Registration No. 2-71469
811-3158
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 23 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 26 X
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
(formerly known as Smith Barney Shearson Fundamental Value Fund Inc.
)
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 720-9218
Christina T. Sydor
Secretary
Smith Barney Fundamental Value Fund Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on November 7, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ended September 30, 1994 will be filed on or about November
30, 1994.
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(b)
Part A
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Financial Highlights
Financial Highlights
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Additional
Information
5. Management of the Fund
5A. Management's Discussion of
Fund Performance
Management of the Fund;
Distributor; Additional
Information; Annual Report
Not Applicable
6. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Dividends,
Distributions and Taxes;
Additional Information
7. Purchase of Securities Being
Offered
Valuation of Shares; Purchase of
Shares; Exchange Privilege;
Redemption of Shares; Minimum
Account Size; Distributor;
Additional Information
8 Redemption or Repurchase
Purchase of Shares ;
Redemption of Shares; Exchange
Privilege
9. Pending Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover page
11. Table of Contents
Table of Contents
12. General Information and
History
Distributor; Additional
Information
13. Investment Objectives and
Policies
Investment Objective and
Management Policies
14. Management of the Fund
Management of the Fund;
Distributor
15. Control Persons and Principal
Holders
of Securities
Management of the Fund
16. Investment Advisory and Other
Services
Management of the Fund;
Distributor
17. Brokerage Allocation and
Other Services
Investment Objective and
Management
Policies; Distributor
18. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Purchase
of Shares; Redemption of
Shares; Taxes
19. Purchase, Redemption and
Pricing
of Securities Being
Offered
Purchase of Shares; Redemption of
Shares; Valuation of Shares;
Distributor; Exchange
Privilege
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
<PAGE>
___________________________________________________________________________
____
PROSPECTUS
Smith
Barney
FUNDAMENTAL
VALUE
FUND
INC.
NOVEMBER 7,
1994
Prospectus begins on page
one.
<LOGO>
Investing for your future.
Every day.
___________________________________________________________________________
____
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
PROSPECTUS November 7, 1994
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Fundamental Value Fund Inc. (the "Fund") is a mutual fund
with
the principal investment objective of long-term capital growth. Current
income
is a secondary objective. The Fund seeks to achieve its principal objective
by
investing in a diversified portfolio of common stocks and common stock
equivalents and, to a lesser extent, in bonds and other debt instruments.
The
Fund's investment emphasis is on securities which, in the judgment of the
Fund's
investment adviser, are undervalued in the marketplace and, accordingly,
have
above-average potential for capital growth.
This Prospectus sets forth concisely certain information about the
Fund,
including sales charges, distribution and service fees and expenses, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it
for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated November 7, 1994, as amended or supplemented
from
time to time, that is available upon request and without charge by calling
or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY ASSET MANAGEMENT
Investment Adviser
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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- --
FINANCIAL HIGHLIGHTS 10
------------------------------------------------------------------------
- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
------------------------------------------------------------------------
- --
VALUATION OF SHARES 19
------------------------------------------------------------------------
- --
DIVIDENDS, DISTRIBUTIONS AND TAXES 20
------------------------------------------------------------------------
- --
PURCHASE OF SHARES 21
------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE 32
------------------------------------------------------------------------
- --
REDEMPTION OF SHARES 36
------------------------------------------------------------------------
- --
MINIMUM ACCOUNT SIZE 37
------------------------------------------------------------------------
- --
PERFORMANCE 38
------------------------------------------------------------------------
- --
MANAGEMENT OF THE FUND 39
------------------------------------------------------------------------
- --
DISTRIBUTOR 41
------------------------------------------------------------------------
- --
ADDITIONAL INFORMATION 42
------------------------------------------------------------------------
- --
</TABLE>
2
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the
Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end diversified management
investment company with the principal investment objective of long-term
capital
growth. Current income is a secondary objective. The Fund seeks to achieve
its
principal objective by investing in a diversified portfolio of common
stocks and
common stock equivalents and, to a lesser extent, in bonds and other debt
instruments. The Fund's investment emphasis is on securities which, in the
judgment of the Fund's investment adviser, are undervalued in the
marketplace
and, accordingly, have above-average potential for capital growth. See
"Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of
shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of
expenses
to which they are subject. A fourth Class of shares, Class Y shares, will
be
offered to investors meeting an initial investment minimum of $5,000,000.
Class
Y shares will be available upon the approval of certain amendments to the
Fund's
charter. See "Purchase of Shares," and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an
initial
sales charge of up to 5.00% and are subject to an annual service fee of
0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which
when
combined with current holdings of Class A shares offered with sales charge
equal
or exceed $500,000 in the aggregate, will be made at net asset value with
no
sales charge, but will be subject to a contingent deferred sales charge
("CDSC")
of 1.00% on redemptions made within 12 months of purchase. See "Prospectus
Summary -- Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject
to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after
the date of purchase to zero. This CDSC may be waived for certain
redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class. The
3
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
PROSPECTUS SUMMARY (CONTINUED)
Class B shares' distribution fee may cause that Class to have higher
expenses
and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight
years
after the date of the original purchase. Upon conversion, these shares will
no
longer be subject to an annual distribution fee. In addition, a certain
portion
of Class B shares that have been acquired through the reinvestment of
dividends
and distributions ("Class B Dividend Shares") will be converted at that
time.
See "Purchase of Shares -- Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no
initial
sales charge. They are subject to an annual service fee of 0.25% and an
annual
distribution fee of 0.75% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12
months of
purchase. The CDSC may be waived for certain redemptions. The Class C
shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Class C shares, which when
combined
with current holdings of Class C shares of the Fund equal or exceed
$500,000 in
the aggregate, should be made in Class A shares at net asset value with no
sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within
12
months of purchase.
Class Y Shares. Class Y shares will be available, pending the
approval of
certain amendments to the Fund's charter, only to investors meeting an
initial
investment minimum of $5,000,000. Class Y shares will be sold at net asset
value
with no initial sales charge or CDSC. They will be not subject to any
service or
distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is
more
beneficial to an investor depends on the amount and intended length of his
or
her investment. Shareholders who are planning to establish a program of
regular
investment may wish to consider Class A shares; as the investment
accumulates
shareholders may qualify for reduced sales charges and the shares are
subject to
lower ongoing expenses over the term of the investment. As an investment
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund.
4
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
PROSPECTUS SUMMARY (CONTINUED)
Any investment return on these additional invested amounts may partially or
wholly offset the higher annual expenses of these Classes. Because the
Fund's
future return cannot be predicted, however, there can be no assurance that
this
would be the case.
Finally, investors should consider the effect of the CDSC period and
any
conversion rights of the Classes in the context of their own investment
time
frame. For example, while Class C shares have a shorter CDSC period than
Class B
shares, they do not have a conversion feature, and therefore, are subject
to an
ongoing distribution fee. Thus, Class B shares may be more attractive than
Class
C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase, upon
availability, Class Y shares, which will not be subject to an initial sales
charge, CDSC, or service or distribution fee. The maximum purchase amount
for
Class A shares is $4,999,999, Class B shares is $249,999 and Class C shares
is
$499,999. There is no maximum purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class
A
shares may be waived for certain eligible purchasers, and the entire
purchase
price will be immediately invested in the Fund. In addition, Class A share
purchases, which when combined with current holdings of Class A shares
offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made
at
net asset value with no initial sales charge, but will be subject to a CDSC
of
1.00% on redemptions made within 12 months of purchase. The $500,000
aggregate
investment may be met by adding the purchase to the net asset value of all
Class
A shares offered with a sales charge held in funds sponsored by Smith
Barney
Inc. ("Smith Barney") listed under "Exchange Privilege." Other Class A
share
purchases may also be eligible for a reduced sales charge. See "Purchase of
Shares." Because the ongoing expenses of Class A shares may be lower than
those
for Class B and Class C shares, purchasers eligible to purchase Class A
shares
at net asset value or at a reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation
for
selling each Class of shares. Investors should understand that the purpose
of
the CDSC on the Class B and Class C shares is the same as that of the
initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes"
and "Exchange Privilege" for other differences between the Classes of
shares.
5
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
PROSPECTUS SUMMARY (CONTINUED)
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate
in the
Smith Barney 401(k) Program, which is generally designed to assist plan
sponsors
in the creation and operation of retirement plans under Section 401(a) of
the
Internal Revenue Code of 1986, as amended (the "Code"), as well as other
types
of participant directed, tax-qualified employee benefit plans
(collectively,
"Participating Plans"). Class A, Class B, Class C and, upon availability
Class Y
shares are available as investment alternatives for Participating Plans.
See
"Purchase of Shares--Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Fund's
distributor,
Smith Barney, a broker that clears securities transactions through Smith
Barney
on a fully disclosed basis (an "Introducing Broker") or an investment
dealer in
the selling group. Direct purchases by certain retirement plans may be made
through the Fund's transfer agent, The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares
may
open an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-
Employed
Retirement Plan. Investors in Class Y shares, upon availability, may open
an
account for an initial investment of $5,000,000. Subsequent investments of
at
least $50 may be made for all Classes. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(a) of the Code, the
minimum
initial investment requirement for Class A, Class B and Class C shares and
the
subsequent investment requirement for all Classes is $25. The minimum
initial
investment investment for Class A, Class B and Class C shares and the
subsequent
investment requirement for all Classes through the Systematic Investment
Plan
described below is $100. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount of at
least
$100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York
Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
6
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
PROSPECTUS SUMMARY (CONTINUED)
MANAGEMENT OF THE FUND Smith Barney Asset Management ("Asset Management"),
through its Davis Skaggs Investment Management division, serves as the
Fund's
investment adviser. Asset Management is a division of Smith Barney Mutual
Funds
Management Inc. ("SBMFM"). SBMFM is a wholly owned subsidiary of Smith
Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers Inc. ("Travelers"), a diversified financial services holding
company
engaged, through its subsidiaries principally in the four business
segments:
Investment Services, Consumer Finance Services, Life Insurance Services and
Property & Casualty Insurance Services.
SBMFM serves as the Fund's administrator and The Boston Company
Advisors,
Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston
Advisors
is a wholly owned subsidiary of The Boston Company, Inc. ("TBC"), which is
in
turn a wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). See
"Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of
the
same Class of certain other funds of the Smith Barney Mutual Funds at the
respective net asset values next determined, plus any applicable sales
charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day
generally
is quoted daily in the financial section of most newspapers and is also
available from a Smith Barney Financial Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and
distributions of net realized capital gains if any, are declared and paid
annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares
of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset
value.
Shares acquired by dividend and distribution reinvestments will not be
subject
to any sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A
shares
on a pro rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that
the
Fund's investment objective will be achieved. Certain of the investments
held
by the Fund and certain of the investment strategies that the Fund may
employ
might expose it to certain risks. The investments presenting
7
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
PROSPECTUS SUMMARY (CONTINUED)
the Fund with risks are securities of less well-established companies or
companies whose capitalizations are less than the capitalizations of
larger,
better-known companies and foreign securities. In addition, the Fund may
assume
additional risk by entering into repurchase agreements, lending portfolio
securities and entering into transactions involving options. See
"Investment
Objective and Management Policies."
THE FUND'S EXPENSES The following expense table lists the costs and
expenses an
investor will incur either directly or indirectly as a shareholder of the
Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at
the
time of purchase or redemption and, unless otherwise noted, the Fund's
operating
expenses for its 1993 fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B
CLASS C CLASS Y
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- ---------------
<S> <C> <C>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None
None None
Maximum CDSC
(as a percentage of original cost or
redemption proceeds, whichever is lower) None* 5.00%
1.00% None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.75% 0.75%
0.75% 0.75%
Rule 12b-1 fees** 0.25% 1.00%
1.00% None
Other expenses*** 0.45% .51%
.50% 0.45%
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- ---------------
TOTAL FUND OPERATING EXPENSES 1.45% 2.26%
2.25% 1.20%
===========================================================================
===============
</TABLE>
* Purchases of Class A shares, which when combined with current
holdings of
Class A shares offered with a sales charge equal or exceed $500,000
in the
aggregate, will be made at net asset value with no sales charge, but
will
be subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will
no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing
distribution
fee. As a result, long-term shareholders of Class C shares may pay
more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
*** For Class Y shares, "Other expenses" have been estimated based on
expenses
incurred by the Class A shares because Class Y shares were not
available
for purchase prior to November 7, 1994.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors
may
actually pay lower or no charges, depending on the amount purchased and, in
the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney
401(k)
Program. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
8
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
receives an annual 12b-1 service fee of 0.25% of the value of average daily
net
assets of Class A shares. Smith Barney also receives, with respect to Class
B
and Class C shares, an annual 12b-1 fee of 1.00% of the value of average
daily
net assets of the respective Class, consisting of a 0.75% distribution fee
and a
0.25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing
costs
and registration fees.
