefits:
Enhanced Flexibility with Respect to Portfolio Investments. As stated
previously the Reorganization is being proposed as part of a broader initiative
by SSB Citi to eliminate duplication and possible confusion in its mutual fund
product offerings. SSB Citi believes that the combination of the Funds that have
substantially similar investment objectives and policies into a single larger
fund may increase economic and other efficiencies for investors and SSB Citi,
and may ultimately result in a lower total annual expense ratio for investors.
SSB Citi also believes that a larger asset base could provide portfolio
management benefits such as greater diversification and the ability to command
more attention from brokers and underwriters. As discussed in detail herein, the
total operating expenses of the Acquiring Fund are also currently (and are
projected to be following the Closing of the Reorganization) [lower] than the
corresponding expenses incurred by the Fund.
Lower Fees and Expenses. If the proposed transaction is approved,
shareholders of the Fund may benefit from lower total fund expenses. See
"Investment Management Fees and Expenses" and "Annual Fund Operating Expenses".
As set forth above, as of their most recent fiscal year end, Class A and Y
shares of the Acquiring Fund had higher, and Class L and O shares of the
Acquiring Fund had lower, total annual operating expenses than the corresponding
classes of the Fund; and Class P shares of the Acquiring Fund had the same total
annual operating expenses as Class B shares of the Fund. As a result of the
Reorganization, however, holders of shares of beneficial interest in Classes A,
B L, O and Y of the Fund will be investing in shares of beneficial interest in
Classes A, P, L, O and Y of the Acquiring Fund, respectively, and expenses
should be as much as 0.07% lower than those of the relevant class of the Fund.
If the Reorganization is consummated, the Acquiring Fund's net expense ratio for
each class of its shares is estimated to remain unchanged for the year ending
October 31, 2000, although some classes of its shares is estimated to have lower
net expense ratios for the year ending October 31, 2001. Going forward,
shareholders should benefit from economies of scale through lower expense ratios
and higher net income distributions over time since some of the fixed expenses
currently paid by the Acquiring Fund, such as accounting, legal and printing
costs, would also be spread over a larger asset base.
Due to a combination of factors, [including the relatively small size of
the Fund,] past and prospective sales of the Fund and current market conditions,
the Trustees and management
23
of Equity Funds believe the Fund and its shareholders would benefit from a
tax-free reorganization with [a larger] fund with similar investment objectives
and policies. Accordingly, it is recommended that the shareholders of the Fund
approve the Reorganization with the Acquiring Fund.
The Board of Trustees of Equity Funds, in recommending the proposed
transaction, considered a number of factors, including the following:
(1) the Reorganization will result in a single larger fund, which may
increase economic and other efficiencies (e.g., eliminating one of the
two sets of prospectuses, annual reports and other documents required
for two Funds), and may, in the future, result in a lower expense
ratio;
(2) a larger asset base could provide portfolio management benefits, such
as greater diversification and the ability to command more attention
from brokers and underwriters;
(3) the compatibility of the Acquiring Fund's investment objectives,
policies and restrictions with those of the Fund;
(4) the tax-free nature of the Reorganization;
(5) the potential opportunity for higher income levels and higher annual
return;
(6) the terms and conditions of the Reorganization and that it should not
result in a dilution of Fund shareholder interests; and
(7) 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 Equity Funds, a business trust
organized under the laws of The Commonwealth of Massachusetts on January 8,
1986, which is registered with the SEC as an open-end management investment
company. The Acquiring Fund is a diversified series of Investment Series, a
business trust organized under the laws of The Commonwealth of Massachusetts on
January 29, 1987, which is registered with the SEC as a diversified, open-end
management investment company. The Fund currently offers shares of beneficial
interest classified into five Classes: A, B, L, O and Y. The Acquiring Fund
currently offers shares of shares of beneficial interest classified into five
Classes: A, B, L, Y and 1 and will offer Class O and P shares upon the closing
of the Reorganization. Shareholders of Classes A, B, L, O and Y of the Fund will
receive shares of Classes A, P, L, O and Y of the Acquiring Fund, respectively.
Each Class of shares represents an identical pro rata interest in the relevant
Fund's investment portfolio. As a result, the Classes of each Fund have the same
rights, privileges and preferences, except with respect to: (a) the designation
of each Class; (b) the amount of the respective sales charges, if any, for each
Class; (c) the distribution and/or service fees borne by each Class; (d) the
expenses allocable exclusively to each Class; (e) voting rights on matters
exclusively affecting a single Class; (f) the exchange privilege of each Class;
and (g) the
24
conversion feature of the Class B and Class P shares of the Fund and the
Acquired Fund, respectively.
Each share of each Class of a Fund represents an interest in that Class of
the Fund that is equal to and proportionate with each other share of that Class
of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote.
Voting Rights. Neither Fund is required to hold shareholder meetings
annually, although shareholder meetings may be called for purposes such as
electing or removing Trustees, 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 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 Series and of Equity Funds provide that
the term of office of each 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 Trustee of
Investment Series or Equity Funds may be removed by the vote of at least a
majority of the outstanding shares then entitled to be cast for the election of
Trustees. Vacancies on the Boards of Investment Series or Equity Funds may be
filled by the Trustees remaining in office. A meeting of shareholders will be
required for the purpose of electing additional Trustees whenever fewer than a
majority of the Trustees then in office were elected by shareholders and to fill
vacancies if less than two-thirds of the 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 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 Trustees. Each of the Agreement and Declaration of Trust of
Investment Series and the Master Trust Agreement of Equity Funds provides that
the Trustees and officers shall not be liable for monetary damages for breach of
fiduciary duty as a Trustee or officer, except to the extent such exemption is
not permitted by law.
Rights of Inspection. Each of the Agreement and Declaration of Trust of
Investment Series and the Master Trust Agreement of Equity Funds permits any
shareholder of a 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.
25
Shareholder Liability. Under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable for obligations of a fund. Each of the Agreement and
Declaration of Trust of Investment Series and the Master Trust Agreement of
Equity Funds, however, disclaims shareholder liability for acts or obligations
of each 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, each of the Agreement and Declaration of Trust of
Investment Series and the Master Trust Agreement of Equity Funds provides for
indemnification out of each Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of each Fund and each
Fund will be covered by insurance which the Trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder of the Fund incurring
financial loss on account of shareholder liability is considered by SSB Citi to
be remote and not material, since it is limited to circumstances in which a
disclaimer is inoperative and each Fund itself is unable to meet its
obligations.
Shares of beneficial interest in the Acquiring Fund issued to the holders
of shares of beneficial interest 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 Equity Funds. The foregoing is not a
complete description of the documents cited. Shareholders should refer to the
provisions of trust documents and state laws governing each Fund for a more
thorough description.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by Equity Funds, on
behalf of the Fund, and by Investment Series, 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 of
the assets of the Fund in exchange solely for Acquiring Fund shares and the
assumption by the Acquiring Fund of all of the stated liabilities of the Fund,
followed by the distribution of such Acquiring Fund shares to Fund shareholders
in exchange for their shares of the Fund in complete liquidation of the Fund,
will constitute a "reorganization" within the meaning of Section 368(a)(1) of
the Code, and the Acquiring Fund and the Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by the Fund upon the transfer of the Fund's assets to
the Acquiring Fund in exchange for the Acquiring Fund shares and the assumption
by the Acquiring Fund of the stated liabilities of the Fund or upon the
distribution (whether actual or constructive) of the Acquiring Fund shares to
the Fund's shareholders in exchange for their shares of the Fund; (iii) the
basis of the assets of the Fund in the hands of the Acquiring Fund will be the
same as the basis of such assets of the Fund immediately prior to the transfer;
(iv) the holding period of the assets of the Fund in the hands of the Acquiring
Fund will include the period during which such assets were held by the Fund; (v)
no gain or loss will be recognized by the Acquiring Fund upon the receipt of the
assets of the Fund in exchange for Acquiring Fund shares and the assumption by
the Acquiring Fund of all of the stated liabilities of the Fund; (vi) no gain or
loss will be recognized by the shareholders of the Fund upon the receipt of
Acquiring Fund shares solely in exchange for
26
their shares of the Fund as part of the transaction; (vii) the basis of
Acquiring Fund shares received by the shareholders of the Fund will be the same
as the basis of the shares of the Fund exchanged therefor; and (viii) the
holding period of Acquiring Fund shares received by the shareholders of the Fund
will include the holding period during which the shares of the Fund exchanged
therefor were held, provided that at the time of the exchange the shares of the
Fund were held as capital assets in the hands of the shareholders of the Fund.
While neither Equity Funds nor Investment Series is aware of any adverse
state or local tax consequences of the proposed Reorganization, they have not
requested any ruling or opinion with respect to such consequences and
shareholders may wish to consult their own tax adviser with respect to such
matters.
LIQUIDATION AND TERMINATION OF SERIES
If the Reorganization is effected, the Fund will be liquidated and
terminated as a series of Equity Funds, 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. [It is possible that there may be a
significant rebalancing of the Fund's portfolio securities in connection with
the Reorganization.] Subject to market conditions at the time of any such
rebalancing, the disposition of the Fund's portfolio securities may result in a
capital gain or loss. The actual tax consequences of any disposition of
portfolio securities will vary depending upon the specific security(ies) being
sold.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund (i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less)), for the fiscal year
ended October 31, 1999 was 53%. The portfolio turnover rate for the Fund for the
fiscal year ended January 31, 2000 was 53%.
