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. 31 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 34 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: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1)
XXX on January 28, 1999 pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2) of Rule 485.
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Common Stock.
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents
Front Cover
Contents Page
Cross-Reference Sheet
Part C - Other Information
Signature Page
Exhibits
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial
Highlights
4. General Description of Registrant Cover Page; Prospectus Summary;
Investment Objective and
Management
Policies; Additional Information
5. Management of the Fund Management of the Fund;
Distributor; Additional Information;
Annual Report
5A. Management's Discussion of Annual Report
Fund Performance
6. Capital Stock and Other Investment Objective and
Securities Policies; Dividends,
Distributions and
Taxes; Additional
Information
7. Purchase of Securities Being Valuation of Shares; Purchase of
Offered 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 Statement of
Item No. Additional Information
Caption
10. Cover Page Cover page
11. Table of Contents Table of Contents
12. General Information and Distributor; Additional Information
History
13. Investment Objectives and Investment Objectives
Policies and Management Policies
14. Management of the Fund Management of the Fund; Distributor
15. Control Persons and Principal Management of the Fund
Holders of Securities
16. Investment Advisory and Other Management of the Fund; Distributor
Services
17. Brokerage Allocation and Investment Objective and
Other Practices Management Policies; Distributor
18. Capital Stock and Other Investment Objective and
Securities Management Policies; Purchase
of Shares; Redemption of
Shares; Taxes
19. Purchase, Redemption and Purchase of Shares; Redemption
Pricing of Securities Being Offered of Shares; Valuation of Shares;
Distributor; Exchange Privilege
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Performance Data
Data
23. Financial Statements Financial Statements
PART A
P R O S P E C T U S
SMITH BARNEY
Fundamental
Value
Fund Inc.
JANUARY 28, 1999
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
<PAGE>
PROSPECTUS JANUARY 28, 1999
Smith Barney
Fundamental Value
Fund Inc.
388 Greenwich Street
New York, New York 10013
800-451-2010
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 invest-
ing 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 pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated January 28, 1999, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Salomon 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.
CFBDS, INC.
Distributor
MUTUAL MANAGEMENT CORP.
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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 10
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 15
- -------------------------------------------------
VALUATION OF SHARES 20
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 21
- -------------------------------------------------
PURCHASE OF SHARES 22
- -------------------------------------------------
EXCHANGE PRIVILEGE 30
- -------------------------------------------------
REDEMPTION OF SHARES 33
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 35
- -------------------------------------------------
PERFORMANCE 35
- -------------------------------------------------
MANAGEMENT OF THE FUND 36
- -------------------------------------------------
DISTRIBUTION 37
- -------------------------------------------------
ADDITIONAL INFORMATION 38
- -------------------------------------------------
</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>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified management invest-
ment company with a primary investment objective of long-term capital growth.
Current income is a secondary objective. The Fund seeks to achieve its princi-
pal 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 "In-
vestment 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 L
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,
is offered to investors meeting an initial investment minimum of $15,000,000.
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 of
$500,000 or more 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.
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
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Dividend Shares") will be converted at that time. See "Purchase of Shares--
Deferred Sales Charge Alternatives."
Class L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00% of the purchase price. 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 L shares within 12 months of purchase. The CDSC may be waived for
certain redemptions. Until June 22, 2001, purchases of Class L shares by
investors who were holders of Class C shares of the Fund on June 12, 1998 will
not be subject to the 1.00% initial sales charge. The Class L shares' distri-
bution fee may cause that Class to have higher expenses and pay lower divi-
dends than Class A shares. Purchases of Fund shares, which when combined with
current holdings of Class L 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 $15,000,000. 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 con-
sider the following factors, as well as any other relevant facts and circum-
stances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended duration 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 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.
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 L 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 L shares to investors with longer term investment outlooks.
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 of $500,000
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
or more may 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 investment may be met by adding the purchase to the net asset
value of all Class A shares held in other Smith Barney Mutual Funds listed
under "Exchange Privilege." Class A share purchases may also be eligible for a
reduced initial sales charge. See "Purchase of Shares." Because the ongoing
expenses of Class A shares may be lower than those for Class B and Class L
shares, purchasers eligible to purchase Class A shares at net asset value or at
a reduced sales charge should consider doing so.
Salomon Smith Barney Financial Consultants may receive different compensation
for selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class L 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 descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
SMITH BARNEY 401(K) AND EXECCHOICETM PROGRAMS Investors may be eligible to par-
ticipate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoiceTM Program. Class A and Class L shares are available without a sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares--Smith Barney 401(k) and ExecChoiceTM Programs."
DISTRIBUTOR The Fund has entered into an agreement with CFBDS, Inc. ("CFBDS")
to distribute the Fund's shares.
PURCHASE OF SHARES Investors may purchase shares from a Salomon Smith Barney
Financial Consultant, an investment dealer in the selling group or a broker
that clears securities through Salomon Smith Barney. (An investment dealer in
the selling group and a broker that clears securities through Salomon Smith
Barney Inc. ("Salomon Smith Barney") are collectively referred to as "Dealer
Representatives".) In addition, certain investors, including qualified retire-
ment plans and investors purchasing through certain Dealer Representatives, may
purchase shares directly from the Fund through the Fund's transfer agent, First
Data Investor Services Group, Inc. (the "Transfer Agent"). See "Purchase of
Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L 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
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Retirement Plan. Investors in Class Y shares may open an account for an ini-
tial investment of $15,000,000. Subsequent investments of at least $50 may be
made for all Classes. There is no minimum investment requirement in Class A
for unitholders who invest distributions from a unit investment trust ("UIT")
sponsored by Salomon Smith Barney. The minimum investment requirements for
purchases of Fund shares through the Systematic Investment Plan are described
below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Invest-
ment Plan under which they may authorize the automatic placement of a purchase
order each month or quarter for Fund shares. The minimum initial investment
requirement for Class A, Class B and Class L shares and the subsequent invest-
ment requirement for all Classes for shareholders purchasing shares through
the Systematic Investment Plan on a monthly basis is $25 and on a quarterly
basis is $50. 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 Mutual Management Corp. ("MMC"), formerly Smith Barney
Mutual Funds Management Inc., a wholly owned subsidiary of Salomon Smith Bar-
ney Holdings Inc. ("Holdings"), serves as the Fund's investment adviser and
administrator. Holdings is a wholly owned subsidiary of Citigroup Inc.
("Citigroup"). Citigroup businesses produce a broad range of financial servic-
es--asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading--and use diverse chan-
nels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers
Life & Annuity, and Travelers Property Casualty. 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 respec-
tive net asset values next determined. 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 Salomon Smith Barney Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are 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
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
dividend and distribution reinvestments will not be subject to any sales charge
or CDSC. Class B shares acquired through dividend and distribution reinvest-
ments 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."
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>
SMITH BARNEY FUNDAMENTAL VALUE FUND INC. CLASS A CLASS B CLASS L 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 1.00% 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%
12b-1 fees** 0.25 1.00 1.00 None
Other expenses
- ------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
- ------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more 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 of purchase.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class L shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class L shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
Class A shares of the Fund purchased through the Salomon Smith Barney
AssetOne Program will be subject to an annual asset-based fee, payable quarter-
ly, in lieu of the initial sales charge. The fee will vary to a maximum of
1.50%, depending on the amount of assets held through the Program. For more
information, please call a Salomon Smith Barney Financial Consultant.
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 L 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) and ExecChoiceTM Programs. See "Purchase of Shares" and "Redemption of
Shares." Salomon Smith Barney receives an annual 12b-1 service fee of 0.25% of
the value of average daily net assets of Class A shares. Salomon Smith Barney
also receives, with respect to Class B and Class L shares, an annual 12b-1 fee
of 1.00% of the value of average daily net assets of the respective Class,
consisting of a 0.75% distribution fee and a 0.25% service fee. "Other
expenses" in the above table include fees for shareholder services, custodial
fees, legal and accounting fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels
set forth in the table above. See "Purchase of Shares," "Redemption of Shares"
and "Management of the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY FUNDAMENTAL VALUE FUND INC. 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.................................. $
Class B..................................
Class L..................................
Class Y..................................
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A..................................
Class B..................................
Class L..................................
Class Y..................................
- ------------------------------------------------------------------------------
</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 REPRESEN-
TATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
8
<PAGE>
[This page intentionally left blank]
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by Deloitte & Touche LLP, indepen-
dent auditors, whose report thereon appears in the Fund's Annual Report. The
information set out below should be read in conjunction with the financial
statements and related notes that also appear in the Fund's Annual Report dated
September 30, 1998, which is incorporated by reference into the Statement of
Additional Information.
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SMITH BARNEY FUNDAMENTAL VALUE FUND SEPTEMBER 30,
INC. ----------------------------------
CLASS A SHARES 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $9.31 $8.66 $8.20 $8.42
- --------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.11 0.20 0.17 0.09
Net realized and unrealized gains 2.52 1.01 1.23 0.30
- --------------------------------------------------------------------------
Total Income From Operations 2.63 1.21 1.40 0.39
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.13) (0.19) (0.13) (0.08)
Net realized gains (0.44) (0.37) (0.81) (0.53)
- --------------------------------------------------------------------------
Total Distributions (0.57) (0.56) (0.94) (0.61)
- --------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ $11.37 $9.31 $8.66 $8.20
- --------------------------------------------------------------------------
TOTAL RETURN % 29.53% 14.73% 19.94% 4.92%
- --------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS) $ $606 $458 $ 386 $ 265
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses % 1.14% 1.22% 1.34% 1.30%
Net investment income 1.14 2.32 2.19 1.90
- --------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 46% 57% 45% 108%
- --------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS(1) $0.04 $0.05 $0.05 --
- --------------------------------------------------------------------------
</TABLE>
(1) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$7.22 $6.47 $5.34 $7.15 $6.23
- --------------------------------------------------------------------------------------------------
0.07 0.11 0.15 0.16 0.17
1.65 0.78 1.50 (1.22) 1.18
- --------------------------------------------------------------------------------------------------
1.72 0.89 1.65 (1.06) 1.35
- --------------------------------------------------------------------------------------------------
(0.06) (0.14) (0.23) (0.18) (0.10)
(0.46) -- (0.29) (0.57) (0.33)
- --------------------------------------------------------------------------------------------------
(0.52) (0.14) (0.52) (0.75) (0.43)
- --------------------------------------------------------------------------------------------------
$8.42 $7.22 $6.47 $5.34 $7.15
- --------------------------------------------------------------------------------------------------
25.23% 14.01% 33.47% (16.25)% 23.26%
- --------------------------------------------------------------------------------------------------
$ 123 $78 $59 $63 $89
- --------------------------------------------------------------------------------------------------
1.45% 1.28% 1.30% 1.20% 1.10%
1.00 1.57 2.24 2.40 2.50
- --------------------------------------------------------------------------------------------------
111% 142% 116% 94% 62%
- --------------------------------------------------------------------------------------------------
-- -- -- -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY FUNDAMENTAL VALUE FOR THE FISCAL YEARS ENDED SEPTEMBER
FUND INC. 30,
------------------------------------------
CLASS B SHARES 1998 1997 1996 1995 1994 1993(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $9.26 $8.62 $8.16 $8.37 $7.31
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.03 0.13 0.12 0.09 0.05
Net realized and unrealized gains 2.52 1.01 1.23 0.25 1.52
- --------------------------------------------------------------------------------
Total Income From Operations 2.55 1.14 1.35 0.34 1.57
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.06) (0.13) (0.08) (0.02) (0.05)
Net realized gains (0.44) (0.37) (0.81) (0.53) (0.46)
- --------------------------------------------------------------------------------
Total Distributions (0.50) (0.50) (0.89) (0.55) (0.51)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ $11.31 $9.26 $8.62 $8.16 $8.37
- --------------------------------------------------------------------------------
TOTAL RETURN % 28.62% 13.82% 19.19% 4.21% 22.82%++
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS) $ $930 $704 $539 $361 $114
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses % 1.90% 1.97% 2.09% 2.06% 2.26%+
Net investment income 0.38 1.56 1.44 1.13 0.19+
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 46% 57% 45% 108% 111%
- --------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS(2) $0.04 $0.05 $0.05 -- --
- --------------------------------------------------------------------------------
</TABLE>
(1) For the period from November 6, 1992 (inception date) to September 30,
1993.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY FUNDAMENTAL
VALUE FUND INC. FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
-------------------------------------------
CLASS L SHARES(1) 1998 1997 1996 1995 1994 1993(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $ $9.26 $8.62 $8.16 $8.37 $8.15
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.03 0.14 0.12 0.05 0.00
Net realized and unrealized
gains 2.51 1.00 1.24 0.29 0.22
- --------------------------------------------------------------------------------
Total Income From Operations 2.54 1.14 1.36 0.34 0.22
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.06) (0.13) (0.09) (0.02) --
Net realized gains (0.44) (0.37) (0.81) (0.53) --
- --------------------------------------------------------------------------------
Total Distributions (0.50) (0.50) (0.90) (0.55) --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ $11.30 $9.26 $8.62 $8.16 $8.37
- --------------------------------------------------------------------------------
TOTAL RETURN % 28.52% 13.82% 19.33% 4.24% 2.70%++
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $ $71,874 $44,539 $21,812 $1,652 $308
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses % 1.92% 1.96% 2.09% 2.23% 2.25%+
Net investment income 0.36 1.52 1.44 0.96 0.20+
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE % 46% 57% 45% 108% 111%
- --------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER
SHARE PAID ON EQUITY
TRANSACTIONS(3) $0.04 $0.05 $0.05 -- --
- --------------------------------------------------------------------------------
</TABLE>
(1) Class L Shares were called Class C Shares until June 12, 1998.
