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. 30 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 33 X
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 720-9218
Christina T. Sydor
Secretary
Smith Barney Fundamental Value Fund Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
X immediately upon filing pursuant to Rule 485(b)
on January 28, 1998 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for
the fiscal year ended September 30, 1997 was filed on November 12,
1997 as Accession Number 0000091155-97-000503.
The registrant, Smith Barney Fundamental Value Fund Inc., a Maryland
corporation, is the successor to Smith Barney Fundamental Value Fund Inc
., a Washington corporation, pursuant to Rule 414 of the Securities Act of
1933 (the "Act"), has, effective with post- effective amendment number 25
to this registration statement, adopted this registration statement for all
purposes under the Act and the Securities Exchange Act of 1934.
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. Financial Highlights Financial
Highlights
4. General Description of Registrant Cover Page; Prospectus Summary;
Investment Objective and
Management
Policies;
Additional Information
5. Management of the Fund 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
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 Services 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
<PAGE>
P R O S P E C T U S
SMITH BARNEY
FUNDAMENTAL
VALUE
FUND INC.
JANUARY 28, 1998
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
PROSPECTUS JANUARY 28, 1998
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, 1998, 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 Smith Barney Financial Consultant. The Statement of Additional Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
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 20
- -------------------------------------------------
PURCHASE OF SHARES 21
- -------------------------------------------------
EXCHANGE PRIVILEGE 30
- -------------------------------------------------
REDEMPTION OF SHARES 33
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 36
- -------------------------------------------------
PERFORMANCE 36
- -------------------------------------------------
MANAGEMENT OF THE FUND 37
- -------------------------------------------------
DISTRIBUTOR 38
- -------------------------------------------------
ADDITIONAL INFORMATION 39
- -------------------------------------------------
</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 C
shares, which differ principally in terms of sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares,
are offered to investors meeting an initial investment minimum of $5,000,000.
See "Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares 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 C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months
of purchase. The CDSC may be waived for certain redemptions. The Class C
shares' distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A shares. Purchases of Fund shares, which when com-
bined with current holdings of Class C shares of the Fund equal or exceed
$500,000 in the aggregate, should be made in Class A shares at net asset value
with no sales charge, and will be subject to a CDSC of 1.00% on redemptions
made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any serv-
ice 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 and Class C shares are sold without any ini-
tial 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 C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
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 or more may be made at net asset value with no initial
sales charge, but will be
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 funds sponsored by Smith Barney 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 C
shares, purchasers eligible to purchase Class A shares at net asset value or at
a reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete 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 C 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."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney, a broker that clears securities transactions through Smith Barney
on a fully disclosed basis (an "Introducing Broker") or an investment dealer in
the selling group. Direct purchases by certain retirement plans may be made
through the Fund's transfer agent, First Data Investor Services Group, Inc.
(the "Transfer Agent"). See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made
for all Classes. There is no minimum investment requirement in Class A for
unitholders who invest distributions from a unit investment trust ("UIT") spon-
sored by Smith Barney. The minimum investment requirements for purchases of
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 C 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 Travelers Group Inc.
("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries, principally in four business segments: Investment
Services, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the 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 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 dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and dis-
tribution reinvestments will become eligible for conversion to Class A shares
on a pro rata basis. See "Dividends, Distributions and Taxes."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 C CLASS Y
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None None
Maximum CDSC
(as a percentage of original cost or
redemption proceeds, whichever is
lower) None* 5.00% 1.00% None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.75% 0.75% 0.75% 0.75%
12b-1 fees** 0.25 1.00 1.00 None
Other expenses 0.14 0.15 0.17 0.03
- ------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.14% 1.90% 1.92% 0.78%
- ------------------------------------------------------------------------------
</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 C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
Class A shares of the Fund purchased through the Smith Barney AssetOne Pro-
gram will be subject to an annual asset-based fee, payable quarterly, 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 Smith Barney Financial Consultant.
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
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
and ExecChoiceTM Programs. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. Smith Barney also receives, with
respect to Class B and Class C shares, an annual 12b-1 fee of 1.00% of the
value of average daily net assets of the respective Class, consisting of a
0.75% distribution fee and a 0.25% service fee. "Other expenses" in the above
table include fees for shareholder services, custodial fees, legal and account-
ing 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.................................. $61 $84 $110 $182
Class B.................................. 69 90 113 203
Class C.................................. 29 60 103 222
Class Y.................................. 8 25 43 97
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A.................................. 61 84 110 182
Class B.................................. 19 60 103 203
Class C.................................. 19 60 103 222
Class Y.................................. 8 25 43 97
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</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at the
end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION 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 reports thereon appears in the Fund's Annual Reports. The
information set out below should be read in conjunction with the financial
statements and related notes that also appear in the Fund's Annual Report dated
September 30, 1997, 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 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.31 $8.66 $8.20 $8.42 $7.22
- --------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.11 0.20 0.17 0.09 0.07
Net realized and unrealized gains 2.52 1.01 1.23 0.30 1.65
- --------------------------------------------------------------------------
Total Income From Operations 2.63 1.21 1.40 0.39 1.72
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.13) (0.19) (0.13) (0.08) (0.06)
Net realized gains (0.44) (0.37) (0.81) (0.53) (0.46)
- --------------------------------------------------------------------------
Total Distributions (0.57) (0.56) (0.94) (0.61) (0.52)
- --------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.37 $9.31 $8.66 $8.20 $8.42
- --------------------------------------------------------------------------
TOTAL RETURN 29.53% 14.73% 19.94% 4.92% 25.23%
- --------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS) $606 $458 $ 386 $ 265 $ 123
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.14% 1.22% 1.34% 1.30% 1.45%
Net investment income 1.14 2.32 2.19 1.90 1.00
- --------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 46% 57% 45% 108% 111%
- --------------------------------------------------------------------------
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,
- ----------------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$6.47 $5.34 $7.15 $6.23 $8.36
- ----------------------------------------------------------------------------------------------------
0.11 0.15 0.16 0.17 0.15
0.78 1.50 (1.22) 1.18 (0.99)
- ----------------------------------------------------------------------------------------------------
0.89 1.65 (1.06) 1.35 (0.84)
- ----------------------------------------------------------------------------------------------------
(0.14) (0.23) (0.18) (0.10) (0.26)
-- (0.29) (0.57) (0.33) (1.03)
- ----------------------------------------------------------------------------------------------------
(0.14) (0.52) (0.75) (0.43) (1.29)
- ----------------------------------------------------------------------------------------------------
$7.22 $6.47 $5.34 $7.15 $6.23
- ----------------------------------------------------------------------------------------------------
14.01% 33.47% (16.25)% 23.26% (6.92)%
- ----------------------------------------------------------------------------------------------------
$78 $59 $63 $89 $85
- ----------------------------------------------------------------------------------------------------
1.28% 1.30% 1.20% 1.10% 1.20%
1.57 2.24 2.40 2.50 2.10
- ----------------------------------------------------------------------------------------------------
142% 116% 94% 62% 120%
- ----------------------------------------------------------------------------------------------------
-- -- -- -- --
- ----------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY FUNDAMENTAL FOR THE FISCAL YEARS ENDED
VALUE FUND INC. SEPTEMBER 30,
-------------------------
CLASS B SHARES 1997 1996 1995 1994 1993(1)
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING 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 Opera-
tions 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 TRANS-
ACTIONS(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 C SHARES 1997 1996 1995 1994 1993(1)
- -------------------------------------------------------------------------------
<S> <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(2) $0.04 $0.05 $0.05 -- --
- -------------------------------------------------------------------------------
</TABLE>
(1) For the period from August 10, 1993 (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.