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 August 31, 2000 as adjusted giving effect to the Reorganization
discussed herein:/1/
27
ACQUIRING ACQUIRED PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
---------------- --------------- ------------- --------------
(Actual) (Actual)
Class A
-------
Net Assets $224,136,653 $184,583,509 - $408,720,162
Net Asset Value Per Share $1 9.92 $ 16.95 - $ 19.92
Shares Outstanding 11,249,299 10,889,614 9,266,240 20,515,539
Class B + *
-----------
Net Assets $244,845,725 $137,765,891 - $244,485,725
Net Asset Value Per Share $ 19.60 $ 16.79 - $ 19.60
Shares Outstanding 12,493,501 8,203,949 (8,203,949) 12,493,501
Class L *
-----------
Net Assets - $ 8,615,048 - $ 8,615,048
Net Asset Value Per Share $ 19.92 $ 16.73 - $ 19.92
Shares Outstanding - 514,874 432,482 432,482
Class O *
-----------
Net Assets - $ 4,388,795 - $ 4,388,795
Net Asset Value Per Share $ 19.92 $ 16.79 - $ 19.92
Shares Outstanding _ 261,337 220,321 220,321
Class P *
-----------
Net Assets - - - $137,765,891
Net Asset Value Per Share $ 19.92 - - $ 19.92
Shares Outstanding - - $ 6,915,958 $ 6,915,958
Class Y *
-----------
Net Assets - $218,752,965 - $218,752,965
Net Asset Value Per Share $ 19.92 $ 17.05 - $ 19.92
Shares Outstanding - 12,829,533 10,981,575 10,981,575
/1/ Assumes the Reorganization had been consummated on August 31, 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.
+ Class B shares of the Fund will be exchanged for Class P shares of the
Acquiring Fund.
* Assumes subscriptions of Class L, O, P and Y 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
28
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.
The following table reflects the average annual total returns of Class
A shares of the Fund 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 10.32% 10.60%
5-year 19.07% N/A
10-year N/A N/A
Since Inception 13.71% 20.32%
Inception Date 11/06/92 8/18/96
- ------------------
/1/ The average annual total returns for other classes of each Fund's shares
would be similar to the returns of the Class A 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 Y Shares of the Fund,
which are subject to a lower total annual expense ratio, were as follows
(including sales charges): 1-year: 16.65%; 5-year: N/A; 10-year: N/A; and
since inception 18.12% (1/31/96). Class Y 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 Equity Funds, with respect to
the Fund, and Investment Series, 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, after paying a duplicating fee, by electronic request at
publicinfo@sec.gov or by writing to the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or, without charge, from the
Commission at http://www.sec.gov. Copies of such material can also be obtained
from
29
Smith Barney Mutual Funds, 388 Greenwich Street, New York, New York 10013, or by
calling (800) 451-2010.
Interests of certain persons. SSB Citi and certain of the Acquiring Fund's
service providers have a financial interest in the Reorganization, arising from
the fact that their respective fees under their respective agreements with the
Acquiring Fund will increase as the amount of the Acquiring Fund's assets
increases; the amount of those assets will increase by virtue of the
Reorganization.
THE BOARD MEMBERS OF EQUITY FUNDS RECOMMEND THAT THE SHAREHOLDERS OF THE
FUND VOTE IN FAVOR OF THIS PROPOSAL.
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
Equity Funds, 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 or via the internet, it will use
procedures designed to (i) authenticate shareholders' identities, (ii) allow
shareholders to authorize the voting of their shares in accordance with their
instructions and (iii) confirm that their instructions have been properly
recorded.
To participate in the Special Meeting, the shareholder may submit the proxy
card originally sent with the Prospectus/Proxy Statement or attend in person.
Any proxy given by a shareholder is revocable until voted at the Special
Meeting.
Proposals of Shareholders. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a shareholder meeting subsequent to the
Special Meeting, if any, should send their written proposals to the Secretary of
Equity Funds, 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 Equity Funds 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,
/s/ Christina T. Sydor
Christina T. Sydor
Secretary
30
INDEX OF EXHIBITS
Exhibit A: Form of Agreement and Plan of Reorganization
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
____ day of _________, 2000, between Smith Barney Equity Funds ("Equity Funds"),
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 Smith
Barney Large Cap Blend Fund (the "Acquired Fund"), and Smith Barney Investment
Series ("Investment Series") (formerly Concert 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 Smith
Barney Growth and Income Fund (the "Acquiring Fund") and solely for purposes of
Section 10.2 hereof, SSB Citi Fund Management, LLC ("SSB Citi").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all of the assets of the Acquired Fund to the
Acquiring Fund, in exchange solely for voting shares of the corresponding class
of shares of beneficial interest ($.001 par value per share) of the Acquiring
Fund (the "Acquiring Fund Shares"), with the exception of Class B shares of the
Acquired Fund, which will be exchanged for Class P shares of the Acquiring Fund,
which are identical in all respects, the assumption by 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 interest 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, the Acquired Fund,
agrees to transfer to the Acquiring Fund, all of the Acquired Fund's assets as
set forth in section 1.2, and 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
A-1
receivables that are owned by the Acquired Fund and any deferred or prepaid
expenses shown on the unaudited statement of assets and liabilities of the
Acquired Fund prepared as of the effective time of the closing (the "Effective
Time Statement"), prepared in accordance with generally accepted accounting
principles ("GAAP") applied consistently with those of the Acquired Fund's most
recent audited balance sheet.
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date as defined in
section 3.1, other than those liabilities and obligations which would otherwise
be discharged at a later date in the ordinary course of business.
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"), Equity Funds 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 the Acquired
Fund 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 Equity Funds 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 Series 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
A-2
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
Investment Series' Agreement and Declaration of Trust, as amended, and then-
current prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share of each class computed as of the Valuation Time using the
valuation procedures referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of each 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 December 1, 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
SSB Citi or at such other place and time as the parties may agree.
3.2. Equity Funds, on behalf of Acquired Fund, shall deliver to Investment
Series, on behalf of the Acquiring Fund, on the Closing Date a schedule of
assets.
3.3. PNC Bank, National Association, as custodian for the Acquired Fund,
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 the Custodian for Acquired Fund to the 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
A-3
Closing Date 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 Series, on behalf of the Acquiring
Fund, shall issue and deliver a confirmation evidencing the Acquiring Fund
Shares to be credited on the Closing Date to the Acquired Fund or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board of 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. Equity Funds, on behalf of the Acquired Fund, represents and warrants
to Investment Series, on behalf of the Acquiring Fund as follows:
(a) Equity Funds is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts with power
under its Master Trust Agreement, as amended, to own all of its properties
and assets and to carry on its business as it is now being conducted;
(b) Equity 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 Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933,
A-4
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, Equity Funds is not, and the execution,
delivery and performance of this Agreement by Equity Funds will not result,
in violation of Massachusetts law or of its Master Trust Agreement, 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 January 31, 2000,
have 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 Acquiring Fund) present fairly,
in all material respects, the financial position, results of operations,
changes in net assets and financial highlights of the Acquired Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Fund required to be reflected on a statement of
assets and liabilities (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(g) Since January 31, 2000, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of 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 Series, 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;
A-5
(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 Equity Funds, and, subject to the approval
of the Acquired Fund Shareholders, this Agreement constitutes a valid and
binding obligation of Equity Funds, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by Equity Funds, on behalf of 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
A-6
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;
(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 Series, on behalf of the Acquiring Fund, represents and
warrants to Equity Funds, on behalf of the Acquired 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 Agreement and 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 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 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 Agreement and 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 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,
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indenture, instrument, contract, lease, judgment or decree to which the
Acquiring Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any
properties or assets held by it. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The 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 October 31,
1999, have 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 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 October 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 Equity Funds 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;
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(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws and (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable. The Acquiring Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Acquiring Fund shares, nor is there outstanding any security convertible
into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant
to the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued and outstanding Acquiring Fund Shares, and will be fully paid and
non-assessable;
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Trustees of Investment Series and this Agreement will
constitute a valid and binding obligation of Investment Series 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 Investment Series, on behalf of
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
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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 Equity Funds, on behalf of the
Acquired Fund, for use therein; and
(q) Investment Series, 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 Series, on behalf of the Acquiring Fund, and Equity Funds,
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 Series' officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. Equity Funds, 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 November 22, 2000 (or such other date as the
Acquired Fund and the Acquiring Fund may agree to in writing).
5.4. Equity Funds, 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. Equity Funds, on behalf of the Acquired Fund, covenants that it will
assist Investment Series in obtaining such information as Investment Series
reasonably requests concerning the beneficial ownership of the Acquired Fund
Shares and will provide Investment Series with a list of affiliates of the
Acquired Fund.
5.6. Subject to the provisions of this Agreement, Investment Series, on
behalf of the Acquiring Fund, and Equity Funds, 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
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connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein. Investment
Series, on behalf of the Acquiring Fund, will file the Registration Statement,
including the Proxy Statement, with the Commission. Equity Funds, 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. Equity Funds, on behalf of the Acquired 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
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 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 Series, 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 Series may take such actions it reasonably deems advisable after the
Closing Date as circumstances change.
5.10. Investment Series, on behalf of the Acquiring Fund, covenants that it
will, from time to time, as and when reasonably requested by Equity Funds,
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 Equity Funds 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 stated liabilities from the
Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. Investment Series, on behalf of the Acquiring Fund, and Equity Funds,
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 Equity Funds, on behalf of the Acquired Fund, to consummate
the transactions provided for herein shall be subject, at its election, to the
performance by Investment Series, 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 Series, with respect
to the Acquiring Fund, contained in this Agreement shall be true and correct in
all material respects as
A-11
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 Series, 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 Series, 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. Equity Funds, on behalf of the Acquired Fund, shall have received on
the Closing Date an opinion of Sullivan & Worcester LLP, in a form reasonably
satisfactory to the Acquired Fund, and dated as of the Closing Date, to the
effect that:
(a) Investment Series has been duly organized and is a validly
existing business trust in good standing under the laws of The Commonwealth
of Massachusetts;
(b) Investment Series, with respect to the Acquiring Fund, has the
power to carry on its business as presently conducted in accordance with
the description thereof in Investment Series' registration statement under
the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Investment Series, on behalf of the Acquiring Fund, and assuming due
authorization, execution and delivery of the Agreement by Equity Funds on
behalf of the Acquired Fund, constitutes a valid and legally binding
obligation of Investment Series, 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 Agreement and Declaration of Trust,
as amended, or By-Laws of Investment Series or any provision of any
material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Acquiring
Fund is a party or by which it or any of its properties may be bound or to
the knowledge of such counsel, result in the acceleration of any obligation
or the imposition of any penalty, under any agreement, judgment or decree
to which the Acquiring Fund is a party or by which it is bound;
(e) to the knowledge of such counsel, all regulatory or court
consents, authorizations, approvals, orders or filings required to be
obtained or made by the
A-12
Acquiring 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; and
(f) to the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Acquiring Fund or any of its
properties or assets and the Acquiring Fund 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,
other than as previously disclosed in the Registration Statement.