(2) For the period from August 10, 1993 (inception date) to September 30,
1993.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
13
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
<TABLE>
<CAPTION>
CLASS Y SHARES 1998 1997 1996(1)
- -------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $9.32 $8.54
- -------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.14 0.23
Net realized and unrealized gain 2.54 0.55
- -------------------------------------------------------------
Total Income From Operations 2.68 0.78
- -------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.16) --
Net realized gains (0.44) --
- -------------------------------------------------------------
Total Distributions (0.60) --
- -------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ $11.40 $9.32
- -------------------------------------------------------------
TOTAL RETURN 30.06% 9.13%*++
- -------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS) $ $109 $45
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses % 0.78% 0.75%+
Net investment income 1.48 2.58+
- -------------------------------------------------------------
PORTFOLIO TURNOVER RATE % 46% 57%
- -------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS(2) $0.04 $0.05
- -------------------------------------------------------------
</TABLE>
(1) For the period from January 31, 1996 (inception date) to September 30,
1996.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* During November 1995 Class Y shares were fully redeemed, therefore
performance for Class Y shares represents performance for the period
beginning January 31, 1996, which represents the date new share purchases
were made into this class.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
14
<PAGE>
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, MMC 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 securi-
ties of companies which are temporarily unpopular among investors but which MMC
regards as possessing favorable prospects for earnings growth and/or improve-
ments in the value of their assets and, consequently, as having a reasonable
likelihood of experiencing a recovery in market price.
When MMC believes that a defensive investment posture is warranted or when
opportunities for capital growth do not appear attractive, the Fund may tempo-
rarily invest all or a portion of its assets in short-term money market instru-
ments, 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 depos-
its, and may engage in repurchase agreement transactions with respect to such
instruments.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain member banks of the Federal Reserve System and certain dealers on the
Federal Reserve Bank of New York's list of reporting dealers. Under the terms
of a typical repurchase agreement, the Fund would acquire securities for a rel-
atively
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 peri-
od. 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. MMC, acting under the supervision of the Board of Directors,
reviews on an ongoing basis the value of the collateral and the creditworthi-
ness of those dealers and banks with which the Fund enters into repurchase
agreements to evaluate potential risks.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial organizations. Loans of portfolio securities by the Fund
will be collateralized by cash, letters of credit or U.S. government securi-
ties 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 port-
folio securities, like those associated with other extensions of secured cred-
it, 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 MMC to be
of good standing and will not be made unless, in the judgment of MMC, the con-
sideration 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 "premi-
um") for granting the rights evidenced by a call option. A call option embod-
ies 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 dur-
ing the option period. Thus, the purchaser of a call option written by the
Fund has the right to purchase from the Fund the underlying security owned by
the Fund at the agreed-upon price for a specified time period.
Upon the exercise of a call option written by the Fund, the Fund may suffer
a loss equal to the excess of the security's market value at the time of the
option exercise over the Fund's cost of the security, less the premium
received for writing the option.
The Fund will write only covered options with respect to its portfolio secu-
rities. 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
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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) maintain in a segregated account with its custodian, cash or
equity and debt securities of any grade provided such securities have been
determined by MMC to be liquid, unencumbered and marked to market daily pursu-
ant to guidelines established by the Board of Directors ("eligible segregated
assets") 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 under-
lying 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 clos-
ing purchase transaction, the Fund would purchase, prior to the holder's exer-
cise of an option that the Fund has written, an option of the same series as
that on which the Fund desires to terminate its obligation. The obligation of
the Fund under an option that it has written would be terminated by a closing
purchase transaction, but the Fund would not be deemed to own an option as a
result of the transaction. There can be no assurances that the Fund will be
able to effect closing purchase transactions at a time when it wishes to do
so. To facilitate closing purchase transactions, however, the Fund ordinarily
will write options only if a secondary market for the options exists on a
domestic securities exchange or in the over-the-counter market.
The Fund may also, for hedging purposes, purchase put options on securities
traded on national securities exchanges as well as in the over-the-counter
market. The Fund may purchase put options on particular securities in order to
protect against a decline in the market value in the underlying securities
below the exercise price less the premium paid for the option. The ability to
purchase put options allows the Fund to protect the unrealized gain on an
appreciated security in its portfolio without actually selling the security.
Prior to expiration, most options may be sold in a closing sale transaction.
Profit or loss from such a sale will depend on whether the amount received is
more or less than the premium paid for the option plus the related transaction
cost.
In addition, the Fund may for hedging purposes and/or to generate income,
write put options on securities traded on national securities exchanges. Writ-
ing a put option could force the Fund to purchase securities at inopportune
times or for prices higher or lower than the current market value.
The Fund may purchase options and write put options in the over-the-counter
market ("OTC options") to the same extent that it may engage in transactions
in
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
exchange traded options. OTC options differ from exchange traded options in
that they are negotiated individually and terms of the contract are not stan-
dardized 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-per-
formance by the counterparty to the option. However, OTC options generally are
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 illiq-
uid 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.
Options on Broad-Based Domestic Stock Indexes. The Fund may, for hedging pur-
poses only, write call options and purchase put options on broad-based domestic
stock indexes and enter into closing transactions with respect to such options.
The Fund may also, for hedging purposes and/or to generate income, write put
options on stock indexes. 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 exercise 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 move-
ments in the stock market generally rather than price movements in the individ-
ual stocks.
The effectiveness of purchasing puts and writing calls on stock index options
depends to a large extent on the ability of MMC to predict the price movement
of the stock index selected. Therefore, whether the Fund realizes a gain or
loss from the purchase of options on an index depends upon movements in the
level of stock prices in the stock market generally. Additionally, because
exercises of index options are settled in cash, a call writer such as the Fund
cannot determine the amount of the settlement obligations in advance and it
cannot provide in advance for, or cover, its potential settlement obligations
by acquiring and holding the underlying securities. When the Fund has written
the call, there is also a risk that the market may decline between the time the
Fund has a call exercised against it, at a price which is fixed as of the clos-
ing 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 pro-
vides 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
18
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Fund may enter into futures contracts to sell securities when MMC believes that
the value of the Fund's securities will decrease. An option on a futures con-
tract, 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 under-
lying contract. The Fund may enter into futures contracts to purchase securi-
ties when MMC 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, eligible segregated
assets equal to the market value of the contract will be deposited in a segre-
gated 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 con-
tracts that are traded on a U.S. exchange or board of trade.
The Fund may purchase options on futures contracts to hedge its portfolio
against the risk of a decline in the market value of securities held, and may
purchase call options on futures contracts to hedge against an increase in the
price of securities it is committed to purchase. The Fund may write put and
call options on futures contracts in entering into closing sale transactions
and to increase its ability to hedge against changes in the market value of the
securities it holds or is committed to purchase. The Fund will write put and
call options only on futures contracts that are traded on a domestic exchange
or board of trade.
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" pur-
poses or other permitted purposes, provided that aggregate initial margin
deposits and premiums required to establish positions, other than those consid-
ered 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 MMC with a number of brokers and dealers,
including Salomon Smith Barney. Salomon Smith Barney has advised the Fund that,
in transactions with the Fund, Salomon Smith Barney charges a commission rate
at least as favorable as the rate Salomon 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
19
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
("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.
Year 2000. The investment management services provided to the Fund by MMC and
the services provided to shareholders by Salomon Smith Barney depend on the
smooth functioning of their computer systems. Many computer software systems in
use today cannot recognize the year 2000, but revert to 1900 or some other
date, due to the manner in which dates were encoded and calculated. That
failure could have a negative impact on the Fund's operations, including the
handling of securities trades, pricing and account services. MMC and Salomon
Smith Barney have advised the Fund that they have been reviewing all of their
computer systems and actively working on necessary changes to their systems to
prepare for the year 2000 and expect that their systems will be compliant
before that date. In addition, MMC has been advised by the Fund's custodian,
distributor, transfer agent and accounting service agent that they are also in
the process of modifying their systems with the same goal. There can, however,
be no assurance that MMC, Salomon Smith Barney or any other service provider
will be successful, or that interaction with other non-complying computer
systems will not impair Fund services at that time.
In addition, the ability of issuers to make timely payments of interest and
principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as
widespread or as affecting trading markets.
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. Amortized
cost involves valuing an investment at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the investment. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.
20
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all its net investment
income (that is, its net 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 gain
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 undis-
tributed amounts of ordinary income and capital gains, the Fund may make an
additional distribution shortly before December 31 in each year of any undis-
tributed ordinary income or capital gains and expects to pay any other divi-
dends and distributions necessary to avoid the application of this tax.
The per share dividends on Class B and Class L 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 L 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 L 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 invest-
ment income and distributions of net realized short-term capital gains are
taxable to shareholders as ordinary income, regardless of how long sharehold-
ers 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 addi-
tional Fund shares. Furthermore, as a general rule, a shareholder's gain or
loss on a sale or redemption of Fund shares will be a long-term capital gain
or loss if the shareholder has held the shares for more than one year and will
be a short-term capital gain or loss if the shareholder has held the shares
for one year or less. Some of the Fund's dividends declared from net invest-
ment income may qualify for the Federal dividends-received deduction for cor-
porations.
Statements as to the tax status of each shareholder's dividends and distri-
butions are mailed annually. Each shareholder also will receive, if appropri-
ate, 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
21
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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
SALES CHARGE ALTERNATIVES
The following Classes of shares are available for purchase through this Pro-
spectus. See "Prospectus Summary--Alternative Purchase Arrangements" for a dis-
cussion of factors to consider in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the public offering
price, which is the net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
SALES SALES DEALER'S
CHARGE AS CHARGE AS REALLOWANCE
A % OF A % OF AS % OF
AMOUNT OF INVESTMENT TRANSACTION 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 of $500,000 or more 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 Salomon Smith Barney, which compensates Salomon 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 L shares is waived. See "Deferred
Sales Charge Provisions" 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 "1933 Act"). 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 and his or her immediate
family, or a trustee or other fiduciary of a single trust estate or single
fiduciary account.
Class B Shares. Class B shares are sold without an initial sales charge but
are subject to a CDSC payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of 1.00%
(which is equal to 1.01% of the amount invested) and are subject to a CDSC pay-
able upon certain redemptions. See "Deferred Sales Charge Provisions" below.
Until June 22, 2001 purchases of Class L shares by investors who were holders
of
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Class C shares of the Fund on June 12, 1998 will not be subject to the 1.00%
initial sales charge.
Class Y Shares. Class Y shares are sold without an initial sales charge or
CDSC and are available only to investors investing a minimum of $15,000,000
(except purchase of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount).
GENERAL
Investors may purchase shares from a Salomon Smith Barney Financial Consul-
tant or a Dealer Representative. In addition, certain investors, including
qualified retirement plans purchasing through certain Dealer Representatives,
may purchase shares directly from the Fund. When purchasing shares of the
Fund, investors must specify whether the purchase is for Class A, Class B,
Class L or Class Y shares. Salomon Smith Barney and Dealer Representatives may
charge their customers an annual account maintenance fee in connection with a
brokerage account through which an investor purchases or holds shares.
Accounts held directly at the Transfer Agent, are not subject to a maintenance
fee.
Investors in Class A, Class B and Class L shares may open an account in the
Fund by making an initial investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in the Fund. Investors in
Class Y shares may open an account by making an initial investment of
$15,000,000. Subsequent investments of at least $50 may be made for all Clas-
ses. For participants in retirement plans qualified under Section 403(b)(7) or
Section 401(c) of the Code, the minimum initial investment requirement for
Class A, Class B and Class L shares and the subsequent investment requirement
for all Classes in the Fund is $25. For shareholders purchasing shares of the
Fund through the Systematic Investment Plan on a monthly basis, the minimum
initial investment requirement for Class A, Class B and Class L shares and
subsequent investment requirement for all Classes is $25. For shareholders
purchasing shares of the Fund through the Systematic Investment Plan on a
quarterly basis, the minimum initial investment required for Class A, Class B
and Class L shares and the subsequent investment requirement for all Classes
is $50. There are no minimum investment requirements for Class A shares for
employees of Citigroup and its subsidiaries, including Salomon Smith Barney,
unitholders who invest distributions from a UIT sponsored by Salomon Smith
Barney, and Directors/Trustees of any of the Smith Barney Mutual Funds 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 Transfer Agent. Share certificates are issued
only upon a shareholder's written request to the Transfer Agent.
