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. 24 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 27 X
SMITH BARNEY 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 February 1, 1995 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 was 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.
FEBRUARY 1, 1995
Prospectus begins on page one.
[LOGO] Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS February 1, 1995
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388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Fundamental Value Fund Inc. (the "Fund") is a mutual fund with
a primary investment objective of long-term capital growth. Current income is a
secondary objective. The Fund seeks to achieve its primary 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 February 1, 1995, 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 MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and 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
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<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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FINANCIAL HIGHLIGHTS 10
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
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VALUATION OF SHARES 19
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DIVIDENDS, DISTRIBUTIONS AND TAXES 20
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PURCHASE OF SHARES 21
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EXCHANGE PRIVILEGE 31
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REDEMPTION OF SHARES 35
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MINIMUM ACCOUNT SIZE 37
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PERFORMANCE 37
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MANAGEMENT OF THE FUND 38
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DISTRIBUTOR 39
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ADDITIONAL INFORMATION 40
--------------------------------------------------------------------------
</TABLE>
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.
2
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY
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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 a primary 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, are offered
to investors meeting an initial investment minimum of $5,000,000. 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
Class B shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares.
3
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
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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 are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are 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. 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.
4
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
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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 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.
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
5
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
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well as other types of participant directed, tax-qualified employee benefit
plans (collectively, "Participating Plans"). Class A, Class B, Class C and 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 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."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc.
("SBMFM"), a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"), serves as the Fund's investment adviser and administrator.
Holdings is a wholly owned subsidiary of The Travelers Inc. ("Travelers"), a
diversified financial services holding company engaged, through its
subsidiaries principally in four business segments: Investment Services,
Consumer Finance
6
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
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Services, Life Insurance Services and Property & Casualty Insurance Services.
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 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."
7
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
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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 most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
<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*** 0.30% 0.31% 0.48% 0.30%
- -----------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.30% 2.06% 2.23%
1.05%
- -----------------------------------------------------------------------------------------
</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 February 1, 1995.
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
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.
8
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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PROSPECTUS SUMMARY (CONTINUED)
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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*
<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 $63 $ 89 $ 118 $ 199
Class B 71 95 121 219
Class C 33 70 119 256
Class Y 11 33 58 128
An investor would pay the following expenses on
the same investment, assuming the same annual
return and no redemption:
Class A 63 89 118 199
Class B 21 65 111 219
Class C 23 70 119 256
Class Y 11 33 58 128
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</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
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The following information has been audited by Deloitte & Touche LLP, independent
auditors, whose report thereon appears in the Fund's Annual Reports. The
information set out below should be read in conjunction with the financial
statements and related notes that appear in the Fund's Annual Report dated
September 30, 1994, which is incorporated by reference into the Statement of
Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:*
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
ENDED
9/30/94 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 0.09 0.07 0.11 0.15 0.16
Net realized and unrealized
gain/(loss)
on investments and written options 0.30 1.65 0.78 1.50 (1.22)
- -----------------------------------------------------------------------------------------------
Total from investment operations 0.39 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 $ 8.20 $ 8.42 $ 7.22 $ 6.47 $ 5.34
