As filed with the Securities and Exchange Commission on March 1, 1994
Registration
No. 2-74288 811-3275
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. 33 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended X
Amendment No. 35 X
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
(Exact name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 720-9218
Francis J. McNamara, III
Secretary
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on March 1, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on ____________ pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Registrant's Rule 24f-2 Notice for the fiscal year ending
December 31, 1993 was filed on February 28, 1994.
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(b)
Part A.
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Financial Highlights
Information
4. General Description of Cover Page; Prospectus
Registrant Summary; Investment
Objectives and Policies; Additional Information
5. Management of the Company Prospectus Summary; Management of the
Company and the Fund; Distributor; Additional Information
5a. Management's Discussion Not applicable
of Fund Performance
6. Capital Stock and Other Cover Page; Variable
Securities Pricing System; Dividends, Distribution and Taxes;
Additional Information
7. Purchase of Securities Variable Pricing System;
Being Offered Purchase of Shares; Valuation of Shares; Exchange
Privilege
8. Redemption or Repurchase Variable Pricing System; Purchase of
Shares; Valuation of Shares; Redemption of Shares; Exchange Privilege
9. Legal Proceedings Not Applicable
Part B Statement of
Item No. Additional Information Caption
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information See Prospectus
and History "Additional Information"
13. Investment Objectives Investment Objective and
and Policies Management Policies
14. Management of the Fund Management of the Company
15. Control Persons and Management of the Company
Principal Holders
of Securities
16. Investment Advisory Management of the
and Other Services Company; Distributor;
See Prospectus--"Additional Information"
17. Brokerage Allocation Investment Objective and
and Other Management Policies
Practices
18. Capital Stock and Purchase of
Shares ;
Other Securities Taxes; See Prospectus "Additional Information"
19. Purchase, Redemption Purchase of Shares;
and Pricing of Redemption of Shares;
Securities Being Distributor; Valuation of
Offered Shares; Exchange Privilege
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data
Performance Data
23. Financial Statements Financial Statements
PART A
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
PROSPECTUS
SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND
<PAGE>
MARCH 1, 1994
SMITH BARNEY SHEARSON
GOVERNMENT
SECURITIES
FUND PROSPECTUS BEGINS
ON PAGE ONE.
[LOGO] <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND --------------
- ------------------------------------------------------------- PROSPECTUS
March 1, 1994 Two World Trade Center New York, New York 10048 (212) 720-
9218 Smith Barney Shearson Government Securities Fund (the "Fund") has
aninvestment objective of high current return through investments in
U.S.government securities. It may write covered call options and secured put
optionsand purchase put options on U.S. government securities. For hedging
purposes,the Fund may purchase and sell interest rate futures contracts and
put and calloptions thereon. The Fund is one of a number of funds,
each having distinct investmentobjectives and policies, making up Smith Barney
Shearson Investment Funds, Inc.(the "Company"). The Company is an open-end
management investment companycommonly referred to as a mutual fund.
This Prospectus briefly sets forth certain information about the Fund and
theCompany, including sales charges, distribution and service fees and
expenses,that prospective investors will find helpful in making an investment
decision.Investors are encouraged to read this Prospectus carefully and to
retain it forfuture reference. Shares of other funds offered by the Company
are described inseparate Prospectuses that may be obtained by calling the
Company at thetelephone number set forth above or by contacting any Smith
Barney ShearsonFinancial Consultant. The net asset value per share of the Fund
will fluctuatein response to changes in market conditions and other
factors. Additional information about the Fund and the Company is
contained in aStatement of Additional Information dated March 1, 1994, as
amended orsupplemented from time to time, that is available upon request and
withoutcharge by calling or writing the Company at the telephone number or
address setforth above or by contacting any Smith Barney Shearson Financial
Consultant. TheStatement of Additional Information has been filed with the
Securities andExchange Commission (the "SEC") and is incorporated by reference
into thisProspectus in its entirety. SMITH BARNEY SHEARSON
INC.Distributor GREENWICH STREET ADVISORSInvestment Adviser THE
BOSTON COMPANY ADVISORS, INC.Administrator THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES ANDEXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIESAND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THEACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS ACRIMINAL OFFENSE.
1<PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ----------------------
- ----------------------------------------------------- TABLE OF CONTENTS
<TABLE> <S> <C> PROSPECTUS SUMMARY
3 ---------------------------------------------------------------- FINANCIAL
HIGHLIGHTS 9 -------------------------
- ------------------------- VARIABLE PRICING SYSTEM
13 ----------------------------------------------------------- INVESTMENT
OBJECTIVE AND MANAGEMENT POLICIES 14 --------------------------
- -------------------------------------- MANAGEMENT OF THE COMPANY AND THE FUND
24 ---------------------------------------------------------------- PURCHASE
OF SHARES
26 ----------------------------------------------------------------
REDEMPTION OF SHARES 34 ---------------
- ------------------------------------------------- VALUATION OF SHARES 38 -----
- ----------------------------------------------------------- EXCHANGE PRIVILEGE
39 ------------------------------------------------------ DISTRIBUTOR
46 ---------------------------------------------------------------- DIVIDENDS,
DISTRIBUTIONS AND TAXES 47 --------------------------
- -------------------------------------- THE FUND'S PERFORMANCE 50 -------------
- --------------------------------------------------- ADDITIONAL INFORMATION
51 ----------------------------------------------------------------</TABLE>
2<PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND -----------------------
- ---------------------------------------------------- PROSPECTUS SUMMARY THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY DETAILED
INFORMATIONAPPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF
ADDITIONALINFORMATION. CROSS REFERENCES IN THIS SUMMARY ARE TO HEADINGS IN THE
PROSPECTUS.SEE THE "TABLE OF CONTENTS." BENEFITS TO INVESTORS THE FUND OFFERS
INVESTORS SEVERAL IMPORTANT BENEFITS: - Investment liquidity through
convenient purchase and redemption procedures. - A convenient way to invest
without the administrative and recordkeeping burdens normally associated
with the direct ownership of securities. - Different methods for purchasing
shares that allow investment flexibility and a wider range of investment
alternatives. - An automatic dividend reinvestment feature, plus an
exchange privilege within the same class of shares of other funds in the
Company and of most other funds in the Smith Barney Shearson Group of
Funds. INVESTMENT OBJECTIVE The Fund is an open-end diversified management
investmentcompany that seeks high current return by investing in U.S.
governmentsecurities. The Fund may write covered call options and secured put
options andpurchase put options on U.S. government securities. The Fund may
purchase andsell interest rate futures contracts, and purchase and sell put
and call optionson futures contracts, as a means of hedging against changes in
interest rates.See "Investment Objective and Management Policies." VARIABLE
PRICING SYSTEM The Fund offers several classes of shares ("Classes")
toinvestors designed to provide them with the flexibility of selecting
aninvestment best suited to their needs. The general public is offered two
classesof shares, Class A and Class B shares, which differ principally in
terms of thesales charges and rates of expenses to which they are subject. In
addition, athird class -- Class D shares -- is offered only to plans
participating in theSmith Barney Shearson 401(k) Program (the "401(k)
Program"). See "VariablePricing System" and "Purchase of Shares -- Smith
Barney Shearson 401(k)Program." 3 <PAGE>SMITH
BARNEY SHEARSONGOVERNMENT SECURITIES FUND ------------------------------------
- ------------------------- PROSPECTUS SUMMARY (CONTINUED) CLASS A SHARES These
shares are offered at net asset value per share plus amaximum initial sales
charge of 4.50%. The Fund pays an annual service fee of0.25% of the value of
average daily net assets of this Class. See "Purchase ofShares." CLASS B
SHARES These shares are offered at net asset value per share subject toa
maximum contingent deferred sales charge ("CDSC") of 4.50% of
redemptionproceeds, declining by 0.50% after the first year and by 1.00% each
yearthereafter to zero. The Fund pays an annual service fee of 0.25% and an
annualdistribution fee of 0.50% of the value of average daily net assets of
thisClass. See "Purchase of Shares." CLASS B CONVERSION FEATURE Class B
shares will convert automatically to Class Ashares, based on relative net
asset value, approximately eight years after thedate of original purchase.