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 1997 1996(1)
- ------------------------------------------------------
<S> <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. From time to time, the Fund may lend its
portfolio securities to brokers, dealers and other financial organizations.
These loans will not exceed 20% of the Fund's total assets, taken at value.
Loans of portfolio securities by the Fund will be collateralized by cash, let-
ters of credit or U.S. government securities which are maintained at all times
in an amount equal to at least 100% of the current market value of the loaned
securities. The risks in lending portfolio securities, like those associated
with other extensions of secured credit, consist of possible delays in receiv-
ing 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.
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.
The Fund may purchase options in the over-the-counter market ("OTC options")
to the same extent that it may engage in transactions in exchange traded
options. OTC options differ from exchange traded options in that they are
negotiated individually and terms of the contract are not standardized as in
the case of exchange traded options. Moreover, because there is no clearing
corporation involved in an OTC option, there is a risk of non-performance by
the counterparty
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 illiquid securities. According-
ly, 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.
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 multi-
ple. The writer of the option is obligated, in return for the premium received,
to make delivery of this amount. Unlike stock options, all settlements are in
cash, and gain or loss depends on price movements in the stock market generally
rather than price movements in the individual stocks.
The effectiveness of purchasing puts and writing calls on stock index options
depends to a large extent on the ability of 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 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 contract, as contrasted with the direct investment in a futures con-
tract, gives the purchaser the right, in return for the premium paid, to assume
a position in a futures contract at a
18
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 con-
tract to sell the underlying securities. A put option gives the purchaser the
right to sell and obliges the writer to buy the underlying contract. The Fund
may enter into futures contracts to purchase securities when 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 segregated account with the
Fund's custodian to collateralize the position, thereby insuring that the use
of the contract is unleveraged. The Fund will not enter into futures contracts
for speculation and will only enter into futures contracts that are traded on a
U.S. exchange or board of trade.
The Fund may purchase options on futures contracts to hedge its portfolio
against the risk of a decline in the market value of securities held, and may
purchase call options on futures contracts to hedge against an increase in the
price of securities it is committed to purchase. The Fund may write put and
call options on futures contracts in entering into closing sale transactions
and to increase its ability to hedge against changes in the market value of the
securities it holds or is committed to purchase. The Fund will write put and
call options only on futures contracts that are traded on a domestic exchange
or board of trade.
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 Smith Barney. Smith Barney has advised the Fund that, in transactions
with the Fund, Smith Barney charges a commission rate at least as favorable as
the rate Smith Barney charges its comparable unaffiliated customers in similar
transactions.
Foreign Securities and American Depositary Receipts. The Fund can invest up
to 25% of its assets in foreign securities and American Depositary Receipts
("ADRs"). ADRs are dollar-denominated receipts issued generally by domestic
banks representing the deposit with the bank of a security of a foreign issuer.
ADRs are publicly traded on exchanges or over the counter in the United States.
19
<PAGE>
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.
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 gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4.00% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed ordi-
nary income or capital gains and expects to pay any other dividends and distri-
butions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally as
a result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice fee applicable to Class A shares. Distributions of capital gains, if any,
will be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as a reg-
ulated investment company under the Code. Dividends paid from net investment
20
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
income and distributions of net realized short-term capital gains are taxable
to shareholders as ordinary income, regardless of how long shareholders have
held their Fund shares and whether such dividends and distributions are
received in cash or reinvested in additional Fund shares. Distributions of net
realized long-term capital gains will be taxable to shareholders as long-term
capital gains, regardless of how long shareholders have held Fund shares and
whether such distributions are received in cash or are reinvested in 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 Fund during the Fund's prior taxable year. Share-
holders should consult their tax advisors about the status of the Fund's divi-
dends and distributions for state and local tax liabilities.
PURCHASE OF SHARES
GENERAL
The Fund currently offers a number of Classes of shares. Class A shares are
sold to investors with an initial sales charge and Class B and Class C shares
are sold without an initial sales charge but are subject to a CDSC payable
upon certain redemptions. Class Y shares are sold without an initial sales
charge or CDSC and will be available only to investors investing a minimum of
$5,000,000 (except for purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum purchase amount). See
"Prospectus Summary--Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the sell-
ing group, except for investors purchasing shares of the Fund through a quali-
fied retirement plan who may do so directly through the Transfer Agent. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class Y shares. Smith Barney and other
broker/dealers 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
main-tenance fee.
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment in the Fund of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan. Investors in Class Y shares
may open an account by making an initial investment of $5,000,000. Subsequent
investments of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and Class
C shares and the subsequent investment requirement for all Classes in the 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 C shares and the minimum 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 requirement for Class A, Class B and Class C shares and the
minimum subsequent investment minimum for all Classes is $50. There are no min-
imum investment requirements for Class A shares for employees of Travelers and
its subsidiaries, including Smith Barney, unitholders who invest distributions
from a UIT sponsored by Smith Barney, and Directors of the Fund and their
spouses and children. The Fund reserves the right to waive or change minimums,
to decline any order to purchase its shares and to suspend 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 Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset val-
ue, are priced according to the net asset value determined on that day. Orders
received by dealers or Introducing Brokers prior to the close of regular trad-
ing 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 Smith Barney prior to Smith Barney's close of business
(the "trade date"). For shares purchased through Smith Barney or Introducing
Brokers purchasing through 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, Smith Barney or the Transfer Agent is authorized
through pre-authorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the regular bank account or other financial
institution indicated by the shareholder, to provide systematic additions to
the shareholder's Fund account. A shareholder who has insufficient funds to
complete the transfer will be
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
charged a fee of up to $25 by Smith Barney or the Transfer Agent. The System-
atic Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney brokerage account or redeem the shareholder's
shares of a Smith Barney money market fund to make additions to the account.