- -----------------------------------------------------------------------------------------------
Total return+ 4.92% 25.23% 14.01% 33.47%
(16.25)%
- -----------------------------------------------------------------------------------------------
Ratios to average net assets/
supplemental data:
Net assets, end of year (in 000's) $264,765 $123,188 $77,842 $59,358
$63,159
Ratio of expenses to
average net assets 1.30% 1.45% 1.28% 1.30% 1.20%
Ratio of net investment income to
average net assets 1.90% 1.00% 1.57% 2.24% 2.40%
Portfolio turnover rate 108% 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.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
10
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
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FINANCIAL HIGHLIGHTS (CONTINUED)
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<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
9/30/89 9/30/88 9/30/87 9/30/86 9/30/85
<S> <C> <C> <C> <C>
$ 6.23 $ 8.36 $ 7.24 $ 6.91 $ 6.65
----------------------------------------------------------
0.17 0.15 0.18 0.31 0.19
1.18 (0.99) 2.00 0.55 0.59
----------------------------------------------------------
1.35 (0.84) 2.18 0.86 0.78
(0.10) (0.26) (0.32) (0.19) (0.22)
(0.33) (1.03) (0.74) (0.34) (0.30)
----------------------------------------------------------
(0.43) (1.29) (1.06) (0.53) (0.52)
----------------------------------------------------------
$ 7.15 $ 6.23 $ 8.36 $ 7.24 $ 6.91
----------------------------------------------------------
23.26% (6.92)% 34.39% 12.94% 12.67%
----------------------------------------------------------
$89,048 $84,670 $111,693 $101,563 $114,529
1.10% 1.20% 1.00% 1.10% 1.20%
2.50% 2.10% 2.10% 3.70% 4.00%
62% 120% 66% 91% 64%
----------------------------------------------------------
</TABLE>
11
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
9/30/94 9/30/93*
<S> <C> <C>
Net Asset Value, beginning of period $ 8.37 $ 7.31
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09 0.05
Net realized and unrealized gain/(loss) on investments
and written options 0.25 1.52
- -------------------------------------------------------------------------------------
Total from investment operations 0.34 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 $ 8.16 $ 8.37
- -------------------------------------------------------------------------------------
Total return++ 4.21% 22.82%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $361,254 $114,146
Ratio of expenses to average net assets 2.06% 2.26%+
Ratio of net investment income to average net assets 1.13% 0.19%+
Portfolio turnover rate 108% 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 EACH PERIOD:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
9/30/94 9/30/93*
<S> <C> <C>
Net asset value, beginning of period $ 8.37 $8.15
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.00#
Net realized and unrealized gain/(loss) on investments
and written options 0.29 0.22
- --------------------------------------------------------------------------------------
Total from investment operations 0.34 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 $ 8.16 $8.37
- --------------------------------------------------------------------------------------
Total return++ 4.24% 2.70%
- --------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,652 $ 308
Ratio of expenses to average net assets 2.23% 2.25%+
Ratio of net investment income to average net assets 0.96% 0.20%+
Portfolio turnover rate 108% 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 February 1, 1995, 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, SBMFM 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 SBMFM 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 SBMFM believes that a defensive investment posture is warranted or
when opportunities for capital growth do not appear attractive, the Fund may
temporarily invest all or a portion of its assets in short-term money market
instruments, including repurchase agreements with respect to those instruments.
The Fund is authorized to borrow money in an amount up to 10% of its total
assets for temporary or emergency purposes.
Further information about the Fund's investment policies, including a list
of those restrictions on its investment activities that cannot be changed
without the approval of the Fund's shareholders, appears in the Statement of
Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund includes certain risks and special
considerations, such as those described below:
Short-Term Investments. As noted above, in certain circumstances the Fund
may invest in short-term money market instruments, such as obligations of the
U.S. government, its agencies and instrumentalities ("U.S. government
securities"), high-quality commercial paper and bank certificates of deposit and
time deposits, and may engage in repurchase agreement transactions with respect
to such instruments.
14
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
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. 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 SBMFM to be of good standing and will not
be made unless, in the judgement of 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
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
15
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
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.
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
16
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
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.
The effectiveness of purchasing puts and writing calls on stock index
options depends to a large extent on the ability of SBMFM 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 move-
17
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
ments 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 SBMFM
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 SBMFM anticipates purchasing the underlying
securities and believes that prices will rise before the purchases will be made.
When the Fund enters into a futures contract to purchase an underlying security,
an amount of cash, U.S. government securities or other high grade debt
securities, equal to the market value of the contract, will be deposited in a
segregated account with the Fund's custodian to collateralize the position,
thereby insuring that the use of the contract is unleveraged. The Fund will not
enter into futures contracts for speculation and will only enter into futures
contracts that are traded on a U.S. exchange or board of trade.