EXAMPLE The following example is intended to assist an investor in
understanding the various costs that an investor in the Fund will bear
directly
or indirectly. The example assumes payment by the Fund of operating
expenses at
the levels set forth in the table above. See "Purchase of Shares,"
"Redemption
of Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5
YEARS 10 YEARS*
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- ------------------
<S> <C> <C>
<C> <C>
An investor would pay the following expenses on
a $1,000 investment, assuming (1) 5.00% annual
return and
(2) redemption at the end of each time period:
Class A $64 $ 94
$125 $215
Class B 73 101
131 239
Class C 33 70
120 258
Class Y 12 33
66 145
An investor would pay the following expenses on
the same investment, assuming the same annual
return and no redemption:
Class A 64 94
125 215
Class B 23 71
121 239
Class C 23 70
120 258
Class Y 12 33
66 145
===========================================================================
=================
</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares
at
the end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment
periods.
To facilitate such comparison, all funds are required to utilize a 5.00%
annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR
LESS THAN THOSE SHOWN.
9
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
FINANCIAL HIGHLIGHTS
Except where otherwise noted, the following information has been audited by
Deloitte & Touche LLP, independent auditors, whose report thereon appears
in the
Fund's Annual Report dated September 30, 1993. The information set out
below
should be read in conjunction with the financial statements and related
notes
that also appear in the Fund's 1993 Annual Report, which is incorporated by
reference into the Statement of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:*
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
YEAR YEAR
3/31/94 ENDED ENDED
ENDED ENDED
(UNAUDITED) 9/30/93 9/30/92
9/30/91 9/30/90
<S> <C> <C> <C>
<C> <C>
Net asset value, beginning of year $ 8.42 $ 7.22 $ 6.47
$ 5.34 $ 7.15
- ---------------------------------------------------------------------------
- -------------------
Income from investment operations:
Net investment income 0.06 0.07 0.11
0.15 0.16
Net realized and unrealized
gain/(loss)
on investments and written options (0.08) 1.65 0.78
1.50 (1.22)
- ---------------------------------------------------------------------------
- -------------------
Total from investment operations (0.02) 1.72 0.89
1.65 (1.06)
Less distributions:
Distributions from net investment
income (0.08) (0.06) (0.14)
(0.23) (0.18)
Distributions from net realized
capital gains (0.53) (0.46) --
(0.29) (0.57)
- ---------------------------------------------------------------------------
- -------------------
Total distributions (0.61) (0.52) (0.14)
(0.52) (0.75)
- ---------------------------------------------------------------------------
- -------------------
Net asset value, end of year $ 7.79 $ 8.42 $ 7.22
$ 6.47 $ 5.34
- ---------------------------------------------------------------------------
- -------------------
Total return+ (0.33)% 25.23% 14.01%
33.47% (16.25)%
- ---------------------------------------------------------------------------
- -------------------
Ratios to average net assets/
supplemental data:
Net assets, end of year (in 000's) $145,667 $123,188 $77,842
$59,358 $63,159
Ratio of expenses to
average net assets 1.29%++ 1.45% 1.28%
1.30% 1.20%
Ratio of net investment income to
average net assets 1.76%++ 1.00% 1.57%
2.24% 2.40%
Portfolio turnover rate 100% 111% 142%
116% 94%
===========================================================================
===================
</TABLE>
* On November 6, 1992, the Fund commenced selling Class B shares. Those
shares in existence prior to November 6, 1992 were designated Class A
shares.
** As of May 1, 1984, the Fund changed its investment adviser from Foster
&
Marshall Management Inc. to Shearson Asset Management. Subsequent to
July
30, 1993, Shearson Asset Management changed its name to Smith Barney
Shearson Asset Management, and on June 1, 1994 the name was changed to
Smith Barney Asset Management.
+ Total return represents aggregate total return for the period
indicated and
does not reflect any applicable sales charges.
++ Annualized.
10
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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- -----
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
YEAR
ENDED ENDED ENDED ENDED ENDED
ENDED
9/30/89 9/30/88 9/30/87 9/30/86 9/30/85
9/30/84**
<S> <C> <C> <C> <C>
<C>
$ 6.23 $ 8.36 $ 7.24 $ 6.91 $ 6.65
$ 6.78
--------------------------------------------------------------------
- -----------------
0.17 0.15 0.18 0.31 0.19
0.20
1.18 (0.99) 2.00 0.55 0.59
0.32
--------------------------------------------------------------------
- -----------------
1.35 (0.84) 2.18 0.86 0.78
0.52
(0.10) (0.26) (0.32) (0.19)
(0.22) (0.11)
(0.33) (1.03) (0.74) (0.34)
(0.30) (0.54)
--------------------------------------------------------------------
- -----------------
(0.43) (1.29) (1.06) (0.53)
(0.52) (0.65)
--------------------------------------------------------------------
- -----------------
$ 7.15 $ 6.23 $ 8.36 $ 7.24 $ 6.91
$ 6.65
--------------------------------------------------------------------
- -----------------
23.26 % (6.92)% 34.39 % 12.94 % 12.67
% 8.42 %
--------------------------------------------------------------------
- -----------------
$89,048 $84,670 $111,693 $101,563 $114,529
$42,386
1.10 % 1.20 % 1.00 % 1.10 % 1.20
% 1.50 %
2.50 % 2.10 % 2.10 % 3.70 % 4.00
% 4.60 %
62 % 120 % 66 % 91 % 64
% 45 %
===========================================================================
==========
</TABLE>
11
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
PERIOD
3/31/94
ENDED
(UNAUDITED)
9/30/93*
<S> <C>
<C>
Net asset value, beginning of period $ 8.37
$ 7.31
- ---------------------------------------------------------------------------
- ------------
Income from investment operations:
Net investment income 0.03
0.05
Net realized and unrealized gain/(loss) on investments
and written options (0.07)
1.52
- ---------------------------------------------------------------------------
- ------------
Total from investment operations (0.04)
1.57
Less distributions:
Distributions from net investment income (0.02)
(0.05)
Distributions from net realized capital gains (0.53)
(0.46)
- ---------------------------------------------------------------------------
- ------------
Total distributions (0.55)
(0.51)
- ---------------------------------------------------------------------------
- ------------
Net asset value, end of period $ 7.78
$ 8.37
- ---------------------------------------------------------------------------
- ------------
Total return++ (0.65)%
22.82 %
- ---------------------------------------------------------------------------
- ------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $352,480
$114,146
Ratio of expenses to average net assets 2.05 %+
2.26 %+
Ratio of net investment income to average net assets 1.00 %+
0.19 %+
Portfolio turnover rate 100 %
111 %
===========================================================================
============
</TABLE>
* The Fund commenced selling Class B shares on November 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period
indicated and
does not reflect any applicable sales charges.
12
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
PERIOD
3/31/94
ENDED
(UNAUDITED)
9/30/93*
<S> <C>
<C>
Net asset value, beginning of period $ 8.37
$8.15
- ---------------------------------------------------------------------------
- -------------
Income from investment operations:
Net investment income 0.03
0.00#
Net realized and unrealized gain/(loss) on investments
and written options (0.07)
0.22
- ---------------------------------------------------------------------------
- -------------
Total from investment operations (0.04)
0.22
Less distributions:
Distributions from net investment income (0.02)
- --
Distributions from net realized capital gains (0.53)
- --
- ---------------------------------------------------------------------------
- -------------
Total distributions (0.55)
- --
- ---------------------------------------------------------------------------
- -------------
Net asset value, end of period $ 7.78
$8.37
- ---------------------------------------------------------------------------
- -------------
Total return++ (0.62)%
2.70%
===========================================================================
=============
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 773
$ 308
Ratio of expenses to average net assets 1.92 %+
2.25%+
Ratio of net investment income to average net assets 1.13 %+
0.20%+
Portfolio turnover rate 100 %
111%
- ---------------------------------------------------------------------------
- -------------
</TABLE>
* The Fund commenced selling Class C (previously designated as Class D
shares) shares on August 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period.
# Amount represents less than $.01 per Fund share.
Prior to November 7, 1994, the Fund did not offer Class Y shares and
accordingly, no comparable financial information is available at this time
for
that Class.
13
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's primary objective is long-term capital growth. Current
income is
only a secondary consideration. The Fund's primary objective is fundamental
and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding shares. There is no guarantee that the Fund will achieve
its
investment objective.
The Fund seeks to achieve its primary investment objective by
investing in
a diversified portfolio of common stocks and common stock equivalents,
including
preferred stocks and other securities convertible into common stocks. The
Fund
also invests to a lesser extent in bonds and other debt instruments.
In pursuing the Fund's investment objective, Asset Management
emphasizes
securities which, in its judgment, are undervalued in the marketplace and,
accordingly, have above-average capital growth potential. In general, the
Fund
invests in securities of companies which are temporarily unpopular among
investors but which Asset Management regards as possessing favorable
prospects
for earnings growth and/or improvements in the value of their assets and,
consequently, as having a reasonable likelihood of experiencing a recovery
in
market price.
When Asset Management believes that a defensive investment posture is
warranted or when opportunities for capital growth do not appear
attractive, the
Fund may temporarily invest all or a portion of its assets in short-term
money
market instruments, including repurchase agreements with respect to those
instruments. The Fund is authorized to borrow money in an amount up to 10%
of
its total assets for temporary or emergency purposes.
Further information about the Fund's investment policies, including a
list
of those restrictions on its investment activities that cannot be changed
without the approval of the Fund's shareholders, appears in the Statement
of
Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund includes certain risks and special
considerations, such as those described below:
Short-Term Investments. As noted above, in certain circumstances the
Fund
may invest in short-term money market instruments, such as obligations of
the
U.S. government, its agencies and instrumentalities ("U.S. government
securities"), high-quality commercial paper and bank certificates of
deposit and
14
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
time deposits, and may engage in repurchase agreement transactions with
respect
to such instruments.
Repurchase Agreements. The Fund may enter into repurchase agreements
with
certain member banks of the Federal Reserve System and certain dealers on
the
Federal Reserve Bank of New York's list of reporting dealers. Under the
terms of
a typical repurchase agreement, the Fund would acquire securities for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the
securities
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return
that
is not subject to market fluctuations during the Fund's holding period.
Repurchase agreements could involve certain risks in the event of default
or
insolvency of the other party, including possible delays or restrictions
upon
the Fund's ability to dispose of the underlying securities, the risk of a
possible decline in the value of the underlying securities during the
period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all
or
part of the income from the agreement. Asset Management or SBMFM, acting
under
the supervision of the Board of Directors, reviews on an ongoing basis the
value
of the collateral and the creditworthiness of those dealers and banks with
which
the Fund enters into repurchase agreements to evaluate potential risks.
Lending of Portfolio Securities. From time to time, the Fund may lend
its
portfolio securities to brokers, dealers and other financial organizations.
These loans will not exceed 20% of the Fund's total assets, taken at value.
Loans of portfolio securities by the Fund will be collateralized by cash,
letters of credit or U.S. government securities which are maintained at all
times in an amount equal to at least 100% of the current market value of
the
loaned securities. The risks in lending portfolio securities, like those
associated with other extensions of secured credit, consist of possible
delays
in receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail
financially.
Loans will be made to firms deemed by Asset Management or SBMFM to be of
good
standing and will not be made unless, in the judgement of Asset Management
or
SBMFM, the consideration to be earned from such loans would justify the
risk.
Options on Securities. The Fund may write covered call options with
respect to its portfolio securities. The Fund realizes a fee (referred to
as a
"premium") for granting the rights evidenced by a call option. A call
option
15
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
embodies the right of its purchaser to compel the writer of the option to
sell
to the option holder an underlying security at a specified price at any
time
during the option period. Thus, the purchaser of a call option written by
the
Fund has the right to purchase from the Fund the underlying security owned
by
the Fund at the agreed-upon price for a specified time period.
Upon the exercise of a call option written by the Fund, the Fund may
suffer
a loss equal to the excess of the security's market value at the time of
the
option exercise over the Fund's cost of the security, less the premium
received
for writing the option.
The Fund will write only covered options with respect to its portfolio
securities. Accordingly, whenever the Fund writes a call option on its
securities, it will continue to own or have the present right to acquire
the
underlying security for as long as it remains obligated as the writer of
the
option. To support its obligation to purchase the underlying security if a
call
option is exercised, the Fund will either (a) deposit with its custodian in
a
segregated account, cash, U.S. government securities or other high grade
debt
obligations having a value at least equal to the exercise price of the
underlying securities or (b) continue to own an equivalent number of puts
of the
same "series" (that is, puts on the same underlying security) with exercise
prices greater than those that it has written (or, if the exercise prices
of the
puts that it holds are less than the exercise prices of those that it has
written, it will deposit the difference with its custodian in a segregated
account).