Purchase orders received by the Fund or a Salomon Smith Barney Financial
Consultant prior to the close of regular trading on the NYSE, on any day the
Fund
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
calculates its net asset value, are priced according to the net asset value
determined on that day (the "trade date"). Orders received by a Dealer Repre-
sentative 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 the Fund or the
Fund's agent prior to its close of business. For shares purchased through Salo-
mon Smith Barney or a Dealer Representative purchasing through Salomon Smith
Barney, payment for Fund shares is due on the third business day after the
trade date. In all other cases, payment must be made with the purchase order.
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, Salomon Smith Barney or the Transfer Agent is
authorized through preauthorized transfers of at least $25 on a monthly basis
or at least $50 on a quarterly basis to charge the shareholder's account held
with a bank or other financial institution on a monthly or quarterly basis as
indicated by the shareholder to provide for systematic additions to the share-
holder's Fund account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon Smith Barney or the
Transfer Agent. The Systematic Investment Plan also authorizes Salomon Smith
Barney to apply cash held in the shareholder's Salomon 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 Salomon Smith Barney Financial Consultant.
SALES CHARGE WAIVERS AND REDUCTIONS
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 to (i) Board Members and
employees of Citigroup and its subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including retired Board Members and
employees); the immediate families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to a pension, profit-shar-
ing or other benefit plan for such persons and (ii) employees of members of the
National Association of Securities Dealers, Inc., provided such sales are made
upon the assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be resold except through redemption
or repurchase, (b) offers of Class A shares to any other investment company to
effect 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 Salomon Smith Barney Financial Consultant (for a period up to 90 days
from the commencement of the Financial Consul-
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
tant's employment with Salomon 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 employ-
er, (ii) was sold to the client by the Financial Consultant and (iii) was sub-
ject to a sales charge; (d) purchases by shareholders who have redeemed Class A
shares in the Fund (or Class A shares of another Smith Barney Mutual Fund that
is offered with a sales charge) and who wish to reinvest their redemption pro-
ceeds in the Fund, provided the reinvestment is made within 60 calendar days of
the redemption; (e) purchases by accounts managed by registered investment
advisory subsidiaries of Citigroup; (f) direct rollovers by plan participants
of distributions from a 401(k) plan offered to employees of Citigroup or its
subsidiaries or a 401(k) Plan enrolled in the Smith Barney 401(k) Program
(Note: subsequent investments will be subject to the applicable sales charge);
(g) purchases by separate accounts used to fund certain unregistered variable
annuity contracts; (h) investments of distributions from a UIT sponsored by
Salomon Smith Barney; (i) purchases by investors participating in a Salomon
Smith Barney fee-based arrangement; and (j) purchases by Section 403(b) or Sec-
tion 401(a) or (k) accounts associated with Copeland Retirement Programs. In
order to obtain such discounts, the purchaser must provide sufficient informa-
tion 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 aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of other Smith Barney Mutual Funds that are
offered with a sales charge as currently 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 infor-
mation at the time of purchase to permit verification that the purchase quali-
fies for the reduced sales charge. The right of accumulation is subject to mod-
ification or discontinuance at any time with respect to all shares purchased
thereafter.
LETTER OF INTENT
Class A Shares. A Letter of Intent for an amount 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 (i) all
Class A shares of the Fund and other Smith Barney Mutual Funds offered with a
sales charge acquired during the term of the Letter plus (ii) the value of all
Class A shares previously purchased and still owned. Each investment made dur-
ing the period receives the
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 differ-
ence between the sales charges applicable to the purchases made and the charges
previously paid, or an appropriate number of escrowed shares will be redeemed.
The term of the Letter will commence upon the date the Letter is signed, or at
the option of the investor, up to 90 days before such date. Please contact a
Salomon Smith Barney Financial Consultant or the Transfer Agent to obtain a
Letter of Intent application.
Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount). Such investors must make an initial minimum
purchase of $5,000,000 in Class Y shares of the Fund and agree to purchase a
total of $15,000,000 of Class Y shares of the Fund within 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made within the
13 month period, all Class Y shares purchased to date will be transferred to
Class A shares, where they will be subject to all fees (including a service fee
of 0.25%) and expenses applicable to the Fund's Class A shares, which may
include a CDSC of 1.00%. Please contact a Salomon Smith Barney Financial Con-
sultant or the Transfer Agent for further information.
DEFERRED SALES CHARGE PROVISIONS
"CDSC Shares" are: (a) Class B shares; (b) Class L shares; and (c) Class A
shares that were purchased without an initial sales charge but are subject to a
CDSC. A CDSC may be imposed on certain redemptions of these shares.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
original 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 L shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class L 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
Salomon 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
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Class B shares held under the Smith Barney 401(k) Program, as described below.
See "Purchase of Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
<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 and thereafter 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 will also be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholders as the total num-
ber of his or her Class B shares converting at the time bears to the total num-
ber of outstanding Class B shares (other than Class B Dividend Shares) owned by
the shareholder. 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 Salomon 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 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
(see "Automatic Cash Withdrawal Plan") (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) redemptions
of shares made in connection with qualified distributions from retirement
plans or IRAs upon the attainment of age 59; (e) involuntary redemptions; and
(f) redemptions of shares to effect a combination of the Fund with any invest-
ment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other 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 Salomon Smith Bar-
ney in the case of shareholders who are also Salomon Smith Barney clients or
by the Transfer Agent in the case of all other shareholders) of the sharehold-
er's status or holdings, as the case may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable, the same
terms and conditions, which are outlined below, are offered to all plans par-
ticipating ("Participating Plans") in these programs.
The Fund offers to Participating Plans Class A and Class L shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class L shares acquired through the Participating Plans are sub-
ject to the same service and/or distribution fees as the Class A and Class L
shares acquired by other investors; however, they are not subject to any ini-
tial sales charge or CDSC. 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 sales
charge or CDSC to any Participating Plan that purchases $1,000,000 or more of
Class A shares of one or more Smith Barney Mutual Funds.
Class L Shares. Class L shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000
of Class L shares of one or more Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. If, at the
end of the fifth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, a
Participating Plan's total Class L holdings in all non-money market Smith
Barney Mutual Funds equal at least $1,000,000, the Participating Plan will be
offered the opportunity to
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
exchange all of its Class L shares for Class A shares of the Fund. (For
Participating Plans that were originally established through a Salomon Smith
Barney retail brokerage account, the five year period will be calculated from
the date the retail brokerage account was opened.) Such Participating Plans
will be notified of the pending exchange in writing within 30 days after the
fifth anniversary of the enrollment date and, unless the exchange offer has
been rejected in writing, the exchange will occur on or about the 90th day
after the fifth anniversary date. If the Participating Plan does not qualify
for the five year exchange to Class A shares, a review of the Participating
Plan's holdings will be performed each quarter until either the Participating
Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its total
Class L holdings in all non-money market Smith Barney Mutual Funds 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 L 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.
Any Participating Plan in the Smith Barney 401(k) Program, whether opened
before or after June 21, 1996, that has not previously qualified for an
exchange into Class A shares will be offered the opportunity to exchange all of
its Class L shares for Class A shares of the Fund, regardless of asset size, at
the end of the eighth year after the date the Participating Plan enrolled in
the Smith Barney 401(k) Program. 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 an exchange
has occurred, a Participating Plan will not be eligible to acquire additional
Class L shares of the Fund but instead may acquire Class A shares of the Fund.
Any Class L shares not converted will continue to be subject to the distribu-
tion fee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from the Transfer Agent. For further information regarding
these Programs, investors should contact a Salomon Smith Barney Financial Con-
sultant.
29
<PAGE>
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
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 L
shares are subject to minimum investment requirements, and all shares are sub-
ject to the other requirements of the fund into which exchanges are made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Funds Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term High Grade Bond Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Funds
Smith Barney Municipal High Income Fund
Smith Barney Muni Funds--Florida Portfolio
30
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global--International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Smith Barney World Funds, Inc.--International Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Global Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Income Portfolio
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 L and Class Y shares of the
Fund.
** Available for exchange with Class A and Class B shares of the Fund. In
addition, shareholders who own Class L shares of the Fund through the Smith
Barney 401(k) Program may exchange those shares for Class L shares of this
fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class L shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class L shares may exchange Fund shares for Class L shares of this fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
31
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Class B Exchanges. In the event a Class B shareholder 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 L Exchanges. Upon an exchange, the new Class L shares will be deemed to
have been purchased on the same date as the Class L shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the respec-
tive Class 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. MMC may deter-
mine that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, the Fund may, at its
discretion, decide to limit additional purchases and/or exchanges by a share-
holder. Upon such a determination, the Fund 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 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 deter-
mining what constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program." Exchanges will
be processed at the net asset value next determined. Redemption procedures dis-
cussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the reg-
istration 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.
32
<PAGE>
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 the 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 deter-
mined.
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 Transfer Agent
receives further instructions from Salomon Smith Barney, or if the sharehold-
er's account is not with Salomon Smith Barney, from the shareholder directly.
The redemption proceeds will be remitted on or before the third business day
following receipt of proper tender, except on any day on which the NYSE is
closed or as permitted under the Investment Company Act of 1940, as amended
(the "1940 Act") in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Salomon Smith Barney brokerage account, these funds
will not be invested for the shareholder's benefit without specific instruc-
tion and Salomon 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 Salomon Smith Barney as custodian must be redeemed by submit-
ting a written request to a Salomon Smith Barney Financial Consultant. Shares
other than those held by Salomon Smith Barney as custodian may be redeemed
through an investor's Financial Consultant, Dealer Representative or by sub-
mitting a written request for redemption to:
Smith Barney Fundamental Value Fund Inc.
Class A, B, L or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 9134
Westborough, Massachusetts 01581-5128
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 regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed
stock power) and must be submitted to the Transfer Agent together with the
redemption request. Any signature appearing on a share certificate, stock
power or on a written redemption request in excess of $10,000 must be guaran-
teed 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. Written redemption
requests of $10,000 or less do not require a signature
33
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
guarantee unless more than one such redemption request is made in any 10-day
period. Redemption proceeds will be mailed to an investor's address of record.
The Transfer Agent 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 the Transfer
Agent receives all required documents in proper form.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Salomon Smith Barney brokerage account
may be eligible to redeem and exchange Fund shares by
telephone. To determine if a shareholder is entitled to participate in this
program, he or she should contact the Transfer Agent at (800) 451-2010. Once
eligibility is confirmed, the shareholder must complete and return a
Telephone/Wire Authorization form, including a signature guarantee, which will
be provided by the Transfer Agent upon request. (Alternatively, an investor may
authorize telephone redemptions on the new account application with a signature
guarantee when making his/her initial investment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any Class or Classes of
the Fund's shares may be made by eligible shareholders by calling the Transfer
Agent at (800) 451-2010. Such requests may be made between 9:00 a.m. and 4:00
p.m. (Eastern time) on any day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been issued are not per-
mitted under this program.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The Fund reserves the right to charge shareholders a nominal fee
for each wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must com-
plete a new Telephone/Wire
Authorization Form and, for the protection of the shareholder's assets, will be
required to provide a signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the fund being acquired is identical to the registra-
tion of the shares of the fund exchanged. Such exchange requests may be made by
calling the Transfer Agent at (800) 451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time) on any day on which the NYSE is open.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions
34
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
communicated by telephone that are reasonably believed to be genuine. The Fund
and its agents will employ procedures designed to verify the identity of the
caller and legitimacy of instructions (for example, a shareholder's name and
account number will be required and phone calls may be recorded). The Fund
reserves the right to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service at any time fol-
lowing at least seven (7) days' prior notice to shareholders.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly or quarterly. Retire-
ment 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 a shareholder's shares sub-
ject to the CDSC.) For further information regarding the automatic cash with-
drawal plan, shareholders should contact a Salomon Smith Barney Financial Con-
sultant.
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
the Fund, each account must satisfy the minimum account size.) The Fund, how-
ever, 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 involuntary liquidation.
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 L and Class Y shares of the Fund. These figures are based on histori-
cal earnings and are not intended to indicate future performance. Total return
is computed for a speci-
35
<PAGE>
PERFORMANCE (CONTINUED)
fied 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 nonstan-
dard total return information for differing periods computed in the same man-
ner 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 calcu-
lating 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 infor-
mation in advertising or marketing its shares. Such performance information
may include data from Lipper Analytical Services, Inc. and other financial
publications.