Upon conversion, these shares will no longer besubject to an annual
distribution fee. The first of these conversions willcommence on or about
September 30, 1994. See "Variable Pricing System -- Class BShares". SMITH
BARNEY SHEARSON 401(K) PROGRAM Investors may be eligible to participate inthe
401(k) Program, which is generally designed to assist employers or
plansponsors 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 othertypes of participant directed, tax qualified employee benefit plans
and employersponsored non-qualified employee benefit plans (collectively,
"ParticipatingPlans"). Class A, Class B and Class D shares are available as
investmentalternatives for Participating Plans. Class A and Class B shares
acquiredthrough the 401(k) Program are subject to the same service and/or
distributionfees as, but different sales charges and CDSC schedules than, the
Class A andClass B shares acquired by other investors. Class D shares acquired
byParticipating Plans are offered at net asset value per share without any
salescharges or CDSC. The Fund pays annual service and distribution fees based
on thevalue of average daily net assets attributable to this Class. See
"Purchase ofShares -- Smith Barney Shearson 401(k) Program." PURCHASE
OF SHARES Shares may be purchased through the Company's distributor,Smith
Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that
clearssecurities transactions through Smith Barney Shearson on 4
<PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ------------------------
- ------------------------------------- PROSPECTUS SUMMARY (CONTINUED) a
fully disclosed basis (an "Introducing Broker"). Direct purchases by
certainretirement plans may be made through The Shareholder Services Group,
Inc.("TSSG"), the Company's transfer agent, a subsidiary of First Data
Corporation("FDC"). Smith Barney Shearson recommends that, in most cases,
singleinvestments of $250,000 or more should be in Class A shares. See
"Purchase ofShares." INVESTMENT MINIMUMS Investors are subject to a
minimum initial investmentrequirement of $1,000 and a minimum subsequent
investment requirement of $200.However, for Individual Retirement Accounts
("IRAs") and Self-EmployedRetirement Plans, the minimum initial investment
requirement is $250 and theminimum subsequent investment requirement is $100
and for certain qualifiedretirement plans, the minimum initial and subsequent
investment requirement is$25. See "Purchase of Shares." SYSTEMATIC INVESTMENT
PLAN The Fund also offers shareholders a SystematicInvestment Plan under which
they may authorize the automatic placement of apurchase order each month or
quarter for Fund shares in an amount not less than$100. See "Purchase of
Shares." REDEMPTION OF SHARES Shares may be redeemed on each day the New
York StockExchange, Inc. ("NYSE") is open for business. Class A and Class D
shares areredeemable at net asset value and Class B shares are redeemable at
net assetvalue less any applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Greenwich Street Advisors Division ("Greenwich
StreetAdvisors") of Mutual Management Corp. ("MMC") serves as the Fund's
investmentadviser. MMC provides investment advisory and management services to
investmentcompanies affiliated with Smith Barney Shearson. MMC is controlled
by SmithBarney Shearson Holdings Inc. ("Holdings"), Holdings is a wholly
ownedsubsidiary of The Travelers Inc. (which was formerly known as
PrimericaCorporation) ("Travelers"), a diversified financial services holding
companyprincipally engaged in the businesses of providing investment, consumer
financeand insurance services. As of December 31, 1993 Greenwich Street
Advisors hadaggregate assets under management in excess of $42.8 billion.
5 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ----------------------
- --------------------------------------- PROSPECTUS SUMMARY (CONTINUED)
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the
Fund'sadministrator. Boston Advisors is a wholly owned subsidiary of The
BostonCompany, Inc. ("TBC"), a financial services holding company which in
turn is anindirect wholly owned subsidiary of Mellon Bank Corporation
("Mellon"). As ofDecember 31, 1993, Boston Advisors provides investment
management, investmentadvisory, and/or administrative services to investment
companies, which hadaggregate assets under management in excess of $86.6
billion. See "Management ofthe Company and the Fund." EXCHANGE
PRIVILEGE Shares of a Class may be exchanged for shares of the sameClass of
most other funds in the Smith Barney Shearson Group of Funds andcertain money
market funds. Certain exchanges may be subject to a sales chargedifferential.
See "Exchange Privilege." VALUATION OF SHARES Net asset value of each
Class is quoted daily in thefinancial section of most newspapers and is also
available from any Smith BarneyShearson Financial Consultant. See "Valuation
of Shares." DIVIDENDS AND DISTRIBUTIONS Dividends from net investment
income are declareddaily and paid on the last business day of the Smith Barney
Shearson statementmonth. Distributions of net realized long-and short-term
capital gains, if any,are declared and paid annually after the end of the
fiscal year in which theyare earned. See "Dividends, Distributions and
Taxes." REINVESTMENT OF DIVIDENDS Dividends and distributions paid on
shares of a Classwill be reinvested automatically unless otherwise specified
by an investor inadditional shares of the same Class at current net asset
value. Shares acquiredby dividend and distribution reinvestments will not be
subject to any salescharge or CDSC. Class B shares acquired through dividend
and distributionreinvestments will become eligible for conversion to Class A
shares on a prorata basis. See "Dividends, Distributions and Taxes" and
"Variable PricingSystem." RISK FACTORS AND SPECIAL CONSIDERATIONS The
Company is designed for long-terminvestors and not for investors who intend to
liquidate their investment after ashort period. Neither the Company as a whole
nor any particular fund in theCompany, including the Fund, constitutes a
balanced investment plan. There canbe no assurance that the Fund will achieve
its 6 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND --------------
- ----------------------------------------------- PROSPECTUS SUMMARY
(CONTINUED) investment objective. The value of the Fund's investments, and
hence the netasset value of Fund shares, will fluctuate in response to changes
in interestrates and market and economic conditions. The Fund may enter into
interest ratefutures contracts and put and call options thereon for hedging
purposes, whichmay be subject to certain risks in addition to those inherent
in investments inthe underlying securities. The Fund may also employ other
investment techniqueswhich involve certain other risks, including entering
into repurchase agreementsand lending portfolio securities. See "Investment
Objective and ManagementPolicies -- Additional Investments." THE FUND'S
EXPENSES The following expense table lists the costs and expensesthat an
investor will incur either directly or indirectly as a shareholder ofthe Fund
based on the maximum sales charge or maximum CDSC that may be incurredat the
time of purchase or redemption and an estimate of the Fund's currentoperating
expenses: <TABLE><CAPTION> CLASS A CLASS B CLASS D <S> <C> <C>
<C> --------------------------------------------------------------------------
- ----------- SHAREHOLDER TRANSACTION EXPENSES Maximum sales charges imposed
on purchases (as a percentage of offering price)
4.50% -- -- Maximum CDSC (as a percentage of redemption
proceeds) -- 4.50% -- ------------------------------------------
- ------------------------------------------- ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets) Management fees
0.55% 0.55% 0.55% 12b-1 fees* 0.25 0.75 0.75
Other expenses** 0.12 0.10
0.10 -------------------------------------------------------------------------
- ------------ TOTAL FUND OPERATING EXPENSES