Such opinion may state that it is solely for the benefit of Equity Funds, its
Trustees and its officers. Such opinion may contain such assumptions and
limitations as shall be in the opinion of Sullivan & Worcester LLP appropriate
to render the opinions expressed therein. Such opinion also shall include such
other matters incident to the transaction contemplated hereby as the Acquired
Fund may reasonably request.
6.4. Investment Series, 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 Investment Series, on behalf of the Acquiring Fund to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by Equity Funds, on behalf of 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 Equity Funds, 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. Equity Funds 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 Equity Funds.
7.3. Equity Funds, on behalf of the Acquired Fund, 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 Equity Funds, with respect to the Acquired
Fund, made in this Agreement are true and correct on and as of the Closing Date,
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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 Series, on behalf of the Acquiring Fund, shall have
received on the Closing Date an opinion of Willkie Farr & Gallagher, in a form
reasonably satisfactory to the Acquiring Fund, and dated as of the Closing Date,
to the effect that:
(a) Equity Funds has been duly organized and is a valid existing
business trust in good standing under the laws of The Commonwealth of
Massachusetts;
(b) Equity Funds, with respect to the Acquired Fund, has the power to
carry on its business as presently conducted in accordance with the
description thereof in Equity Funds' registration statement under the 1940
Act;
(c) the Agreement has been duly authorized, executed and delivered by
Equity Funds, on behalf of the Acquired Fund, and assuming due
authorization, execution and delivery of the Agreement by Investment Series
on behalf of the Acquiring Fund, constitutes a valid and legally binding
obligation of Equity Funds, 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 Master Trust Agreement, as amended,
or By-Laws of Equity Funds or any provision of any material agreement,
indenture, instrument, contract, lease or other undertaking (in each case
known to such counsel) which it or any of its properties may be based or to
the knowledge of such counsel, result in the acceleration of any obligation
or the imposition of any penalty, under any agreement, judgment or decree
to which the Acquired Fund is a party or by which it is bound;
(e) to the knowledge of such counsel, all regulatory or court
consents, authorizations, approvals, orders 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; and
(f) to the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or government's body is
presently pending or threatened as to the Acquired Fund or any of its
properties or assets and the Acquired Fund 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,
other than as previously disclosed in the Registration Statement.
Such opinion may state that it is solely for the benefit of Investment Series,
its Trustees and its officers. Such opinion may contain such assumptions and
limitations as shall be in the opinion of Willkie, Farr & Gallagher appropriate
to render the opinions expressed therein. Such opinion
A-14
also shall include such other matters incident to the transaction contemplated
hereby, as the Acquiring Fund may reasonably request.
7.5. Equity Funds, 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 interest in the Acquired Fund in accordance with the provisions of
the Master Trust Agreement, as amended, and By-Laws of Equity Funds, 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 Series or Equity Funds to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to Equity Funds and Investment Series 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 Acquiring Fund Shares and the
assumption by the Acquiring Fund of all of the stated liabilities of the
Acquired Fund, followed by the distribution of such Acquiring Fund 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
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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 the stated 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 Acquiring Fund Shares and the assumption by the Acquiring
Fund of all of the stated liabilities of the Acquired Fund; (vi) no gain or loss
will be recognized by the holders of shares of beneficial interest in the
Acquired Fund upon the receipt of Acquiring Fund Shares solely in exchange for
their shares of the Acquired Fund as part of the transaction; (vii) the basis of
Acquiring Fund Shares received by the holders of shares of beneficial interest
in the Acquired Fund will be the same as the basis of the shares of beneficial
interest in the Acquired Fund exchanged therefor; and (viii) the holding period
of Acquiring Fund Shares received by the holders of shares of beneficial
interest in the Acquired Fund will include the holding period during which the
shares of beneficial interest in the Acquired Fund exchanged therefor were held,
provided that at the time of the exchange the shares of beneficial interest in
the Acquired Fund were held as capital assets in the hands of the holders of
shares of beneficial interest 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 Equity Funds and Investment Series. Notwithstanding
anything herein to the contrary, neither Equity Funds nor Investment Series may
waive the condition set forth in this section 8.5.
9. INDEMNIFICATION
9.1. Investment Series, on the behalf of the Acquiring Fund, agrees to
indemnify and hold harmless Equity Funds 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 Equity 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 Acquiring Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
9.2. Equity Funds, on behalf of the Acquired 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 Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
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10. FEES AND EXPENSES
10.1. Each of Investment Series, on behalf of the Acquiring Fund, and
Equity Funds, 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 Series, on behalf of the Acquiring Fund, and Equity Funds,
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 Series, on behalf of the Acquiring Fund, and Equity Funds, 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 Trustees or officers,
except for any such material breach or intentional misrepresentation, as to each
of which all remedies at law or in equity of the party adversely affected shall
survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon in writing by the authorized officers of Equity Funds and
Investment Series; provided, however, that following the meeting of the Acquired
Fund Shareholders called by the Acquired Fund pursuant to section 5.3 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of the Acquiring Fund Shares to be issued to the Acquired
Fund shareholders under this Agreement to the detriment of such shareholders
without their further approval.
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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
Smith Barney Equity Funds, 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 Series, 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 Equity
Funds or Investment Series 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. Equity Funds and Investment Series are organized as a Massachusetts
business trusts, and references in this Agreement to Equity Funds or to
Investment Series mean and refer to the Trustees from time to time serving under
the Master Trust Agreement of Equity Funds or the Agreement and Declaration of
Trust of Investment Series, as applicable, 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 each of Equity Funds and Investment Series conducts its
business. It is expressly agreed that the obligations of each of Equity Funds
and Investment Series hereunder shall not be binding upon any of its Trustees,
shareholders, nominees, officers, agents, or employees of Equity Funds or
Investment Series personally, but bind only the property of the Acquired Fund or
the Acquiring Fund as provided in the Master Trust Agreement and the Agreement
and Declaration of Trust of each of Equity Funds and Investment Series,
respectively. Moreover, no series of Equity Funds or Investment Series other
than the Acquired Fund or the Acquiring Fund, respectively, shall be responsible
for the obligations of Equity Funds or Investment Series hereunder, and all
persons shall look only to the assets of the Acquired Fund or the Acquiring Fund
to satisfy the obligations of Equity Funds or Investment Series, respectively,
hereunder. The execution and the delivery of this Agreement have been authorized
by the Board of Trustees of Equity Funds, on behalf of the Acquired Fund, and by
the
A-18
Board of Trustees of Investment Series, on behalf of the Acquiring Fund and this
Agreement has been signed by authorized officers of Equity Funds and 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 or the Acquiring Fund as
provided in the Master Trust Agreement or the Agreement and Declaration of Trust
of each of Equity Funds or Investment Series, respectively.
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-19
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: SMITH BARNEY EQUITY FUNDS
on behalf of Smith Barney Large Cap
Blend Fund
By: __________________________________
Name: ____________________________
Title: _____________________________
Attest: SMITH BARNEY INVESTMENT SERIES
on behalf of Smith Barney Growth and
Income Fund
By: __________________________________
Name: ____________________________
Title: _____________________________
Attest: SSB CITI FUND MANAGEMENT LLC
By: __________________________________
Name: ____________________________
Title: _____________________________
A-20
THE PROSPECTUS, ANNUAL REPORT AND
SEMI-ANNUAL REPORT OF THE ACQUIRING FUND
DATED FEBRUARY 28, 2000, (AS AMENDED ON SEPTEMBER 11, 2000),
OCTOBER 31,1999 AND
APRIL 30, 2000, RESPECTIVELY, ARE
INCORPORATED BY REFERENCE TO THE MOST RECENT
FILINGS THEREOF BY SMITH BARNEY INVESTMENT SERIES
PART B
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2000
STATEMENT OF ADDITIONAL INFORMATION
388 Greenwich Street
New York, New York 10013
(800) 451-2010
RELATING TO THE ACQUISITION BY SMITH BARNEY
GROWTH AND INCOME FUND (THE "ACQUIRING FUND")
A SERIES OF SMITH BARNEY INVESTMENT SERIES ("INVESTMENT SERIES")
OF THE ASSETS OF SMITH BARNEY LARGE CAP BLEND FUND (THE "FUND"), A
SERIES OF SMITH BARNEY EQUITY FUNDS ("EQUITY FUNDS").
Dated: October __, 2000
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Fund, a series of Equity Funds, to
the Acquiring Fund in exchange for shares of the corresponding class of the
Acquiring Fund and the assumption by the Acquiring Fund of the 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. The Statement of Additional Information for the Acquiring Fund, dated
February 28, 2000, as amended on September 11, 2000, and as amended
from time to time.
2. The Statement of Additional Information for the Fund, dated May 30,
2000, as amended from time to time.
3. Annual Report of the Acquiring Fund for the year ended October 31,
1999 and the Semi-Annual Report of the Acquiring Fund for the six
months ended April 30, 2000.
4. Annual Report of the Fund for the year ended January 31, 2000 and the
Semi- Annual Report of the Fund for the six months ended July 31,
2000.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement, dated October __, 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 the Acquiring Fund for the year ended October 31,
1999, the Semi-Annual Report of the Acquiring Fund for the six months ended
April 30, 2000 (unaudited), the Annual Report of the Fund for the year ended
January 31, 2000 and the Semi-Annual Report of the Fund for the six months ended
July 31, 2000 (unaudited), 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 (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, including the unaudited pro
forma schedule of investments, 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.