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 agree-
ments between the Fund and the companies that furnish services to the Fund,
including agreements with the Fund's distributor, investment adviser, adminis-
trator, custodian and transfer agent. The day-to-day operations of the Fund
are delegated to the Fund's investment adviser and administrator. The State-
ment of Additional Information contains general background information regard-
ing each Director and executive officer of the Fund.
INVESTMENT ADVISOR AND ADMINISTRATOR
MMC, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser and administrator. MMC (through its predecessor
entities) has been in the investment counseling business since 1968 and ren-
ders investment management and administration services to a wide variety of
individual, institutional and investment company clients having aggregate
assets under management as of September 30, 1998 in excess of $108 billion.
36
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
Subject to the supervision and direction of the Fund's Board of Directors,
MMC manages the Fund's portfolio in accordance with the Fund's stated invest-
ment objective and policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and employs professional portfolio man-
agers and securities analysts who provide research services to the Fund. Under
an investment advisory agreement, the Fund pays MMC a monthly fee at the annual
rate of 0.55% of the value of its average daily net assets up to $1.5 billion
and 0.50% of the value of its average daily net assets in excess of $1.5 bil-
lion.
ADMINISTRATOR
MMC also serves as the Fund's administrator and oversees all aspects of the
Fund's administration and operation. For administration services rendered to
the Fund, the Fund pays MMC a fee at the annual rate of 0.20% of the value of
the Fund's average daily net assets.
On October 8, 1998 Travelers Group Inc. and Citicorp consum-
mated their merger, thereby creating a new entity to be called Citigroup.
Citigroup is a bank holding company subject to regulation under the Bank Hold-
ing Company Act of 1956 (the "BHCA"), the requirements of the Glass-Steagall
Act and certain other laws and regulations. MMC does not believe that its com-
pliance with the applicable law will have a material adverse effect on its
ability to continue to provide the Fund with the same level of investment advi-
sory services that it currently receives.
PORTFOLIO MANAGEMENT
John G. Goode, Managing Director of Salomon Smith Barney and Chairman and
Chief Investment Officer of Davis Skaggs Investment Management, a division of
MMC, 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 mak-
ing all investment decisions.
Mr. Goode's management discussion and analysis of the Fund's performance dur-
ing the fiscal year ended September 30, 1998 is included in the Fund's Annual
Report to Shareholders dated September 30, 1998. The Fund's Annual Report may
be obtained upon request and without charge from a Salomon Smith Barney Finan-
cial Consultant or by writing or calling the Fund at the address or phone num-
ber listed on page one of this Prospectus.
DISTRIBUTION
CFBDS is located at 21 Milk Street, Boston, MA 02109-5408. CFBDS distributes
shares of the Fund as principal underwriter and as such conducts a continuous
offering pursuant to a "best efforts" arrangement requiring CFBDS to take and
pay for only such securities as may be sold to the public. The Fund has adopted
a plan
37
<PAGE>
DISTRIBUTION (CONTINUED)
of distribution under Rule 12b-1 under the 1940 Act (the "Plan"), pursuant to
which Salomon Smith Barney is paid a service fee with respect to Class A, Class
B and Class L shares of the Fund at the annual rate of 0.25% of the average
daily net assets of the respective Class. Salomon Smith Barney is also paid a
distribution fee with respect to Class B and Class L 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 Salomon Smith Barney to pay its Financial Consultants for servicing
shareholder accounts and, in the case of Class B and Class L 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 pro-
spectuses to potential investors; payments to and expenses of Salomon 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 Salomon Smith Barney associated with the
sale of Fund shares, including lease, utility, communications and sales promo-
tion expenses.
The payments to Salomon Smith Barney Financial Consultants for selling shares
of a Class include a commission or fee paid by the investor or Salomon Smith
Barney at the time of sale and, with respect to Class A, Class B and Class L
shares, a continuing fee for servicing shareholder accounts for as long as a
shareholder remains a holder of that Class. Salomon Smith Barney Financial Con-
sultants 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 Salomon 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 Salomon Smith Barney, amounts received under the
Plan and the proceeds of the CDSC.
ADDITIONAL INFORMATION
The Fund was originally incorporated under the laws of the State of Washing-
ton 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 which subsequently
occurred on May 24, 1995.
The Fund currently offers shares of common stock classified into four Clas-
ses, A, B, L 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, privi-
38
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
leges 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 share Classes of the Fund. The Directors, on an ongoing
basis, will consider whether any such conflict exists and, if so, take appro-
priate 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 at
least 10% of the Fund's outstanding shares and the Fund will assist sharehold-
ers 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, Phila-
delphia, Pennsylvania 19103, serves as custodian of the Fund's investments.
The Transfer Agent is located at Exchange Place, Boston, Massachusetts
02109.
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 house-
hold having multiple accounts with the identical address of record will
receive a single copy of each report. Any shareholder who does not want this
consolidation to apply to his or her account should contact his or her Salomon
Smith Barney Financial Consultant or the Transfer Agent.
39
<PAGE>
[This page intentionally left blank]
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
SMITH BARNEY
FUNDAMENTAL
VALUE
FUND INC.
388 Greenwich Street
New York, New York 10013
FD0206 1/99
PART B
SMITH BARNEY
FUNDAMENTAL VALUE FUND INC.
388 Greenwich Street
New York, New York 10013
800-451-2010
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 28, 1999
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 January
28, 1999, 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 Salomon 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.
Management of the Fund
2
Investment Objective and Management Policies
6
Purchase of Shares
19
Redemption of Shares
20
Distributor
21
Valuation of Shares
22
Exchange Privilege
22
Performance Data (See in the Prospectus
"Performance")
23
Taxes (See in the Prospectus "Dividends,
Distributions and Taxes")
25
Additional Information
28
Financial Statements
29
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:
Name
Service
CFBDS, Inc. ("CFBDS")
Distributor
Mutual Management Corp.("MMC")
(formerly Smith Barney Mutual Funds
Management Inc.)
Investment Adviser
and Administrator
PNC Bank, National Association
("PNC")
Custodian
First Data Investor Services Group,
Inc. ("First Data")
Transfer Agent
These organizations and the functions they perform for the Fund
are discussed in the Prospectus and in this Statement of Additional
Information.
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 78, Director. Private investor; Chairman
Emeritus of Flow International. His address is East 10110 Greenbluff
Road, Mead, Washington 99021.
Robert M. Frayn, Jr., age 64, Director. President and Director
of Book Publishing Company. His address is 201 Westlake Avenue North,
Seattle, Washington 98109.
Leon P. Gardner, age 70, Director. Private investor; Former
Chairman of Fargo's Pizza Company. His address is 2310 N.E. Blue
Ridge Drive, Seattle, Washington 98177.
David E. Maryatt, age 62, Director. Director of ALS Co., a real
estate management and development firm; Private Investor. His address
is 1326 Fifth Avenue, Seattle, Washington 98101.
*Heath B. McLendon, age 65, Managing Director of Salomon Smith
Barney Inc. ("Salomon Smith Barney"); President and Director of MMC
and Travelers Investment Advisers, Inc. ("TIA"); Director of 58
investment companies associated with Salomon Smith Barney. His
address is 388 Greenwich Street, New York, New York 10013.
Frederick O. Paulsell, age 59, Director. Principal of Olympic
Capital Partners. His address is 1325 Fourth Avenue Suite 1900,
Seattle, Washington 98101.
Jerry A. Viscione, age 54, Director. Executive Vice President
of Marquette University; Former Dean of Albers School of Business and
Economics, Seattle University. His address is 615 North 11 Street,
Milwaukee, WI 53233.
Julie W. Weston, age 55, Director. Attorney; Her address is
416 34th Avenue, Seattle, Washington 98122.
Lewis E. Daidone, age 41, Senior Vice President and Treasurer.
Managing Director of Salomon Smith Barney; Director and Senior Vice
President of MMC and TIA. Mr. Daidone serves as Senior Vice
President and Treasurer of other Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
John G. Goode, age 54, Vice President and Investment Officer.
Managing Director of Salomon Smith Barney. Chairman and Chief
Investment Officer of Davis Skaggs Investment Management, a division
of MMC. His address is One Sansome Street, 36th Floor, San Francisco,
California 94104.
Peter Hable, age 40, Investment Officer. Managing Director of
Salomon Smith Barney and President of Davis Skaggs Investment
Management, a division of MMC. His address is One Sansome Street,
36th Floor, San Francisco, California 94104.
Christina T. Sydor, age 47, Secretary. Managing Director of
Salomon Smith Barney; General Counsel and Secretary of MMC and TIA.
Ms. Sydor serves as Secretary of other Smith Barney Mutual Funds.
Her address is 388 Greenwich Street, New York, New York 10013.
As of January ___, 1999, 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 Salomon 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 Salomon Smith
Barney or any of its affiliates a fee of $6,000 per annum plus $1,000
for each in-person meeting and $100 per telephonic meeting. All
Directors are reimbursed for travel and out-of-pocket expenses.
During the fiscal year ended September 30, 1998, such expenses
totaled $_________.
As of January ___, 1999 to the knowledge of the Fund and the
Board of Directors, no single shareholder or "group" (as the term is
used in Section 13(d) of the Securities Act of 1934) beneficially
owned more than 5% of the outstanding shares of the Fund with the
exception of the following:
Shareholder Class Percent
Ownership
For the fiscal year ended September 30, 1998, the Directors of the
Fund were paid the following compensation:
Director
Aggregate
Compensation
from the
Fund
Pension
or
Retirement
Benefits
Accrued
as
Expenses
of the
Fund
Total
Compensation from
Smith
Barney
Mutual
Funds
Complex
Total
Number
of Funds
Served
in
Complex
Lloyd J. Andrews
$
$
$
1
Robert M. Frayn, Jr.
1
Leon P. Gardner
1
Howard J. Johnson*
1
David E. Maryatt
1
Heath B. McLendon
0
0
0
58
Frederick O. Paulsell
1
Jerry A. Viscione
1
Julie W. Weston
1
* Mr. Johnson is an Interested Person by reason of his daughter
being employed by Salomon Smith Barney. Mr. Johnson resigned from the
Board of Directors in October 1998.
Upon attainment of age 80 Directors are required to change to
emeritus status. Directors Emeritus are entitled to serve in
emeritus status for a maximum of 10 years during which time they are
paid 50% of the annual retainer fee and meeting fees otherwise
applicable to the Fund Directors together with reasonable out-of-
pocket expenses for each meeting attended.
Investment Adviser and Administrator -- MMC
MMC 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 MMC ("Independent Directors"), on
April 7, 1993 and by shareholders on June 22, 1993 and was most
recently approved by the Board, including a majority of the
Independent Directors, on June 23, 1998. The services provided by MMC
under the Advisory Agreement are described in the Prospectus under
"Management of the Fund." MMC 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. MMC is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings"),
which is in turn a wholly owned subsidiary of Citigroup Inc.
("Citigroup"). Effective March 25, 1997 compensation for investment
advisory services, the Fund pays MMC 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 up to $1.5 billion and 0.50% of the average
daily net assets in excess of $1.5 billion. MMC bears all of its
expenses in connection with the performance of its services. For the
fiscal years ended September 30, 1998, 1997 and 1996, the Fund
incurred $___________, $8,151,351 and $6,015,090, respectively, in
investment advisory fees.
MMC also serves as administrator to the Fund pursuant to a
written agreement dated June 28, 1994 (the "Administration
Agreement"), which was first approved by the Fund's Board, including
a majority of the Independent Directors on June 28, 1994 and was most
recently approved by the Board, including a majority of the
Independent Directors, on June 23, 1998. MMC 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, MMC 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 MMC pursuant to the
Administration Agreement are described in the Prospectus under
"Management of the Fund." In addition to those services, MMC 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. MMC 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 Salomon Smith Barney or MMC; 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 and costs of shareholders'
reports and corporate meetings.
MMC 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, MMC will, to the extent required by state law, reduce its
management fees by such excess expense. Such fee reductions, if any,
will be reconciled on a monthly basis.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the Fund.
The Independent Directors of the Fund have selected Stroock & Stroock
& Lavan LLP as their legal counsel.
Deloitte & Touche LLP, independent public accountants, 2 World
Financial Center, New York, New York 10281, 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.
MMC 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 MMC regards as possessing favorable prospects for
earnings growth and/or improvement in the value of their assets and,
consequently, as having a reasonable likelihood of experiencing a
recovery in market price. Secondary consideration will be given to a
company's dividend record and the potential for an improved dividend
return.
Because securities markets typically are influenced (and, to
some extent, dominated) by institutional investors, undervalued
securities in which the Fund invests may tend to be those of less
well-established companies or companies whose capitalizations are
less than the capitalizations of larger, better-known companies. To
the extent securities held in the Fund's portfolio do not attract
investor interest, these investments may not participate in rising
securities markets. By the same token, in many instances the
selection of undervalued securities for investment may involve a
smaller risk of capital loss because such lack of investor interest
is reflected in the price of the securities at the time of purchase.