The Fund may engage in a closing purchase transaction to realize a
profit,
to prevent an underlying security from being called or to unfreeze an
underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). To effect a closing
purchase transaction, the Fund would purchase, prior to the holder's
exercise of
an option that the Fund has written, an option of the same series as that
on
which the Fund desires to terminate its obligation. The obligation of the
Fund
under an option that it has written would be terminated by a closing
purchase
transaction, but the Fund would not be deemed to own an option as a result
of
the transaction. There can be no assurances that the Fund will be able to
effect
closing purchase transactions at a time when it wishes to do so. To
facilitate
closing purchase transactions, however, the Fund ordinarily will write
options
only if a secondary market for the options exists on a domestic securities
exchange or in the over-the-counter market.
16
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Fund may also, for hedging purposes, purchase put options on
securities
traded on national securities exchanges as well as in the over-the-counter
market. The Fund may purchase put options on particular securities in order
to
protect against a decline in the market value in the underlying securities
below
the exercise price less the premium paid for the option. The ability to
purchase
put options allows the Fund to protect the unrealized gain on an
appreciated
security in its portfolio without actually selling the security. Prior to
expiration, most options may be sold in a closing sale transaction. Profit
or
loss from such a sale will depend on whether the amount received is more or
less
than the premium paid for the option plus the related transaction cost.
The Fund may purchase options in the over-the-counter market ("OTC
options") to the same extent that it may engage in transactions in exchange
traded options. OTC options differ from exchange traded options in that
they are
negotiated individually and terms of the contract are not standardized as
in the
case of exchange traded options. Moreover, because there is no clearing
corporation involved in an OTC option, there is a risk of non-performance
by the
counterparty to the option. However, OTC options generally are much more
available for securities in a wider range of expiration dates and exercise
prices than exchange traded options. It is the current position of the
staff of
the SEC that OTC options (and securities underlying the OTC options) are
illiquid securities. Accordingly, the Fund will treat OTC options as
subject to
the Fund's limitation on illiquid securities until such time as there is a
change in the SEC's position. State securities laws also may impose further
limitations.
Options on Broad-Based Domestic Stock Indexes. The Fund may, for
hedging
purposes only, write call options and purchase put options on broad-based
domestic stock indexes and enter into closing transitions with respect to
such
options. Options on stock indexes are similar to options on securities
except
that, rather than having the right to take or make delivery of stock at the
specified exercised price, an option on a stock index gives the holder the
right
to receive, upon exercise of the option, an amount of cash if the closing
level
of the stock index upon which the option is based is "in the money." This
amount
of cash is equal to the difference between the closing level of the index
and
the exercise price of the option, expressed in dollars times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike stock options, all
settlements
are in cash, and gain or loss depends on price movements in the stock
market
generally rather than price movements in the individual stocks.
17
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The effectiveness of purchasing puts and writing calls on stock index
options depends to a large extent on the ability of the Fund's investment
adviser to predict the price movement of the stock index selected.
Therefore,
whether the Fund realizes a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock
market
generally. Additionally, because exercises of index options are settled in
cash,
a call writer such as the Fund cannot determine the amount of the
settlement
obligations in advance and it cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. When the Fund has written the call, there is also a risk that
the
market may decline between the time the Fund has a call exercised against
it, at
a price which is fixed as of the closing level of the index on the date of
exercise, and the time the Fund is able to exercise the closing transaction
with
respect to the long call position it holds.
Futures Contracts and Options on Futures Contracts. A futures
contract
provides for the future sale by one party and the purchase by the other
party of
a certain amount of a specified security at a specified price, date, time
and
place. The Fund may enter into futures contracts to sell securities when
its
investment adviser believes that the value of the Fund's securities will
decrease. An option on a futures contract, as contrasted with the direct
investment in a futures contract, gives the purchaser the right, in return
for
the premium paid, to assume a position in a futures contract at a specified
exercise price at any time prior to the expiration date of the option. A
call
option gives the purchaser of the option the right to enter into a futures
contract to buy and obliges the writer to enter into a futures contract to
sell
the underlying securities. A put option gives the purchaser the right to
sell
and obliges the writer to buy the underlying contract. The Fund may enter
into
futures contracts to purchase securities when its investment adviser
anticipates
purchasing the underlying securities and believes that prices will rise
before
the purchases will be made. When the Fund enters into a futures contract to
purchase an underlying security, an amount of cash, U.S. government
securities
or other high grade debt securities, equal to the market value of the
contract,
will be deposited in a segregated account with the Fund's custodian to
collateralize the position, thereby insuring that the use of the contract
is
unleveraged. The Fund will not enter into futures contracts for speculation
and
will only enter into futures contracts that are traded on a U.S. exchange
or
board of trade.
The Fund may purchase options on futures contracts to hedge its
portfolio
against the risk of a decline in the market value of securities held, and
may
purchase call options on futures contracts to hedge against an increase in
the
18
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
price of securities it is committed to purchase. The Fund may write put and
call
options on futures contracts in entering into closing sale transactions and
to
increase its ability to hedge against changes in the market value of the
securities it holds or is committed to purchase. The Fund will write put
and
call options only on futures contracts that are traded on a domestic
exchange or
board of trade.
In entering into transactions involving futures contracts and options
on
futures contracts, the Fund will comply with applicable requirements of the
Commodities Futures Trading Commission (the "CFTC") which require that its
transactions in futures and options be engaged in for "bona fide hedging"
purposes or other permitted purposes, provided that aggregate initial
margin
deposits and premiums required to establish positions, other than those
considered by the CFTC to be "bona fide hedging," will not exceed 5% of the
Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts.
Portfolio Transactions. Portfolio securities transactions or options
on
behalf of the Fund are placed by Asset Management with a number of brokers
and
dealers, including Smith Barney. Smith Barney has advised the Fund that, in
transactions with the Fund, Smith Barney charges a commission rate at least
as
favorable as the rate Smith Barney charges its comparable unaffiliated
customers
in similar transactions.
Foreign Securities and American Depositary Receipts. The Fund can
invest
up to 25% of its assets in foreign securities and American Depositary
Receipts
("ADRs"). ADRs are dollar-denominated receipts issued generally by domestic
banks representing the deposit with the bank of a security of a foreign
issuer.
ADRs are publicly traded on exchanges or over the counter in the United
States.
- ---------------------------------------------------------------------------
- -----
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE on each day that the NYSE is open, by dividing
the
value of the Fund's net assets attributable to each Class by the total
number of
shares of the Class outstanding.
Generally, the Fund's investments are valued at market value or, in
the
absence of a market value with respect to any securities, at fair value as
19
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
VALUATION OF SHARES (CONTINUED)
determined by or under the direction of the Fund's Board of Directors.
Short-
term investments that mature in 60 days or less are valued at amortized
cost
whenever the Directors determine that amortized cost is fair value. Further
information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
- ---------------------------------------------------------------------------
- -----
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTORS
The Fund's policy is to distribute its investment income (that is, its
income other than its net realized capital gains) and net realized capital
gains, if any, once a year, normally at the end of the year in which earned
or
at the beginning of the next year.
If a shareholder does not otherwise instruct, dividends and capital
gains
distributions will be reinvested automatically in additional shares of the
same
Class at net asset value, subject to no sales charge or CDSC. In order to
avoid
the application of a 4.00% nondeductible excise tax on certain
undistributed
amounts of ordinary income and capital gains, the Fund may make an
additional
distribution shortly before December 31 in each year of any undistributed
ordinary income or capital gains and expects to pay any other dividends and
distributions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may
be
lower than the per share dividends on Class A and Class Y shares
principally as
a result of the distribution fee applicable with respect to Class B and
Class C
shares. The per share dividends on Class A shares of the Fund may be lower
than
the per share dividends on Class Y shares principally as a result of the
service
fee applicable to Class A shares. Distributions of capital gains, if any,
will
be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as
a
regulated investment company under the Code. Dividends paid from net
investment
income and distributions of net realized short-term capital gains are
taxable to
shareholders as ordinary income, regardless of how long shareholders have
held
their Fund shares and whether such dividends and distributions are received
in
cash or reinvested in additional Fund shares. Distributions of net realized
long-term capital gains will be taxable to shareholders as long-term
20
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
capital gains, regardless of how long shareholders have held Fund shares
and
whether such distributions are received in cash or are reinvested in
additional
Fund shares. Furthermore, as a general rule, a shareholder's gain or loss
on a
sale or redemption of Fund shares will be a long-term capital gain or loss
if
the shareholder has held the shares for more than one year and will be a
short-term capital gain or loss if the shareholder has held the shares for
one
year or less. Some of the Fund's dividends declared from net investment
income
may qualify for the Federal dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder also will receive, if
appropriate, various written notices after the close of the Fund's prior
taxable
year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior
taxable
year. Shareholders should consult their tax advisors about the status of
the
Fund's dividends and distributions for state and local tax liabilities.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES
GENERAL
The Fund currently offers a number of Classes of shares. Class A
shares are
sold to investors with an initial sales charge and Class B and Class C
shares
are sold without an initial sales charge but are subject to a CDSC payable
upon
certain redemptions. (Class A (Interim) shares for most all purposes,
including
net asset value calculation, are identical to Class A shares and are issued
for
limited purposes such as the conversion of Class B shares. Any information
contained in this prospectus relating to Class A shares applies equally to
Class
A (Interim) shares. See "Deferred Sales Charge Alternative" below.) Pending
approval of certain changes to the Fund's charter, Class Y shares will be
sold
without an initial sales charge or CDSC and will be available only to
investors
investing a minimum of $5,000,000. See "Prospectus Summary--Alternative
Purchase
Arrangements" for a discussion of factors to consider in selecting which
Class
of shares to purchase.
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer
in
the selling group, except for investors purchasing shares of the Fund
through a
qualified retirement plan who may do so directly through TSSG. When
purchasing
shares of the Fund, investors must specify whether the purchase is for
21
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
Class A, Class B, Class C or, upon availability, Class Y shares. No
maintenance
fee will be charged by the Fund in connection with a brokerage account
through
which an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account
by
making an initial investment of at least $1,000 for each account, or $250
for an
IRA or a Self-Employed Retirement Plan in the Fund. Investors in Class Y
shares,
upon availability, may open an account by making an initial investment of
$5,000,000. Subsequent investments of at least $50 may be made for all
Classes.
For participants in retirement plans qualified under Section 403(b)(7) or
Section 401(a) of the Code, the minimum initial investment requirement for
Class
A, Class B and Class C shares and the subsequent investment requirement for
all
Classes in the Fund is $25. For the Fund's Systematic Investment Plan, the
minimum initial investment requirement for Class A, Class B and Class C
shares
and the subsequent investment requirement for all classes is $100. There
are no
minimum investment requirements for Class A shares for employees of
Travelers
and its subsidiaries, including Smith Barney, Directors of the Fund and
their
spouses and children. The Fund reserves the right to waive or change
minimums,
to decline any order to purchase its shares and to suspend the offering of
shares from time to time. Shares purchased will be held in the
shareholder's
account by the Fund's transfer agent, TSSG. Share certificates are issued
only
upon a shareholder's written request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular
trading on the NYSE, on any day the Fund calculates its net asset value,
are
priced according to the net asset value determined on that day. Orders
received
by dealers or Introducing Brokers prior to the close of regular trading on
the
NYSE on any day the Fund calculates its net asset value, are priced
according to
the net asset value determined on that day, provided the order is received
by
Smith Barney prior to Smith Barney's close of business (the "trade date").