The Fund may purchase options on futures contracts to hedge its portfolio
against the risk of a decline in the market value of securities held, and may
purchase call options on futures contracts to hedge against an increase in the
price of securities it is committed to purchase. The Fund may write put and call
options on futures contracts in entering into closing sale transactions and to
increase its ability to hedge against changes in the market value of the
securities it holds or is committed to purchase. The Fund will write put and
call options
18
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
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 SBMFM 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
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.
19
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
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 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.
20
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
- --------------------------------------------------------------------------------
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 Y shares are 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 Class A,
Class B, Class C or 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 in the Fund of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan. Investors in Class Y shares
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
21
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
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
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.
22
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
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."
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
23
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
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
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
24
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
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 able 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.
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
25
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
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. 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 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."
26
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
<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 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. 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 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 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
27
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
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 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.
28
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
The Fund offers to Participating Plans Class A, Class B, Class C and 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.
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
29
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
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. Class Y shares of the Fund are 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 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 termina-
30
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
tion 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.
- --------------------------------------------------------------------------------
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
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
31
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
- --------------------------------------------------------------------------------
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
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
32
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
- --------------------------------------------------------------------------------
* 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
+++ 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
33
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
- --------------------------------------------------------------------------------
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.
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. SBMFM 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, SBMFM 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
34
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
35
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
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 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.
36
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
37
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
PERFORMANCE (CONTINUED)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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, custodian and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's investment adviser and administrator. The
Statement of Additional Information contains general background information
regarding each Director and executive officer of the Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser and administrator. SBMFM (through its predecessor
entities) has been in the investment counseling business since 1940 and renders
investment management and administration services to a wide variety of
individual, institutional and investment company clients having aggregate assets
under management as of December 31, 1994 in excess of $50 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
SBMFM 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 SBMFM a monthly fee at the
annual rate of 0.55% of the value of its average daily net assets.
SBMFM also serves as the Fund's administrator and generally oversees all
aspects of the Fund's administration and operations, including daily calculation
of the Fund's net asset value per share. 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.
38
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
John G. Goode, President and Chief Executive Officer of Davis Skaggs
Investment Management, a division of SBMFM, has served as Vice President and
Investment Officer of the Fund since November 1990 and manages the day-to-day
operations of the Fund, including making all investment decisions.
Mr. Goode's management discussion and analysis of the Fund's performance
during the fiscal year ended September 30, 1994 is included in the Fund's Annual
Report to Shareholders dated September 30, 1994. 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.
- --------------------------------------------------------------------------------
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 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
39
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Washington on
March 17, 1981, and is registered with the SEC as a diversified, open-end
management investment company. On January 27, 1995 shareholders approved the
reincorporation of the Fund as a Maryland corporation. It is expected that the
reincorporation of the Fund will occur early in 1995 upon completion of certain
actions and various regulatory filings. As a Maryland corporation, it is
expected that the Fund will enjoy a regulatory structure more conducive to the
operation of investment companies.
The Fund currently offers shares of common stock classified into four
Classes, A, B, C and Y. Each Class of shares represents an identical pro rata
interest in the Fund's investment portfolio. As a result, the Classes 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 is not required to hold annual meetings, however the Directors
will call a meeting for any purpose upon written request of shareholders holding
40
<PAGE>
SMITH BARNEY
Fundamental Value Fund Inc.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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. When matters
are submitted for shareholder vote, shareholders of each Class will have one
vote for each full share owned and proportionate, fractional votes for
fractional shares held.
PNC Bank, National Association, located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 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 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.
41
<PAGE>
SMITH BARNEY
------------
A MEMBER OF TRAVELERSGROUP [LOGO - AN UMBRELLA]
SMITH BARNEY
FUNDAMENTAL
VALUE FUND INC.
388 Greenwich Street
New York, New York 10013
[RECYCLE Recycled
LOGO] Recyclable Fund 10. 199.215. 447
FD 0206 B5
<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
FEBRUARY 1, 1995
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 February 1, 1995, 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")........... 23
Additional Information....................................................... 25
Financial Statements......................................................... 26
</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
PNC Bank, National Association ("PNC") Custodian
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, age 74, 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., age 60, Director. President and Director of Book
Publishing Company. His address is 201 Westlake No., Seattle, Washington 98109.