Additional information is available from the Fund or a Smith Barney Financial
Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES
CHARGE AS SALES DEALERS
% OF CHARGE AS REALLOWANCE
OFFERING % OF AS % OF
AMOUNT OF INVESTMENT PRICE AMOUNT INVESTED OFFERING PRICE
- -----------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$25,000 - $49,999 4.00 4.17 3.60
$50,000 - $99,999 3.50 3.63 3.15
$100,000 - $249,999 3.00 3.09 2.70
$250,000 - $499,999 2.00 2.04 1.80
$500,000 and over * * *
- -----------------------------------------------------------------
</TABLE>
* Purchases of Class A shares 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 Smith Barney, which compensates Smith Barney Financial
Consultants and other dealers whose clients make purchases of $500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class C shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual and his or her immediate family, or a trustee or other fiduciary of
a single trust estate or single fiduciary account.
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) by (i) Board Members and employees
of Travelers and its subsidiaries and any of 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 pension, profit-sharing or other benefit plan for such per-
sons and (ii) employees of members of the National Association of Securities
Dealers, Inc., provided such sales are made upon the assurance of the pur-
chaser that the purchase is made for investment purposes and that the securi-
ties will not be resold except through redemption or repurchase; (b) offers of
Class A shares to any other investment company to
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 Smith Barney Financial Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with Smith Barney), on
the condition the purchase of Class A shares is made with the proceeds of the
redemption of shares of a mutual fund which (i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to the client by the Financial Con-
sultant and (iii) was subject 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 proceeds in the Fund, provided the reinvestment is
made within 60 calendar days of the redemption; (e) purchases by accounts man-
aged by registered investment advisory subsidiaries of Travelers; (f) invest-
ments of distributions from a UIT sponsored by Smith Barney; (g) direct
rollovers by plan participants of distributions from a 401(k) plan offered to
employees of Travelers or its subsidiaries or a 401(k) plan enrolled in the
Smith Barney 401(k) Program (Note: subsequent investments will be subject to
applicable sales charges); (h) purchases by separate accounts used to fund cer-
tain unregistered variable annuity contracts; (i) purchases by investors par-
ticipating in a Smith Barney fee-based arrangement; and (j) purchases by Sec-
tion 403(b) or Section 401(a) or (k) accounts associated with Copeland Retire-
ment Programs. In order to obtain such discounts, the investor must provide
sufficient information at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by 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 funds sponsored by Smith Barney which are
offered with a sales charge listed under "Exchange Privilege" then held by such
person and applying the sales charge applicable to such aggregate. In order to
obtain such discount, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
aggregate sales of Class A shares of Smith Barney Mutual Funds offered with a
sales charge to, and share holdings of, all members of the group. To be eligi-
ble for such reduced sales charges or to purchase at net asset value, all pur-
chases must be pursuant to an employer- or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount, and (c) satisfies uniform cri-
teria which enable Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must be
able to arrange for group meetings between representatives of the Fund and the
members, and must agree to include sales and other materials related to the
Fund in its publications and mailings to members at no cost to Smith Barney. In
order to obtain such reduced sales charge or to purchase at net asset value,
the purchaser must provide sufficient information at the time of purchase to
permit verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the discre-
tion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes pur-
chases of all Class A shares of the Fund and other Smith Barney Mutual Funds
offered with a sales charge over the 13 month period based on the total amount
of intended purchases plus the value of all Class A shares previously purchased
and still owned. An alternative is to compute the 13 month period starting up
to 90 days before the date of execution of a Letter of Intent. Each investment
made during the period receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales charges applica-
ble to the purchases made and the charges previ-
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ously paid, or an appropriate number of escrowed shares will be redeemed.
Please contact a 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 for Class Y shares. Such investors must make an
initial minimum purchase of $1,000,000 in Class Y shares of the Fund and agree
to purchase a total of $5,000,000 of Class Y shares of the same Fund within six
months from the date of the Letter. If a total investment of $5,000,000 is not
made within the six-month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject to all fees (includ-
ing 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 Smith Barney Finan-
cial Consultant or the Transfer Agent for further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares that were purchased without an initial sales
charge but subject to a CDSC.
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 C shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
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."
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 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 also will be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. See "Prospectus Summary--Alternative Purchase Arrangements--Class
B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
For Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 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
(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
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shareholder's shares will be permitted for withdrawal plans that were estab-
lished prior to November 7, 1994); (c) redemptions of shares within 12 months
following the death or disability of the shareholder; (d) redemption of shares
made in connection with qualified distributions from retirement plans or IRAs
upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f) redemp-
tions of shares to effect a combination of the Fund with any investment company
by merger, acquisition of assets or otherwise. In addition, a shareholder who
has redeemed shares from other funds of the Smith Barney Mutual Funds may,
under certain circumstances, reinvest all or part of the redemption proceeds
within 60 days and receive pro rata credit for any CDSC imposed on the prior
redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by the Transfer Agent
in the case of all other shareholders) of the shareholder'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 C shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class C shares acquired through the Participating Plans are subject
to the same service and/or distribution fees as the Class A and Class C shares
acquired by other investors; however, they are not subject to any initial 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 C Shares. Class C 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 C 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 Par-
ticipating Plan's total Class C 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 exchange all of its Class C shares for Class A shares of the
Fund. (For Participating
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Plans that were originally established through a Smith Barney retail brokerage
account, the five year period will be calculated from the date the retail bro-
kerage 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 C 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 C shares for Class A
shares of the Fund. Such Plans will be notified in writing within 30 days after
the last business day of the calendar year and, unless the exchange offer has
been rejected in writing, the exchange will occur on or about the last business
day of the following March.
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 C 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 C shares of the Fund but instead may acquire Class A shares of the Fund.
