<PAGE>
- ---------SMITH BARNEY
FUNDAMENTAL VALUE FUND INC.
388 GREENWICH STREET - NEW YORK, NEW YORK 10013 - (212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 7,
1994
This Statement of Additional Information expands upon and supplements
the
information contained in the current Prospectus of Smith Barney Fundamental
Value Fund Inc. (the "Fund"), dated November 7, 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.
- --------- TABLE OF 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........................................................... 19
Performance Data (See in the Prospectus
"Performance")....................... 20
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes")........... 22
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 Mutual Funds Management Inc.
("SBMFM").................................. Investment Adviser and
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 and Investment Officer.
Executive
Vice President of Smith Barney and Chairman of the Board of Smith Barney
Strategy Advisers Inc.; prior to July 1993, Senior Executive Vice President
of
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"); Vice Chairman
of
Shearson Asset Management; a Director of PanAgora Asset Management, Inc.
and
PanAgora Asset Management Limited. His address is 388 Greenwich Street, New
York, New York 10013.
*Frederick O. Paulsell, Director. President of Paulsell & Baker Inc.
His
address is 1701 Third Avenue, Suite 2101, Seattle, Washington 98101.
Jerry A. Viscione, Director. Dean of Albers School of Business and
Economics, Seattle University. His address is 3480 Northeast 155 Street,
Seattle, Washington 98155.
Julie W. Weston, Director. Attorney; prior to 1987, Secretary and
General
Counsel of Skinner Corporation, a distributor of consumer and industrial
products. Her address is 416 34th Avenue, Seattle, Washington 98122.
Stephen J. Treadway, President. Executive Vice President and Director
of
Smith Barney; Director and President of SBMFM; and Trustee of Corporate
Realty
Income Trust I. His address is 388 Greenwich Street, New York, New York
10013.
Richard P. Roelofs, Executive Vice President. Managing Director of
Smith
Barney; President of Smith Barney Strategy Advisers, Inc.; Prior to July
1993,
Senior Vice President of Shearson Lehman Brothers; Vice President of
Shearson
Lehman Investment Strategy Advisors Inc. His address is 388 Greenwich
Street,
New York, New York 10013.
John G. Goode, Vice President and Investment Officer. President and
Chief
Executive Officer of Davis Skaggs Investment Management, a division of
SBMFM.
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 SBMFM. His address is One Sansome
Street,
38th Floor, San Francisco, California 94104.
Lewis E. Daidone, Treasurer. Managing Director and Chief Financial
Officer
of Smith Barney; Director and Senior Vice President of SBMFM. His address
is 388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary. Managing Director of Smith
Barney ; General
Counsel and Secretary of SBMFM. Her address is 388 Greenwich Street, New
York,
New York 10013.
Mr. McLendon, Mr. Treadway and Mr. Roelofs also serve as trustees,
directors and/or general partners of other mutual funds for which Smith
Barney
serves as principal underwriter. As of October 31, 1994, the Directors and
officers of the Fund, as a group, owned less than 1.00% 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, director or employee of Smith Barney or any
of its
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 AND ADMINISTRATOR -- SBMFM
SBMFM serves as investment adviser to the Fund pursuant to a transfer of
the investment advisory agreement effective November 7, 1994, from its
affiliate, Mutual Management Corp. (Mutual Management Corp. and SBMFM are
wholly owned subsidiaries of Smith Barney Holdings Inc. ("Holdings").
Holdings is in turn a wholly owned subsidiary of The Travelers Inc.
("Travelers").)
The advisory agreement is dated July 30, 1993 (the "Advisory Agreement"),
and was first approved by the Fund's Board of Directors, including a
majority of the Directors who are not
"interested persons" of the Fund or SBMFM, on April 7, 1993 and by
shareholders
on June 22, 1993. The services provided by SBMFM under the Advisory
Agreement
are described in the Prospectus under "Management of the Fund". SBMFM bears
all
expenses in connection with the performance of its services and pays the
salary
of any officer or employee who is employed by both it and the Fund.
As compensation for investment advisory services, the Fund pays
SBMFM 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 incurred $759,836, $370,317 and
$321,009, respectively, in investment advisory fees.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement dated June 28, 1994 (the "Administration Agreement"), which was
approved by the Fund's Board of Directors, including a majority of the
Directors
who are not "interested persons" of the Fund or SBMFM, on June 28, 1994.