Foreign Securities and American Depository Receipts
The Fund has the authority to invest up to 25% of its assets in
foreign securities (including European Depository Receipts ("EDRs")
and Global Depository Receipts ("GDRs")) and American Depository
Receipts ("ADRs") or other securities representing underlying
shares of foreign companies. EDRs are receipts issued in Europe
which evidence ownership of underlying securities issued by a foreign
corporations. ADRs are receipts typically issued by an American bank
or trust company which evidence a similar ownership arrangement.
Generally, ADRs which are issued in registered form, are designed for
use in the United States securities markets and EDRs, which are
issued in bearer form, are designed for use in European securities
markets. GDRs are tradeable both in the U.S. and Europe and are
designed for use throughout the world.
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, consistent with applicable
regulatory requirements, the Fund has the ability to lend securities
from its portfolio to brokers, dealers and other financial
organizations. The Fund may not lend its portfolio securities to
Salomon 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 Salomon Smith Barney, and which is acting as a "finder."
In lending its portfolio securities, the Fund can increase its
income by continuing to receive interest on the loaned securities, as
well as by either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the
borrower when government securities are used as collateral.
Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must
be met whenever portfolio securities are loaned: (a) the Fund must
receive at least 100% cash collateral or equivalent securities from
the borrower; (b) the borrower must increase such collateral whenever
the market value of the securities rises above the level of such
collateral; (c) the Fund must be able to terminate the loan at any
time; (d) the Fund must receive reasonable interest on the loan, as
well as an amount equal to any dividends, interest or other
distributions on the loaned securities, and any increase in market
value; (e) the Fund may pay only reasonable custodian fees in
connection with the loan; and (f) voting rights on the loaned
securities may pass to the borrower; however, if a material event
adversely affecting the investment occurs, the Fund's Board of
Directors must terminate the loan and regain the right to vote the
securities. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in receiving
additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail
financially. Loans will be made to firms deemed by MMC to be of good
standing and will not be made unless, in the judgment of MMC, 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 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, MMC 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, Futures and Currency Strategies.
The Fund may use forward currency contracts and certain options
and futures strategies to attempt to hedge its portfolio, i.e.,
reduce the overall level of investment risk normally associated with
the Fund. There can be no assurance that such efforts will succeed.
In order to assure that the Fund will not be deemed to be a
"commodity pool" for purposes of the Commodity Exchange Act,
regulations of the Commodity Futures Trading Commission ("CFTC")
require that the Fund enter into transactions in futures contracts
and options on futures only (i) for bona fide hedging purposes (as
defined in CFTC regulations), or (ii) for non-hedging purposes,
provided that the aggregate initial margin and premiums on such non-
hedging positions do not exceed 5% of the liquidation value of the
Fund's assets. To attempt to hedge against adverse movements in
exchange rates between currencies, the Fund may enter into forward
currency contracts for the purchase or sale of a specified currency
at a specified future date. Such contracts may involve the purchase
or sale of a foreign currency against the U.S. dollar or may involve
two foreign currencies. The Fund may enter into forward currency
contracts either with respect to specific transactions or with
respect to its portfolio positions. For example, when the investment
adviser anticipates making a purchase or sale of a security, it may
enter into a forward currency contract in order to set the rate
(either relative to the U.S. dollar or another currency) at which the
currency exchange transaction related to the purchase or sale will be
made ("transaction hedging"). Further, when the investment adviser
believes that a particular currency may decline compared to the U.S.
dollar or another currency, the Fund may enter into a forward
contract to sell the currency the investment adviser expects to
decline in an amount approximating the value of some or all of the
Fund's securities denominated in that currency, or when the
investment adviser believes that one currency may decline against a
currency in which some or all of the portfolio securities held by the
Fund are denominated, it may enter into a forward contract to buy the
currency expected to decline for a fixed amount ("position hedging").
In this situation, the Fund may, in the alternative, enter into a
forward contract to sell a different currency for a fixed amount of
the currency expected to decline where the investment manager
believes that the value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the value
of the currency in which portfolio securities of the Fund are
denominated ("cross hedging"). The Fund's custodian places (i) cash,
(ii) U.S. Government securities or (iii) equity securities or debt
securities (of any grade) in certain currencies provided such assets
are liquid, unencumbered and marked to market daily, or other high-
quality debt securities denominated in certain currencies in a
separate account of the Fund having a value equal to the aggregate
account of the Fund's commitments under forward contracts entered
into with respect to position hedges and cross-hedges. If the value
of the securities placed in a separate account declines, additional
cash or securities are placed in the account on a daily basis so that
the value of the amount will equal the amount of the Fund's
commitments with respect to such contracts.
For hedging purposes, the Fund may write covered call options
and purchase put and call options on currencies to hedge against
movements in exchange rates and on debt securities to hedge against
the risk of fluctuations in the prices of securities held by the Fund
or which the investment adviser intends to include in its portfolio.
The Fund also may use interest rates futures contracts and options
thereon to hedge against changes in the general level in interest
rates.
The Fund may write call options on securities and currencies
only if they are covered, and such options must remain covered so
long as the Fund is obligated as a writer. A call option written by
the Fund is "covered" if the Fund owns the securities or currency
underlying the option or has an absolute and immediate right to
acquire that security or currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of
other securities or currencies held in its portfolio. A call option
is also covered if the Fund holds on a share-for-share basis a call
on the same security or holds a call on the same currency as the call
written where the exercise price of the call held is equal to less
than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by
the Fund in cash, Treasury bills or other high-grade, short-term
obligations in a segregated account with its custodian.
Although the portfolio might not employ the use of forward
currency contracts, options and futures, the use of any of these
strategies would involve certain investment risks and transaction
costs to which it might not otherwise be subject. These risks
include: dependence on the investment adviser's ability to predict
movements in the prices of individual debt securities, fluctuations
in the general fixed-income markets and movements in interest rates
and currency markets, imperfect correlation between movements in the
price of currency, options, futures contracts or options thereon and
movements in the price of the currency or security hedged or used for
cover; the fact that skills and techniques needed to trade options,
futures contracts and options thereon or to use forward currency
contracts are different from those needed to select the securities in
which the Fund invests; lack of assurance that a liquid market will
exist for any particular option, futures contract or options thereon
at any particular time and possible need to defer or accelerate
closing out certain options, futures contracts and options thereon in
order to continue to qualify for the beneficial tax treatment
afforded "regulated investment companies" under the Internal Revenue
Code of 1986, as amended (the "Code"). See "Dividends, Distributions
and Taxes."
Options on Securities
As discussed more generally above, the Fund may engage in the
writing of covered call options. The Fund may also purchase put
options and enter into closing transactions.
The principal reason for writing covered call options on
securities is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. In
return for a premium, the writer of a covered call option forfeits
the right to any appreciation in the value of the underlying security
above the strike price for the life of the option (or until a closing
purchase transaction can be effected). Nevertheless, the call writer
retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put
options is to realize income in the form of premiums. The writer of a
covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums the Fund may receive
may be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-
writing activities.
Options written by the Fund will normally have expiration dates
between one and six months from the date written. The exercise price
of the options may be below, equal to, or above the current market
values of the underlying securities at the times the options are
written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively.
The Fund may write (a) in-the-money call options when MMC
expects the price of the underlying security to remain flat or
decline moderately during the option period, (b) at-the-money call
options when MMC 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 MMC 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 MMC believes there is an active secondary market so
as to facilitate closing transactions, there is no assurance that
sufficient trading interest to create a liquid secondary market on a
securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for
a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen
events, have at times rendered certain of the facilities of the
Clearing Corporation and national securities exchanges inadequate and
resulted in the institution of special procedures, such as trading
rotations, restrictions on certain types of orders or trading halts
or suspensions in one or more options. There can be no assurance that
similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event,
it might not be possible to effect closing transactions in particular
options. If, as a covered call option writer, the Fund is unable to
effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which
may be held or written, or exercised within certain periods, by an
investor or group of investors acting in concert (regardless of
whether the options are written on the same or different securities
exchanges or are held, written or exercised in one or more accounts
or through one or more brokers). It is possible that the Fund and
other clients of MMC 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 MMC 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
As described generally above, the Fund may purchase put and
call options and write call options on domestic stock indexes listed
on domestic exchanges in order to realize its investment objective of
capital appreciation or for the purpose of hedging its portfolio. A
stock index fluctuates with changes in the market values of the
stocks included in the index. Some stock index options are based on a
broad market index such as the New York Stock Exchange Composite
Index or the Canadian Market Portfolio Index, or a narrower market
index such as the Standard & Poor's 100. Indexes also are based on an
industry or market segment such as the American Stock Exchange Oil
and Gas Index or the Computer and Business Equipment Index.
Options on stock indexes are generally similar to options on
stock except that the delivery requirements are different. Instead of
giving the right to take or make delivery of stock at a specified
price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount,
if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier." Receipt of this cash
amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option
expressed in dollars or a foreign currency, as the case may be, times
a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. The
writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or
it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index options
as a hedging technique will depend upon the extent to which price
movements in the portion of the securities portfolio of the Fund
correlate with price movements of the stock index selected. Because
the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of stock
prices in 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 MMC'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
As described generally above, 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.
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, it may be possible to accomplish the same result more easily
and more quickly.
No consideration will be paid or received by the Fund upon the
purchase or sale of a futures contract. Initially, the Fund will be
required to deposit with the broker an amount of cash or cash
equivalents equal to approximately 1% to 10% of the contract amount
(this amount is subject to change by the exchange or board of trade
on which the contract is traded and brokers or members of such board
of trade may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund, upon
termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the
price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking-to-
market." In addition, when the Fund enters into a long position in a
futures contract or an option on a futures contract, it must deposit
into a segregated account with the Fund's custodian an amount of cash
or cash equivalents equal to the total market value of the underlying
futures contract, less amounts held in the Fund's commodity brokerage
account at its broker. At any time prior to the 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 MMC 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 7 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. Invest in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules
regulations and orders thereunder.
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 future 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 (a) 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,
and (b) the Fund may, to the extent consistent with its
investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment
strategies and techniques. To the extent that it engages in
transactions described in (a) and (b), the Fund will be
limited so that no more than 33 -1/3% of the value of its
total assets (including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not including
the amount borrowed) valued at the time the borrowing is
made, is derived from such transactions.
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 or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction
shall not prevent the Fund from (a) investing in securities
of issuers engaged in the real estate business or the
business of investing in real estate (including interests in
limited partnerships owning or otherwise engaging in the
real estate business or the business of investing in real
estate) and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c)
trading in futures contracts and options on futures
contracts (including options on currencies to the extent
consistent with the Funds' investment objective and
policies); or (d) investing in real estate investment trust
securities.
7. Make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its portfolio
securities, to the fullest extent permitted under the 1940
Act.
8. 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.
9. 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.
10. 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).
11. Purchase or retain the securities of any issuer if, to
the knowledge of the Fund, any officer or Director of the
Fund or of MMC 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.
12. 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.
13. 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.
14 Invest in any company for the purpose of exercising control
or management.
15. 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 has also adopted the following
non-fundamental investment restrictions, which may be changed by
approval of the Board of Directors. The Fund may not:
1. 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 underlying securities and other assets in
escrow and collateral agreements with respect to initial
or maintenance margin in connection with futures
contracts and related options and options on securities,
indexes or similar items is not considered to be the
purchase of a security on margin.
2. 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.
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 1998 and 1997 fiscal
years, the Fund's portfolio turnover rates were ____% and 46%,
respectively.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are made by
MMC, 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 MMC.
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, 1998, 1997 and 1996, the Fund paid total brokerage commissions of
$____________, $2,983,857 and $2,132,627, 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 MMC provides
that, in assessing the best overall terms available for any
transaction, MMC 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 MMC, 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 MMC 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. MMC's fee under
the Advisory Agreement is not reduced by reason of MMC's receiving
such brokerage and research services. Further, Salomon 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 Salomon Smith Barney
if, in MMC's judgment, the use of Salomon 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, Salomon Smith Barney
charges the Fund a commission rate consistent with those charged by
Salomon Smith Barney to comparable unaffiliated customers in similar
transactions. In addition, Salomon 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 Salomon Smith Barney to effect such
transactions; and (ii) Salomon Smith Barney annually advises the Fund
of the aggregate compensation it earned on such transactions. For the
fiscal years ended September 30, 1998, 1997 and 1996 , the Fund paid
$_________, $27,396 and $80,904 respectively, in brokerage
commissions to Salomon Smith Barney The percentage of registrant's
aggregate brokerage commissions paid to Salomon Smith Barney for the
fiscal year ended September 30, 1998 was ___% and the percentage of
registrant's aggregate dollar amount of transactions involving the
payment of commissions to Salomon Smith Barney for the fiscal year
ended September 30, 1998 was _____%.