Currently, payment for Fund shares is due on the fifth business day (the
"settlement date") after the trade date. The Fund anticipates that, in
accordance with regulatory changes, beginning on or about June 1, 1995, the
settlement date will be the third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by
purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is authorized through
preauthorized transfers of $100 or more to charge the regular bank account
or
22
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer
will
be charged a fee of up to $25 by Smith Barney or TSSG. The Systematic
Investment
Plan also authorizes Smith Barney to apply cash held in the shareholder's
Smith
Barney brokerage account or redeem the shareholder's shares of a Smith
Barney
money market fund to make additions to the account. Additional information
is
available from the Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the
Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
DEALERS
AS % OF SALES CHARGE
REALLOWANCE
OFFERING AS % OF
AS % OF
AMOUNT OF INVESTMENT PRICE AMOUNT INVESTED
OFFERING PRICE
- ---------------------------------------------------------------------------
- ---------------
<S> <C> <C>
<C>
Less than $25,000 5.00% 5.26%
4.50%
$25,000-$49,999 4.00% 4.17%
3.60%
$50,000-$99,999 3.50% 3.63%
3.15%
$100,000-$249,999 3.00% 3.09%
2.70%
$250,000-$499,999 2.00% 2.04%
1.80%
$500,000 and over * *
*
===========================================================================
===============
</TABLE>
* Purchases of Class A shares, which when combined with current holdings
of
Class A shares offered with a sales charge, equal or exceed $500,000 in
the
aggregate, will be made at net asset value without any initial sales
charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12
months
of purchase. The CDSC on Class A shares is payable to Smith Barney,
which
compensates Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the
same
circumstances in which the CDSC applicable to Class B and Class C shares
is
waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge
and
may be deemed to be underwriters of the Fund as defined in the Securities
Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of
purchases
of Class A shares of the Fund made at one time by "any person," which
includes
an individual, his or her spouse and children, or a trustee or other
fiduciary
of a single trust estate or single fiduciary account. The reduced sales
charge
minimums may also be met by aggregating the purchase with the net asset
value of
all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney listed under "Exchange Privilege."
23
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a
sales
charge in the following circumstances: (a) sales of Class A shares to
Directors
of the Fund and employees of Travelers and its subsidiaries, or the spouses
and
children of such persons (including the surviving spouse of a deceased
Director
or employee, and retired Directors or employees), or sales to any trust,
pension, profit-sharing or other benefit plan for such persons provided
such
sales are made upon the assurance of the purchaser that the purchase is
made for
investment purposes and that the securities will not be re-sold except
through
redemption or repurchase; (b) offers of Class A shares to any other
investment
company in connection with the combination of such company with the Fund by
merger, acquisition of assets or otherwise; (c) purchases of Class A shares
by
any client of a newly employed Smith Barney Financial Consultant (for a
period
up to 90 days from the commencement of the Financial Consultant's
employment
with Smith Barney), on the condition the purchase of Class A shares is made
with
the proceeds of the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer, (ii) was sold to
the
client by the Financial Consultant and (iii) was subject to a sales charge;
(d)
shareholders who have redeemed Class A shares of the Fund (or Class A
shares of
another of the Smith Barney Mutual Funds that are offered with a sales
charge
equal to or greater than the maximum sales charge of the Fund) and who wish
to
reinvest their redemption proceeds in the Fund, provided the reinvestment
is
made within 60 calendar days of the redemption; and (e) accounts managed by
registered investment advisory subsidiaries of Travelers. In order to
obtain
such discounts, the purchaser must provide sufficient information at the
time of
purchase to permit verification that the purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as
defined
above) at a reduced sales charge or at net asset value determined by
aggregating
the dollar amount of the new purchase and the total net asset value of all
Class
A shares of the Fund and of funds sponsored by Smith Barney, that are
offered
with a sales charge listed under "Exchange Privilege" then held by such
person
and applying the sales charge applicable to such aggregate. In order to
obtain
such discount, the purchaser must provide sufficient information at the
time of
purchase to permit verification that the purchase qualifies for the reduced
24
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge
or
purchase at net asset value will also be available to employees (and
partners)
of the same employer purchasing as a group, provided each participant makes
the
minimum initial investment required. The sales charge applicable to
purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based
upon
the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with
a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value,
all
purchases must be pursuant to an employer-or partnership-sanctioned plan
meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if
any.
Such plan may, but is not required to, provide for payroll deductions, IRAs
or
investments pursuant to retirement plans under Sections 401 or 408 of the
Code.
Smith Barney may also offer a reduced sales charge or net asset value
purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses.
An
individual who is a member of a qualified group may also purchase Class A
shares
at the reduced sales charge applicable to the group as a whole. The sales
charge
is based upon the aggregate dollar value of Class A shares offered with a
sales
charge that have been previously purchased and are still owned by the
group,
plus the amount of the current purchase. A "qualified group" is one which
(a)
has been in existence for more than six months, (b) has a purpose other
than
acquiring Fund shares at a discount, and (c) satisfies uniform criteria
which
enable Smith Barney to realize economies of scale in its costs of
distributing
shares. A qualified group must have more than 10 members, must be available
to
arrange for group meetings between representatives of the Fund and the
members,
and must agree to include sales and other materials related to the Fund in
its
publications and mailings to members at no cost to Smith Barney. In order
to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to
permit
verification that the purchase qualifies for the reduced sales charge.
Approval
of group purchase reduced sales charge plans is subject to the discretion
of
Smith Barney.
25
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an
opportunity
for an investor to obtain a reduced sales charge by aggregating investments
over
a 13-month period, provided that the investor refers to such Letter when
placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all
Class
A shares of the Fund and other funds of the Smith Barney Mutual Funds
offered
with a sales charge over the 13-month period based on the total amount of
intended purchases plus the value of all Class A shares previously
purchased and
still owned. An alternative is to compute the 13-month period starting up
to 90
days before the date of execution of a Letter of Intent. Each investment
made
during the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the
period,
the investor must pay the difference between the sales charges applicable
to the
purchases made and the charges previously paid, or an appropriate number of
escrowed shares will be redeemed. New Letters of Intent will be accepted
beginning January 1, 1995. Please contact a Smith Barney Financial
Consultant or
TSSG to obtain a Letter of Intent application.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment
may be immediately invested in the Fund. A CDSC, however may be imposed on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B shares;
(b)
Class C shares; and (c) Class A shares which when combined with Class A
shares
offered with a sales charge currently held by an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser
of
the cost of the shares being redeemed or their net asset value at the time
of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to
the
extent that the value of such shares represents: (a) capital appreciation
of
Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c)
with respect to Class B shares, shares redeemed more than five years after
their
purchase; or (d) with respect to Class C shares and Class A shares that are
CDSC
shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to
a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in
26
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
which the CDSC is imposed on Class B shares, the amount of the charge will
depend on the number of years since the shareholder made the purchase
payment
from which the amount is being redeemed. Solely for purposes of determining
the
number of years since a purchase payment, all purchase payments made during
a
month will be aggregated and deemed to have been made on the last day of
the
preceding Smith Barney statement month. The following table sets forth the
rates
of the charge for redemptions of Class B shares by shareholders, except in
the
case of purchases by Participating Plans, as described below. See "Purchase
of
Shares--Smith Barney 401(k) Program."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ----------------------------------------------------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
- ----------------------------------------------------------
</TABLE>
Class B shares will convert automatically to Class A (Interim) shares
eight
years after the date on which they were purchased and thereafter will no
longer
be subject to any distribution fees. There also will be converted at that
time
such proportion of Class B Dividend Shares owned by the shareholder as the
total
number of his or her Class B shares converting at the time bears to the
total
number of outstanding Class B shares (other than Class B Dividend Shares)
owned
by the shareholder. Class A (Interim) shares are for most all purposes,
including net asset value calculation, identical to Class A shares. Class A
(Interim) shares are issued for limited purposes such as conversion of
Class B
shares. Pending shareholder approval Class A (Interim) shares will be
combined
with Class A Shares. Shareholders who held Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term World Income Fund")
on
July 15, 1994 and who subsequently exchange those shares for Class B shares
of
the Fund will be offered the opportunity to exchange all such Class B
shares for
Class A shares or Class A (Interim) shares of the Fund four years after the
date
on which those shares were deemed to have been purchased. Holders of such
Class
B shares will be notified of the pending exchange in writing approximately
30
days before the fourth anniversary of the purchase date and, unless the
exchange
has been rejected in writing, the
27
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
exchange will occur on or about the fourth anniversary date. See
"Prospectus
Summary--Alternative Purchase Arrangements--Class B Shares Conversion
Feature."
The length of time that CDSC Shares acquired through an exchange have
been
held will be calculated from the date that the shares exchanged were
initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares
being
redeemed will be considered to represent, as applicable, capital
appreciation or
dividend and capital gain distribution reinvestments in such other funds.
For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on
redemption. The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares
at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be
$1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount
which
represents appreciation ($200) and the value of the reinvested dividend
shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260)
would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for
a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege");
(b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month
of
the value of the shareholder's shares at the time the withdrawal plan
commences
(see below) (provided, however, that automatic cash withdrawals in amounts
equal
to or less than 2.00% per month of the value of the shareholder's shares
will be
permitted for withdrawal plans that were established prior to November 7,
1994);
(c) redemptions of shares within 12 months following the death or
disability of
the shareholder; (d) redemption of shares made in connection with qualified
distributions from retirement plans or IRAs upon the attainment of age 59
1/2;
(e) involuntary redemptions; and (f) redemptions of shares in connection
with a
combination of the Fund with any investment company by merger, acquisition
of
assets or otherwise. In addition, a shareholder who has redeemed shares
from
other funds of the Smith Barney Mutual Funds may, under certain
circumstances,
reinvest all or part
28
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
of the redemption proceeds within 60 days and receive pro rata credit for
any
CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney
in
the case of shareholders who are also Smith Barney clients or by TSSG in
the
case of all other shareholders) of the shareholder's status or holdings, as
the
case may be.
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the Smith Barney 401(k)
Program, which is generally designed to assist plan sponsors in the
creation and
operation of retirement plans under Section 401(a) of the Code. To the
extent
applicable, the same terms and conditions are offered to all Participating
Plans
in the Smith Barney 401(k) Program.
The Fund offers to Participating Plans Class A, Class B, Class C and,
upon
availability, Class Y shares as investment alternatives under the Smith
Barney
401(k) Program. Class A, Class B and Class C shares acquired through the
Smith
Barney 401(k) Program are subject to the same service and/or distribution
fees
as, but different sales charge and CDSC schedules than, the Class A, Class
B and
Class C shares acquired by other investors. Similar to those shares
available to
other investors, Class Y shares acquired through the Smith Barney 401(k)
Program
will not be subject to any initial sales charge, CDSC or service or
distribution
fee. Once a Participating Plan has made an initial investment in the Fund,
all
of its subsequent investments in the Fund must be in the same Class of
shares,
except as otherwise described below.
Class A Shares. Class A shares of the Fund are offered without any
initial
sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney
Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program
after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if
the
Participating Plan terminates within four years of the date the
Participating
Plan first enrolled in the Smith Barney 401(k) Program.
Class B Shares. Class B shares of the Fund are offered to any
Participating Plan that purchases less than $250,000 of one or more funds
of the
Smith Barney Mutual Funds. Class B shares acquired through the Smith Barney
401(k) Program are subject to a CDSC of 3.00% of redemption proceeds, if
the
Participating Plan terminates within eight years of the date the
Participating
Plan first enrolled in the Smith Barney 401(k) Program.
29
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
Eight years after the date the Participating Plan enrolled in the
Smith
Barney 401(k) Program, it will be offered the opportunity to exchange all
of its
Class B shares for Class A shares of the Fund. Such Plans will be notified
of
the pending exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has been
rejected in
writing, the exchange will occur on or about the eighth anniversary date.
Once
the exchange has occurred, a Participating Plan will not be eligible to
acquire
additional Class B shares of the Fund but instead may acquire Class A
shares of
the Fund. If the Participating Plan elects not to exchange all of its Class
B
shares at that time, each Class B share held by the Participating Plan will
have
the same conversion feature as Class B shares held by other investors. See
"Purchase of Shares-- Deferred Sales Charge Alternatives."
Class C Shares. Class C shares of the Fund are offered to any
Participating Plan that purchases from $250,000 to $499,999 of one or more
funds
of the Smith Barney Mutual Funds. Class C shares acquired through the Smith
Barney 401(k) Program after November 7, 1994 are subject to a CDSC of 1.00%
of
redemption proceeds, if the Participating Plan terminates within four years
of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program. Each year after the date a Participating Plan enrolled in the
Smith
Barney 401(k) Program, if its total Class C holdings equal at least
$500,000 as
of the calendar year-end, the Participating Plan will be offered the
opportunity
to exchange all of its Class C shares for Class A shares of the Fund. Such
Plans
will be notified in writing within 30 days after the last business day of
the
calendar year, and unless the exchange offer has been rejected in writing,
the
exchange will occur on or about the last business day of the following
March.
Once the exchange has occurred, a Participating Plan will not be eligible
to
acquire Class C shares of the Fund but instead may acquire Class A shares
of the
Fund. Class C shares not converted will continue to be subject to the
distribution fee.