The
services provided by SBMFM under the Administration Agreement are described
in
the Prospectus under "Management of the Fund." SBMFM pays the salary of any
officer and employee who is employed by both it and the Fund and bears all
expenses in connection with the performance of its services.
As compensation for SBMFM's service rendered as administrator, the
Fund
pays a fee, computed daily and paid monthly, at the annual rate of 0.20% of
the
value of the Fund's average daily net assets.
3
<PAGE>
SUB-ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors serves as sub-administrator to the Fund
pursuant to a
written agreement (the "Sub-Administration 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 Boston Advisors, on September
13,
1994. Under the Sub-Administration Agreement, Boston Advisors is paid
a portion of the administration fee paid by the Fund to SBMFM at a rate
agreed upoon from time to time between Boston Advisors and SBMFM.
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").
Prior to the close of business on May 21, 1993, Boston Advisors
served as the Fund's sub-investment adviser and administrator. Boston
Advisors received fees as the Fund's
sub-investment adviser and/or administrator of $135,430, $134,661 and
$116,731,
for the period from October 1, 1992 to May 21, 1993, and the fiscal years
ended
September 30, 1992 and 1991, respectively. For the period from May 22, 1993
to
September 30, 1993, the Fund paid $140,874 in administration fees.
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.
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 Smith Barney 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 and statements
of
additional information for regulatory purposes and for distribution to
existing
shareholders; costs of shareholders' reports and corporate meetings.
SBMFM and Boston Advisors have agreed that if in any fiscal year the
aggregate expenses of the Fund (including fees paid pursuant to the
Advisory,
Administration, and Sub-Administrative Agreement, but excluding interest,
taxes,
brokerage fees paid pursuant to the Fund's services and distribution
plan
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, SBMFM and Boston Advisors will, to the
extent
required by law, reduce their management fees by such excess
expense. Such
amount will 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 currently applicable to the Fund would require SBMFM and
Boston Advisors to
reduce their fees in any year that such excess expenses exceed 2.50% of the
first $30 million of average daily net assets, 2.00% of the next $70
million of
average daily net assets and 1.50% 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 serves as their legal counsel.
Deloitte & Touche LLP, independent public accountants, 125 Summer
Street,
Boston, Massachusetts 02110, serve as auditors of the Fund and render 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 its objective. This section contains supplemental
information concerning the types of securities and other instruments in
which
the Fund may invest, the investment policies and portfolio strategies that
the
Fund may utilize and certain risks attendant to such investments, policies
and
strategies.
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.
SBMFM 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 SBMFM 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
5
<PAGE>
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
6
<PAGE>
should the borrower fail financially. Loans will be made to firms deemed by
SBMFM or Boston Advisors to be of good standing and will not be made
unless, in
the judgment of SBMFM 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 temporary defensive
purposes in corporate and government bonds and notes and money market
instruments. Money market instruments in which the Fund may invest include:
obligations issued or guaranteed by the United States government, its
agencies
or instrumentalities ("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.
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.
Bankers' acceptances are time drafts drawn on commercial banks by borrowers
usually in connection with international transactions.
Domestic commercial 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
7
<PAGE>
regulation as well as governmental action in the country in which the
foreign
bank has its head office. A 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, SBMFM 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 SBMFM expects
the
price of the underlying security to remain flat or decline moderately
during the
option period, (b) at-the-money call options when SBMFM 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 SBMFM 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
8
<PAGE>
the security is sold at this lower price, the amount of any 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 SBMFM 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
9
<PAGE>
securities exchanges or are held, written or exercised in one or more
accounts
or through one or more brokers). It is possible that the Fund and other
clients
of SBMFM 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 SBMFM 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
10
<PAGE>
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 SBMFM'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 5.00% of the Fund's net asset value,
after
taking into account unrealized profits and unrealized losses on any such
contracts.
The purpose of entering into a futures contract by the Fund is to
protect
the Fund from fluctuations in the value of securities without actually
buying or
selling the securities. For example, in the case of stock index futures
contracts, if the Fund anticipates an increase in the price of stocks that
it
intends to purchase at a later time, the Fund could enter into contracts to
purchase the stock index (known as taking a "long" position) as a temporary
substitute for the purchase of stocks. If an increase in the market occurs
that
influences the stock index as anticipated, the value of the futures
contracts
increases and thereby serves as a hedge against the Fund's not
participating in
a market advance. The Fund then may close out the futures contracts by
entering
into offsetting futures contracts to sell the stock index (known as taking
a
"short" position) as it purchases individual stocks. The Fund can
accomplish
similar results by buying securities with long maturities and selling
securities
with short maturities. But by using futures contracts as an investment tool
to
reduce risk, given the greater liquidity in the futures market than in the
cash
market, it may be possible to accomplish the same result more easily and
more
quickly.