0.92% 1.40% 1.40% --------------------------------------------------
- ----------------------------------- <FN> *Upon conversion of Class B shares
to Class A shares, such shares will no longer be subject to a distribution
fee. Class D shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee. **All expenses are based on data for
the Fund's fiscal year ended December 31, 1993.</TABLE> The sales charge and
CDSC set forth in the above table are the maximum chargesimposed upon
purchases or redemptions of Fund shares and investors may payactual charges
less than 4.50%, depending on the amount purchased and, in thecase of Class B
shares, the length of time the shares are held and whether theshares are held
through the 401(k) Program. See 7 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ PROSPECTUS SUMMARY (CONTINUED) "Purchase of Shares" and
"Redemption of Shares." Management fees payable by theFund include investment
advisory fees paid to Smith Barney Shearson on behalf ofGreenwich Street
Advisors at the maximum annual rate of 0.35% of the value ofthe Fund's average
daily net assets and administration fees paid to BostonAdvisors at the annual
rate of 0.20% of the value of the Fund's average dailynet assets. The nature
of the services for which the Fund pays management feesis described under
"Management of the Company and the Fund." Smith BarneyShearson receives an
annual Rule 12b-1 service fee of 0.25% of the value ofaverage daily net assets
of Class A shares. Smith Barney Shearson also receiveswith respect to Class B
and Class D shares an annual Rule 12b-1 fee of 0.75% ofthe value of the
average daily net assets of Class B shares and Class D shares,respectively,
consisting of a 0.50% distribution fee and a 0.25% service fee."Other
expenses" in the above table include fees for shareholder services,custodial
fees, legal and accounting fees, printing costs and registration fees.
EXAMPLE The following example demonstrates the projected dollar amount of
totalcumulative expenses that would be incurred over various periods with
respect toa hypothetical $1,000 investment in the Fund assuming a 5.00% annual
totalreturn. THE EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES AT
THELEVELS SET FORTH IN THE ABOVE TABLE. THE EXAMPLE SHOULD NOT BE CONSIDERED
AREPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
ORLESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5.00%
ANNUALRETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUALRETURN GREATER OR LESS THAN 5.00%. <TABLE><CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS* <S> <C>
<C> <C> <C> ------------------------------------------------------
- -------------------------- Class A shares** $ 54
$ 73 $ 94 $ 153 Class B shares: Assumes complete redemption at
end of each time period*** $ 59 $ 74 $ 87 $
155 Assumes no redemption $ 14 $ 44 $ 77 $
155 Class D shares $ 14 $ 44 $ 77 $
168 --------------------------------------------------------------------------
- ------ <FN> *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.
**Assumes deduction at the time of purchase of the maximum 4.50% sales charge.
***Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.</TABLE> 8 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT
SECURITIES FUND --------------------------------------------------------------
- ------ FINANCIAL HIGHLIGHTS THE FOLLOWING INFORMATION HAS BEEN AUDITED BY
COOPERS & LYBRAND, INDEPENDENTACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE
FUND'S ANNUAL REPORT DATEDDECEMBER 31, 1993. THIS INFORMATION SHOULD BE READ
IN CONJUNCTION WITH THEFINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR
IN THE FUND'S ANNUALREPORT DATED DECEMBER 31, 1993, WHICH IS INCORPORATED BY
REFERENCE INTO THESTATEMENT OF ADDITIONAL INFORMATION. FOR A CLASS A
SHARE OUTSTANDING THROUGHOUT EACH PERIOD. <TABLE><CAPTION>
YEAR PERIOD
ENDED ENDED
12/31/93+++ 12/31/92*<S>
<C> <C>Net Asset Value, beginning of period
$ 9.69 $ 9.56-------------------------------------------------------
- ------------------------------Income from investment operations:Net investment
income# 0.81
0.10Net realized and unrealized gain on investments
0.23 0.13---------------------------------------------------------
- ----------------------------Total from investment operations
1.04 0.23Distributions to shareholders:Distributions from net
investment income (0.72)
(0.08)Distributions from capital -
- - (0.02)---------------------------------------------------------
- ----------------------------Total distributions
(0.72) (0.10)-------------------------------------------------------
- ------------------------------Net Asset Value, end of period
$10.01 $ 9.69-------------------------------------------------------
- ------------------------------Total return+
10.87% 2.41%-------------------------------------------------------
- ------------------------------Ratios to average net assets/supplemental
data:Net assets, end of period (in 000's)
$7,067 $ 275Ratio of operating expenses to average net assets++
0.92% 0.68%**Ratio of net investment income to average net assets
7.76% 6.24%**Portfolio turnover rate
540% 426%---------------------------------------------------------
- ----------------------------<FN> *The Fund commenced selling Class A shares on
November 6, 1992. **Annualized. +Total return represents aggregate total
return for the period indicated and does not reflect any applicable sales
charges. ++The annualized operating expense ratios exclude interest expense.
The ratios including interest expense for the year ended December 31, 1993
and the period ended December 31, 1992 were 1.07% and 1.01%, respectively.
Annualized expense ratio before voluntary waiver of fees by investment
adviser (including interest expense) for the year ended December 31, 1993 was
1.12%. +++Per share amounts have been calculated using the monthly average
share method. #Net investment income before voluntary waiver of fees by
investment adviser for the year ended December 31, 1993 was $0.71.</TABLE>
9 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ----------------------
- --------------------------------------- FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR. <TABLE><CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/93+++ 12/31/92 12/31/91<S>
<C> <C> <C>Net Asset Value, beginning of year
$ 9.68 $ 9.81 $ 9.11---------------------------------------
- ----------------------------------------------Income from investment
operations:Net investment income# 0.73
0.53 0.70Net realized and unrealized gain/(loss) on investments
0.27 (0.02) 0.71-------------------------------------------
- ------------------------------------------Total from investment operations
1.00 0.51 1.41Distributions to shareholders:Distributions
from net investment income (0.67) (0.53)
(0.63)Distributions in excess of net investment income and net realized gain
- -- -- --Distributions from net realized gains
- -- -- --Distributions from capital
- -- (0.11) (0.08)-----------------------------------------
- --------------------------------------------Total distributions
(0.67) (0.64) (0.71)-----------------------------------------
- --------------------------------------------Net Asset Value, end of year
$ 10.01 $ 9.68 $ 9.81---------------------------------------
- ----------------------------------------------Total return+
10.45% 5.45% 16.28%-----------------------------------------
- --------------------------------------------Ratios to average net
assets/supplemental data:Net assets, end of year (in 000's)
$851,350 $1,046,921 $1,285,937Ratio of operating expenses to
average net assets++ 1.40% 1.45% 1.40%Ratio of
net investment income to average net assets 7.28% 5.47%
6.80%Portfolio turnover rate 540%
426% 326%-----------------------------------------------------------
- --------------------------<FN> *The Fund commenced operations on March 20,
1984. On November 6, 1992, the Fund commenced selling Class A shares. Those
shares in existence prior to November 6, 1992 were designated Class B shares.
