As filed with the Securities and Exchange Commission on May 3, 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. 20 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 23 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)
on pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
[/R] X on July 1, 1994 pursuant to Rule 485(a)[/R]
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 June 28, 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 July 1, 1994
<PAGE>
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- --------------------------------------------------------------------------------
July 1, 1994
SMITH BARNEY SHEARSON
Fundamental
Value
Fund Inc.
Prospectus begins
on page one.
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PROSPECTUS July 1, 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 July 1, 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.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PROSPECTUS SUMMARY 3
---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 10
---------------------------------------------------------------------------
VARIABLE PRICING SYSTEM 14
---------------------------------------------------------------------------
THE FUND'S PERFORMANCE 16
---------------------------------------------------------------------------
MANAGEMENT OF THE FUND 20
---------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 21
---------------------------------------------------------------------------
PURCHASE OF SHARES 27
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REDEMPTION OF SHARES 34
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
ADDITIONAL INFORMATION 47
---------------------------------------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 Group of Funds and
5
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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.
- --------------------------------------------------------------------------------
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>
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% --
- -------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.45% 2.26% 2.25%
- -------------------------------------------------------------------------------------
<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.
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------
<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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------------------
Total distributions (0.52) (0.14) (0.52) (0.75)
- -----------------------------------------------------------------------------------------
Net asset value, end of year $ 8.42 $ 7.22 $ 6.47 $ 5.34
- -----------------------------------------------------------------------------------------
Total return+ 25.23% 14.01% 33.47% (16.25)%
- -----------------------------------------------------------------------------------------
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%
- -----------------------------------------------------------------------------------------
<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
<PAGE>
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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%
- ---------------------------------------------------
</TABLE>
* 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.
12
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------
</TABLE>
* 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.
13
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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)
VALUE OF
VALUE OF REINVESTED
OTHER INDICES
INITIAL DIVIDENDS AND PERIOD
PERIOD
$10,000 CAPITAL GAINS TOTAL CHANGE
S&P CHANGE COST OF
PERIOD ENDED INVESTMENT DISTRIBUTIONS(3) VALUE
(%) 500(4) (%) LIVING(5)
- ------------------------------------------------------------------------------------------------------------------
- ---------------
<S> <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
Dec. 31, 1984 8,855 1,759 10,614 +10 10,671
+6 10,498
Dec. 31, 1985 9,836 2,871 12,707 +20 14,061
+32 10,896
Dec. 31, 1986 8,841 4,453 13,294 + 5 16,685
+19 11,016
Dec. 31, 1987 7,258 6,373 13,631 + 3 17,561
+ 5 11,504
Dec. 31, 1988 8,183 8,322 16,505 +21 20,466
+17 12,002
Dec. 31, 1989 8,645 10,909 19,554 +18 26,940
+32 12,560
Dec. 31, 1990 7,188 10,721 17,909 - 8 26,103
- - 3 13,327
Dec. 31, 1991 9,248 14,292 23,540 +31 34,038
+30 13,735
Dec. 31, 1992 9,892 17,147 27,039 +15 36,627
+ 8 14,133
Sept. 30, 1993 11,798 20,449 32,247 +19 39,397
+ 8 14,222
- ------------------------------------------------------------------------------------------------------------------
- ---------------
<CAPTION>
PERIOD
CHANGE
PERIOD ENDED (%)
- ----------------------------------
<S> <C>
Oct. 1, 1983 --
Dec. 31, 1983 +1
Dec. 31, 1984 +4
Dec. 31, 1985 +4
Dec. 31, 1986 +1
Dec. 31, 1987 +4
Dec. 31, 1988 +4
Dec. 31, 1989 +5
Dec. 31, 1990 +6
Dec. 31, 1991 +3
Dec. 31, 1992 +3
Sept. 30, 1993 +1
- ----------------------------------
<FN>
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.
</TABLE>
17
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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.
[CHART]
- --------------------------------------------------------------------------------
(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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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 $ 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.
Mr. Goode's management discussion and analysis of the Fund's performance
during the fiscal year ended September 30, 1993 (including a line graph
20
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
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 $ . 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 $ 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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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 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 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
Group of Funds
29
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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 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 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 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 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 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 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 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, D 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, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND,
invests in a portfolio of high quality debt securities
that may be denominated in U.S. dollars or selected
foreign currencies and that have remaining maturities of
not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND,
invests in high quality, short-term debt securities
denominated in U.S. dollars as well as a range of foreign
currencies.