No consideration will be paid or received by the Fund upon the
purchase or
sale of a futures contract. Initially, the Fund will be required to deposit
with
the broker an amount of cash or cash equivalents equal to approximately 1%
to
10% of the contract amount (this amount is subject to change by the
exchange or
board of trade on which the contract is traded and brokers or members of
such
board of trade may charge a higher amount). This amount is known as
"initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract which is returned to the Fund, upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent
payments, known as "variation margin," to and from the broker, will be made
daily as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." In addition, when the
Fund enters into a a long position in a futures contract or 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
11
<PAGE>
expiration of a futures contract, the Fund may elect to close the position
by
taking an opposite position, which will operate to terminate the Fund's
existing
position in the contract.
There are several risks in connection with the use of futures
contracts as
a hedging device. Successful use of futures contracts by the Fund is
subject to
the ability of SBMFM 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.
12
<PAGE>
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, as set forth in its current prospectus and statement of
additional information.
10. Invest more than 5.00% 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 open-end investment companies (except as
part of
a merger, consolidation, reorganization or acquisition of assets).
This
restriction does not apply to investment in closed-end, publicly
traded
investment companies.
12. Invest in interests in oil, gas or other mineral exploration
or
development programs (except that the Fund may invest in the
securities of
issuers which operate, invest in or sponsor such programs).
13
<PAGE>
13. Purchase or retain the securities of any issuer if, to the
knowledge of the Fund, any officer or Director of the Fund or of Asset
Management owns beneficially more than 1/2 of 1.00% of the outstanding
securities of such issuer and the persons so owning more than 1/2 of
1.00%
of such securities together own beneficially more than 5.00% of such
securities.
14. Purchase warrants if, thereafter, more than 2.00% 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 SBMFM,
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
SBMFM.
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 SBMFM
between
the Fund and SBMFM provides that, in assessing the best overall terms
available
for any transaction, SBMFM 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
SBMFM, 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
SBMFM 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. SBMFM's fee under the
Advisory Agreement is not reduced by reason of SBMFM's receiving such
brokerage
and research services. Further, Smith Barney will not participate in
commissions
from brokerage given by the Fund to other brokers or dealers and will not
receive any reciprocal brokerage business resulting therefrom.
The Fund's Board of Directors has determined that any portfolio
transaction
for the Fund may be executed through Smith Barney if, in SBMFM'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 SBMFM, or certain affiliates of SBMFM,
investments of the type the Fund may make also may be made by such other
accounts. In such instances, available investments or opportunities for
sales
will be
15
<PAGE>
allocated in a manner believed by SBMFM 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's spouse and his or her
children
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; and (f) a trustee or
other
professional fiduciary (including a bank, or an investment adviser
registered
with the SEC under the Investment Advisers Act of 1940, as amended)
purchasing
shares of the Fund for one or more trust estates or fiduciary accounts.
Purchasers who wish to combine purchase orders to take advantage of volume
discounts on Class A shares should contact their Smith Barney Financial
Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the
Prospectus,
apply to any purchase of Class A shares if the aggregate investment in Class A
shares of the Fund and in Class A shares of other funds of the Smith Barney
Mutual Funds that are offered with an initial sales charge, including the
purchase being made, of any purchaser 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 right of accumulation at any time after written notice to
For further information regarding the combined right of accumulation,
shareholders should contact a Smith Barney Financial Consultant.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The
public
offering price for Class A shares of the Fund is equal to the net asset
value
per share at the time of purchase plus an initial sales charge based on the
aggregate amount of the investment. The public offering price for Class B,
Class
C and Class Y shares (and Class A share purchases, including applicable
rights
of accumulation, equalling or exceeding $500,000) 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 and Class C shares, and of Class
A
shares when purchased in amounts equalling or exceeding $500,000. The
method of
computation of the public offering price is shown in the Fund's financial
statements incorporated by reference in their entirety to 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 period during which the NYSE is closed (other than for customary
weekend
or holiday closings), (b) when trading in 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 net asset value is not
reasonably
practicable or (c) for such other periods as the SEC by order may permit
for
protection of the Fund's shareholders.