Leon P. Gardner, age 66, Director. Private investor; Chairman of Fargo's
Pizza Company. His address is 2310 N.E. Blue Ridge Drive, Seattle, Washington
98117.
Howard J. Johnson, age 56, 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, age 58, Director. Director of ALS Co., a textile rental
services firm; Private Investor. His address is 771 Valley Street, Seattle,
Washington 98109.
*Heath B. McLendon, age 61, 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, age 55, Director. President of Foster Paulsell &
Baker Inc. His address is 1701 Third Avenue, Suite 2101, Seattle, Washington
98101.
Jerry A. Viscione, age 50, Director. Dean of Albers School of Business and
Economics, Seattle University. His address is 3480 Northeast 155 Street,
Seattle, Washington 98155.
Julie W. Weston, age 51, 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.
Jessica M. Bibliowicz, President. Executive Vice President of
Smith Barney; prior to January 1994, Director of Marketing and Sales of
Prudential Mutual Funds: prior to September 1990, First Vice President of
Shearson Lehman Brothers Asset Management Division. Her 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.
Peter Hable, Investment Officer. Investment Officer of SBMFM. His address
is One Sansome Street, 38th Floor, San Francisco, California 94104.
Lewis E. Daidone, Senior Vice President and 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.
2
<PAGE>
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 also serves as trustees and/or directors of
29 other mutual funds for which Smith Barney serves as
distributor. As of October 31, 1994, the Directors and officers of the Fund, as
a group, owned less than 1.00% of the outstanding common stock of the Fund.
No officer, director or employee of Smith Barney or of
its parent or any subsidiary 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, 1994, such fees and expenses totalled $37,029.
<TABLE>
For the calendar year ended December 31, 1994, the Directors of the Fund were paid
the following compensation:
<CAPTION>
AGGREGATE COMPENSATION
AGGREGATE COMPENSATION FROM THE SMITH
BARNEY
DIRECTOR FROM THE FUND MUTUAL FUNDS
-------- ---------------------- ----------------------
<S> <C> <C>
Lloyd J. Andrews................. $ 5,500 $ 5,500
Robert M. Frayn, Jr.............. 5,500 5,500
Leon P. Gardner.................. 5,500 5,500
Howard J. Johnson................ 5,500 5,500
David E. Maryatt................. 5,000 5,000
Heath B. McLendon 0 0
Frederick O. Paulsell............ 0 0
Jerry A. Viscione................ 5,500 5,500
Julie W. Weston.................. 4,500 4,500
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM
SBMFM serves as investment adviser to the Fund pursuant to an investment
advisory 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"), which is in turn a wholly owned subsidiary of The Travelers
Inc. ("Travelers").
As compensation for investment advisory services, the Fund pays SBMFM a
fee, computed daily and paid monthly at the annual rate of 0.55% of the value of
the Fund's average daily net assets. SBMFM bears all of its expenses in
connection with the performance of its services. For the fiscal years ended
September 30, 1994, 1993 and 1992, the Fund incurred $2,559,267, $759,836 and
$370,317, 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
3
<PAGE>
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 administrative services rendered to the Fund, SBMFM
receives 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.