While investment decisions for the Fund are made independently
from those of the other accounts managed by MMC, or certain
affiliates of MMC, 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 MMC 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 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 Salomon 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 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 Salomon 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 L and Class Y shares (and
Class A share purchases, including applicable rights of accumulation,
equaling 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 L
shares, and of Class A shares when purchased in amounts equaling or
exceeding $500,000. The method of computation of the public offering
price is shown in the Fund's financial statements incorporated by
reference in their entirety 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 $50 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
that are subject to a CDSC). 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 First Data 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. A shareholder who purchases shares directly through First
Data may continue to do so and applications for participation in the
Withdrawal Plan must be received by First Data 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 Salomon Smith Barney Financial
Consultant.
DISTRIBUTOR
CFBDS serves as the Fund's distributor on a best efforts basis
pursuant to a written agreement dated [October 8, 1998] (the
"Distribution Agreement") which was most recently approved by the
Fund's Board of Directors on July 15, 1998. For the fiscal years
ended September 30, 1998, 1997 and 1996, Salomon Smith Barney
received $________, $817,000, and $1.0 million, respectively, in
sales charges from the sale of Class A shares and did not reallow any
portion thereof to dealers. For the fiscal years ended September 30,
1998, 1997 and 1996, Salomon Smith Barney received $__________,
$11,000 and $10,000, receptively, representing CDSC fees on
redemptions of the Fund's Class L shares For the fiscal year ended
September 30, 1998, Salomon Smith Barney received $_________ in sales
charges from the sale of Class L shares. For the fiscal years ended
September 30, 1998, 1997 and 1996, Salomon Smith Barney received
$____________, $1,133,000 and $844,000, 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 Salomon
Smith Barney may benefit from the temporary use of the funds. The
Fund's Board of Directors has been advised of the benefits to Salomon
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 Salomon Smith Barney for the services it provides
and for the expenses it bears, 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 Salomon 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 L shares. In addition,
the Fund pays Salomon Smith Barney a distribution fee with respect to
the Class B and Class L shares primarily intended to compensate
Salomon Smith Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares. The Class B and
Class L 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.
The following service and distribution fees of the Plan were
incurred during the fiscal years ended as indicated:
9/30/98
9/30/97
9/30/96
Class A
$
$1,324,748
$1,058,779
Class B
8,229,206
6,229,990
Class L
580,495
338,628
For the 1996, 1997 and 1998 fiscal years, Salomon Smith Barney
received $____________, $____________, and $___________,
respectively, in the aggregate from the Plan.
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 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, Salomon 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,
Martin Luther King 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 of 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 of the Smith Barney Mutual Funds may exchange all or part of
their shares for shares of the same class of other 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 the Fund may be exchanged without a sales
charge for Class A shares of any of the Smith Barney Mutual
Funds.
B. 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 Smith Barney Mutual Fund will be subject to
the higher applicable CDSC of the two funds and, for purposes
of calculating CDSC rates and conversion periods, will be
deemed to have been held since the date the shares being
exchanged were deemed to be purchased.
C. Class L shares of any fund may be exchanged without a sales
charge. For purposes of CDSC applicability, Class L shares of
the Fund exchanged for Class L shares of another Smith Barney
Mutual Fund will be deemed to have been owned since the date
the shares being exchanged were deemed to be purchased.
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 Salomon 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 the proceeds are immediately
invested, at a price as described above, in shares of the fund being
acquired. Salomon 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 data from the following industry
and financial publications: Barrons', 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.
Average Annual Total Return
"Average annual total return" figures are computed according to a
formula prescribed by the SEC. The formula can be expressed as
follows:
P(1 + T)n = ERV
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.
Class A's average annual total return was as follows for the periods
indicated:
_____% for the one-year period from October 1, 1997 through September
30, 1998;
_____% for the five-year period from October 1, 1993 through
September 30, 1998;
_____%for the ten-year period from October 1, 1988 through September
30, 1998.
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 _____%, _____%, and _____%,
respectively.
Class B's average annual total return was as follows for the periods
indicated:
____% for the one-year period from October 1, 1996 through September
30, 1998.
____% for the five-year period from October 1, 1993 through
September 30, 1998.
___% for the period from November 6, 1992 (commencement of
operations) through September 30, 1998.
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 ____%, ____%, and _____%,
respectively.
Class L's average annual total return was as follows for the period
indicated:
______%for the one-year period from October 1, 1997 through September
30, 1998.
______% for the five-year period from October 1, 1997 through
September 30, 1998.
______%for the period from August 10, 1993 (commencement of
operations) through September 30, 1998.
Performance will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, operating
expenses and the expenses exclusively attributable to the Class.
Consequently, any given performance quotation should not be
considered representative of the Class' performance for any specified
period in the future. Because performance will vary, it may not
provide a basis for comparing an investment in the Class with certain
bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing the Class' performance
with that of other mutual funds should give consideration to the
quality and maturity of the respective investment companies'
portfolio securities.
It is important to note that the total return figures set forth
above are based on historical earnings and are not intended to
indicate future performance.
TAXES
The following is a summary of selected Federal income tax
considerations that may affect the Fund and its shareholders. The
summary is not intended as a substitute for individual tax advice and
investors are urged to consult their own tax advisors as to the tax
consequences of an investment in the Fund.
The Fund has qualified and intends to continue to qualify each
year as a regulated investment company under the Code. Provided the
Fund (a) is a regulated investment company and (b) distributes at
least 90% of its net investment income (including, for this purpose,
net realized short-term capital gains), the Fund will not be liable
for Federal income taxes to the extent its net investment income and
its net realized long- and short-term capital gains, if any, are
distributed to its shareholders. Although the Fund expects to be
relieved of all or substantially all Federal, state, and local income
or franchise taxes, depending upon the extent of its activities in
states and localities in which its offices are maintained, in which
its agents or independent contractors are located, or in which it is
otherwise deemed to be conducting business, that portion of the
Fund's income which is treated as earned in any such state or
locality could be subject to state and local tax. Any such taxes paid
by the Fund would reduce the amount of income and gain available for
distribution to shareholders. All of a shareholder's dividends and
distributions payable by the Fund will be reinvested automatically in
additional shares of the same Class of the Fund at net asset value,
unless the shareholder elects to receive dividends and distributions
in cash.
Gain or loss on the sale of a security by the Fund generally
will be long-term capital gain or loss if the Fund has held the
securities for more than one year. Gain or loss on the sale of
securities held for not more than one year will be short-term. If the
Fund acquires a debt security at a substantial discount, a portion of
any gain upon the sale or redemption will be taxed as ordinary
income, rather than capital gain to the extent it reflects accrued
market discount.
Dividends of net investment income and distributions of net
realized short-term capital gains will be taxable to shareholders as
ordinary income for Federal income tax purposes, whether received in
cash or reinvested in additional shares. Dividends received by
corporate shareholders will qualify for the dividends-received
deduction only to the extent that the Fund designates the amount
distributed as a dividend and the amount so designated does not
exceed the aggregate amount of dividends received by the Fund from
domestic corporations for the taxable year. The Federal dividends-
received deduction for corporate shareholders may be further reduced
or disallowed if the shares with respect to which dividends are
received are treated as debt-financed or are deemed to have been held
for less than 46 days.
Foreign countries may impose withholding and other taxes on
dividends and interest paid to the Fund with respect to investments
in foreign securities. However, certain foreign countries have
entered into tax conventions with the United States to reduce or
eliminate such taxes. Distributions of long-term capital gains will
be taxable to shareholders as such, whether paid in cash or
reinvested in additional shares and regardless of the length of time
that the shareholder has held his or her interest in the Fund. If a
shareholder receives a distribution taxable as long-term capital gain
with respect to his or her investment in the Fund and redeems or
exchanges the shares before he or she has held them for more than six
months, any loss on the redemption or exchange that is less than or
equal to the amount of the distribution will be treated as a long-
term capital loss.
If a shareholder (a) incurs a sales charge in acquiring or
redeeming shares of the Fund, and (b) disposes of those shares and
acquires within 90 days after the original acquisition shares in a
mutual fund for which the otherwise applicable sales charge is
reduced by 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 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.
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 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 originally 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. Without changing its name, the
Fund was reincorporated as a Maryland corporation on May 24, 1995.
PNC, located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania, 19103, 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.
First Data, located at Exchange Place, Boston, Massachusetts
02109, serves as the Fund's transfer agent. Under the transfer agency
agreement, First Data 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, First Data 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, 1998 is incorporated herein by reference in its entirety.
u:\legal\funds\valu\1998\secdocs\sai98.doc 9
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, 1997 and the Report of Independent Accountants
dated November 3, 1997 are incorporated by reference to the N-30D
filed with the Securities and Exchange Commission on December 1,
1997(Accession # 0000091155- 97-000529.
Included in Part C:
Consent of Independent Accountants (to be filed by amendment)
(b) Exhibits
All references are to the Registrant's registration statement
on Form N-1A as filed with the Securities and Exchange Commission
("SEC"), File Nos. 2-71469 and 811-3158 (the "Registration Statement").
(1)(a) Registrant's Articles of Incorporation dated May 13, 1994 are
incorporated by reference to post-effective amendment no. 27 to the
Registration Statement as filed with the SEC on May 26, 1995
("Post-Effective Amendment No. 27").
(1)(b) Registrant's Articles of Amendment dated May 24, 1995 are
incorporated by reference to post-effective amendment no. 28 to the
Registration Statement as filed with the SEC on February 1, 1996
("Post-Effective Amendment No. 28").
(1)(c) Registrant's Articles of Amendment dated June 11, 1998 are
filed herewith.
(2) Registrant's By-Laws are incorporated by reference
to Post-Effective Amendment No. 27.
(3) Inapplicable.
(4)(a) Registrant's form of stock certificate relating to Class A
shares are incorporated by reference to Post-Effective Amendment No. 27.
(4)(b) Registrant's form of stock certificate relating to Class B shares
are incorporated by reference to Post-Effective Amendment No. 27.
(4)(c) Registrant's form of stock certificate relating to Class C shares
are incorporated by reference to Post-Effective Amendment No. 27.
(4)(d) Registrant's form of stock certificate relating to Class Y shares
are incorporated by reference to Post-Effective Amendment No. 27.
(5) Form of Investment Advisory Agreement with Smith Barney
Mutual Funds Management Inc. (currently, Mutual Management Corp.)
is incorporated by reference to Post
- -Effective Amendment No. 27.
(6) Form of Distribution Agreement between the Registrant
and Smith Barney Inc. is incorporated by reference to Post-Effective
Amendment No. 27.
(6)(b) Distribution Agreement between the Registrant and
CFBDS, Inc. is filed herewith.
(7) Inapplicable.
(8) Custodian Agreement with PNC Bank, National
Association to is incorporated by reference to Post-Effective Amendment
No. 27.
(9)(a) Form of Transfer Agency Agreement between the Registrant and The
Transfer Agent is incorporated by reference to Post-Effective Amendment No.
28.
(9)(b) Form of Consent to Assignment between the Registrant
and The Shareholder Services Group, Inc. is incorporated by reference
to Post-Effective Amendment No. 27.
(9)(d) Form of Administration Agreement between the Fund and
Smith Barney Mutual Funds Management Inc. is incorporated by
reference to Post-Effective Amendment No. 27.
(10) Opinion of Maryland Counsel is incorporated by reference to Post-
Effective
Amendment No. 27.
(11) Consent of Independent Accountants is to be filed by amendment.
(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 on November 29, 1987.
(15)(a) Services and Distribution Plan between the Registrant and
Smith Barney Inc. is incorporated by reference to Post-Effective
Amendment No. 27.
15(b) Amended and Restated Shareholder Services and Distribution Plan
pursuant to Rule 12b-1 is filed herewith.
(16) Performance Data is incorporated by reference to post-effective
amendment no. 11 to the Registration Statement as filed with the SEC
on December 5, 1988.
(17) Financial Data Schedule is to be filed by amendment.
(18)(a) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post Effective Amendment No. 28.
(18)(b) Amended Rule 18f-3(d) Multiple Class Plan of the Registrant is
filed herewith.
Item 25. Persons Controlled by or Under Common Control
with Registrant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders
as of November 2, 1998
Common Stock par value $.001 per share
Class A Shares 38,143
Class B Shares 67,651
Class C Shares 5,928
Class Y Shares 6
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.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - Mutual Management Corp.("MMC") formerly known as
Smith Barney Mutual Funds Management Inc. was incorporated in December
1968 under the laws of the State of Delaware. MMC is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings"), which in turn
is a wholly owned subsidiary of Citigroup Inc. (formerly known as Travelers
Group Inc.). MMC is registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Advisers Act")
and has, through its predecessors, been in the investment counseling
business since 1934. The list required by this Item 28 of officers and
directors of MMC 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 MMC pursuant to the
Advisers Act (SEC File No. 801-8314).