DISTRIBUTIONS IN KIND
If the Board of Directors of the Fund determines that it would be
detrimental to the best interests of the remaining shareholders to make a
redemption payment wholly in cash, the Fund may pay, in accordance with the
SEC
rules, any portion of a redemption in excess of the lesser of $250,000 or
1.00%
of the Fund's net assets by distribution in kind of portfolio securities in
lieu
of cash. Securities issued as a distribution in kind may incur brokerage
commissions when shareholders subsequently sell 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
monthly or quarterly. Withdrawals of at least $100 may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary
to
cover the stipulated withdrawal payment. Any applicable CDSC will not be
waived
on amounts withdrawn by shareholders that exceed 1.00% per month of the
value of
a shareholder's shares at the time the Withdrawal Plan commences. (With
respect
to Withdrawal Plans in effect prior to November 7, 1994, any applicable
CDSC
will be waived on amounts withdrawn that do not exceed 2.00% 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 will reduce
the
shareholder's investment and ultimately may 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 reinvested automatically at net asset value in
additional shares of the Fund. Effective November 7, 1994, Withdrawal Plans
should be set up with a Smith Barney Financial Consultant. A
shareholder who
purchases shares directly through TSSG may continue to do so and
applications
for participation in the Withdrawal Plan must be received by TSSG no later
than
the eighth day of the month to be eligible for participation beginning with
that
month's withdrawal. For additional information, shareholders should contact
a
Smith Barney Financial Consultant.
17
<PAGE>
- --------- DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis
pursuant
to a written agreement (the "Distribution Agreement") which was most
recently
approved by the Fund's Board of Directors on September 13, 1994. For the
fiscal
years ended September 30, 1993, 1992 and 1991, Smith Barney and/or Shearson
Lehman Brothers received $568,544, $650,569 and $117,352, respectively, in
the
sales charges from the sale of Class A shares and did not reallow any
portion
thereof to dealers. For the period of November 6, 1992 (commencement of
operations -- Class B) through September 30, 1993, Smith Barney (formerly
Shearson Lehman Brothers) received $36,283 representing CDSC fees on
redemptions
of the Fund's Class B shares.
When payment is made by the investor before 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 settlement date, such as an investment in a money market
fund
(other than Smith Barney Exchange Reserve Fund) of the Smith Barney Mutual
Funds. If the investor instructs Smith Barney to invest the funds in a
Smith
Barney 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 Smith Barney money
market fund, and affiliates of Smith Barney that serve the funds in an
investment advisory or administrative 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
these settlement procedures and will take such benefits into consideration
when
reviewing the Advisory, Administration and Distribution Agreements for
continuance.
DISTRIBUTIONS ARRANGEMENTS
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 C
shares. In addition, the Fund pays Smith Barney a distribution fee with
respect
to the Class B and Class C shares primarily intended to compensate Smith
Barney
for its initial expense of paying financial consultants a commission upon
sales
of Class B shares. The Class B and Class C distribution fee is 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 through September 30, 1993, the
Fund's
Class A and Class B shares incurred $221,295 and $103,220, respectively, in
service fees. For the period from August 10, 1993 through September 30,
1993 the
Fund incurred $96 in service fees for its Class C shares. In addition,
Class B
and Class C shares pay a distribution fee primarily intended to compensate
Smith
Barney for its initial expense of paying its Financial Consultants a
commission
upon the sale of its Class B and Class C shares. These distribution fees
are
calculated at the annual rate of .75% of the value of the average daily net
assets attributable to the respective Class. For the period from November
6,
1992 through September 30, 1993, the Fund's Class B shares incurred
$309,660 in
distribution fees. For the same period, the Fund incurred $289 for Class C
shares in distribution fees.
For the fiscal period ended September 30, 1993, Smith Barney or
Shearson Lehman Brothers incurred distribution expenses totaling
approximately $2,034,000, consistiong of approximately $3,000.00 for
advertising, $4,000 for printing and mailing of Prospectuses, $369,000 for
support services, $1,617,000 to Financial Consultants, and $41,000 in
accruals for interest on theeccess of expenses incurred in distributing the
Fund's shares over the sum of the distribution fees and CDSC received by
Smith Barney or Shearson Lehman Brothers from the Fund.
18
<PAGE>
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 or in the Distribution Agreement (the "Independent Directors"). The
Plan
may not be amended to increase the amount of the service and distribution
fees
without shareholder approval, and all material amendments of the Plan also
must
be approved by the Directors and Independent Directors in the manner
described
above. The Plan may be terminated with respect to a class of the Fund (a
"Class") at any time, without penalty, by the 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). Pursuant to the Plan,
Smith Barney will provide the Fund's Board of Directors with periodic
reports of
amounts expended under the Plan and the purpose for which such expenditures
were
made.