**Annualized. +Total return represents aggregate total return for the period
indicated and does not reflect any applicable sales charges. ++The
annualized operating expense ratios exclude interest expense. The ratios
including interest expense for the years ended December 31, 1993 and 1992
were 1.55% and 1.71%, respectively. Annualized expense ratios before
voluntary waiver of fees by the investment adviser and/or distributor
(including interest expense) for the years ended December 31, 1993, 1989 and
1988 were 1.61%, 1.52% and 1.53%, respectively. +++Per share amounts have
been calculated using the monthly average share method. @Not covered by
Coopers & Lybrand's report. #Net investment income before voluntary waiver of
fees by investment adviser and/or distributor for the years ended December
31, 1993, 1989 and 1988 were $0.72, $0.69 and $0.74, respectively.</TABLE> 10
<PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ------------------------
- -------------------------------------------- <TABLE><CAPTION> YEAR
YEAR YEAR YEAR YEAR YEAR
PERIOD ENDED ENDED ENDED ENDED
ENDED ENDED ENDED 12/31/90 12/31/89
12/31/88@ 12/31/87@ 12/31/86@ 12/31/85@
12/31/84*@ <S> <C> <C> <C>
<C> <C> <C> $ 9.25 $ 8.75
$ 8.90 $ 10.41 $ 10.20 $ 10.01 $
10.00 --------------------------------------------------------------------
- -------------- 0.68 0.70 0.75
0.51 0.84 0.90 0.78 (0.08)
0.53 (0.16) (1.06) 0.50
0.77 (0.17) ---------------------------------------------------
- ------------------------------- 0.60 1.23
0.59 (0.55) 1.34 1.67 0.61
(0.68) (0.70) (0.74) (0.51)
(0.84) (1.18) (0.50) -- --
- -- (0.05) -- -- --
- -- -- -- (0.40)
(0.29) (0.30) (0.10) (0.06) (0.03)
- -- -- -- -- --
- ------------------------------------------------------------------------------
- ---- (0.74) (0.73) (0.74)
(0.96) (1.13) (1.48) (0.60) ----------------
- ------------------------------------------------------------------ $
9.11 $ 9.25 $ 8.75 $ 8.90 $
10.41 $ 10.20 $ 10.01 ----------------------------------
- ------------------------------------------------ 6.99%
14.58% 6.75% (5.27)% 13.62%
18.30% 6.50% --------------------------------------------------
- -------------------------------- $1,521,016 $2,001,740
$2,735,974 $4,383,816 $6,072,390 $3,053,758 $
777,176 1.43% 1.40% 1.34%
1.64% 1.56% 1.67% 2.21%** 7.60%
7.79% 8.00% 6.44% 6.20%
8.60% 10.55%** 274% 352% 281%
249% 353% 457% -- -----------------------
- -----------------------------------------------------------</TABLE>
11 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ----------------------------------------------- FINANCIAL HIGHLIGHTS
(CONTINUED) (CONTINUED) FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE
PERIOD <TABLE><CAPTION>
PERIOD
ENDED
12/31/93*+++<S>
<C>Net Asset Value, beginning of period $
9.90--------------------------------------------------------------------------
- ------Income from investment operations:Net investment income#
0.68Net realized and unrealized gain on investments
.04---------------------------------------------------------------------------
- -----Total from investment operations
0.72Distributions to shareholders:Distributions from net investment income
(0.61)------------------------------------------------------------------------
- --------Net Asset Value, end of period $
10.01-------------------------------------------------------------------------
- -------Total return+
7.36%-------------------------------------------------------------------------
- -------Ratios to average net assets/supplemental data:Net assets, end of
period (in 000's) $ 213Ratio of operating
expenses to average net assets++ 1.40%**Ratio of net
investment income to average net assets 7.28%**Portfolio
turnover rate 540%-----------
- ---------------------------------------------------------------------<FN>
*The Fund commenced selling Class D shares on February 4, 1993. **Annualized.
+Total return represents aggregate total return for the period indicated.
++The annualized operating expense ratio excludes interest expense. The ratio
including interest expense for the period ended December 31, 1993 was 1.55%.
Annualized expense ratio before voluntary waiver of fees by the investment
adviser (including interest expense) for the period ended December 31, 1993
was 1.61%. +++Per share amounts have been calculated using the monthly average
share method. #Net investment income before voluntary waiver of fees by
the investment adviser for the period ended December 31, 1993 was
$0.55.</TABLE> 12 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ------
- --------------------------------------- VARIABLE PRICING SYSTEM The
Smith Barney Shearson Group of Funds offers individual investors twomethods of
purchasing shares, Class A shares and Class B shares, thus enablinginvestors
to choose the Class that best suits their needs, given the amount ofpurchase
and intended length of investment. A third class -- Class D -- isoffered only
to Participating Plans. CLASS A SHARES. Class A shares are sold at
net asset value per share plus amaximum initial sales charge of 4.50% imposed
at the time of purchase. Theinitial sales charge may be reduced or waived for
certain purchases. Class Ashares are subject to an annual service fee of 0.25%
of the value of the Fund'saverage daily net assets attributable to the Class.
The annual service fee isused by Smith Barney Shearson to compensate its
Financial Consultants forongoing services provided to shareholders. The sales
charge is used tocompensate Smith Barney Shearson for expenses incurred in
selling Class Ashares. See "Purchase of Shares." CLASS B SHARES.
Class B shares are sold at net asset value per share subjectto a maximum 4.50%
CDSC, which is assessed only if the shareholder redeemsshares within the first
five years of investment. This results in 100% of theinvestor's assets being
used to acquire shares of the Fund. After the first yearafter the purchase of
shares, the CDSC declines to 4.00%. For each of the nextfour years thereafter,
the applicable CDSC declines by 1.00%; in year six, theapplicable CDSC is
reduced to 0%. See "Purchase of Shares" and "Redemption ofShares."
Class B shares are subject to an annual service fee of 0.25% and an
annualdistribution fee of 0.50% of the value of the Fund's average daily net
assetsattributable to the Class. Like the service fee applicable to Class A
shares,the Class B service fee is used to compensate Smith Barney Shearson
FinancialConsultants for ongoing services provided to shareholders.
Additionally, thedistribution fee paid with respect to Class B shares
compensates Smith BarneyShearson for expenses incurred in selling those
shares, including expenses suchas sales commissions, Smith Barney Shearson's
branch office overhead expensesand marketing costs associated with Class B
shares, such as preparation of salesliterature, advertising and printing and
distributing prospectuses, statementsof additional information and other
13<PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ----------------------
- ----------------------------------------------------- VARIABLE PRICING SYSTEM
(CONTINUED) materials to prospective investors in Class B shares. A Smith
Barney ShearsonFinancial Consultant may receive different levels of
compensation for sellingdifferent Classes. Class B shares are subject to a
distribution fee and aresubject to higher transfer agency fees than Class A
shares which generally willcause Class B shares to have a higher expense ratio
and pay lower dividends thanClass A shares. Eight years after the
date of purchase, Class B shares will convertautomatically to Class A shares,
based on the relative net asset values ofshares of each Class, and will no
longer be subject to a distribution fee. Inaddition, a certain portion of
Class B shares that have been acquired throughthe reinvestment of dividends
and distributions ("Class B Dividend Shares") willbe converted at that time.