Any Class C 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 Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any Par-
ticipating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of redemption proceeds if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
29
<PAGE>
PURCHASE OF SHARES (CONTINUED)
At the end of the eighth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating Plan will be offered the
opportunity to exchange all of its Class B shares for Class A shares of the
Fund. Such Participating Plan will be notified of the pending exchange in writ-
ing approximately 60 days before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing, the exchange will occur
on or about the eighth anniversary date. Once the exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the Participat-
ing Plan elects not to exchange all of its Class B shares at that time, each
Class B share held by the Participating Plan will have the same conversion fea-
ture as Class B shares held by other investors. See "Purchase of Shares--
Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases to the net asset
value of the shareholder's Class B shares above the purchase payments made dur-
ing the preceding eight years. Whether or not the CDSC applies to the redemp-
tion by a Participating Plan depends on the number of years since the Partici-
pating Plan first became enrolled in the Smith Barney 401(k) Program, unlike
the applicability of the CDSC to redemptions by other shareholders, which
depends on the number of years since those shareholders made the purchase pay-
ment from which the amount is being redeemed.
The CDSC will be waived on redemptions on Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of shares in connection with a loan made by the Par-
ticipating Plan to an employee.
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 C
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.
30
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Disciplined Small Cap Fund, Inc.
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Port-
folio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
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
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
31
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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.--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 C 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 C shares of the Fund through the Smith
Barney 401(k) Program may exchange those shares for Class C shares of this
fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class C shares may exchange Fund shares for Class C shares of this fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
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 C Exchanges. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
32
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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.
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 determined.
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Transfer Agent receives
further instructions
33
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
from Smith Barney, or if the shareholder's account is not with Smith Barney,
from the shareholder directly. The redemption proceeds will be remitted on or
before the 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. Gener-
ally, if the redemption proceeds are remitted to a Smith Barney brokerage
account, these funds will not be invested for the shareholder's benefit without
specific instruction and Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other than
a certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney Fundamental Value Fund Inc.
Class A, B, C 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 $2,000 must be guaranteed by an eligi-
ble guarantor institution such as a domestic bank, savings and loan institu-
tion, domestic credit union, member bank of the Federal Reserve System or mem-
ber firm of a national securities exchange. Written redemption requests of
$2,000 or less do not require a signature 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 addi-
tional 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 FOR SHAREHOLDERS WHO DO NOT HAVE A
SMITH BARNEY BROKERAGE ACCOUNT
Certain shareholders may be eligible to redeem and exchange Fund shares by
telephone. To determine if a shareholder is entitled to participate in this
program,
34
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
he or she should contact the Transfer Agent at (800) 451-2010. Once eligibil-
ity is confirmed, the shareholder must complete and return a Telephone/Wire
Authorization form, including a signature guarantee, that will be provided by
the Transfer Agent upon request. (Alternatively, an investor may authorize
telephone redemptions on the new account application with a signature guaran-
tee 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. (New York City 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 permitted 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
complete 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. (New York City 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 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 following 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
35
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
accounts are eligible for automatic cash withdrawal plans only where the share-
holder 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 subject to the
CDSC.) For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size.) The Fund, howev-
er, will not redeem shares based solely on market reductions in net asset val-
ue. 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 redemption.
PERFORMANCE
From time to time the Fund may include its total return, average annual total
return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the invest-
ment 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 redeem-
able value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on
36
<PAGE>
PERFORMANCE (CONTINUED)
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 1940 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 December 31, 1997 in excess of $91 billion.
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 billion.
PORTFOLIO MANAGEMENT
John G. Goode, Managing Director of Smith Barney, Chairman and Chief Invest-
ment 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 making all
investment decisions.
37
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
Mr. Goode's management discussion and analysis of the Fund's performance dur-
ing the fiscal year ended September 30, 1997 is included in the Fund's Annual
Report to Shareholders dated September 30, 1997. The Fund's Annual Report may
be obtained upon request and without charge from a Smith Barney Financial Con-
sultant or by writing or calling the Fund at the address or phone number listed
on page one of this Prospectus.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with respect to Class A, Class B and Class C shares of the Fund at the annual
rate of 0.25% of the average daily net assets of the respective Class. Smith
Barney is also paid a distribution fee with respect to Class B and Class C
shares at the annual rate of 0.75% of the average daily net assets attributable
to those Classes. Class B shares that automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject to a
distribution fee. The fees are used by Smith Barney to pay its Financial Con-
sultants for servicing shareholder accounts and, in the case of Class B and
Class C shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: advertising expenses; the cost of print-
ing and mailing prospectuses to potential investors; payments to and expenses
of Smith Barney Financial Consultants and other persons who provide support
services in connection with the distribution of shares; interest and/or carry-
ing charges; and indirect and overhead costs of Smith Barney associated with
the sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Fund's Board of Direc-
tors will evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and the pro-
ceeds of the CDSC.
38
<PAGE>
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, C and Y. Each Class of shares represents an identical pro rata
interest in the Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (a) the desig-
nation 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 mat-
ters 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 inter-
ests 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 appropriate action.
The Fund is not required to hold annual meetings, however the Directors will
call a meeting for any purpose upon written request of shareholders holding 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, serves as the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of investment securities held by the Fund at the
end of the reporting period. In an effort to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of its semi-annual and
annual reports by household. This consolidation means that a household having
multiple accounts with the identical address of record will receive a single
copy of each report. Any shareholder who does not want this consolidation to
apply to his or her account should contact his or her Smith Barney Financial
Consultant or the Transfer Agent.
39
<PAGE>
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<PAGE>
SMITH BARNEY
---------------------------------
A MEMBER OF TRAVELERSGROUP [LOGO]
SMITH BARNEY
FUNDAMENTAL
VALUE
FUND INC.
388 Greenwich Street
New York, New York 10013
FD0206 1/98
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, 1998
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, 1998, as
amended or supplemented from time to time, and should
be read in conjunction with the Fund's Prospectus. The
Fund's Prospectus may be obtained from any Smith
Barney Financial Consultant or by writing or calling
the Fund at the address or phone number listed above.
This Statement of Additional Information, although not
in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings
are used in both the Prospectus and this Statement of
Additional Information, except where shown below.
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
Smith Barney Inc. ("Smith Barney") 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 77, Director. Private
investor; Chairman Emeritus of Flow International.
His address is East 10110 Greenbluff Road, Mead,
Washington 99021.
Robert M. Frayn, Jr., age 63, Director.
President and Director of Book Publishing Company. His
address is 201 Westlake Avenue North, Seattle,
Washington 98109.
Leon P. Gardner, age 69, Director. Private
investor; Former Chairman of Fargo's Pizza Company.