- --------- 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. Because of the differences in distribution fees and
Class-specific expenses, the per share net asset value of each Class may
differ.
The following is a description of the procedures used by the Fund in
valuing its
assets.
Securities listed on a national securities exchange will be valued on
the
basis of the last sale on the date on which the valuation is made or, in
the
absence of sales, at the mean between the closing bid and asked prices.
Over-the-counter securities will be valued on the basis of the bid price at
the
close of business on each day, or, if market quotations for those
securities are
not readily available, at fair value, as determined in good faith by the
Fund's
Board of Directors. Short-term obligations with maturities of 60 days or
less
are valued at amortized cost, which constitutes fair value as determined by
the
Fund's Board of Directors. Amortized cost involves valuing an instrument at
its
original cost to the Fund and thereafter assuming a constant amortization
to
maturity or any discount or premium, regardless of the effect of
fluctuating
interest rates on the market value of the instrument. All other securities
and
other assets of the Fund will be valued at fair value as determined in good
faith by the Fund's Board of Directors.
- --------- EXCHANGE PRIVILEGE
Except as noted below and in the Prospectus, shareholders of any fund of
the
Smith Barney Mutual Funds may exchange all or part of their shares for
shares of
the same class of other funds of the Smith Barney Mutual 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 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.
19
<PAGE>
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 the 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 exchange
were
deemed to be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's
prior
ownership of Class A shares of Smith Barney High Income Fund and the
account
number in order to accomplish an exchange of shares of Smith Barney 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 that
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 shareholder 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 a 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 written notice to shareholders.
- --------- PERFORMANCE DATA
From time to time, the Fund may quote total return of a Class in
advertisements
or in reports and other communications to shareholders. The Fund may
include
comparative performance information in advertising or marketing the Fund's
shares. Such performance information may include the following industry and
financial publications: Barrons's Business Week, CDA Investment
Technologies,
Inc., Changing Times, Forbes, Fortune, Institutional Investor, Investors
Daily,
Money, Morningstar Mutual Fund Values, The New York Times, USA Today and
The
Wall Street Journal. To the extent any advertisement or sales literature of
the
Fund describes the expenses or performance of any Class it will also
disclose
such information for the other Classes.
20
<PAGE>
<TABLE>
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
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment
made at the beginning of the 1-, 5-or 10-
year period at the end of
the 1-, 5-or 10-year period (or fractional
portion thereof),
assuming reinvestment of all dividends and
distributions.
</TABLE>
Class A's average annual total return was as follows for the
periods
indicated:
3.95% for the one-year period from April 1, 1993 through
March 31, 1994;
12.04% per annum for the five-year period from April 1, 1989
through
March 31, 1994;
12.25% per annum during the ten-year period from April 1, 1984
through
March 31, 1994.
The average annual total return figures assume that the maximum 5.00%
of
sales charge has been deducted from the investment at the time of purchase.
If the
maximum sales charge of 5.00% had not been deducted at the time of purchase
the
average annual total return for the same periods would have been
9.42%,13.19%,
and 12.82% respectively.
Class B's average annual total return was as follows for the periods
indicated:
3.56% for the one-year period from April 1, 1993 through March 31,
1994.
12.57% per annum for the period from November 6, 1992 (commencement of
opperations)
through March 31, 1994.
The average annual total return fugures assume that the maximum 5.00%
of sales
charge has been deducted from the investment at the time of purchase. If
the maximum
sales charge of 5.00% had not been deducted at the time of purchase the
average annual total
return for the same periods would have been 8.56%, and 12.57%,
respectively.
Class C's average annual total return was as follows for the period
indicated:
1.74% for the period from August 10, 1993 (commencement of
operations)
through March 31, 1994.
<TABLE>
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
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment
made at the beginning of the 1-, 5-or 10-
year period at the end of
the 1-, 5-or 10-year period (or fractional
portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
Class A's aggregate total returns were as follows for the periods
indicated:
9.42% for the one-year period from April 1, 1993 through
March 31, 1994;
85.83% for the five-year period from April, 1989 through
March 31, 1994;
234.17% for the ten-year period from April 1, 1984 through
March 31, 1994.
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 3.95%,
76.54% and 217.46%, respectively.