Certain services provided to the Fund by SBMFM pursuant to the
Administration Agreement are described in the Prospectus under "Management
of the Fund." In addition to those services, SBMFM 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. SBMFM 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 SBMFM,
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 has agreed that if in any fiscal year the aggregate expenses of the
Fund (including fees paid pursuant to the Advisory Agreement, and Administration
Agreement, but excluding interest, taxes, brokerage fees paid pursuant to the
Fund's services and distribution plan and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, SBMFM will,
to the extent required by state law, reduce their management fees by such excess
expense. Such amount will be allocated between them in the proportion that their
4
<PAGE>
respective fees bear to the aggregate of such fees paid by the Fund. Such fee
reductions, if any, will be reconciled on a monthly basis. The most restrictive
state expense limitation currently applicable to the Fund would require SBMFM to
reduce its 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, 1994,
1993 and 1992.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. The Directors
who are not "interested persons" of the Fund have selected Stroock & Stroock &
Lavan as their 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
5
<PAGE>
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 representing the
deposit with the bank of a security of a foreign issuer. ADRs are publicly
traded on national securities 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 will the issuers thereof be subject to, the
reporting requirements of the SEC. Accordingly, there may be less publicly
available information about the securities and 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 domestic 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
6
<PAGE>
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 should the
borrower fail financially. Loans will be made to firms deemed by SBMFM
to be of good standing and will not be made unless, in the judgment of
SBMFM, 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: 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 ("TDs") 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
7
<PAGE>
foreign branch of a domestic bank than about a domestic bank. CDs issued by
wholly owned Canadian subsidiaries of domestic banks are guaranteed as to
repayment of principal and interest (but not as to sovereign risk) by the
domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation as
well as governmental action in the country in which the foreign bank has its
head office. A 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.
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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 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
9
<PAGE>
is unable to effect a closing purchase transaction in a secondary market, it
will not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or written, or
exercised within certain periods, by an investor or group of investors acting in
concert (regardless of whether the options are written on the same or different
securities exchanges or are held, written or exercised in one or more accounts
or through one or more 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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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.
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 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 the current Prospectus and the 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.
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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. Purchase or retain the securities of any issuer if, to the
knowledge of the Fund, any officer or Director of the Fund or of SBMFM 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 1994, 1993 and 1992 fiscal years, the
Fund's portfolio turnover rates were 108%, 111% and 142%, respectively.
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<PAGE>
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.
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, 1994, 1993, and 1992, the Fund paid total brokerage commissions of
$1,334,383, $531,478 and $218,116 respectively.
In executing portfolio transactions and selecting brokers or dealers, it is
the Fund's policy to seek the best overall terms available. The Advisory
Agreement between the Fund and 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, 1994, 1993 and 1992, the Fund paid $3,000,
$21,074, and $30,000, respectively, in brokerage commissions to Smith Barney
(formerly Shearson Lehman Brothers.) For the 1993 fiscal year, Smith Barney
received 0.2% of the brokerage commissions paid by the Fund and
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<PAGE>
effected none of the total dollar amounts 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 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 a Smith Barney Financial Consultant.
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
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<PAGE>
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 into this Statement of Additional Information.
- ------ 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, as determined by the SEC, exists 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 dated July 30, 1993 (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, 1994, 1993 and 1992, Smith Barney
and/or Shearson Lehman Brothers received $793,438, $568,544 and $650,569,
respectively, in 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, and the
fiscal year ended September 30, 1994, Smith Barney (formerly Shearson Lehman
Brothers) received $36,283 and $656,110, respectively, 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 daily 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. For the fiscal
year ended September 30, 1994, the Fund's Class A, Class B and Class C shares
incurred $369,623, $791,709 and $1,971, respectively, in service fees. 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, and the fiscal year ended
September 30, 1994, the Fund's Class B shares incurred $309,660 and $2,375,126,
respectively, in distribution fees. For the same periods, the Fund's Class C
shares incurred $289 and $5,914, respectively, 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>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
"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>
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of the 1-, 5- or 10-year period at the end of
the 1-, 5- or 10-year period (or fractional portion thereof),
assuming reinvestment of all dividends and distributions.
</TABLE>
Class A's average annual total return was as follows for the periods
indicated:
(0.33)% for the one-year period from October 1, 1993 through September 30, 1994;
9.73% for the five-year period from October 1, 1989 through September 30, 1994;
12.05% for the ten-year period from October 1, 1984 through September 30, 1994.
The average annual total return figures assume that the maximum 5.00% sales
charge has been deducted from the investment at the time of purchase. If the
maximum sales charge of 5.00% had not been deducted at the time of purchase, the
average annual total return for the same periods would have been 4.92%, 10.86%,
and 12.63% respectively.