That portion will be a percentage of the total numberof outstanding Class B
Dividend Shares, which percentage will be determined bythe ratio of the total
number of Class B shares converting at the time to thetotal number of
outstanding Class B shares (other than Class B Dividend Shares).The first of
these conversions will commence on or about September 30, 1994. Theconversion
of Class B shares into Class A shares is subject to the continuingavailability
of an opinion of counsel or an Internal Revenue Service ruling tothe effect
that such conversions will not constitute taxable events for federaltax
purposes. CLASS D SHARES. Class D shares of the Fund are sold to
Participating Plans atnet asset value per share and are not subject to an
initial sales charge orCDSC. This Class of shares is subject to an annual
service fee of 0.25% and anannual distribution fee of 0.50% of the value of
the Fund's average daily netassets attributable to the Class. The distribution
fee is used by Smith BarneyShearson for expenses incurred in selling Class D
shares, and the service fee isused to compensate Smith Barney Shearson
Financial Consultants for ongoingservices provided to Class D shareholders.
Class D shares are subject to adistribution fee which will cause Class D
shares to have a higher expense ratioand to pay lower dividends than Class A
shares. ------------------------------------------------------------------
- -- INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES Set forth below is a
description of the investment objective and policies ofthe Fund. There can be
no assurance that the Fund will achieve its 14 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
investment objective. Certain instruments and techniques discussed in
thissummary are described in greater detail in this Prospectus under
"AdditionalInvestments" and in the Statement of Additional Information. The
Statement of Additional Information contains specific investmentrestrictions
which govern the Fund's investments. These restrictions and theFund's
investment objective are fundamental policies, which means that they maynot be
changed without a majority vote of shareholders of the Fund. Except forthe
objective and those restrictions specifically identified as fundamental,
allinvestment policies and practices described in this Prospectus and in
theStatement of Additional Information are non-fundamental, so that the Board
ofDirectors may change them without shareholder approval. The
fundamentalrestrictions applicable to the Fund include a prohibition on (a)
purchasing asecurity if, as a result, more than 5% of the assets of the Fund
would beinvested in the securities of the issuer (with certain exceptions) or
the Fundwould own more than 10% of the outstanding voting securities of the
issuer, (b)investing more than 10% of the Fund's total assets in "illiquid"
securities(which includes repurchase agreements with more than seven days to
maturity),and (c) investing more than 25% of the Fund's total assets in the
securities ofissuers in a particular industry (with exceptions for U.S.
government securitiesand certain money market instruments). The Fund has
an investment objective of high current return. The Fund seeks toachieve its
objective by investing primarily U.S. government securities. U.S.government
securities are obligations of, or are guaranteed by, the U.S.government, its
agencies or instrumentalities. These include bills, certificatesof
indebtedness, and notes and bonds issued by the U.S. Treasury or by agenciesor
instrumentalities of the U.S. government. Some U.S. government securities,such
as Treasury bills and bonds, are supported by the full faith and credit ofthe
U.S. Treasury; others are supported by the right of the issuer to borrowfrom
the U.S. Treasury; others, such as those of the Federal National
MortgageAssociation, are supported by the discretionary authority of the U.S.
governmentto purchase the agency's obligations; still others, such as those of
the StudentLoan Marketing Association and the Federal Home Loan Mortgage
Corporation("FHLMC") are supported only by the credit of the instrumentality.
Mortgageparticipation certificates issued by the FHLMC generally represent
ownershipinterest in a pool of
15 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED) fixed-rate conventional mortgages. Timely payment of
principal and interest onthese certificates is guaranteed solely by the issuer
of the certificates. Otherinvestments of the Fund will include Government
National Mortgage AssociationCertificates ("GNMA Certificates") which are
mortgage-backed securitiesrepresenting part ownership of a pool of mortgage
loans on which timely paymentof interest and principal is guaranteed by the
full faith and credit of the U.S.government. While the U.S. government
guarantees the payment of principal andinterest on GNMA Certificates, the
market value of the securities is notguaranteed and will fluctuate. The Fund
may write covered call options, securedput options and purchase put options on
U.S. government securities. The Fundalso purchases and sells interest rate
futures contracts, and purchases andsells put and call options on futures
contracts, as a means of hedging againstchanges in interest rates. The Fund
may invest up to 5% of its net assets in U.S. government securitiesfor which
the principal repayment at maturity, while paid in U.S. dollars, isdetermined
by reference to the exchange rate between the U.S. dollar and thecurrency of
one or more foreign countries ("Exchange Rate-Related Securities").The
interest payable on these securities is denominated in U.S. dollars, is
notsubject to foreign currency risk and, in most cases, is paid at rates
higherthan most other U.S. government securities in recognition of the
foreigncurrency risk component of Exchange Rate-Related Securities. The Fund
may borrow money (up to 25% of its total assets) to increase itsinvestments,
thereby leveraging its portfolio and exaggerating the effect on netasset value
of any increase or decrease in the market value of the Fund'ssecurities. See
"Leverage through Borrowing." The Fund may enter into repurchaseagreements,
reverse repurchase agreements and firm commitment agreements and"short sales
against the box" and may lend its portfolio securities. The totalof the Fund's
direct borrowing and borrowings in connection with entering intoreverse
repurchase agreements will not exceed one-third of the Fund's totalassets.
Except when in a temporary defensive investment position, the Fundintends to
maintain at least 65% of its assets invested in U.S. governmentsecurities
(including futures contracts and options thereon and options relatingto U.S.
government securities). 16 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES
FUND ------------------------------------------------------------- INVESTMENT
OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED) The Fund's distributions may
consist of interest income from U.S. governmentsecurities, premiums from
expired put and call options written by the Fund, netgains from closing
purchase and sale transactions in options, futures contractsor related
options, and net gains from sales of portfolio securities pursuant tooptions
or otherwise. The investments of the Fund involve certain special risksset
forth in the description of those techniques in this Prospectus and in
theStatement of Additional Information. The value of securities in which the
Fund invests (and therefore the Fund'snet asset value per share) generally
will vary inversely with changes ininterest rates and also will fluctuate in
response to other factors. In making purchases of securities consistent with
the above policies, the Fundwill be subject to the applicable restrictions
referred to under "InvestmentRestrictions" in the Statement of Additional
Information. ADDITIONAL INVESTMENTS REPURCHASE AGREEMENTS. The Fund may
enter into repurchase agreementtransactions on U.S. government securities with
certain member banks of theFederal Reserve System having assets in excess of
$100 million and with certaindealers 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 anunderlying debt obligation for a relatively short
period (usually not more thanone week) subject to an obligation of the seller
to repurchase, and the Fund toresell, the obligation at an agreed-upon price
and time, thereby determining theyield during the Fund's holding period. This
arrangement results in a fixed rateof return that is not subject to market
fluctuations during the Fund's holdingperiod. The value of the underlying
securities will be at least equal at alltimes to the total amount of the
repurchase obligation, including interest. TheFund bears a risk of loss in the
event that the other party to a repurchaseagreement defaults on its
obligations and the Fund is delayed or prevented fromexercising its rights to
dispose of the collateral securities, including therisk of a possible decline
in the value of the underlying securities during theperiod while the Fund
seeks to assert these rights to them, the risk ofincurring expenses associated
with asserting those rights and the risk of losingall or part of the income
from
17 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED) the agreement. The Fund's investment adviser and
administrator, acting under thesupervision of the Board of Directors, reviews
on an ongoing basis thecreditworthiness and the value of the collateral of
those banks and dealers withwhich the Fund enters into repurchase agreements
to evaluate potential risks. REVERSE REPURCHASE AGREEMENTS. A reverse
repurchase agreement involves thesale of a money market instrument by the Fund
and its agreement to repurchasethe instrument at a specified time and price.