Item 29. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap
Growth
Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect VIP Folio 400, CitiSelect VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400, and CitiSelect Folio
500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. is also the distributor for the following
Smith Barney Mutual Fund registrants:
Concert Investment Series
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Investment Funds Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds;
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
The information required by this Item 29 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
Item 30. Location of Accounts and Records
(1) With respect to the Registrant,
Investment Adviser and Administrator:
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) With respect to the Registrant's Custodian:
PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania
(3) With respect to the Registrant's Transfer Agent:
First Data Investor 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant 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 24th day of November 1998.
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
Registrant
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Signature: Title: Date:
/s/Heath B. McLendon Chairman of the Board 11/24/98
Heath B. McLendon (Chief Executive Officer)
/s/Lewis E. Daidone Senior Vice President 11/24/98
Lewis E. Daidone and Treasurer
(Chief Financial and
Accounting Officer)
/s/Lloyd J. Andrews* Director 11/24/98
Lloyd J. Andrews
/s/Robert M. Frayn* Director 11/24/98
Robert M. Frayn
/s/Leon P. Gardner* Director 11/24/98
Leon P. Gardner
/s/David E. Maryatt* Director 11/24/98
David E. Maryatt
/s/ Frederick O. Paulsell* Director 11/24/98
Frederick O. Paulsell
/s/Jerry A. Viscione* Director 11/24/98
Jerry A. Viscione
/s/Julie W. Weston* Director 11/24/98
Julie W. Weston
* Signed pursuant to power of attorney filed May 26, 1995, as an exhibit
to Post-Effective Amendment No. 27.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
1(c) Articles of Amendment
6(b) Distribution Agreement
15(b) Amended and Restated Shareholder Services and Distribution Plan
pursuant to Rule 12b-1
18(b) Amended Rule 18f-3(d) Multiple Class Plan
SMITH BARNEY FUNDAMENDAL VALUE FUND INC.
ARTICLES OF AMENDMENT
Smith Barney Fundamental Value Fund Inc., a Maryland corporation,
having its principal office in Baltimore City, Maryland (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended to provide
that the name of all of the issued and unissued Class C Common Stock of the
Corporation is hereby changed to Class L Common Stock.
SECOND: The foregoing amendment to the Charter of the Corporation
has been approved by a majority of the entire Board of Directors and is
limited to a change expressly permitted by Section 2-605 of the Maryland
General Corporation Law to be made without action of the stockholders.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, Smith Barney Fundamental Value Fund Inc. has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary as of June 11, 1998.
WITNESS: SMITH BARNEY FUNDAMENTAL
VALUE FUND INC.
By:
Christina T. Sydor Heath B. McLendon
Secretary President
THE UNDERSIGNED, President of Smith Barney Fundamental Value Fund Inc., who
executed on behalf of the Corporation Articles of Amendment of which this
Certificate is made a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles of Amendment to be the corporate
act of said Corporation and hereby certifies that the matters and facts set
forth herein with respect to the authorization and approval thereof are
true in all material respects under the penalties of perjury.
Heath B. McLendon
` President
U:legal\funds\valu\orgdocs\amend698.doc
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund")
has agreed that you shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of shares of the Fund
and each Series of the Fund set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, including any shares of
the Fund not designated by series, a "Series"). For purposes of this
Agreement, the term "Shares" shall mean shares of the each Series, or
one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement,
prospectus and statement of additional information then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), and will
transmit or cause to be transmitted promptly any orders received by you
or those with whom you have sales or servicing agreements for purchase
or redemption of Shares to the Transfer and Dividend Disbursing Agent
for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders
for the sale of Shares. It is contemplated that you will enter into
sales or servicing agreements with registered securities dealers and
banks and into servicing agreements with financial institutions and
other industry professionals, such as investment advisers, accountants
and estate planning firms. In entering into such agreements, you will
act only on your own behalf as principal underwriter and distributor.
You will not be responsible for making any distribution plan or service
fee payments pursuant to any plans the Fund may adopt or agreements it
may enter into.
1.3 You shall act as principal underwriter and distributor
of Shares in compliance with all applicable laws, rules, and
regulations, including, without limitation, all rules and regulations
made or adopted from time to time by the Securities and Exchange
Commission (the "SEC") pursuant to the 1933 Act or the 1940 Act or by
any securities association registered under the Securities Exchange Act
of 1934, as amended.
1.4 Whenever in their judgment such action is warranted for
any reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or
make any sales of, any Shares until such time as those officers deem it
advisable to accept such orders and to make such sales and the Fund
shall advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data
to be furnished by the Fund hereunder, and all expenses in connection
with the preparation and printing of the Fund's prospectuses and
statements of additional information for regulatory purposes and for
distribution to shareholders; provided however, that nothing contained
herein shall be deemed to require the Fund to pay any of the costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take any other actions
that may be reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of Shares for sale in such
states and other U.S. jurisdictions as the Fund may approve and
designate to you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such qualification.
You shall pay all expenses connected with your own qualification as a
securities broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses
incurred by you in connection with the sale of Shares as contemplated in
this Agreement.
2.3 The Fund shall furnish you from time to time, for use
in connection with the sale of Shares, such information reports with
respect to the Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by one or more of the
Fund's duly authorized officers; and the Fund warrants that the
statements contained in any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also shall furnish you
upon request with (a) the reports of annual audits of the financial
statements of the Fund for each Series made by independent certified
public accountants retained by the Fund for such purpose; (b) semi-
annual unaudited financial statements pertaining to each Series; (c)
quarterly earnings statements prepared by the Fund; (d) a monthly
itemized list of the securities in each Series' portfolio; (e) monthly
balance sheets as soon as practicable after the end of each month; (f)
the current net asset value and offering price per share for each
Series on each day such net asset value is computed and (g) from time to
time such additional information regarding the financial condition of
each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund
with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been prepared in conformity with the requirements of said
Acts and the rules and regulations of the SEC thereunder. As used in
this Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration
statement, prospectus and statement of additional information filed by
the Fund with the SEC and any amendments and supplements thereto filed
by the Fund with the SEC. The Fund represents and warrants to you that
any registration statement, prospectus and statement of additional
information, when such registration statement becomes effective and as
such prospectus and statement of additional information are amended or
supplemented, will include at the time of such effectiveness, amendment
or supplement all statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of material fact contained
in any registration statement, prospectus or statement of additional
information will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information when such registration
statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any
prospectus or statement of additional information as, in the light of
future developments, may, in the opinion of the Fund, be necessary or
advisable. If the Fund shall not propose such amendment or amendments
and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from you to do so, you may, at your
option, terminate this Agreement or decline to make offers of the Fund's
Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus
or statement of additional information without giving you reasonable
notice thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right to file at any
time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or
statement of additional information furnished by the Fund from time to
time, in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and
any person who controls you within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any such counsel fees
incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act
or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement, any prospectus or any statement
of additional information or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in
any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of
them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or
expenses arising out of any statements or representations made by you or
your representatives or agents other than such statements and
representations as are contained in any prospectus or statement of
additional information and in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this Agreement; and
further provided that the Fund's agreement to indemnify you and the
Fund's representations and warranties herein before set forth in
paragraph 3 of this Agreement shall not be deemed to cover any liability
to the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of
your obligations and duties under this Agreement. The Fund's agreement
to indemnify you, your officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors,
or any such controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any liability that
the Fund may have to the person against whom such action is brought by
reason of any such untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund will be entitled to
assume the defense of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund. In the event the Fund
elects to assume the defense of any such suit and retains counsel of
good standing, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
if the Fund does not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the
fees and expenses of any counsel retained by you or them. The Fund's
indemnification agreement contained in this paragraph 4.1 and the Fund's
representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or
on behalf of you, your officers and directors, or any controlling
person, and shall survive the delivery of any of the Fund's Shares.
This agreement of indemnity will inure exclusively to your benefit, to
the benefit of your several officers and directors, and their respective
estates, and to the benefit of the controlling persons and their
successors. The Fund agrees to notify you promptly of the commencement
of any litigation or proceedings against the Fund or any of its officers
or Board members in connection with the issuance and sale of any of the
Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
that the Fund, its officers or Board members or any such controlling
person may incur under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person
resulting from such claims or demands shall arise out of or be based
upon (a) any unauthorized sales literature, advertisements, information,
statements or representations or (b) any untrue, or alleged untrue,
statement of a material fact contained in information furnished in
writing by you to the Fund and used in the answers to any of the items
of the registration statement or in the corresponding statements made in
the prospectus or statement of additional information, or shall arise
out of or be based upon any omission, or alleged omission, to state a
material fact in connection with such information furnished in writing
by you to the Fund and required to be stated in such answers or
necessary to make such information not misleading. Your agreement to
indemnify the Fund, its officers or Board members, and any such
controlling person, as aforesaid, is expressly conditioned upon your
being notified of any action brought against the Fund, its officers or
Board members, or any such controlling person, such notification to be
given by letter or telegram addressed to you at your principal office in
Boston, Massachusetts and sent to you by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. You shall have the right to
control the defense of such action, with counsel of your own choosing,
satisfactory to the Fund, if such action is based solely upon such
alleged misstatement or omission on your part or with the Fund's
consent, and in any event the Fund, its officers or Board members or
such controlling person shall each have the right to participate in the
defense or preparation of the defense of any such action with counsel of
its own choosing reasonably acceptable to you but shall not have the
right to settle any such action without your consent, which will not be
unreasonably withheld. The failure to so notify you of any such action
shall not relieve you from any liability that you may have to the Fund,
its officers or Board members, or to such controlling person by reason
of any such untrue, or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity agreement
contained in this paragraph 4.2. You agree to notify the Fund promptly
of the commencement of any litigation or proceedings against you or any
of your officers or directors in connection with the issuance and sale
of any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of
the provisions of this Agreement and no orders for the purchase or sale
of such Shares under this Agreement shall be accepted by the Fund if and
so long as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
paragraph 5 shall in any way restrict or have an application to or
bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended
from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by
you shall be offered for sale at a price per share (the "offering
price") equal to (a) their net asset value (determined in the manner
set forth in the Fund's charter documents and the then-current
prospectus and statement of additional information) plus (b) a sales
charge, if applicable, which shall be the percentage of the offering
price of such Shares as set forth in the Fund's then-current prospectus
relating to such Series. In addition to or in lieu of any sales charge
applicable at the time of sale, Shares of any class of any Series of the
Fund offered for sale by you may be subject to a contingent deferred
sales charge as set forth in the Fund's then-current prospectus and
statement of additional information. You shall be entitled to receive
any sales charge levied at the time of sale in respect of the Shares
without remitting any portion to the Fund. Any payments to a broker or
dealer through whom you sell Shares shall be governed by a separate
agreement between you and such broker or dealer and the Fund's then-
current prospectus and statement of additional information
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for
amendments to the registration statement,
prospectus or statement of additional
information then in effect or for additional
information;
(b) in the event of the issuance by
the SEC of any stop order suspending the
effectiveness of the registration statement,
prospectus or statement of additional
information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material fact
made in the registration statement,
prospectus or statement of additional
information then in effect or that requires
the making of a change in such registration
statement, prospectus or statement of
additional
information in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with
respect to any amendment to the registration
statement, or any supplement to the
prospectus or statement of additional
information which may from time to time be
filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall
have an initial term of one year from the date hereof, and shall
continue for successive annual periods thereafter so long as such
continuance is specifically approved at least annually by (a) the Fund's
Board or (b) by a vote of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board members of the
Fund who are not interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 30 days' notice by the Fund's Board or by vote of
holders of a majority of the relevant Series outstanding voting
securities, or on 90 days' notice by you. This Agreement will also
terminate automatically, as to the relevant Series, in the event of its
assignment (as defined in the 1940 Act and the rules and regulations
thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under
this Agreement (collectively, a "Dispute") shall be settled by
arbitration administered under the rules of the American Arbitration
Association ("AAA") in New York, New York. Any arbitration and award
of the arbitrators, or a majority of them, shall be final and the
judgment upon the award rendered may be entered in any state or federal
court having jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than
investment companies advised or administered by Citigroup Inc. or its
subsidiaries. The Fund recognizes that the persons employed by you to
assist in the performance of your duties under this Agreement may not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict your or any of your
affiliates right to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature. This
Agreement and the terms and conditions set forth herein shall be
governed by, and construed in accordance with, the laws of the State of
New York.
11. Limitation of Liability (Massachusetts business trusts
only)
The Fund and you agree that the obligations of the Fund under this
Agreement shall not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or
future, of the Fund, individually, but are binding only upon the assets
and property of the Fund, as provided in the Master Trust Agreement.
The execution and delivery of this Agreement have been authorized by the
Trustees and signed by an authorized officer of the Fund, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
but shall bind only the trust property of the Fund as provided in its
Master Trust Agreement.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to
us the enclosed copy, whereupon this Agreement will become binding on
you.