B-2
PRO FORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 30, 2000 (UNAUDITED)
B-3
Merger of Smith Barney Large Cap Blend Fund into Smith Barney Growth & Income
Fund
Smith Barney Smith Barney
Growth & Income Fund Large Cap Blend Fund
------------------------ ---------------------
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (unaudited)
April 30, 2000
ASSETS:
Investments, at value (cost $1,199,217,979, $397,562,451
and $1,596,780,430 respectively (Proforma) $1,534,833,343 $540,178,788
Cash 618,620 930
Collateral for securities on loan 143,798,677 69,298,120
Dividends & interest receivable 1,240,001 408,525
Receivable for Fund shares sold 147,931 228,795
Other assets 144,471 -
------------------------ ---------------------
Total Assets 1,680,783,043 610,115,158
------------------------ ---------------------
LIABILITIES:
Payable for securities on loan 143,798,677 69,298,120
Trustees' retirement plan 317,870 -
Management fees payable 773,116 180,331
Administration fees payable - 81,592
Distribution costs payable 334,330 188,961
Accrued expenses and other liabilities 1,126,635 235,660
Payable for Fund shares purchased 2,171 -
------------------------ ---------------------
Total Liabilities 146,352,799 69,984,664
------------------------ ---------------------
Net Assets $1,534,430,244 $540,130,494
======================== =====================
NET ASSETS:
Par value of capital shares $804,116 $32,637
Capital paid in excess of par value 1,153,047,978 378,158,105
Undistributed net investment income 124,292 753,270
Accumulated net realized gain 44,838,494 18,570,145
Net unrealized appreciation of investments 335,615,364 142,616,337
------------------------ ---------------------
Net Assets $1,534,430,244 $540,130,494
======================== =====================
Smith Barney
Growth & Income Fund
Adjustments (Proforma)
--------------------------------------
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (unaudited)
April 30, 2000
ASSETS:
Investments, at value (cost $1,199,217,979, $397,562,451
and $1,596,780,430 respectively (Proforma) - $2,075,012,131
Cash - 619,550
Collateral for securities on loan - 213,096,797
Dividends & interest receivable - 1,648,526
Receivable for Fund shares sold - 376,726
Other assets - 144,471
----------- ------------------------
Total Assets - 2,290,898,201
----------- ------------------------
LIABILITIES:
Payable for securities on loan - 213,096,797
Trustees' retirement plan - 317,870
Management fees payable - 953,447
Administration fees payable - 81,592
Distribution costs payable - 523,291
Accrued expenses and other liabilities - 1,362,295
Payable for Fund shares purchased - 2,171
----------- ------------------------
Total Liabilities - 216,337,463
----------- ------------------------
Net Assets - $2,074,560,738
=========== ========================
NET ASSETS:
Par value of capital shares 249,798 @ $1,086,551
Capital paid in excess of par value (249,798)@ 1,530,956,285
Undistributed net investment income - 877,562
Accumulated net realized gain - 63,408,639
Net unrealized appreciation of investments - 478,231,701
----------- ------------------------
Net Assets - $2,074,560,738
=========== ========================
@ To adjust for shares issued in connection with the reorganization.
B-4
Merger of Smith Barney Large Cap Blend Fund into Smith Barney Growth & Income
Fund
Smith Barney
Smith Barney Smith Barney Growth & Income
Growth & Income Large Cap Fund
Fund Blend Fund Adjustments (Proforma)
---- ---------- ----------- ----------
Outstanding Shares:
- -------------------
Class 1 57,251,229 - - 57,251,229
================= =============== ================
Class A 10,847,808 10,924,732 9,450,579 20,298,387
================= =============== ================
Class B 12,312,538 8,701,294 - ** 12,312,538
================= =============== ================
Class L - 475,704 407,533 * 407,533
================= =============== ================
Class O - 271,277 232,969 * 232,969
================= =============== ================
Class P - - 7,472,555 ** 7,472,555
================= =============== ================
Class Y - 12,264,280 10,679,930 * 10,679,930
================= =============== ================
Net Asset Value
- ---------------
Class 1 (and redemption price) $19.13 - $19.13
================= ===============
Class A (and redemption price) $19.12 $16.54 $19.12
================= ===============
Class B *** $18.85 $16.42 $18.85
================= ===============
Class L **** - $16.38 $19.12
================= ===============
Class O **** - $16.42 $19.12
================= ===============
Class P *** - - $19.12
================= ===============
Class Y (and redemption price) - $16.65 $19.12
================= ===============
Maximum Public Offering Price Per Share
- ---------------------------------------
CLASS 1 (NAV plus 9.29% of NAV) $20.91 - $20.91
================= ===============
CLASS A (NAV plus 5.26% of NAV) $20.13 $17.41 $20.13
================= ===============
CLASS L (NAV plus 1.01% of NAV) - $16.55 $19.31
================= ===============
* Assumes subscriptions of Class L, Y and O shares of acquired fund into
respective classes of the acquiring fund at the acquiring fund's Class A
NAV.
** Class B of SB Large Cap Blend Fund carries a distribution fee calculated
as 0.50% of average net assets, whereas the fee is 0.75% for SB Growth
and Income. Accordingly, Class B shares of SB Large Cap Blend Fund will
be merged into a newly created Class P in the SB Growth and Income Fund
with a 0.50% distribution fee. Class P shares will use the Class A NAV of
the acquiring fund.
*** Redemption price is NAV of Class B and P shares reduced by 5.00% CDSC if
shares are redeemed within one year from purchase.
**** Redemption price is NAV of Class L and O shares reduced by 1.00% CDSC if
shares are redeemed within one year from purchase.
See accompanying notes to pro forma financial statements.
B-5
Merger of Smith Barney Large Cap Blend Fund into Smith Barney Growth & Income
Fund
Smith Barney
Smith Barney Smith Barney Growth & Income
Growth & Income Large Cap Fund
Fund Blend Fund Adjustments (Proforma)
---- ---------- ----------- ----------
PRO FORMA STATEMENT OF OPERATIONS (Unaudited)
For the 12 months ended April 30, 2000
INVESTMENT INCOME:
Dividends $19,245,998 $6,837,472 - $26,083,470
Interest 345,947 229,486 - 575,433
Less: Foreign withholding tax (12,316) (1,731) - (14,047)
------------------- ------------------- -------------- ---------------
Total Investment Income 19,579,629 7,065,227 - 26,644,856
EXPENSES:
Investment advisory fees 9,610,641 2,403,530 553,461 (a) 12,567,632
Distribution fees 2,526,769 1,690,198 - 4,216,967
Administration fees - 1,068,236 (1,068,236)(a) -
Shareholder and system servicing fees 2,761,953 429,773 - 3,191,726
Shareholder communications 348,033 120,025 (44,000)(b) 424,058
Registration fees 116,618 171,562 (65,000)(b) 223,180
Custody 64,031 25,319 - 89,350
Audit and legal 37,325 61,873 (30,000)(b) 69,198
Directors' fees 123,459 14,961 (15,000)(b) 123,420
Other 48,066 38,424 (4,000)(b) -
------------------- ------------------- -------------- ---------------
Total Expenses 15,636,895 6,023,901 (672,775) 20,905,531
NET INVESTMENT INCOME 3,942,734 1,041,326 672,775 5,656,835
------------------- ------------------- -------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain From:
Security Transactions 66,167,517 26,253,701 - 92,421,218
Net Change in Unrealized Appreciation of Investments 112,462,835 10,927,488 - 123,390,323
------------------- ------------------- -------------- ---------------
Net Gain On Investments 178,630,352 37,181,189 - 215,811,541
Increase in Net Assets Resulting from Operations $182,573,086 $38,222,515 $672,775 $221,468,376
=================== =================== ============== ===============
(a) Reflects consolidation of investment advisory fees and administration
fees as well as overall reduction in management fee expense.
(b) Reflects reductions due to duplicate services.
See accompanying notes to pro forma financial statements.