Class B's average annual total return was as follows for the periods
indicated:
(0.67)% for the one-year period from October 1, 1993 through September 30, 1994.
11.98% for the period from November 6, 1992 (commencement of operations)
through September 30, 1994.
The average annual total return figures assume that the maximum 5.00% sales
charge has been deducted from the investment at the time of purchase. If the
maximum sales charge of 5.00% had not been deducted at the time of purchase, the
average annual total return for the same periods would have been 4.21%, and
13.87%, respectively.
Class C's average annual total return was as follows for the period
indicated:
4.24% for the one-year period from October 1, 1993 through September 30, 1994.
6.16% for the period from August 10, 1993 (commencement of operations) through
September 30, 1994.
21
<PAGE>
AGGREGATE TOTAL RETURN
<TABLE>
"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>
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 return was as follows for the periods indicated:
4.92% for the one-year period from October 1, 1993 through
September 30, 1994;
67.43% for the five-year period from October 1, 1989 through
September 30, 1994;
228.48% for the ten-year period from October 1, 1984 through
September 30, 1994.
These aggregate total return figures do not assume that the maximum 5.00%
sales charge has been deducted from the investment at the time of purchase. If
the maximum sales charge had been deducted at the time of purchase, the Class A
shares aggregate total return for the same periods would have been (0.33)%,
59.04% and 212.06%, respectively.
Class B's aggregate total return was as follows for the periods indicated:
4.21% for the one-year period beginning on October 1, 1993 through
September 30, 1994;
27.99% for the period beginning November 6, 1992 (commencement of
operations) through September 30, 1994.
Class B'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 B's aggregate total return for
the same periods would have been (0.67)% and 23.99%, respectively.
Class C's aggregate total return was as follows for the period indicated:
4.24% for the period from October 1, 1993 through September 30, 1994.
7.05% for the period from August 10, 1993 (commencement of operations)
through September 30, 1994.
Performance will vary from time to time depending upon market conditions,
the composition of the Fund's portfolio, operating expenses and the expenses
exclusively attributable to the Class. Consequently, any given performance
quotation should not be considered representative of the Class' performance for
any specified period in the future. Because performance will vary, it may not
provide a basis for comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for a stated period of
time. Investors comparing the Class' performance with that of other mutual funds
should give consideration to the quality and maturity of the respective
investment companies' portfolio securities.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future
performance.
22
<PAGE>
- ------ 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 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
23
<PAGE>
fund for which the otherwise applicable sales charge is reduced by reason of a
reinvestment right (i.e., an exchange privilege), the original sales charge
increases the shareholder's tax basis in the original shares only to the extent
the otherwise applicable sales charge for the second acquisition is not reduced.
The portion of the original sales charge that does not increase the
shareholder's tax basis in the original shares would be treated as incurred with
respect to the second acquisition and, as a general rule, would increase the
shareholder's tax basis in the newly acquired shares. Furthermore, the same rule
also applies to a disposition of the newly acquired or redeemed shares made
within 90 days of the second acquisition. This provision prevents a shareholder
from immediately deducting the sales charge by shifting his or her investment in
a family of mutual funds.
Investors considering buying shares of the Fund just prior to a record date
for a taxable dividend or capital gain distribution should be aware that,
regardless of whether the price of the Fund shares to be purchased reflects the
amount of the forthcoming dividend or distribution payment, any such payment
will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report his or her dividend or interest income in full, or fails to
certify that he or she has provided a correct taxpayer identification number,
and that he or she is not subject to such withholding, the shareholder may be
subject to a 31% "backup withholding" tax with respect to (a) any taxable
dividends and distributions and (b) any proceeds of any redemption of Fund
shares. An individual's taxpayer identification number is his or her social
security number. The 31% backup withholding tax is not an additional tax and may
be credited against a shareholder's regular Federal income tax liability.