His address is 2310 N.E. Blue Ridge Drive, Seattle,
Washington 98177.
Howard J. Johnson, age 59, Director. Chief
Executive Officer of Howard Johnson Company, a benefit
and pension consulting firm; Director and Chairman of
the Executive Committee of Northwestern Trust and
Investors Advisory Company; Director of Shurgard
Storage, Inc. His address is 101 East 52nd Street, 11
Floor New York, NY 10022
David E. Maryatt, age 61, 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 64, Managing Director of
Smith Barney: President and Director of MMC and
Travelers Investment Advisers, Inc.; Chairman of Smith
Barney Strategy Advisers Inc. Prior to July 1993,
Senior Executive Vice President of Shearson Lehman
Brothers Inc. Vice Chairman of Shearson Asset
Management, Director of PanAgora Asset Management,
Inc. and PanAgora Asset Management Limited. Director
of 42 investment companies associated with Smith
Barney. His address is 388 Greenwich Street, New
York, New York 10013.
Frederick O. Paulsell, age 58, Director.
Principal of Olympic Capital Partners. His address is
1325 Fourth Avenue Suite 1900, Seattle, Washington
98101.
Jerry A. Viscione, age 53, 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 54, Director. Attorney;
Her address is 416 34th Avenue, Seattle, Washington
98122.
Lewis E. Daidone, age 40, Senior Vice President
and Treasurer. Managing Director of Smith Barney;
Director and Senior Vice President of MMC. Mr.
Daidone serves as Senior Vice President and Treasurer
of 42 Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
John G. Goode, age 53, Vice President and
Investment Officer. Managing Director of 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 39, Investment Officer.
Managing Director of MMC 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 46, Secretary. Managing
Director of Smith Barney; General Counsel and
Secretary of MMC. Ms. Sydor serves as Secretary of 42
Smith Barney Mutual Funds. Her address is 388
Greenwich Street, New York, New York 10013.
As of January 12, 1998, the Directors and
Officers of the Fund as a group, owned less than 1.00%
of the outstanding common stock of the Fund. No
officer, director or employee of Smith Barney or of
its parent or any subsidiary receives any compensation
from the Fund for serving as an officer or Director of
the Fund. The Fund pays each Director who is not an
officer or employee of Smith Barney or any of its
affiliates a fee of $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, 1997, such expenses totaled $17,895.83
As of January 12, 1998 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:
Shareholde Class Percent Ownership
Smith Barney Class Y 79.3614
Concert Series, Inc.
Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester PA 19113-1522
Smith Barney Class Y 10.8149
Concert Series, Inc.
Conservative Port.
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester PA 19113-1522
Smith Barney Class Y 8.7730
Concert Series, Inc.
Select Balanced Portfolio.
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester PA 19113-1522
For the fiscal year ended September 30, 1997, the
Directors of the Fund were paid the following
compensation:
Director Aggregate Compensation
Compensation from all
from the Fund Smith Barney
Mutual Funds*
Lloyd J.
Andrews $7,600 $10,000
Robert M.
Frayn, Jr. 7,600 10,100
Leon P.
Gardner 7,500 10,000
Howard J.
Johnson** 7,600 10,000
David E.
Maryatt 7,500 10,000
Heath B.
McLendon -- --
Frederick O.
Paulsell 7,500 9,000
Jerry A.
Viscione 7,600 10,000
Julie W.
Weston 7,600 10,000
* Reflects compensation durring the calendar year
ended December 31, 1997.
** Mr. Johnson is an Interested Person by reason of
his daughter being employed by Smith Barney
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 24, 1997. 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 The Travelers Group Inc.
("Travelers"). 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, 1997, 1996 and 1995, the Fund incurred
$8,151,351, $6,015,090 and $4,135,113, 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 24,
1997. 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
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, the Fund has the
ability to lend securities from its portfolio to
brokers, dealers and other financial organizations.
Such loans, if and when made, may not exceed 20% of
the Fund's total assets. The Fund may not lend its
portfolio securities to Smith Barney or its affiliates
unless it has applied for and received specific
authority from the SEC. Loans of portfolio securities
by the Fund will be collateralized by cash, letters of
credit or securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities ("U.S.
government securities"), which will be maintained at
all times in an amount equal to at least 100% of the
current market value of the loaned securities. From
time to time, the Fund may return a part of the
interest earned from the investment of collateral
received for securities loaned to the borrower and/or
a third party, which is unaffiliated with the Fund or
with Smith Barney, and which is acting as a "finder."
In lending its portfolio securities, the Fund
can increase its income by continuing to receive
interest on the loaned securities, as well as by
either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest
paid by the borrower when governmen
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 9 cannot be changed without
approval by the holders of a majority of the
outstanding shares of the Fund, defined as the lesser
of (a) 67% of the Fund's shares present at a meeting,
if the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (b) more
than 50% of the Fund's outstanding shares. The
remaining restrictions may be changed by the Fund's
Board of Directors at any time. The Fund may not:
1. With respect to 75% of the value of its
total assets, invest more than 5% of its total
assets in securities of any one issuer, except
securities issued or guaranteed by the U.S.
government, or purchase more than 10% of the
outstanding voting securities of such issuer.
2. Issue senior securities as defined in the
1940 Act, and any rules and orders thereunder,
except insofar as the Fund may be deemed to have
issued senior securities by reason of: (a)
borrowing money or purchasing securities on a
when-issued or delayed-delivery basis; (b)
purchasing or selling futures contracts and
options on 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 the Fund may
borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting
of redemption requests which might otherwise
require the untimely disposition of securities,
in an amount not exceeding 10% of the value of
the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the
borrowing is made. Whenever borrowings exceed 5%
of the value of the Fund's total assets, the
Fund will not make any additional investments.
5. Engage in the business of underwriting
securities issued by other persons, except to
the extent that the Fund may technically be
deemed to be an underwriter under the Securities
Act of 1933, as amended, in disposing of
portfolio securities.
6. Purchase any securities on margin (except
for such short-term credits as are necessary for
the clearance of purchases and sales of
portfolio securities) or sell any securities
short (except against the box). For purposes of
this restriction, the deposit or payment by the
Fund of initial or maintenance margin in
connection with futures contracts and related
options and options on securities is not
considered to be the purchase of a security on
margin.
7. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts,
but this shall not prevent the Fund from: (a)
investing in real estate investment trust
securities traded on the New York Stock
Exchange, Inc. ("NYSE"), American Stock Exchange
or the National Association of Securities
Dealers, Inc.'s Automated Quotation System; (b)
investing in securities of issuers engaged in
the real estate business and securities which
are secured by real estate or interests therein;
or (c) holding or selling real estate received
as a result of a default on securities it holds.