B-6
SMITH BARNEY LARGE CAP BLEND
STATEMENT OF OPERATIONS
12-Months Ended 4/30/00
Balance As Of 12-Months
--------------------------------------------------------------- Ended
1/31/99 4/30/99 1/31/00 4/30/00 4/30/00
---------------------------------------------------------------------------------
Dividends 8,005,263 9,750,705 6,837,179 1,745,735 6,837,472
Interest 745,688 789,714 232,030 41,482 229,486
Less: Foreign withholding tax (17,375) (22,967) (5,592) (1,731) (1,731)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 8,733,576 10,517,452 7,063,617 1,785,486 7,065,227
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees 2,108,469 2,689,246 2,402,756 581,551 2,403,530
Distribution fees 1,613,986 2,033,469 1,713,423 396,258 1,690,198
Administration fees 937,097 1,195,220 1,067,892 258,467 1,068,236
Shareholder and system servicing fees 408,139 514,279 434,201 101,712 429,773
Registration fees 99,452 124,383 160,328 36,165 171,562
Shareholder communications 88,147 103,804 120,542 15,140 120,025
Audit and legal 50,865 62,459 62,256 11,211 61,873
Custody 19,248 24,023 24,067 6,027 25,319
Directors' fees 24,865 28,605 15,084 3,617 14,961
Other 8,487 10,731 12,050 28,618 38,424
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses 5,358,755 6,786,219 6,012,599 1,438,766 6,023,901
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 3,374,821 3,731,233 1,051,018 346,720 1,041,326
- ------------------------------------------------------------------------------------------------------------------------------------
Realized Gain From:
Security Transactions 27,308,881 90,693,438 80,409,030 9,229,228 26,253,701
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain 27,308,881 90,693,438 80,409,030 9,229,228 26,253,701
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period (4/30/99) 131,688,849
End of Period (4/30/00) 142,616,337
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 10,927,488
- ------------------------------------------------------------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 37,181,189
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 38,222,515
- ------------------------------------------------------------------------------------------------------------------------------------
B-7
SMITH BARNEY GROWTH & INCOME
STATEMENT OF OPERATIONS
12-Months Ended 4/30/00
Balance As Of 12-Months
-------------------------------------------------------- Ended
4/30/99 10/31/99 4/30/00 4/30/00
-------------------------------------------------------------------------
Dividends 8,488,911 17,734,607 10,000,302 19,245,998
Interest 915,190 1,114,147 146,990 345,947
Less: Foreign withholding tax (23,443) (30,911) (4,848) (12,316)
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Income 9,380,658 18,817,843 10,142,444 19,579,629
- ----------------------------------------------------------------------------------------------------------------------------
Investment advisory fees 4,613,468 9,381,462 4,842,647 9,610,641
Distribution fees 967,984 2,146,625 1,348,128 2,526,769
Shareholder and system servicing fees 928,200 2,424,155 1,265,998 2,761,953
Shareholder communications 173,992 347,984 174,041 348,033
Directors' fees 51,870 103,740 71,589 123,459
Registration fees 50,050 100,100 66,568 116,618
Custody 31,850 63,700 32,181 64,031
Audit and legal 16,926 33,852 20,399 37,325
Other 38,038 76,075 10,029 48,066
- ----------------------------------------------------------------------------------------------------------------------------
Total Expenses 6,872,378 14,677,693 7,831,580 15,636,895
- ----------------------------------------------------------------------------------------------------------------------------
Net Investment Income 2,508,280 4,140,150 2,310,864 3,942,734
- ----------------------------------------------------------------------------------------------------------------------------
Realized Gain From:
Security Transactions 223,152,529 242,433,122 46,886,924 66,167,517
Futures Contracts 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Net Realized Gain 223,152,529 242,433,122 46,886,924 66,167,517
- ----------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and Futures Contracts:
Beginning of period (4/30/99) 223,152,529
End of Period (4/30/00) 335,615,364
- ----------------------------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 112,462,835
- ----------------------------------------------------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 178,630,352
- ----------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 182,573,086
- ----------------------------------------------------------------------------------------------------------------------------
B-8
SMITH BARNEY LARGE CAP BLEND
SMITH BARNEY GROWTH & INCOME FUND
Average Net Assets Calculation
SMITH BARNEY GROWTH & INCOME FUND
---------------------------------------------------------------------------------------
Class A Class B Class 1 Fund
---------------------------------------------------------------------------------------
Cum. Net Assets 10/31/99 $57,923,665,315.04 $64,293,641,588.30 $420,008,204,462.09 $542,225,511,365.43
Less: Cum. Net Assets 4/30/99 (26,255,824,237.49) (28,651,959,700.68) (209,417,455,366.69) (264,325,239,304.86)
Add: Cum. Net Assets 4/30/00 35,571,191,092.00 40,407,223,564.69 203,519,014,714.46 279,497,429,371.15
---------------------------------------------------------------------------------------
Total $67,239,032,169.55 $76,048,905,452.31 $414,109,763,809.86 $557,397,701,431.72
---------------------------------------------------------------------------------------
Avg. (5/1/99-4/30/00)(366 days) $183,713,202.65 $207,783,894.68 $1,131,447,442.10 $1,522,944,539.43
=======================================================================================
SMITH BARNEY LARGE CAP BLEND FUND
----------------------------------------------------------------------------------------
Class A Class B Class L Class O
----------------------------------------------------------------------------------------
Cum. Net Assets 12/31/99 $59,777,921,374.36 $52,218,390,898.72 $1,416,790,302.71 $1,803,377,994.99
Less: Cum. Net Assets 4/30/99 (15,659,436,062.27) (13,950,880,807.26) (216,861,572.47) (496,372,670.43)
Add: Cum. Net Assets 4/30/00 16,171,644,950.97 13,032,412,694.26 654,301,792.36 422,166,938.11
=========================================================================================
Total $60,290,130,263.06 $51,299,922,785.72 $1,854,230,522.60 $1,729,172,262.67
Avg. (5/1/99-4/30/00)(366 days) $164,727,131.87 $140,163,723.46 $5,066,203.61 $4,724,514.38
=========================================================================================
SMITH BARNEY LARGE CAP BLEND FUND
---------------------------------------------
Class Y Fund
---------------------------------------------
Cum. Net Assets 12/31/99 $61,690,607,984.53 $176,907,088,555.31
Less: Cum. Net Assets 4/30/99 (15,738,709,744.20) (46,062,260,856.63)
Add: Cum. Net Assets 4/30/00 17,977,540,889.22 48,258,067,264.92
=============================================
Total $63,929,439,129.55 $179,102,894,963.60
---------------------------------------------
Avg. (5/1/99-4/30/00)(366 days $174,670,598.71 $489,352,172.03
=============================================
B-9
Notes to Pro Forma Financial Statements
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
Smith Barney Large Cap Blend Fund ("the Acquired Fund") by the Smith Barney
Growth & Income Fund ("Fund") in exchange for shares of the Fund and the
assumption by the Fund of substantially all of the liabilities of the Acquired
Fund as described elsewhere in the proxy statement/prospectus.
Under the terms of the Agreement and Plan of Reorganization, the exchange of
assets of the Acquired Fund for shares of the Fund will be treated as a tax-free
reorganization and accordingly will be accounted for as a tax-free merger. The
acquisition would be accomplished by an acquisition of the net assets of the
Acquired Fund in exchange for shares of the 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 accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedule of investments of the Fund and the
Acquired Fund which are included in their respective annual reports dated
October 31, 1999 and January 31, 2000, respectively. The expense of the
reorganization, including the cost of the proxy solicitation, will be borne by
SSB Citi Fund Management LLC ("SSBC"), the Fund's and the Acquired Fund's
Investment Manager. SSBC is a subsidiary of Salomon Smith Barney Holdings Inc.,
which in turn is a subsidiary of Citigroup Inc.
2. Significant Accounting Policies
The Fund, 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 the 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;
B-10
(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 the investment advisory
agreement of the Fund as if it had been in place on a pro forma basis as of May
1, 1999.
4. Investment Advisory Agreement and Other Transactions
SSBC acts as investment advisor of the Fund. The fund pays SSBC an advisory fee
calculated at an annual rate of its respective average daily net assets as
follows: This fee is calculated daily and paid monthly.
Average Daily Annual
Net Assets Rate
==============================
First $1 Billion 0.65%
------------------------------
Next $1 Billion 0.60%
------------------------------
Next $1 Billion 0.55%
------------------------------
Next $1 Billion 0.50%
------------------------------
Over $4 Billion 0.45%
==============================
Citi Fiduciary Trust Company ("CFTC"), a subsidiary of Citigroup, is the Fund's
transfer agent. Salomon Smith Barney Inc., another subsidiary of Citigroup, acts
as the Fund's distributor.
B-11
SCHEDULE OF INVESTMENTS
Proforma Schedule of Investments at April 30, 2000 (Unaudited)
B-12
Smith Barney Large Cap Blend Fund
Smith Barney Growth and Income Fund
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY
- --------------------------------------------------------------------------------------------------------------------------------
Smith Barney Smith Barney Smith Barney
Growth and Large Cap Growth and Income
Income Blend (Proforma) #
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock --- 99.9%
Commercial Services --- 0.9%
280,000 100,000 380,000 SUPERVALU INC.
170,000 + 60,000 230,000 W.W. Grainger, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Durables --- 1.8%
280,000 100,000 380,000 Ford Motor Co.
130,000 + 45,000 + 175,000 General Motors Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Durables --- 5.1%
- 65,000 65,000 Anheuser-Busch Cos., Inc.
175,000 60,000 235,000 The Coca-Cola Co.
364,200 + - 364,200 ConAgra, Inc.
280,000 - 280,000 General Mills, Inc.
65,000 25,000 90,000 The Gillette Co.
235,000 80,000 315,000 Kimberly-Clark Corp.
365,000 125,000 490,000 PepsiCo, Inc.
- 60,000 + 60,000 Philip Morris Cos., Inc.
200,000 70,000 270,000 The Procter & Gamble Co.
115,000 40,000 155,000 The Quaker Oats Co.
150,000 55,000 205,000 V. F. Corp.
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Services --- 5.5%
180,000 60,000 240,000 Comcast Corp., Class A Shares
235,000 + 81,580 + 316,580 Cox Communications, Inc. *
184,800 65,000 249,800 H&R Block, Inc.
150,000 + 50,000 + 200,000 Knight-Ridder, Inc.
130,000 + 45,000 175,000 McDonald's Corp.
230,000 85,000 315,000 The New York Times Co.
290,000 100,000 390,000 The Reader's Digest Association,
Inc., Class A Shares +
83,104 28,906 112,010 Sabre Holdings Corp.
275,000 95,000 370,000 Viacom Inc., Class B Shares *
250,000 90,000 340,000 The Walt Disney Co.
- --------------------------------------------------------------------------------------------------------------------------------
Electronic Technology --- 26.0%
100,000 34,000 134,000 Applied Materials, Inc. *
820,000 290,000 + 1,110,000 Cisco Systems, Inc. *
170,000 60,000 230,000 Compaq Computer Corp.
315,000 110,000 425,000 Compuware Corp. *
470,000 165,000 + 635,000 Dell Computer Corp. *
50,000 18,000 68,000 EMC Corp. *
235,000 80,000 315,000 General Dynamics Corp.
190,000 65,000 255,000 Hewlett-Packard Co.
515,000 180,000 695,000 Intel Corp.
280,000 + 95,000 375,000 International Business Machines Corp.
115,000 40,000 155,000 Lexmark International Group, Inc. *
255,000 + 90,000 345,000 Lucent Technologies Inc.
155,000 55,000 210,000 Motorola, Inc.
