As filed with the Securities and Exchange Commission on June 30, 1994
Registration No. 2-71469, 811-3158
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 21 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 24 X
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
(Exact name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 720-9218
Heath B. McLendon
Chairman
Smith Barney Shearson Fundamental Value Fund Inc.
Two World Trade Center, 100th Floor
New York, New York 10048
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on July 20, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Registrant's Rule 24f-2 Notice for the fiscal year ending
September 30, 1993 was filed on November 22, 1993. Pursuant to an Agreement
and Plan of Reorganization, which is expected to go to shareholders of the
Registrant for approval on or before July 20, 1994, a newly created Maryland
Corporation will adopt and succeed to Registrant's Registration Statement and
all Amendments thereto, including for purposes of calculation of filing fees,
redemption credits pursuant to Rule 24f-2 and Rule 24e-2
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 485(b)
Part A.
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary; The Fund's Expenses
3. Condensed Financial Information Financial Highlights; The
Fund's Performance
4. General Description of Registrant Cover Page; Prospectus
Summary; Variable Pricing System; Investment Objective and
Management Policies; Distributor; Additional Information
5. Management of the Fund Prospectus Summary; Financial
Highlights; Distributor; Management of the Fund; Additional
Information
6. Capital Stock and Other Securities Variable Pricing System;
Dividends, Distributions and Taxes; Additional Information
7. Purchase of Securities Variable Pricing System; Purchase
of
Being Offered Shares; Valuation of Shares; Redemption of
Shares; Exchange Privilege
8. Redemption or Repurchase Variable Pricing System; Purchase
of Shares; Redemption of Shares; Exchange Privilege
9. Legal Proceedings Not Applicable
Part B Statement of
Item No. Additional Information Caption
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Management of the Fund;
Investment Objective and Management Policies; Distributor;
Organization of the Fund
13. Investment Objectives and Policies Investment Objective and
Management Policies
14. Management of the Fund Management of the Fund;
Distributor; Custodian and Transfer Agent
15. Control Persons and Principal Holders Management of the
Fund
of Securities
16. Investment Advisory and Other Services Management of the
Fund; Distributor; Custodian and Transfer Agent
17. Brokerage Allocation Investment Objective and Management
Policies
18. Capital Stock and Other Securities Purchase of Shares; Taxes
19. Purchase, Redemption and Pricing of Purchase of Shares;
Redemption of
Securities Being Offered Shares; Distributor; Valuation of;
Exchange Privilege
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data Performance Data
23. Financial Statements Financial Statements
Smith Barney Shearson Fundamental Value Fund Inc.
Prospectus dated November 22, 1993,
as revised on July ,1994
<PAGE>
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November 22, 1993, as revised
on July , 1994
SMITH BARNEY SHEARSON
Fundamental
Value
Fund Inc.
Prospectus begins
on page one.
[Smith Barney Logo]
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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PROSPECTUS November 22, 1993, as revised on July ,
1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Fundamental Value Fund Inc. (the "Fund") is a
mutual
fund with the principal investment objective of long-term capital growth.
Current income is a secondary objective. The Fund seeks to achieve its
principal
objective by investing in a diversified portfolio of common stocks and common
stock equivalents and, to a lesser extent, in bonds and other debt
instruments.
The Fund's investment emphasis is on securities which, in the judgment of the
Fund's investment adviser, are undervalued in the marketplace and,
accordingly,
have above-average potential for capital growth.
This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses, which
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated November 22, 1993, as revised on July , 1994,
as
amended or supplemented from time to time, that is available upon request and
without charge by calling or writing the Fund at the telephone number or
address
set forth above, or by contacting your Smith Barney Financial Consultant. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY ASSET MANAGEMENT DIVISION OF
SMITH, BARNEY ADVISERS, INC.
Investment Adviser
SMITH, BARNEY ADVISERS, INC.
Administrator
THE BOSTON COMPANY ADVISORS, INC.
Sub-administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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FINANCIAL HIGHLIGHTS 10
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VARIABLE PRICING SYSTEM 14
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THE FUND'S PERFORMANCE 16
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MANAGEMENT OF THE FUND 20
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 21
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PURCHASE OF SHARES 27
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REDEMPTION OF SHARES 34
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VALUATION OF SHARES 38
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EXCHANGE PRIVILEGE 39
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DISTRIBUTOR 45
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DIVIDENDS, DISTRIBUTIONS AND TAXES 46
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ADDITIONAL INFORMATION 47
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</TABLE>
2
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the
Prospectus.
See "Table of Contents."
BENEFITS TO INVESTORS The Fund offers investors several important benefits:
- A professionally managed portfolio of common stocks having the potential
for
above-average capital growth.
- Ownership of a diversified portfolio of equity securities.
- Investment liquidity, through convenient purchase and redemption
procedures.
- A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
- Different methods for purchasing shares that allow investment flexibility
and a wider range of investment alternatives.
- Automatic dividend reinvestment feature, plus an exchange privilege within
the same class of shares of the other funds in the Smith Barney Group of
Funds.
INVESTMENT OBJECTIVE The Fund is an open-end diversified management
investment
company with the principal investment objective of long-term capital growth.
Current income is a secondary objective. The Fund seeks to achieve its
principal
objective by investing in a diversified portfolio of common stocks and common
stock equivalents and, to a lesser extent, in bonds and other debt
instruments.
The Fund's investment emphasis is on securities which, in the judgment of the
Fund's investment adviser, are undervalued in the marketplace and,
accordingly,
have above-average potential for capital growth. See "Investment Objective and
Management Policies."
VARIABLE PRICING SYSTEM The Fund offers several classes of shares ("Classes")
designed to provide investors with the flexibility of selecting an investment
best suited to their needs. The general public is offered two classes of
shares:
Class A shares and Class B shares, which differ principally in terms of the
sales charges and rate of expenses to which they are subject. In addition, a
third class -- Class D shares -- is offered only to plans participating in the
Smith Barney 401(k) Program (the "401(k) Program").
3
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
See "Variable Pricing System" and "Purchase of Shares -- Smith Barney 401(k)
Program."
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 5.00%. The Fund pays an annual service fee of
0.25% of the value of the average daily net assets of this Class. See
"Purchase
of Shares."
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 5.00% of redemption
proceeds, declining by 1.00% each year after the date of purchase to zero. The
Fund pays an annual service fee of 0.25% and an annual distribution fee of
0.75%
of the value of the average daily net assets of this Class. See "Purchase of
Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, eight years after the date of
original purchase. The first of these conversions will commence on or about
September 30, 1994. Upon conversion, these shares will no longer be subject to
an annual distribution fee. See "Variable Pricing System -- Class B Shares."
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
401(k) Program, which is generally designed to assist employers or plan
sponsors
in the creation and operation of retirement plans under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as other types
of participant directed, tax qualified employee benefit plans (collectively,
"Participating Plans"). Class A, Class B and Class D shares may be available
as
investment alternatives for Participating Plans. Class A and Class B shares
acquired through the 401(k) Program are subject to the same service and/or
distribution fees as, but different sales charges and CDSC schedules than, the
Class A and Class B shares acquired by other investors. Class D shares
acquired
by Participating Plans are offered at net asset value per share without any
sales charge or CDSC. The Fund pays annual service and distribution fees based
on the value of the average daily net assets attributable to this Class. See
"Purchase of Shares--Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney Inc. ("Smith Barney"), or a broker that clears securities
transactions through Smith Barney on a fully disclosed basis (an "Introducing
Broker"). Direct purchases by certain retirement plans may be made through The
Shareholder Services Group, Inc. ("TSSG"), the Fund's
4
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
PROSPECTUS SUMMARY (CONTINUED)
transfer agent, a subsidiary of First Data Corporation. The Fund recommends
that, in most cases, single investments of $250,000 or more should be in Class
A
shares. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Employed
Retirement Plans, the minimum initial investment requirement is $250 and the
minimum subsequent investment requirement is $100 and for certain qualified
retirement plans, the minimum initial and subsequent investment requirement is
$25. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund also offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount not less
than
$100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A and Class D shares are
redeemable at net asset value and Class B shares are redeemable at net asset
value less any applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Asset Management Division of Smith,
Barney
Advisers Inc. ("Asset Management"), through its Davis Skaggs Investment
Management division, serves as the Fund's investment adviser. Smith, Barney
Advisers, Inc. ("SBA") provides investment advisory and management services to
investment companies affiliated with Smith Barney. SBA is a wholly owned
subsidiary of Smith Barney Holdings Inc., which is in turn a wholly owned
subsidiary of The Travelers Inc. ("Travelers"), a diversified financial
services
holding company, principally engaged in the businesses of providing investment
services, consumer finance services and insurance services. SBA also serves as
the Fund's administrator.
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
sub-administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), a financial services holding company, which is in turn
a
wholly owned subsidiary of Mellon Bank Corporation ("Mellon").
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds in the Smith Barney Shearson Group of
5
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
Funds and certain money market funds. Certain exchanges may be subject to a
sales charge differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from your Smith
Barney Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are paid annually from net investment
income and distributions are paid annually from net realized capital gains.
See
"Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically, unless otherwise specified by an investor,
in
additional shares of the same Class at current net asset value. Shares
acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund
will achieve its investment objective. Certain of the investments held by the
Fund and certain of the investment strategies that the Fund may employ might
expose it to certain risks. The investments presenting the Fund with risks are
securities of less well-established companies or companies whose
capitalizations
are less than the capitalizations of larger, better-known companies and
foreign
securities. In addition, the Fund may assume additional risk by entering into
repurchase agreements, lending portfolio securities and entering into
transactions involving options. See "Investment Objective and Management
Policies--Risk Factors and Special Considerations."
6
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the costs and expenses
an
investor will incur either directly or indirectly as a shareholder of the
Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's operating expenses for its most
recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B
CLASS D
<S> <C> <C>
<C>
------------------------------------------------------------------------------
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SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% --
--
Maximum CDSC
(as a percentage of redemption proceeds) -- 5.00%
--
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .75% .75%
.75%
Rule 12b-1 fees* .25 1.00
1.00
Other expenses** .45 .51
.50
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TOTAL FUND OPERATING EXPENSES 1.45% 2.26%
2.25%
------------------------------------------------------------------------------
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<FN>
* Upon conversion, Class B shares will no longer be subject to a
distribution
fee. Class D shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee.
** "Other expenses" are based on data for the Fund's fiscal year ended
September 30, 1993.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
pay
actual charges of less than 5.00%, depending on the amount purchased and, in
the
case of Class B shares, the length of time the shares are held and whether the
shares are held through the 401(k) Program. See "Purchase of Shares" and
"Redemption of Shares." Management fees payable by the Fund include investment
advisory fees paid to SBA on behalf of Asset Management at the annual rate of
0.55% of the value of the Fund's average daily net assets and administration
fees paid to SBA at the annual rate of 0.20% of the value of the Fund's
average
daily net assets. The nature of the services for which the Fund pays
management
fees is described under "Management of the Fund." Smith Barney receives an
annual Rule 12b-1 fee of 0.25% of the value of average daily net assets of
Class
A shares. Smith Barney also receives, with respect to Class B and Class D
shares, an annual Rule 12b-1 fee of 1.00% of the value of average daily net
assets of Class B shares and Class D shares, consisting of a 0.75%
7
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
distribution fee and a 0.25% service fee. "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to
a hypothetical $1,000 investment in the Fund (other than through the 401(k)
Program) assuming a 5.00% annual return. The example assumes payment by the
Fund
of operating expenses at the levels set forth in the table which appears on
page
7. The example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
Moreover,
while the example assumes a 5.00% annual return, the Fund's actual performance
will vary and may result in an actual return greater or less than 5.00%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
10 YEARS*
------------------------------------------------------------------------------
-----------
<S> <C> <C> <C>
<C>
Class A shares** $64 $ 94 $ 125
$ 215
Class B shares:
Assumes complete redemption
at end of each time period*** 73 101 131
239
Assumes no redemption 23 71 121
239
Class D shares 23 70 120
258
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-----------
<FN>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
** Assumes deduction at the time of purchase of the maximum 5.00% sales
charge.
*** Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
</TABLE>
8
<PAGE>
[This Page Intentionally Left blank]
9
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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FINANCIAL HIGHLIGHTS
The following information has been audited by Deloitte & Touche, independent
auditors, whose report thereon appears in the Fund's Annual Report dated
September 30, 1993. This information should be read in conjunction with the
financial statements and related notes that also appear in the Fund's 1993
Annual Report, which is incorporated by reference into the Statement of
Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:*
<TABLE>
<CAPTION>
YEAR YEAR YEAR
YEAR
ENDED ENDED ENDED
ENDED
9/30/93 9/30/92 9/30/91
9/30/90
<S> <C> <C> <C>
<C>
Net asset value, beginning of year $ 7.22 $ 6.47 $ 5.34
$ 7.15
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Income from investment operations:
Net investment income 0.07 0.11 0.15
0.16
Net realized and unrealized gain/(loss)
on investments and written options 1.65 0.78 1.50
(1.22)
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Total from investment operations 1.72 0.89 1.65
(1.06)
Less distributions:
Distributions from net investment
income (0.06) (0.14) (0.23)
(0.18)
Distributions from net realized capital
gains (0.46) -- (0.29)
(0.57)
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Total distributions (0.52) (0.14) (0.52)
(0.75)
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Net asset value, end of year $ 8.42 $ 7.22 $ 6.47
$ 5.34
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Total return+ 25.23% 14.01% 33.47%
(16.25)%
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Ratios to average net assets/
supplemental data:
Net assets, end of year (in 000's) $123,188 $ 77,842 $ 59,358
$ 63,159
Ratio of expenses to
average net assets 1.45% 1.28% 1.30%
1.20%
Ratio of net investment income to
average net assets 1.00% 1.57% 2.24%
2.40%
Portfolio turnover rate 111% 142% 116%
94%
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<FN>
* On November 6, 1992, the Fund commenced selling Class B shares. Those
shares
in existence prior to November 6, 1992 were designated Class A shares. On
August 10, 1993, the Fund commenced selling Class D shares.
** As of May 1, 1984, the Fund changed its investment adviser from Foster &
Marshall Management Inc. to Shearson Asset Management. Subsequent to July
30, 1993, Shearson Asset Management changed its name to Smith Barney
Shearson Asset Management, and on June 1, 1994 the name was changed to
Smith
Barney Asset Management.
+ Total return represents aggregate total return for the period indicated
including reinvestment of any dividends and distributions and does not
reflect any applicable sales charges.
</TABLE>
10
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
YEAR
ENDED ENDED ENDED ENDED ENDED
ENDED
9/30/89 9/30/88 9/30/87 9/30/86 9/30/85
9/30/84**
<S> <C> <C> <C> <C>
<C>
$ 6.23 $ 8.36 $ 7.24 $ 6.91 $ 6.65
$ 6.78
----------------------------------------------------------------------
---------
0.17 0.15 0.18 0.31 0.19
0.20
1.18 (0.99) 2.00 0.55 0.59
0.32
----------------------------------------------------------------------
---------
1.35 (0.84) 2.18 0.86 0.78
0.52
(0.10) (0.26) (0.32) (0.19) (0.22)
(0.11)
(0.33) (1.03) (0.74) (0.34) (0.30)
(0.54)
----------------------------------------------------------------------
---------
(0.43) (1.29) (1.06) (0.53) (0.52)
(0.65)
----------------------------------------------------------------------
---------
$ 7.15 $ 6.23 $ 8.36 $ 7.24 $ 6.91
$ 6.65
----------------------------------------------------------------------
---------
23.26% (6.92)% 34.39% 12.94% 12.67%
8.42%
----------------------------------------------------------------------
---------
$ 89,048 $ 84,670 $111,693 $101,563 $114,529
$ 42,386
1.10% 1.20% 1.00% 1.10% 1.20%
1.50%
2.50% 2.10% 2.10% 3.70% 4.00%
4.60%
62% 120% 66% 91% 64%
45%
----------------------------------------------------------------------
---------
</TABLE>
11
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/93*
<S> <C>
Net asset value, beginning of period $ 7.31
---------------------------------------------------
Income from investment operations:
Net investment income 0.05
Net realized and unrealized gain on
investments 1.52
---------------------------------------------------
Total from investment operations 1.57
Less distributions:
Distributions from net investment
income (0.05 )
Distributions from net realized capital
gains (0.46 )
---------------------------------------------------
Total distributions (0.51 )
---------------------------------------------------
Net asset value, end of period $ 8.37
---------------------------------------------------
Total return++ 22.82%
---------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $114,146
Ratio of expenses to average net assets 2.26%+
Ratio of net investment income to
average net assets 0.19%+
Portfolio turnover rate 111%
---------------------------------------------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated
including reinvestment of any dividends and distributions and does not
reflect any applicable sales charges.
</TABLE>
12
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/93*
<S>
<C>
Net asset value, beginning of period
$8.15
------------------------------------------------------------------------------
-------
Income from investment operations:
Net investment income
0.00#
Net realized and unrealized gain on investments
0.22
------------------------------------------------------------------------------
-------
Total from investment operations
0.22
------------------------------------------------------------------------------
-------
Net asset value, end of period
$8.37
------------------------------------------------------------------------------
-------
Total return++
2.70%
------------------------------------------------------------------------------
-------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
$ 308
Ratio of expenses to average net assets
2.25%+
Ratio of net investment income to average net assets
0.20%+
Portfolio turnover rate
111%
------------------------------------------------------------------------------
-------
<FN>
* The Fund commenced selling Class D shares on August 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period.
# Amount represents less than $.01 per Fund share.
</TABLE>
13
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
VARIABLE PRICING SYSTEM
The Fund offers individual investors two methods of purchasing shares,
thus
enabling investors to choose the class that best suits their needs, given the
amount of purchase and intended length of investment. A third Class -- Class D
-- is offered only to Participating Plans in the 401(k) Program.
Class A Shares. Class A shares are sold at net asset value per share
plus
a maximum initial sales charge of 5.00% imposed at the time of purchase. The
initial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to an annual service fee of 0.25% of the value of the
Fund's
average daily net assets attributable to the Class. The annual service fee is
used by Smith Barney to compensate its Financial Consultants for ongoing
services provided to shareholders. The sales charge is used to compensate
Smith
Barney for expenses incurred in selling Class A shares. See "Purchase of
Shares."
Class B Shares. Class B shares are sold at net asset value per share
subject to a maximum 5.00% CDSC, which is assessed only if the shareholder
redeems shares within the first five years of investment. This results in 100%
of the investor's assets being used to acquire shares of the Fund. For each
year
of investment within this five-year time frame, the applicable CDSC declines
by
1.00%; in year six, the applicable CDSC is reduced to 0%. See "Purchase of
Shares" and "Redemption of Shares."
Class B shares are subject to an annual service fee of 0.25% and an
annual
distribution fee of 0.75% of the value of the Fund's average daily net assets
attributable to the Class (subject to limitations now or hereafter enacted by
applicable regulatory bodies). Like the service fee applicable to Class A
shares, the Class B service fee is used to compensate Smith Barney Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
for expenses incurred in selling those shares, including expenses such as
sales
commissions, Smith Barney's branch office overhead expenses and marketing
costs
associated with Class B shares such as preparation of sales literature,
advertising and printing and distributing prospectuses, statements of
additional
information and other materials to prospective investors in Class B shares. A
Financial Consultant may receive different levels of compensation for selling
different Classes. Class B shares are subject to a distribution fee and are
subject to higher transfer agency fees than Class A shares which, in turn,
will
cause Class B shares to have a higher expense ratio and pay lower dividends
than
Class A shares.
14
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
VARIABLE PRICING SYSTEM (CONTINUED)
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset value of
shares
of each Class, and will no longer be subject to a distribution fee. In
addition,
a certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions ("Class B Dividend Shares") will
be
converted at that time. That portion will be the percentage of the total
number
of outstanding Class B Dividend Shares held by the shareholder, equal to the
total number of Class B shares held by the shareholder converting at the time
divided by the total number of outstanding Class B shares (other than Class B
Dividend Shares) held by the shareholder. Class B shares will first be
convertible into Class A shares on or about September 30, 1994. The conversion
of Class B shares into Class A shares is subject to the continuing
availability
of an opinion of counsel to the effect that such conversions will not
constitute
taxable events for Federal tax purposes.
Class D Shares. Class D shares of the Fund are sold to Participating
Plans
at net asset value per share and are not subject to an initial sales charge or
CDSC. This Class of shares is subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the value of the Fund's average daily net
assets attributable to Class D (subject to limitations now or hereafter
enacted
by applicable regulatory bodies). The distribution fee is used by Smith Barney
for expenses incurred in selling Class D shares, and the service fee is used
to
compensate Smith Barney Financial Consultants for ongoing services provided to
Class D shareholders. Class D shares are subject to a distribution fee which
will cause Class D shares to have a higher expense ratio and to pay lower
dividends than Class A shares.
15
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
THE FUND'S PERFORMANCE
TOTAL RETURN
From time to time, the Fund may advertise its "average annual total
return"
over various periods of time of each Class. Such total return figures show the
average percentage change in value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Fund with respect to
that Class during the period were reinvested in shares of that Class of the
Fund. Class A total return figures include the maximum initial 5.00%
sales charge and Class B total return figures include any applicable CDSC.
These
figures also take into account the service and distribution fees, if any,
payable with respect to the Classes.
Total return figures will be given for recent one-, five-and ten-year
periods or the life of a Class to the extent it has not been in existence for
any such period, and may be given for other periods as well, such as on a
year-by-year basis. When considering average annual total return figures for
periods longer than one year, it is important to note that a Class' average
annual total return for any one year in the period might be greater or less
than
the average for the entire period. "Aggregate total return" figures may be
used
for various periods, representing the cumulative change in value of an
investment in a class for the specific period (again reflecting changes in
share
prices and assuming reinvestment of dividends and distributions). Aggregate
total return may be calculated either with or without the maximum 5.00% sales
charge for the Class A or any applicable CDSC for Class B shares and may be
shown by means of schedules, charts or graphs, and may indicate subtotals of
the
various components of total return (that is, change in the value of initial
investment, income dividends and capital gains distributions). Because of the
difference in sales charges and distribution fees, the total returns for each
of
the Classes will differ.
In reports or other communications to shareholders and in advertising
material, performance of the Classes may be compared with that of other mutual
funds or classes of shares of other funds as listed in the rankings prepared
by
Lipper Analytical Services, Inc. or similar independent services that monitor
the performance of mutual funds, or other industry or financial publications
such as Barron's, Business Week, CDA Investment Technologies Inc., Forbes,
Fortune, Institutional Investor, Investors Daily, Kiplinger's Personal Finance
Magazine, Money, Morningstar Mutual Fund Values, The New York Times, The Wall
Street Journal and USA Today. Total return figures are based on historical
earnings and are not intended to indicate future performance. To the extent
any
16
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
THE FUND'S PERFORMANCE (CONTINUED)
advertisement or sales literature of the Fund describes the expenses or
performance of a Class, it will also disclose such information for the other
Classes. The Statement of Additional Information contains a further
description
of methods used to determine performance. Performance figures may be obtained
from your Smith Barney Financial Consultant.
For the ten year period from October 1, 1983 through September 30, 1993,
an
investment of $10,000 (after deducting the maximum sales charge of 5.00%) in
Class A shares of the Fund grew to $32,247 when all dividends and
distributions
were reinvested. For the same period, Class A shares had an aggregate total
return of 222.47%. For the period from November 6, 1992 through September 30,
1993, an investment of $10,000 in Class B shares of the Fund grew to $11,782
when all dividends and distributions were reinvested. For the period from
August
10, 1993 through September 30, 1993, an investment of $10,000 in Class D
shares
grew to $10,270 when all dividends and distributions were reinvested. Previous
and current conditions affecting the prices of the common stocks held by the
Fund may be different from conditions affecting the prices of the Fund's
common
stocks in the future and, therefore, the results shown should not necessarily
be
considered as representative of the return which may be realized by an
investment in Class A shares today.
<TABLE>
<CAPTION>
CLASS A SHARES(1)
OTHER INDICES
VALUE OF
VALUE OF REINVESTED
INITIAL DIVIDENDS AND PERIOD
PERIOD PERIOD
$10,000 CAPITAL GAINS TOTAL CHANGE S&P
CHANGE COST OF CHANGE
PERIOD ENDED INVESTMENT DISTRIBUTIONS(3) VALUE (%) 500(4)
(%) LIVING(5) (%)
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
------------------------------------------------------------------------------
--------------------------------------------------
Oct. 1, 1983 $ 9,500(2) -- $ 9,500 -- $10,000
-- $ 10,000 --
Dec. 31, 1983 8,757 923 9,680 + 2 10,040
-- 10,090 +1
Dec. 31, 1984 8,855 1,759 10,614 +10 10,671
+ 6 10,498 +4
Dec. 31, 1985 9,836 2,871 12,707 +20 14,061
+32 10,896 +4
Dec. 31, 1986 8,841 4,453 13,294 + 5 16,685
+19 11,016 +1
Dec. 31, 1987 7,258 6,373 13,631 + 3 17,561
+ 5 11,504 +4
Dec. 31, 1988 8,183 8,322 16,505 +21 20,466
+17 12,002 +4
Dec. 31, 1989 8,645 10,909 19,554 +18 26,940
+32 12,560 +5
Dec. 31, 1990 7,188 10,721 17,909 - 8 26,103
- 3 13,327 +6
Dec. 31, 1991 9,248 14,292 23,540 +31 34,038
+30 13,735 +3
Dec. 31, 1992 9,892 17,147 27,039 +15 36,627
+ 8 14,133 +3
Sept. 30, 1993 11,798 20,449 32,247 +19 39,397
+ 8 14,222 +1
------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
EXPLANATORY NOTES:
(1) The Class A annual service fee of 0.25% of average daily net assets of the
Class began
November 6, 1992.
(2) Based on current maximum sales charge of 5.00% of the offering price.
(3) No adjustment has been made for shareholder's tax liability on dividends
or
capital gains.
(4) Not adjusted for brokerage commissions; dividends reinvested quarterly.
(5) Measured by Consumer Price Index.
17
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
THE FUND'S PERFORMANCE (CONTINUED)
CUMULATIVE TOTAL RETURN FOR CLASS A SHARES
Illustration of an Assumed Investment of $10,000
with Income Dividends and Capital Gains Distributions Reinvested
From October 1, 1983 through September 30, 1993.
Growth Growth
October 1983 9500.00 9500.00
December 1983 8757.00 9680.00
December 1984 8855.00 10614.0
December 1985 9836.00 12707.0
December 1986 8841.00 13294.0
December 1987 7258.00 13631.0
December 1988 8183.00 16505.0
December 1989 8645.00 19554.0
December 1990 7188.00 17909.0
December 1991 9248.00 23540.0
December 1992 9892.00 27039.0
September 1993 11798.0 32247.0
------------------------------------------------------------------------------
--
(1) Based on current maximum sales charge of 5.00% of the offering price.
(2) No adjustment has been made for shareholders' tax liability on dividends
or
capital gains.
This period was one in which common stock prices fluctuated and the results
should not be considered as a representation of the dividend income or capital
gain or loss which may be realized from an investment in the Fund today. No
adjustment has been made for shareholder tax liability on dividends or capital
gains.
NOTE: All figures cited here and on the following pages represent past
performance of Class A shares and do not guarantee future results of Class A
shares, Class B shares or Class D shares. Investment return and principal
value
of an investment will fluctuate so that an investor's shares upon redemption
may
be worth more or less than original cost.
18
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
THE FUND'S PERFORMANCE (CONTINUED)
The following total return figures assume that the maximum 5.00% sales
charge has been deducted from the investment at the time of purchase.
The average annual total return for Class A shares was as follows for the
periods indicated:
18.96% for the one-year period from October 1, 1992 through
September 30, 1993;
13.32% per annum during the five-year period from October 1, 1988 through
September 30, 1993;
12.42% per annum during the ten-year period from October 1, 1983 through
September 30, 1993.
The following aggregate total return figures do not assume that the
maximum
5.00% sales charge has been deducted from the investment at the time of
purchase.
The aggregate total return for Class A shares was as follows for the periods
indicated:
25.23% for the one-year period from October 1, 1992 through
September 30, 1993;
96.70% for the five-year period from October 1, 1988 through
September 30, 1993;
239.45% for the ten-year period from October 1, 1983 through
September 30, 1993.
If the maximum sales charge had been deducted at the time of purchase, the
aggregate total return for Class A shares for those same periods would have
been
18.96%, 86.86% and 222.47%, respectively. The aggregate total return for Class
B
shares for the period from November 6, 1992 (commencement of operations --
Class
B) through September 30, 1993 was 22.82%. Assuming redemption at the end of
the
period and deduction of the maximum CDSC of 5.00% upon redemption, the
aggregate
total return would have been 17.82%. The aggregate total return for Class D
shares for the period from August 10, 1993 (commencement of operations --
Class
D) through September 30, 1993 was 2.70%. Class D shares are sold at net asset
value per share without any sales charge or CDSC.
19
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for the management and supervision of the Fund
rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and companies that furnish services to the Fund,
including agreements with the Fund's distributor, investment adviser,
administrator, sub-administrator, custodian and transfer agent. The day-to-day
operations of the Fund are delegated to the Fund's investment adviser,
administrator and sub-administrator. The Statement of Additional Information
contains general background information regarding each Director and executive
officer of the Fund.
INVESTMENT ADVISER--ASSET MANAGEMENT
Asset Management, located at Two World Trade Center, New York, New York
10048, through its Davis Skaggs Investment Management division, located at One
Sansome Street, San Francisco, California 94104, serves as the Fund's
investment
adviser. Asset Management (through its predecessors) has been in the
investment
counseling business since 1940 and renders investment advice to a wide variety
of individual, institutional and investment company clients having aggregate
assets under management as of May 31, 1994 in excess of $3.9 billion.
Subject to the supervision and direction of the Fund's Board of
Directors,
Asset Management manages the Fund's portfolio in accordance with the Fund's
stated investment objective and policies, makes investment decisions for the
Fund, places orders to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research services to
the
Fund. Under an investment advisory agreement, the Fund pays Asset Management a
monthly fee at the annual rate of 0.55% of the value of its average daily net
assets.
PORTFOLIO MANAGEMENT
John G. Goode, President and Chief Executive Officer of Davis Skaggs
Investment Management, a division of Asset Management, has served as Vice
President and Investment Officer of the Fund since November 1990 and manages
the
day to day operations of the Fund, including making all investment decisions.
20
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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MANAGEMENT OF THE FUND (CONTINUED)
Mr. Goode's management discussion and analysis of the Fund's performance
during the fiscal year ended September 30, 1993 (including a line graph
comparing the Fund's performance to the Standard & Poor's 500 Composite Stock
Price Index) is included in the Fund's Annual Report to Shareholders dated
September 30, 1993. The Fund's Annual Report may be obtained upon request and
without charge from any Smith Barney Financial Consultant or by writing or
calling the Fund at the address or phone number listed on page 1 of this
Prospectus.
ADMINISTRATOR--SBA
SBA, located at 388 Greenwich Street, New York, New York, serves as the
Fund's administrator. SBA is a wholly-owned subsidiary of Holdings. SBA
provides
investment management, investment advisory and/or administrative services to
investment companies which had aggregate assets under management as of May 31,
1994 of $9 billion. SBA oversees all aspects of the Fund's administration and
operations. Pursuant to an Administration Agreement between the Fund and SBA,
SBA is paid a fee at an annual rate of 0.20% of the value of the Fund's
average
daily net assets.
SUB-ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts
02108,
serves as the Fund's sub-administrator. Boston Advisors is a wholly-owned
subsidiary of Mellon. Boston Advisors provides investment management and
administrative services to investment companies which had aggregate assets
under
management as of May 31, 1994 in excess of $89.2 billion. Boston Advisors,
among
other responsibilities, calculates the net asset value of the Fund's shares
and
generally assists in all aspects of the Fund's administration and operation.
------------------------------------------------------------------------------
--
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's primary objective is long-term capital growth. Current income
is
only a secondary consideration. The Fund's primary objective is fundamental
and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding shares. There is no guarantee that the Fund will achieve
its
investment objective.
21
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Fund seeks to achieve its primary investment objective by investing
in
a diversified portfolio of common stocks and common stock equivalents,
including
preferred stocks and other securities convertible into common stocks. The Fund
also invests to a lesser extent in bonds and other debt instruments.
In pursuing the Fund's investment objective, Asset Management emphasizes
securities which, in its judgment, are undervalued in the marketplace and,
accordingly, have above-average capital growth potential. In general, the Fund
invests in securities of companies which are temporarily unpopular among
investors but which Asset Management regards as possessing favorable prospects
for earnings growth and/or improvements in the value of their assets and,
consequently, as having a reasonable likelihood of experiencing a recovery in
market price.
When Asset Management believes that a defensive investment posture is
warranted or when opportunities for capital growth do not appear attractive,
the
Fund may temporarily invest all or a portion of its assets in short-term money
market instruments, including repurchase agreements with respect to those
instruments. The Fund is authorized to borrow money in an amount up to 10% of
its total assets for temporary or emergency purposes.