Class Y Shares. Upon availability, Class Y shares of the Fund will be
offered without any service or distribution fee, sales charge or CDSC to
any
Participating Plan that purchases $5,000,000 or more of Class Y shares of
one or
more funds of the Smith Barney Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to the extent that
the net
asset value of the shares redeemed does not exceed the current net asset
value
of the shares purchased through reinvestment of dividends or capital gain
distributions, plus (a) with respect to Class A and Class C shares, the
current
net asset value of such shares purchased more than one year prior to
redemption
and, with respect to Class B shares, the current net asset value of Class B
shares
30
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
purchased more than eight years prior to the redemption, plus (b) with
respect
to Class A and Class C shares, increases in the net asset value of the
shareholder's Class A or Class C shares above the purchase payments made
during
the preceding year and, with respect to Class B shares, increases in the
net
asset value of the shareholder's Class B shares above the purchase payments
made
during the preceding eight years. Whether or not the CDSC applies to a
Participating Plan depends on the number of years since the Participating
Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the CDSC to other shareholders, which depends on the
number of
years since those shareholders made the purchase payment from which the
amount
is being redeemed.
The CDSC will be waived on redemptions of CDSC Shares in connection
with
lump-sum or other distributions made by a Participating Plan as a result
of: (a)
the retirement of an employee in the Participating Plan; (b) the
termination of
employment of an employee in the Participating Plan; (c) the death or
disability
of an employee in the Participating Plan; (d) the attainment of age 59 1/2
by an
employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the
Code; or
(f) redemptions of shares in connection with a loan made by the
Participating
Plan to an employee.
Participating Plans wishing to acquire shares of the Fund through the
Smith
Barney 401(k) Program must purchase such shares directly from TSSG. For
further
information regarding the Smith Barney 401(k) Program, investors should
contact
a Smith Barney Financial Consultant.
31
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged
at
the net asset value next determined for shares of the same Class in the
following funds of the Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence. Exchanges of
Class A,
Class B and Class C shares are subject to minimum investment requirements
and
all shares are subject to the other requirements of the fund into which
exchanges are made and a sales charge differential may apply.
FUND NAME
<TABLE>
<S> <C>
Growth Funds
Smith Barney Aggressive Growth Fund, Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Funds, Inc.--Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc.--International Balanced Portfolio
Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc.--Income Return Account Portfolio
Smith Barney Funds, Inc.--Monthly Payment Government Portfolio
+++ Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities
Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
</TABLE>
32
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<S> <C>
Smith Barney Funds, Inc.--Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Municipal Bond Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds--California Limited Term Portfolio
Smith Barney Muni Funds--California Portfolio
* Smith Barney Muni Funds--Florida Limited Term Portfolio
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
* Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New Jersey Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc.--Cash Portfolio
++ Smith Barney Money Funds, Inc.--Government Portfolio
*** Smith Barney Money Funds, Inc.--Retirement Portfolio
</TABLE>
33
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
EXCHANGE PRIVILEGE (CONTINUED)
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds--California Money Market Portfolio
+++ Smith Barney Muni Funds--New York Money Market Portfolio
- ---------------------------------------------------------------------------
- -----
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A, Class B and Class Y shares of the
Fund.
In addition, shareholders who own Class C shares of the Fund through
the
Smith Barney 401(k) Program may exchange those shares for Class C
shares of
this fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the
Smith
Barney 401(k) Program may exchange those shares for Class C shares of
this
fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold
without a sales charge or with a maximum sales charge of less than the
maximum
charged by other Smith Barney Mutual Funds will be subject to the
appropriate
"sales charge differential" upon the exchange of such shares for Class A
shares
of a fund sold with a higher sales charge. The "sales charge differential"
is
limited to a percentage rate no greater than the excess of the sales charge
rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund
shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends and capital gain distributions are treated as
having
paid the same sales charges applicable to the shares on which the dividends
or
distributions were paid; however, except in the case of the Smith Barney
401(k)
Program, if no sales charge was imposed upon the initial purchase of the
shares,
any shares obtained through automatic reinvestment will be subject to a
sales
charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund
on
July 15, 1994) wishes to exchange all or a portion of his or her shares in
any
of the funds imposing a higher CDSC than that imposed by the Fund, the
exchanged
Class B shares will be subject to the higher applicable CDSC. Upon an
exchange,
the new Class B shares will be deemed to have been purchased on the same
date as
the Class B shares of the Fund that have been exchanged.
34
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
EXCHANGE PRIVILEGE (CONTINUED)
Class C Exchanges. Upon an exchange, the new Class C shares will be
deemed
to have been purchased on the same date as the Class C shares of the Fund
that
have been exchanged.
Class Y Exchanges. Class Y shareholders of the Fund who wish to
exchange
all or a portion of their Class Y shares for Class Y shares in any of the
funds
identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions
can
be detrimental to the Fund's performance and its shareholders. Asset
Management
may determine that a pattern of frequent exchanges is excessive and
contrary to
the best interests of the Fund's other shareholders. In this event, Asset
Management will notify Smith Barney and Smith Barney may, at its
discretion,
decide to limit additional purchases and/or exchanges by a shareholder.
Upon
such a determination, Smith Barney will provide notice in writing or by
telephone to the shareholder at least 15 days prior to suspending the
exchange
privilege and during the 15-day period the shareholder will be required to
(a)
redeem his or her shares in the Fund or (b) remain invested in the Fund or
exchange into any of the funds of the Smith Barney Mutual Funds ordinarily
available, which position the shareholder would be expected to maintain for
a
significant period of time. All relevant factors will be considered in
determining what constitutes an abusive pattern of exchanges.
Exchanges will be processed at the net asset value next determined,
plus
any applicable sales charge differential. Redemption procedures discussed
below
are also applicable for exchanging shares, and exchanges will be made upon
receipt of all supporting documents in proper form. If the account
registration
of the shares of the fund being acquired is identical to the registration
of the
shares of the fund exchanged, no signature guarantee is required. A capital
gain
or loss for tax purposes will be realized upon the exchange, depending upon
the
cost or other basis of shares redeemed. Before exchanging shares, investors
should read the current prospectus describing the shares to be acquired.
The
Fund reserves the right to modify or discontinue exchange privileges upon
60
days' prior notice to shareholders.
35
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it,
as
described below, at a redemption price equal to their net asset value per
share
next determined after receipt of a written request in proper form at no
charge
other than any applicable CDSC. Redemption requests received after the
close of
regular trading on the NYSE are priced at the net asset value next
determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure
to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the
shareholder's
account is not with Smith Barney, from the shareholder directly. The
redemption
proceeds will be remitted on or before the seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as
permitted
under the Investment Company Act of 1940 ("1940 Act") in extraordinary
circumstances. The Fund anticipates that, in accordance with regulatory
changes,
beginning on or about June 1, 1995, payment will be made on the third
business
day after receipt of proper tender. Generally, if the redemption proceeds
are
remitted to a Smith Barney brokerage account, these funds will not be
invested
for the shareholder's benefit without specific instruction and Smith Barney
will
benefit from the use of temporarily uninvested funds. Redemption proceeds
for
shares purchased by check, other than a certified or official bank check,
will
be remitted upon clearance of the check, which may take up to ten days or
more.
Shares held by Smith Barney as custodian must be redeemed by
submitting a
written request to a Smith Barney Financial Consultant. Shares other than
those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or
by
submitting a written request for redemption to:
Smith Barney Fundamental Value Fund Inc.
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or
dollar
amount of shares to be redeemed, (b) identify the shareholder's account
number
and (c) be signed by each registered owner exactly as the shares are
registered.
If the shares to be redeemed were issued in certificate form, the
certificates
must be endorsed for transfer (or be accompanied by an endorsed
36
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
REDEMPTION OF SHARES (CONTINUED)
stock power) and must be submitted to TSSG together with the redemption
request.
Any signature appearing on a redemption request, share certificate or stock
power must be guaranteed by an eligible guarantor institution such as a
domestic
bank, savings and loan institution, domestic credit union, member bank of
the
Federal Reserve System or member firm of a national securities exchange.
TSSG
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A
redemption
request will not be deemed properly received until TSSG receives all
required
documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $100 monthly or quarterly. Retirement
plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an
account
value of at least $5,000. The withdrawal plan will be carried over on
exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be
waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value
of
the shareholder's shares subject to the CDSC 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 the shareholder's shares subject to the
CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
- ---------------------------------------------------------------------------
- -----
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any
shareholder's
account in the Fund if the aggregate net asset value of the shares held in
the
Fund account is less than $500. (If a shareholder has more than one account
in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net
asset
value. Before the Fund exercises such right, shareholders will receive
written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
37
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
PERFORMANCE
From time to time the Fund may include its total return, average
annual
total return and current dividend return in advertisements and/or other
types of
sales literature. These figures are computed separately for Class A, Class
B,
Class C and Class Y shares of the Fund. These figures are based on
historical
earnings and are not intended to indicate future performance. Total return
is
computed for a specified period of time assuming deduction of the maximum
sales
charge, if any, from the initial amount invested and reinvestment of all
income
dividends and capital gain distributions on the reinvestment dates at
prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested
and subtracting 100%. The standard average annual total return, as
prescribed by
the SEC, is derived from this total return, which provides the ending
redeemable
value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the
same
manner but without annualizing the total return or taking sales charges
into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net
asset
value or the maximum public offering price (including sales charge) on the
last
day of the period for which current dividend return is presented. The
current
dividend return for each Class may vary from time to time depending on
market
conditions, the composition of its investment portfolio and operating
expenses.
These factors and possible differences in the methods used in calculating
current dividend return should be considered when comparing a Class'
current
return to yields published for other investment companies and other
investment
vehicles. The Fund may also include comparative performance information in
advertising or marketing its shares. Such performance information may
include
data from Lipper Analytical Services, Inc. and other financial
publications. The
Fund will include performance data for Class A, Class B, Class C and Class
Y
shares in any advertisement or information including performance data of
the
Fund.
38
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund
rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the
Fund,
including agreements with the Fund's distributor, investment adviser,
administrator, sub-administrator, custodian and transfer agent. The day-to-
day
operations of the Fund are delegated to the Fund's investment adviser,
administrator and sub-administrator. The Statement of Additional
Information
contains general background information regarding each Director and
executive
officer of the Fund.
INVESTMENT ADVISER--ASSET MANAGEMENT
Asset Management, located at 388 Greenwich Street, New York, New York
10013, through its Davis Skaggs Investment Management division, located at
One
Sansome Street, San Francisco, California 94104, serves as the Fund's
investment
adviser. Asset Management (through its predecessor entities) has been in
the
investment counseling business since 1940 and renders investment advice to
a
wide variety of individual, institutional and investment company clients
having
aggregate assets under management as of September 30, 1994 in excess of $4
billion.
Subject to the supervision and direction of the Fund's Board of
Directors,
Asset Management manages the Fund's portfolio in accordance with the Fund's
stated investment objective and policies, makes investment decisions for
the
Fund, places orders to purchase and sell securities and employs
professional
portfolio managers and securities analysts who provide research services to
the
Fund. Under an investment advisory agreement, the Fund pays Asset
Management a
monthly fee at the annual rate of 0.55% of the value of its average daily
net
assets.
PORTFOLIO MANAGEMENT
John G. Goode, President and Chief Executive Officer of Davis Skaggs
Investment Management, a division of Asset Management, has served as Vice
President and Investment Officer of the Fund since November 1990 and
manages the
day to day operations of the Fund, including making all investment
decisions.
39
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
MANAGEMENT OF THE FUND (CONTINUED)
Mr. Goode's management discussion and analysis of the Fund's
performance
during the fiscal year ended September 30, 1993 (including a line graph
comparing the Fund's performance to the Standard & Poor's 500 Composite
Stock
Price Index) is included in the Fund's Annual Report to Shareholders dated
September 30, 1993. The Fund's Annual Report may be obtained upon request
and
without charge from a Smith Barney Financial Consultant or by writing or
calling
the Fund at the address or phone number listed on page one of this
Prospectus.
ADMINISTRATOR--SBMFM
SBMFM serves as the Fund's administrator and generally assists in all
aspects of the Fund's administration and operation. SBMFM provides
investment
management and administrative services to investment companies that had
assets
under management as of September 30, 1994 of $9.5 billion. As the Fund's
administrator, SBMFM oversees all aspects of the Fund's administration and
operations. Pursuant to an administration agreement with the Fund, SBMFM is
paid
a fee at an annual rate of 0.20% of the value of the Fund's average daily
net
assets.
SUB-ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts
02108,
serves as the Fund's sub-administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to
investment
companies that had aggregate assets under management as of September 30,
1994 in
excess of $48.6 billion.
Boston Advisors calculates the net asset value of the Fund's shares
and
generally assists in all aspects of the Fund's administration and
operation.