110,000 40,000 150,000 Oracle Corp. *
310,000 110,000 420,000 SCI Systems, Inc. *
205,000 70,000 275,000 Seagate Technology, Inc. *
95,000 + 35,000 + 130,000 Siebel Systems, Inc. *
SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
Smith Barney Smith Barney Smith Barney
Growth and Large Cap Growth and Income
Income Blend (Proforma) #
- -------------------------------------------------------------------------------------------------------------------------------
SUPERVALU INC. $ 5,792,500 $ 2,068,750 $ 7,861,250
W.W. Grainger, Inc. 7,373,750 2,602,500 9,976,250
- ----------------------------------------------------------------------------------------------------------------------------
13,166,250 4,671,250 17,837,500
- ----------------------------------------------------------------------------------------------------------------------------
Ford Motor Co. 15,312,500 5,468,750 20,781,250
General Motors Corp. 12,171,250 4,213,125 16,384,375
- ----------------------------------------------------------------------------------------------------------------------------
27,483,750 9,681,875 37,165,625
- ----------------------------------------------------------------------------------------------------------------------------
Anheuser-Busch Cos., Inc. - 4,586,563 4,586,563
The Coca-Cola Co. 8,235,937 2,823,750 11,059,687
ConAgra, Inc. 6,874,275 - 6,874,275
General Mills, Inc. 10,185,000 - 10,185,000
The Gillette Co. 2,405,000 925,000 3,330,000
Kimberly-Clark Corp. 13,644,687 4,645,000 18,289,687
PepsiCo, Inc. 13,390,937 4,585,938 17,976,875
Philip Morris Cos., Inc. - 1,312,500 1,312,500
The Procter & Gamble Co. 11,925,000 4,173,750 16,098,750
The Quaker Oats Co. 7,496,562 2,607,500 10,104,062
V. F. Corp. 4,237,500 1,553,750 5,791,250
- ----------------------------------------------------------------------------------------------------------------------------
78,394,898 27,213,751 105,608,649
- ----------------------------------------------------------------------------------------------------------------------------
Comcast Corp., Class A Shares 7,211,250 2,403,750 9,615,000
Cox Communications, Inc. * 10,060,938 3,492,644 13,553,582
H&R Block, Inc. 7,726,950 2,717,812 10,444,762
Knight-Ridder, Inc. 7,359,375 2,453,125 9,812,500
McDonald's Corp. 4,956,250 1,715,625 6,671,875
The New York Times Co. 9,473,125 3,500,938 12,974,063
The Reader's Digest Association, Inc.,
Class A Shares + 9,280,000 3,200,000 12,480,000
Sabre Holdings Corp. 2,903,446 1,009,903 3,913,349
Viacom Inc., Class B Shares * 14,953,125 5,165,625 20,118,750
The Walt Disney Co. 10,828,125 3,898,125 14,726,250
- ----------------------------------------------------------------------------------------------------------------------------
84,752,584 29,557,547 114,310,131
- ----------------------------------------------------------------------------------------------------------------------------
Applied Materials, Inc. * 10,181,250 3,461,625 13,642,875
Cisco Systems, Inc. * 56,849,063 20,105,156 76,954,219
Compaq Computer Corp. 4,972,500 1,755,000 6,727,500
Compuware Corp. * 3,957,187 1,381,875 5,339,062
Dell Computer Corp. * 23,558,750 8,270,625 31,829,375
EMC Corp. * 6,946,875 2,500,875 9,447,750
General Dynamics Corp. 13,747,500 4,680,000 18,427,500
Hewlett-Packard Co. 25,650,000 8,775,000 34,425,000
Intel Corp. 65,308,438 22,826,250 88,134,688
International Business Machines Corp. 31,255,000 10,604,375 41,859,375
Lexmark International Group, Inc. * 13,570,000 4,720,000 18,290,000
Lucent Technologies Inc. 15,857,813 5,596,875 21,454,688
Motorola, Inc. 18,454,688 6,548,437 25,003,125
Oracle Corp. * 8,793,125 3,197,500 11,990,625
SCI Systems, Inc. * 16,507,500 5,857,500 22,365,000
Seagate Technology, Inc. * 10,416,562 3,556,875 13,973,437
Siebel Systems, Inc. * 11,673,125 4,300,625 15,973,750
See Notes to Financial Statements
B-13
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY
- -----------------------------------------------------------------------------------------------------------------------------------
Smith Barney Smith Barney Smith Barney
Growth and Large Cap Growth and Income
Income Blend (Proforma) #
- -----------------------------------------------------------------------------------------------------------------------------------
Electronic Technology (continued) 26.0%
95,000 33,000 128,000 Sun Microsystems, Inc. *
140,000 + 50,000 190,000 Telefonaktiebolaget LM Ericsson ADR
115,000 50,000 165,000 Teradyne, Inc. *
58,000 20,000 78,000 Texas Instruments Inc.
350,000 120,000 470,000 Unisys Corp. *
170,000 60,000 230,000 United Technologies Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Minerals --- 4.8%
350,000 115,000 465,000 Conoco Inc., Class A Shares
290,000 100,000 390,000 Enron Corp.
425,000 170,000 595,000 Exxon Mobil Corp.
450,000 - 450,000 USX-Marathon Group
- 85,000 85,000 Phillips Petroleum Co.
- ------------------------------------------------------------------------------------------------------------------------------------
Finance --- 13.1%
155,000 55,000 210,000 A.G. Edwards, Inc.
250,000 50,000 300,000 The Allstate Corp.
60,000 20,000 80,000 American International Group, Inc.
340,000 115,000 455,000 AXA Financial, Inc.
265,000 95,000 360,000 Bank of America Corp.
242,500 + 85,000 327,500 The Bear Stearns Companies Inc.
225,000 80,000 305,000 The Chase Manhattan Corp.
145,000 + 50,000 195,000 CIGNA Corp.
350,000 + 120,000 + 470,000 Conseco, Inc.
105,000 35,000 140,000 Fannie Mae
200,000 70,000 270,000 First Union Corp.
246,490 85,000 331,490 FleetBoston Financial Corp.
115,000 + 40,000 + 155,000 The Goldman Sachs Group, Inc.
370,000 125,000 495,000 GreenPoint Financial Corp.
95,000 35,000 130,000 J.P. Morgan & Co. Inc.
350,000 115,000 465,000 KeyCorp
60,000 22,000 82,000 Lehman Brothers Holdings Inc.
315,000 108,000 423,000 Morgan Stanley Dean Witter & Co.
205,000 + 75,000 280,000 PNC Financial Services Group
250,001 85,000 335,001 Starwood Hotels & Resorts Worldwide, Inc.
325,000 115,000 440,000 UnionBanCal Corp.
300,000 + 100,000 400,000 Washington Mutual, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Health Services --- 1.2%
335,000 115,000 450,000 Columbia/HCA Healthcare Corp.
125,000 + 45,000 170,000 Wellpoint Health Networks Inc. *
- ------------------------------------------------------------------------------------------------------------------------------------
Health Technology --- 9.3%
150,000 50,000 200,000 Abbott Laboratories
60,000 20,000 80,000 American Home Products Corp.
310,000 + 110,000 420,000 Amgen Inc. *
60,000 20,000 80,000 Baxter International Inc.
140,000 50,000 190,000 Biogen, Inc. *
225,000 80,000 305,000 Bristol-Myers Squibb Co.
12,000 4,000 16,000 Edwards Lifesciences Corp. *
190,000 + 65,000 255,000 Eli Lilly & Co.
160,000 55,000 215,000 Johnson & Johnson
335,000 115,000 450,000 Merck & Co., Inc.
VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Smith Barney Smith Barney Smith Barney
Growth and Large Cap Growth and Income
Income Blend (Proforma) #
- ----------------------------------------------------------------------------------------------------------------------------
Sun Microsystems, Inc. * $ 8,734,063 $ 3,033,938 $ 11,768,001
Telefonaktiebolaget LM Ericsson ADR 12,381,250 4,421,875 16,803,125
Teradyne, Inc. * 12,650,000 5,500,000 18,150,000
Texas Instruments Inc. 9,446,750 3,257,500 12,704,250
Unisys Corp. * 8,115,625 2,782,500 10,898,125
United Technologies Corp. 10,571,875 3,731,250 14,303,125
- ----------------------------------------------------------------------------------------------------------------------------
399,598,939 140,865,656 540,464,595
- ----------------------------------------------------------------------------------------------------------------------------
Conoco Inc., Class A Shares 8,334,375 2,738,438 11,072,813
Enron Corp. 20,209,375 6,968,750 27,178,125
Exxon Mobil Corp. 33,017,188 13,206,875 46,224,063
USX-Marathon Group 10,490,625 - 10,490,625
Phillips Petroleum Co. - 4,032,187 4,032,187
- ----------------------------------------------------------------------------------------------------------------------------
72,051,563 26,946,250 98,997,813
- ----------------------------------------------------------------------------------------------------------------------------
A.G. Edwards, Inc. 5,831,875 2,069,375 7,901,250
The Allstate Corp. 5,906,250 1,181,250 7,087,500
American International Group, Inc. 6,581,250 2,193,750 8,775,000
AXA Financial, Inc. 11,092,500 3,751,875 14,844,375
Bank of America Corp. 12,985,000 4,655,000 17,640,000
The Bear Stearns Companies Inc. 10,397,188 3,644,375 14,041,563
The Chase Manhattan Corp. 16,214,062 5,765,000 21,979,062
CIGNA Corp. 11,563,750 3,987,500 15,551,250
Conseco, Inc. 1,903,125 652,500 2,555,625
Fannie Mae 6,332,813 2,110,937 8,443,750
First Union Corp. 6,375,000 2,231,250 8,606,250
FleetBoston Financial Corp. 8,734,989 3,012,188 11,747,177
The Goldman Sachs Group, Inc. 10,723,750 3,730,000 14,453,750
GreenPoint Financial Corp. 6,891,250 2,328,125 9,219,375
J.P. Morgan & Co. Inc. 12,195,625 4,493,125 16,688,750
KeyCorp 6,475,000 2,127,500 8,602,500
Lehman Brothers Holdings Inc. 4,923,750 1,805,375 6,729,125
Morgan Stanley Dean Witter & Co. 24,176,250 8,289,000 32,465,250
PNC Financial Services Group 8,943,125 3,271,875 12,215,000
Starwood Hotels & Resorts Worldwide, Inc. 7,109,403 2,417,187 9,526,590
UnionBanCal Corp. 8,998,438 3,184,063 12,182,501
Washington Mutual, Inc. 7,668,750 2,556,250 10,225,000
- ----------------------------------------------------------------------------------------------------------------------------
202,023,143 69,457,500 271,480,643
- ----------------------------------------------------------------------------------------------------------------------------
Columbia/HCA Healthcare Corp. 9,526,563 3,270,312 12,796,875
Wellpoint Health Networks Inc. * 9,218,750 3,318,750 12,537,500
- ----------------------------------------------------------------------------------------------------------------------------
18,745,313 6,589,062 25,334,375
- ----------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 5,765,625 1,921,875 7,687,500
American Home Products Corp. 3,371,250 1,123,750 4,495,000
Amgen Inc. * 17,360,000 6,160,000 23,520,000
Baxter International Inc. 3,907,500 1,302,500 5,210,000
Biogen, Inc. * 8,233,750 2,940,625 11,174,375
Bristol-Myers Squibb Co. 11,798,437 4,195,000 15,993,437
Edwards Lifesciences Corp. * 180,000 60,000 240,000
Eli Lilly & Co. 14,689,375 5,025,312 19,714,687
Johnson & Johnson 13,200,000 4,537,500 17,737,500
Merck & Co., Inc. 23,282,500 7,992,500 31,275,000
See Notes to Financial Statements
B-14
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY
- -----------------------------------------------------------------------------------------------------------------------------------
Smith Barney Smith Barney Smith Barney
Growth and Large Cap Growth and Income
Income Blend (Proforma) #
- -----------------------------------------------------------------------------------------------------------------------------------
Health Technology (continued) 9.3%
357,000 123,000 480,000 Mylan Laboratories Inc.