The Fund will maintain asegregated account consisting of U.S. government
securities or cash or cashequivalents to cover its obligations under reverse
repurchase agreements withbroker-dealers (but not banks). The Fund will invest
the proceeds in other moneymarket instruments or repurchase agreements
maturing not later than theexpiration of the reverse repurchase agreement.
Under the Investment Company Actof 1940, as amended (the "1940 Act"), reverse
repurchase agreements may beconsidered borrowings by the seller; accordingly,
the Fund will limit itsinvestments in reverse repurchase agreements and other
borrowings to no morethan one-third of its total assets. FIRM COMMITMENT
AGREEMENTS AND WHEN-ISSUED PURCHASES. Firm commitmentagreements and when-
issued purchases call for the purchase of securities at anagreed-upon price on
a specified future date, and would be used, for example,when a decline in the
yield of securities of a given issuer is anticipated. TheFund as purchaser
assumes the risk of any decline in value of the securitybeginning on the date
of the agreement or purchase. The Fund will not use suchtransactions for
leveraging purposes, and accordingly will segregate U.S.government securities,
cash or cash equivalents in an amount sufficient to meetits purchase
obligations under the agreement. LOANS OF PORTFOLIO SECURITIES. The Fund may
lend its portfolio securitiesprovided (a) the loan is secured continuously by
collateral consisting of U.S.government securities or cash or cash equivalents
maintained on a dailymarked-to-market basis in an amount at least equal to the
current market valueof the securities loaned; (b) the Fund may at any time
call the loan and obtainthe return of the securities loaned; (c) the Fund will
receive any 18 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------
- ---------------------------------------------------- INVESTMENT OBJECTIVE AND
MANAGEMENT POLICIES (CONTINUED) interest or dividends paid on the loaned
securities; and (d) the aggregatemarket value of securities loaned will not at
any time exceed one-third of thetotal assets of the Fund. SHORT SALES. The
Fund may sell securities "short against the box." While ashort sale is the
sale of a security the Fund does not own, it is "against thebox" if at all
times when the short position is open, the Fund owns an equalamount of the
securities or securities convertible into, or exchangeable withoutfurther
consideration for, securities of the same issue as the securities soldshort.
Short sales "against the box" are used to defer recognition of capitalgains or
losses. OPTIONS ACTIVITIES. The Fund may write (I.E., sell) call options
("calls") ifthe calls are "covered" throughout the life of the option. A call
is "covered"if the Fund owns the optioned securities, if the Fund maintains in
a segregatedaccount with the Company's custodian cash or cash equivalents or
U.S. governmentsecurities with a value sufficient to meet its obligations
under the call, or ifthe Fund owns an offsetting call option. When the Fund
writes a call, itreceives a premium and gives the purchaser the right to buy
the underlyingsecurity at any time during the call period (usually not more
than nine monthsin the case of common stock or fifteen months in the case of
U.S. governmentsecurities) at a fixed exercise price regardless of market
price changes duringthe call period. If the call is exercised, the Fund
foregoes any gain from anincrease in the market price of the underlying
security over the exercise price.The Fund may purchase call options on
securities. However, the Fund may onlypurchase a call on securities to effect
a "closing purchase transaction," whichis the purchase of a call covering the
same underlying security and having thesame exercise price and expiration date
as a call previously written by the Fundon which it wishes to terminate its
obligation. The Fund also may write and purchase put options ("puts").
When the Fundwrites a put, it receives a premium and gives the purchaser of
the put the rightto sell the underlying security to the Fund at the exercise
price at any timeduring the option period. When the Fund purchases a put, it
pays a premium inreturn for the right to sell the underlying security at the
exercise price atany time during the option period. If any put is not
19 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED) exercised or sold, it will become worthless on its
expiration date. The Fundwill not purchase puts on securities if more than 10%
of its net assets would beinvested in premiums on puts. The Fund may write
puts on securities only if they are "secured." A put is"secured" if the Fund
maintains cash, cash equivalents or U.S. governmentsecurities with a value
equal to the exercise price in a segregated account orholds a put on the same
underlying security at an equal or greater exerciseprice. The aggregate value
of the obligations underlying puts written by theFund will not exceed 50% of
its net assets. The Fund also writes "straddles",which are combinations of
secured puts and covered calls on the same underlyingsecurity. The Fund will
realize a gain (or loss) on a closing purchase transaction withrespect to a
call or put previously written by the Fund if the premium, pluscommission
costs, paid to purchase the call or put is less (or greater) than thepremium,
less commission costs, received on the sale of the call or put. A gainalso
will be realized if a call or put which the Fund has written
lapsesunexercised, because the Fund would retain the premium. See
"Dividends,Distributions and Taxes." There can be no assurance that a liquid
secondary market will exist at a giventime for any particular option. In this
regard, trading in options on U.S.government securities is relatively new, so
that it is impossible to predict towhat extent liquid markets will develop or
continue. See below for a discussionof the purchase by the Fund of options on
futures contracts. See the Statementof Additional Information for a further
discussion of risks involved in optionstrading, and particular risks
applicable to options trading on U.S. governmentsecurities, including risks
involved in options trading on GNMA Certificates. INTEREST RATE FUTURES
CONTRACTS. The Fund may purchase and sell interest ratefutures contracts
("futures contracts"), as a hedge against changes in interestrates. A futures
contract is an agreement between two parties to buy and sell asecurity for a
set price on a future date. Futures contracts are traded ondesignated
"contracts markets" which, through their clearing 20 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
corporations, guarantee performance of the contracts. Currently, there
arefutures contracts based on securities such as long-term U.S. Treasury
bonds,U.S. Treasury notes, GNMA Certificates and three-month U.S. Treasury
bills. Generally, if market interest rates increase, the value of
outstanding debtsecurities declines (and vice versa). Entering into a futures
contract for thesale of securities has an effect similar to the actual sale of
securities,although the sale of the futures contract might be accomplished
more easily andquickly. For example, if the Fund holds long-term U.S.