Further information about the Fund's investment policies, including a
list
of those restrictions on its investment activities that cannot be changed
without the approval of the Fund's shareholders, appears in the Statement of
Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund includes certain risks and special
considerations, such as those described below:
Short-Term Investments. As noted above, in certain circumstances the
Fund
may invest in short-term money market instruments, such as obligations of the
U.S. government, its agencies and instrumentalities ("U.S. government
securities"), high-quality commercial paper and bank certificates of deposit
and
time deposits, and may engage in repurchase agreement transactions with
respect
to such instruments.
Repurchase Agreements. The Fund may enter into repurchase agreements
with
certain member banks of the Federal Reserve System and certain dealers on the
Federal Reserve Bank of New York's list of reporting dealers. Under the terms
of
a typical repurchase agreement, the Fund would acquire securities for a
relatively short period (usually not more than one week) subject to an
22
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
obligation of the seller to repurchase, and the Fund to resell, the securities
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities, the risk of a
possible decline in the value of the underlying securities during the period
in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or
part of the income from the agreement. Asset Management or SBA, acting under
the
supervision of the Board of Directors, reviews on an ongoing basis the value
of
the collateral and the creditworthiness of those dealers and banks with which
the Fund enters into repurchase agreements to evaluate potential risks.
Lending of Portfolio Securities. From time to time, the Fund may lend
its
portfolio securities to brokers, dealers and other financial organizations.
These loans will not exceed 20% of the Fund's total assets, taken at value.
Loans of portfolio securities by the Fund will be collateralized by cash,
letters of credit or U.S. government securities which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. The risks in lending portfolio securities, like those
associated with other extensions of secured credit, consist of possible delays
in receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail
financially.
Loans will be made to firms deemed by Asset Management or SBA to be of good
standing and will not be made unless, in the judgement of Asset Management or
SBA, the consideration to be earned from such loans would justify the risk.
Options on Securities. The Fund may write covered call options with
respect to its portfolio securities. The Fund realizes a fee (referred to as a
"premium") for granting the rights evidenced by a call option. A call option
embodies the right of its purchaser to compel the writer of the option to sell
to the option holder an underlying security at a specified price at any time
during the option period. Thus, the purchaser of a call option written by the
Fund has the right to purchase from the Fund the underlying security owned by
the Fund at the agreed-upon price for a specified time period.
Upon the exercise of a call option written by the Fund, the Fund may
suffer
a loss equal to the excess of the security's market value at the time of the
option
23
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
exercise over the Fund's cost of the security, less the premium received for
writing the option.
The Fund will write only covered options with respect to its portfolio
securities. Accordingly, whenever the Fund writes a call option on its
securities, it will continue to own or have the present right to acquire the
underlying security for as long as it remains obligated as the writer of the
option. To support its obligation to purchase the underlying security if a
call
option is exercised, the Fund will either (a) deposit with its custodian in a
segregated account, cash, U.S. government securities or other high grade debt
obligations having a value at least equal to the exercise price of the
underlying securities or (b) continue to own an equivalent number of puts of
the
same "series" (that is, puts on the same underlying security) with exercise
prices greater than those that it has written (or, if the exercise prices of
the
puts that it holds are less than the exercise prices of those that it has
written, it will deposit the difference with its custodian in a segregated
account).
The Fund may engage in a closing purchase transaction to realize a
profit,
to prevent an underlying security from being called or to unfreeze an
underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). To effect a closing
purchase transaction, the Fund would purchase, prior to the holder's exercise
of
an option that the Fund has written, an option of the same series as that on
which the Fund desires to terminate its obligation. The obligation of the Fund
under an option that it has written would be terminated by a closing purchase
transaction, but the Fund would not be deemed to own an option as a result of
the transaction. There can be no assurances that the Fund will be able to
effect
closing purchase transactions at a time when it wishes to do so. To facilitate
closing purchase transactions, however, the Fund ordinarily will write options
only if a secondary market for the options exists on a domestic securities
exchange or in the over-the-counter market.
The Fund may also, for hedging purposes, purchase put options on
securities
traded on national securities exchanges as well as in the over-the-counter
market. The Fund may purchase put options on particular securities in order to
protect against a decline in the market value in the underlying securities
below
the exercise price less the premium paid for the option. The ability to
purchase
put options allows the Fund to protect the unrealized gain on an appreciated
security in its portfolio without actually selling the security. Prior to
expiration, most options may be sold in a closing sale transaction. Profit or
loss from such a
24
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
sale will depend on whether the amount received is more or less than the
premium
paid for the option plus the related transaction cost.
The Fund may purchase options in the over-the-counter market ("OTC
options") to the same extent that it may engage in transactions in exchange
traded options. OTC options differ from exchange traded options in that they
are
negotiated individually and terms of the contract are not standardized as in
the
case of exchange traded options. Moreover, because there is no clearing
corporation involved in an OTC option, there is a risk of non-performance by
the
counterparty to the option. However, OTC options generally are much more
available for securities in a wider range of expiration dates and exercise
prices than exchange traded options. It is the current position of the staff
of
the SEC that OTC options (and securities underlying the OTC options) are
illiquid securities. Accordingly, the Fund will treat OTC options as subject
to
the Fund's limitation on illiquid securities until such time as there is a
change in the SEC's position. State securities laws also may impose further
limitations.
Options on Broad-Based Domestic Stock Indexes. The Fund may, for hedging
purposes only, write call options and purchase put options on broad-based
domestic stock indexes and enter into closing transitions with respect to such
options. Options on stock indexes are similar to options on securities except
that, rather than having the right to take or make delivery of stock at the
specified exercised price, an option on a stock index gives the holder the
right
to receive, upon exercise of the option, an amount of cash if the closing
level
of the stock index upon which the option is based is "in the money." This
amount
of cash is equal to the difference between the closing level of the index and
the exercise price of the option, expressed in dollars times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike stock options, all
settlements
are in cash, and gain or loss depends on price movements in the stock market
generally rather than price movements in the individual stocks.
The effectiveness of purchasing puts and writing calls on stock
index options depends to a large extent on the ability of the Fund's
investment adviser to predict the price movement of the stock index
selected. Therefore, whether the Fund realizes a gain or loss from the
purchase of options on an index depends upon movements in the level of
stock prices in the stock market generally. Additionally, because exercises
of index options are settled in cash, a call writer such as the Fund
cannot determine the amount of the settlement obligations in advance
and it cannot provide in advance for, or cover, its potential settlement
25
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
obligations by acquiring and holding the underlying securities. When the Fund
has written the call, there is also a risk that the market may decline between
the time the Fund has a call exercised against it, at a price which is fixed
as
of the closing level of the index on the date of exercise, and the time the
Fund
is able to exercise the closing transaction with respect to the long call
position it holds.
Futures Contracts and Options on Futures Contracts. A futures contract
provides for the future sale by one party and the purchase by the other party
of
a certain amount of a specified security at a specified price, date, time and
place. The Fund may enter into futures contracts to sell securities when its
investment adviser believes that the value of the Fund's securities will
decrease. An option on a futures contract, as contrasted with the direct
investment in a futures contract, gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract at a specified
exercise price at any time prior to the expiration date of the option. A call
option gives the purchaser of the option the right to enter into a futures
contract to buy and obliges the writer to enter into a futures contract to
sell
the underlying securities. A put option gives the purchaser the right to sell
and obliges the writer to buy the underlying contract. The Fund may enter into
futures contracts to purchase securities when its investment adviser
anticipates
purchasing the underlying securities and believes that prices will rise before
the purchases will be made. When the Fund enters into a futures contract to
purchase an underlying security, an amount of cash, U.S. government securities
or other high grade debt securities, equal to the market value of the
contract,
will be deposited in a segregated account with the Fund's custodian to
collateralize the position, thereby insuring that the use of the contract is
unleveraged. The Fund will not enter into futures contracts for speculation
and
will only enter into futures contracts that are traded on a U.S. exchange or
board of trade.
The Fund may purchase options on futures contracts to hedge its portfolio
against the risk of a decline in the market value of securities held, and may
purchase call options on futures contracts to hedge against an increase in the
price of securities it is committed to purchase. The Fund may write put and
call
options on futures contracts in entering into closing sale transactions and to
increase its ability to hedge against changes in the market value of the
securities it holds or is committed to purchase. The Fund will write put and
call options only on futures contracts that are traded on a domestic exchange
or
board of trade.
26
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SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
In entering into transactions involving futures contracts and options on
futures contracts, the Fund will comply with applicable requirements of the
Commodities Futures Trading Commission (the "CFTC") which require that its
transactions in futures and options be engaged in for "bona fide hedging"
purposes or other permitted purposes, provided that aggregate initial margin
deposits and premiums required to establish positions, other than those
considered by the CFTC to be "bona fide hedging," will not exceed 5% of the
Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts.
Portfolio Transactions. Portfolio securities transactions or options on
behalf of the Fund are placed by Asset Management with a number of brokers and
dealers, including Smith Barney. Smith Barney has advised the Fund that, in
transactions with the Fund, Smith Barney charges a commission rate at least as
favorable as the rate Smith Barney charges its comparable unaffiliated
customers
in similar transactions.
Foreign Securities and American Depositary Receipts. The Fund can invest
up to 25% of its assets in foreign securities and American Depositary Receipts
("ADRs"). ADRs are dollar-denominated receipts issued generally by domestic
banks representing the deposit with the bank of a security of a foreign
issuer.
ADRs are publicly traded on exchanges or over the counter in the United
States.
------------------------------------------------------------------------------
--
PURCHASE OF SHARES
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney or with an Introducing Broker. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class
A,
Class B or, in the case of Participating Plans in the 401(k) Program, Class D
shares. No maintenance fee will be charged in connection with a brokerage
account through which an investor purchases or holds shares.
27
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
PURCHASE OF SHARES (CONTINUED)
Purchases are effected at the public offering price next determined after a
purchase order is received by Smith Barney or the Introducing Broker (the
"trade
date"). Payment for Fund shares is generally due to Smith Barney or the
Introducing Broker on the fifth business day (the "settlement date") after the
trade date. Investors who make payment prior to the settlement date may permit
the payment to be held in their brokerage accounts or may designate a
temporary
investment (such as a money market fund in the Smith Barney Shearson Group of
Funds) for the payment until the settlement date. The Fund reserves the right
to
reject any purchase order and to suspend the offering of shares for a period
of
time.
Purchase orders received by Smith Barney or an Introducing Broker prior
to
the close of regular trading on the NYSE, currently 4:00 p.m., New York time,
on
any business day the Fund's net asset value is calculated are priced at the
net
asset value determined on that day. Purchase orders which are received after
the
close of regular trading on the NYSE are priced as of the time the net asset
value per share is next determined. See "Valuation of Shares."
Systematic Investment Plan. The Fund offers shareholders a Systematic
Investment Plan through which shareholders may authorize Smith Barney or an
Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid
automatically
from cash held in the shareholder's Smith Barney brokerage account or through
the automatic redemption of the shareholder's shares of a Smith Barney money
market fund. For further information regarding the Systematic Investment Plan,
shareholders should contact their Smith Barney Financial Consultants.
Minimum Investment. The minimum initial investment in the Fund is $1,000
and the minimum subsequent investment is $200, except that for purchases
through
(a) IRAs and Self-Employed Retirement Plans, the minimum initial and
subsequent
investment is $250 and $100, respectively, (b) retirement plans qualified
under
Section 403(b)(7) or Section 401(a) of the Code, the minimum and subsequent
investment is $25 and (c) the Fund's Systematic Investment Plan, the minimum
initial and subsequent investment is $100. There are no minimum investment
requirements for employees of Travelers and its subsidiaries, including Smith
Barney. The Fund reserves the right at any time to vary the initial and
subsequent investment minimums. Certificates for Fund shares are issued upon
request to the Fund's transfer agent, TSSG.
28
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
PURCHASE OF SHARES (CONTINUED)
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value of that Class next determined after a purchase order is received plus a
sales charge, which is imposed in accordance with the following schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE
AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET
VALUE
<S> <C> <C>
------------------------------------------------------------------------------
-------
Less than $25,000 5.00% 5.26%
$25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.25% 3.36%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 2.00% 2.04%
$1,000,000 or more** 0.00% 0.00%
------------------------------------------------------------------------------
--
<FN>
* Smith Barney has adopted guidelines directing its Financial Consultants
and
Introducing Brokers that single investments of $250,000 or more should be
made in Class A shares.
** No sales charge is imposed on purchases of Class A shares of $1 million or
more; however a CDSC of 0.75% is imposed for the first year after
purchase.
The CDSC on Class A shares is payable to Smith Barney which compensates
Smith Barney Financial Consultants upon the sale of these shares. The CDSC
is waived in the same circumstances in which the CDSC applicable to Class
B
shares is waived. See "Redemption of Shares -- Contingent Deferred Sales
Charge -- Class B Shares -- Waivers of CDSC."
</TABLE>
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to
combine their purchases of Class A shares to receive volume discounts.
Investors
eligible to receive volume discounts include individuals and their immediate
families, tax-qualified employee benefit plans and trustees or other
professional fiduciaries (including a bank or an investment adviser registered
with the SEC under the Investment Advisers Act of 1940, as amended) purchasing
shares for one or more trust estates or fiduciary accounts even though more
than one beneficiary is involved. The initial sales charge is also reduced
to 1.00% for Smith Barney Personal Living Trust program participants for
whom Smith Barney acts as Trustee. Reduced sales charges on Class A
shares are also available under a combined right of accumulation, under
which an investor may combine the value of Class A shares already held in
the Fund and in any of the funds in the Smith Barney Shearson Group of Funds
listed below under "Exchange Privilege" (except those sold without a sales
charge), along with the value of the Class A shares being purchased, to
qualify for a reduced sales charge. For example, if an investor owns
Class A shares of the Fund and other funds in the Smith Barney
29
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
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--
PURCHASE OF SHARES (CONTINUED)
Shearson Group of Funds that have an aggregate value of $22,000, and makes an
additional investment in Class A shares of the Fund of $4,000, the sales
charge
applicable to the additional investment would be 4.00%, rather than the 5.00%
normally charged on a $4,000 purchase. Investors interested in further
information regarding reduced sales charges should contact their Smith Barney
Financial Consultants.
Class A shares may be offered without any applicable sales charges to:
(a)
employees of Travelers and its subsidiaries, including Smith Barney, employee
benefit plans for such employees and their immediate families when orders on
their behalf are placed by such employees; (b) accounts managed by registered
investment advisory subsidiaries of Travelers; (c) directors, trustees or
general partners of any investment company for which Smith Barney serves as
distributor; (d) any other investment company in connection with the
combination
of such company with the Fund by merger, acquisition of assets or otherwise;
(e)
shareholders who have redeemed Class A shares in the Fund (or Class A shares
of
another fund in the Smith Barney Shearson Group of Funds that are sold with a
maximum 5.00% sales charge) and who wish to reinvest their redemption proceeds
in the Fund, provided the reinvestment is made within 30 days of the
redemption;
and (f) any client of a newly-employed Smith Barney Financial Consultant (for
a
period up to 90 days from the commencement of the Financial Consultant's
employment with Smith Barney), on the condition that the purchase is made with
the proceeds of the redemption of shares of a mutual fund that (i) was
sponsored
by the Financial Consultant's prior employer, (ii) was sold to a client by the
Financial Consultant and (iii) when purchased, such shares were sold with a
sales charge or are subject to a charge upon redemption.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value of that Class. No initial sales charge is imposed at the time of
purchase.
A CDSC is imposed, however, on certain redemptions of Class B shares. See
"Redemption of Shares" which describes the CDSC in greater detail.
Smith Barney has adopted guidelines, in view of the relative sales
charges
and distribution fees applicable to the classes, directing Smith Barney
Financial Consultants and Introducing Brokers that all purchases of shares of
$250,000 or more should be for Class A shares. Smith Barney reserves the right
to vary these guidelines at any time.
30
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
PURCHASE OF SHARES (CONTINUED)
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the 401(k) Program, which is
generally designed to assist employers or plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Code. To the extent
applicable, the same terms and conditions are offered to all Participating
Plans
in the 401(k) Program, which include both 401(k) Plans and other types of
participant directed tax qualified employee benefit plans.
The Fund offers to Participating Plans three classes of shares, Class A,
Class B and Class D shares, as investment alternatives under the 401(k)
Program.
Class A shares are available to all Participating Plans and are the only
investment alternative for Participating Plans that are eligible to purchase
Class A shares at net asset value without a sales charge. In addition, Class B
shares are offered only to Participating Plans satisfying certain criteria
with
respect to the amount of the initial investment and number of employees
eligible
to participate in the Plan at that time. Alternatively, Class D shares are
offered only to Participating Plans that meet other criteria relating to the
amount of initial investment and number of employees eligible to participate
in
the Plan at that time, as described below. See "Prospectus Summary -- Smith
Barney 401(k) Program".
The Class A and Class B shares acquired through the 401(k) Program are
subject to the same service and/or distribution fees as, but different sales
charge and CDSC schedules than, the Class A and Class B shares acquired by
other
investors. Class D shares acquired by Participating Plans are offered at net
asset value per share without any sales charges or CDSC. The Fund pays annual
service and distribution fees based on the value of the average daily net
assets
attributable to this Class.
Once a Participating Plan has made an initial investment in the Fund, all
of its subsequent investments in the Fund must be in the same Class of shares,
except as otherwise described below.
31
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
PURCHASE OF SHARES (CONTINUED)
Class A Shares. The sales charges for Class A shares acquired by
Participating Plans are as follows:
<TABLE>
<CAPTION>
SALES
CHARGE AS %
SALES CHARGE AS % OF
NET ASSET
AMOUNT OF INVESTMENT OF OFFERING PRICE
VALUE
<S> <C>
<C>
------------------------------------------------------------------------------
-------
Less than $25,000* 5.00%
5.26%
$25,000 but under $100,000* 4.00%
4.17%
$100,000 but under $250,000* 3.25%
3.36%
$250,000 but under $500,000* 2.50%
2.56%
$500,000 but under $750,000* 2.00%
2.04%
$750,000 and over** .00%
.00%
------------------------------------------------------------------------------
-------
<FN>
* Will be available to Participating Plans upon the completion of certain
automated systems.
** Currently available.
</TABLE>
A Participating Plan will have a combined right of accumulation under
which, to qualify for a reduced sales charge, it may combine the value of
Class
A shares being purchased with the value of Class A shares already held in the
Fund and in any of the funds listed below under "Exchange Privilege" that are
sold with a sales charge.
Class A shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of Class A shares of
one
or more funds in the Smith Barney Shearson Group of Funds under the combined
right of accumulation described above; (b) has 250 or more employees eligible
to
participate in the Participating Plan at the time of initial investment in the
Fund; or (c) currently holds Class A shares in the Fund that were received as
a
result of an exchange of Class B or Class D shares of the Fund as described
below.
Class A shares acquired through the 401(k) Program will not be subject to
a
CDSC.
Class B Shares. Under the 401(k) Program, Class B shares are offered to
Participating Plans that: (i) purchase less than $250,000 of Class B shares of
one or more funds in the Smith Barney Group of Funds that are sold subject to
a
CDSC; and (ii) that have less than 100 employees eligible to participate in
the
Participating Plan at the time of initial investment in the Fund. Class B
shares
acquired by such Plans will be subject to a CDSC of 3% of redemption proceeds
if
redeemed within eight years of the date the Participating Plan first purchases
Class B shares. No CDSC is imposed to the extent that the net asset value of
the
32
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
PURCHASE OF SHARES (CONTINUED)
Class B shares redeemed does not exceed (a) the current net asset value of
Class
B shares purchased through reinvestment of dividends or capital gains
distributions, plus (b) the current net asset value of Class B shares
purchased
more than eight years prior to the redemption, plus (c) increases in the net
asset value of the shareholder's Class B shares above the purchase payments
made
during the preceding eight years. The CDSC applicable to a Participating Plan
depends on the number of years since the Participating Plan first became a
holder of Class B shares, unlike the CDSC applicable to other Class B
shareholders, which depends on the number of years since those shareholders
made
the purchase payment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection
with
lump-sum or other distributions made by a Participating Plan as a result of:
(a)
the retirement of an employee in the Participating Plan; (b) the termination
of
employment of an employee in the Participating Plan; (c) the death or
disability
of an employee in the Participating Plan; (d) the attainment of age 59 1/2 by
an
employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code;
or
(f) redemptions of Class B shares in connection with a loan made by the
Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class
B
share, it will be offered the opportunity to exchange all of its Class B
shares
for Class A shares of the Fund. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of the
purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the eighth anniversary date. Once the exchange
has occurred, a Participating Plan will not be eligible to acquire additional
Class B shares of the Fund but instead may acquire Class A shares of the Fund.
If the Participating Plan elects not to exchange all of its Class B shares at
that time, each Class B share held by the Participating Plan will have the
same
conversion feature as Class B shares held by other investors. See "Variable
Pricing System-Class B Shares."
Class D Shares. Class D shares are offered to Participating Plans that:
(i) purchase less than $750,000 but more than $250,000 of Class D shares of
one
or more funds in the Smith Barney Shearson Group of Funds that offer one or
more
Classes of shares subject to a sales charge and/or CDSC; or (ii) have at least
100 but no more than 250 employees eligible to participate in the
Participating
Plan at the time of initial investment in the Fund.
33
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
PURCHASE OF SHARES (CONTINUED)
Class D shares acquired by Participating Plans will be offered at net
asset
value per share without any sales charges or CDSC. The Fund pays annual
service
and distribution fees based on the value of the average daily net assets
attributable to this Class. Class D shares are not subject to an automatic
conversion feature as are the Class B shares. However, beginning in December
1993 and each year thereafter, Participating Plans which hold Class D shares
valued at $750,000 or more in any fund or funds in the Smith Barney Shearson
Group of Funds that offer one or more Classes of shares subject to a sales
charge and/or CDSC will be offered the opportunity to exchange all of their
Class D shares for Class A shares. Such Plans will be notified of the pending
exchange in writing within 30 days after the last business day of the calendar
year, and unless the exchange offer has been rejected in writing, the exchange
will occur on or about the last business day of March in the following
calendar
year. Once the exchange has occurred, a Participating Plan will not be
eligible
to acquire Class D shares of the Fund but instead may acquire Class A shares
of
the Fund. Any Class D shares not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the Fund through the
401(k) Program must purchase such shares directly through TSSG, the Fund's
transfer agent.
For further information regarding the 401(k) Program, investors should
contact their Smith Barney Financial Consultants.
------------------------------------------------------------------------------
--
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Fund calculates
its net asset value. See "Valuation of Shares." Redemption requests received
in
proper form prior to the close of regular trading on the NYSE are priced at
the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value
next determined. If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being redeemed. In the event of
a
failure to specify which Class or if the investor owns fewer shares of the
Class
than specified, the redemption request will be delayed until the Fund's
transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly.
34
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
REDEMPTION OF SHARES (CONTINUED)
The Fund normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney or the Introducing Broker at no charge
(other than any applicable CDSC) within seven days after receipt of a
redemption
request. Generally, these funds will not be invested for the shareholder's
benefit without specific instruction and Smith Barney will benefit from the
use
of temporarily uninvested funds. A shareholder who pays for Fund shares by
personal check will be credited with the proceeds of a redemption of those
shares only after the purchase check has been collected, which may take up to
10
days or more. A shareholder who anticipates the need for more immediate access
to his or her investment should purchase shares with Federal funds, by bank
wire
or by certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of less than
$500 may be subject to redemption by the Fund, but only after the shareholder
has been given at least 30 days in which to increase the account balance to
$500
or more.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY
Redemption requests may be made through Smith Barney or an Introducing
Broker. A shareholder desiring to redeem shares represented by certificates
must
also present such certificates to Smith Barney or the Introducing Broker
endorsed for transfer (or accompanied by an endorsed stock power), signed
exactly as the shares are registered. Redemption requests involving shares
represented by certificates will not be deemed received until such
certificates
are received by the Fund's transfer agent in proper form.
REDEMPTION BY MAIL
Shares of the Fund may be redeemed by submitting a written request for
redemption to:
Smith Barney Shearson Fundamental Value Fund Inc.
Class A or B or D (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to the Fund's transfer agent, TSSG, or a
Smith
Barney Financial Consultant must (a) state the Class and number or dollar
35
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
REDEMPTION OF SHARES (CONTINUED)
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are
registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power)
and
must be submitted to TSSG together with the redemption request. Any signature
appearing on a redemption request, share certificate or stock power must be
guaranteed by a domestic bank, savings and loan institution, domestic credit
union, member bank of the Federal Reserve System or member firm of a national
securities exchange. TSSG may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until
TSSG
receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly. Retirement plan
accounts
are eligible for automatic cash withdrawal plans only where the shareholder is
eligible to receive qualified distributions and has an account value of a
least
$5,000. Any applicable CDSC will be waived on amounts withdrawn by a
shareholder
that do not exceed 2.00% per month of the value of a shareholder's shares
subject to the CDSC at the time the withdrawal plan commences. For further
information regarding the automatic cash withdrawal plan, shareholders should
contact their Smith Barney Financial Consultant.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A CDSC payable to Smith Barney is imposed on any redemption of Class B
shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years, except in the case of purchases by Participating Plans in the 401(k)
Program, as described above. See "Purchase of Shares--Smith Barney 401(k)
Program." No charge is imposed to the extent that the net asset value of the
Class B shares redeemed does not exceed (a) the current net asset value of
Class B shares purchased through reinvestment of dividends or capital
gains distributions, plus (b) the current net asset value of Class B
shares purchased more than five years prior to the redemption,
plus (c) increases in the net asset value of the
36
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
REDEMPTION OF SHARES (CONTINUED)
shareholder's Class B shares above the purchase payments made during the
preceding five years.
In circumstances in which the CDSC is imposed, the amount of the charge
will depend on the number of years since the shareholder made the purchase
payment from which the amount is being redeemed, except in the case of
purchases
through Participating Plans in the 401(k) Program, which are subject to a
different CDSC. See "Purchase of Shares--Smith Barney 401(k) Program." Solely
for purposes of determining the number of years since a purchase payment, all
purchase payments made during a month will be aggregated and deemed to have
been
made on the last day of the preceding Smith Barney statement month. The
following table sets forth the rates of the charge for redemptions of Class B
shares by shareholders other than Participating Plans:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
<S>
<C>
------------------------------------------------------------------------------
-------
First
5.00%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
------------------------------------------------------------------------------
-------
</TABLE>
Class B shares will automatically convert to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to a distribution fee. The first of these conversions will commence on
or about September 30, 1994. See "Variable Pricing System--Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not
already been effected. In the case of redemptions of Class B shares of other
funds in the Smith Barney Shearson Group of Funds issued in exchange for Class
B
shares of the Fund, the term "purchase payments" refers to the purchase
payments
for the shares given in exchange. In the event of an exchange of Class B
shares
of funds with differing CDSC schedules, the shares will be, in all cases,
subject to the higher CDSC schedule. See "Exchange Privilege."
Waivers of CDSC. The CDSC will be waived on: (a) exchanges (see
"Exchange
Privilege"); (b) automatic cash withdrawals in amounts equal to or
37
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
REDEMPTION OF SHARES (CONTINUED)
less than 2.00% per month of the value of the shareholder's Class B shares at
the time the withdrawal plan commences (see above); (c) shares redeemed in
connection with certain post-retirement distributions and withdrawals from
retirement plans or IRAs or following the death or disability of a
shareholder;
(d) involuntary redemptions; (e) redemption proceeds from other funds in the
Smith Barney Shearson Group of Funds that are reinvested within 30 days of the
redemption; (f) redemptions of shares in connection with a combination of any
investment company with the Fund by merger, acquisition of assets or
otherwise;
and (g) certain redemptions of shares of the Fund in connection with lump-sum
or
other distributions made by a Participating Plan in the 401(k) Program. See
"Purchase of Shares--Smith Barney 401(k) Program."
------------------------------------------------------------------------------
--
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of the given Class is determined as of the
close of regular trading on the NYSE, and is computed by dividing the value of
the Fund's net assets attributable to that Class by the total number of shares
of that Class outstanding. Generally, the Fund's investments are valued at
market value or, in the absence of a market value with respect to any
securities, at fair value as determined by or under the direction of the Board
of Directors. Short-term investments that mature in 60 days or less are valued
at amortized cost whenever the Directors determine that amortized cost
reflects
fair value of those investments. Further information regarding the Fund's
valuation policies is contained in the Statement of Additional Information.
38
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence.
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-----------------------------------------------------------------------
Municipal Bond Funds
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND,
an intermediate-term municipal bond fund investing in
investment grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate-and long-term municipal bond fund investing
in medium and lower rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for Arizona investors.
A SMITH BARNEY SHEARSON OREGON MUNICIPALS FUND, an
intermediate-term municipal bond fund designed for Oregon
investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-and long-term municipal
bond fund designed for California investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate-and long-term municipal bond fund designed
for Massachusetts investors.
</TABLE>
39
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-----------------------------------------------------------------------
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for New Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term bond fund designed
for New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for New York investors.
Income Funds
A, B, D+ SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME
FUND, seeks high current income while limiting the degree
of fluctuation in net asset value resulting from
movements in interest rates.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests exclusively in securities issued by the U.S.
Treasury and other U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND,
seeks high current income primarily by allocating and
reallocating its assets among various types of
fixed-income securities.
A, B, D+ SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC.,
invests in obligations issued or guaranteed by the United
States government and its agencies and instrumentalities
with emphasis on mortgage-backed government securities.
</TABLE>
40
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-----------------------------------------------------------------------
A, B, D+ SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a
high current return by investing in U.S. government
securities.
A, B, D+ SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks
maximum current income consistent with prudent investment
management and preservation of capital by investing in
corporate bonds.
A, B, D+ SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high
current income by investing in high-yielding corporate
bonds, debentures and notes.
A, B, D+ SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current
income and capital appreciation by investing in bonds,
debentures and notes of foreign and domestic issuers.
Growth and Income Funds
A, B, D+ SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current
income and capital appreciation by investing in
convertible securities.
A, B, D+ SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return
by investing in equity and debt securities of utilities
companies.
A, B, D+ SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks
high total return consisting of current income and
capital appreciation by investing in a combination of
equity, fixed-income and money market securities.
A, B, D+ SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks
total return by investing in dividend-paying common
stocks.
A, B, D+ SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks
income and long-term capital growth by investing in
income-producing equity securities.
Growth Funds
A, B, D+ SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks
long-term appreciation of capital.
</TABLE>
41
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-----------------------------------------------------------------------
A, B SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND,
seeks capital appreciation, with income as a secondary
consideration.
A, B, D+ SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A, B, D+ SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-
term capital appreciation by investing in equity
securities primarily of emerging growth companies.
A, B, D+ SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term
capital appreciation by investing primarily in securities
of issuers based in European countries.
A, B, D+ SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND
INC., seeks long-term capital appreciation by investing
primarily in precious metal-and mineral-related companies
and gold bullion.
Money Market Funds
* SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of higher quality money market
instruments.
** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND, invests in a
variety of money market instruments.
** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND,
invests in short-term United States government and agency
securities.
*** SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND,
invests in short-term high quality municipal obligations.
*** SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND, designed for California investors investing in
short-term, high quality California municipal
obligations.
*** SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET
FUND, designed for New York investors investing in
short-term, high quality New York municipal obligations.
</TABLE>
42
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
EXCHANGE PRIVILEGE (CONTINUED)
------------------------------------------------------------------------------
--
[FN]
* Shares of this money market fund may be exchanged for Class B shares of
the
Fund.
** Shares of this money market fund may be exchanged for Class A and Class D
shares of the Fund.
*** Shares of this money market fund may be exchanged for Class A shares of
the
Fund.
+ Class D shares of this Fund may be acquired only by Participating Plans.
Tax Effect. The exchange of shares of one fund for shares of another
fund
is treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
Class A Exchanges. Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 5.00% will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A shares of the
Fund,
or other funds sold with a higher sales charge. The "sales charge
differential"
is limited to a percentage rate no greater than the excess of the sales charge
rate applicable to purchases of shares of the mutual fund being acquired in
the
exchange over the sum of the rates of all sales charges previously paid on the
mutual fund shares relinquished in the exchange and on any predecessor of
those
shares. For purposes of the exchange privilege, shares obtained through
automatic reinvestment of dividends, as described below, are treated as having
paid the same sales charges applicable to the shares on which the dividends
were
paid. However, except in the case of the 401(k) Program, if no sales charge
was
imposed upon the initial purchase of the shares, any shares obtained through
automatic reinvestment will be subject to a sales charge differential upon
exchange.