Under a sub-administration agreement dated June 28, 1994, Boston Advisors
is
paid a portion of the fee paid by the Fund to SBMFM at a rate agreed upon
from
time to time between Boston Advisors and SBMFM. Prior to June 28, 1994,
Boston
Advisors served as the Fund's administrator. For the fiscal year ended
September
30, 1993, the Fund paid sub-investment advisory and/or administration fees
to
Boston Advisors, in an amount equal to 0.20% of the value of the average
daily
net assets of the Fund.
40
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York
10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be
sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with
respect to Class A, Class B and Class C shares of the Fund at the annual
rate of
0.25% of the average daily net assets of the respective Class. Smith Barney
is
also paid a distribution fee with respect to Class B and Class C shares at
the
annual rate of 0.75% of the average daily net assets attributable to those
Classes. Class B shares that automatically convert to Class A or Class A
(Interim) shares eight years after the date of original purchase will no
longer
be subject to a distribution fee. The fees are used by Smith Barney to pay
its
Financial Consultants for servicing shareholder accounts and, in the case
of
Class B and Class C shares, to cover expenses primarily intended to result
in
the sale of those shares. These expenses include: advertising expenses; the
cost
of printing and mailing prospectuses to potential investors; payments to
and
expenses of Smith Barney Financial Consultants and other persons who
provide
support services in connection with the distribution of shares; interest
and/or
carrying charges; and indirect and overhead costs of Smith Barney
associated
with the sale of Fund shares, including lease, utility, communications and
sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares
of a
Class include a commission or fee paid by the investor or Smith Barney at
the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a
shareholder
remains a holder of that Class. Smith Barney Financial Consultants may
receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution
and
shareholder service expenses actually incurred by Smith Barney and the
payments
may exceed distribution expenses actually incurred. The Fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment
terms on
a continuing basis and in so doing will consider all relevant factors,
including
expenses borne by Smith Barney, amounts received under the Plan and the
proceeds
of CDSC.
41
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
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., and is
registered with the SEC as a diversified, open-end management investment
company.
Each Class of shares represents identical interests in the Fund's
investment portfolio. As such, they have the same rights, privileges and
preferences, except with respect to: (a) the designation of each Class; (b)
the
effect of the respective sales charges, if any, for each Class; (c) the
distribution and/or service fees borne by each Class; (d) the expenses
allocable
exclusively to each Class; (e) voting rights on matters exclusively
affecting a
single Class; (f) the exchange privilege of each Class; and (g) the
conversion
feature of the Class B shares. The Board of Directors does not anticipate
that
there will be any conflicts among the interests of the holders of the
different
Classes of shares of the Fund. The Directors, on an ongoing basis, will
consider
whether any such conflict exists and, if so, take appropriate action.
The Fund currently offers shares of common stock classified into four
Classes, A, A (Interim), B and C. Each Class of shares represents an
identical
pro rata interest in the Fund's investment portfolio. Pending shareholder
approval, Classes A and A (Interim) will be combined and Class Y will be
offered. When matters are submitted for shareholder vote, each shareholder
will
have one vote for each full share owned and proportionate, fractional votes
for
fractional shares held. The Fund does not intend to hold annual meetings.
The
Directors will call a meeting for any purpose upon written request of
shareholders holding at least 10% of the Fund's outstanding shares and the
Fund
will assist shareholders in calling such a meeting as required by the 1940
Act.
Boston Safe Deposit and Trust Company, an indirect wholly owned
subsidiary
of Mellon, is located at One Boston Place, Boston, Massachusetts 02108, and
serves as custodian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves
as the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an audited
annual
report, which include listings of investment securities held by the Fund at
the
end of the reporting period. In an effort to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of its semi-annual
and
annual reports by household. This consolidation means that a household
having
multiple accounts with the identical address of record will receive a
single
copy
42
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- ---------------------------------------------------------------------------
- -----
ADDITIONAL INFORMATION (CONTINUED)
of each report. In addition, the Fund also plans to consolidate the mailing
of
its Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive
a
single Prospectus annually. When the Fund's annual report is combined with
the
Prospectus into a single document, the Fund will mail the combined document
to
each shareholder to comply with legal requirements. Any shareholder who
does not
want this consolidation to apply to his or her account should contact his
or her
Smith Barney Financial Consultant or TSSG.
Shareholders may seek information regarding the Fund from their Smith
Barney Financial Consultants.
------------------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained
in
this Prospectus and, if given or made, such other information or
representations
must not be relied upon as having been authorized by the Fund or the
distributor. This Prospectus does not constitute an offer by the Fund or
the
distributor to sell or a solicitation of an offer to buy any of the
securities
offered hereby in any jurisdiction to any person to whom it is unlawful to
make
such an offer or solicitation in such jurisdiction.
43
<PAGE>
___________________________________________________________________________
_____
<LOGO>
A Member of Travelers
Group
SMITH
BARNEY
FUNDAMENTAL
VALUE
FUND
INC.
Two world Trade
Center
New York, New York
10048
Recycled
Fund 10
Recyclable
FD0206 J4
___________________________________________________________________________
_____
<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, beneficially 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 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
SUB-ADMINISTRATOR -- BOSTON ADVISORS
SBMFM serves as investment adviser to the Fund pursuant to a written
agreement
dated July 30, 1993 (the "Advisory Agreement"), which 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. SBMFM
is a
wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings").
Holdings is
in turn a wholly owned subsidiary of The Travelers Inc. ("Travelers").
As compensation for SBMFM's services rendered to the Fund, the Fund
pays a
fee, computed daily and paid monthly at the annual rate of 0.55% of the
value of
the Fund's average daily net assets. Asset Management bears all of its
expenses
in connection with the performance of its services. For the fiscal years
ended
September 30, 1993, 1992 and 1991, the Fund 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>
Prior to June 28, 1994 Boston Advisor served as the Fund's
administrator.
Boston Advisors currently 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. 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 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 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 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 fees by the amount of such excess expense,
such
amount to be allocated between them in the proportion that their respective
fees
bear to the aggregate of such fees paid by the Fund. Such fee reductions,
if
any, will be reconciled on a monthly basis. The most restrictive state
expense
limitation applicable to the Fund would require 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 long position in a futures contract or an option on a
futures
contract, it must deposit into a segregated account with the Fund's
custodian an
amount of cash or cash equivalents equal to the total market value of the
underlying futures contract, less amounts held in the Fund's commodity
brokerage
account at its broker. At any time prior to the
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
shareholders.
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 any 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.
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 were as follows for the periods
indicated:
18.96% for the one-year period from October 1, 1992 through
September 30, 1993;
13.32% for the five-year period from October 1, 1988 through
September 30, 1993;
12.42% per annum during the ten-year period from October 1, 1983
through
September 30, 1993.
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.
<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:
25.23% for the one-year period from October 1, 1992 through
September 30, 1993;
96.70% for the five-year period from October 1, 1988 through
September 30, 1993;
239.45% for the ten-year period from October 1, 1983 through
September 30, 1993.
These aggregate total return figures do not assume that the maximum
5.00%
sales charge has been deducted from the investment at the time of purchase.
If
the maximum sales charge had been deducted at the time of purchase, the
Class A
shares aggregate total return for the same periods would have been 18.96%,
86.86% and 222.47%, respectively.
Class B's aggregate total return was as follows for the periods
indicated:
22.82% for the one-year period beginning on November 6, 1992
(commencement of operations) through September 30, 1993.
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 17.82%.
Class C's aggregate total return was as follows for the period
indicated:
2.70% for the period from August 10, 1993 (commencement of
operations)
through September 30, 1993.
Class C's 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 C's aggregate total
return for
the same period would have been 1.70%.
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>
---------------------------------------------
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SMITH
BARNEY
FUNDAMENTAL
VALUE
FUND
INC.
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STATEMENT OF
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ADDITIONAL
INFORMATION
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NOVEMBER 7,1994
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SMITH BARNEY
FUNDAMENTAL VALUE FUND INC.
Two World Trade Center
New York, New York 10048 Fund 10
SMITH BARNEY
----
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</TABLE>
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year ended
September 30, 1993 and the Report of Independent Accountants
dated November 2, 1993 is incorporated by reference to the
Definitive 30b-2 filed filed on November 18, 1993.
The Registrant's Semi-Annual Report for the six month period
ended March 31, 1994 is incorporated by reference to the
Definitive 30b-2 filed on June 1,1994.
(b) Exhibits
All references are to the Registrant's registration statement
on Form N-1A as filed with the Secturities and Exchange
Commission ("SEC"), File Nos. 2-71469 and 811-3158 (the
"Registration Statement").
(1) Registrant's Articles of Incorporation dated March 16,
1981 are incorporated by reference to the Pre-effective
Amendment No. 4. to the Registration Statement as filed with
the SEC ("Pre-Effective Amendment No. 4").
(1)(b) Certificate of Amendment dated December 18, 1987 to
Registrant's Articles of Incorporation is incorporated by
reference to Post-Effective Amendment No. 11 to the
Refgistration Statement as filed with the SEC ("Post-Effective
Amendment No. 11").
(1)(c) Certificate of Amendment dated November 21, 1989 to
Registrant's Articles of Incorporation is incorporated by
reference to Post-Effective Amendment No. 12 to the
Registration Statement as filed with the SEC ("Post-Effective
Amendment No. 12").
(1)(d) Form of Certificate of Amendment to the Registrant's
Articles of Incorporation is incorporated by reference to Post-
Effective Amendment No. 16 to the Registration Statement as
filed with the SEC ("Post-Effective Amendment No. 16").
(1)(e) Articles of Correction to the Registrant's Articles
of Incorporation is incorporated by reference to Post-Effective
Amendment No. 16.
(1)(f) Corrected Restated Articles of Incorporation of the
Registrant is incorporated by reference to Post-Effective
Amendment No. 16.
1(g) Corrected Restated Articles of Incorporation is
incorporated by reference to Post-Effective No. 18 to the
Registration Statement as filed with the SEC (Post-Effective
Amendment No. 18).
(1)(h) Certificate of Amendment dated August 17, 1993 to the
Registrant's Corrected Restated Articles of Incorporation is
incorporated by reference to Post-Effective Amendment No. 18.
(1)(i) Articles of Amendment dated October 14, 1994 to the
Registrant's Corrected Restated Articles of Incorporation are
filed herein.
(1)(j) Articles of Amendment dated October 31, 1994 to the
Registrant's Corrected Restated Articles of Incorporation are
filed herein.
(2)(a) Registrant's By-Laws are incorporated by reference to
Post-Effective Amendment No. 1 to the Registration Statement as
filed with the SEC ("Post-Effective Amendment No. 1").
2(b) Registrant's Amended and Restated By-Laws are incorporated
by reference to Post-Effective Amendment No. 18.
(3) Inapplicable.
(4)(a) Registrant's form of stock certificate relating to
Class A shares is incorporated by reference to Post-Effective
Amendment No. 16.
(4)(b) Registrant's form of stock certificate relating to
Class B shares is incorporated by reference to Post-Effective
Amendment No. 16.
(4)(c) Registrant's form of stock certificate relating to
Class D shares is incorporated by reference to Post-Effective
Amendment No. 16.
(5)(a) Form of Investment Advisory Agreement with Shearson
Asset Management Inc. is incorporated by reference to Post-
Effective Amendment No. 4 to the Registration Statement as
filed with the SEC ("Post-Effective Amendment No. 4").
(5)(b) Addendum to the Investment Advisory Agreement between
the Fund and Shearson Asset Management is incorporated herein
by reference to Post-Effective Amendment No. 13 to the
Registration Statement as filed with the SEC ("Post-Effective
Amendment No. 13").
(5)(c) Investment Advisory Agreement dated July 30, 1993
between the Registrant and Smith Barney Shearson Asset
Management Division of Smith, Barney Advisers, Inc. is
incorporated by reference to Post-Effective Amendment No. 18.
(6) Distribution Agreement with Shearson Lehman Brothers Inc.
is incorporated by reference to Post-Effective Amendment No. 7
to the Registration Statement as filed with the SEC. ("Post-
Effective Amendment No. 7").
(6)(a) Form of Distribution Agreement dated July 30, 1993
between the Registrant and Smith Barney Shearson Inc. is
incorporated by reference to Post-Effective Amendment No. 18.
(7) Inapplicable.
(8) Form of Custodian Agreement with Boston Safe Deposit and
Trust Company is incorporated by reference to Post-effective
Amendment No. 4 to the Registration Statement filed with the
SEC.
(9)(a) Form of Transfer Agency Agreement with Boston Safe
Deposit and Trust Company is incorporated by reference to Post-
Effective Amendment No. 4 to the Registration Statement filed
with the SEC.
9(b) Consent to Assignment dated March 28, 1989 between the
Registrant and The Shareholder Services Inc. is incorporated by
reference to Post-Effective Amendment No. 18.