Options Transactions. The tax consequences of options transactions entered
into by the Fund will vary depending on the nature of the underlying security
and whether the "straddle" rules, discussed separately below, apply to the
transaction. When the Fund writes a call or put option on an equity or debt
security, it will receive a premium that will, subject to the "section 1256
contract" and straddle rules discussed below, be treated as follows for tax
purposes. If the option expires unexercised, or if the Fund enters into a
closing purchase transaction, the Fund will realize a gain (or loss if the cost
of the closing purchase transaction exceeds the amount of the premium) without
regard to any unrealized gain or loss on the underlying security. Any such gain
or loss will be short-term capital gain or loss, except that any loss on a
"qualified" covered call option not treated as part of a straddle may be treated
as long-term capital loss. If a call option written by the Fund is exercised,
the Fund will recognize a capital gain or loss from the sale of the underlying
security, and will treat the premium as additional sales proceeds. Whether the
gain or loss will be long-term or short-term will depend on the holding period
of the underlying security. If a put option written by the Fund is exercised,
the amount of the premium will reduce the tax basis of the security the Fund
then purchases.
The Code imposes a special "mark-to-market" system for taxing section 1256
contracts which include options on nonconvertible debt securities (including
U.S. government securities). In general, gain or loss with respect to section
1256 contracts will be taken into account for tax purposes when actually
realized (by a closing transaction, by exercise, by taking delivery or by other
termination). In addition, any section 1256 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.
24
<PAGE>
In order to continue to qualify as a regulated investment company, the Fund
may have to limit its transactions in section 1256 contracts.
Straddles. The Code contains rules applicable to "straddles," that is,
"offsetting positions in actively traded personal property." Such personal
property includes offsetting puts of the same class, section 1256 contracts or
other investment contracts. Where applicable, the straddle rules generally
override the other provisions of the Code. In general, investment positions will
be offsetting if there is a substantial diminution in the risk of loss from
holding one position by reason of holding one or more other positions (although
certain covered call options would not be treated as part of a straddle). The
Fund is authorized to enter into covered call and covered put positions.
Depending on what other investments are held by the Fund, at the time it enters
into one of the above transactions, the Fund may create a straddle for purposes
of the Code.
If two (or more) positions constitute a straddle, recognition of a realized
loss from one position (including a marked-to-market loss) must be deferred to
the extent of unrecognized gain in an offsetting position. Also, long-term
capital gain may be recharacterized as short-term capital gain, or short-term
capital loss as long-term capital loss. Furthermore, interest and other carrying
charges allocable to personal property that is part of a straddle must be
capitalized.
If the Fund chooses to identify a particular offsetting position as being
one component of a straddle, a realized loss on any component of the straddle
will be recognized no earlier than upon the liquidation of all of the components
of the straddle. Special rules apply to "mixed" straddles (that is, straddles
consisting of a section 1256 contract and an offsetting position that is not a
section 1256 contract). If the Fund makes certain elections, the section 1256
contract components of such mixed straddles will not be subject to the 60%/40%
mark-to-market rules. If any such election is made, the amount, the nature (as
long- or short-term) and the timing of the recognition of the Fund's gains or
losses from the affected straddle positions will be determined under rules that
will vary according to the type of election made.
Wash Sales. "Wash sale" rules will apply to prevent the recognition of
loss with respect to a position where an identical or substantially identical
position is or has been acquired within a prescribed period.
The foregoing is only a summary of certain Federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local tax liabilities.
- ------ 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.
For the purpose of achieving certain administrative conveniences and cost
savings, the Board of Directors has approved a plan for the reincorporation of
the Fund in the State of Maryland. This plan has been approved by a two-thirds
majority of the Funds shareholders, and accordingly the Fund's assets and
liabilities will be transferred to a Maryland corporation and the Fund's
current corporate entity
will be dissolved. As a
25
<PAGE>
Maryland corporation, the Fund would not be required, nor would it expect, to
have annual shareholder meetings.