Class B Exchanges. Smith Barney receives an annual service fee and an
annual distribution fee with respect to Class B shares of the Fund. Class B
shareholders of the Fund who wish to exchange all or part of their Class B
shares for Class B shares of any of the funds identified above may do so
without
the imposition of an exchange fee. In the event Class B shareholders of the
Fund
wish to exchange all or a portion of their shares for Class B shares in any of
the funds listed above imposing a CDSC higher than that imposed by the Fund,
the
exchanged Class B shares will be subject to the higher applicable CDSC. Upon
an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Fund which have been exchanged.
43
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
EXCHANGE PRIVILEGE (CONTINUED)
Class D Exchanges. Class D shares pay an annual service fee and an
annual
distribution fee to Smith Barney. Participating Plans may exchange Class D
shares for Class D shares of the funds listed above without charge.
Additional Information Regarding the Exchange Privilege. Shareholders
exercising the exchange privilege with any of the other funds in the Smith
Barney Shearson Group of Funds should review the prospectus of that fund
carefully prior to making an exchange. Smith Barney reserves the right to
reject
any exchange request. The exchange privilege may be modified or terminated at
any time after notice to shareholders. For further information regarding the
exchange privilege or to obtain the current prospectuses for members of the
Smith Barney Shearson Group of Funds, investors should contact their Smith
Barney Financial Consultant.
44
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013
and serves as distributor of the Fund's shares. Smith Barney is paid an annual
service fee with respect to Class A, Class B and Class D shares of the Fund at
the rate of 0.25% of the value of the average daily net assets of the
respective
Class. Smith Barney is also paid an annual distribution fee by Class B and
Class
D shares at the rate of 0.75% of the value of average daily net assets
attributable to those shares. The fees are authorized pursuant to a service
and
distribution plan (the "Plan") adopted by the Fund pursuant to Rule 12b-1
under
the 1940 Act and are used by Smith Barney to pay its Financial Consultants for
servicing shareholder accounts and, in the case of the Class B and Class D
shares, to cover expenses primarily intended to result in the sale of those
shares of the Fund. These expenses include: costs of printing and distributing
the Fund's Prospectus, Statement of Additional Information and sales
literature
to prospective investors; an allocation of overhead and other Smith Barney
branch office distribution-related expenses; payments to and expenses of Smith
Barney Financial Consultants and other persons who provide support services in
connection with the distribution of the shares; and accruals for interest on
the
amount of the foregoing expenses that exceed distribution fees and, in the
case
of Class B shares, the CDSC received by Smith Barney. The payments to Smith
Barney Financial Consultants for selling shares of a Class include a
commission
paid at the time of sale and a continuing fee for servicing shareholder
accounts
for as long as a shareholder remains a holder of that Class. The service fee
is
credited at the rate of 0.25% of the value of average daily net assets of the
Class that remain invested in the Fund. Smith Barney Financial Consultants may
receive different levels of compensation for selling one Class of shares over
another.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney, and the
payments
may exceed distribution expenses actually incurred. The Fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms
on
a continuing basis and in doing so will consider all relevant factors,
including
expenses borne by Smith Barney and the amounts received under the Plan and the
proceeds of the CDSC.
45
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund's policy is to distribute its investment income and net realized
capital gains, if any, once a year, normally at the end of the year in which
earned or at the beginning of the next year. Unless a shareholder instructs
that
dividends and capital gains distributions on shares of any Class be paid in
cash
and credited to the shareholder's account at Smith Barney, dividends and
capital
gains distributions will be reinvested automatically in additional shares of
the
Class at net asset value, subject to no sales charge or CDSC. The Fund is
subject to a 4% nondeductible excise tax on certain undistributed amounts of
ordinary income and capital gains. The Fund expects to make any additional
distributions necessary to avoid the application of this tax.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Dividends paid from net
investment
income and distributions of net realized short-term capital gains are taxable
to
shareholders as ordinary income, regardless of how long shareholders have held
their Fund shares and whether such dividends and distributions are received in
cash or reinvested in additional Fund shares. Distributions of net realized
long-term capital gains will be taxable to shareholders as long-term capital
gains, regardless of how long shareholders have held Fund shares and whether
such distributions are received in cash or are reinvested in additional Fund
shares. The per share dividends and distributions on Class A shares will be
higher than the per share dividends and distributions on Class B and Class D
shares as a result of lower distribution and transfer agency fees applicable
to
Class A shares. See "Variable Pricing System." Furthermore, as a general rule,
a
shareholder's gain or loss on a sale or redemption of Fund shares will be a
long-term capital gain or loss if the shareholder has held the shares for more
than one year and will be a short-term capital gain or loss if the shareholder
has held the shares for one year or less. Some of the Fund's dividends
declared
from net investment income may qualify for the Federal dividends-received
deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder will also receive, if
appropriate, various written notices after the close of the Fund's prior
taxable
year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior
taxable
year.
Shareholders should consult their tax advisors about the status of the
Fund's dividends and distributions for state and local tax liabilities.
46
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
ADDITIONAL INFORMATION
The Fund was originally incorporated under the laws of the State of
Washington on March 17, 1981, and is registered with the SEC as a diversified,
open-end management investment company. On November 21, 1989, the Fund changed
its name from Shearson Lehman Fundamental Value Fund Inc. to SLH Fundamental
Value Fund Inc., on August 12, 1992 changed its name to Shearson Lehman
Brothers
Fundamental Value Fund Inc. and on August 17, 1993 changed its name to Smith
Barney Shearson Fundamental Value Fund Inc. On June 28, 1994, the shareholders
of the Fund voted to approve the reincorporation of the Fund under the laws of
the State of Maryland. On July , 1994, the reincorporation was effected
pursuant to Articles of Incorporation filed May 13, 1994 and Rule 414 under
the
Securities Act of 1933.
Each Class of shares represents identical interests in the Fund's
investment portfolio. As such, they have the same rights, privileges and
preferences, except with respect to: (a) the designation of each Class; (b)
the
effect of the respective sales charges, if any, for each Class; (c) the
distribution and/or service fees borne by each Class; (d) the expenses
allocable
exclusively to each Class; (e) voting rights on matters exclusively affecting
a
single Class; (f) the exchange privilege of each Class; and (g) the conversion
feature of the Class B shares. The Board of Directors does not anticipate that
there will be any conflicts among the interests of the holders of the
different
Classes of shares of the Fund. The Directors, on an ongoing basis, will
consider
whether any such conflict exists and, if so, take appropriate action.
The Fund currently offers shares of common stock classified into three
Classes, A, B and D. Each Class of shares represents an identical pro rata
interest in the Fund's investment portfolio. When matters are submitted for
shareholder vote, each shareholder will have one vote for each full share
owned
and proportionate, fractional votes for fractional shares held. The Fund does
not intend to hold annual meetings. The Directors will call a meeting for any
purpose upon written request of shareholders holding at least 10% of the
Fund's
outstanding shares.
Boston Safe Deposit and Trust Company, a wholly owned subsidiary of TBC,
is
located at One Boston Place, Boston, Massachusetts 02108, and serves as
custodian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves
as the Fund's transfer agent.
47
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
------------------------------------------------------------------------------
--
ADDITIONAL INFORMATION (CONTINUED)
The Fund sends its shareholders a semi-annual report and an audited
annual
report, which include listings of investment securities held by the Fund at
the
end of the reporting period. In an effort to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of its semi-annual
and
annual reports by household. This consolidation means that a household having
multiple accounts with the identical address of record will receive a single
copy of each report. In addition, the Fund also plans to consolidate the
mailing
of its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. When the Fund's annual report is combined with the
Prospectus into a single document, the Fund will mail the combined document to
each shareholder to comply with legal requirements. Any shareholder who does
not
want this consolidation to apply to his or her account should contact his or
her
Smith Barney Financial Consultant or TSSG.
Shareholders may seek information regarding the Fund from their Smith
Barney Financial Consultants.
------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement
of
Additional Information and/or in the Fund's official sales literature in
connection with the offering of the Fund's shares, and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Fund. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
48
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
DIRECTORS
Lloyd J. Andrews
Robert M. Frayn, Jr.
Leon P. Gardner
Howard J. Johnson
David E. Maryatt
Heath B. McLendon
Jerry A. Viscione
Julie W. Weston
OFFICERS
Heath B. McLendon
Chairman of the Board
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
John G. Goode
Vice President and
Investment Officer
Peter Hable
Investment Officer
Lewis E. Daidone
Treasurer
Christina T. Sydor
Secretary
DISTRIBUTOR
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Smith Barney
Asset Management
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
Smith Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
SUB-ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Deloitte & Touche
125 Summer Street
Boston, Massachusetts 02110
Willkie Farr and Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit
and Trust Company
One Boston Place
Boston, Massachusetts 02108
49
<PAGE>
------------------------------------------------------------------------------
--
------------------------------------------------------------------------------
--
SMITH BARNEY SHEARSON
Fundamental
Value
Fund Inc.
Two World Trade Center
New York, New York 10048
Fund 10
FD0206 F3
Smith Barney Shearson Fundamental Value Fund Inc.
Statement of Additional Information dated November 22, 1993
as revised on July , 1994
<PAGE>
--------- SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
TWO WORLD TRADE CENTER - NEW YORK, NEW YORK 10048 - (212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 22, 1993, AS REVISED ON JULY ,
1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Shearson
Fundamental Value Fund Inc. (the "Fund"), dated November 22, 1993, as revised
on
July , 1994, as amended or supplemented from time to time, and should be
read
in conjunction with the Fund's Prospectus. The Fund's Prospectus may be
obtained
from any Smith Barney Financial Consultant or by writing or calling the Fund
at
the address or phone number listed above. This Statement of Additional
Information, although not in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
--------- CONTENTS
For ease of reference, the same section headings are used in both the
Prospectus and this Statement of Additional Information, except where shown
below.
<TABLE>
<S>
<C>
Management of the
Fund....................................................... 1
Investment Objective and Management
Policies................................. 5
Purchase of
Shares........................................................... 16
Redemption of
Shares......................................................... 17
Distributor..................................................................
18
Valuation of
Shares.......................................................... 19
Exchange
Privilege........................................................... 20
Performance Data (See in the Prospectus "The Fund's
Performance")............ 20
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes")........... 22
Custodian and Transfer Agent (See in the Prospectus "Additional
Information")..............................................................
25
Organization of the Fund (See in the Prospectus "Additional
Information").... 25
Financial
Statements......................................................... 25
</TABLE>
--------- MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations are as
follows:
<TABLE>
<CAPTION>
NAME SERVICE
--------------------------------------------- --------------------------
----------------
<S> <C>
Smith Barney Inc............................. Distributor
("Smith Barney")
Smith Barney Asset Management Division of
Smith, Barney Advisers, Inc................ Investment Adviser
("Asset Management")
Smith, Barney Advisers, Inc. ("SBA")......... Administrator
The Boston Company Advisors, Inc............. Sub-Administrator
("Boston Advisors")
Boston Safe Deposit and Trust Company........ Custodian
("Boston Safe")
The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data
Corporation................................ Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are
discussed in the Prospectus and in this Statement of Additional Information.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Directors and executive officers of the Fund, together with
information
as to their principal business occupations during the past five years, are set
forth below. Each Director who is an "interested person" of the Fund, as
defined
in the Investment Company Act of 1940, as amended (the "1940 Act"), is
indicated
by an asterisk.
Lloyd J. Andrews, Director. Private investor; Director of North Coast
Life
Insurance Company and Flow Systems, Inc.; Past Vice Chairman and Director of
Chem-Nuclear Systems, Inc. His address is East 10110 Green Bluff Road, Mead,
Washington 98021.
Robert M. Frayn, Jr., Director. President and Director of Book Publishing
Company. His address is 201 Westlake No., Seattle, Washington 98109.
Leon P. Gardner, Director. Private investor; Chairman of Fargo's Pizza
Company. His address is 2310 N.E. Blue Ridge Drive, Seattle, Washington 98117.
Howard J. Johnson, Director. President and Chairman of Howard Johnson &
Co., an actuary and pension consultant; Secretary and Director of Wurts
Johnson
and Company; Director of Spring Street Securities, Inc.; Director of Ranier
Trust Company; Director ex-officio of American Society of Pension Actuaries.
His
address is Suite 370, 375 Park Avenue, New York, New York 10152.
David E. Maryatt, Director. Director of ALS Co., a textile rental
services
firm; Private Investor. His address is 771 Valley Street, Seattle, Washington
98109.
*Heath B. McLendon, Chairman of the Board. Executive Vice President of
Smith Barney; and Chairman of Smith Barney Strategy Advisers Inc., an
investment
advisory affiliate of Smith Barney ("SBSA"). Prior to July 1993, Senior
Executive Vice President of Shearson Lehman Brothers Inc. ("Shearson Lehman
Brothers"); Vice Chairman of the Board of Shearson Asset Management.
Frederick O. Paulsell, Director. President of Paulsell & Baker Inc. His
address is 1701 Third Avenue, Suite 2101, Seattle, Washington 98101.
Jerry A. Viscione, Director. Dean of Albers School of Business and
Economics, Seattle University. His address is 3480 Northeast 155 Street,
Seattle, Washington 98155.
Julie W. Weston, Director. Attorney; prior to 1987, Secretary and General
Counsel of Skinner Corporation, a distributor of consumer and industrial
products. Her address is 416 34th Avenue, Seattle, Washington 98122.
Stephen J. Treadway, President. Director and President of SBA and Mutual
Management Corp; Director and Executive Vice President of Smith Barney. His
address is 1345 Avenue of the Americas, New York, New York 10019.
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney; President of SBSA. Prior to July 1993, Senior Vice President of
Shearson
Lehman Brothers, Vice President of Shearson Lehman Investment Strategy
Advisors
Inc. His address is Two World Trade Center, New York, New York 10048.
John G. Goode, Vice President and Investment Officer. President and Chief
Executive Officer of Davis Skaggs Investment Management, a division of Asset
Management. His address is One Sansome Street, 38th Floor, San Francisco,
California 94104.
2
<PAGE>
Peter Hable, Investment Officer. Senior Vice President of Davis Skaggs
Investment Management, a division of Asset Management. His address is One
Sansome Street, 38th Floor, San Francisco, California 94104.
Lewis E. Daidone, Treasurer. Managing Director of Smith Barney; Director
and Senior Vice President of Mutual Management Corp., a Smith Barney
affiliate.
Prior to 1990, Senior Vice President and Chief Financial Officer of Cortland
Financial Group, Inc. His address is 1345 Avenue of the Americas, New York,
New
York 10105.
Christina T. Sydor, Secretary. Managing Director of Smith Barney. Her
address is 1345 Avenue of the Americas, New York, New York 10105.
Mr. McLendon, Mr. Treadway and Mr. Roelofs also serve as trustees,
directors and/or general partners of other mutual funds for which Smith Barney
serves as principal underwriter.
As of September 30, 1993, the Directors and officers of the Fund, as a
group, beneficially owned less than 1% of the outstanding common stock of the
Fund.
No officer, director or employee of Smith Barney or Boston Advisors or of
any parent or subsidiary of those corporations receives any compensation from
the Fund for serving as an officer or Director of the Fund. The Fund pays each
Director who is not an officer or employee of Smith Barney or Boston Advisors
or
any of their affiliates a fee of $3,000 per annum plus $500 for each Board
meeting attended and reimburses them for travel and out-of-pocket expenses.
During the fiscal year ended September 30, 1993, such fees and expenses
totalled
$53,719.
INVESTMENT ADVISER--ASSET MANAGEMENT
ADMINISTRATOR--SBA
Asset Management serves as investment adviser to the Fund pursuant to a
written agreement dated July 30, 1993 (the "Advisory Agreement"), which was
most
recently approved by the Board of Directors, including a majority of the
Directors who are not "interested persons" of the Fund or Asset Management, on
April 7, 1993 and by the shareholders of the Fund on June 22, 1993. Asset
Management pays the salary of any officer and employee who is employed by both
it and the Fund. Asset Management bears all expenses in connection with the
performance of its services. The services provided by Asset Management under
the
Advisory Agreement are described in the Prospectus. Asset Management is a
division of SBA. SBA is a wholly-owned subsidiary of Smith Barney Holdings
Inc.
("Holdings"), which is in turn a wholly-owned subsidiary of The Travelers Inc.
("Travelers").
As compensation for Asset Management's services rendered to the Fund, the
Fund pays a fee, computed daily and paid monthly at the annual rate of 0.55%
of
the value of the Fund's average daily net assets. Asset Management bears all
of
its expenses in connection with the performance of its services. For the
fiscal
years ended September 30, 1993, 1992 and 1991, the Fund paid Asset Management
or
its predecessor $759,836, $370,317 and $321,009, respectively, in investment
advisory fees.
SBA serves as administrator to the Fund pursuant to a written agreement
dated June 28, 1994 (the "Administration Agreement"), which was first
approved by the Board of Directors of the Fund, including a majority of
the Directors who are not "interested persons" of the Fund or Smith Barney,
on June 28, 1994. Pursuant to the Administration Agreement, SBA pays
the salaries of all officers and employees who are
3
<PAGE>
employed by both it and the Fund, assists in providing accounting, financial
and
tax support relating to portfolio management, prepares and coordinates
communications to shareholders, and provides the Fund with certain legal,
accounting, financial reporting and corporate secretarial services. As
compensation for SBA's services, the Fund pays a fee, computed daily and paid
monthly, at the annual rate of 0.20% of the value of the Fund's average daily
net assets.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors serves as sub-administrator to the Fund pursuant to a
written agreement dated June 28, 1994 (the "Sub-Administration Agreement"),
which was first approved by the Board of Directors, including a majority of
the
Directors who are not "interested persons" of the Fund, SBA or Boston
Advisors,
on June 28, 1994.
Certain services provided to the Fund by Boston Advisors pursuant to the
Sub-Administration Agreement are described in the Prospectus under "Management
of the Fund." In addition to those services, Boston Advisors pays the salaries
of all officers and employees who are employed by both it and the Fund,
maintains office facilities for the Fund, furnishes the Fund with statistical
and research data, clerical help and accounting, data processing, bookkeeping,
internal auditing and legal services and certain other services required by
the
Fund, prepares reports to the Fund's shareholders and prepares tax returns,
reports to and filings with the Securities and Exchange Commission (the "SEC")
and state blue sky authorities. Boston Advisors bears all expenses in
connection
with the performance of its services. Under the terms of the Sub-
Administration
Agreement, Boston Advisors is compensated in such amounts as the Fund, SBA and
Boston Advisors shall from time to time agree. The compensation of SBA is
reduced by amounts paid to Boston Advisors.
The Fund bears expenses incurred in its operation, including taxes,
interest, brokerage fees and commissions, if any; fees of Directors who are
not
officers, directors, shareholders or employees of Asset Management, Smith
Barney, SBA or Boston Advisors; SEC fees and state blue sky qualification
fees;
charges of custodians; transfer and dividend disbursing agent's fees; certain
insurance premiums; outside auditing and legal expenses; costs of maintenance
of
corporate existence; investor services (including allocated telephone and
personnel expenses); costs of preparation and printing of prospectuses for
regulatory purposes and for distribution to shareholders; cost of
shareholders'
reports and meetings and costs of meetings of the Fund's Board of Directors
and
officers.
Asset Management and SBA have agreed that if in any fiscal year the
aggregate expenses of the Fund (including fees paid pursuant to the Advisory
Agreement and the Administration Agreement, but excluding interest, taxes,
brokerage and, with the prior written consent of the necessary state
securities
commissions, extraordinary expenses) exceed the expense limitation of any
state
having jurisdiction over the Fund, Asset Management and SBA will, to the
extent
required by law, reduce their fees by the amount of such excess expense, such
amount to be allocated between them in the proportion that their respective
fees
bear to the aggregate of such fees paid by the Fund. Such fee reductions, if
any, will be reconciled on a monthly basis. The most restrictive state expense
limitation applicable to the Fund would require Asset Management and SBA to
reduce their fees in any year that such excess expenses exceed 2.5% of the
first
$30 million of average daily net assets, 2% of the next $70 million of average
daily net assets and 1.5% of the remaining average daily net assets. No such
fee
reduction was required for the fiscal years ended September 30, 1993, 1992 and
1991.
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COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. The
Directors
who are not "interested persons" of the Fund have selected Stroock & Stroock &
Lavan as their counsel.
Deloitte & Touche, independent public accountants, 125 Summer Street,
Boston, Massachusetts 02110, serve as auditors of the Fund. Deloitte & Touche
renders an opinion on the Fund's financial statements annually.
--------- INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies
it employs to achieve that objective. The following discussion supplements the
description of the Fund's investment objective and management policies in the
Prospectus.
The Fund's primary investment objective is long-term capital growth.
Current income is a secondary objective. The Fund seeks to achieve its
objective
through investment in common stocks and common stock equivalents, including
preferred stocks and other securities convertible into common stocks. The Fund
also invests to a lesser extent in bonds and other debt instruments. There is
no
guarantee that the Fund will achieve its investment objective.
Asset Management places emphasis on securities which, in its judgment,
are
undervalued in the marketplace and, accordingly, have above-average growth
potential. Undervaluation of a security can result from a variety of factors,
such as a lack of investor recognition of (a) the underlying value of a
company's fixed assets, (b) the value of a consumer or commercial franchise,
(c)
changes in the economic or financial environment particularly affecting a
company, (d) new, improved or unique products or services, (e) new or rapidly
expanding markets, (f) changes in management of a company, (g) technological
developments or advancements affecting a company or its products or (h)
changes
in governmental regulations, political climate or competitive conditions. In
general, the Fund will invest in securities of companies which temporarily are
unpopular among investors but which Asset Management regards as possessing
favorable prospects for earnings growth and/or improvement in the value of
their
assets and, consequently, as having a reasonable likelihood of experiencing a
recovery in market price. Secondary consideration will be given to a company's
dividend record and the potential for an improved dividend return.
Because securities markets typically are influenced (and, to some extent,
dominated) by institutional investors, undervalued securities in which the
Fund
invests may tend to be those of less well-established companies or companies
whose capitalizations are less than the capitalizations of larger, better-
known
companies. To the extent securities held in the Fund's portfolio do not
attract
investor interest, these investments may not participate in rising securities
markets. By the same token, in many instances the selection of undervalued
securities for investment may involve a smaller risk of capital loss because
such lack of investor interest is reflected in the price of the securities at
the time of purchase.
FOREIGN SECURITIES AND AMERICAN DEPOSITARY RECEIPTS
The Fund has the authority to invest up to 25% of its assets in foreign
securities and American Depositary Receipts ("ADRs"). ADRs are
dollar-denominated receipts issued generally by domestic banks
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representing the deposit with the bank of a security of a foreign issuer. ADRs
are publicly traded on exchanges or over-the-counter in the United States.
Investing in the securities of foreign companies involves special risks
and
considerations not typically associated with investing in U.S. companies.
These
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, foreign securities often trade
with
less frequency and volume than domestic securities and therefore may exhibit
greater price volatility. Many of the foreign securities held by the Fund will
not be registered with, nor the issuers thereof be subject to, the reporting
requirements of the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company issuing them
than
is available about a domestic company and its securities. 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. The
Fund may invest in securities of foreign governments (or agencies or
subdivisions thereof), and therefore many, if not all, of the foregoing
considerations apply to such investments as well.
LENDING OF PORTFOLIO SECURITIES
As discussed in the Prospectus, the Fund has the ability to lend
securities
from its portfolio to brokers, dealers and other financial organizations. Such
loans, if and when made, may not exceed 20% of the Fund's total assets. The
Fund
may not lend its portfolio securities to Smith Barney or its affiliates unless
it has applied for and received specific authority from the SEC. Loans of
portfolio securities by the Fund will be collateralized by cash, letters of
credit or securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities ("U.S. government securities"), which will be maintained
at
all times in an amount equal to at least 100% of the current market value of
the
loaned securities. From time to time, the Fund may return a part of the
interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party, which is unaffiliated with the Fund or with
Smith
Barney, and which is acting as a "finder."
In lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when government securities are used
as
collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (a) the Fund must receive at least
100% cash collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (c) the Fund must be able
to terminate the loan at any time; (d) the Fund must receive reasonable
interest
on the loan, as well as an amount equal to any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (e)
the Fund may pay only reasonable custodian fees in connection with the loan;
and
(f) voting rights on the loaned securities may pass to the borrower; however,
if
a material event adversely affecting the investment occurs, the Fund's Board
of
Directors must terminate the loan and regain the right to vote the securities.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral
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<PAGE>
should the borrower fail financially. Loans will be made to firms deemed by
Asset Management or Boston Advisors to be of good standing and will not be
made
unless, in the judgment of Asset Management or Boston Advisors, the
consideration to be earned from such loans would justify the risk.
MONEY MARKET INSTRUMENTS
As stated in the Prospectus, the Fund may invest for defensive purposes
in
corporate and government bonds and notes and money market instruments. Money
market instruments in which the Fund may invest include U.S. government
securities; certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located outside the United
States and subsidiaries located in Canada), domestic branches of foreign
banks,
savings and loan associations and similar institutions; high grade commercial
paper; and repurchase agreements with respect to the foregoing types of
instruments. The following is a more detailed description of such money market
instruments.
Bank Obligations. Certificates of deposit ("CDs") are short-term
negotiable obligations of commercial banks; time deposits ("TD's") are
non-negotiable deposits maintained in banking institutions for specified
periods
of time at stated interest rates; and bankers' acceptances are time drafts
drawn
on commercial banks by borrowers usually in connection with international
transactions.
Domestic banks organized under Federal law are supervised and examined by
the Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
(the "FDIC"). Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of the Federal Reserve
System only if they elect to join. Most state banks are insured by the FDIC
(although such insurance may not be of material benefit to the Fund, depending
upon the principal amounts of CDs of each bank held by the Fund) and are
subject
to Federal examination and to a substantial body of Federal law and
regulation.
As a result of governmental regulations, domestic branches of domestic banks
are
generally required to, among other things, maintain specified levels of
reserves, and are subject to other supervision and regulation designed to
promote financial soundness.
Obligations of foreign branches of domestic banks, such as CDs and TDs,
may
be general obligations of the parent bank in addition to the issuing branch,
or
may be limited by the terms of a specific obligation and government
regulation.
Such obligations are subject to different risks than are those of domestic
banks
or domestic branches of foreign banks. These risks include foreign economic
and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign exchange
controls and foreign withholding and other taxes on interest income. Foreign
branches of domestic banks are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory
reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank than about a domestic
bank.
CDs issued by wholly owned Canadian subsidiaries of domestic banks are
guaranteed as to repayment of principal and interest (but not as to sovereign
risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and by
governmental regulation as well as governmental action in the
country in which the foreign bank has its head office. A
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<PAGE>
domestic branch of a foreign bank with assets in excess of $1 billion may or
may
not be subject to reserve requirements imposed by the Federal Reserve System
or
by the state in which the branch is located if the branch is licensed in that
state. In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states ("State Branches") may or may not be
required to: (a) pledge to the regulator by depositing assets with a
designated
bank within the state, an amount of its assets equal to 5% of its total
liabilities; and (b) maintain assets within the state in an amount equal to a
specified percentage of the aggregate amount of liabilities of the foreign
bank
payable at or through all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be insured by the FDIC. In
addition, there may be less publicly available information about a domestic
branch of a foreign bank than about a domestic bank.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks or by domestic branches of
foreign banks, Asset Management will carefully evaluate such investments on a
case-by-case basis.
Savings and loan associations whose CDs may be purchased by the Fund are
supervised by the Office of Thrift Supervision and are insured by the Savings
Association Insurance Fund, which is administered by the FDIC and is backed by
the full faith and credit of the U.S. government. As a result, such savings
and
loan associations are subject to regulation and examination.
OPTIONS ON SECURITIES
The Fund may engage in the writing of covered call options. The Fund may
also purchase put options and enter into closing transactions.
The principal reason for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a greater return than
would
be realized on the securities alone. In return for a premium, the writer of a
covered call option forfeits the right to any appreciation in the value of the
underlying security above the strike price for the life of the option (or
until
a closing purchase transaction can be effected). Nevertheless, the call writer
retains the risk of a decline in the price of the underlying security.
Similarly, the principal reason for writing covered put options is to realize
income in the form of premiums. The writer of a covered put option accepts the
risk of a decline in the price of the underlying security. The size of the
premiums the Fund may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase
their
option-writing activities.
Options written by the Fund will normally have expiration dates between
one
and six months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying
securities
at the times the options are written. In the case of call options these
exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-
money,"
respectively.
The Fund may write (a) in-the-money call options when Asset Management
expects the price of the underlying security to remain flat or decline
moderately during the option period, (b) at-the-money call options when Asset
Management expects the price of the underlying security to remain flat or
advance moderately during the option period and (c) out-of-the-money call
options when Asset Management expects that the price of the security may
increase but not above a price equal to the sum of the exercise price plus the
premiums received from writing the call option. In any of the preceding
situations, if the market price of the underlying security declines and the
security is sold at this lower price, the amount of any
8
<PAGE>
realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of
call
options as to the relation of exercise price to market price) may be utilized
in
the same market environments as such call options are used in equivalent
transactions.
So long as the obligation of the Fund as the writer of an option
continues,
the Fund may be assigned an exercise notice by the broker-dealer through which
the option was sold, requiring it to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been
assigned
an exercise notice. To secure its obligation to deliver the underlying
security
when it writes a call option, or to pay for the underlying security when it
writes a put option, the Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the
Options
Clearing Corporation ("Clearing Corporation") or similar clearing corporation
and the securities exchange on which the option is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities exchange or
in the over-the-counter market. The Fund expects to write options only on
national securities exchanges or in the over-the-counter market. The Fund may
purchase put options issued by the Clearing Corporation or in the
over-the-counter market.
The Fund may realize a profit or loss upon entering into a closing
transaction. In cases in which the Fund has written an option, it will realize
a
profit if the cost of the closing purchase transaction is less than the
premium
received upon writing the original option and will incur a loss if the cost of
the closing purchase transaction exceeds the premium received upon writing the
original option. Similarly, when the Fund has purchased an option and engages
in
a closing sale transaction, whether it recognizes a profit or loss will depend
upon whether the amount received in the closing sale transaction is more or
less
than the premium the Fund initially paid for the original option plus the
related transaction costs.
Although the Fund generally will purchase or write only those options for
which Asset Management believes there is an active secondary market so as to
facilitate closing transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will
exist
for any particular option or at any particular time, and for some options no
such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, have
at
times rendered certain of the facilities of the Clearing Corporation and
national securities exchanges inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types
of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held
or written, or exercised within certain periods, by an investor or
group of investors acting in concert (regardless of whether the options
are written on the same or different securities exchanges or are held,
written or exercised in one or more accounts or through one or more
9
<PAGE>
brokers). It is possible that the Fund and other clients of Asset Management
and
certain of their affiliates may be considered to be such a group. A securities
exchange may order the liquidation of positions found to be in violation of
these limits, and it may impose certain other sanctions.
In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or
debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stocks with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery
in
accordance with an exercise notice. In these instances, the Fund may purchase
or
temporarily borrow the underlying securities for purposes of physical
delivery.
By so doing, the Fund will not bear any market risk because the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expenses in connection with any such
purchase or borrowing.
Although Asset Management will attempt to take appropriate measures to
minimize the risks relating to the Fund's writing of call options and
purchasing
of put and call options, there can be no assurance that the Fund will succeed
in
its option-writing program.
STOCK INDEX OPTIONS
The Fund may purchase put and call options and write call options on
domestic stock indexes listed on domestic exchanges in order to realize its
investment objective of capital appreciation or for the purpose of hedging its
portfolio. A stock index fluctuates with changes in the market values of the
stocks included in the index. Some stock index options are based on a broad
market index such as the New York Stock Exchange Composite Index or the
Canadian
Market Portfolio Index, or a narrower market index such as the Standard &
Poor's
100. Indexes also are based on an industry or market segment such as the
American Stock Exchange Oil and Gas Index or the Computer and Business
Equipment
Index.
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock
index
gives the holder the right to receive a cash "exercise settlement amount"
equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by
(b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of
the
option expressed in dollars or a foreign currency, as the case may be, times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging
technique will depend upon the extent to which price movements in the portion
of
the securities portfolio of the Fund correlate with price movements of the
stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
stock, whether the Fund will realize a gain or loss from the purchase or
writing
of options on an index depends upon movements in the level of stock prices in
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the stock market generally or, in the case of certain indexes, in an industry
or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Fund of options on stock indexes will be
subject to Asset Management's ability to predict correctly movements in the
direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price
of
individual stocks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may invest in stock index futures contracts and options on
futures
contracts that are traded on a domestic exchange or board of trade. These
investments may be made by the Fund solely for the purpose of hedging against
changes in the value of its portfolio securities due to anticipated changes in
interest rates and market conditions and not for purposes of speculation. In
entering into transactions involving futures contracts and options on futures
contracts, the Fund will comply with applicable requirements of the
Commodities
Futures Trading Commission (the "CFTC") which require that its transactions in
futures and options be engaged in for "bona fide hedging" purposes or other
permitted purposes, provided that aggregate initial margin deposits and
premiums
required to establish positions other than those considered by the CFTC to be
"bona fide hedging" will not exceed 5% of the Fund's net asset value, after
taking into account unrealized profits and unrealized losses on any such
contracts.