Class B's aggregate total return was as follows for the periods
indicated:
8.56% for the one-year period beginning on April 1, 1993 through
March 31, 1994;
22.03% for the period beginning November 6, 1992 (commencement of
operations) through March 31, 1994
21
<PAGE>
Class B's aggregate aggregate total return figures assume that the
maximum
applicable CDSC has not been deducted from the investment at the time of
purchase. If the maximum applicable CDSC had been reflected, Class B's
aggregate
total return for the same periods would have been 3.56% and 18.03%,
respectively.
Class C's aggregate total return was as follows for the period
indicated:
2.07% for the period from August 10, 1993 (commencement of
operations)
through March 31, 1994.
Performance will vary from time to time depending upon market
conditions,
the composition of the Fund's portfolio, 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 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 and maturity of the respective
investment companies' portfolio securities.
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.
- --------- 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.
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 gain
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.
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
22
<PAGE>
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 his or her investment in the Fund and redeems or exchanges
the
shares before he or she has held them for more than six months, any loss on
the
redemption or exchange that is less than or equal to the amount of the
distribution will be treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring or redeeming
shares
of the Fund, and (b) disposes of those shares and acquires within 90 days
after
the original acquisition shares in a mutual fund for which the otherwise
applicable sales charge is reduced by a reason of reinvestment right (i.e.,
an
exchange privilege), the original sales charge increases the shareholder's
tax
basis in the original shares only to the extent the otherwise applicable
sales
charge for the second acquisition is not reduced. The portion of the
original
sales charge that does not increase the shareholder's tax basis in the
original
shares would be treated as incurred with respect to the second acquisition
and,
as a general rule, would increase the shareholder's tax basis in the newly
acquired shares. Furthermore, the same rule also applies to a disposition
of the
newly acquired or redeemed shares made within 90 days of the second
acquisition.
This provision prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment in a family of mutual funds.
Investors considering buying shares of the Fund just prior to a record
date
for a taxable dividend or capital gain distribution should be aware that,
regardless of whether the price of the Fund shares to be purchased reflects
the
amount of the forthcoming dividend or distribution payment, any such
payment
will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification
number,
fails to report his or her dividend or interest income in full, or fails to
certify that he or she has provided a correct taxpayer identification
number,
and that he or she is not subject to such withholding, the shareholder may
be
subject to a 31% "backup withholding" tax with respect to (a) any taxable
dividends and distributions and (b) any proceeds of any redemption of Fund
shares. An individual's taxpayer identification number is his or her social
security number. The 31% backup withholding tax is not an additional tax
and may
be credited against a shareholder's regular Federal income tax liability.
23
<PAGE>
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 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
24
<PAGE>
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.
- --------- ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Washington on
March 17,
1981, under the name Foster & Marshall Growth Fund, Inc. On May 22, 1984,
December 18, 1987, November 21, 1989, August 12, 1992, August 17, 1993 and
October 14, 1994, the Fund changed its name to Shearson Fundamental Value
Fund
Inc., Shearson Lehman Fundamental Value Fund Inc., SLH Fundamental Value
Fund
Inc., Shearson Lehman Brothers Fundamental Value Fund Inc., Smith Barney
Shearson Fundamental Value Fund Inc., and Smith Barney Fundamental Value
Fund
Inc.
Boston Safe, an indirect, wholly owned subsidiary of Mellon, is
located at
One Boston Place, Boston, Massachusetts 02108, and serves as the custodian
of
the Fund. Under its agreement with the Fund, 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
market
value of securities held in custody and also receives securities
transaction
charges. 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 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.
- --------- FINANCIAL STATEMENTS
The Fund's Annual and Semi-Annual Reports for the fiscal year ended
September
30, 1993 and the semi-annual period ended March 31, 1994, accompanying this
Statement of Additional Information are incorporated herein by reference in
their entirety.
25
<PAGE>
---------------------------------------------
- ----
SMITH
BARNEY
FUNDAMENTAL
VALUE
FUND
INC.
<TABLE>
<S> <C>
------------------
- ---------
STATEMENT OF
------------------
- ---------
------------------
- ---------
ADDITIONAL
INFORMATION
------------------
- ---------
------------------
- ---------
------------------
- ---------
------------------
- ---------
------------------
- ---------
------------------
- ---------
------------------
- ---------
------------------
- ---------
------------------
- ---------
NOVEMBER 7,1994
------------------
- ---------
SMITH BARNEY
FUNDAMENTAL VALUE FUND INC.
Two World Trade Center
New York, New York 10048 Fund 10
SMITH BARNEY
----
- --------
</TABLE>