8. Make loans of its funds or securities. This
restriction does not apply to: (a) the purchase
of debt obligations in which the Fund may invest
consistent with its investment objective and
policies; (b) repurchase agreements; and (c)
loans of its portfolio securities as described
in the Prospectus and this Statement of
Additional Information under "Investment
Objective and Management Policies."
9. Write, purchase or sell puts, calls,
straddles, spreads or combinations thereof or
engage in transactions involving futures
contracts and related options, except as
permitted under the Fund's investment goals and
policies, as set forth in the current Prospectus
and the Statement of Additional Information.
10. Invest more than 5.00% of the value of the
Fund's total assets in the securities of any
issuer which has been in continuous operation
for less than three years. This restriction does
not apply to U.S. government securities.
11. Invest in other open-end investment
companies (except as part of a merger,
consolidation, reorganization or acquisition of
assets). This restriction does not apply to
investment in closed-end, publicly traded
investment companies.
12. Invest in interests in oil, gas or other
mineral exploration or development programs
(except that the Fund may invest in the
securities of issuers which operate, invest in
or sponsor such programs).
13. Purchase or retain the securities of any
issuer if, to the knowledge of the Fund, any
officer or Director of the Fund or of 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.
14. Purchase warrants if, thereafter, more than
2.00% of the value of the Fund's net assets
would consist of such warrants, but warrants
attached to other securities or acquired in
units by the Fund are not subject to this
restriction.
15. Purchase or otherwise acquire any security
if, as a result, more than 15% of its net assets
would be invested in securities that are
illiquid.
16. Invest in any company for the purpose of
exercising control or management.
17. Purchase or sell real estate limited
partnership interests.
Certain restrictions listed above permit the
Fund without shareholder approval to engage in
investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering
its current investment practices as otherwise
described in the Prospectus and this Statement of
Additional Information and any future change in those
practices would require Board approval. If any
percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in
values or assets will not constitute a violation of
the restriction. The Fund may make commitments more
restrictive than the fundamental restrictions listed
above so as to permit the sale of Fund shares in
certain states. Should the Fund determine that any
such commitment is no longer in the best interests of
the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the
states involved.
Portfolio Turnover
While the Fund does not intend to trade in
securities for short-term profits, securities may be
sold without regard to the amount of time they have
been held by the Fund when warranted by the
circumstances. The Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or
sales of portfolio securities for a year by the
monthly average value of portfolio securities for the
year. Securities with remaining maturities of one year
or less at the date of acquisition are excluded from
the calculation. A portfolio turnover rate of 100%
would occur, for example, if all the securities in the
Fund's portfolio were replaced once during a period of
one year. A high rate of portfolio turnover in any
year will increase brokerage commissions paid and
could result in high amounts of realized investment
gain subject to the payment of taxes by shareholders.
Any realized short-term investment gain will be taxed
to shareholders as ordinary income. For the 1997 and
1996 fiscal years, the Fund's portfolio turnover rates
were 46% and 57%, 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, 1997, 1996 and
1995, the Fund paid total brokerage commissions of
$2,983,857, $2,132,627 and $953,849, 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, Smith Barney will not
participate in commissions from brokerage given by the
Fund to other brokers or dealers and will not receive
any reciprocal brokerage business resulting therefrom.
The Fund's Board of Directors has determined
that any portfolio transaction for the Fund may be
executed through Smith Barney if, in MMC's judgment,
the use of Smith Barney is likely to result in price
and execution at least as favorable as those of other
qualified brokers, and if in the transaction, Smith
Barney charges the Fund a commission rate consistent
with those charged by Smith Barney to comparable
unaffiliated customers in similar transactions. In
addition, under rules recently adopted by the SEC,
Smith Barney may directly execute such transactions
for the Fund on the floor of any national securities
exchange, provided: (i) the Board of Directors has
expressly authorized Smith Barney to effect such
transactions; and (ii) Smith Barney annually advises
the Fund of the aggregate compensation it earned on
such transactions. For the fiscal years ended
September 30, 1997, 1996 and 1995, the Fund paid
$27,396, $80,904 and $12,132 respectively, in
brokerage commissions to Smith Barney The percentage
of registrant's aggregate brokerage commissions paid
for the fiscal year ended September 30, 1997 was 0.9%
and the percentage of registrant's aggregate dollar
amount of transactions involving the payment of
commissions effected for the fiscal year ended
September 30, 1997 was 1.5%.
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 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 Smith
Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to the public on a
continuous basis. The public offering price for Class
A shares of the Fund is equal to the net asset value
per share at the time of purchase plus an initial
sales charge based on the aggregate amount of the
investment. The public offering price for Class B,
Class C and Class Y shares (and Class A share
purchases, including applicable rights of
accumulation, 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 C 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 Smith Barney Financial
Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on
a best efforts basis pursuant to a written agreement
dated July 30, 1993 (the "Distribution Agreement")
which was most recently approved by the Fund's Board
of Directors on June 24, 1997. For the fiscal years
ended September 30, 1997, 1996 and 1995, Smith Barney
$817,000, $1.0 million and $808,600, 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, 1997, 1996 and 1995,
Smith Barney received $1,133,000, $844,000, and
$820,900, respectively, representing CDSC fees on
redemptions of the Fund's Class B shares. For the
fiscal year ended September 30, 1997 and 1996, Smith
Barney received $11,000 and $10,000, receptively,
representing CDSC fees on redemptions of the Fund's
Class C shares.
When payment is made by the investor before
settlement date, unless otherwise directed by the
investor, the funds will be held as a free credit
balance in the investor's brokerage account and Smith
Barney may benefit from the temporary use of the
funds. The investor may designate another use for the
funds prior to settlement date, such as an investment
in a money market fund (other than Smith Barney
Exchange Reserve Fund) of the Smith Barney Mutual
Funds. If the investor instructs Smith Barney to
invest the funds in a Smith Barney money market fund,
the amount of the investment will be included as part
of the average daily net assets of both the Fund and
the Smith Barney money market fund, and affiliates of
Smith Barney that serve the funds in an investment
advisory or administrative capacity will benefit from
the fact that they are receiving fees from both such
investment companies for managing these assets
computed on the basis of their average daily net
assets. The Fund's Board of Directors has been advised
of the benefits to Smith Barney resulting from these
settlement procedures and will take such benefits into
consideration when reviewing the Advisory,
Administration and Distribution Agreements for
continuance.