9(c) Form of Administration Agreement between the Fund and
Smith, Barney Advisers, Inc. is filed herein.
9(d) Form of Sub-Administration Agreement between Fund, SBA and
The Boston Company Advisors, Inc. is filed herein.
(10) Opinion of Washington Counsel is incorporated by reference
to Post-Effective Amendment No. 16.
(11) Consent of Independent Accountants is filed herein.
(12) Inapplicable.
(13) Inapplicable.
(14) Prototype Self-Employed Retirement Plan is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registration Statement as filed with the SEC ("Post-Effective
Amendment No. 10").
(15)(a) Services and Distribution Plan dated December 1, 1992
between the Registrant and Shearson Lehman Brothers Inc. is
incorporated by reference to Post-Effective Amendment No. 17 to
the Registration Statement as filed with the SEC ("Post-
Effective Amendment No. 17").
(15)(b) Amended Services and Distribution Plan between
the Registrant and Smith Barney Shearson Inc. is
filed herein.
(16) Performance Data is incorporated by reference to Post-
Effective Amendment No. 11.
(17)(a) Powers of Attorney are incorporated by reference to
Post-Effective Amendment No. 18.
All references are to the Registrant's Registration Statement
on Form N-1A as filed with the Securities and Exchange
Commission ("SEC"), File Nos. 2-71469 and 811-3158 (the
"Registration Statement").
Item 25.
Persons Controlled by or Under Common Control with Registr
ant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders as of September 30, 1994
Common Stock par value $.001 per share
Class A Shares 20,525,208.838
Class B Shares 55,981,821.995
Class D Shares 202,305.077
Item 27. Indemnification
The response to this item is incorporated by reference to
Post-Effective Amendment No. 5 to the Registration Statement as
filed with the SEC ("Post-Effective Amendment No. 5").
Item 28(a). Business and Other Connections of Investment
Adviser
Investment Adviser - - Smith Barney Mutual Funds Management,
Inc.
Smith Barney Mutual Funds Management, Inc. ("SBMFM"), formerly
known as Smith, Barney Advisers, Inc.,) was incorporated in
December 1968 under the laws of the State of Delaware. SBMFM is
a wholly owned subsidiary of Smith Barney Holdings Inc.
(formerly known as Smith Barney Shearson Holdings Inc.), which
in turn is a wholly owned subsidiary of The Travelers Inc.
(formerly known as Primerica Corporation) ("Travelers"). SBMFM
is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 28 of officers and directors of
SBMFM together with information as to any other business,
profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two
years, is incorporated by reference to Schedules A and D of
FORM ADV filed by SBA pursuant to the Advisers Act (SEC File
No. 801-8314).
Smith Barney Asset Management, Inc., ("SBAM") through its
predecessors, has been in the investment counseling business
since 1940 and was a division of SBMFM. SBMFM was incorporated
in 1968 under the laws of the state of Delaware. SBMFM is a
wholly owned subsidiary of Smith Barney Holdings Inc. (formerly
known as Smith Barney Shearson Holdings Inc.), which is in turn
a wholly owned subsidiary of The Travelers Inc. (formerly know
as Primerica Corporation) ("Travelers").
The list required by this Item 28 of officers and directors of
SBMFM, together with information as to any other business,
profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two
fiscal years, is incorporated by reference to Schedules A and D
of FORM ADV filed by SBMFM pursuant to the Advisers Act (SEC
File No. 801-8314).
Prior to the close of business on July 30, 1993 (the
"Closing"), Shearson Asset Management, a member of the Asset
Management Group of Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers"), served as the Registrant's investment
adviser. On the Closing, Travelers and Smith Barney Inc.
(formerly known as Smith Barney Shearson Inc.) acquired the
domestic retail brokerage and asset management business of
Shearson Lehman Brothers which included the business of the
Registrant's prior investment adviser. Shearson Lehman
Brothers was a wholly owned subsidiary of Shearson Lehman
Brothers Holdings Inc. ("Shearson Holdings"). All of the
issued and outstanding common stock of Shearson Holdings
(representing 92% of the voting stock) was held by American
Express Company. Information as to any past business vocation
or employment of a substantial nature engaged in by officers
and directors of Shearson Asset Management can be located in
Schedules A and D of FORM ADV filed by Shearson Lehman Brothers
on behalf of Shearson Asset Management prior to July 30, 1993.
(SEC FILE NO. 801-3701)
11/4/94
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as
distributor for Smith Barney Managed Municipals Fund Inc.,
Smith Barney New York Municipals Fund Inc., Smith Barney
California Municipals Fund Inc., Smith Barney Massachusetts
Municipals Fund, Smith Barney Global Opportunities Fund, Smith
Barney Aggressive Growth Fund Inc., Smith Barney Appreciation
Fund Inc., Smith Barney Principal Return Fund, Smith Barney
Shearson Municipal Money Market Fund Inc., Smith Barney Daily
Dividend Fund Inc., Smith Barney Government and Agencies Fund
Inc., Smith Barney Managed Governments Fund Inc., Smith Barney
New York Municipal Money Market Fund, Smith Barney California
Municipal Money Market Fund, Smith Barney Income Funds, Smith
Barney Equity Funds, Smith Barney Investment Funds Inc., Smith
Barney Precious Metals and Minerals Fund Inc., Smith Barney
Telecommunications Trust, Smith Barney Arizona Municipals Fund
Inc., Smith Barney New Jersey Municipals Fund Inc., The USA
High Yield Fund N.V., Garzarelli Sector Analysis Portfolio
N.V., The Advisors Fund L.P., Smith Barney Fundamental Value
Fund Inc., Smith Barney Series Fund, Consulting Group Capital
Markets Funds, Smith Barney Income Trust, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Florida
Municipals Fund, Smith Barney Oregon Municipals Fund, Smith
Barney Funds, Inc., Smith Barney Muni Funds, Smith Barney World
Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney Tax
Free Money Fund, Inc., Smith Barney Variable Account Funds,
Smith Barney U.S. Dollar Reserve Fund (Cayman), Worldwide
Special Fund, N.V., Worldwide Securities Limited, (Bermuda),
Smith Barney International Fund (Luxembourg) and various series
of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney
Holdings Inc. (formerly known as Smith Barney Holdings Inc.),
which in turn is a wholly owned subsidiary of The Travelers
Inc. (formerly known as Primerica Corporation) ("Travelers").
On June 1, 1994, Smith Barney changed its name from Smith
Barney Inc. to its current name. The information required by
this Item 29 with respect to each director, officer and partner
of Smith Barney is incorporated by reference to Schedule A of
FORM BD filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney Fundamental Value Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(3) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(4) The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
(5) Smith Barney Mutual Funds Management
388 Greenwich Street
New York, New York 10013
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of
removal of a director or directors of Registrant when requested
in writing to do so by the holders of at least 10% of
Registrant's outstanding shares. Registrant undertakes further
to assist shareholders in communicating with other shareholders
in accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
Rule 485(b) Certification
The Registrant hereby certifies that it meets all of the
requirements for effectiveness pursuant to Rule 485(b)(1)(ix)
under the Securities Act of 1933, as amended.
.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that
it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of New York and State of
New York, on the 4th day of November 1994.
SMITH BARNEY
FUNDAMENTAL VALUE FUND INC.
Registrant
By: /s/ Heath B. McLendon
Name:Heath B. McLendon
Title: Chairman of the Board
___________________________________________________________________________
___
Pursuant to the requirments of the Securities Act of 1933, this
registration statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature: Title: Date:
/s/ Stephen J. Treadway President
11/4/94
Stephen J. Treadway (Chief Executive Officer)
/s/Lewis E. Daidone 11/4/94
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Lloyd J. Andrews* Director
11/4/94
Lloyd J. Andrews
/s/ Robert M. Frayn* Director
11/4/94
Robert M. Frayn
/s/ Leon P. Gardner* Director
11/4/94
Leon P. Gardner
/s/ Howard J. Johnson* Director
11/4/94
Howard J. Johnson
/s/ David E. Maryatt* Director
11/4/94
David E. Maryatt
/s/ Heath B. McLendon Director
11/4/94
Heath B. McLendon
___________________ Director 11/4/94
Frederick O. Paulsell
/s/ Julie W. Weston* Director
11/4/94
Julie W. Weston
/s/ Jerry A. Viscione* Director
11/4/94
Jerry A. Viscione
* Signed by Heath B. McLendon, their duly authorized attorney-
in-fact, pursuant to power of attorney dated January 28, 1993.
By: /s/ Heath B. McLendon
Name:Heath B. McLendon
Title: Chairman of the Board
shared\shearsn2\fundamen\pea's\pea22\pea#22.doc
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC.
These Articles of Amendment are submitted in accordance with the
Washington Business Corporation Act.
1. The name of the corporation is Smith Barney Shearson Fundamental Value
Fund
Inc. (the "Corporation").
2. Article I of the Articles of Incorporation of the Corporation is
hereby amended to read in its entirety as follows:
ARTICLE I
Name
The name of the Corporation is Smith Barney Fundamental Value Fund
Inc.
3. The amendment does not provide for an exchange, reclassification
or cancellation of issued shares.
4. The amendment was duly adopted by the Board of Directors of the
Corporation
without shareholder action on September 13, 1994. Shareholder action was
not required pursuant to RCW 23B.10.020(5).
DATED this ___ day of October, 1994.
SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
By Lee D.
Augsburger
Assistant Secretary
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
These Articles of Amendment are submitted in accordance with the Washington
Business Corporation Act.
1. The name of the corporation is Smith Barney Fundamental Value
Fund Inc. (the
"Corporation").
2. The Articles of Incorporation of the Corporation are hereby
amended as follows:
a. Section (1) of Article IV of the Articles of Incorporation
of the Corporation
is hereby amended to read in its entirety as follows:
ARTICLE IV
Authorized Capital
(1) The aggregate number of shares which the Corporation shall
have authority to issue is one hundred fifty million (150,000,000) shares of
common stock. The stock shall be initially classified into four classes,
consisting of twenty-five million (25,000,000) shares of Class A Common
Stock,twenty-five million (25,000,000) shares of Class A (Interim) Common
Stock, seventy-five million (75,000,000) shares of Class B Common Stock, and
twenty-five million (25,000,000) shares of Class D Common Stock.
b. A new Section (9) is hereby added to Article IV of the
Articles of
Incorporation of the Corporation to read in its entirety as follows:
(9) Except as otherwise stated in the Articles of Incorporation,
Class A (Interim) Common Stock shall have preferences, limitations and
relative rights identical to the preferences, limitations and relative
rights of Class A Common Stock. Shares of Class A (Interim) Common Stock
shall be converted automatically, and without any action or choice on the
part of the holders thereof, into an equal number of shares of Class A
Common Stock as soon as sufficient shares of Class A Common Stock come
available. Upon conversion, the shares of Class A (Interim) Common Stock
converted into Class A Common Stock will cease to accrue dividends and will
no longer be deemed outstanding and the rights of the holders thereof will
cease. Certificates representing shares of Class A Common Stock resulting
from the conversion need not be issued until certificates representing
shares of the Class A (Interim) Common Stock, if issued, have been received
by the Corporation or its agent duly endorsed for transfer.
3. The amendments provide for reclassification of shares of Class C
Common Stock
as Class A (Interim) Common Stock and designate the preferences, limitations
and relative rights of Class A (Interim) Common Stock. The reclassification
is made in accordance with the Articles of Incorporation of the Corporation
and RCW 23B.06.020(1) before the issuance of any shares of Class C Common
Stock. The amendments do not require an exchange, reclassification or
cancellation of any issued shares.
4. The amendments were duly adopted by the Board of Directors of
the Corporation
without shareholder action effective as of September 30, 1994. Pursuant to
RCW 23B.06.020(1) and (4), RCW 23B.10.020(6), and the Articles of
Incorporation of the Corporation, shareholder action was not required.
DATED this ___ day of October, 1994.
SMITH BARNEY FUNDAMENTAL
VALUE FUND INC.
By Lee D.