420,000 145,000 + 565,000 Pfizer Inc.
65,000 25,000 90,000 Schering-Plough Corp.
245,000 + 85,000 330,000 Watson Pharmaceuticals, Inc. *
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Services --- 0.7%
295,000 105,000 400,000 Fluor Corp.
- ----------------------------------------------------------------------------------------------------------------------------------
Non-Energy Minerals --- 0.9%
215,000 + 75,000 + 290,000 Alcoa Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Process Industries --- 6.3%
290,000 100,000 390,000 Air Products and Chemicals, Inc.
110,000 + 40,000 + 150,000 The Dow Chemical Co.
415,000 145,000 560,000 General Electric Co.
300,000 100,000 400,000 Rohm and Haas Co.
- ----------------------------------------------------------------------------------------------------------------------------------
Producer Manufacturing --- 2.6%
230,000 80,000 310,000 Caterpillar Inc.
248,000 85,000 333,000 Honeywell International Inc.
200,000 + 70,000 270,000 Ingersoll-Rand Co.
120,000 40,000 160,000 Johnson Controls, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Retail Trade --- 5.5%
105,000 35,000 140,000 Best Buy Co., Inc. *
275,000 + 95,000 370,000 Federated Department Stores, Inc. *
230,000 80,000 310,000 The Gap, Inc.
300,000 105,000 405,000 The Home Depot, Inc.
290,000 + 100,000 + 390,000 The Limited, Inc.
345,000 120,000 465,000 The TJX Companies, Inc.
390,000 135,000 525,000 Wal-Mart Stores, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Technology Services --- 6.3%
330,000 120,000 450,000 America Online, Inc. *
270,000 90,000 360,000 Automatic Data Processing, Inc.
130,000 + 40,000 170,000 BMC Software, Inc. *
225,000 80,000 305,000 Electronic Data Systems Corp.
508,493 175,000 683,493 Microsoft Corp. *
44,000 16,000 60,000 Yahoo! Inc. *
- ----------------------------------------------------------------------------------------------------------------------------------
Transportation --- 0.7%
115,000 40,000 + 155,000 AMR Corp. *
340,000 120,000 460,000 Southwest Airlines Co.
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities --- 9.2%
375,000 + 130,000 505,000 AT&T Corp.
40,000 15,000 55,000 Bell Atlantic Corp.
290,000 105,000 395,000 BellSouth Corp.
315,000 110,000 425,000 The Coastal Corp.
180,000 + 60,000 + 240,000 DTE Energy Co.
160,000 55,000 215,000 Duke Energy Corp.
278,000 95,000 373,000 Edison International
SECURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Smith Barney Smith Barney Smith Barney
Growth and Large Cap Growth and Income
Income Blend (Proforma) #
- -----------------------------------------------------------------------------------------------------------------------------------
Mylan Laboratories Inc. $ 10,129,875 $ 3,490,125 $ 13,620,000
Pfizer Inc. 17,692,500 6,108,125 23,800,625
Schering-Plough Corp. 2,620,313 1,007,812 3,628,125
Watson Pharmaceuticals, Inc. * 11,009,688 3,819,688 14,829,376
- --------------------------------------------------------------------------------------------------------
143,240,813 49,684,812 192,925,625
- --------------------------------------------------------------------------------------------------------
Fluor Corp. 9,900,937 3,524,063 13,425,000
- --------------------------------------------------------------------------------------------------------
9,900,937 3,524,063 13,425,000
- --------------------------------------------------------------------------------------------------------
Alcoa Inc. 13,948,125 4,865,625 18,813,750
- --------------------------------------------------------------------------------------------------------
13,948,125 4,865,625 18,813,750
- --------------------------------------------------------------------------------------------------------
Air Products and Chemicals, Inc. 9,008,125 3,106,250 12,114,375
The Dow Chemical Co. 12,430,000 4,520,000 16,950,000
General Electric Co. 65,258,750 22,801,250 88,060,000
Rohm and Haas Co. 10,687,500 3,562,500 14,250,000
- --------------------------------------------------------------------------------------------------------
97,384,375 33,990,000 131,374,375
- --------------------------------------------------------------------------------------------------------
Caterpillar Inc. 9,070,625 3,155,000 12,225,625
Honeywell International Inc. 13,888,000 4,760,000 18,648,000
Ingersoll-Rand Co. 9,387,500 3,285,625 12,673,125
Johnson Controls, Inc. 7,597,500 2,532,500 10,130,000
- --------------------------------------------------------------------------------------------------------
39,943,625 13,733,125 53,676,750
- --------------------------------------------------------------------------------------------------------
Best Buy Co., Inc. * 8,478,750 2,826,250 11,305,000
Federated Department Stores, Inc. * 9,350,000 3,230,000 12,580,000
The Gap, Inc. 8,452,500 2,940,000 11,392,500
The Home Depot, Inc. 16,818,750 5,886,562 22,705,312
The Limited, Inc. 13,104,375 4,518,750 17,623,125
The TJX Companies, Inc. 6,619,687 2,302,500 8,922,187
Wal-Mart Stores, Inc. 21,596,250 7,475,625 29,071,875
- --------------------------------------------------------------------------------------------------------
84,420,312 29,179,687 113,599,999
- --------------------------------------------------------------------------------------------------------
America Online, Inc. * 19,738,125 7,177,500 26,915,625
Automatic Data Processing, Inc. 14,529,375 4,843,125 19,372,500
BMC Software, Inc. * 6,085,625 1,872,500 7,958,125
Electronic Data Systems Corp. 15,468,750 5,500,000 20,968,750
Microsoft Corp. * 35,467,387 12,206,250 47,673,637
Yahoo! Inc. * 5,731,000 2,084,000 7,815,000
- --------------------------------------------------------------------------------------------------------
97,020,262 33,683,375 130,703,637
- --------------------------------------------------------------------------------------------------------
AMR Corp. * 3,917,187 1,362,500 5,279,687
Southwest Airlines Co. 7,373,750 2,602,500 9,976,250
- --------------------------------------------------------------------------------------------------------
11,290,937 3,965,000 15,255,937
- --------------------------------------------------------------------------------------------------------
AT&T Corp. 17,507,812 6,069,375 23,577,187
Bell Atlantic Corp. 2,370,000 888,750 3,258,750
BellSouth Corp. 14,119,375 5,112,187 19,231,562
The Coastal Corp. 15,809,063 5,520,625 21,329,688
DTE Energy Co. 5,872,500 1,957,500 7,830,000
Duke Energy Corp. 9,200,000 3,162,500 12,362,500
Edison International 5,299,375 1,810,938 7,110,313
See Notes to Financial Statements
B-15
Proforma Schedule of Investments (unaudited) April 30, 2000
SHARES/FACE AMOUNT SECURITY
- -----------------------------------------------------------------------------------------------------------------------------------
Smith Barney Smith Barney Smith Barney
Growth and Large Cap Growth and Income
Income Blend (Proforma) #
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities (continued) 9.2%
240,000 80,000 320,000 GTE Corp.
430,000 150,000 580,000 MCI WorldCom, Inc. *
235,000 95,000 330,000 PECO Energy Co.
425,000 145,000 570,000 SBC Communications Inc.
210,000 75,000 285,000 Texas Utilities Company
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost --- $1,199,217,979, $394,589,451 and $1,593,807,430 respectively(Proforma))
- ----------------------------------------------------------------------------------------------------------------------------------
--- 0.1%
- $ 2,973,000 $ 2,973,000 JP Morgan Co., 5.720% due 5/1/00; Proceeds at
maturity - $2,974,417; (Fully collateralized by U.S.
Treasury Notes and Bonds, 6.500% to 11.125% due
10/31/01 to 2/15/21 Market value - $3,032,460)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost --- $2,973,000(Proforma))
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS ---100%
(Cost --- $1,199,217,979, $397,562,451, and $1,596,780,430 respectively(Proforma))
- ----------------------------------------------------------------------------------------------------------------------------------
SHARES/FACE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Smith Barney Smith Barney Smith Barney
Growth and Large Cap Growth and Income
Income Blend (Proforma) #
- -----------------------------------------------------------------------------------------------------------------------------------
GTE Corp. $ 16,260,000 $ 5,420,000 $ 21,680,000
MCI WorldCom, Inc. * 19,538,125 6,815,625 26,353,750
PECO Energy Co. 9,796,562 3,960,312 13,756,874
SBC Communications Inc. 18,620,330 6,352,812 24,973,142
Texas Utilities Company 7,074,375 2,526,586 9,600,961
- ------------------------------------------------------------------------------------------------------------------------------
141,467,517 49,597,210 191,064,727
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost --- $1,199,217,979, $394,589,451 and
$1,593,807,430 respectively(Proforma)) 1,534,833,343 537,205,788 2,072,039,131
- ------------------------------------------------------------------------------------------------------------------------------
JP Morgan Co., 5.720% due 5/1/00; Proceeds at - 2,973,000 2,973,000
maturity - $2,974,417; (Fully collateralized by U.S.
Treasury Notes and Bonds, 6.500% to 11.125% due
10/31/01 to 2/15/21 Market value - $3,032,460)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost --- $2,973,000(Proforma)) - 2,973,000 2,973,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS ---100%
(Cost --- $1,199,217,979, $397,562,451, and
$1,596,780,430 respectively(Proforma)) $ 1,534,833,343 $ 540,178,788 $ 2,075,012,131
- ------------------------------------------------------------------------------------------------------------------------------
+ All or a portion of this security is on loan.