The purpose of entering into a futures contract by the Fund is to protect
the Fund from fluctuations in the value of securities without actually buying
or
selling the securities. For example, in the case of stock index futures
contracts, if the Fund anticipates an increase in the price of stocks that it
intends to purchase at a later time, the Fund could enter into contracts to
purchase the stock index (known as taking a "long" position) as a temporary
substitute for the purchase of stocks. If an increase in the market occurs
that
influences the stock index as anticipated, the value of the futures contracts
increases and thereby serves as a hedge against the Fund's not participating
in
a market advance. The Fund then may close out the futures contracts by
entering
into offsetting futures contracts to sell the stock index (known as taking a
"short" position) as it purchases individual stocks. The Fund can accomplish
similar results by buying securities with long maturities and selling
securities
with short maturities. But by using futures contracts as an investment tool to
reduce risk, given the greater liquidity in the futures market than in the
cash
market, it may be possible to accomplish the same result more easily and more
quickly.
No consideration will be paid or received by the Fund upon the purchase
or
sale of a futures contract. Initially, the Fund will be required to deposit
with
the broker an amount of cash or cash equivalents equal to approximately 1% to
10% of the contract amount (this amount is subject to change by the exchange
or
board of trade on which the contract is traded and brokers or members of such
board of trade may charge a higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on
the
contract which is returned to the Fund, upon termination of the futures
contract, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and from the broker,
will be made daily as the price of the index or securities underlying the
futures contract fluctuates, making the long and short positions in the
futures
contract more or less valuable, a process known as "marking-to-market." In
addition, when the Fund enters into a long position in a futures contract
or an option on a futures contract, it must deposit into a segregated account
with the Fund's custodian an amount of cash or cash equivalents equal to the
total market value of the underlying futures contract, less amounts held in
the Fund's commodity brokerage account at its broker. At any time prior to the
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<PAGE>
expiration of a futures contract, the Fund may elect to close the position by
taking an opposite position, which will operate to terminate the Fund's
existing
position in the contract.
There are several risks in connection with the use of futures contracts
as
a hedging device. Successful use of futures contracts by the Fund is subject
to
the ability of Asset Management to predict correctly movements in the stock
market or in the direction of interest rates. These predictions involve skills
and techniques that may be different from those involved in the management of
investments in securities. In addition, there can be no assurance that there
will be a perfect correlation between movements in the price of the securities
underlying the futures contract and movements in the price of the securities
that are the subject of the hedge. A decision of whether, when and how to
hedge
involves the exercise of skill and judgment, and even a well-conceived hedge
may
be unsuccessful to some degree because of market behavior or unexpected trends
in market behavior or interest rates.
Positions in futures contracts may be closed out only on the exchange on
which they were entered into (or through a linked exchange) and no secondary
market exists for those contracts. In addition, although the Fund intends to
enter into futures contracts only if there is an active market for the
contracts, there is no assurance that an active market will exist for the
contracts at any particular time. Most futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit. It is
possible that futures contract prices could move 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. In such event, and in the event of adverse price
movements,
the Fund would be required to make daily cash payments of variation margin; in
such circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may partially or completely offset losses on the futures
contract. As described above, however, no assurance can be given that the
price
of the securities being hedged will correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures contract.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the
protection of shareholders. Restrictions 1 through 9 cannot be changed without
approval by the holders of a majority of the outstanding shares of the Fund,
defined as the lesser of (a) 67% of the Fund's shares present at a meeting, if
the holders of more than 50% of the outstanding shares are present in person
or
by proxy, or (b) more than 50% of the Fund's outstanding shares. The remaining
restrictions may be changed by the Fund's Board of Directors at any time. The
Fund may not:
1. With respect to 75% of the value of its total assets, invest
more
than 5% of its total assets in securities of any one issuer, except
securities issued or guaranteed by the U.S. government, or purchase more
than 10% of the outstanding voting securities of such issuer.
2. Issue senior securities as defined in the 1940 Act and any rules
and orders thereunder, except insofar as the Fund may be deemed to have
issued senior securities by reason of: (a) borrowing money or purchasing
securities on a when-issued or delayed-delivery basis; (b) purchasing or
selling futures contracts and options on futures contracts and other
similar instruments; and (c) issuing separate classes of shares.
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3. Invest more than 25% of its total assets in securities, the
issuers of which are in the same industry. For purposes of this
limitation,
U.S. government securities and securities of state or municipal
governments
and their political subdivisions are not considered to be issued by
members
of any industry.
4. Borrow money, except that the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting
of
redemption requests which might otherwise require the untimely
disposition
of securities, in an amount not exceeding 10% of the value of the Fund's
total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
is made. Whenever borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not make any additional investments.
5. Engage in the business of underwriting securities issued by
other
persons, except to the extent that the Fund may technically be deemed to
be
an underwriter under the Securities Act of 1933, as amended, in disposing
of portfolio securities.
6. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
portfolio securities) or sell any securities short (except against the
box). For purposes of this restriction, the deposit or payment by the
Fund
of initial or maintenance margin in connection with futures contracts and
related options and options on securities is not considered to be the
purchase of a security on margin.
7. Purchase or sell real estate, real estate mortgages, commodities
or commodity contracts, but this shall not prevent the Fund from: (a)
investing in real estate investment trust securities traded on the New
York
Stock Exchange, Inc. ("NYSE"), American Stock Exchange or the National
Association of Securities Dealers, Inc.'s Automated Quotation System; (b)
investing in securities of issuers engaged in the real estate business
and
securities which are secured by real estate or interests therein; or (c)
holding or selling real estate received as a result of a default on
securities it holds.
8. Make loans of its funds or securities. This restriction does not
apply to: (a) the purchase of debt obligations in which the Fund may
invest
consistent with its investment objective and policies; (b) repurchase
agreements; and (c) loans of its portfolio securities as described in the
Prospectus and in this Statement of Additional Information under
"Investment Objective and Management Policies."
9. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof or engage in transactions involving futures
contracts
and related options, except as permitted under the Fund's investment
goals
and policies.
10. Invest more than 5% of the value of the Fund's total assets in
the securities of any issuer which has been in continuous operation for
less than three years. This restriction does not apply to U.S. government
securities.
11. Invest in other investment companies (except as part of a
merger,
consolidation, reorganization or acquisition of assets).
12. Invest in interests in oil, gas or other mineral exploration or
development programs (except that the Fund may invest in the securities
of
issuers which operate, invest in or sponsor such programs).
13
<PAGE>
13. Purchase or retain the securities of any issuer if, to the
knowledge of the Fund, any officer or Director of the Fund or of Asset
Management owns beneficially more than 1/2 of 1% of the outstanding
securities of such issuer and the persons so owning more than 1/2 of 1%
of
such securities together own beneficially more than 5% of such
securities.
14. Purchase warrants if, thereafter, more than 2% of the value of
the Fund's net assets would consist of such warrants, but warrants
attached
to other securities or acquired in units by the Fund are not subject to
this restriction.
15. Purchase or otherwise acquire any security if, as a result,
more
than 15% of its net assets would be invested in securities that are
illiquid.
16. Invest in any company for the purpose of exercising control or
management.
17. Purchase or sell real estate limited partnership interests.
Certain restrictions listed above permit the Fund without shareholder
approval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current investment
practices as otherwise described in the Prospectus and this Statement of
Additional Information and any future change in those practices would require
Board approval. If any percentage restriction described above is complied with
at the time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a violation of
the restriction. The Fund may make commitments more restrictive than the
fundamental restrictions listed above so as to permit the sale of Fund shares
in
certain states. Should the Fund determine that any such commitment is no
longer
in the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the states involved.
PORTFOLIO TURNOVER
While the Fund does not intend to trade in securities for short-term
profits, securities may be sold without regard to the amount of time they have
been held by the Fund when warranted by the circumstances. The Fund's
portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of
portfolio securities for a year by the monthly average value of portfolio
securities for the year. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation. A portfolio
turnover rate of 100% would occur, for example, if all the securities in the
Fund's portfolio were replaced once during a period of one year. A high rate
of
portfolio turnover in any year will increase brokerage commissions paid and
could result in high amounts of realized investment gain subject to the
payment
of taxes by shareholders. Any realized short-term investment gain will be
taxed
to shareholders as ordinary income. For the 1993 and 1992 fiscal years, the
Fund's portfolio turnover rates were 111% and 142%, respectively.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by Asset
Management, subject to the overall supervision and review of the Fund's Board
of
Directors. Portfolio securities transactions for the Fund are effected by or
under the supervision of Asset Management.
14
<PAGE>
Transactions on stock exchanges involve the payment of negotiated
brokerage
commissions. There generally is no stated commission in the case of securities
traded in the over-the-counter markets, but the price of those securities
includes an undisclosed commission or mark-up. Over-the-counter purchases and
sales are transacted directly with principal market makers except in those
cases
in which better prices and executions may be obtained elsewhere. The cost of
securities purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. For the fiscal years ended
September 30, 1993, 1992 and 1991, the Fund paid total brokerage commissions
of
$531,478, $218,116 and $244,425 respectively.
In executing portfolio transactions and selecting brokers or dealers, it
is
the Fund's policy to seek the best overall terms available. The Advisory
Agreement between the Fund and Asset Management provides that, in assessing
the
best overall terms available for any transaction, Asset Management shall
consider the factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission,
if
any, for the specific transaction and on a continuing basis. In addition, the
Advisory Agreement authorizes Asset Management, in selecting brokers or
dealers
to execute a particular transaction and in evaluating the best overall terms
available, to consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to
the
Fund and/or other accounts over which Asset Management or an affiliate
exercises
investment discretion.
The Fund's Board of Directors periodically will review the commissions
paid
by the Fund to determine if the commissions paid over representative periods
of
time were reasonable in relation to the benefits inuring to the Fund. It is
possible certain of the services received will primarily benefit one or more
other accounts for which investment discretion is exercised. Conversely, the
Fund may be the primary beneficiary of services received as a result of
portfolio transactions effected for other accounts. Asset Management's fee
under
the Advisory Agreement is not reduced by reason of Asset Management's
receiving
such brokerage and research services. Further, Smith Barney will not
participate
in commissions from brokerage given by the Fund to other brokers or dealers
and
will not receive any reciprocal brokerage business resulting therefrom.
The Fund's Board of Directors has determined that any portfolio
transaction
for the Fund may be executed through Smith Barney if, in Asset Management's
judgment, the use of Smith Barney is likely to result in price and execution
at
least as favorable as those of other qualified brokers, and if in the
transaction, Smith Barney charges the Fund a commission rate consistent with
those charged by Smith Barney to comparable unaffiliated customers in similar
transactions. In addition, under rules recently adopted by the SEC, Smith
Barney
may directly execute such transactions for the Fund on the floor of any
national
securities exchange, provided: (i) the Board of Directors has expressly
authorized Smith Barney to effect such transactions; and (ii) Smith Barney
annually advises the Fund of the aggregate compensation it earned on such
transactions. For the fiscal years ended September 30, 1993, 1992 and 1991,
the
Fund paid $21,074, $30,000, and $21,921, respectively, in brokerage
commissions
to Smith Barney (formerly Shearson Lehman Brothers.) For the 1993 fiscal year,
Smith Barney received 4.0% of the brokerage commissions paid by the Fund and
effected 2.3% of the total dollar amount of the Fund's transactions involving
the payment of brokerage commissions.
While investment decisions for the Fund are made independently from those
of the other accounts managed by Asset Management, or certain affiliates of
Asset Management, investments of the type the Fund may make also may be made
by
such other accounts. In such instances, available investments or
15
<PAGE>
opportunities for sales will be allocated in a manner believed by Asset
Management to be equitable to each. In some cases, this procedure may
adversely
affect the price paid or received by the Fund or the size of the position
obtained for or disposed of by the Fund.
--------- PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the
Prospectus
applies to purchases made by any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual, his or her immediate family
purchasing shares for his or her own account; (c) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account; (d) a
pension, profit-sharing or other employee benefit plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and
qualified employee benefit plans of employers who are "affiliated persons" of
each other within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; (f) any other organized
group of persons, provided the organization has been in existence for at least
six months and was organized for a purpose other than the purchase of
investment
company securities at a discount; and (g) a trustee or other professional
fiduciary (including a bank or an investment adviser registered with the SEC
under the Investment Advisers Act of 1940, as amended) purchasing shares of
the
Fund for one or more trust estates or fiduciary accounts. Purchasers who wish
to
combine purchase orders to take advantage of volume discounts on Class A
shares
should contact their Smith Barney Financial Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in Class A
shares of the Fund and in Class A shares of other funds in the Smith Barney
Shearson Group of Funds that are sold with a sales charge, including the
purchase being made, to any "purchaser" (as defined above) is $25,000 or more.
The reduced sales charge is subject to confirmation of the shareholder's
holdings through a check of appropriate records. The Fund reserves the right
to
terminate or amend the combined rights of accumulation at any time after
notice
to shareholders. For further information regarding the right of accumulation,
shareholders should contact their Smith Barney Financial Consultants.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The
public
offering price per Class A share of the Fund is the net asset value per share
at
the time of purchase plus a sales charge based on the aggregate amount of the
investment. The public offering price per Class B share and Class D share (and
Class A share purchases, including applicable rights of accumulation,
equalling
or exceeding $1 million), is equal to the net asset value per share at the
time
of purchase and no sales charge is imposed at the time of purchase. A
contingent
deferred sales charge ("CDSC"), however, is imposed on certain redemptions of
Class B shares and Class A shares when purchased in amounts equalling or
exceeding $1 million. The method of computing the public offering price is
shown
in the Fund's financial statements incorporated by reference into this
Statement
of Additional Information.
16
<PAGE>
--------- REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any periods during which the NYSE is closed (other than for customary
weekend and holiday closings), (b) when trading in the markets the Fund
normally
utilizes is restricted, or an emergency exists as determined by the SEC so
that
disposal of the Fund's investments or determination of its net asset value is
not reasonably practicable or (c) for such other periods as the SEC by order
may
permit for the protection of the Fund's shareholders.
DISTRIBUTIONS IN KIND
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make a redemption
payment wholly in cash, the Fund may pay, in accordance with rules adopted by
the SEC, any portion of a redemption in excess of the lesser of $250,000 or 1%
of the Fund's net assets by a distribution in kind of portfolio securities in
lieu of cash. Portfolio securities issued in a distribution in kind will be
readily marketable, although shareholders receiving distributions in kind may
incur brokerage commissions when subsequently disposing of those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
periodically. Withdrawals of at least $50 monthly may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary to
cover the stipulated withdrawal payment. Any applicable CDSC will not be
waived
on amounts withdrawn by shareholders that exceed 2% per month of the value of
a
shareholder's shares at the time the Withdrawal Plan commences. To the extent
withdrawals exceed dividends, distributions and appreciation of a
shareholder's
investment in the Fund, there will be a reduction in the value of the
shareholder's investment and continued withdrawal payments may reduce the
shareholder's investment and ultimately exhaust it. Withdrawal payments should
not be considered as income from investment in the Fund. Furthermore, as it
generally would not be advantageous to a shareholder to make additional
investments in the Fund at the same time he or she is participating in the
Withdrawal Plan, purchases by such shareholders in amounts of less than $5,000
ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with
TSSG
as agent for Withdrawal Plan members. All dividends and distributions on
shares
in the Withdrawal Plan are automatically reinvested at net asset value in
additional shares of the Fund. All applications for participation in the
Withdrawal Plan must be received by TSSG as Withdrawal Plan agent no later
than
the eighth day of the month to be eligible for participation beginning with
that
month's withdrawal. The Withdrawal Plan will not be carried over on exchanges
between Funds or classes ("Classes"). A new Withdrawal Plan application is
required to establish the Withdrawal Plan in the new fund or Class. For
additional information, shareholders should contact their Smith Barney
Financial
Consultants.
17
<PAGE>
--------- DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis
pursuant to a written distribution agreement (the "Distribution Agreement").
For
the fiscal years ended September 30, 1993, 1992 and 1991, Smith Barney
(formerly
Shearson Lehman Brothers) received $568,544, $650,569 and $117,352,
respectively, in sales charges for the sale of the Fund's Class A shares, and
did not reallow any portion thereof to dealers. For the period from November
6,
1992 (commencement of operations -- Class B) through September 30, 1993, Smith
Barney (formerly Shearson Lehman Brothers) received $36,283 representing CDSC
fees on redemptions of the Fund's Class B shares.
Smith Barney forwards investors' funds for the purchase of Fund shares
five
business days after placement of purchase orders (that is, the "settlement
date"). When payment is made by the investor before the settlement date,
unless
otherwise directed by the investor, the funds will be held as a free credit
balance in the investor's brokerage account, and Smith Barney may benefit from
the temporary use of the funds. The investor may designate another use for the
funds prior to the settlement date, such as an investment in a money market
fund
(other than the Smith Barney Shearson Money Market Fund) in the Smith Barney
Shearson Group of Funds. If the investor instructs Smith Barney to invest the
funds in a money market fund, the amount of the investment will be included as
part of the average daily net assets of both the Fund and the money market
fund
in the Smith Barney Shearson Group of Funds, and affiliates of Smith Barney
which serve the funds in an investment advisory capacity will benefit from the
fact that they are receiving fees from both such investment companies for
managing these assets computed on the basis of their average daily net assets.
The Fund's Board of Directors has been advised of the benefits to Smith Barney
resulting from five-day settlement procedures and will take such benefits into
consideration when reviewing the Advisory and Distribution Agreements for
continuance.
DISTRIBUTION ARRANGEMENTS
Shares of the Fund are distributed on a best efforts basis by Smith
Barney
as exclusive sales agent of the Fund pursuant to the Distribution Agreement.
To
compensate Smith Barney for the services it provides and for the expense it
bears under the Distribution Agreement, the Fund has adopted a services and
distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Under
the Plan, the Fund pays Smith Barney a service fee, accrued daily and paid
monthly, calculated at the annual rate of 0.25% of the value of the Fund's
average daily net assets attributable to the Class A, Class B and Class D
shares. In addition, Class B and Class D shares pay a distribution fee
primarily
intended to compensate Smith Barney for its initial expense of paying
Financial
Consultants a commission upon sales of the respective shares. The Class B and
Class D distribution fees, accrued daily and paid monthly, are calculated at
the
annual rate of 0.75% of the value of the Fund's average net assets
attributable
to the shares of the respective Class. For the period from November 6, 1992
(commencement of the Plan) through September 30, 1993, the Fund's Class A and
Class B shares paid $221,295 and $103,220, respectively, in service fees. For
the same period, the Fund's Class B shares paid $309,660 in distribution fees.
For the period from August 10, 1993 (commencement of operations -- Class D)
through September 30, 1993, the Fund's Class D shares paid $96 in service
fees.
For the same period the Fund's Class D shares paid $289 in distribution fees.
Under its terms, the Plan continues from year to year, provided
such continuance is approved annually by vote of the Fund's Board
of Directors, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan (the
18
<PAGE>
"Independent Directors"). The Plan may not be amended to increase the amount
to
be spent for the services provided by Smith Barney without shareholder
approval,
and all amendments of the Plan also must be approved by the Directors in the
manner described above. The Plan may be terminated with respect to a class at
any time, without penalty, by vote of a majority of the Independent Directors
or
by a vote of a majority of the outstanding voting securities of the Class (as
defined in the 1940 Act) on not more than 30 days' written notice to any other
party to the Plan. Pursuant to the Plan, Smith Barney will provide the Board
of
Directors with periodic reports of amounts expended under the Plan and the
purpose for which such expenditures were made.
--------- VALUATION OF SHARES
The Prospectus discusses the time at which the net asset value of shares
of
each Class is determined for purposes of sales and redemptions. Because of the
differences in distribution fees and Class-specific expenses, the per share
net
asset value of each Class will differ. The following is a description of the
procedures used by the Fund in valuing its assets.
Each security, including covered options, in the Fund's portfolio which
is
listed or traded on any securities exchange is valued at the last reported
sale
price on the principal exchange on which it is listed or traded. Securities
(except covered options) for which there were no exchange trades, or which are
traded in the over-the-counter market, are valued at the last reported bid
price. Options, in the absence of a sale price, are valued at the last offered
price. Securities for which market quotations are not readily available or
which
are not readily marketable, and all other assets of the Fund, are valued at
fair
value as determined in good faith by the Board of Directors. Short-term
securities with maturities of 60 days or less are valued at amortized cost,
which constitutes fair value as determined by the Board of Directors.
Amortized
cost involves valuing an instrument at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument.
Premiums received for writing options are included as an asset and an
equivalent liability and recorded in the Fund's Statement of Assets and
Liabilities. The liability is subsequently marked-to-market to reflect the
current value of the options written. If an option expires or the Fund enters
into a closing transaction, the Fund will realize a gain or loss without
regard
to any unrealized gain or loss on the underlying security, and the liability
related to the option will expire. If the option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security equal to the
difference between the cost of the security and the proceeds of the sale plus
the premium originally received.
--------- EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund in the Smith Barney
Shearson Group of Funds may exchange all or part of their shares for shares of
the same Class of other funds in the Smith Barney Shearson Group of Funds, to
the extent such shares are offered for sale in the shareholder's state of
residence, on the basis of relative net asset value per share at the time of
exchange as follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds, and
the sales charge differential, if any, will be applied.
Class A shares of any fund may be exchanged without a sales
charge for shares of the funds that are offered without
19
<PAGE>
a sales charge. Class A shares of any fund purchased without a sales
charge may be exchanged for shares sold with a sales charge, and the
appropriate sales charge differential will be applied.
B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of
any of the other funds, and the sales charge differential, if any,
will
be applied.
C. Class B shares of any fund may be exchanged without a sales charge.
Class B shares of a fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the two funds and,
for
purposes of calculating CDSC rates and conversion periods, will be
deemed to have been held since the date the shares being exchanged
were
purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney Shearson High Income Fund and the
account number in order to accomplish an exchange of shares of the High Income
Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
class in a fund with different investment objectives when they believe a shift
between funds is an appropriate investment decision. This privilege is
available
to shareholders residing in any state in which the fund shares being acquired
may legally be sold. Prior to any exchange, the investor should obtain and
review a copy of the current prospectus of each fund into which an exchange is
being considered. Prospectuses may be obtained from any Smith Barney Financial
Consultant.
Upon receipt of proper instructions and all necessary supporting
documents,
shares submitted for exchange are redeemed at the then-current net asset value
and, subject to any applicable CDSC, the proceeds are immediately invested, at
a
price as described above, in shares of the fund being acquired. Smith Barney
reserves the right to reject any exchange request. The exchange privilege may
be
modified or terminated at any time after notice to shareholders.
--------- PERFORMANCE DATA
From time to time, the Fund may quote total return in advertisements or
in
reports and other communications to shareholders. To the extent any
advertisement or sales literature of the Fund describes the expenses or
performance of a Class, it will also disclose such information for the other
Classes.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
P(1 + T)n = ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment
made at the beginning of the 1-, 5-or 10-year
period at the end
of the 1-, 5-or 10-year period (or fractional
portion thereof),
assuming reinvestment of all dividends and
distributions.
</TABLE>
20
<PAGE>
The following total return figures calculated in accordance with the
above
formula assume that the maximum sales charge of 5.00% or maximum applicable
CDSC
of 5.00%, as the case may be, has been deducted from the hypothetical $1,000
initial investment at the time of purchase.
For Class A shares of the Fund, the average annual total return was as
follows for the periods indicated:
18.96% for the one-year period from October 1, 1992
through September 30, 1993;
13.32% for the five-year period from October 1, 1988
through September 30, 1993;
12.42% per annum during the ten-year period from October 1, 1983
through September 30, 1993.
AGGREGATE TOTAL RETURN
Aggregate total return figures represent the cumulative change in the
value
of an investment in the Class for the specified period and are computed by the
following formula:
AGGREGATE TOTAL RETURN = ERV-P
-----
P
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment
made at the beginning of the 1-, 5-or 10-year
period at the end
of the 1-, 5-or 10-year period (or fractional
portion thereof),
assuming reinvestment of all dividends and
distributions.
</TABLE>
The aggregate total returns for Class A shares of the Fund were as
follows
for the periods indicated:
25.23% for the one-year period from October 1, 1992 through
September 30, 1993;
96.70% for the five-year period from October 1, 1988 through
September 30, 1993;
239.45% for the ten-year period from October 1, 1983 through
September 30, 1993.
These aggregate total return figures do not assume that the maximum 5.00%
sales charge has been deducted from the investment at the time of purchase. If
the maximum sales charge had been deducted at the time of purchase, the Class
A
shares aggregate total return for the same periods would have been 18.96%,
86.86% and 222.47%, respectively.
The aggregate total return for Class B shares for the period November 6,
1992 (commencement of operations) through September 30, 1993 was 22.82%.
Assuming redemption at the end of the period and deduction of the maximum CDSC
of 5.00% upon redemption, the aggregate total return would have been 17.82%.
The aggregate total return for Class D shares for the period August 10,
1993 (commencement of operations) through September 30, 1993 was 2.70%. Class
D
shares are sold at net asset value without any sales charge or CDSC.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future
performance.
A Class' performance will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses
and the expenses exclusively attributable to the Class. Consequently,
any given performance quotation should not be considered representative
of the Class performance for any specified period in the future. Because
performance will vary, it may not provide a basis for comparing an investment
in the Class with certain bank deposits or other investments that pay a
21
<PAGE>
fixed yield for a stated period of time. Investors comparing the Class'
performance with that of other mutual funds should give consideration to the
quality of the respective investment companies' portfolio securities.
--------- TAXES
The following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended as
a
substitute for individual tax advice and investors are urged to consult their
own tax advisors as to the tax consequences of an investment in the Fund.
TAX STATUS OF FUND
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Provided the Fund (a) is a
regulated investment company and (b) distributes at least 90% of its net
investment income (including, for this purpose, net realized short-term
capital
gains), the Fund will not be liable for Federal income taxes to the extent its
net investment income and its net realized long-and short-term capital gains,
if
any, are distributed to its shareholders. Although the Fund expects to be
relieved of all or substantially all Federal, state, and local income or
franchise taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Fund would reduce the amount of income and gains
available for distribution to shareholders. All of a shareholder's dividends
and
distributions payable by the Fund will be reinvested automatically in
additional
shares of the same Class of the Fund at net asset value, unless the
shareholder
elects to receive dividends and distributions in cash.
TAXATION OF INVESTMENT BY THE FUND
Gain or loss on the sale of a security by the Fund generally will be
long-term capital gain or loss if the Fund has held the securities for more
than
one year. Gain or loss on the sale of securities held for not more than one
year
will be short-term. If the Fund acquires a debt security at a substantial
discount, a portion of any gain upon the sale or redemption will be taxed as
ordinary income, rather than capital gain to the extent it reflects accrued
market discount.
Dividends of net investment income and distributions of net realized
short-term capital gains will be taxable to shareholders as ordinary income
for
Federal income tax purposes, whether received in cash or reinvested in
additional shares. Dividends received by corporate shareholders will qualify
for
the dividends-received deduction only to the extent that the Fund designates
the
amount distributed as a dividend and the amount so designated does not exceed
the aggregate amount of dividends received by the Fund from domestic
corporations for the taxable year. The Federal dividends-received deduction
for
corporate shareholders may be further reduced or disallowed if the shares with
respect to which dividends are received are treated as debt-financed or are
deemed to have been held for less than 46 days.
Foreign countries may impose withholding and other taxes on dividends and
interest paid to the Fund with respect to investments in foreign securities.
However, certain foreign countries have entered into tax conventions with the
United States to reduce or eliminate such taxes.
Distributions of long-term capital gains will be taxable to shareholders
as such, whether paid in cash or reinvested in additional shares and
regardless of the length of time that the shareholder has held his or
her interest in the Fund. If a shareholder receives a distribution
taxable as long-term capital gain with respect to
22
<PAGE>
his or her investment in the Fund and redeems or exchanges the shares before
he
or she has held them for more than six months, any loss on the redemption or
exchange that is less than or equal to the amount of the distribution will be
treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring or redeeming
shares
of the Fund, and (b) disposes of those shares and acquires within 90 days
after
the original acquisition shares in a mutual fund for which the otherwise
applicable sales charge is reduced by a reason of reinvestment right (i.e., an
exchange privilege), the original sales charge increases the shareholder's tax
basis in the original shares only to the extent the otherwise applicable sales
charge for the second acquisition is not reduced. The portion of the original
sales charge that does not increase the shareholder's tax basis in the
original
shares would be treated as incurred with respect to the second acquisition
and,
as a general rule, would increase the shareholder's tax basis in the newly
acquired shares. Furthermore, the same rule also applies to a disposition of
the
newly acquired or redeemed shares made within 90 days of the second
acquisition.
This provision prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment in a family of mutual funds.
Investors considering buying shares of the Fund just prior to a record
date
for a taxable dividend or capital gain distribution should be aware that,
regardless of whether the price of the Fund shares to be purchased reflects
the
amount of the forthcoming dividend or distribution payment, any such payment
will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification
number,
fails to report his or her dividend or interest income in full, or fails to
certify that he or she has provided a correct taxpayer identification number,
and that he or she is not subject to such withholding, the shareholder may be
subject to a 31% "backup withholding" tax with respect to (a) any taxable
dividends and distributions and (b) any proceeds of any redemption of Fund
shares. An individual's taxpayer identification number is his or her social
security number. The 31% backup withholding tax is not an additional tax and
may
be credited against a shareholder's regular Federal income tax liability.
Options Transactions. The tax consequences of options transactions
entered
into by the Fund will vary depending on the nature of the underlying security
and whether the "straddle" rules, discussed separately below, apply to the
transaction. When the Fund writes a call or put option on an equity or debt
security, it will receive a premium that will, subject to the "section 1256
contract" and straddle rules discussed below, be treated as follows for tax
purposes. If the option expires unexercised, or if the Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the
cost
of the closing purchase transaction exceeds the amount of the premium) without
regard to any unrealized gain or loss on the underlying security. Any such
gain
or loss will be short-term capital gain or loss, except that any loss on a
"qualified" covered call option not treated as part of a straddle may be
treated
as long-term capital loss. If a call option written by the Fund is exercised,
the Fund will recognize a capital gain or loss from the sale of the underlying
security, and will treat the premium as additional sales proceeds. Whether the
gain or loss will be long-term or short-term will depend on the holding period
of the underlying security. If a put option written by the Fund is exercised,
the amount of the premium will reduce the tax basis of the security the Fund
then purchases.
The Code imposes a special "mark-to-market" system for taxing
section 1256 contracts which include options on nonconvertible debt
securities (including U.S. government securities). In general, gain or
loss with respect to section 1256 contracts will be taken into account
for tax purposes when actually realized (by a closing transaction, by
exercise,
by taking delivery or by other termination). In addition, any section 1256
23
<PAGE>
contracts held at the end of a taxable year will be treated as sold at their
year-end fair market value (that is, marked-to-market), and the resulting gain
or loss will be recognized for tax purposes. Provided section 1256 contracts
are
held as capital assets and are not part of a straddle, both the realized and
unrealized year-end gain or loss from these investment positions (including
premiums on options that expire unexercised) will be treated as 60% long-term
and 40% short-term capital gain or loss, regardless of the period of time
particular positions are actually held by the Fund.
In order to continue to qualify as a regulated investment company, the
Fund
may have to limit its transactions in section 1256 contracts.
Straddles. The Code contains rules applicable to "straddles," that is,
"offsetting positions in actively traded personal property." Such personal
property includes offsetting puts of the same class, section 1256 contracts or
other investment contracts. Where applicable, the straddle rules generally
override the other provisions of the Code. In general, investment positions
will
be offsetting if there is a substantial diminution in the risk of loss from
holding one position by reason of holding one or more other positions
(although
certain covered call options would not be treated as part of a straddle). The
Fund is authorized to enter into covered call and covered put positions.
Depending on what other investments are held by the Fund, at the time it
enters
into one of the above transactions, the Fund may create a straddle for
purposes
of the Code.
If two (or more) positions constitute a straddle, recognition of a
realized
loss from one position (including a marked-to-market loss) must be deferred to
the extent of unrecognized gain in an offsetting position. Also, long-term
capital gain may be recharacterized as short-term capital gain, or short-term
capital loss as long-term capital loss. Furthermore, interest and other
carrying
charges allocable to personal property that is part of a straddle must be
capitalized.
If the Fund chooses to identify a particular offsetting position as being
one component of a straddle, a realized loss on any component of the straddle
will be recognized no earlier than upon the liquidation of all of the
components
of the straddle. Special rules apply to "mixed" straddles (that is, straddles
consisting of a section 1256 contract and an offsetting position that is not a
section 1256 contract). If the Fund makes certain elections, the section 1256
contract components of such mixed straddles will not be subject to the 60%/40%
mark-to-market rules. If any such election is made, the amount, the nature (as
long-or short-term) and the timing of the recognition of the Fund's gains or
losses from the affected straddle positions will be determined under rules
that
will vary according to the type of election made.