Very truly yours,
SMITH BARNEY FUNDAMENTAL VALUE FUND
INC.
By: _____________________
Authorized Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
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Page: 3
8
AMENDED AND RESTATED
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Amended and Restated Shareholder Services and Distribution
Plan (the "Plan") is adopted in accordance with Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the
"1940 Act"), by Smith Barney Fundamental Value Fund Inc., a
corporation organized under the laws of the State of Maryland (the
"Fund"), subject to the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The Fund will pay to Salomon
Smith Barney Inc., a corporation organized under the laws of
the State of New York ("Salomon Smith Barney"), a service
fee under the Plan at an annual rate of 0.25% of the average
daily net assets of the Fund attributable to the Class A
shares sold and not redeemed (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to Salomon
Smith Barney a service fee under the Plan at the annual rate
of 0.25% of the average daily net assets of the Fund
attributable to the Class B shares sold and not redeemed
(the "Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the
Class B Service Fee, the Fund will pay Salomon Smith Barney
a distribution fee under the Plan at the annual rate of
0.75% of the average daily net assets of the Fund
attributable to the Class B shares sold and not redeemed
(the "Class B Distribution Fee").
(d) Service Fee for Class L shares. The Fund will pay to
Salomon Smith Barney a service fee under the plan at the
annual rate of 0.25% of the average daily net assets of the
Fund attributable to the Class L shares sold and not
redeemed (the "Class L Service Fee").
(e) Distribution Fee for Class L shares. In addition to the
Class L Service Fee, the Fund will pay Salomon Smith Barney
a distribution fee under the Plan at the annual rate of
0.75% of the average daily net assets of the Fund
attributable to the Class L shares sold and not redeemed
(the "Class L Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees will
be calculated daily and paid monthly by the Fund with
respect to the foregoing classes of the Fund's shares (each
a "Class" and together, the "Classes") at the annual rates
indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective
Service Fee and/or Distribution Fee may be used by Salomon Smith
Barney for: (a) costs of printing and distributing the Fund's
prospectuses, statements of additional information and reports to
prospective investors in the Fund; (b) costs involved in preparing,
printing and distributing sales literature pertaining to the Fund;
(c) an allocation of overhead and other branch office distribution-
related expenses of Salomon Smith Barney; (d) payments made to, and
expenses of, Salomon Smith Barney's financial consultants and other
persons who provide support services to Fund shareholders in
connection with the distribution of the Fund's shares, including but
not limited to, office space and equipment, telephone facilities,
answering routine inquires regarding the Fund and its operation,
processing shareholder transactions, forwarding and collecting proxy
material, changing dividend payment elections and providing any other
shareholder services not otherwise provided by the Fund's transfer
agent; and (e) accruals for interest on the amount of the foregoing
expenses that exceed the Distribution Fee for that Class and, in the
case of Class B and Class L shares, any contingent deferred sales
charges received by Salomon Smith Barney; provided, however, that (i)
the Distribution Fee for a particular Class may be used by Salomon
Smith Barney only to cover expenses primarily intended to result in
the sale of shares of that Class, including, without limitation,
payments to the financial consultants of Salomon Smith Barney and
other persons as compensation for the sale of the shares, and (ii)
the Service Fees are intended to be used by Salomon Smith Barney
primarily to pay its financial consultants for servicing shareholder
accounts, including a continuing fee to each such financial
consultant, which fee shall begin to accrue immediately after the
sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of
the Plan, with respect to a Class until the Plan has been approved by
a vote of at least a majority
of the outstanding voting securities of the Class. The Plan will be
deemed to have been approved
with respect to a Class so long as a majority of the outstanding
voting securities of the Class votes for the approval of the Plan,
notwithstanding that: (a) the Plan has not been approved by a
majority of the outstanding voting securities of any other Class, or
(b) the Plan has not been
approved by a majority of the outstanding voting securities of the
Fund.
Section 4. Approval by Directors.
Neither the Plan nor any related agreements will take effect until
approved by a majority vote of both (a) the Board of Directors and
(b) those Directors who are not interested persons of the Fund and
who have no direct or indirect financial interest in the operation of
the Plan or in any agreements related to it (the "Qualified
Directors"), cast in person at a meeting called for the purpose of
voting on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class until
October 8, 1999 and thereafter for successive twelve-month periods
with respect to each Class; provided, however, that such continuance
is specifically approved at least annually by the Directors of the
Fund and by a majority of the Qualified Directors.
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i)
by the Fund without the payment of any penalty, by the vote of a
majority of the outstanding voting securities of such Class or (ii)
by a majority vote of the Qualified Directors. The Plan may remain in
effect with respect to a particular Class even if the Plan has been
terminated in accordance with this Section 6 with respect to any
other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to
increase materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of holders of at
least a majority of the outstanding voting securities of that Class.
No material amendment to the Plan may be made unless approved by the
Fund's Board of Directors in the manner described in Section 4 above.
Section 8. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are
not interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the
Fund pursuant to the Plan or any related agreement will prepare and
furnish to the Fund's Board of Directors and the Board will review,
at least quarterly, written reports complying with the requirements
of the Rule, which set out the amounts expended under the Plan and
the purposes for which those expenditures were made.
Section 10. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating
to the Plan and any report made pursuant to Section 9 above, for a
period of not less than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority
of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the rules and regulations under
the 1940 Act, subject to any exemption that may be granted to the
Fund under the 1940 Act, by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the Fund has executed the Plan as of October
8, 1998.
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
By: ____________________________________
Heath B. McLendon
Chairman of the Board
g:\funds\value\agreemts\12b1Plan.doc
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of the
Investment Company Act of 1940, as amended (the "1940 Act"). The
purpose of the Plan is to restate the existing arrangements previously
approved by the Boards of Directors and Trustees of certain of the open-
end investment companies set forth on Schedule A (the "Funds" and each a
"Fund") under the Funds' existing order of exemption (Investment Company
Act Release Nos. 20042 (January 28,1994) (notice) and 20090 (February
23, 1994)). Shares of the Funds are distributed pursuant to a system
(the "Multiple Class System") in which each class of shares (a "Class")
of a Fund represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for purchase by
investors with the following sales load structure. In addition,
pursuant to Rule 12b-1 under the 1940 Act (the "Rule"), the Funds have
each adopted a plan (the "Services and Distribution Plan") under which
shares of the Classes are subject to the services and distribution fees
described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under the
Services and Distribution Plan are subject to a service fee of up to
0.25% of average daily net assets. In addition, the Funds are permitted
to assess a contingent deferred sales charge ("CDSC") on certain
redemptions of Class A shares sold pursuant to a complete waiver of
front-end sales loads applicable to large purchases, if the shares are
redeemed within one year of the date of purchase. This waiver applies
to sales of Class A shares where the amount of purchase is equal to or
exceeds $500,000 although this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate of up
to 0.25% of average daily net assets and a distribution fee at an annual
rate of up to 0.75% of average daily net assets.
3. Class D Shares
Class D shares are offered without a front-end sales load, CDSC, service
fee or distribution fee.
4. Class L Shares
Class L shares are offered with a front-end load, are subject to a one-
year CDSC and under the Services and Distribution Plan are subject to a
service fee at an annual rate of up to 0.25% of average daily net assets
and a distribution fee at an annual rate of up to 0.75% of average daily
net assets. Unlike Class B shares, Class L shares do not have the
conversion feature as discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period of time. The
Funds reserve the right to impose these fees at such higher rates as may
be determined.
5. Class I Shares
Class I shares are offered without a front-end sales load, but are
subject under the Services and Distribution Plan to a service fee at an
annual rate of up to 0.25% of average daily net assets.
6. Class O Shares
Class O shares are offered without a front-end load, but are subject to
a one-year CDSC and under the Services and Distribution Plan are subject
to a service fee at an annual rate of up to 0.25% of average daily net
assets and a distribution fee at an annual rate of up to 0.50% of
average daily net assets. Unlike Class B shares, Class O shares do not
have the conversion feature as discussed below and accordingly, these
shares are subject to a distribution fee for an indefinite period of
time. The Funds reserve the right to impose these fees at such higher
rates as may be determined.
Effective June 28, 1999, Class O shares will be offered with a front-end
load and will continue to be subject to a one year CDSC, a service fee
at an annual rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.50% of average daily net
assets.
7. Class Y Shares
Class Y shares are offered without imposition of either a sales charge
or a service or distribution fee for investments where the amount of
purchase is equal to or exceeds a specific amount as specified in each
Fund's prospectus.
8. Class Z Shares
Class Z shares are offered without imposition of either a sales charge
or a service or distribution fee for purchase (i) by employee benefit
and retirement plans of Salomon Smith Barney Inc. ("Salomon Smith
Barney") and its affiliates, (ii) by certain unit investment trusts
sponsored by Salomon Smith Barney and its affiliates, and (iii) although
not currently authorized by the governing boards of the Funds, when and
if authorized, (x) by employees of Salomon Smith Barney and its
affiliates and (y) by directors, general partners or trustees of any
investment company listed on Schedule A and, for each of (x) and (y),
their spouses and minor children.
9. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the authority to
create additional classes, or change existing Classes, from time to
time, in accordance with Rule 18f-3 of the 1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund are
allocated among the various Classes of shares based on the net assets of
the Fund attributable to each Class, except that each Class's net asset
value and expenses reflect the expenses associated with that Class under
the Fund's Services and Distribution Plan, including any costs
associated with obtaining shareholder approval of the Services and
Distribution Plan (or an amendment thereto) and any expenses specific to
that Class. Such expenses are limited to the following:
(i) transfer agency fees as identified by the transfer agent as
being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and
proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to one
Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of shares.
Pursuant to the Multiple Class System, expenses of a Fund allocated to a
particular Class of shares of that Fund are borne on a pro rata basis by
each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to Class A
shares after a certain holding period, expected to be, in most cases,
approximately eight years but may be shorter. Upon the expiration of
the holding period, Class B shares (except those purchases through the
reinvestment of dividends and other distributions paid in respect of
Class B shares) will automatically convert to Class A shares of the Fund
at the relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services and
Distribution Plan. For purposes of calculating the holding period
required for conversion, newly created Class B shares issued after the
date of implementation of the Multiple Class System are deemed to have
been issued on (i) the date on which the issuance of the Class B shares
occurred or (ii) for Class B shares obtained through an exchange, or a
series of exchanges, the date on which the issuance of the original
Class B shares occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B shares.
However, for purposes of conversion to Class A, all Class B shares in a
shareholder's Fund account that were purchased through the reinvestment
of dividends and other distributions paid in respect of Class B shares
(and that have not converted to Class A shares as provided in the
following sentence) are considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's Fund account (other
than those in the sub-account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B shares
then in the sub-account also converts to Class A. The portion is
determined by the ratio that the shareholder's Class B shares converting
to Class A bears to the shareholder's total Class B shares not acquired
through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling of the Internal Revenue Service that
payment of different dividends on Class A and Class B shares does not
result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as
amended (the "Code"), and the continuing availability of an opinion of
counsel to the effect that the conversion of shares does not constitute
a taxable event under the Code. The conversion of Class B shares to
Class A shares may be suspended if this opinion is no longer available,
In the event that conversion of Class B shares does not occur, Class B
shares would continue to be subject to the distribution fee and any
incrementally higher transfer agency costs attending the Class B shares
for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset value for
shares of the same Class in certain other of the Smith Barney Mutual
Funds as set forth in the prospectus for such Fund. Funds only permit
exchanges into shares of money market funds having a plan under the Rule
if, as permitted by paragraph (b) (5) of Rule 11a-3 under the 1940 Act,
either (i) the time period during which the shares of the money market
funds are held is included in the calculations of the CDSC or (ii) the
time period is not included but the amount of the CDSC is reduced by the
amount of any payments made under a plan adopted pursuant to the Rule by
the money market funds with respects to those shares. Currently, the
Funds include the time period during which shares of the money market
fund are held in the CDSC period. The exchange privileges applicable to
all Classes of shares must comply with Rule 11a-3 under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of October 31, 1998)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Concert Allocation Series Inc.
Conservative Portfolio
Balanced Portfolio
Global Portfolio
Growth Portfolio
Income Portfolio
High Growth Portfolio
Smith Barney Equity Funds -
Concert Social Awareness Fund
Smith Barney Large Cap Blend Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Large Cap Value Fund
Short-Term High Grade Bond Fund
U.S. Government Securities Fund
Smith Barney Income Funds -
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney High Income Fund
Smith Barney Municipal High Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Total Return Bond Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney S&P 500 Index Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Investment Funds Inc. -
Concert Peachtree Growth Fund
Smith Barney Contrarian Fund
Smith Barney Government Securities Fund
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Special Equities Fund
Smith Barney Institutional Cash Management Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
New York Money Market
Pennsylvania Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Emerging Markets Portfolio
U:\legal\general\forms\18f3plan.doc