government securities andthe investment adviser anticipates a rise in long-
term interest rates, it could,in lieu of disposing of its portfolio
securities, enter into futures contractsfor the sale of similar long-term
securities. If interest rates increased andthe value of the Fund's securities
declined, the value of the Fund's futurescontracts would increase, thereby
protecting the Fund by preventing the netasset value from declining as much as
it otherwise would have. Similarly,entering into futures contracts for the
purchase of securities has an effectsimilar to actual purchase of the
underlying securities, but permits thecontinued holding of securities other
than the underlying securities. Forexample, if the investment adviser expects
long-term interest rates to decline,the Fund might enter into futures
contracts for the purchase of long-termsecurities, so that it could gain rapid
market exposure that may offsetanticipated increases in the cost of securities
it intends to purchase, whilecontinuing to hold higher-yielding short-term
securities or waiting for thelong-term market to stabilize. The Fund also
may purchase and sell listed put and call options on futurescontracts. An
option on a futures contract gives the purchaser the right, inreturn for the
premium paid, to assume a position in a futures contract (a longposition if
the option is a call and a short position if the option is a put),at a
specified exercise price at any time during the option period. When anoption
on a futures contract is exercised, delivery of the futures position
isaccompanied by cash representing the difference between the current market
priceof the futures contract and the exercise price of the option. The Fund
maypurchase put options on interest rate futures contracts in lieu of, and for
thesame purpose as, sale of a futures contract. It also may purchase such
putoptions in order to hedge a long position in the underlying futures
contract inthe same manner as it purchases "protective puts" on securities.
The purchase ofcall options on interest rate
21 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED) futures contracts is intended to serve the same purpose
as the actual purchaseof the futures contract, and the Fund will set aside
cash or cash equivalentssufficient to purchase the amount of portfolio
securities represented by theunderlying futures contracts. See "Options
Activities" and "Dividends,Distributions and Taxes." The Fund may not
purchase futures contracts or related options if, immediatelythereafter, more
than 30% of the Fund's total assets would be so invested. Inpurchasing and
selling futures contracts and related options, the Fund willcomply with rules
and interpretations of the Commodity Futures TradingCommission ("CFTC"), under
which the Company is excluded from regulation as a"commodity pool." CFTC
regulations permit use of commodity futures and optionsfor bona fide hedging
purposes without limitations on the amount of assetscommitted to margin and
option premiums. The Fund will not engage in transactions involving futures
contracts orrelated options for speculation but only as a hedge against
changes in themarket values of debt securities held, or intended to be
purchased, by the Fundand where the transactions are appropriate to reduction
of the Fund's risks. TheFund's futures transactions will be entered into for
traditional hedgingpurposes -- that is, futures contracts will be sold (or
related put optionspurchased) to protect against a decline in the price of
securities that the Fundowns, or futures contracts (or related call options)
will be purchased toprotect the Fund against an increase in the price of
securities it is committedto purchase. There is no assurance that the Fund
will be able to close out its futurespositions at any time, in which case it
would be required to maintain the margindeposits on the contract. There can be
no assurance that hedging transactionswill be successful, as there may be an
imperfect correlation (or no correlation)between movements in the prices of
the futures contracts and of the debtsecurities being hedged, or price
distortions due to market conditions in thefutures markets. Where futures
contracts are purchased to hedge against anincrease in the price of long-term
securities, but the long-term market declinesand the Fund does not invest in
long-term securities, the Fund would realize aloss on the futures contracts,
which would not be offset by a reduction in theprice of securities purchased.
Where futures 22 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND -------
- ------------------------------------------------------ INVESTMENT OBJECTIVE
AND MANAGEMENT POLICIES (CONTINUED) contracts are sold to hedge against a
decline in the price of the Fund's long-term securities but the long-term
market advances, the Fund would lose part orall of the benefit of the advance
due to offsetting losses in its futurespositions. FOREIGN CURRENCY RISKS.
The Fund has the ability to invest up to 5% of its netassets in U.S.
government securities where the principal repayment amount may beincreased or
decreased due to fluctuations of foreign currency exchange rates. LEVERAGE
THROUGH BORROWING. The Fund may borrow up to 25% of the value of itsnet assets
on an unsecured basis from banks to increase its holdings ofportfolio
securities or to acquire securities to be placed in a segregatedaccount with
the custodian for various purposes (e.g. to secure puts written bythe Fund).
The Fund is required to maintain continuous asset coverage of 300%with respect
to such borrowings, and to sell (within three days) sufficientportfolio
holdings to restore such coverage, if it should decline to less than300% due
to market fluctuations or otherwise, even if disadvantageous from aninvestment
standpoint. Leveraging will exaggerate the effect of any increase ordecrease
in the value of portfolio securities on the Fund's net asset value, andmoney
borrowed will be subject to interest costs (which may include commitmentfees
and/or the cost of maintaining minimum average balances) which may or maynot
exceed the interest and option premiums received from the securitiespurchased
with borrowed funds. AMERICAN DEPOSITARY RECEIPTS. The Fund may purchase
foreign securities andAmerican Depositary Receipts ("ADRs"), which are dollar-
denominated receiptsissued generally by domestic banks and representing the
deposit with the bank ofa security of a foreign issuer. ADRs are publicly
traded on exchanges orover-the-counter in the United States. PORTFOLIO
TRANSACTIONS AND TURNOVER Greenwich Street Advisors arranges for the
purchase and sale of the Fund'ssecurities and selects broker-dealers which, in
its best judgment, provideprompt and reliable execution at favorable prices
and reasonable commissionrates. Greenwich Street Advisors may select broker-
dealers
23 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED) which provide it with research services and may cause
the Fund to pay suchbroker-dealers commissions which exceed those other
broker-dealers may havecharged, if it views the commissions as reasonable in
relation to the value ofthe brokerage and/or research services. Smith Barney
Shearson and its affiliatesmay serve as a regular broker for the Fund in
effecting portfolio transactionson a national securities or commodities
exchange, and may retain commissions, inaccordance with certain regulations of
the SEC. For reporting purposes, the Fund's portfolio turnover rate
is calculated bydividing the lesser of purchases or sales of portfolio
securities for the fiscalyear by the monthly average of the value of the
Fund's securities, with moneymarket instruments with less than one year to
maturity excluded. A 100%portfolio turnover rate would occur, for example, if
all included securitieswere replaced once during the year. The Fund's
portfolio turnover rates for eachof the past fiscal years are set forth under
"Financial Highlights." Increased portfolio turnover may result in
greater brokerage commissions andin realization of net short-term capital
gains which, when distributed, aretaxed to shareholders (other than retirement
plans) at ordinary income taxrates. ------------------------------------------
- -------------------------- MANAGEMENT OF THE COMPANY AND THE FUND BOARD OF
DIRECTORS Overall responsibility for management and supervision of the
Company restswith the Company's Board of Directors. The Directors approve all
significantagreements between the Company and companies that furnish services
to theCompany and the Fund, including agreements with its distributor,
investmentadviser, administrator, custodian and transfer agent. The day-to-day
operationsof the Fund are delegated to the Fund's investment adviser and
administrator.The Statement of Additional Information contains general and
backgroundinformation regarding each Director and executive officer of the
Company. 24 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND --------
- ----------------------------------------------------- MANAGEMENT OF THE
COMPANY AND THE FUND (CONTINUED) INVESTMENT ADVISER -- GREENWICH STREET
ADVISORS Greenwich Street Advisors, located at Two World Trade
Center, New York, NewYork 10048, serves as the Fund's investment adviser.