* Non income producing securities.
**Aggregate cost for Federal income tax purposes is substantially the same.
# The fund does not anticipate to be required to sell any securities upon
completion of the merger.
See Notes to Financial Statements
B-16
THE ANNUAL REPORT, SEMI-ANNUAL REPORT
AND STATEMENT OF ADDITIONAL INFORMATION
OF THE ACQUIRING FUND DATED OCTOBER 31, 1999, APRIL 30, 2000
AND FEBRUARY 28, 2000 (AS AMENDED ON SEPTEMBER 1, 2000), RESPECTIVELY, ARE
INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY
SMITH BARNEY INVESTMENT SERIES
THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, ANNUAL
REPORT AND SEMI-ANNUAL REPORT OF THE FUND DATED MAY 30, 2000, JANUARY 31, 2000
AND JULY 31, 2000, RESPECTIVELY, ARE
INCORPORATED BY REFERENCE TO THE MOST RECENT FILINGS
THEREOF BY SMITH BARNEY EQUITY FUNDS
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION -- The response to this item is incorporated by
reference to Section 9 of the Agreement and Plan of Reorganization. Reference is
also made to the Registrant's Agreement and Declaration of Trust, dated January
29, 1987. 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 Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A filed on March 2,
1994 (File No. 33-11716).
ITEM 16. EXHIBITS
1(a) Registrant's Agreement and Declaration of Trust dated January
29, 1987 is incorporated by reference to Post-Effective Amendment No. 18 to
the Registration Statement on Form N-1A filed on February 28, 1997
(Securities Act File No. 33-11716) ("Post-Effective Amendment No. 18").
1(b) Registrant's Certificate of Designation of Common Sense Money
Market Fund dated September 30, 1987 is incorporated by reference to Post-
Effective Amendment No. 18.
1(c) Registrant's Certificate of Designation Common Sense Municipal
Bond Fund dated April 4, 1988 is incorporated by reference to Post-Effective
Amendment No. 18.
1(d) Registrant's Certificate of Resolution dated January 8, 1992 is
incorporated by reference to Post-Effective Amendment No. 18.
1(e) Registrant's Certificate of Amendment dated January 20, 1994 is
incorporated by reference to Post-Effective Amendment No. 18.
1(f) Registrant's Certificate of Designation of Common Sense II
Aggressive Opportunity Fund dated January 27, 1994 is incorporated by
reference to Post-Effective Amendment No. 18.
1(g) Registrant's Certificate of Designation of Common Sense II
Government Fund dated January 27, 1994 is incorporated by reference to Post-
Effective Amendment No. 18.
1(h) Registrant's Certificate of Designation of Common Sense II Growth
Fund dated January 27, 1994 is incorporated by reference to Post- Effective
Amendment No. 18.
C-11
1(i) Registrant's Certificate of Designation of Common Sense II Growth
and Income Fund dated January 27, 1994 is incorporated by reference to
Post-Effective Amendment No. 18.
1(j) Registrant's Certificate of Amendment of the Agreement and
Declaration of Trust dated May 10, 1996 is incorporated by reference to
Post-Effective Amendment No. 18.
1(k) Registrant's Amended and Restated Certificate of Designation of
Common Sense II Emerging Growth Fund dated May 10, 1996 is incorporated by
reference to Post-Effective Amendment No. 18.
1(l) Registrant's Amended and Restated Certificate of Designation of
Common Sense II International Equity Fund dated May 10, 1996 is incorporated
by reference to Post-Effective Amendment No. 18.
1(m) Registrant's Amended and Restated Certificate of Designation of
Common Sense Money Market Fund dated May 10, 1996 is incorporated by
reference to Post-Effective Amendment No. 18.
1(n) Registrant's Amended and Restated Certificate of Designation of
Common Sense Municipal Bond Fund dated May 10, 1996 is incorporated by
reference to Post-Effective Amendment No. 18.
1(o) Registrant's Certificate of Amendment Amending the Amended and
Restated Certificate of Designation of Common Sense Emerging Growth Fund
dated July 2, 1996 is incorporated by reference to Post-Effective Amendment
No. 18.
1(p) Registrant's Certificate of Amendment Amending the Amended and
Restated Certificate of Designation of Common Sense International Equity
Fund dated July 2, 1996 is incorporated by reference to Post-Effective
Amendment No. 18.
1(q) Registrant's Certificate of Amendment of the Agreement and
Declaration of Trust dated December 30, 1997 is incorporated by reference to
Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A
filed on December 15, 1998 (Securities Act File No. 33-11716) ("Post-
Effective Amendment No. 21").
1(r) Registrant's Form of Certificate of Designation of Mid Cap Fund
dated February 17, 1999 is incorporated by reference to Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A filed on
February 26, 1999 (Securities Act File No. 33-11716) ("Post-Effective
Amendment No. 22").
1(s) Registrant's Form of Certificate of Amendment of the Agreement
and Declaration of Trust dated September 7, 2000 is incorporated by
reference to Post-Effective Amendment No. 26 to the Registration Statement
on Form N-1A filed on September 11, 2000 (Securities Act File No. 33-11716)
("Post-Effective Amendment No. 26").
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2 Registrant's By-Laws, as amended on July 10, 1996 are incorporated
by reference to Post-Effective Amendment No. 18.
3 Not applicable.
4 Form of Agreement and Plan of Reorganization is included as an
Exhibit to Part A to the Registration Statement on Form N-14.
5(a) Registrant's Specimen copy of certificate for Share of
Beneficial Interest in Common Sense Trust for Class A shares is incorporated
by reference to Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A filed on March 21, 1996 (Securities Act File No. 33-
11716) ("Post-Effective Amendment No. 17").
5(b) Registrant's Specimen copy of certificate for Share of Beneficial
Interest in Common Sense Trust for Class B shares is incorporated by
reference to Post-Effective Amendment No. 17.
5(c) Registrant's Specimen copy of certificate for Share of Beneficial
Interest in Common Sense Trust for Class 1 shares is incorporated by
reference to Post-Effective Amendment No. 17.
6 Form of Investment Advisory Agreement for Concert Investment Series
is incorporated by reference to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A filed on February 27, 1998 (Securities
Act File No. 33-11716) ("Post-Effective Amendment No. 20").
7(a) Distribution Agreement with CFBDS, Inc. is incorporated by
reference to Post-Effective Amendment No. 21.
7(b) Form of Distribution Agreements with Salomon Smith Barney Inc.
and PFS Distributors, Inc., dated June 5, 2000 is incorporated by reference
to Post-Effective Amendment No. 26.
7(c) Form of Dealer Agreement is incorporated by reference to Post-
Effective Amendment No. 22.
8 Retirement Plan for Directors is incorporated by reference to Post-
Effective Amendment No. 22.
9 Form of Custodian Agreements are incorporated by reference to Post-
Effective Amendment No. 20.
10(a) Form of Amended and Restated Class A Distribution Plan is
incorporated by reference to Post-Effective Amendment No. 22.
10(b) Form of Amended and Restated Class B Distribution Plan is
incorporated by reference to Post-Effective Amendment No. 22.
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10(c) Form of Amended and Restated Servicing Agreement for Class A
shares is incorporated by reference to Post-Effective Amendment No. 22.
10(d) Form of Amended and Restated Servicing Agreement for Class B
shares is incorporated by reference to Post-Effective Amendment No. 22.
10(e) Rule 18f-3 Plan is incorporated by reference to Post-Effective
Amendment No. 18.
11 Opinion and consent of Counsel as to the legality of the securities
being registered is filed herewith.
12 Form of Opinion of Counsel supporting tax matters and consequences
to shareholders discussed in the prospectus is filed herewith.
13(a) Form of Transfer Agency Agreement is incorporated by reference
to Post-Effective Amendment No. 20.
13(b) Form of Sub-Transfer Agency Agreement is incorporated by
reference to Post-Effective Amendment No. 20.
14 Auditors' Consents are filed herewith.
15 Not applicable.
16 Power of Attorney dated February 27, 1998 is incorporated by
reference to Post-Effective Amendment No. 20.
17(a) Form of proxy card is filed herewith.
17(b) Annual Report of Concert Investment Series(R), dated October 31,
1999, and Semi-Annual Report dated April 30, 2000, are incorporated herein
by reference.
17(c) Prospectus and statement of additional information of Concert
Investment Series(R), dated February 28, 2000, are incorporated herein by
reference.
17(d) Semi-Annual Report of Registrant, dated March 31, 2000, is
incorporated herein by reference.
17(e) Registrant's Code of Ethics is incorporated by reference to
Post-Effective Amendment No. 26.
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
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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 an amendment to the
registration statement 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 18th
day of September, 2000.
SMITH BARNEY INVESTMENT SERIES
By: /s/ Heath B. McLendon
-------------------------------
Name: Heath B. McLendon
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
/s/ Heath B. McLendon Chairman of the Board September 18, 2000
- ---------------------------- (Chief Executive Officer)
Heath B. McLendon
/s/ Lewis E. Daidone Senior Vice President and Treasurer September 18, 2000
- ---------------------------- (Chief Financial and Accounting Officer)
Lewis E. Daidone
/s/ Donald M. Carlton* Trustee September 18, 2000
- ----------------------------
Donald M. Carlton
/s/ A. Benton Cocanougher* Trustee September 18, 2000
- ----------------------------
A. Benton Cocanougher
/s/ Stephen R. Gross* Trustee September 18, 2000
- ----------------------------
Stephen R. Gross
/s/ Alan G. Merten* Trustee September 18, 2000
- ----------------------------
Alan G. Merten
/s/ R. Richardson Pettit* Trustee September 18, 2000
- ----------------------------
R. Richardson Pettit
* Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant to power of attorney dated February
27, 1998.
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EXHIBITS
(11) Opinion and consent of Counsel as to the legality of the securities being
registered
(12) Form of Opinion of Counsel supporting tax matters and consequences to
shareholders discussed in the prospectus
(14) Auditors' Consents
(17)(a) Form of Proxy Card