Wash Sales. "Wash sale" rules will apply to prevent the recognition of
loss with respect to a position where an identical or substantially identical
position is or has been acquired within a prescribed period.
The foregoing is only a summary of certain Federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax
advisors with specific reference to their own tax situations, including their
state and local tax liabilities.
--------- CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as the custodian of the Fund.
Under the Fund's custody agreement, Boston Safe holds the Fund's portfolio
securities and keeps all necessary accounts and records. For its services,
Boston Safe receives a monthly fee based upon the month-end value of
securities
held in custody and receives securities transactions charges. Boston Safe is
authorized to establish separate accounts for foreign securities owned
24
<PAGE>
by the Fund to be held in foreign branches of other U.S. banks as well as with
certain foreign banks and securities depositories. The assets of the Fund are
held under bank custodianship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves
as the Fund's transfer agent. Under the Fund's transfer agency agreement, TSSG
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund, and distributes dividends
and
distributions payable by the Fund. For these services, TSSG receives a monthly
fee computed on the basis of the number of shareholder accounts it maintains
for
the Fund during the month and is reimbursed for out-of-pocket expenses.
--------- ORGANIZATION OF THE FUND
The Fund was originally incorporated under the laws of the State of
Washington on March 17, 1981, under the name Foster & Marshall Growth Fund,
Inc.
On November 21, 1989, the Fund changed its name from Shearson Lehman
Fundamental
Value Fund Inc. to SLH Fundamental Value Fund Inc. On August 12, 1992, the
Fund
changed its name to Shearson Lehman Brothers Fundamental Value Fund Inc. and
on
August 17, 1993 changed its name to Smith Barney Shearson Fundamental Value
Fund
Inc. On July 1, 1994, the Fund effected a reincorporation under the laws of
the
State of Maryland pursuant to Articles of Incorporation filed on May 13, 1994
and Rule 414 adopted under the Securities Act of 1933.
In the interest of economy and convenience, certificates representing
shares in the Fund are not physically issued except upon specific request made
by a shareholder to TSSG, the Fund's transfer agent. TSSG maintains a record
of
each shareholder's ownership of Fund shares. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
--------- FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended September 30, 1993 is
incorporated herein by reference in its entirety.
25
<PAGE>
-------------------------------------------------
SMITH BARNEY SHEARSON
FUNDAMENTAL
VALUE FUND INC.
---------------------------
STATEMENT OF
---------------------------
---------------------------
ADDITIONAL INFORMATION
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
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JULY 1, 1994
---------------------------
SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
Two World Trade Center
New York, New York 10048 Fund 10
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
Portfolio Highlights
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
Included in Part C:
Consent of Independent Auditors
(b) Exhibits
All references are to the Registrant's Registration Statement on
Form N-1A as filed with the Securities and Exchange Commission
("SEC"), File Nos. 2-71469 and 811-3158 (the "Registration
Statement").
(1) Articles of Incorporation dated May 13, 1994, as filed
with the Department of Assessments and Taxation of the State of
Maryland are filed herein.
2(c) Registrant's By-Laws are filed herein.
(3) Inapplicable.
(4)(a) Registrant's form of stock certificate relating to
Class A shares is filed herein.
(4)(b) Registrant's form of stock certificate relating to
Class B shares is filed herein.
(4)(c) Registrant's form of stock certificate relating to
Class D shares is filed herein.
(5)(a) Investment Advisory Agreement with Smith Barney
Asset Management Division of Smith, Barney Advisers, Inc. is
filed herein.
(5)(b) Administration Agreement between the Registrant and
Smith, Barney Advisers, Inc. is filed herein.
(5)(c) Sub-Administration Agreement with The Boston
Company Advisors, Inc. is filed herein.
(6) Distribution Agreement with Smith Barney Inc. is filed
herein.
(7) Inapplicable.
(8)(a) Form of Custodian Agreement with Boston Safe Deposit
and Trust Company is incorporated by reference to Post-effective
Amendment No. 4 to the Registration Statement filed with the SEC.
(8)(b)
Consent to assignment of Custodian Agreement with
Boston Safe Deposit and Trust Company is filed herein.
(9)(a) Form of Transfer Agency Agreement with Boston Safe
Deposit and Trust Company is incorporated by reference to Post-
Effective Amendment No. 4 to the Registration Statement filed
with the SEC.
(9)(b) Consent to Assignment dated March 28, 1989 between the
Registrant and The Shareholder Services Group, Inc. is
incorporated by reference to Post-Effective Amendment No. 18.
(9)(c) Consent to Assignment of Transfer Agency Agreement
with The Shareholder Services Group, Inc.is filed herein.
(10) Opinion of Maryland Counsel is filed herein.
(11)(a) Consent of Independent Accountants is incorporated by
reference to Post-Effective Amendment No. 19 to the Registration
Statement as filed with the SEC.
(12) Inapplicable.
(13) Inapplicable.
(14) Prototype Self-Employed Retirement Plan is incorporated by
reference to Post-Effective Amendment No. 10 to the Registration
Statement as filed with the SEC ("Post-Effective Amendment No.
10").
(15) Services and Distribution Plan between the Registrant
and Smith Barney Inc. is filed herein.
(16) Performance Data is incorporated by reference to Post-
Effective Amendment No. 11 to the Registration Statement.
(17) Powers of Attorney are incorporated by reference to Post-
Effective Amendment No. 18.
Item 25.
Persons Controlled by or Under Common Control with Registran
t
Not applicable.
Item 26.
Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders as of June 28, 1994
Common Stock par value $.001 per share
Class A Shares 19,504,861.964
Class B Shares 50,636,502.818
Class D Shares 139,166.070
Item 27. Indemnification
The response to this item is incorporated by reference to
Post-Effective Amendment No. 5 to the Registration Statement as
filed with the SEC ("Post-Effective Amendment No. 5").
Item 28. Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Asset Management.
Smith Barney Asset Management, through its predecessors, has been
in the investment counseling business since 1940 and is a
division of Smith, Barney Advisers, Inc. ("SBA"). SBA was
incorporated in 1968 under the laws of the state of Delaware. SBA
is a wholly owned subsidiary Smith Barney Holdings Inc., which is
in turn a wholly owned subsidiary of The Travelers Inc.
The list required by this Item 28 of officers and directors of
SBA and Smith Barney Asset Management, together with information
as to any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors
during the past two fiscal years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SBA on behalf of Smith
Barney Asset Management pursuant to the Advisers Act (SEC File
No. 801-8314).
Prior to the close of business on July 30, 1993 (the "Closing"),
Shearson Asset Management, a member of the Asset Management Group
of Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"),
served as the Registrant's investment adviser. On the Closing,
The Travelers Inc. (then known as Primerica Corporation) and
Smith Barney, Harris Upham & Co. Incorporated acquired the
domestic retail brokerage and asset management business of
Shearson Lehman Brothers which included the business of the
Registrant's prior investment adviser. Shearson Lehman Brothers
was a wholly owned subsidiary of Shearson Lehman Brothers
Holdings Inc. ("Shearson Holdings"). All of the issued and
outstanding common stock of Shearson Holdings (representing 92%
of the voting stock) was held by American Express Company.
Information as to any past business vocation or employment of a
substantial nature engaged in by officers and directors of
Shearson Asset Management can be located in Schedules A and D of
FORM ADV filed by Shearson Lehman Brothers on behalf of Shearson
Asset Management prior to July 30, 1993. (SEC File No. 801-3701)
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney ") currently acts as
distributor for Smith Barney Shearson Managed Municipals Fund
Inc., Smith Barney Shearson New York Municipals Fund Inc., Smith
Barney Shearson California Municipals Fund Inc., Smith Barney
Shearson Massachusetts Municipals Fund, Smith Barney Shearson
Aggressive Growth Fund Inc., Smith Barney Shearson Appreciation
Fund Inc., Smith Barney Shearson Principal Return Fund, Smith
Barney Shearson Municipal Money Market Fund Inc., Smith Barney
Shearson Daily Dividend Fund Inc., Smith Barney Shearson
Government and Agencies Fund Inc., Smith Barney Shearson Managed
Governments Fund Inc., Smith Barney Shearson New York Municipal
Money Market Fund, Smith Barney Shearson California Municipal
Money Market Fund, Smith Barney Shearson Income Funds, Smith
Barney Shearson Equity Funds, Smith Barney Shearson Investment
Funds Inc., Smith Barney Shearson Precious Metals and Minerals
Fund Inc., Smith Barney Shearson Telecommunications Trust, Smith
Barney Shearson Arizona Municipals Fund Inc., Smith Barney
Shearson New Jersey Municipals Fund Inc., The USA High Yield Fund
N.V., Garzarelli Sector Analysis Portfolio N.V., The Advisors
Fund L.P., Smith Barney Shearson Fundamental Value Fund Inc.,
Smith Barney Shearson Series Fund, The Trust for TRAK
Investments, Smith Barney Shearson Income Trust, Smith Barney
Shearson FMA R Trust, Smith Barney Shearson Adjustable Rate
Government Income Fund, Smith Barney Shearson Florida Municipals
Fund, Smith Barney Funds, Inc., Smith Barney Equity Funds, Inc.,
Smith Barney Muni Funds, Smith Barney World Funds, Inc., Smith
Barney Money Funds, Inc., Smith Barney Tax Free Money Fund, Inc.,
Smith Barney Variable Account Funds, Smith Barney U.S. Dollar
Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), and various series of unit
investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney
Holdings Inc., which in turn is a wholly owned subsidiary of The
Travelers Inc. The information required by this Item 29 with
respect to each director, officer and partner of Smith Barney is
incorporated by reference to Schedule A of FORM BD filed by Smith
Barney pursuant to the Securities Exchange Act of 1934 (SEC File
No. 812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney Shearson Fundamental Value Fund Inc.
Two World Trade Center
New York, New York 10048
(2) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(3) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(4) The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
(5)
Smith Barney Asset Management
Division of Smith, Barney Advisers, Inc.
Two World Trade Center
New York, New York 10048
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of
removal of a director or directors of Registrant when requested
in writing to do so by the holders of at least 10% of
Registrant's outstanding shares. Registrant undertakes further
to assist shareholders in communicating with other shareholders
in accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the
City of New York and State of New York, on the 30th day of June,
1994.
SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
Registrant
By: /s/ Heath B. McLendon
Name:Heath B. McLendon
Title: Chairman of the Board
_________________________________________________________________
_____________
Pursuant to the requirments of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature: Title: Date:
/s/ Stephen J. Treadway President June 30, 1994
Stephen J. Treadway (Chief Executive Officer)
/s/Lewis E. Daidone June 30, 1994
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Lloyd J. Andrews Director June 30 1994
Lloyd J. Andrews
/s/ Robert M. Frayn Director June 30 1994
Robert M. Frayn
/s/ Leon P. Gardner Director June 30 1994
Leon P. Gardner
/s/ Howard J. Johnson Director June 30 1994
Howard J. Johnson
/s/ David E. Maryatt Director June 30 1994
David E. Maryatt
/s/ Heath B. McLendon Director June 30 1994
Heath B. McLendon
/s/ William J. Rex Director June 30 1994
William J. Rex
/s/ Julie W. Weston Director June 30 1994
Julie W. Weston
/s/ Jerry A. Viscione Director June 30 1994
Jerry A. Viscione
SHARED\SHEARSN2\FUNDAMEN\PEAS\PEA21\PEA#21.DOC
ARTICLES OF INCORPORATION
OF
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
ARTICLE I
The undersigned, Kelley Abbott Howes, whose post
office address is One Exchange Place,
Boston,Massachusetts 02109, being over eighteen years
of age and acting as incorporator, hereby forms a
corporation under the Maryland General Corporation
Law.
ARTICLE II
The name of the corporation (hereinafter called
the "Corporation") is Smith Barney Shearson
Fundamental Value Fund Inc.
ARTICLE III
PURPOSES
The purpose or purposes for which the
Corporation is formed and the business or objects to
be transacted, carried on and promoted by it, are as
follows:
Section 3.1. To engage in the business of
holding, investing, reinvesting, or otherwise placing
the funds of the Corporation in securities; to acquire
through purchase, exchange, subscription, or
otherwise, to own, hold and possess for investment,
resale, or otherwise, and to dispose of and to
exercise all rights, powers, and privileges with
reference to such business or incident to ownership,
use and enjoyment of such funds or of securities,
including, but without limitation, the right, power
and privilege to own, vote, hold, purchase, sell,
negotiate, assign, exchange, transfer, or otherwise
deal with, loan, dispose of, use, exercise, or enjoy
any rights, title, interest, powers or privileges
under or with reference to any securities owned or
held, including the payment of any assessments,
subscriptions and other sums of money the Corporation
may deem expedient for the protection of its interest
as owner or holder of such securities, and to invest
or utilize the proceeds, interest, dividends, or other
returns therefrom in such manner as is consistent with
the purposes, business, or objects of the Corporation;
and to borrow money or property or otherwise incur
indebtedness and to mortgage, pledge or hypothecate
its assets.
Section 3.2. To issue and sell its shares in
such amounts, on such terms and conditions, for such
purposes and for such consideration now or hereafter
permitted by the laws of Maryland, by these Articles
of Incorporation and by the Investment Company Act of
1940, as amended (the "1940 Act") as its Board of
Directors may determine; provided, however, that the
consideration per share to be received by the
Corporation upon the sale of any shares of its capital
stock shall not be less than the net asset value per
share of stock outstanding at the time as of which the
computation of such net asset value shall be made.
Section 3.3. To acquire, through redemption,
purchase, exchange, or otherwise, hold, dispose of,
transfer, reissue or cancel its own shares in any
manner and to the extent now or hereafter permitted by
the laws of Maryland, by these Articles of
Incorporation and by the 1940 Act, without the vote or
consent of the holders of any class of stock of the
Corporation.
Section 3.4. To have one or more offices within
or without the State of Maryland, to carry on all or
any of its operations, and to conduct its business, so
far as permitted by law, in any and all states,
territories, dependencies and colonies of the United
States, its possessions, and in the District of
Columbia and in foreign countries.
Section 3.5. To carry out all or any of the
foregoing objects and purposes as principal or agent,
and alone or with associates or, to the extent now or
hereafter permitted by the laws of Maryland, as a
member of, or as the owner or holder of any stock of,
or shares of interest in, any person; and in
connection therewith to make or enter into such deeds
or contracts with any persons, governments or
subdivisions thereof, and to do such acts and things
and to exercise such powers, as a natural person
lawfully could.
Section 3.6. To take any and all such further
acts and things and to exercise any and all such
further powers as may be necessary, incidental,
relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of all or
any of the foregoing purposes or objects.
Section 3.7. The foregoing objects and purposes
shall, except as otherwise expressly provided, be in
no way limited or restricted by reference to, or
inference from the terms of any other clause of this
or any other Article of these Articles of
Incorporation, and shall each be regarded as
independent, and construed as powers as well as
objects and purposes, and the enumeration of specific
purposes, objects and powers shall not be construed to
limit or restrict in any manner the meaning of general
terms or the general powers of the Corporation now or
hereafter conferred by the laws of the State of
Maryland, nor shall the expression of one thing be
deemed to exclude another, though it be of like
nature, not expressed; provided, however, that the
Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the
carrying on of which would preclude it from being
classified as an ordinary business corporation under
the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state,
territory, district or country except to the extent
that the same may lawfully be carried on or exercised
under the laws thereof.
ARTICLE IV
ADDRESS IN MARYLAND
The post office address of the place at which
the principal office of the Corporation in the State
of Maryland will be located is c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202.
The Corporation's resident agent in Maryland is
The Corporation Trust Incorporated, whose post office
address is 32 South Street, Baltimore, Maryland 21202.
Said resident agent is a corporation of the State of
Maryland.
ARTICLE V
CAPITAL STOCK
Section 5.1 Authorized Common Shares: The total
number of shares of capital stock of all classes which
the Corporation shall have the authority to issue is
one billion (1,000,000,000) shares, of the par value
of one-tenth of one cent ($.001) per share (the
"Shares"), and of the aggregate par value of one
million dollars ($1,000,000); of which one hundred
fifty million shares shall be classified initially as
follows: twenty-five million (25,000,000) Class A
Common Shares; seventy-five million (75,000,000) Class
B Common Shares; twenty-five million (25,000,000)
Class C Common Shares; and twenty-five million
(25,000,000) Class D Common Shares.
The Board of Directors shall have the power to
classify or reclassify any unissued stock, whether now
or hereafter authorized, by setting or changing the
preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms and conditions of redemption
of such stock.
Subject to the foregoing authority of the Board
of Directors to classify and reclassify unissued
stock, shares repurchased, redeemed or otherwise
acquired by the Corporation shall continue to belong
to the same class to which they belonged at the time
of their purchase, redemption or other reacquisition.
Section 5.2 Stock Preference Voting Rights,
Etc.: Unless provided otherwise by the Board of
Directors pursuant to the authority of the Board of
Directors to classify and reclassify unissued stock
pursuant to Section 5.1, the stock of the Corporation
shall have the following relative preferences,
conversion or other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, and terms and conditions of
redemption:
(a) The income of the Corporation and those expenses
and liabilities that are not attributable to any
particular class of Shares shall be allocated among
the classes in accordance with their relative net
asset values or as otherwise determined by the Board
of Directors, but, in any event, in a manner
consistent with the provisions of the Order, as
defined in subparagraph (c) below. The liabilities
and expenses attributable to each of the classes shall
be determined separately from those of each other and,
accordingly, the net asset values, the dividends and
distributions payable to holders, and the amounts
distributable in the event of liquidation of the
Corporation to holders of Shares of the Corporation's
stock may vary from class to class.
(b) Except for the differences set forth in
subparagraph (a) above and certain other differences
set forth in this Article V or elsewhere in the
charter of the Corporation, the classes shall have the
same preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of
redemption.
(c) Dividends and distributions on Shares of a
particular class may be declared and paid with such
frequency, in such form and in such amount as the
Board of Directors may from time to time determine.
Such dividends and distributions may vary among the
classes to reflect differing allocations of the
liabilities and expenses of the classes and any
resultant differences among the net asset values per
Share of the classes to such extent and for such
purposes as the Board of Directors may deem
appropriate. Dividends may be declared pursuant to a
standing resolution or resolutions adopted only once
or with such frequency as the Board of Directors may
determine, after providing for the pertinent expenses
and liabilities. The allocation of investment income,
capital gains, expenses and liabilities of the
Corporation among the classes shall be determined
conclusively by the Board of Directors in a manner
that is consistent with an order dated July 7, 1992
(Investment Company Act Release No. 18832), as amended
January 19, 1993 (Investment Company Act Release No.
19216), and January 28, 1994 (Investment Company Act
of 1940, Release No 20042), issued by the Securities
and Exchange Commission in connection with the
application for exemption filed by Smith Barney
Shearson Appreciation Fund Inc. (formerly Shearson
Lehman Brothers Appreciation Fund Inc.), et al. and
any future amendment to such order or any order, rule
or interpretation under the 1940 Act that modifies or
supersedes such order (the "Order").
(d) The proceeds of the redemption of a Share
(including a fractional Share) of any class of stock
shall be reduced by the amount of any contingent
deferred sales charge payable on such redemption
pursuant to the terms of issuance of such Share.
(e) All dividends and distributions on Shares of a
particular class shall be distributed pro rata to the
holders of that class in proportion to the number of
Shares of that class held by such holders at the date
and time of record established for the payment of such
dividends or distributions, except that in connection
with any dividend or distribution program or
procedure, the Board of Directors may determine that
no dividend or distribution shall be payable on Shares
as to which the Shareholder's purchase order and/or
payment have not been received by the time or times
established by the Board of Directors under such
program or procedure.
The Board of Directors shall have the power, in its
sole discretion, to distribute in any fiscal year as
dividends, including dividends designated in whole or
in part as capital gains distributions, amounts
sufficient, in the opinion of the Board of Directors,
to enable the Corporation to qualify as a regulated
investment company under the Internal Revenue Code of
1986, as amended, or any successor or comparable
statute thereto, and regulations promulgated
thereunder, and to avoid liability of the Corporation
for Federal income tax in respect of that year.
However, nothing in the foregoing shall require or
limit the authority of the Board of Directors to make
distributions greater than or less than the amount
necessary to qualify as a regulated investment company
or to avoid liability of the Corporation for Federal
Income tax in respect of a particular year.
Dividends and distributions may be paid in cash,
property or Shares, or a combination thereof, as
determined by the Board of Directors or pursuant to
any program that the Board of Directors may have in
effect at the time. Any such dividend or distribution
paid in Shares will be paid at the current net asset
value thereof as defined in subsection 5.2(j).
(f) Liquidation. In the event of the liquidation of
the Corporation, the net assets of the Corporation
shall be distributed among the classes based on their
relative net asset values or in such other manner as
may be determined by the Board of Directors consistent
with the Order. The assets so distributable to the
Shareholders of any particular class shall be
distributed among such Shareholders in proportion to
the number of Shares of that class held by them and
recorded on the books of the Corporation. The
liquidation of any particular class in which there are
Shares then outstanding may be authorized by vote of a
majority of the Board of Directors then in office,
subject to the approval of a majority of the
outstanding securities of that class, as defined in
the 1940 Act and the Maryland General Corporation Law.
(g) Voting. On each matter submitted to a vote of
the Shareholders, each holder of a Share shall be
entitled to one vote for each Share standing in his
name on the books of the Corporation, irrespective of
the class thereof, and all Shares of all classes shall
vote as a single class ("Single Class Voting");
provided, however, that (i) as to any matter with
respect to which a separate vote of any class is
required by the 1940 Act or by the Maryland General
Corporation Law, such requirement as to a separate
vote by that class shall apply in lieu of Single Class
Voting as described above; (ii) in the event that the
separate vote requirements referred to in (i) above
apply with respect to one or more classes, then,
subject to (iii) below, the Shares of such classes
shall vote as a single class; and (iii) as to any
matter which does not materially affect the interest
of a particular class, only the holders of Shares of
the one or more affected classes shall be entitled to
vote.
(h) Conversion of Class B Common Stock.
(i) Each share of Class B Common Stock,
other than shares described in Section 5.2 (h)(ii),
shall be converted automatically, and without any
action or choice on the part of the holder thereof,
into shares of the Class A Common Stock on the later
of (A) September 30, 1994 (or such later date
determined by the Board of Directors of the
Corporation to be the date as of which the
Corporation's transfer agent has in place the systems
necessary to calculate the timing of the conversions
described herein or (B) the date that is the first
Corporation business day in the month following the
month in which the eighth anniversary date of the date
of issuance of the share falls (the "Conversion
Date"). For the purpose of calculating the holding
period required for conversion, the date of issuance
of a share of Class B Common Stock shall mean (A) in
the case of a share of Class B Common Stock obtained
by the holder thereof through a subscription to the
Corporation, the date of the issuance of such share of
Class B Common Stock, or (B) in the case of a share of
Class B Common Stock obtained by the holder thereof
through an exchange, or through a series of exchanges,
from another investment company or class or series
thereof registered under the Investment Company Act of
1940 pursuant to an exchange privilege granted by the
Corporation, other than for shares of such capital
stock purchased through the automatic reinvestment of
a dividend or distribution with respect to such
capital stock, the date of issuance of the share of
Class B Common Stock of the eligible investment
company to which the holder originally subscribed.
For this purpose an "eligible investment company"
shall be an investment company designated for the
foregoing purpose in the Corporation's prospectus, as
such prospectus may be amended from time to time. For
purposes of Section 5.2(h)(i) and (ii), if so
determined by the Board of Directors of the
Corporation, shares of Class B Common Stock issued in
a reorganization with another registered investment
company or class or series thereof shall be treated as
if they were shares issued in an exchange or series of
exchanges pursuant to an exchange privilege granted by
the Corporation.
(ii) Each share of Class B Common Stock
(A) purchased through the automatic reinvestment of a
dividend or distribution with respect to the Class B
Common Stock or (B) issued pursuant to an exchange
privilege granted by the Corporation in an exchange or
series of exchanges for shares originally purchased
through the automatic reinvestment of a dividend or
distribution with respect to shares of capital stock
of an eligible investment company shall be segregated
in a separate sub-account on the stock records of the
Corporation for each of the holders of record thereof.
On any Conversion Date, a number of the shares held in
the sub-account of the holder of the share or shares
being converted, calculated in accordance with the
next following sentence, shall be converted
automatically, and without any action or choice on the
part of the holder, into shares of the Class A Common
Stock. The number of shares in the holder's sub-
account so converted shall bear the same ratio to the
total number of shares maintained in the sub-account
on the Conversion Date (immediately prior to
conversion) as the number of shares of the holder
converted on the Conversion Date pursuant to Section
5.2(h)(i) hereof bears to the total number of shares
on the Conversion Date (immediately prior to
conversion) of the Class B Common Stock of the holder
after subtracting the shares then maintained in the
holder's sub-account.
(iii) The number of shares of the Class A
Common Stock into which a share of the Class B Common
Stock is converted pursuant to Section 5.2(h)(i) and
(ii) hereof shall equal the number (including for this
purpose fractions of a share) obtained by dividing the
net asset value per share of the Class B Common Stock
for purposes of sales and redemptions thereof on the
Conversion Date by the net asset value per share of
the Class A Common Stock for purposes of sales and
redemptions thereof on the Conversion Date.
(iv) On the Conversion Date, the shares
of the Class B Common Stock converted into shares of
the Class A Common Stock will cease to accrue
dividends and will no longer be deemed outstanding and
the rights of the holders thereof (except the right to
receive the number of shares of Class A Common Stock
into which the shares of Class B Common Stock have
been converted and declared but unpaid dividends to
the Conversion Date) will cease. Certificates
representing shares of the Class A Common Stock
resulting from the conversion need not be issued until
certificates representing shares of the Class B Common
Stock converted, if issued, have been received by the
Corporation or its agent duly endorsed for transfer.
(v) The automatic conversion of the
Class B Common Stock into Class A Common Stock as set
forth in Section 5.2(h)(i) and (ii) shall be subject
to the continuing availability of a ruling of the
Internal Revenue Service that payment of different
dividends on Class A and Class B shares does not
result in such dividends or distributions constituting
preferential dividends under the Internal Revenue Code
of 1986, as amended. Additionally, such automatic
conversion shall be suspended at any time that the
Board of Directors determines (A) that there is not
available a reasonably satisfactory opinion of counsel
to the effect that the conversion of the Class B
Common Stock does not constitute a taxable event under
federal income tax law, or (B) any other condition to
conversion set forth in the Corporation's prospectus,
as such prospectus may be amended from time to time,
is not satisfied.
(vi) The automatic conversion of the
Class B Common Stock into Class A Common Stock as set
forth in Section 5.2(h)(i) and (ii) may also be
suspended by action of the Board of Directors at any
time that the Board of Directors determines such
suspension to be appropriate in order to comply with,
or satisfy the requirements of the 1940 Act or the
Order relating to voting by the holders of the Class B
Common Stock on any plan with respect to the Class A
Common Stock proposed under Rule 12b-1 of the 1940
Act, and in connection with, or in lieu of, any such
suspension, the Board of Directors may provide holders
of the Class B Common Stock with alternative
conversion or exchange rights into other classes of
stock of the Corporation in a manner consistent with
the law, rule, regulation or order giving rise to the
possible suspension of the conversion right.
(i) Redemption by Shareholder. Each holder of
Shares of a particular class shall have the right at
such times as may be permitted by the Corporation to
require the Corporation to redeem all or any part of
his Shares of that class at a redemption price per
share equal to the net asset value per Share of that
class next determined (in accordance with subsection
(j) of this Section 5.2) after the Shares are properly
tendered for redemption, less such contingent deferred
sales charge or other charge as is determined by the
Board of Directors and described in the Corporation's
registration statement under the Securities Act of
1933. Payment of the proceeds of redemption shall be
in cash unless the Board of Directors determines,
which determination shall be conclusive, that
conditions exist which make payment wholly in cash
unwise or undesirable. In the event of such a
determination, the Corporation may make payment wholly
or partly in securities or other assets of the
Corporation at the value of such securities or assets
used in such determination of net asset value.
Notwithstanding the foregoing, the Corporation may
postpone payment of the redemption price and may
suspend the right of the holders of Shares of any
class to require the Corporation to redeem Shares of
that class during any period or at any time when and
to the extent permissible under the 1940 Act.
(j) Net Asset Value per Share. The net asset value
per Share of any class shall be the quotient obtained
by dividing the value of the net assets of that class
(being the value of the assets attributable to that
class less the liabilities attributable to that class)
by the total number of Shares of that class
outstanding.
(k) Equality. All Shares of each particular class
shall represent an equal proportionate interest in the
assets attributable to that class (subject to the
liabilities attributable to that class), and each
Share of any particular class shall be equal to each
other Share of that class. To the extent permitted by
the laws of Maryland, the Board of Directors may from
time to time divide or combine the Shares of any
particular class into a greater or lesser number of
Shares of that class without thereby changing the
proportionate beneficial interest in the assets
attributable to that Class or in any way affecting the
rights of Shares of any other class.
(l) Conversion or Exchange Rights. Subject to
compliance with the requirements of the 1940 Act, the
Board of Directors shall have the authority to provide
that holders of Shares of any class shall have the
right to convert or exchange said Shares into Shares
of one or more other classes of Shares in accordance
with such requirements and procedures as may be
established by the Board of Directors.
(m) Redemption by the Corporation. The Board of
Directors may cause the Corporation to redeem at
current net asset value the Shares of any class from a
Shareholder whose Shares of the Corporation of all
classes have an aggregate current net asset value of
less than five hundred dollars ($500), or such greater
or lesser amount (the "Minimum Amount") as may be
determined by the Board from time to time and
reflected in the Corporation's prospectus. No such
redemption shall be effected unless the Corporation
has given the Shareholder at least thirty (30) days'
notice of its intention to redeem the Shares and an
opportunity to purchase a sufficient number of
additional Shares to bring the aggregate current net
asset value of his Shares to five hundred dollars
($500), or such greater or lesser Minimum Amount.
Upon redemption of Shares pursuant to this Section,
the Corporation shall promptly cause payment of the
full redemption price to be made to the holder of
Shares so redeemed.
ARTICLE VI
ISSUANCE OF STOCK
Section 6.1. Issuance of New Stock; No
Preemptive Rights. The Board of Directors is
authorized to issue and sell or cause to be issued and
sold from time to time (without the necessity of
offering the same or any part thereof to existing
shareholders) all or any portion or portions of the
entire authorized but unissued Shares of the
Corporation for cash or for any other lawful
consideration or considerations and on or for any
terms, conditions, or prices consistent with the
provisions of law and of the Articles of Incorporation
at the time in force; provided, however, that in no
event shall Shares of the Corporation having a par
value be issued or sold for a consideration or
considerations less in amount or value than the par
value of such Shares. No holder of any shares of any
class of the Corporation shall be entitled as of right
to any preemptive right or to any other right to
subscribe for, purchase, or otherwise acquire any
shares of any class which the Corporation proposes to
issue except such rights, if any, as the Board of
Directors, in its discretion, may determine from time
to time.
Section 6.2. Fractional Shares. The
Corporation may issue and sell fractions of Shares
having pro rata all the rights of full Shares,
including, without limitation, the right to vote and
to receive dividends, and wherever the words "Share"
or "Shares" are used in these Articles or in the
Bylaws they shall be deemed to include fractions of
Shares, where the context does not clearly indicate
that only full Shares are intended.
ARTICLE VII
DIRECTORS
The number of directors constituting the Board
of Directors shall be eight, to initially, until the
first Annual Meeting or until their successors are
duly chosen and qualified, consist of the following:
Lloyd J. Andrews, Robert Frayn, Leon Gardner, Howard
J. Johnson, David Maryatt, Heath B. McLendon, Jerry
Viscione and Julie Weston, which number may be changed
in accordance with the Bylaws of the Corporation but
shall never be less than three.
ARTICLE VIII
MISCELLANEOUS
Section 8.1: Voting. Notwithstanding any
provision of law requiring a greater proportion than a
majority of the votes of all classes (or of any class
entitled to vote thereon as a separate class) to take
or authorize any action, the Corporation is hereby
authorized to take such action upon the concurrence of
a majority of the aggregate number of Shares entitled
to vote thereon (or of a majority of the aggregate
number of Shares of a class entitled to vote thereon
as a separate class). The right to cumulative votes
in the election of directors is expressly prohibited.
Section 8.2: Quorum. The presence in
person or by proxy of the holders of one-third of the
shares of stock of the Corporation entitled to vote
(without regard to class) shall constitute a quorum
at any meeting of the stockholders, except with
respect to any matter which, under applicable statutes
or regulatory requirements, requires approval by a
separate vote of one or more classes of stock, in
which case the presence in person or by proxy of the
holders of one-third of the shares of stock of each
class required to vote as a class on the matter shall
constitute a quorum as to such matter, without regard
to whether there is a quorum for other matters.