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, D+ SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
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 SMALL CAPITALIZATION FUND, seeks
long-term appreciation by investing primarily in the
common stock of small capitalization companies.
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 GLOBAL OPPORTUNITIES FUND INC.,
seeks long-term capital growth by investing principally
in the common shares of foreign and domestic issuers.
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.
</TABLE>
42
<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>
- -----------------------------------------------------------------------
*** SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND,
invests in short-term high quality municipal obligations.
*** SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND, invests 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.
- --------------------------------------------------------------------------------
<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.
</TABLE>
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
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.
43
<PAGE>
SMITH BARNEY SHEARSON
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
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.
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 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 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 1, 1994, the reincorporation was effected
pursuant to Articles of Incorporation filed , 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 July 1, 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 JULY 1, 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 July 1, 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.
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
Shearson 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 , 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 % 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 ,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.
4
<PAGE>
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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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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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
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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
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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 contract 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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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).
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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 Shearson 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
15
<PAGE>
may make also may be made by such other accounts. In such instances, available
investments or 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 Shearson 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
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 imposed
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 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
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 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 Group
of Funds may exchange all or part of their shares for shares of the same Class
of other funds in the Smith Barney 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>
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>
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's 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 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 ,
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.
<TABLE>
<S> <C>
---------------------------
STATEMENT OF
---------------------------
---------------------------
ADDITIONAL INFORMATION
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---------------------------
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---------------------------
---------------------------
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JULY 1, 1994
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</TABLE>
SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
Two World Trade Center
New York, New York 10048 Fund 10
SMITH BARNEY SHEARSON
---------------------
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 ___, 1994, as filed
with the Department of Assessments and Taxation of the State of
Maryland, to be filed by amendment.
2(c) Registrant's By-Laws to be filed by amendment.
(3) Inapplicable.
(4)(a) Registrant's form of stock certificate relating to
Class A shares to be filed by amendment.
(4)(b) Registrant's form of stock certificate relating to
Class B shares to be filed by amendment.
(4)(c) Registrant's form of stock certificate relating to
Class D shares to be filed by amendment.
(5)(a) Investment Advisory Agreement with Smith Barney
Asset Management Division of Smith, Barney Advisers, Inc. to be
filed by amendment.
(5)(b) Administration Agreement between the Registrant and
Smith, Barney Advisers, Inc. to be filed by amendment.
(5)(c) Sub-Administration Agreement with The Boston
Company Advisors, Inc. to be filed by amendment.
(6) Distribution Agreement with Smith Barney Inc. to be
filed by amendment.
(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 to be filed by amendment.
(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. to be filed by
amendment.
(10) Opinion of Maryland Counsel to be filed by amendment.
(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. to be filed by amendment.
(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 17, 1994
Common Stock par value $.001 per share
Class A Shares
Class B Shares
Class D Shares
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 Shearson Asset Management.
Smith Barney Shearson 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 Shearson 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 Shearson 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 Shearson 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 Shearson Inc. ("Smith Barney Shearson") 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 Global Opportunities Fund, Smith Barney Shearson
Aggressive Growth Fund Inc., Smith Barney Shearson Appreciation
Fund Inc., Smith Barney Shearson Worldwide Prime Assets Fund,
Smith Barney Shearson Short-Term World Income Fund, 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 Shearson is a wholly owned subsidiary of Smith
Barney Shearson 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 Shearson is incorporated by reference to Schedule
A of FORM BD filed by Smith Barney Shearson 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 Shearson 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 3rd day of May, 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 May 3, 1994
Stephen J. Treadway (Chief Executive Officer)
/s/ Vincent Nave May 3, 1994
Vincent Nave Treasurer (Chief Financial
and Accounting Officer)
/s/ Lloyd J. Andrews Director May 3, 1994
Lloyd J. Andrews
/s/ Robert M. Frayn Director May 3, 1994
Robert M. Frayn
/s/ Leon P. Gardner Director May 3, 1994
Leon P. Gardner
/s/ Howard J. Johnson Director May 3, 1994
Howard J. Johnson
/s/ David E. Maryatt Director May 3, 1994
David E. Maryatt
/s/ Heath B. McLendon Director May 3, 1994
Heath B. McLendon
/s/ William J. Rex Director May 3, 1994
William J. Rex
/s/ Julie W. Weston Director May 3, 1994
Julie W. Weston
/s/ Jerry A. Viscione Director May 3, 1994
Jerry A. Viscione
SHARED\SHEARSN2\FUNDAMEN\PEAS\PEA20\PEA#20.DOC