PNC is located at 17th and Chestnut Streets, Philadelphia,Pennsylvania
and serves as the custodian of
the Fund. Under its agreement with the Fund, PNC holds the Fund's
portfolio securities and keeps all necessary accounts and records. For its
services, PNC 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 Report for the fiscal year ended September 30, 1994
accompanies this Statement of Additional Information and is incorporated herein
by reference in its entirety.
26
<PAGE>
-------------------------------------------------
SMITH
BARNEY
FUNDAMENTAL
VALUE
FUND
INC.
---------------------------
STATEMENT OF
---------------------------
---------------------------
ADDITIONAL INFORMATION
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
FEBRUARY 1, 1995
---------------------------
SMITH BARNEY
FUNDAMENTAL VALUE FUND INC.
388 Greenwich Street
New York, New York 10013 Fund 10 SMITH BARNEY
------------
<PAGE>
<TABLE>
---------- SMITH BARNEY SHEARSON
FUNDAMENTAL
VALUE FUND INC.
<S> <C>
---------------------------
STATEMENT OF
---------------------------
---------------------------
ADDITIONAL INFORMATION
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
NOVEMBER 22, 1993
---------------------------
</TABLE>
SMITH BARNEY SHEARSON
FUNDAMENTAL VALUE FUND INC.
Two World Trade Center
New York, New York 10048 Fund 10
[Smith Barney Shearson Logo]
A Primerica Company
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, 1994 and the Report of Independent Accountants is
incorporated by reference to the Definitive 30b-2 filed filed
on December 5,1994.
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.
Included in Part C:
Consent of Independent Accountants
(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
incorporated by reference to Post-Effective Amendment No. 23 to
the Registration Statement file with the SEC (Post-Effective
Amendment No. 23).
(1)(j) Articles of Amendment dated October 31, 1994 to the
Registrant's Corrected Restated Articles of Incorporation are
incorporatedf by reference to Post-Effective Amendment No. 23.
(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 incorporated by reference to
Post-Effective Amendment No. 23 to the Registration Statement
filed with the SEC.
9(d) Form of Sub-Administration Agreement between Fund, SBA and
The Boston Company Advisors, Inc. is incorporated by reference
to Post-Effective Amendment No. 16.
(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 dated July 30,
1993 between the Registrant and Smith Barney Shearson Inc. is
incorporated by reference to Post-Effective Amendment No. 23 to
the Registration Statement filed with the SEC.
(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 December 30, 1994
Common Stock par value $.001 per share
Class A Shares 33,563
Class B Shares 43,631
Class C Shares 306
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
Managed Governments Fund Inc., 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., 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 Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Fundamental Value Fund Inc.
388 Greenwich Street
New York, New York 10013
(3) Smith Barney Mutual Funds Management
388 Greenwich Street
New York, New York 10013
(4) PNC Bank, National Association
17th and Chestnut Streeets
Philadelphia, Pennsylvania
(5) The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
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/Jessica M. Bibliowicz President
1/31/95
Jessica M. Bibliowicz (Chief Executive Officer)
/s/Lewis E. Daidone
1/31/95
Lewis E. Daidone Senior Vice President and
Treasurer (Chief Financial
and Accounting Officer)
/s/ Lloyd J. Andrews* Director
1/31/95
Lloyd J. Andrews
/s/ Robert M. Frayn* Director
1/31/95
Robert M. Frayn
/s/ Leon P. Gardner* Director
1/31/95
Leon P. Gardner
/s/ Howard J. Johnson* Director
1/31/95
Howard J. Johnson
/s/ David E. Maryatt* Director
1/31/95
David E. Maryatt
/s/ Heath B. McLendon Director
1/31/95
Heath B. McLendon
___________________ Director
1/31/95
Frederick O. Paulsell
/s/ Julie W. Weston* Director
1/31/95
Julie W. Weston
/s/ Jerry A. Viscione* Director
1/31/95
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
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 24 to the Registration Statement No. 2-71469 of Smith Barney
Fundamental Value Fund Inc. of our report dated October 28, 1994, appearing
in the annual report to shareholders for the year ended September 30, 1994,
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
January 24, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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