Section 8.3: Amendment of ByLaws. Except
as may otherwise be provided in the Bylaws, the Board
of Directors of the Corporation is expressly
authorized to make, alter, amend and repeal Bylaws or
to adopt new Bylaws of the Corporation, without any
action on the part of the Shareholders; but the Bylaws
made by the Board of Directors and the power so
conferred may be altered or repealed by the
Shareholders.
Section 8.4: Limitation of Directors and
Officer Liability.
(a) To the fullest extent that
limitations on the liability of directors and officers
are permitted by the Maryland General Corporation Law,
other applicable laws and these Articles, no director
or officer of the Corporation shall have any liability
to the Corporation or its stockholders for damages.
This limitation on liability applies to events
occurring at the time a person serves as a director or
officer of the Corporation whether or not such person
is a director or officer at the time of any proceeding
in which liability is asserted.
(b) The Corporation shall indemnify
and advance expenses to its currently acting and its
former directors to the fullest extent that
indemnification of directors is permitted by the
Maryland General Corporation Law other applicable laws
and these Articles. The Corporation shall indemnify
and advance expenses to its officers to the same
extent as its directors and to such further extent as
is consistent with law. The Board of Directors may,
through a bylaw, resolution or agreement, make further
provisions for indemnification of directors, officers,
employees and agents to the fullest extent permitted
by the Maryland General Corporation law.
(c) No provision of this Section
8.4 shall be effective to protect or purport to
protect any director or officer of the Corporation
against any liability to the Corporation or its
stockholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduit of his office.
(d) References to the Maryland
General Corporation law in this Section 8.4 are to the
law as from time to time amended. No amendment to the
charter of the Corporation shall affect any rights of
any person under this Section 8.4 based on any event,
omission or proceeding prior to such amendment.
Section 8.5: Amendment. The Corporation
reserves the right from time to time to make any
amendment of these Articles of Incorporation, now or
hereafter authorized by law, including any amendment
which alters contract rights, as expressly set forth
in these Articles of Incorporation, of any outstanding
Share.
__________
The term "these Articles of Incorporation" as
used herein and in the By-Laws of the Corporation
shall be deemed to mean these Articles of
Incorporation as from time to time, supplemented,
amended, and restated.
IN WITNESS WHEREOF, I have signed these ARTICLES
OF INCORPORATION on this day of May, 1994 and have
acknowledged such Articles to be my act.
___________________________
Kelley Abbott Howes
shared/global/fundamen/corpdocs/artcl7
-8-
BY-LAWS
OF
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
A MARYLAND CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. If a meeting of
the stockholders of Smith Barney Fundamental Value
Fund Inc. (the "Corporation") is required by the
Investment Company Act of 1940, as amended, to elect
the directors, then there shall be submitted to the
stockholders at such meeting the question of the
election of directors, and a meeting called for that
purpose shall be designated the annual meeting of
stockholders for that year. In other years in which
no action by stockholders is required for the
aforesaid election of directors, no annual meeting
need be held.
SECTION 2. Special Meetings. Special meetings
of the stockholders for any purpose or purposes,
unless otherwise prescribed by statute or by the
Corporation's Articles of Incorporation ("Articles"),
may be held at any place within the United States, and
may be called at any time by the Board of Directors,
the Chairman of the Board or the President, and shall
be called by the Chairman of the Board, the President
or the Secretary at the request in writing of a
majority of the Board of Directors or by the Secretary
at the request in writing of stockholders entitled to
cast at least ten (10) percent of the votes entitled
to be cast at the meeting. A written request shall
state the purpose or purposes of the proposed meeting.
Unless requested by stockholders entitled to cast a
majority of all the votes entitled to be cast at the
meeting, a special meeting need not be called to
consider any matter which is substantially the same as
a matter voted on at any special meeting of the
stockholders held during the preceding twelve (12)
months.
SECTION 3. Notice of Meetings. Written or
printed notice of the purpose or purposes and of the
time and place of every meeting of the stockholders
shall be given by the Secretary of the Corporation to
each stockholder of record entitled to vote at the
meeting, by placing the notice in the mail at least
ten (10) days, but not more than ninety (90) days,
prior to the date designated for the meeting addressed
to each stockholder at his address appearing on the
books of the Corporation or supplied by the
stockholder to the Corporation for the purpose of
notice. The notice of any meeting of stockholders may
be accompanied by a form of proxy approved by the
Board of Directors in favor of such actions or persons
as the Board of Directors may select. Notice of any
meeting of stockholders shall be deemed waived by any
stockholder who attends the meeting in person or by
proxy, or who before or after the meeting submits a
signed waiver of notice that is filed with the records
of the meeting.
SECTION 4. Quorum. The presence in person or
by proxy of stockholders of the Corporation entitled
to cast one-third of the votes entitled to be cast
shall constitute a quorum at each meeting of the
stockholders. In the absence of a quorum, the
stockholders present in person or by proxy at the
meeting, by majority vote and without notice other
than by announcement at the meeting, may adjourn the
meeting from time to time as provided in Section 5 of
this Article I until a quorum shall attend. The
stockholders present at any duly organized meeting may
continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders
to leave less than a quorum. The absence from any
meeting in person or by proxy of holders of the number
of shares of stock of the Corporation in excess of
one-third that may be required by the laws of the
State of Maryland, the Investment Company Act of 1940,
or other applicable statutes, the Corporation's
Articles or these By-Laws, for action upon any given
matter shall not prevent action at the meeting on any
other matter or matters that may properly come before
the meeting, so long as there are present, in person
or by proxy, holders of the number of shares of stock
of the Corporation required for action upon the other
matter or matters.
SECTION 5. Adjournment. Any meeting of the
stockholders may be adjourned from time to time,
without notice other than by announcement at the
meeting at which the adjournment is taken. At any
adjourned meeting at which a quorum shall be present
any action may be taken that could have been taken at
the meeting originally called. A meeting of the
stockholders may not be adjourned to a date more than
one-hundred-twenty (120) days after the original
record date.
SECTION 6. Organization. At every meeting of
the stockholders, the Chairman of the Board, or in his
absence or inability to act, the President, or in his
absence or inability to act, a Vice President, or in
the absence or inability to act of the Chairman of the
Board, the President and all the Vice Presidents, a
chairman chosen by the stockholders, shall act as
chairman of the meeting. The Secretary, or in his
absence or inability to act, a person appointed by the
chairman of the meeting, shall act as secretary of the
meeting and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of
business at all meetings of the stockholders shall be
as determined by the chairman of the meeting.
SECTION 8. Voting; Proxies. Except as
otherwise provided by statute or the Corporation's
Articles, each holder of record of shares of stock of
the Corporation having voting power shall be entitled
at each meeting of the stockholders to one (1) vote
for every share of stock standing in his name on the
records of the Corporation as of the record date
determined pursuant to Section 9 of this Article I. A
plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is
present shall be sufficient to elect a director. Each
share of stock may be voted for as many individuals as
there are directors to be elected and for whose
election the share is entitled to be voted. A
majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is
present, shall be sufficient to take or authorize
action upon any other matter which may properly come
before the meeting, unless more than a majority of
votes cast is required by statute or by the
Corporation's Articles.
Each stockholder entitled to vote at any meeting
of stockholders may authorize another person or
persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall
be valid after the expiration of eleven (11) months
from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except in
those cases in which the proxy states that it is
irrevocable and in which an irrevocable proxy is
permitted by law.
SECTION 9. Fixing of Record Date for
Determining Stockholders Entitled to Vote at Meeting.
The Board of Directors may set a record date for the
purpose of determining stockholders entitled to vote
at any meeting of the stockholders. The record date
for a particular meeting shall be not more than ninety
(90) nor fewer than ten (10) days before the date of
the meeting. All persons who were holders of record
of shares as of the record date of a meeting, and no
others, shall be entitled to vote at such meeting and
any adjournment thereof.
SECTION 10. Inspectors. The Board of Directors
may, in advance of any meeting of stockholders,
appoint one (1) or more inspectors to act at the
meeting or at any adjournment of the meeting. If the
inspectors shall not be so appointed or if any of them
shall fail to appear or act, the chairman of the
meeting may appoint inspectors. Each inspector,
before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the
duties of inspector at the meeting with strict
impartiality and according to the best of his ability.
The inspectors shall determine the number of shares
outstanding and the voting power of each share, the
number of shares represented at the meeting, the
existence of a quorum and the validity and effect of
proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions
arising in connection with the right to vote, count
and tabulate all votes, ballots or consents, determine
the result, and do those acts as are proper to conduct
the election or vote with fairness to all
stockholders. On request of the chairman of the
meeting or any stockholder entitled to vote at the
meeting, the inspectors shall make a report in writing
of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by
them. No director or candidate for the office of
director shall act inspector of an election of
directors. Inspectors need not be stockholders of the
Corporation.
SECTION 11. Consent of Stockholders in Lieu of
Meeting. Except as otherwise provided by statute or
the Corporation's Articles, any action required to be
taken at any annual or special meeting of
stockholders, or any action that may be taken at any
annual or special meeting of stockholders, may be
taken without a meeting, without prior notice and
without a vote, if a unanimous written consent that
sets forth the action and is signed by each
stockholder entitled to vote on the matter and a
written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not
entitled to vote and are filed with the records of
meetings of the Corporation's stockholders.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise
provided in the Corporation's Articles, the business
and affairs of the Corporation shall be managed under
the direction of the Board of Directors. All powers
of the Corporation may be exercised by or under
authority of the Board of Directors except as
otherwise be provided by law, by the Corporation's
Articles or by these By-Laws.
SECTION 2. Number of Directors. The number of
initial directors shall be eight. The number of
directors shall be changed from time to time by
resolution of the Board of Directors adopted by a
majority of the entire board of directors; provided,
however, that the number of directors shall in no
event be fewer than three (3) nor more than fifteen
(15), except that the number of directors may be fewer
than three (3) to the extent permitted by applicable
law. Any vacancy created by an increase in directors
may be filled in accordance with Section 7 of this
Article II. No reduction in the number of directors
shall have the effect of removing any director from
office prior to the expiration of his term unless the
director is specifically removed pursuant to Section 6
of this Article II at the time of the decrease. A
director need not be a stockholder of the Corporation,
a citizen of the United States or a resident of the
State of Maryland.
SECTION 3. Election and Term of Directors. The
first Board of Directors shall consist of the
directors named in the Corporation's Articles and
shall hold office until the first meeting of
stockholders or until their successors have been
elected and qualified. Thereafter, directors who are
elected at a meeting of stockholders, and directors
who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until
their successors have been elected and qualified.
SECTION 4. Directors Emeritus. An individual
who has served on the Board of Directors for a minimum
of five (5) years and who retires voluntarily or who
will not stand for re-election because of age may be
designated by the Board of Directors as a Director
Emeritus.
An individual designated as a Director Emeritus
may, upon his or her request, be permitted to attend
meetings of the Board of Directors and to receive all
materials sent to active Board members. A Director
Emeritus shall not have voting rights at Board
Meetings and shall not be under a duty to manage or
direct the business and affairs of the Corporation. A
Director Emeritus shall not be deemed to stand in a
fiduciary relation to the Corporation, and shall not
be responsible to discharge the duties of a Director
or to exercise that diligence, care or skill which a
Director would ordinarily be required to exercise
under applicable law.
A stipend, the amount to be determined by the
Board of Directors from time to time, which shall not
exceed the basis upon which active Board members are
compensated, shall be paid to each Director Emeritus.
A Director Emeritus shall be indemnified to the full
extent that an Officer or Director of this Corporation
may be indemnified under Article V of these By-Laws.
SECTION 5. Resignation. A director of the
Corporation may resign at any time by giving written
notice of his resignation to the Board of Directors or
the Chairman of the Board or to the President or the
Secretary of the Corporation. Any resignation shall
take effect at the time specified in it or, should the
time when it is to become effective not be specified
in it, immediately upon its receipt. Acceptance of a
resignation shall not be necessary to make it
effective unless that resignation states otherwise.
SECTION 6. Removal of Directors. At a meeting
of stockholders called expressly for that purposes,
any director or the entire Board of Directors of the
Corporation may be removed by the stockholders with or
without cause by a vote of a majority of the votes
entitled to be cast for the election of directors.
SECTION 7. Vacancies. Subject to the
provisions of the Investment Company Act of 1940, any
vacancies in the Board of Directors, whether arising
from death, resignation, removal or any other cause
except an increase in the number of directors, shall
be filled by a vote of the majority of the Board of
Directors then in office even through the majority is
less than a quorum, provided that no vacancy or
vacancies shall be filled by action of the remaining
directors if, after the filling of the vacancy or
vacancies, fewer than two-thirds of the directors then
holding office shall have been elected by the
stockholders of the Corporation. A majority of the
entire Board then in office may fill a vacancy that
results from an increase in the number of directors.
In the event that at any time a vacancy exists in any
office of a director that may not be filled by the
remaining directors, a meeting of the stockholders
shall be held as promptly as possible and in any event
within sixty (60) days, for the purpose of filling the
vacancy or vacancies. Any director elected or
appointed to fill a vacancy shall hold office only
until the next annual meeting of stockholders of the
Corporation and until a successor has been chosen and
qualified or until his earlier resignation or removal.
SECTION 8. Place of Meetings. Meetings of the
Board may be held at any place that the Board of
Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 9. Regular Meetings. Regular meetings
of the Board of Directors may be held without notice
at the time and place determined by the Board of
Directors.
SECTION 10. Special Meetings. Special meetings
of the Board of Directors may be called by two (2) or
more directors of the Corporation or by the Chairman
of the Board of the President.
SECTION 11. Notice of Special Meetings. Notice
of each special meeting of the Board of Directors
shall be given by the Secretary as hereinafter
provided. Each notice shall state the time and place
of the meeting and shall be delivered to each
director, either personally or by telephone or other
standard form of telecommunication, at least twenty-
four (24) hours before the time at which the meeting
is to be held, or by first-class mail, postage
prepaid, addressed to the director at his residence or
usual place of business, and mailed at least three (3)
days before the day on which the meeting is to be
held.
SECTION 12. Waiver of Notice of Meetings.
Notice of any special meeting need not be given to any
director who shall, either before or after the
meeting, sign a written waiver of notice that is filed
with the records of the meeting or who shall attend
the meeting.
SECTION 13. Quorum and Writing. A majority of
the number of Directors fixed by Section 2 of this
Article II shall constitute a quorum for the
transaction of business at any Meeting of the Board of
Directors, and except as otherwise expressly required
by statute, the Corporation's Articles, these By-Laws,
the Investment Company Act of 1940, or any other
applicable statute, the act of a majority of the
directors present at any meeting at which a quorum is
present shall be the act of the Board. If there are
only two or three directors, not less than two
directors may constitute a quorum. If there is only
one director that one director will constitute a
quorum. In the absence of a quorum at any meeting of
the Board, a majority of the directors present may
adjourn the meeting to another time and place until a
quorum shall be present. Notice of the time and place
of any adjourned meeting shall be given to the
directors who were not present at the time of the
adjournment and, unless the time and place were
announced at the meeting at which the adjournment was
taken, to the other directors. At any adjourned
meeting at which a quorum is present, any business may
be transacted that might have been transacted at the
meeting as originally called.
SECTION 14. Organization. The Board of
Directors may designate a Chairman of the Board, who
shall preside at each meeting of the Board. In the
absence or inability of the Chairman of the Board to
act, the President, or, in his absence or inability to
act, another director chosen by a majority of the
directors present, shall act as chairman of the
meeting and preside at the meeting. The Secretary
(or, in his absence or inability to act, any person
appointed by the chairman) shall act as secretary of
the meeting and keep the minutes of the meeting.
SECTION 15. Committees. The Board of Directors
may designate from among its members an executive
committee and one or more other committees each of
which, to the extent provided in such resolution or
these By-Laws, shall have and may exercise all the
authority of the Board of Directors, except that no
such committee shall have the authority to: (1)
declare dividends or distributions; (2) issue stock
unless the Board of Directors has given general
authority for the issuance of stock by establishing a
general formula or method; (3) recommend to
stockholders any action which requires stockholder
approval; (4) fill vacancies on the Board of Directors
or any committee thereof; (5) amend these By-Laws; (6)
fix compensation of any director for serving on the
Board of Directors or on any committee; (7) approve a
plan of merger, consolidation or exchange of shares
not requiring stockholder approval; (8) appoint other
committees of the Board of Directors or the members
thereof; or (9) amend the Corporation's Articles. Any
committee or committees shall have the name or names
determined from time to time by resolution adopted by
the Board of Directors. Each committee shall consist
of two (2) or more directors and shall keep regular
minutes of its meetings and provide those minutes to
the Board of Directors when required. The members of
a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to
act in the place of an absent member, but may not act
to fill a vacancy on that committee.
SECTION 16. Written Consent of Directors in Lieu
of a Meeting. Subject to the provisions of the
Investment Company Act of 1940, any action required or
permitted to be taken at any meeting of a majority of
the Board of Directors or of any committee of the
Board may be taken without a meeting if all members of
the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are
filed with the minutes or the proceedings of the Board
or committee.
SECTION 17. Telephone Conference. Members of
the Board of Directors or any committee of the Board
may participate in any Board of committee meeting by
means of a conference telephone or similar
communications equipment by means of which all person
participating in the meeting can hear each other at
the same time. Participation by such means shall
constitute presence in person at the meeting.
SECTION 18. Compensation. Each director shall
be entitled to receive compensation, if any, as may
from time to time be fixed by the Board of Directors,
including a fee for each meeting of the Board or any
committee thereof, regular or special, that he
attends. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in
traveling to and from the place a Board or committee
meeting is held.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. Number and Qualifications. The
officers of the Corporation shall be a Chairman of the
Board, a President, any number or no Vice Presidents
(the number thereof to be determined by the Board of
Directors), a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. Any two
(2) or more offices may be held by the same person,
except the offices of President and Vice President,
but no officer shall execute, acknowledge or verify
any instrument in more than one (1) capacity. The
Board of Directors may from time to time elect, or
delegate to the Chairman of the Board or the President
the power to appoint, such additional officers or
assistant officers (including one or more Assistant
Vice Presidents, one or more Assistant Treasurers and
one or more Assistant Secretaries) and such agents as
may be necessary or desirable for the business of the
Corporation. Such other officers and agents shall
have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the
appointing authority.
SECTION 2. Resignations. Any officer of the
Corporation may resign at any time by giving written
notice of his resignation to the Board of Directors,
the Chairman of the Board, the President or the
Secretary. Any resignation shall take effect at the
time specified therein or, if the time when it shall
become effective is not specified therein, immediately
upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless
otherwise stated in the resignation.
SECTION 3. Removal of Officer, Agent or
Employee. Any officer, agent or employee of the
Corporation may be removed by the Board of Directors
with or without cause whenever in its judgment the
best interest of the Corporation will be served
thereby, and the Board may delegate the power of
removal as to agents and employees not elected or
appointed by the Board of Directors. Removal shall be
without prejudice to the person's contract rights, if
any, but the appointment of any person as an officer,
agent or employee of the Corporation shall not of
itself create contract rights.
SECTION 4. Vacancies. A vacancy is any office,
whether arising from death, resignation, removal or
any other cause, may be filled for the unexpired
portion of the term of the office that shall be
vacant, in the manner prescribed in these By-Laws for
the regular election or appointment to the office.
SECTION 5. Compensation. The compensation of
the officers of the Corporation shall be fixed by the
Board of Directors, but this power may be delegated to
any officer with respect to other officers under his
control.
SECTION 6. Bonds or Other Security. If
required by the Board, any officer, agent or employee
of the Corporation shall give a bond or other security
for the faithful performance of his duties, in an
amount and with any surety or sureties as the Board
may require.
SECTION 7. Chairman of the Board. The Chairman
of the Board shall be the Chief Executive Officer of
the Corporation and shall preside at all meetings of
the stockholders and of the Board of Directors.
Subject to the control of the Board of Directors, the
Chairman of the Board shall have general charge of the
business and affairs of the Corporation, and may
employ and discharge employees and agents of the
Corporation, except those elected or appointed by the
Board, and he may delegate these powers.
SECTION 8. President. In the absence or
inability of the Chairman of the Board to act, the
President shall preside at meetings of the
stockholders and the Board of Directors. In addition,
the President shall have the powers and perform the
duties that the Board or the Chairman of the Board may
from time to time prescribe.
SECTION 9. Vice President. Each Vice President
shall have the powers and perform the duties that the
Board of Directors, the Chairman of the Board or the
President may from time to time prescribe.
SECTION 10. Treasurer. The Treasurer shall be
the Chief Financial Officer and Chief Accounting
Officer of the Corporation. Subject to the provisions
of any contract that may be entered into with any
custodian pursuant to authority granted by the Board
of Directors, the Treasurer shall have charge of all
receipts and disbursements of the Corporation and
shall have or provide for the custody of the
Corporation's funds and securities; he shall have full
authority to receive and give receipts for all money
due and payable to the Corporation, and to endorse
checks, drafts, and warrants, in its name and on its
behalf and to give full discharge for the same; he
shall deposit all funds of the Corporation, except
those that may be required for current use, in such
banks or other places of deposit as the Board of
Directors may from time to time designate; and, in
general, he shall perform all duties incident to the
office of Treasurer and such other duties as may from
time to time be assigned to him by the Board of
Directors, the Chairman of the Board or the President.
SECTION 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more
books provided for the purpose, the minutes of all
meetings of the Board of Directors, the committees of
the Board and the stockholders;
(b) see that all notices are duly given in
accordance with the provisions of these By-Laws and as
required by law;
(c) be custodian of the records and the seal
of the Corporation and affix and attest the seal to
all stock certificates of the Corporation (unless the
seal of the Corporation on such certificates shall be
a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed
on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required
by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties
incident to the office of Secretary and such other
duties as from time to time may be assigned to him by
the Board of Directors, the Chairman of the Board or
the President.
SECTION 12. Delegation of Duties. In case of
the absence of any officer of the Corporation, or for
any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being
the powers or duties, or any of them, of such officer
upon any other officer or upon any director.
ARTICLE IV
STOCK
SECTION 1. Stock Certificates. Each holder of
stock of the Corporation shall be entitled upon
specific written request to such person as may be
designated by the Corporation to have a certificate or
certificates, in a form approved by the Board,
representing the number of shares of stock of the
Corporation owned by him; provided, however, that
certificates for fractional shares will not be
delivered in any case. The certificates representing
shares of stock shall be signed by or in the name of
the Corporation by the Chairman of the Board, the
President or a Vice President and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation.
Any or all of the signatures or the seal on the
certificates may be facsimiles. In case any officer,
transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent
or registrar before the certificates is issued, it may
be issued by the Corporation with the same effect as
if the officer, transfer agent or registrar was still
in office at the date of issue.
SECTION 2. Books of Account and Stock Ledger.
There shall be kept at the principal executive office
of the Corporation correct and complete books and
records of account of all the business and
transactions of the Corporation. There shall be made
available upon request of a stockholder who owns at
least 5% of the outstanding stock of any class of
stock of the Corporation, in accordance with Maryland
law, a record containing a list of the Corporation's
stockholders and the number of shares held by each of
them.
SECTION 3. Transfer of Shares. Transfers of
shares of stock of the Corporation shall be made on
the stock records of the Corporation only by the
registered holder of the shares, or by his attorney
thereunto authorized by power of attorney duly
executed and filed with the Secretary or with a
transfer agent or transfer clerk, and on surrender of
the certificate or certificates, if issued, for the
shares properly endorsed or accompanied by a duly
executed stock transfer power and the payment of all
taxes thereon. Except as otherwise provided by law,
the Corporation shall be entitled to recognize the
exclusive right of a person in whose name any share or
shares stand on the record of stockholders as the
owner of the share or shares for all purposes,
including, without limitation, the rights to receive
dividends or other distributions and to vote as the
owner, and the Corporation shall not be bound to
recognize any equitable or legal claim to or interest
in any such share or shares on the part of any other
person.
SECTION 4. Regulations. The Board of Directors
may make any additional rules and regulations, not
inconsistent with these By-Laws and the Articles, as
it may deem expedient concerning the issue, transfer
and registration of certificates for shares of stock
of the Corporation. The Board may appoint, or
authorize any officer or officers to appoint, one or
more transfer agents or one more transfer clerks and
one or more registrars and may require all
certificates for shares of stock to bear the signature
or signatures of any of them.
SECTION 5. Lost, Destroyed or Mutilated
Certificates. The holder of any certificate
representing shares of stock of the Corporation shall
immediately notify the Corporation of its loss,
wrongful taking or destruction. The Corporation shall
issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have
been lost stolen or destroyed or that shall have been
wrongfully taken if the owner (or his legal
representative): (1) so requests before the
Corporation has notice that the certificate has been
acquired by a bonafide purchaser; (2) gives to the
Corporation a bond in a sum, limited or unlimited, and
in a form and with any surety or sureties, as the
Board in its absolute discretion shall determine, to
indemnify the Corporation against any claim that may
be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of
new certificate; (3) and satisfies any other
reasonable requirements imposed by the Board of
Directors. Anything herein to the contrary
notwithstanding, the Board of Directors, in its
absolute discretion, may refuse to issue any such new
certificate, except to the extent required to do so
under the laws of the State of Maryland.
SECTION 6. Fixing of Record Date for Dividends,
Distributions, etc.. The Board may fix, in advance, a
date not more than ninety (90) days preceding the date
fixed for the payment of any dividend or the making of
any distribution or the allotment of rights to
subscribe for securities of the Corporation, or for
the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or
exchange of common stock or other securities, as the
record date for the determination of the stockholders
entitled to receive any such dividend, distribution,
allotment, rights or interests, and in such case only
the stockholders of record at the time so fixed shall
be entitled to receive such dividend, distribution,
allotment, rights or interests.
SECTION 7. Information to Stockholders and
Others. Any stockholder of the Corporation or his
agent may inspect and copy during the Corporation's
usual business hours the Corporation's By-Laws,
minutes of the proceedings of its stockholders, annual
statements of its affairs and voting trust agreements
on file at its principal office.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification of Directors and
Officers. Any person who was or is a party or is
threatened to be made a party in any threatened,
pending or completed action, suit or proceeding,
whether civil, criminal, administrative or
investigative, by reason of the fact that such person
is a current or former director or officer of the
Corporation, or is or was serving while a director or
officer of the Corporation at the request of the
Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another foreign or
domestic corporation, partnership, joint venture,
trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments,
penalties, fines, settlements and reasonable expenses
(including attorneys' fees) actually incurred by such
person in connection with such action, suit or
proceeding to the full extent permissible or otherwise
not prohibited under the Maryland General Corporation
Law, the Securities Act of 1933, and the Investment
Company Act of 1940, as those statutes are now or
hereafter in force, except that such indemnity shall
not protect any such person against any liability to
the Corporation or any stockholder thereof to which
such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").
SECTION 2. Advances. Any current or former
director or officer of the Corporation claiming
indemnification within the scope of this Article V
shall be entitled to advances from the Corporation for
payment of all expenses reasonably incurred by him in
connection with proceedings to which he is a party in
the manner and to the fullest extent permissible or
otherwise not prohibited under the Maryland General
Corporation Law, the Securities Act of 1933 and the
Investment Company Act of 1940, as those statutes are
now or hereafter in force; provided, however, that the
person seeking indemnification shall provide to the
Corporation a written affirmation of his good faith
belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a
written undertaking to repay any such advance, if it
should ultimately be determined that the standard of
conduct has not been met, and provided further that at
least one of the following additional conditions is
met: (a) the person seeking indemnification shall
provide security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation
is insured against losses arising by reason of the
advance; or (c) a majority of a quorum of directors of
the Corporation who are neither "interested persons"
as defined in Section 2(a)(19) of the Investment
Company Act of 1940 nor parties to the proceeding
("disinterested non-party directors"), or independent
legal counsel, in a written opinion, shall determine,
based on a review of facts readily available to the
Corporation at the time the advance is proposed to be
made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be
entitled to indemnification.
SECTION 3. Procedure. At the request of any
current or former director or officer, or any employee
or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be
determined, in a manner consistent with the Maryland
General Corporation Law, the Securities Act of 1933,
and the Investment Company Act of 1940, as those
statutes are now or hereafter in force, whether the
standards required by this Article V have been met;
provided, however, that indemnification shall be made
only following: (a) a final decision on the merits by
a court or other body before whom the proceeding was
brought that the person to be indemnified was not
liable by reason of disabling conduct or (b) in the
absence of such a decision, a reasonable
determination, based upon a review of the facts, that
the person to be indemnified was not liable by reason
of disabling conduct, by (i) the vote of a majority of
a quorum of disinterested non-party directors or (ii)
an independent legal counsel in a written opinion.
SECTION 4. Indemnification of Employees and
Agents. Employees and agents who are not officers or
directors of the Corporation may be indemnified, and
reasonable expenses may be advanced to such employees
or agents, in accordance with the procedures set forth
in this Article V to the extent permissible under
Maryland General Corporation Law, the Securities Act
of 1933 and the Investment Company Act of 1940, as
those statutes are now or hereafter in force, and to
such further extent, consistent with the foregoing, as
may be provided by action of the Board of Directors or
by contract.
SECTION 5. Other Rights. The indemnification
provided by this Article V shall not be deemed
exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking
such indemnification may be entitled under any
insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to
action by a director or officer of the Corporation in
his official capacity and as to action by such person
in another capacity while holding such office or
position, and shall continue as to a person who has
ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators
of such a person.
SECTION 6. Insurance. The Corporation shall
have the power to purchase and maintain insurance on
behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or who,
while a director, officer, employee or agent of the
Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or
employee benefit plan, against any liability asserted
against and incurred by him any such capacity, or
arising out of his status as such.
SECTION 7. Severability. If any part or
portion of this Article V shall be found unenforceable
or invalid in any respect. The remainder of this
Article shall not be affected thereby.
ARTICLE VI
SEAL
The seal of the Corporation shall be circular in
form and shall bear the name of the Corporation, the
year of its incorporation, the words "Corporate Seal"
and "Maryland" and any emblem or device approved by
the Board of Directors. The seal may be used by
causing it or a facsimile to be impressed or affixed
or in any other manner reproduced, or by placing the
word "(seal)" adjacent to the signature of the
authorized officer of the Corporation
ARTICLE VII
FISCAL YEAR
SECTION 1. Fiscal Year. The Corporation's
fiscal year shall be fixed by the Board of Directors.
SECTION 2. Accountant.
(a) The Corporation shall employ an
independent public accountant or a firm of independent
accountants as its Accountant to examine the accounts
of the Corporation and to sign and certify financial
statements filed by the Corporation. The Accountant's
certificates and reports shall be addressed both to
the Board of Directors and to the stockholders. The
employment of the Accountant shall be conditioned upon
the right of the Corporation to terminate the
employment forthwith without any penalty by vote of a
majority of the outstanding voting securities, as
defined in the Investment Company Act of 1940, at any
stockholders' meeting called for that purpose.
(b) A majority of the members of the Board of
Directors who are not "interested persons" (as such
term is defined in the Investment Company Act of 1940)
of the Corporation shall select the Accountant at any
meeting held within 30 days before or after the
beginning of the fiscal year of the Corporation or
before the annual stockholders' meeting if such
meeting is held in that year. Such selection shall be
submitted for ratification or rejection at the next
succeeding annual stockholders' meeting when such
meeting is held. If such meeting shall reject such
selection, the Accountant shall be selected by
majority vote of the Corporation's outstanding voting
securities, either at the meeting at which the
rejection occurred or at a subsequent meeting of
stockholders called for that purpose.
(c) Any vacancy occurring between annual
meetings, due to the resignation of the Accountant,
may be filled by the vote of a majority of the members
of the Board of Directors who are not "interested
persons" (as such term is defined in the Investment
Company Act of 1940).
ARTICLE VIII
CUSTODY OF SECURITIES
SECTION 1. Employment of a Custodian. The
Corporation shall place and at all times maintain in
the custody of a Custodian (including any sub-
custodian for the Custodian) all funds, securities and
similar investments owned by the Corporation. The
Custodian (and any sub-custodian) shall be an
institution conforming to the requirements of Section
17(f) of the Investment Company Act of 1940 and the
rules of the United States Securities Exchange
Commission thereunder. The Custodian shall be
appointed from time to time by the Board of Directors,
which shall fix its remuneration.
SECTION 2. Termination of Custodian Agreement.
Upon termination of the Custodian Agreement or
inability of the Custodian to continue to serve, the
Board of Directors shall promptly appoint a successor
Custodian, but in the event that no successor
Custodian can be found who has the required
qualifications and is willing to serve, the Board of
Directors shall call as promptly as possible a special
meeting of the stockholders to determine whether the
Corporation shall function without a Custodian or
shall be liquidated. If so directed by vote of the
holders of a majority of the outstanding shares of
stock entitled to vote of the Corporation, the
Custodian shall deliver and pay over all property of
the Corporation held by it as specified in such vote.