Distributions Arrangements
To compensate Smith Barney for the services it
provides and for the expense it bears under the
Distribution Agreement, the Fund has adopted a
services and distribution plan (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act. Under the Plan, the
Fund pays Smith Barney a service fee, accrued daily
and paid monthly, calculated at the annual rate of
0.25% of the value of the Fund's average daily net
assets attributable to the Class A, Class B and Class
C shares. In addition, the Fund pays Smith Barney a
distribution fee with respect to the Class B and Class
C shares primarily intended to compensate Smith Barney
for its initial expense of paying financial
consultants a commission upon sales of those shares.
The Class B and Class C distribution fee is calculated
at the annual rate of 0.75% of the value of the Fund's
average daily net assets attributable to the shares of
the respective Class.
For the fiscal year ended September 30, 1997 the
Fund's Class A, Class B, and Class C shares incurred
$1,324,748, $6,171,904 and $435,371, respectively, in
service fees. For the fiscal year ended September 30,
1996, the Fund's Class A, Class B and Class C shares
incurred $1,058,779, $1,557,497 and $84,657,
respectively, in service fees. For the fiscal year
ended September 30, 1995, the Fund's Class A, Class B
and Class C shares incurred $802,308, $1,060,580 and
$25,292, respectively, in service fees. In addition,
for the fiscal year ended September 30, 1997,
September 30, 1996, and September 30, 1995, the Fund's
Class B shares incurred $2,057,302, $4,672,493 and
$3,181,739, respectively, in distribution fees. For
the same period, the Fund's Class C shares incurred
$145,124, $253,971 and $75,876, respectively, in
distribution fees.
Under its terms, the Plan continues from year to
year, provided such continuance is approved annually
by vote of the Fund's Board of Directors, including a
majority of the Independent Directors. The Plan may
not be amended to increase the amount of the service
and distribution fees without shareholder approval,
and all material amendments of the Plan also must be
approved by the Directors and Independent Directors in
the manner described above. The Plan may be terminated
with respect to a class of the Fund (a "Class") at any
time, without penalty, by the vote of a majority of
the Independent Directors or by a vote of a majority
of the outstanding voting securities of the Class (as
defined in the 1940 Act). Pursuant to the Plan, Smith
Barney will provide the Fund's Board of Directors with
periodic reports of amounts expended under the Plan
and the purpose for which such expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is
calculated on each day, Monday through Friday, except
days on which the NYSE is closed. The NYSE currently
is scheduled to be closed on New Year's Day, 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 C shares of any fund may be exchanged
without a sales charge. For purposes of CDSC
applicability, Class C shares of the Fund
exchanged for Class C 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 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. 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:
23.05% for the one-year period from October 1, 1996
through September 30, 1997;
17.34% for the five-year period from October 1, 1992
through September 30, 1997;
12.52% for the ten-year period from October 1,
1987 through September 30, 1997.
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 29.53%, 18.55%,
and 13.10%, respectively.
Class B's average annual total return was as follows
for the periods indicated:
23.62% for the one-year period from October 1,
1996 through September 30, 1997.
17.71% for the period from November 6, 1992
(commencement of operations) through September
30, 1997.
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 28.62%, and
17.81%, respectively.
Class C's average annual total return was as follows
for the period indicated:
27.52% for the one-year period from October 1, 1996
through September 30, 1997.
16.29% for the period from August 10, 1993
(commencement of operations) through September
30, 1997.
Aggregate Total Return
"Aggregate total return" figures represent the
cumulative change in the value of an investment in the
Class for the specified period and are computed by the
following formula:
AGGREGATE TOTAL RETURN = ERV-P
P
Where: P = a hypothetical initial payment
of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000 investment
made at the beginning of the 1-
, 5- or 10-year period at the
end of the 1-, 5- or 10-year
period (or fractional portion
thereof), assuming reinvestment
of all dividends and
distributions.
Class A's aggregate total return was as follows
for the periods indicated:
29.53% for the one-year period from October 1, 1996
through September 30, 1997;
134.17% for the five-year period from October 1, 1992
through September 30, 1997;
242.37% for the ten-year period from October 1, 1987
through September 30, 1997.
These aggregate total return figures do not
assume that the maximum 5.00% sales charge has been
deducted from the investment at the time of purchase.
If the maximum sales charge had been deducted at the
time of purchase, the Class A shares aggregate total
return for the same periods would have been 23.05%,
122.46% and 255.25%, respectively.
Class B's aggregate total return was as follows for
the periods indicated:
28.62% for the one-year period beginning on October 1,
1996 through September 30, 1997;
123.34% for the period beginning November 6, 1992
(commencement of operations) through September
30, 1997.
Class B's aggregate total return figures assume that
the maximum applicable CDSC has not been deducted from
the investment at the time of purchase. If the maximum
applicable CDSC had been reflected, Class B's
aggregate total return for the same periods would have
been 23.62% and 122.34%, respectively.
Class C's aggregate total return was as follows for
the period indicated:
28.52% for the one year period from October 1,
1996 through September 30, 1997;
86.87% for the period from August 10, 1993
(commencement of operations) through September
30, 1997.
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, 1997 is incorporated herein by
reference in its entirety.
u:\legal\funds\valu\1998\secdocs\sai98.doc 37
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
is incorporated by reference to the filing of such report pursuant to
Rule 30b2-1 under the Investment Company Act of 1940 as
filed with the Securities and Exchange Commission on December 1,
1997(Accession # 0000091155- 97-000529.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
All references are to the Registrant's registration statement
on Form N-1A as filed with the 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").
(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.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.
(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 filed herein.
(12) Inapplicable.
(13) Inapplicable.
(14) Prototype Self-Employed Retirement Plan is incorporated by
reference to post-effective amendment no. 10 to the Registration Statement
as filed with the SEC on November 29, 1987.
(15) Services and Distribution Plan between the Registrant and
Smith Barney Inc. is incorporated by reference to Post-Effective
Amendment No. 27.
(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 filed herewith.
(18) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post Effective Amendment No. 28.
Item 25. Persons Controlled by or Under Common Control
with Registrant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Title of Class Holders as of January 12, 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")(formerly known
as Smith Barney Shearson Holdings Inc.), which in turn is a
wholly owned subsidiary of Travelers Group Inc. (formerly known as Primerica
Corporation) ("Travelers"). 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 SBA pursuant to
the Advisers Act (SEC File No. 801-8314).