Augsburger
Assistant Secretary
EXHIBIT 9(C)
FORM OF ADMINISTRATION AGREEMENT
June 30, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson Fundamental Value Fund (the "Fund"), a
corporation organized under the laws of the State of Maryland, confirms its
agreement with Smith, Barney Advisors, Inc. ("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Articles of Incorporation dated May 13, 1994
as amended from time to time (the "Articles"), in its Prospectus and
Statement of Additional Information as from time to time in effect and in
such manner and to such extent as may from time to time be approved by the
Board of Directors of the Fund (the "Board"). Copies of the Fund's
Prospectus, Statement of Additional Information and Articles have been or
will be submitted to SBA. Smith Barney Shearson Asset Management Division
of Smith, Barney Advisers, Inc. ( the "Adviser") serves as the Fund's
investment adviser; and the Fund desires to employ and hereby appoints SBA
to act as its administrator. SBA accepts this appointment and agrees to
furnish the services to the Fund for the compensation set forth below. SBA
is hereby authorized to retain third parties and is hereby authorized to
delegate some or all of its duties and obligations hereunder to such
persons provided that such persons shall remain under the general
supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations except
those performed by the Portfolio's investment adviser under its investment
advisory agreement; (b) supply the Fund with office facilities (which may
be in SBA's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and charges and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at an annual rate of .20 of 1.00% of the Fund's
average daily net assets. The fee for the period from the date the Fund's
initial registration statement is declared effective by the SEC to the end
of the month during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period
bears to the full monthly period. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to SBA, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Articles and
Bylaws. The execution and delivery of this Agreement has been duly
authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Articles and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the enclosed
copy hereof.
Very truly yours,
Smith Barney Shearson Fundamental
Value Fund Inc.
By: _/s/Heath B. McLendon______
Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: _/s/Christina Sydor____
Christina Sydor
Title: Secretary
shared/shearsn2/fundaman/agrms/admin594
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and Fund
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash balance per
custodian's records and the accounting system to the prior day's ending
cash balance per fund accounting's cash availability report;
Cash Availability - Combine all activity affecting the Fund's cash
account and produce a net cash amount available for investment;
Formal Reconciliations - Reconcile system generated reports to
prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile all
activity affecting asset and liability accounts other than investment
account;
Calculate Net Income, Mil Rate and Yield for Daily Distribution
Funds - Calculate income on purchase and sales, calculate change in
income due to variable rate change, combine all daily income less
expenses to arrive at net income, calculate mil rate and yields (1 day,
7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra day
trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings per the
system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of all
securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance with
Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of current
day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final deadline for
Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported to
transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market funds;
Recommend valuation to be used for securities which are not
readily saleable;
Function as a liaison with the Fund's outside auditors and
arrange for audits;
Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder meetings;
Maintain Articles of Incorporation and By-Laws of the Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered
shared/shearsn2/mgdhiinc/agrms/admin94
A-5
Exhibit 9(d)
SUB-ADMINISTRATION AGREEMENT
June 30, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson Fundamental Value Fund Inc.(the "Fund"),
a corporation organized under the laws of the State of Maryland and Smith,
Barney Advisers, Inc. ("SBA") confirm their agreement with The Boston
Company Advisors, Inc. ("Boston Advisors") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Articles of Incorporation dated May 13, 1994
as amended from time to time (the "Articles"), in its Prospectus and
Statement of Additional Information as from time to time in effect, and in
such manner and to such extent as may from time to time be approved by the
Board of Directors of the Fund (the "Board"). Copies of the Fund's
Prospectus, Statement of Additional Information and Articles have been or
will be submitted to you. The Fund employs SBA as its administrator, and
the Fund and SBA desire to employ and hereby appoint Boston Advisors as the
Fund's sub-administrator. Boston Advisors accepts this appointment and
agrees to furnish the services to the Fund, for the compensation set forth
below, under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and SBA,
Boston Advisors will: (a) assist in supervising all aspects of the Fund's
operations except those performed by the Fund's investment adviser under
the Fund's investment advisory agreement; (b) supply the Fund with office
facilities (which may be in Boston Advisor's own offices), statistical and
research data, data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the calculation of (i)
the net asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and changes and (iii) distribution
fees, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to and
filings with the Securities and Exchange Commission (the "SEC") and state
blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of each
month a fee for the previous month calculated in accordance with the terms
set forth in Appendix B, and as agreed to from time to time by the Fund,
SBA and Boston Advisors. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Boston Advisors, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of the Board members
of the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc., Boston Advisors of their affiliates; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and its Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston Advisory
will reimburse the Fund for that excess expense to the extent required by
state law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of Boston Advisors will be limited to the amount
of its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering
the services listed in paragraph 2 above. Boston Advisors shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to
protect Boston Advisors against liability to the Fund or to its
shareholders to which Boston Advisors would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of Boston Advisor's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without the
written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or more
other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of Boston
Advisors or its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind of nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including reasonable
attorney's fees) resulting or arising in connection with this Agreement or
from the performance or failure to perform any act hereunder, provided that
not such indemnification shall be available if the indemnitee violated the
standard of care in paragraph 6 above. This indemnification shall be
limited by the 1940 Act, and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance with the requirements
of the 1940 Act and the rules, regulations and interpretations thereof as
in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Articles and
Bylaws. The execution and delivery of this Agreement has been duly
authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board Members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Articles.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
By: __________________________
Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By: __________________________
Christina Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: ___________________________
Joseph Dello Russo
Title: Senior Vice President
SHARED/SHEARSN2/FUNDAMEN/AGRMTS/SUBADMIN
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash balance
per custodian's records and the accounting system to the prior day's
ending cash balance per fund accounting's cash availability report;
Cash Availability - Combine all activity affecting the Fund's cash
account and produce a net cash amount available for investment;
Formal Reconciliation - Reconcile system generated reports to
prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile all
activity affecting asset and liability accounts other than investment
account;
Calculate Net Income, Mil Rate and Yield for Daily Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra day
trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings per the
system to custodian reports;
Pricing - Determine N.A.V. for the Fund using market value of all
securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance with
Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of current
day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final deadline for
Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent - N.A.V.s are reported to
transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual, semi-annual
and quarterly portfolio of investments and financial statements included
in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting (for money
market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media (Donoghue,
Lipper, Morningstar, et al.).
Publications
Coordinate the printing and mailing process with outside printers
for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide an Assistant Treasurer for the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's Board (e.g.,
Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement dealer
lists, securities transactions);
Monitor mark-to-market comparisons for money market funds;
Recommend valuations to be used for securities which are not
readily saleable;
Function as a liaison with the Fund's outside auditors and arrange
for audits;
Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
Prepare and file forms with the Internal Revenue Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
Prepare and file proxy statements;
Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
Provide an Assistant Secretary for the Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder meetings;
Maintain Articles of Incorporation and By-Laws of the Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Schedule B
Fee
A-1
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 23 to Registration Statement No. 2-71469 of Smith Barney
Fundamental Value Fund Inc. (formerly Smith Barney Shearson Fundamental
Value Fund Inc.) of our report dated November 2, 1993, appearing in the
annual report to shareholders of Smith Barney Shearson Fundamental Value
Fund Inc. for the year ended September 30, 1993, and to the reference to us
under the heading "Financial Highlights" in the Prospectus, which is a part
of such Registration Statement.
Deloitte & Touche LLP
Boston, Massachusetts
November 2, 1994
EXHIBIT 15
AMENDED SERVICES AND DISTRIBUTION PLAN
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
This Services and Distribution Plan (the "Plan") is adopted in accordance with
rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as
amended (the
"1940 Act"), by Smith Barney Fundamental Value Fund Inc.,
a corporation organized
under the laws of the State of Washington (the "Fund"), subject
to the following
terms and conditions:
Section 1. Annual Fee
(a) Class A Service Fee. The Fund will pay to the distributor of its shares,
Smith Barney Inc., a corporation organized under the laws of the
State of Delaware
("Distributor"), a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class A shares
(the "Class A
Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the Distributor a
service fee under the Plan at the annual rate of .25% of the average
daily net assets
of the Fund attributable to the Class B shares (the "Class B Service Fee").
(c) Service Fee for Class C shares. The Fund will pay to the Distributor a
service fee under the Plan at the annual rate of .25% of the
average daily net assets
of the Fund attributable to the Class C shares (the "Class C Service Fee," and
collectively with the Class A Service Fee and the Class B
Service Fee, the "Service
Fees").
(d) Distribution Fee for Class B shares. In addition to the Class B Service
Fee, the Fund will pay the Distributor a distribution fee under the Plan at the
annual rate of .75% of the average daily net assets of the fund
attributable to the
Class B Distribution Fee, the "Distribution Fees").
(e) Distribution Fee for Class C shares. In addition to the Class C Service
Fee, the Fund will pay the Distributor a distribution fee under the Plan at the
annual rate of .75% of the average daily net assets of the Fund
attributable to the
Class C shares (the "Class C Distribution Fee," and collectively
with the Class B
Distribution Fee, the "Distribution Fees").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated
daily and paid monthly by the Fund with respect to the foregoing classes of the
fund's shares (each a "Class" and together the "Classes") at the annual rates
indicated above.
Section 2. Expenses Covered by the Plan
With respect to expenses incurred by each Class its respective Service Fees
and/or Distribution Fees may be used for; (a) costs of printing and
distributing the
Fund's prospectus, statement of additional information and reports
to prospective
investors in the Fund; (b) costs involved in preparing,
printing and distributing
sales literature pertaining o the Fund; (c) an allocation of overhead and other
branch office distribution-related expenses of the Distributor;
(d) payments made to,
and expenses of Smith Barney Financial Consultants and other persons
who provide
support services in connection with the distribution of the Fund's
shares, including
but not limited to, office space and equipment, telephone
facilities, answering routine inquires regarding the Fund, processing
shareholder
transactions and providing any other shareholder services not otherwise
provided by
the Fund's Transfer agent; and (e) accruals for interest on the amount of the
foregoing expenses that exceed the Distribution Fee and, in the case of Class B
shares, the contingent deferred sales charge received by the Distributor;
provided,
however, that the Distribution Fees may be used by the
Distributor only to cover
expenses primarily intended to result in the sale of
the Fund's Class B and C shares,
including without limitation, payments to Distributor's
financial consultants ant the
time of the sale of Class B and C shares.
In addition, Service Fees are intended to
be used by the Distributor primarily to pay its financial
consultants for servicing
shareholder accounts, including a continuing fee to each
such financial consultant,
which fee shall begin to accrue immediately after the sale of such shares.
Section 3. Approval of Shareholders
The Plan will not take effect, and no fees will be payable in accordance with
Section 1 of the Plan, with respect to a Class until the Plan has
been approved by a
vote of a least a majority of the outstanding
voting securities of the Class. The
Plan will be deemed to have been approved with
respect to a class so longer as a
majority of the outstanding voting securities of
the Class votes for the approval of
the Plan, notwithstanding that: (a) the Plan has
not been approved by a major of the
outstanding voting securities of any other Class, or (b) the Plan has not been
approved by a majority of the outstanding voting securities of the Fund.
Section 4. Approval of Directors
Neither the Plan nor any related agreements will take effect until approved by
a majority of both (a) the full Board of Directors of the Fund and (b) those
Directors who are not interested persons of the Fund and who have not direct or
indirect financial interest in the operation
of the Plan or in any agreements related
to it (the "Qualified Directors"), cast in person
at a meeting called for the purpose
of voting on the Plan and the related agreements.
Section 5. Continuance of the Plan
The Plan will continue in effect with respect to each Class until November 7,
1995, and thereafter for successive twelve-month
periods with respect to each Class;
provided, however, that such continuance is
specifically approved at least annually
by the Directors of the Fund and by a majority of the Qualified Directors.
Section 6. Termination
The Plan may be terminated at any time with respect to a Class (i) by the Fund
without the payment of any penalty, by the vote of
a majority of the outstanding
voting securities of such Class or (ii) by a
vote of the Qualified Directors. The
Plan may remain in effect with respect to a
particular Class even if the Plan has
been terminated in accordance with this
Section 6 with respect to any other Class.
Section 7. Amendments
The Plan may to be amended with respect to any Class so as to increase
materially the amounts of the Fees described
in Section 1 above, unless the amendment
is approved by a vote of the holders of at
least a majority of the outstanding voting
securities of that class. No material amendment to the Plan may be made unless
approved by the Fund's Board of Directors
in the manner described in Section 4 above.
Section 8. Selection of Certain Directors
While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in
office who are not interested persons of the
Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, a person authorized to
direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or
any related agreement will prepare and furnish
to the Fund's Board of Directors and
the Board will review, at least quarterly, written reports complying with the
requirements of the Rule, which sets out the amounts
expended under the Plan and the
purposes for which those expenditures were made.
Section 10. Preservation of Materials
The Fund will preserve copies of the Plan, any agreement relating to the Plan
and any report made pursuant to Section
9 above, for a period of not less than six
years (the first two years in an easily accessible place)
from the date of the Plan,
agreement or report.
Section 11. Meanings of Certain Terms
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed
to have the same meaning that those
terms have under the 1940 Act by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the Fund execute the Plan as of November 7, 1994.
SMITH BARNEY
FUNDAMENTAL VALUE FUND INC.
By:/s/ Heath B. McLendon________________
Heath B. McLendon
Chairman of the Board
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