ARTICLE IX
AMENDMENTS
These By-Laws may be amended or repealed by the
affirmative vote of a majority of the Board of
Directors at any regular or special meeting of the
Board of Directors, subject to the requirements of the
Investment Company Act of 1940.
SHEARSN2/FUNDAMEN/BYLAW94
-14-
SPECIMEN
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
(A MARYLAND CORPORATION)
CLASS A SHARES
(SHARES OF COMMON STOCK)
ACCOUNT NO.
THIS CERTIFIES THAT
CUSIP
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES
(PAR VALUE $ .001 PER SHARE)
of SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
CLASS A SHARES
Shares established and designated under the Articles
of Incorporation of SMITH BARNEY SHEARSON FUNDAMENTAL
VALUE FUND INC., a Maryland corporation (the "Fund"),
dated May 13, 1994, as amended from time to time (the
"Articles"). The terms of the Articles, a copy of
which is on file with the Departments of Assessments
and Taxation of the State of Maryland, are hereby
incorporated by reference as fully as if set forth
herein in their entirety. The shares have the rights
and preferences set forth in the Articles, and the
Fund will furnish to the holder of this certificate
upon written request and without charge a statement of
such relative rights and preferences. This
certificate is issued by the Directors of SMITH BARNEY
SHEARSON FUNDAMENTAL VALUE FUND INC. not individually
but as Directors under the Articles, and represents
shares of the Fund and does not bind any of the
Directors, Stockholders, Officers, Employees or Agents
of the Fund personally but only the assets and
property Agreement, the shares represented by this
certificate are transferable upon the books of the
Fund by the registered holder hereof in person or his
duly authorized attorney upon surrender of this
certificate.
WITNESS the facsimile signature of the Fund's
duly authorized officer.
Dated:
________________________
___________________________
Christina Sydor
Stephen J. Treadway
Secretary President
shared/shearsn2/fundamen/peas/pea#21/ashr
SPECIMEN
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
(A MARYLAND CORPORATION)
CLASS B SHARES
(SHARES OF COMMON STOCK)
ACCOUNT NO.
THIS CERTIFIES THAT
CUSIP
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES
(PAR VALUE $ .001 PER SHARE)
of SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
CLASS B SHARES
Shares established and designated under the Articles
of Incorporation of SMITH BARNEY SHEARSON FUNDAMENTAL
VALUE FUND INC., a Maryland corporation (the "Fund"),
dated May 13, 1994, as amended from time to time (the
"Articles"). The terms of the Articles, a copy of
which is on file with the Departments of Assessments
and Taxation of the State of Maryland, are hereby
incorporated by reference as fully as if set forth
herein in their entirety. The shares have the rights
and preferences set forth in the Articles, and the
Fund will furnish to the holder of this certificate
upon written request and without charge a statement of
such relative rights and preferences. This
certificate is issued by the Directors of SMITH BARNEY
SHEARSON FUNDAMENTAL VALUE FUND INC. not individually
but as Directors under the Articles, and represents
shares of the Fund and does not bind any of the
Directors, Stockholders, Officers, Employees or Agents
of the Fund personally but only the assets and
property Agreement, the shares represented by this
certificate are transferable upon the books of the
Fund by the registered holder hereof in person or his
duly authorized attorney upon surrender of this
certificate.
WITNESS the facsimile signature of the Fund's
duly authorized officer.
Dated:
________________________
___________________________
Christina Sydor
Stephen J. Treadway
Secretary President
shared/shearsn2/fundamen/peas/pea#21/bshr
SPECIMEN
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
(A MARYLAND CORPORATION)
CLASS C SHARES
(SHARES OF COMMON STOCK)
ACCOUNT NO.
THIS CERTIFIES THAT
CUSIP
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES
(PAR VALUE $ .001 PER SHARE)
of SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
CLASS C SHARES
Shares established and designated under the Articles
of Incorporation of SMITH BARNEY SHEARSON FUNDAMENTAL
VALUE FUND INC., a Maryland corporation (the "Fund"),
dated May 13, 1994, as amended from time to time (the
"Articles"). The terms of the Articles, a copy of
which is on file with the Departments of Assessments
and Taxation of the State of Maryland, are hereby
incorporated by reference as fully as if set forth
herein in their entirety. The shares have the rights
and preferences set forth in the Articles, and the
Fund will furnish to the holder of this certificate
upon written request and without charge a statement of
such relative rights and preferences. This
certificate is issued by the Directors of SMITH BARNEY
SHEARSON FUNDAMENTAL VALUE FUND INC. not individually
but as Directors under the Articles, and represents
shares of the Fund and does not bind any of the
Directors, Stockholders, Officers, Employees or Agents
of the Fund personally but only the assets and
property Agreement, the shares represented by this
certificate are transferable upon the books of the
Fund by the registered holder hereof in person or his
duly authorized attorney upon surrender of this
certificate.
WITNESS the facsimile signature of the Fund's
duly authorized officer.
Dated:
________________________
___________________________
Christina Sydor
Stephen J. Treadway
Secretary President
shared/shearsn2/fundamen/peas/pea#21/cshr
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
June 30,1994
Smith Barney Asset Management
Division of Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, NY 10105
Dear Sirs:
Smith Barney Shearson Fundamental Value Fund
Inc. (the "Company"), a corporation organized under
the laws of the State of Maryland, confirms its
agreement with Smith Barney Asset Management Division
of Smith, Barney Advisers, Inc. (the "Adviser"), as
follows:
1. Investment Description; Appointment
The Company desires to employ its capital
by investing and reinvesting in investments of the
kind and in accordance with the investment
objective(s), policies and limitations specified in
its Articles of Incorporation, as amended from time to
time (the "Charter"), in the prospectus (the
"Prospectus") and statement of additional information
(the "Statement") filed with the Securities and
Exchange Commission as part of the Company's
Registration Statement on Form N-1A, as amended from
time to time, and in the manner and to the extent as
may from time to time be approved by the Board of
Directors of the Company ("Board"). Copies of the
Prospectus, the Statement and the Charter have been
submitted to the Adviser. The Company agrees to
provide copies of all amendments to the Prospectus,
the Statement and the Charter to the Adviser on an on-
going basis. The Company desires to employ and hereby
appoints the Adviser to act as the investment adviser
to the Company. The Adviser accepts the appointment
and agrees to furnish the services for the
compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision, direction and
approval of the Board of the Company, the Adviser will
(a) manage the Company's holdings in accordance with
the Company's investment objective(s) and policies as
stated in the Charter, the Prospectus and the
Statement; (b) make investment decisions for the
Company; (c) place purchase and sale orders for
portfolio transactions for the Company; and (d) employ
professional portfolio managers and securities
analysts who provide research services to the Company.
In providing those services, the Adviser will conduct
a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Company's
assets.
3. Brokerage
In selecting brokers or dealers to execute
transactions on behalf of the Company, the Adviser
will seek the best overall terms available. In
assessing the best overall terms available for any
transaction, the Adviser will consider factors it
deems relevant, including, but not limited to, the
breadth of the market in the security, the price of
the security, the financial condition and execution
capability of the broker or dealer and the
reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In
selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms
available, the Adviser is authorized to consider the
brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange
Act of 1934), provided to the Company and/or other
accounts over which the Adviser or its affiliates
exercise investment discretion.
4. Information Provided to the Company
The Adviser will keep the Company informed
of developments materially affecting the Company's
holdings, and will, on its own initiative, furnish the
Company from time to time with whatever information
the Adviser believes is appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best
judgment in rendering the services listed in
paragraphs 2 and 3 above. The Adviser shall not be
liable for any error of judgment or mistake of law or
for any loss suffered by the Company in connection
with the matters to which this Agreement relates,
provided that nothing in this Agreement shall be
deemed to protect or purport to protect the Adviser
against any liability to the Company or to its
shareholders to which the Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its
duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this
Agreement.
6. Compensation
In consideration of the services rendered
pursuant to this Agreement, the Company will pay the
Adviser on the first business day of each month a fee
for the previous month at the annual rate of 0.55% of
the Company's average daily net assets. The fee for
the period from the Effective Date (defined below) of
the Agreement to the end of the month during which the
Effective Date occurs shall be prorated according to
the proportion that such period bears to the full
monthly period. Upon any termination of this
Agreement before the end of a month, the fee for such
part of that month shall be prorated according to the
proportion that such period bears to the full monthly
period and shall be payable upon the date of
termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of
the Company's net assets shall be computed at the
times and in the manner specified in the Prospectus
and/or the Statement.
7. Expenses
The Adviser will bear all expenses in
connection with the performance of its services under
this Agreement. The Company will bear certain other
expenses to be incurred in its operation, including,
but not limited to, investment advisory and
administration fees; fees for necessary professional
and brokerage services; fees for any pricing service;
the costs of regulatory compliance; and costs
associated with maintaining the Company's legal
existence and shareholder relations.
8. Reduction of Fee
If in any fiscal year the aggregate
expenses of the Company (including fees pursuant to
this Agreement and the Company's administration
agreements, but excluding interest, taxes, brokerage
and extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the
Company, the Adviser will reduce its fee to the
Company by the proportion of such excess expense equal
to the proportion that its fee hereunder bears to the
aggregate of fees paid by the Company for investment
advice and administration in that year, to the extent
required by state law. A fee reduction pursuant to
this paragraph 8, if any, will be estimated,
reconciled and paid on a monthly basis.
9. Services to Other Companies or Accounts
The Company understands that the Adviser
now acts, will continue to act and may act in the
future as investment adviser to fiduciary and other
managed accounts, and as investment adviser to other
investment companies, and the Company has no objection
to the Adviser's so acting, provided that whenever the
Company and one or more other investment companies
advised by the Adviser have available funds for
investment, investments suitable and appropriate for
each will be allocated in accordance with a formula
believed to be equitable to each company. The Company
recognizes that in some cases this procedure may
adversely affect the size of the position obtainable
for the Company. In addition, the Company understands
that the persons employed by the Adviser to assist in
the performance of the Adviser's duties under this
Agreement will not devote their full time to such
service and nothing contained in this Agreement shall
be deemed to limit or restrict the right of the
Adviser or any affiliate of the Adviser to engage in
and devote time and attention to other businesses or
to render services of whatever kind or nature.
10. Term of Agreement
This Agreement shall become effective as
of the effective date of the transfer of all of the
business and assets and the assignment of all the
liabilities and obligations of Smith Barney Shearson
Fundamental Value Fund Inc., a Washington corporation
(the "Fund"), in exchange for distribution of Class A,
Class B and Class D shares of the Company to the
Fund's shareholders (the "Effective Date") and shall
continue for an initial two-year term. Thereafter,
this Agreement shall continue for successive annual
periods so long as such continuance is specifically
approved at least annually by (i) the Board of the
Company or (ii) a vote of a "majority" (as that term
is defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Company's outstanding
voting securities, provided that in either event the
continuance is also approved by a majority of the
Board who are not "interested persons" (as defined in
the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is
terminable, without penalty, on 60 days' written
notice by the Board of the Company or by vote of
holders of a majority of the Company's shares, or upon
90 days' written notice by the Adviser. This
Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act
and the rules thereunder).
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance of this
Agreement by signing and returning the enclosed copy
of this Agreement.
Very truly yours,
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
By: ______________________________
Name: Heath B. McLendon
Title: Chairman
Accepted:
SMITH BARNEY ASSET MANAGEMENT DIVISION
OF SMITH, BARNEY ADVISERS, INC.
By: __________________________
Name: Stephen J. Treadway
Title: Chairman
SHARED\SHEARSN2\FUNDAMEN\REINCORP\AGREEMENTS\ADVAGREE.DOC
-1-
ADMINISTRATION AGREEMENT
June 30, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson Fundamental Value Fund
(the "Fund"), a corporation organized under the laws
of the State of Maryland, confirms its agreement with
Smith, Barney Advisors, Inc. ("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by
investing and reinvesting in investments of the kind
and in accordance with the limitations specified in
its Articles of Incorporation dated May 13, 1994 as
amended from time to time (the "Articles"), in its
Prospectus and Statement of Additional Information as
from time to time in effect and in such manner and to
such extent as may from time to time be approved by
the Board of Directors of the Fund (the "Board").
Copies of the Fund's Prospectus, Statement of
Additional Information and Articles have been or will
be submitted to SBA. Smith Barney Shearson Asset
Management Division of Smith, Barney Advisers, Inc. (
the "Adviser") serves as the Fund's investment
adviser; and the Fund desires to employ and hereby
appoints SBA to act as its administrator. SBA accepts
this appointment and agrees to furnish the services to
the Fund for the compensation set forth below. SBA is
hereby authorized to retain third parties and is
hereby authorized to delegate some or all of its
duties and obligations hereunder to such persons
provided that such persons shall remain under the
general supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction
of the Board, SBA will: (a) assist in supervising all
aspects of the Fund's operations except those
performed by the Portfolio's investment adviser under
its investment advisory agreement; (b) supply the Fund
with office facilities (which may be in SBA's own
offices), statistical and research data, data
processing services, clerical, accounting and
bookkeeping services, including, but not limited to,
the calculation of (i) the net asset value of shares
of the Fund, (ii) applicable contingent deferred sales
charges and similar fees and charges and (iii)
distribution fees, internal auditing and legal
services, internal executive and administrative
services, and stationary and office supplies; and (c)
prepare reports to shareholders of the Fund, tax
returns and reports to and filings with the Securities
and Exchange Commission (the "SEC") and state blue sky
authorities.
3. Compensation
In consideration of services rendered
pursuant to this Agreement, the Fund will pay SBA on
the first business day of each month a fee for the
previous month at an annual rate of .20 of 1.00% of
the Fund's average daily net assets. The fee for the
period from the date the Fund's initial registration
statement is declared effective by the SEC to the end
of the month during which the initial registration
statement is declared effective shall be prorated
according to the proportion that such period bears to
the full monthly period. Upon any termination of this
Agreement before the end of any month, the fee for
such part of a month shall be prorated according to
the proportion which such period bears to the full
monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of
determining fees payable to SBA, the value of the
Fund's net assets shall be computed at the times and
in the manner specified in the Fund's Prospectus and
Statement of Additional Information as from time to
time in effect.
4. Expenses
SBA will bear all expenses in connection
with the performance of its services under this
Agreement. The Fund will bear certain other expenses
to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees
of the members of the Board of the Fund who are not
officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is
an affiliate of any person to whom duties may be
delegated hereunder; SEC fees and state blue sky
qualification fees; charges of custodians and transfer
and dividend disbursing agents; the Fund's and Board
members' proportionate share of insurance premiums,
professional association dues and/or assessments;
outside auditing and legal expenses; costs of
maintaining the Fund's existence; costs attributable
to investor services, including, without limitation,
telephone and personnel expenses; costs of preparing
and printing prospectuses and statements of additional
information for regulatory purposes and for
distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or
Board and any extraordinary expenses. In addition,
the Fund will pay all distribution fees pursuant to a
Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940
Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate
expenses of the Fund (including fees pursuant to this
Agreement and the Fund's investment advisory agreement
(s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities
commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that
excess expense to the extent required by state law in
the same proportion as its respective fees bear to the
combined fees for investment advice and
administration. The expense reimbursement obligation
of SBA will be limited to the amount of its fees
hereunder. Such expense reimbursement, if any, will
be estimated, reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in
rendering the services listed in paragraph 2 above,
and SBA shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed
to protect or purport to protect SBA against liability
to the Fund or to its shareholders to which SBA would
otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the
performance of its duties or by reason of SBA's
reckless disregard of its obligations and duties under
this Agreement.
7. Term of Agreement
This Agreement shall continue
automatically for successive annual periods, provided
such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts,
will continue to act and may act in the future as
administrator to one or more other investment
companies, and the Fund has no objection to SBA so
acting. In addition, the Fund understands that the
persons employed by SBA or its affiliates to assist in
the performance of its duties hereunder will not
devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict
the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to
render services of whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its
officers, directors, employees, affiliates,
controlling persons, agents (including persons to whom
responsibilities are delegated hereunder)
("indemnitees") against any loss, claim, expense or
cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this
Agreement or from the performance or failure to
perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee
violated the standard of care in paragraph 6 above.
This indemnification shall be limited by the 1940 Act,
and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance
with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree
that the obligations of the Fund under this Agreement
shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Fund
individually, but are binding only upon the assets and
property of the Fund, as provided in the Articles and
Bylaws. The execution and delivery of this Agreement
has been duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each,
acting as such. Neither the authorization by the
Board members of the Fund, nor the execution and
delivery by the officer of the Fund 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 assets and property of the Fund as
provided in the Articles and Bylaws.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance hereof
by singing and returning to us the enclosed copy
hereof.
Very truly
yours,
Smith Barney
Shearson Fundamental
Value Fund Inc.
By:
________________________
Heath
B. McLendon
Title:
Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: ____________________
Christina Sydor
Title: Secretary
shared/shearsn2/fundaman/agrms/admin594
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services
involve comprehensive accrual-based
recordkeeping and management information. They
include maintaining a fund's books and records
in accordance with the Investment Company Act of
1940, as amended (the "1940 Act"), net asset
value calculation, daily dividend calculation,
tax accounting and Fund accounting.
The designated fund accountants interact
with the Fund's custodian, transfer agent and
investment adviser daily. As required, the
responsibilities of each fund accountant may
include:
o Cash Reconciliation - Reconcile
prior day's ending cash balance per custodian's
records and the accounting system to the prior
day's ending cash balance per fund accounting's
cash availability report;
o Cash Availability - Combine all
activity affecting the Fund's cash account and
produce a net cash amount available for
investment;
o Formal Reconciliations - Reconcile
system generated reports to prior day's
calculations of interest, dividends,
amortization, accretion, distributions, capital
stock and net assets;
o Trade Processing - Upon receipt of
instructions from the investment adviser review,
record and transmit buys and sells to the
custodian;
o Journal Entries - Input entries to
the accounting system reflecting shareholder
activity and Fund expense accruals;
o Reconcile and Calculate N.O.A. (net
other assets) - Compile all activity affecting
asset and liability accounts other than
investment account;
o Calculate Net Income, Mil Rate and
Yield for Daily Distribution Funds - Calculate
income on purchase and sales, calculate change
in income due to variable rate change, combine
all daily income less expenses to arrive at net
income, calculate mil rate and yields (1 day, 7
day and 30 day);
o Mini-Cycle (except for Money Market
Funds) - Review intra day trial balance and
reports, review trial balance N.O.A.;
o Holdings Reconciliation - Reconcile
the portfolio holdings per the system to
custodian records;
o Pricing - Determine N.A.V. for Fund
using market value of all securities and
currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with
significant price changes (over 5%);
o Money Market Fund Pricing - Monitor
valuation for compliance with Rule 2a-7;
o System Check-Back - Verify the
change in market value of securities which saw
trading activity per the system;
o Net Asset Value Reconciliation -
Identify the impact of current day's Fund
activity on a per share basis;
o Reporting of Price to NASDAQ - 5:30
P.M. is the final deadline for Fund prices being
reported to the newspaper;
o Reporting of Price to Transfer
Agent- N.A.V.s are reported to transfer agent
upon total completion of above activities.
In addition, fund accounting personnel:
communicate corporate actions of portfolio
holdings to portfolio managers; initiate
notification to custodian procedures on
outstanding income receivables; provide
information to the Fund's treasurer for reports
to shareholders, SEC, Board members, tax
authorities, statistical and performance
reporting companies and the Fund's auditors;
interface with the Fund's auditors; prepare
monthly reconciliation packages, including
expense pro forma; prepare amortization
schedules for premium and discount bonds based
on the effective yield method; prepare vault
reconciliation reports to indicate securities
currently "out-for-transfer;" and calculate
daily expenses based on expense ratios supplied
by Fund's treasurer.
Financial Administration. The financial
administration services made available to the
Fund fall within three main categories:
Financial Reporting; Statistical Reporting; and
Publications. The following is a summary of the
services made available to the Fund by the
Financial Administration Division:
Financial Reporting
o Coordinate the preparation and
review of the annual, semi-annual and quarterly
portfolio of investments and financial
statements included in the Fund's shareholder
reports.
Statistical Reporting
o Total return reporting;
o SEC 30-day yield reporting and
7-day yield reporting (for money market funds);
o Prepare dividend summary;
o Prepare quarter-end reports;
o Communicate statistical data
to the financial media (Donoghue, Lipper,
Morningstar, et al.)
Publications
o Coordinate the printing and
mailing process with outside printers for annual
and semi-annual reports, prospectuses,
statements of additional information, proxy
statements and special letters or supplements;
o Provide graphics and design
assistance relating to the creation of marketing
materials and shareholder reports.
Treasury. The following is a summary of the
treasury services available to the Fund:
o Provide a Treasurer and
Assistant Treasurer for the Fund;
o Determine expenses properly
chargeable to the Fund;
o Authorize payment of bills for
expenses of the Fund;
o Establish and monitor the rate
of expense accruals;
o Prepare financial materials
for review by the Fund's Board (e.g., Rule 2a-7,
10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities
transactions);
o Recommend dividends to be
voted by the Fund's Board;
o Monitor mark-to-market
comparisons for money market funds;
o Recommend valuation to be used
for securities which are not readily saleable;
o Function as a liaison with the
Fund's outside auditors and arrange for audits;
o Provide accounting, financial
and tax support relating to portfolio management
and any contemplated changes in the Fund's
structure or operations;
o Prepare and file forms with
the Internal Revenue Service
* Form 8613
* Form 1120-RIC
* Board Members' and
Shareholders' 1099s
* Mailings in connection
with Section 852 and related regulations.
Legal and Regulatory Services. The legal and
regulatory services made available to the Fund
fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial
Services; Compliance Services; and Blue Sky
Registration. The following is a summary of the
legal and regulatory services available to the
Fund:
SEC and Public Disclosure Assistance
o File annual amendments to the
Fund's registration statements, including
updating the prospectus and statement of
additional information where applicable;
o File annual and semi-annual
shareholder reports with the appropriate
regulatory agencies;
o Prepare and file proxy
statements;
o Review marketing material for
SEC and NASD clearance;
o Provide legal assistance for
shareholder communications.
Corporate and Secretarial Services
o Provide a Secretary and an
Assistant Secretary for the Fund;
o Maintain general corporate
calendar;
o Prepare agenda and background
materials for Fund board meetings, make
presentations where appropriate, prepare minutes
and follow-up matters raised at Board meetings;
o Organize, attend and keep
minutes of shareholder meetings;
o Maintain Articles of
Incorporation and By-Laws of the Fund.
Legal Consultation and Business
Planning
o Provide general legal advice
on matters relating to portfolio management,
Fund operations and any potential changes in the
Fund's investment policies, operations or
structure;
o Maintain continuing awareness
of significant emerging regulatory and
legislative developments which may affect the
Fund, update the Fund's Board and the investment
adviser on those developments and provide
related planning assistance where requested or
appropriate;
o Develop or assist in
developing guidelines and procedures to improve
overall compliance by the Fund and its various
agents;
o Manage Fund litigation matters
and assume full responsibility for the handling
of routine Fund examinations and investigations
by regulatory agencies.
Compliance Services
The Compliance Department is
responsible for preparing compliance manuals,
conducting seminars for fund accounting and
advisory personnel and performing on-going
testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with
prospectus guidelines and limitations, 1940 Act
requirements and Internal Revenue Code
requirements. The Department may also act as
liaison to the SEC during its routine
examinations of the Fund.
State Regulation
The State Regulation Department
operates in a fully automated environment using
blue sky registration software developed by
Price Waterhouse. In addition to being
responsible for the initial and on-going
registration of shares in each state, the
Department acts as liaison between the Fund and
state regulators, and monitors and reports on
shares sold and remaining registered
shared/shearsn2/mgdhiinc/agrms/admin94
A-1
SUB-ADMINISTRATION AGREEMENT
June 30, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson Fundamental Value
Fund Inc.(the "Fund"), a corporation organized under
the laws of the State of Maryland and Smith, Barney
Advisers, Inc. ("SBA") confirm their agreement with
The Boston Company Advisors, Inc. ("Boston Advisors")
as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by
investing and reinvesting in investments of the kind
and in accordance with the limitations specified in
its Articles of Incorporation dated May 13, 1994 as
amended from time to time (the "Articles"), in its
Prospectus and Statement of Additional Information as
from time to time in effect, and in such manner and to
such extent as may from time to time be approved by
the Board of Directors of the Fund (the "Board").
Copies of the Fund's Prospectus, Statement of
Additional Information and Articles have been or will
be submitted to you. The Fund employs SBA as its
administrator, and the Fund and SBA desire to employ
and hereby appoint Boston Advisors as the Fund's sub-
administrator. Boston Advisors accepts this
appointment and agrees to furnish the services to the
Fund, for the compensation set forth below, under the
general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction
of the Board and SBA, Boston Advisors will: (a) assist
in supervising all aspects of the Fund's operations
except those performed by the Fund's investment
adviser under the Fund's investment advisory
agreement; (b) supply the Fund with office facilities
(which may be in Boston Advisor's own offices),
statistical and research data, data processing
services, clerical, accounting and bookkeeping
services, including, but not limited to, the
calculation of (i) the net asset value of shares of
the Fund, (ii) applicable contingent deferred sales
charges and similar fees and changes and (iii)
distribution fees, internal auditing and legal
services, internal executive and administrative
services, and stationery and office supplies; and (c)
prepare reports to shareholders of the Fund, tax
returns and reports to and filings with the Securities
and Exchange Commission (the "SEC") and state blue sky
authorities.
3. Compensation
In consideration of services rendered
pursuant to this Agreement, SBA will pay Boston
Advisors on the first business day of each month a fee
for the previous month calculated in accordance with
the terms set forth in Appendix B, and as agreed to
from time to time by the Fund, SBA and Boston
Advisors. Upon any termination of this Agreement
before the end of any month, the fee for such part of
a month shall be prorated according to the proportion
which such period bears to the full monthly period and
shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees
payable to Boston Advisors, the value of the Fund's
net assets shall be computed at the times and in the
manner specified in the Fund's Prospectus and
Statement of Additional Information as from time to
time in effect.
4. Expenses
Boston Advisors will bear all expenses in
connection with the performance of its services under
this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including:
taxes, interest, brokerage fees and commissions, if
any; fees of the Board members of the Fund who are not
officers, directors or employees of Smith Barney
Shearson Inc., Boston Advisors of their affiliates;
SEC fees and state blue sky qualification fees;
charges of custodians and transfer and dividend
disbursing agents; the Fund's and its Board members'
proportionate share of insurance premiums,
professional association dues and/or assessments;
outside auditing and legal expenses; costs of
maintaining the Fund's existence; costs attributable
to investor services, including, without limitation,
telephone and personnel expenses; costs of preparing
and printing prospectuses and statements of additional
information for regulatory purposes and for
distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or
Board and any extraordinary expenses. In addition,
the Fund will pay all distribution fees pursuant to a
Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940
Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate
expenses of the Fund (including fees pursuant to this
Agreement and the Fund's investment advisory
agreement(s) and administration agreement, but
excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities
commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction
over the Fund, Boston Advisory will reimburse the Fund
for that excess expense to the extent required by
state law in the same proportion as its respective
fees bear to the combined fees for investment advice
and administration. The expense reimbursement
obligation of Boston Advisors will be limited to the
amount of its fees hereunder. Such expense
reimbursement, if any, will be estimated, reconciled
and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best
judgment in rendering the services listed in paragraph
2 above. Boston Advisors shall not be liable for any
error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to
which this Agreement relates, provided that nothing
herein shall be deemed to protect or purport to
protect Boston Advisors against liability to the Fund
or to its shareholders to which Boston Advisors would
otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the
performance of its duties or by reason of Boston
Advisor's reckless disregard of its obligations and
duties under this Agreement.
7. Term of Agreement
This agreement shall continue
automatically for successive annual periods, provided
that it may be terminated by 90 days' written notice
to the other parties by any of the Fund, SBA or Boston
Advisors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective
successors and assigns, provided, however, that this
agreement may not be assigned, transferred or amended
without the written consent of all the parties hereto.
8. Service to Other Companies or
Accounts
The Fund understands that Boston Advisors
now acts, will continue to act and may act in the
future as administrator to one or more other
investment companies, and the Fund has no objection to
Boston Advisors so acting. In addition, the Fund
understands that the persons employed by Boston
Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to
such service and nothing contained herein shall be
deemed to limit or restrict the right of Boston
Advisors or its affiliates to engage in and devote
time and attention to other businesses or to render
services of whatever kind of nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors
and its officers, directors, employees, affiliates,
controlling persons and agents ("indemnitees") to the
extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and
its indemnitees, against any loss, claim, expenses or
cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this
Agreement or from the performance or failure to
perform any act hereunder, provided that not such
indemnification shall be available if the indemnitee
violated the standard of care in paragraph 6 above.
This indemnification shall be limited by the 1940 Act,
and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance
with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect
from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree
that the obligations of the Fund under this Agreement
shall not be binding upon any of the Board members,
shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Fund
individually, but are binding only upon the assets and
property of the Fund, as provided in the Articles and
Bylaws. The execution and delivery of this Agreement
has been duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each,
acting as such. Neither the authorization by the
Board Members of the Fund, nor the execution and
delivery by the officer of the Fund 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 assets and property of the Fund as
provided in the Articles.
If the foregoing is in accordance with
your understanding, kindly indicate your acceptance
hereof by signing and returning to us the enclosed
copy hereof.
Very truly yours,
SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND
INC.
By:
__________________________
Heath B. McLendon
Title: Chairman of
the Board
Smith, Barney Advisers,
Inc.
By:
__________________________
Christina Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: ___________________________
Joseph Dello Russo
Title: Senior Vice President
SHARED/SHEARSN2/FUNDAMEN/AGRMTS/SUBADMIN
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services
involve comprehensive accrual-based
recordkeeping and management information. They
include maintaining a fund's books and records
in accordance with the Investment Company Act of
1940, as amended (the "1940 Act" ), net asset
value calculation, daily dividend calculation,
tax accounting and portfolio accounting.
The designated fund accountants interact
with the Fund's custodian, transfer agent and
investment adviser daily. As required, the
responsibilities of each fund accountant may
include:
- Cash Reconciliation - Reconcile
prior day's ending cash balance per custodian's
records and the accounting system to the prior
day's ending cash balance per fund accounting's
cash availability report;
- Cash Availability - Combine all
activity affecting the Fund's cash account and
produce a net cash amount available for
investment;
- Formal Reconciliation - Reconcile
system generated reports to prior day's
calculations of interest, dividends,
amortization, accretion, distributions, capital
stock and net assets;
- Trade Processing - Upon receipt of
instructions from the investment adviser review,
record and transmit buys and sells to the
custodian;
- Journal Entries - Input entries to
the accounting system reflecting shareholder
activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net
other assets) - Compile all activity affecting
asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and
Yield for Daily Distribution
Funds - Calculate income on
purchases and sales, calculate change in income
due to variable rate change; combine all daily
income less expenses to arrive at net income;
calculate mil rate and yields (1 day, 7 day and
30 day);
- Mini-Cycle (except for Money Market
Funds) - Review intra day trial balance and
reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile
the portfolio holdings per the system to
custodian reports;
- Pricing - Determine N.A.V. for the
Fund using market value of all securities and
currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with
significant price changes (over 5%);
- Money Market Fund Pricing - Monitor
valuation for compliance with Rule 2a-7;
- System Check-Back - Verify the
change in market value of securities which saw
trading activity per the system;
- Net Asset Value Reconciliation -
Identify the impact of current day's Fund
activity on a per share basis;
- Reporting of Price to NASDAQ - 5:30
P.M. is the final deadline for Fund prices being
reported to the newspaper;
- Reporting of Price to Transfer Agent
- N.A.V.s are reported to transfer agent upon
total completion of above activities.
In addition, fund accounting personnel:
communicate corporate actions of portfolio
holdings to portfolio mangers; initiate
notification to custodian procedures on
outstanding income receivables; provide
information to the Fund's treasurer for reports
to shareholders, SEC, Board, tax authorities,
statistical and performance reporting companies
and the Fund's auditors; interface with Fund's
auditors; prepare monthly reconciliation
packages, including expense pro forma; prepare
amortization schedules for premium and discount
bonds based on the effective yield method;
prepare vault reconciliation reports to indicate
securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios
supplied by Fund's treasurer.
Financial Administration. The financial
administration services made available to the
Fund fall within three main categories:
Financial Reporting; Statistical Reporting; and
Publications. The following is a summary of the
services made available to the Fund by the
Financial Administration Division:
Financial Reporting
- Coordinate the preparation and
review of the annual, semi-annual and quarterly
portfolio of investments and financial
statements included in the Fund's shareholder
reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day
yield reporting (for money market funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the
financial media (Donoghue, Lipper, Morningstar,
et al.).