Item 29. Principal Underwriters
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Greenwich Street California Municipal Fund Inc.
Greenwich Street Municipal Fund Inc.
Greenwich Street Series Fund
High Income Opportunity Fund Inc.
The Italy Fund Inc.
Managed High Income Portfolio Inc.
Managed Municipals Portfolio II Inc.
Managed Municipals Portfolio Inc.
Municipal High Income Fund Inc.
Puerto Rico Daily Liquidity Fund Inc.
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 Series Inc.
Smith Barney Disciplined Small Cap Fund, Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Income Trust
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Intermediate Municipal Fund, Inc.
Smith Barney Investment Funds Inc.
Smith Barney Investment Trust
Smith Barney Large Capitalization Growth Fund
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 Fund, Inc.
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 Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Smith Barney Worldwide Special Fund N.V. (Netherlands Antilles)
Travelers Series Fund Inc.
The USA High Yield Fund N.V.
Worldwide Securities Limited (Bermuda)
Zenix Income Fund Inc. and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings.
On June 1, 1994, Smith Barney changed its name from Smith Barney
Shearson Inc. to its current name. The information required by this Item
29 with respect to each director, officer and partner of Smith Barney is
incorporated by reference to Schedule A of FORM BD filed by Smith
Barney pursuant to the Securities Exchange Act of 1934 (SEC File
No. 812-8510).
Item 30. Location of Accounts and Records
(1) With respect to the Registrant, its Distributor,
Investment Adviser and Administrator:
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.
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and State of New York, on the 28th
day of January 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 1/28/98
Heath B. McLendon (Chief Executive Officer)
/s/Lewis E. Daidone Senior Vice President 1/28/98
Lewis E. Daidone and Treasurer
(Chief Financial and
Accounting Officer)
/s/Lloyd J. Andrews* Director 1/28/98
Lloyd J. Andrews
/s/Robert M. Frayn* Director 1/28/98
Robert M. Frayn
/s/Leon P. Gardner* Director 1/28/98
Leon P. Gardner
/s/Howard J. Johnson* Director 1/28/98
Howard J. Johnson
/s/David E. Maryatt* Director 1/28/98
David E. Maryatt
/s/ Frederick O. Paulsell* Director 1/28/98
Frederick O. Paulsell
/s/Jerry A. Viscione* Director 1/28/98
Jerry A. Viscione
/s/Julie W. Weston* Director 1/28/98
Julie W. Weston
* Signed pursuant to power of attorney filed May 26, 1995, as an exhibit
to Post-Effective Amendment No. 27.
CONSENT OF INDEPENDENT AUDITORS
Smith Barney Fundamental Value Fund Inc.
We consent to the use in Post-Effective Amendment No.
30 to Registration Statement No. 2-71469 of our report
dated November 3, 1997, appearing in the Annual Report
to Shareholders for the year ended September 30, 1997,
incorporated by reference in the Statement of
Additional Information, and to the reference to us
under the caption "Financial Highlights" in the
Prospectus, which is also part of such Registration
Statement.
DELOITTE & TOUCHE LLP
New York, New York
January 23, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1,226,870,393
<INVESTMENTS-AT-VALUE> 1,727,060,416
<RECEIVABLES> 38,967,357
<ASSETS-OTHER> 57,492,200
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,823,519,973
<PAYABLE-FOR-SECURITIES> 43,354,706
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,223,518
<TOTAL-LIABILITIES> 106,578,224
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,162,713,703
<SHARES-COMMON-STOCK> 82,300,343
<SHARES-COMMON-PRIOR> 76,009,204
<ACCUMULATED-NII-CURRENT> 9,200,627
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 43,810,999
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 501,216,420
<NET-ASSETS> 1,716,941,749
<DIVIDEND-INCOME> 20,392,600
<INTEREST-INCOME> 13,530,579
<OTHER-INCOME> 0
<EXPENSES-NET> 23,392,340
<NET-INVESTMENT-INCOME> 10,530,839
<REALIZED-GAINS-CURRENT> 45,614,564
<APPREC-INCREASE-CURRENT> 324,560,554
<NET-CHANGE-FROM-OPS> 380,705,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,182,678
<DISTRIBUTIONS-OF-GAINS> 33,667,594
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,327,879
<NUMBER-OF-SHARES-REDEEMED> 14,990,088
<SHARES-REINVESTED> 3,953,348
<NET-CHANGE-IN-ASSETS> 466,002,044
<ACCUMULATED-NII-PRIOR> 13,747,541
<ACCUMULATED-GAINS-PRIOR> 56,562,896
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,151,351
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,392,340
<AVERAGE-NET-ASSETS> 824,066,115
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<PER-SHARE-NII> 00.03
<PER-SHARE-GAIN-APPREC> 02.52
<PER-SHARE-DIVIDEND> 00.06
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<RETURNS-OF-CAPITAL> 0
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<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1,226,870,393
<INVESTMENTS-AT-VALUE> 1,727,060,416
<RECEIVABLES> 38,967,357
<ASSETS-OTHER> 57,492,200
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,823,519,973
<PAYABLE-FOR-SECURITIES> 43,354,706
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,223,518
<TOTAL-LIABILITIES> 106,578,224
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,162,713,703
<SHARES-COMMON-STOCK> 6,358,562
<SHARES-COMMON-PRIOR> 4,811,659
<ACCUMULATED-NII-CURRENT> 9,200,627
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 43,810,999
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 20,392,600
<INTEREST-INCOME> 13,530,579
<OTHER-INCOME> 0
<EXPENSES-NET> 23,392,340
<NET-INVESTMENT-INCOME> 10,530,839
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<APPREC-INCREASE-CURRENT> 324,560,554
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 345,041
<DISTRIBUTIONS-OF-GAINS> 2,162,472
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,633,362
<NUMBER-OF-SHARES-REDEEMED> 1,345,937
<SHARES-REINVESTED> 259,478
<NET-CHANGE-IN-ASSETS> 466,002,044
<ACCUMULATED-NII-PRIOR> 13,747,541
<ACCUMULATED-GAINS-PRIOR> 56,562,896
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,151,351
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<GROSS-EXPENSE> 23,392,340
<AVERAGE-NET-ASSETS> 58,158,235
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<INVESTMENTS-AT-VALUE> 1,727,060,416
<RECEIVABLES> 38,967,357
<ASSETS-OTHER> 57,492,200
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,823,519,973
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</TABLE>