Publications
- Coordinate the printing and mailing
process with outside printers for annual and
semi-annual reports, prospectuses, statements of
additional information, proxy statements and
special letters or supplements;
Treasury. The following is a summary of the
treasury services available to the Fund:
- Provide an Assistant Treasurer for
the Fund;
- Authorize payment of bills for
expenses of the Fund;
- Establish and monitor the rate of
expense accruals;
- Prepare financial materials for
review by the Fund's Board (e.g., Rule 2a-7,
10f-3 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities
transactions);
- Monitor mark-to-market comparisons
for money market funds;
- Recommend valuations to be used for
securities which are not readily saleable;
- Function as a liaison with the
Fund's outside auditors and arrange for audits;
- Provide accounting, financial and
tax support relating to portfolio management and
any contemplated changes in the fund's structure
or operations;
- Prepare and file forms with the
Internal Revenue Service
* Form 8613
* Form 1120-RIC
* Board Members' and
Shareholders' 1099s
* Mailings in connection with
Section 852 and related regulations.
Legal and Regulatory Services. The legal and
regulatory services made available to the Fund
fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial
Services; Compliance Services; and Blue Sky
Registration. The following is a summary of the
legal and regulatory services available to the
Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's
registration statements, including updating the
prospectus and statement of additional
information where applicable;
- File annual and semi-annual
shareholder reports with the appropriate
regulatory agencies;
- Prepare and file proxy statements;
- Provide legal assistance for
shareholder communications.
Corporate and Secretarial Services
- Provide an Assistant Secretary for
the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background
materials for Fund board meetings, make
presentations where appropriate, prepare minutes
and follow-up matters raised at Board meetings;
- Organize, attend and keep minutes of
shareholder meetings;
- Maintain Articles of Incorporation
and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on
matters relating to portfolio management, Fund
operations and any potential changes in the
Fund's investment policies, operations or
structure;
- Maintain continuing awareness of
significant emerging regulatory and legislative
developments which may affect the Fund, update
the Fund's Board and the investment adviser on
those developments and provide related planning
assistance where requested or appropriate;
- Develop or assist in developing
guidelines and procedures to improve overall
compliance by the Fund and its various agents;
- Manage Fund litigation matters and
assume full responsibility for the handling of
routine fund examinations and investigations by
regulatory agencies.
Compliance Services
The Compliance Department is responsible
for preparing compliance manuals, conducting
seminars for fund accounting and advisory
personnel and performing on-going testing of the
Fund's portfolio to assist the Fund's investment
adviser in complying with prospectus guidelines
and limitations, 1940 Act requirements and
Internal Revenue Code requirements. The
Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates
in a fully automated environment using blue sky
registration software development by Price
Waterhouse. In addition to being responsible
for the initial and on-going registration of
shares in each state, the Department acts as
liaison between the Fund and state regulators,
and monitors and reports on shares sold and
remaining registered shares available for sale.
Schedule B
Fee
A-1
DISTRIBUTION AGREEMENT
June 30, 1994
Smith Barney Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
This is to confirm that, in consideration of the
agreements hereinafter contained, the undersigned,
Smith Barney Shearson Fundamental Value Fund Inc. (the
"Fund") a corporation organized under the laws of the
State of Maryland has agreed that Smith Barney Inc.
("Smith Barney") shall be, for the period of this
Agreement, the distributor of shares of the Fund (the
"Shares").
1. Services as Distributor
1.1 Smith Barney will act as agent for
the distribution of Shares covered by the registration
statement, including the prospectus and statement of
additional information, then in effect under the
Securities Act of 1933, as amended (the "1933 Act"),
and the Investment Company Act of 1940, as amended
(the "1940 Act").
1.2 Smith Barney agrees to use its best
efforts to solicit orders for the sale of Shares and
will undertake such advertising and promotion as it
believes is reasonable in connection with such
solicitation.
1.3 All activities by Smith Barney as
distributor of the Shares shall comply with all
applicable laws, rules, and regulations, including,
without limitation, all rules and regulations made or
adopted by the Securities and Exchange Commission (the
"SEC") or by any securities association registered
under the Securities Exchange Act of 1934.
1.4 Smith Barney will provide one or
more persons during normal business hours to respond
to telephone questions concerning the Fund.
1.5 Smith Barney will transmit any
orders received by it for purchase or redemption of
Shares to The Shareholder Services Group, Inc.
("TSSG"), the Fund's transfer and dividend agent, or
any successor to TSSG of which the Fund has notified
Smith Barney in writing.
1.6 Whenever in their judgment such
action is warranted for any reason, including, without
limitation, market, economic or political conditions,
the Fund's officers may decline to accept any orders
for, or make any sales of, the Shares until such time
as those officers deem it advisable to accept such
orders and to make such sales.
1.7 Smith Barney will act only on its
own behalf as principal should it choose to enter into
selling agreements with selected dealers or others.
1.8 The Fund will pay to Smith Barney an
annual fee in connection with the offering and sale of
the Shares under this Agreement. The annual fee paid
to Smith Barney, will be calculated daily and paid
monthly by the Fund at an annual rate set forth in the
Services and Distribution Plan (the "Plan") based on
the average daily net assets of the Fund; provided
that payment shall be made in any month only to the
extent that such payment shall not exceed the sales
charge limitations established by the National
Association of Securities Dealers, Inc.
The annual fee paid to Smith Barney under
this Section 1.8 may be used by Smith Barney to cover
any expenses primarily intended to result in the sale
of Shares, including , but not limited to, the
following:
(a) cost of payments made to Smith
Barney Financial Consultants and other employees of
Smith Barney or other broker-dealers that engage in
the distribution of the Shares;
(b) payments made to, and expenses of,
persons who provide support services in connection
with the distribution of the Shares, including, but
not limited to, office space and equipment, telephone
facilities, answering routine inquiries regarding the
Fund, processing shareholder transactions and
providing any other shareholder services;
(c) costs relating to the formulation
and implementation of marketing and promotional
activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine
and other mass media advertising;
(d) costs of printing and distributing
prospectuses and reports of the Fund to prospective
shareholders of the Fund;
(e) costs involved in preparing,
printing and distributing sales literature pertaining
to the Fund; and
(f) costs involved in obtaining whatever
information, analyses and reports with respect to
marketing and promotional activities that the Fund
may, from time to time, deem advisable;
except that distribution expenses shall not include
any expenditures in connection with services which
Smith Barney, any of its affiliates, or any other
person have agreed to bear without reimbursement.
1.9 Smith Barney shall prepare and deliver
reports to the Treasurer of the Fund and to the
administrator or sub-administrator of the Fund on a
regular, at least quarterly, basis, showing the
distribution expenses incurred pursuant to this
Agreement and the Plan and the purposes therefor, as
well as any supplemental reports as the Directors,
from time to time, may reasonably request.
2. Duties of the Fund
2.1 The Fund agrees at its own expense
to execute any and all documents, to furnish any and
all information and to take any other actions that may
be reasonably necessary in connection with the
qualification of the Shares for sale in those states
that Smith Barney may designate.
2.2 The Fund shall furnish from time to
time for use in connection with the sale of the
Shares, such information reports with respect to the
Fund and its Shares as Smith Barney may reasonably
request, all of which shall be signed by one or more
of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such
reports, when so signed by the Fund's officers, shall
be true and correct. The Fund shall also furnish
Smith Barney upon request with (a) annual audits of
the Fund's books and accounts made by independent
certified public accountants regularly retained by the
Fund; (b) semi-annual unaudited financial statements
pertaining to the Fund; (c) quarterly earnings
statements prepared by the Fund; (d) a monthly
itemized list of the securities in the Fund's
portfolio; (e) monthly balance sheets as soon as
practicable after the end of each month; and (f) from
time to time such additional information regarding the
Fund's financial condition as Smith Barney may
reasonably request.
3. Representations and Warranties
The Fund represents to Smith Barney that all
registration statements, prospectuses and statements
of additional information filed by the Fund with the
SEC under the 1933 Act and the 1940 Act with respect
to the Shares have been carefully prepared in
conformity with the requirements of the 1933 Act, the
1940 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement, the terms
"registration statement," "prospectus" and "statement
of additional information" shall mean any registration
statement, prospectus and statement of additional
information filed by the Fund with the SEC and any
amendments and supplements thereto which at any time
shall have been filed with the SEC. The Fund
represents and warrants to Smith Barney that any
registration statement, prospectus and statement of
additional information, when such registration
statement becomes effective, will include all
statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the
rules and regulations of the SEC; that all statements
of fact contained in any registration statement,
prospectus or statement of additional information will
be true and correct when such registration statement
becomes effective; and that neither any registration
statement nor any prospectus or statement of
additional information when such registration
statement becomes effective will include an 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 not
misleading to a purchaser of the Shares. The Fund
may, but shall not be obligated to, propose from time
to time such amendment or amendments to any
registration statement and such supplement or
supplements to any prospectus or statement of
additional information as, in the light of future
developments, may, in the opinion of the Fund's
counsel, be necessary or advisable. If the Fund shall
not propose such amendment or amendments and/or
supplement or supplements within fifteen days after
receipt by the Fund of a written request from Smith
Barney to do so, Smith Barney may, at its option,
terminate this Agreement. The Fund shall not file any
amendment to any registration statement or supplement
to any prospectus or statement of additional
information without giving Smith Barney reasonable
notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way
limit the Fund's right to file at any time such
amendments to any registration statement and/or
supplements to any prospectus or statement of
additional information, of whatever character, as the
Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes Smith Barney and
dealers to use any prospectus or statement of
additional information furnished by the Fund from time
to time, in connection with the sale of the Shares.
The Fund agrees to indemnify, defend and hold Smith
Barney, its several officers and directors, and any
person who controls Smith Barney within the meaning of
Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and
expenses (including the cost of investigating or
defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which
Smith Barney, its officers and directors, or any such
controlling person, may incur under the 1933 Act, the
1940 Act or under common law or otherwise, arising out
of or based upon any untrue statement, or alleged
untrue statement, of a material fact contained in any
registration statement, any prospectus or any
statement of additional information or arising out of
or based upon any omission, or alleged omission, to
state a material fact required to be stated in any
registration statement, any prospectus or any
statement of additional information or necessary to
make the statements in any thereof not misleading;
provided, however, that the Fund's agreement to
indemnify Smith Barney, its officers or directors, and
any such controlling person shall not be deemed to
cover any claims, demands, liabilities or expenses
arising out of any statements or representations made
by Smith Barney or its representatives or agents other
than such statements and representations as are
contained in any prospectus or statement of additional
information and in such financial and other statements
as are furnished to Smith Barney pursuant to paragraph
2.2 of this Agreement; and further provided that the
Fund's agreement to indemnify Smith Barney and the
Fund's representations and warranties herein before
set forth in paragraph 3 of this Agreement shall not
be deemed to cover any liability to the Fund or its
shareholders to which Smith Barney would otherwise be
subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or
by reason of Smith Barney's reckless disregard of its
obligations and duties under this Agreement. The
Fund's agreement to indemnify Smith Barney, its
officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon
the Fund's being notified of any action brought
against Smith Barney, its officers or directors, or
any such controlling person, such notification to be
given by letter or by telegram addressed to the Fund
at its principal office in New York, New York and sent
to the Fund by the person against whom such action is
brought, within ten days after the summons or other
first legal process shall have been served. The
failure so to notify the Fund of any such action shall
not relieve the Fund from any liability that the Fund
may have to the person against whom such action is
brought by reason of any such untrue, or alleged
untrue, statement or omission, or alleged omission,
otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund
will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by the
Fund and approved by Smith Barney. In the event the
Fund elects to assume the defense of any such suit and
retains counsel of good standing approved by Smith
Barney, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel
retained by any of them; but if the Fund does not
elect to assume the defense of any such suit, or if
Smith Barney does not approve of counsel chosen by the
Fund, the Fund will reimburse Smith Barney, its
officers and directors, or the controlling person or
persons named as defendant or defendants in such suit,
for the fees and expenses of any counsel retained by
Smith Barney or them. The Fund's indemnification
agreement contained in this paragraph 4.1 and the
Fund's representations and warranties in this
Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on
behalf of Smith Barney, its officers and directors, or
any controlling person, and shall survive the delivery
of any of the Fund's Shares. This agreement of
indemnity will inure exclusively to Smith Barney's
benefit, to the benefit of its several officers and
directors, and their respective estates, and to the
benefit of the controlling persons and their
successors. The Fund agrees to notify Smith Barney
promptly of the commencement of any litigation or
proceedings against the Fund or any of its officers or
Directors in connection with the issuance and sale of
any of the Fund's Shares.
4.2 Smith Barney agrees to indemnify,
defend and hold the Fund, its several officers and
Directors, and any person who controls the Fund within
the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of
investigating or defending such claims, demands or
liabilities and any counsel fees incurred in
connection therewith) that the Fund, its officers or
Directors or any such controlling person may incur
under the 1933 Act, the 1940 Act or under common law
or otherwise, but only to the extent that such
liability or expense incurred by the Fund, its
officers or Directors, or such controlling person
resulting from such claims or demands shall arise out
of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information
furnished in writing by Smith Barney to the Fund and
used in the answers to any of the items of the
registration statement or in the corresponding
statements made in the prospectus or statement of
additional information, or shall arise out of or be
based upon any omission, or alleged omission, to state
a material fact in connection with such information
furnished in writing by Smith Barney to the Fund and
required to be stated in such answers or necessary to
make such information not misleading. Smith Barney's
agreement to indemnify the Fund, its officers or
Directors, and any such controlling person, as
aforesaid, is expressly conditioned upon Smith Barney
being notified of any action brought against the Fund,
its officers or Directors, or any such controlling
person, such notification to be given by letter or
telegram addressed to Smith Barney at its principal
office in New York, New York and sent to Smith Barney
by the person against whom such action is brought,
within ten days after the summons or other first legal
process shall have been served. Smith Barney shall
have the right to control the defense of such action,
with counsel of its own choosing, satisfactory to the
Fund, if such action is based solely upon such alleged
misstatement or omission on Smith Barney's part, and
in any other event the Fund, its officers or Directors
or such controlling person shall each have the right
to participate in the defense or preparation of the
defense of any such action. The failure so to notify
Smith Barney of any such action shall not relieve
Smith Barney from any liability that Smith Barney may
have to the Fund, its officers or Directors, or to
such controlling person by reason of any such untrue,
or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of Smith Barney's
indemnity agreement contained in this paragraph 4.2.
Smith Barney agrees to notify the Fund promptly of the
commencement of any litigation or proceedings against
Smith Barney or any of its officers or directors in
connection with the issuance and sale of any of the
Fund's Shares.
4.3 In case any action shall be brought
against any indemnified party under paragraph 4.1 or
4.2, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it
shall wish to do so, to assume the defense thereof
with counsel satisfactory to such indemnified party.
If the indemnifying party opts to assume the defense
of such action, the indemnifying party will not be
liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified
party in connection with the defense thereof other
than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all
reasonable fees and expenses of separate counsel to
such indemnified party if (i) the indemnifying party
and the indemnified party shall have agreed to the
retention of such counsel or (ii) the indemnified
party shall have concluded reasonably that
representation of the indemnifying party and the
indemnified party by the same counsel would be
inappropriate due to actual or potential differing
interests between them in the conduct of the defense
of such action.
5. Effectiveness of Registration
None of the Shares shall be offered by either
Smith Barney or the Fund under any of the provisions
of this Agreement and no orders for the purchase or
sale of the Shares under this Agreement shall be
accepted by the Fund if and so long as the
effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be
suspended under any of the provision of the 1933 Act
or if and so long as a current prospectus as required
by Section 5(b) (2) of the 1933 Act is not on file
with the SEC; provided, that nothing contained in this
paragraph 5 shall in any way restrict or have an
application to or bearing upon the Fund's obligation
to repurchase its Shares from any shareholder in
accordance with the provisions of the Fund's
prospectus, statement of additional information or
Corrected Restated Articles of Incorporation dated
September 21, 1992, as amended from time to time.
6. Notice to Smith Barney
The Fund agrees to advise Smith Barney
immediately in writing:
(a) of any request by the SEC for amendments
to the registration statement, prospectus or statement
of additional information then in effect or for
additional information;
(b) In the event of the issuance by the SEC of
any stop order suspending the effectiveness of the
registration statement, prospectus or statement of
additional information then in effect or the
initiation of any proceeding for that purpose;
(c) of the happening of any event that makes
untrue any statement of a material fact made in the
registration statement, prospectus or statement of
additional information then in effect or that requires
the making of a change in such registration statement,
prospectus or statement of additional information in
order to make the statements therein not misleading;
and
(d) of all actions of the SEC with respect to
any amendment to any registration statement,
prospectus or statement of additional information
which may from time to time be filed with the SEC.
7. Term of the Agreement
This Agreement shall become effective as of the
effective date of the transfer of all of the business
and assets and the assignment of all the liabilities
and obligations of Smith Barney Shearson Fundamental
Value Fund Inc., a Washington corporation (the
"Fund"), in exchange for distribution of Class A,
Class B and Class D shares of the Company to the
Fund's shareholders, and continues for successive
annual periods thereafter so long as such continuance
is specifically approved at least annually by (a) the
Fund's Board of Directors or (b) by a vote of a
majority (as defined in the 1940 Act) of the
outstanding Shares, provided that in either event the
continuance is also approved by a majority of the
Directors of the Fund who are not "interested persons"
(as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This
Agreement is terminable, without penalty, on 60 days'
notice by the Fund's Board of Directors, by vote of
the holders of a majority of the Shares, or on 90
days' notice by Smith Barney. This Agreement will
also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
8. Miscellaneous
The Fund recognizes that directors, officers and
employees of Smith Barney may from time to time serve
as directors, trustees, officers and employees of
corporations and business trust (including other
investment companies) and that such other corporations
and trusts may include the name "Smith Barney
Shearson" as part of their name, and that Smith Barney
or its affiliates may enter into distribution or other
agreements with such other corporations and trusts.
If Smith Barney ceases to act as the distributor of
the Shares, the Fund agrees that, at Smith Barney's
request, the Fund's license to use the words "Smith
Barney Shearson" will terminate and that the Fund will
take all necessary action to change the name of the
Fund to a name not including the words "Smith Barney
Shearson."
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance
of this Agreement by signing and returning to us the
enclosed copy of this Agreement.
Very truly yours,
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
By: __________________________
Name: Heath B. McLendon
Title: Chairman
Accepted:
SMITH BARNEY INC.
By: __________________________
Authorized Officer
SHARED\SHEARSN2\FUNDAMEN\REINCORP\AGREEMENTS\DISTRIB.DOC
-7-
June 30, 1994
Smith Barney Shearson Fundamental Value Fund Inc.
Two World Trade Center
New York, NY 10048
Gentlemen:
This letter acknowledges the consent of Boston
Safe Deposit and Trust Company ("Boston Safe") to the
assignment of the Custody Agreement dated September
30, 1983 between Boston Safe and Smith Barney Shearson
Fundamental Value Fund Inc., a Washington corporation
(the "Fund"), as amended (the "Agreement") to Smith
Barney Shearson Fundamental Value Fund, a Maryland
corporation (the "Maryland Corp."). This
acknowledgment will be effective upon the consummation
of the proposed reorganization of the Fund in the
State of Maryland (the "Proposed Transaction"). We
understand that, effective upon the completion of the
Proposed Transaction, the Maryland Corp. will assume
all of the Fund's rights and obligations under the
Agreement accruing after that date and that the Fund
will no longer be liable under the Agreement or
responsible for any acts or omissions of the Maryland
Corp. occurring after that time.
Sincerely,
Boston Safe Deposit and Trust
Company
By:____________________________
Name: Vincent Nave
Title: Senior Vice
President
shared/shearsn2\fundamen\reincorp\consent.doc
June 30, 1994
Smith Barney Shearson Fundamental Value Fund Inc.
Two World Trade Center
New York, NY 10048
Gentlemen:
This letter acknowledges the consent of The
Shareholder Services Group Inc. ("TSSG") to the
assignment of the Transfer Agency and Registrar
Agreement dated September 14, 1993 between TSSG and
Smith Barney Shearson Fundamental Value Fund Inc., a
Washington corporation (the "Fund"), as amended (the
"Agreement") to Smith Barney Shearson Fundamental
Value Fund, a Maryland corporation (the "Maryland
Corp."). This acknowledgment will be effective upon
the consummation of the proposed reorganization of the
Fund in the State of Maryland (the "Proposed
Transaction"). We understand that, effective upon the
completion of the Proposed Transaction, the Maryland
Corp. will assume all of the Fund's rights and
obligations under the Agreement accruing after that
date and that the Fund will no longer be liable under
the Agreement or responsible for any acts or omissions
of the Maryland Corp. occurring after that time.
Sincerely,
The Shareholder Services Group Inc.
By:____________________________
Name:
Title:
shared/shearsn2\fundamen\reincorp\consent2.doc
<PAGE>1
[LETTERHEAD OF WILLKIE FARR &
GALLAGHER]
June 30, 1994
Smith Barney Shearson
Fundamental Value Fund Inc.
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
We have acted as counsel to Smith Barney
Shearson Fundamental Value
Fund Inc., a Maryland corporation (the "Fund"), in
connection with the
transfer of all of the assets of Smith Barney Shearson
Fundamental Value Fund
Inc., a Washington corporation (the "Company"), to the
Fund and the assumption
by the Fund of all of the liabilities and obligations
of the Company, and the
issuance of shares of the Fund's Class A Common
Shares, Class B Common Shares
and Class D Common Shares, each $.001 par value per
share (the "Shares"),
pursuant to the Agreement and Plan of Reorganization
and Liquidation dated as
of May 20, 1994 (the "Agreement") between the Fund and
the Company. If the
Company's shareholders approve, the Company will
reincorporate in Maryland
pursuant to the Agreement and the Fund will be the
successor issuer of the
Company pursuant to Rule 414 of the Securities Act of
1933, as amended.
We have examined the Fund's Charter and
Bylaws, Post-Effective
Amendment No. 20 to the Company's Registration
Statement on Form N-1A
(Securities Act File No. 2-71469 and Investment
Company Act File No. 811-3158)
substantially in the form in which it is to become
effective (the
"Registration Statement") and the Agreement. We have
further examined and
relied upon a certificate of the Maryland State
Department of Assessments and
Taxation to the effect that the Fund is duly
incorporated and existing under
the laws of the State of Maryland and is in good
standing and duly authorized
to transact business in the State of Maryland.
<PAGE>2
Smith Barney Shearson
Fundamental Value Fund Inc.
June 30, 1994
Page 2
We have also examined and relied upon such
corporate records of the
Fund and other documents and certificates with respect
to factual matters as
we have deemed necessary to render the opinion
expressed herein. We have
assumed, without independent verification, the
genuineness of all signatures,
the authenticity of all documents submitted to us as
originals, and the
conformity with originals of all documents submitted
to us as copies. As to
matters of Maryland law, we have relied solely on the
opinion of Venable,
Baetjer and Howard with respect to the matters
addressed therein, which is
satisfactory to us in form and scope, a copy of which
is annexed hereto.
Based on such examination, we are of the
opinion and so advise you
that:
1. The Company is validly existing as a
corporation in good standing
under the laws of the State of Maryland.
2. Assuming the number of Shares of Common
Stock of each of the classes
to be issued by the Fund and distributed to
stockholders of the
Company pursuant to the Agreement does not
exceed the number of
authorized and unissued shares of the
respective classes of the Fund
on the issuance date, the Shares to be
issued in accordance with the
terms of the Agreement, when so issued, will
constitute validly and
legally issued shares, fully paid and
nonassessable, under the laws
of the State of Maryland.
We consent to the filing of this opinion as
an exhibit to the
Registration Statement.
This opinion is furnished by us as counsel
to the Fund, is solely
for the benefit of the Fund and its governing board in
connection with the
above described transfer of assets and may not be
relied upon for any other
purpose or by any other person.
Very truly
yours,
WILLKIE FARR
& GALLAGHER
<PAGE>3
[LETTERHEAR OF VENABLE, BAETJER AND
HOWARD]
June 30, 1994
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Re: Smith Barney Shearson Fundamental Value Fund
Inc.
Ladies & Gentlemen:
We have acted as special Maryland counsel to
Smith Barney Shearson
Fundamental Value Fund Inc., a Maryland corporation
(the "Fund"), in
connection with the transfer of all of the assets of
Smith Barney Shearson
Fundamental Value Fund Inc., a Washington corporation
(the "Company"), to the
Fund and the assumption by the Fund of all of the
liabilities and obligations
of the Company, and the issuance of shares of the
Fund's Class A Common
Shares, Class B Common Shares and Class D Common
Shares, each $.001 par value
per share (the "Shares"), pursuant to the Agreement
and Plan of Reorganization
and Liquidation dated as of May 20, 1994 (the
"Agreement") between the Fund
and the Company. If the Company's shareholders
approve, the Company will
reincorporate in Maryland pursuant to the Agreement
and the Fund will be the
successor issuer of the Company pursuant to Rule 414
of the Securities Act of
1933, as amended.
We have examined the Fund's Charter and
Bylaws, Post-Effective
Amendment No. 20 to the Company's Registration
Statement on Form N-1A
(Securities Act File No. 2-71469 and Investment
Company Act File No. 811-3158)
substantially in the form in which it is to become
effective (the
"Registration Statement") and the Agreement. We have
further examined and
relied upon a certificate of the Maryland State
Department of Assessments and
Taxation to the effect that the Fund is duly
incorporated and existing under
the laws of the State of Maryland and is in
<PAGE>4
Willkie Farr & Gallagher
June 30, 1994
Page 2
good standing and duly authorized to transact business
in the State of
Maryland.
We have also examined and relied upon such
corporate records of the
Fund and other documents and certificates with respect
to factual matters as
we have deemed necessary to render the opinion
expressed herein. We have
assumed, without independent verification, the
genuineness of all signatures,
the authenticity of all documents submitted to us as
originals, and the
conformity with originals of all documents submitted
to us as copies.
Based on such examination, we are of the
opinion and so advise you
that:
1. The Company is validly existing as a
corporation in good standing
under the laws of the State of Maryland.
2. Assuming the number of Shares of Common
Stock of each of the classes
to be issued by the Fund and distributed to
stockholders of the
Company pursuant to the Agreement does not
exceed the number of
authorized and unissued shares of the
respective classes of the Fund
on the issuance date, the Shares to be
issued in accordance with the
terms of the Agreement, when so issued, will
constitute validly and
legally issued shares, fully paid and
nonassessable, under the laws
of the State of Maryland.
This letter expresses our opinion as to the
Maryland General
Corporation Law governing matters such as the
authorization and issuance of
stock. It does not extend to the securities or "Blue
Sky" laws of Maryland,
to federal securities laws or to other laws.
You may rely upon our foregoing opinion in
rendering your opinion to
the Fund. We consent to the filing of this opinion as
an exhibit to the
Registration Statement.
Very truly
yours,
VENABLE,
BAETJER AND HOWARD
SERVICES AND DISTRIBUTION PLAN
Smith Barney Shearson Fundamental Value Fund Inc.
This Services and Distribution Plan (the "Plan")
is adopted in accordance with Rule 12b-1 (the "Rule")
under the Investment Company Act of 1940, as amended
(the "1940 Act"), by Smith Barney Shearson Fundamental
Value Fund Inc., a corporation organized under the
laws of the State of Maryland (the "Fund"), subject to
the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The Fund
will pay to the distributor of its shares, Smith
Barney Inc., a corporation organized under the laws of
the State of Delaware ("Distributor"), a service fee
under the Plan at the annual rate of 0.25% of the
average daily net assets of the Fund attributable to
the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund
will pay to the Distributor a service fee under the
Plan at the annual rate of 0.25% of the average daily
net assets of the Fund attributable to the Class B
shares (the "Class B Service Fee").
(c) Service Fee for Class D shares. The Fund
will pay to the Distributor a service fee under the
Plan at the annual rate of 0.25% of the average daily
net assets of the Fund attributable to the Class D
shares (the "Class D Service Fee," and collectively
with the Class A Service Fee and the Class B Service
Fee, the "Service Fees").
(d) Distribution Fee for Class B shares. In
addition to the Class B Service Fee, the Fund will pay
the Distributor a distribution fee under the Plan at
the annual rate of 0.75% of the average daily net
assets of the Fund attributable to the Class B shares
(the "Class B Distribution Fee").
(e) Distribution Fee for Class D shares. In
addition to the Class D Service Fee, the Fund will pay
the Distributor a distribution fee under the Plan at
the annual rate of 0.75% of the average daily net
assets of the Fund attributable to the Class D shares
(the "Class D Distribution Fee," and collectively with
the Class B Distribution Fee, the "Distribution
Fees").
(f) Payment of Fees. The Service Fees and
Distribution Fees will be calculated daily and paid
monthly by the Fund with respect to the foregoing
classes of the Fund's shares (each a "Class" and
together the "Classes") at the annual rates indicated
above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each
Class, its respective Service Fees and/or Distribution
Fees may be used for: (a) costs of printing and
distributing the Fund's prospectus, statement of
additional information and reports to prospective
investors in the Fund; (b) costs involved in
preparing, printing and distributing sales literature
pertaining to the Fund; (c) an allocation of overhead
and other branch office distribution-related expenses
of the Distributor; (d) payments made to, and expenses
of, Smith Barney Financial Consultants and other
persons who provide support services in connection
with the distribution of the Fund's shares, including
but not limited to, office space and equipment,
telephone facilities, answering routine inquires
regarding the Fund, processing shareholder
transactions and providing any other shareholder
services not otherwise provided by the Fund's transfer
agent; and (e) accruals for interest on the amount of
the foregoing expenses that exceed the Distribution
Fee and, in the case of Class B shares, the contingent
deferred sales charge received by the Distributor;
provided, however, that the Distribution Fees may be
used by the Distributor only to cover expenses
primarily intended to result in the sale of the Fund's
Class B and D shares, including without limitation,
payments to Distributor's Financial Consultants at the
time of the sale of Class B and D shares. In
addition, Service Fees are intented to be used by the
Distributor primarily to pay its Financial Consultants
for servicing shareholder accounts, including a
continuing fee to each such Financial Consultant,
which fee shall begin to accrue immediately after the
sale of such shares.
Section 3. Approval of Shareholders.
The Plan will not take effect, and no fees will
be payable in accordance with Section 1 of the Plan,
with respect to a Class until the Plan has been
approved by a vote of at least a majority of the
outstanding voting securities of the Class. The Plan
will be deemed to have been approved with respect to a
Class so long as a majority of the outstanding voting
securities of the Class votes for the approval of the
Plan, notwithstanding that: (a) the Plan has not been
approved by a majority of the outstanding voting
securities of any other Class, or (b) the Plan has not
been approved by a majority of the outstanding voting
securities of the Fund.
Section 4. Approval of Directors.
Neither the Plan nor any related agreements will
take effect until approved by a majority of both (a)
the full Board of Directors of the Fund and (b) those
Directors who are not "interested persons" of the Fund
and who have no direct or indirect financial interest
in the operation of the Plan or in any agreements
related to it (the "Qualified Directors"), cast in
person at a meeting called for the purpose of voting
on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to
each Class until June 30, 1995, and thereafter for
successive twelve-month periods with respect to each
Class; provided, however, that such continuance is
specifically approved at least annually by the
Directors of the Fund and by a majority of the
Qualified Directors.
Section 6. Termination.
The Plan may be terminated at any time with
respect to a Class (i) by the Fund without the payment
of any penalty, by the vote of a majority of the
outstanding voting securities of such Class or (ii) by
a vote of the Qualified Directors. The Plan may
remain in effect with respect to a particular Class
even if the Plan has been terminated in accordance
with this Section 6 with respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any
Class so as to increase materially the amounts of the
fees described in Section 1 above, unless the
amendment is approved by a vote of the holders of at
least a majority of the outstanding voting securities
of that Class. No material amendment to the Plan may
be made unless approved by the Fund's Board of
Directors in the manner described in Section 4 above.
Section 8. Selection of Certain
Directors.
While the Plan is in effect, the selection and
nomination of the Fund's Qualified Directors will be
committed to the discretion of the Qualified Directors
then in office.
Section 9. Written Reports
In each year during which the Plan remains in
effect, a person authorized to direct the disposition
of monies paid or payable by the Fund pursuant to the
Plan or any related agreement will prepare and furnish
to the Fund's Board of Directors and the Board will
review, at least quarterly, written reports, complying
with the requirements of the Rule, which sets out the
amounts expended under the Plan and the purposes for
which those expenditures were made.
Section 10. Preservation of Materials.
The Fund will preserve copies of the Plan, any
agreement relating to the Plan and any report made
pursuant to Section 9 above, for a period of not less
than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement
or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested
person" and "majority of the outstanding voting
securities" will be deemed to have the same meaning
that those terms have under the 1940 Act by the
Securities and Exchange Commission.
Approved as of June 28, 1994.
SHARED\SHEARSN2\FUNDAMEN\REINCORP\AGREEMENTS\12B-1PLAN
- 3 -