Greenwich Street Advisors(through its predecessors has been in the investment
counseling business since1934 and is a division of MMC, which was incorporated
in 1978. MMC is aregistered investment adviser whose principal executive
offices are located at1345 Avenue of the Americas. Greenwich Street Advisors
renders investment adviceto investment companies that had aggregate assets
under management as ofDecember 31, 1993 in excess of $42.8 billion.
Subject to the supervision and direction of the Fund's Board of
Directors,Greenwich Street Advisors manages the Fund's portfolio in accordance
with theFund's stated investment objective and policies, makes investment
decisions forthe Fund, places orders to purchase and sell securities and
employs professionalportfolio managers and securities analysts who provide
research services to theFund. Under an investment advisory agreement, the Fund
pays Greenwich StreetAdvisors a monthly fee at the annual rate of 0.35% of the
value of the Fund'saverage daily net assets up to $2 billion, 0.30% of the
value of average dailynet assets on the next $2 billion, 0.25% of the value of
average daily netassets on the next $2 billion, 0.20% of the value of average
daily net assets onthe next $2 billion and 0.15% of the value of average daily
net assetsthereafter. For the fiscal year ended December 31, 1993, the Fund
paidinvestment advisory fees to Greenwich Street Advisors in an amount equal
to0.35% of the value of its average daily net assets. PORTFOLIO
MANAGEMENT James Conroy, Managing Director of Taxable Fixed Income
Management ofGreenwich Street Advisors, has served as Investment Officer of
the Fund sincethe Fund's inception (March 20, 1984) and is responsible for
managing theday-to-day investment operations of the Fund, including the making
of investmentdecisions. Mr. Conroy's management discussion and
analysis of the Fund's performanceduring the fiscal year ended December 31,
1993 (including a line graph
25<PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ----------------------
- ----------------------------------------------------- MANAGEMENT OF THE
COMPANY AND THE FUND (CONTINUED) comparing the Fund's performance to the
Lehman Brothers Government Bond Index)is included in the Fund's Annual Report
to Shareholders dated December 31, 1993.The Fund's Annual Report may be
obtained upon request and without charge fromany Smith Barney Shearson
Financial Consultant or by writing or calling the Fundat the address or phone
number listed on page 1 of this Prospectus. ADMINISTRATOR -- BOSTON
ADVISORS Boston Advisors, located at One Boston Place, Boston,
Massachusetts 02108,serves as the Fund's administrator. Boston Advisors is an
indirect wholly ownedsubsidiary of Mellon. Boston Advisors provides investment
management, investmentadvisory and/or administrative services to investment
companies which hadaggregate assets under management as of December 31, 1993,
in excess of $86.6billion. Boston Advisors calculates the net asset
value of the Fund's shares andgenerally assists in all aspects of the Fund's
administration and operation.Under an administration agreement, the Fund pays
Boston Advisors a fee at theannual rate of 0.20% of the value of the Fund's
average daily net assets. ------------------------------------------------
- -------------------- PURCHASE OF SHARES Purchases of Fund shares must be
made through a brokerage account maintainedwith Smith Barney Shearson or with
an Introducing Broker, except that investorspurchasing shares of the Fund
through a qualified retirement plan may do sodirectly through the Company's
transfer agent. When purchasing shares of theFund, investors must specify
whether the purchase is for Class A, Class B or, inthe case of Participating
Plans, Class D shares. No maintenance fee will becharged in connection with a
brokerage account through which an investorpurchases or holds shares.
Purchases are effected at the public offering pricenext determined after a
purchase order is received by Smith Barney Shearson oran Introducing Broker
(the "trade date"). Payment generally is due to SmithBarney Shearson or an
Introducing Broker on the fifth business day (the"settlement date") after the
order is placed. Investors who make payment priorto the settlement date may
permit the payment to be held in their brokerage 26 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ PURCHASE OF SHARES (CONTINUED) accounts or may
designate a temporary investment (such as a money market fund inthe Smith
Barney Shearson Group of Funds) for such payment until the settlementdate. The
Company reserves the right to reject any purchase order for shares andto
suspend the offering of shares for any period of time. Purchase
orders received by Smith Barney Shearson or the Introducing Brokerprior to the
close of regular trading on the NYSE, currently 4:00 p.m., New Yorktime, on
any day the Fund's net asset value is calculated are priced accordingto the
net asset value determined on that day. Purchase orders received afterthe
close of regular trading on the NYSE are priced as of the time the net
assetvalue per share is next determined. See "Valuation of Shares."
SYSTEMATIC INVESTMENT PLAN. The Fund offers shareholders a
SystematicInvestment Plan under which shareholders may authorize Smith Barney
Shearson oran Introducing Broker to place a purchase order each month or
quarter for Fundshares in an amount not less than $100. The purchase price is
paid automaticallyfrom cash held in the shareholder's Smith Barney Shearson
brokerage account orthrough the automatic redemption of the shareholder's
shares of a Smith BarneyShearson money market fund. For further information
regarding the SystematicInvestment Plan, shareholders should contact their
Smith Barney ShearsonFinancial Consultants. MINIMUM INVESTMENTS. The
minimum initial investment in the Fund is $1,000 andthe minimum subsequent
investment is $200 except that for purchases through (a)IRAs and Self-Employed
Retirement Plans, the minimum initial and subsequentinvestments are $250 and
$100, respectively, (b) retirement plans qualifiedunder sections 403 (b)(7)
and 401(a) of the Code, the minimum initial andsubsequent investment is $25
and (c) the Fund's Systematic Investment Plan, theminimum initial and
subsequent investment is $100. There are no minimumrequirements for employees
of Travelers and its subsidiaries, including SmithBarney Shearson. The Company
reserves the right at any time to vary the initialand subsequent investment
minimums. Certificates for Fund shares are issued uponrequest to the Company's
transfer agent, TSSG.
27 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- PURCHASE OF SHARES (CONTINUED)
CLASS A SHARES The public offering price for Class A shares is the per share
net asset valueof that Class next determined after a purchase order is
received plus a salescharge, which is imposed in accordance with the following
schedule: <TABLE><CAPTION> SALES CHARGE
AS % SALES CHARGE AS % AMOUNT OF INVESTMENT* OF OFFERING
PRICE OF NET ASSET VALUE<S> <C>
<C>---------------------------------------------------------------------------
- ------ Less than $25,000 4.50% 4.71%
$25,000 but under $50,000 4.00% 4.17% $50,000
but under $100,000 3.50% 3.63% $100,000 but
under $250,000 3.00% 3.09% $250,000 but under
$500,000 2.50% 2.56% $500,000 but under
$1,000,000 1.50% 1.52% $1,000,000 or more**
0.00% 0.00%---------------------------------------------------
- ------------------------------<FN> *Smith Barney Shearson has adopted
guidelines directing its Financial Consultants and Introducing Brokers that
single investments of $250,000 or more should be made in Class A shares.**No
sales charge is imposed on purchases of Class A shares of $1 million or more;
however, a CDSC of 0.75% is imposed for the first year after purchase. The
CDSC on Class A shares will be payable to Smith Barney Shearson which
compensates Smith Barney Shearson Financial Consultants upon the sale of these
shares. The CDSC will be waived in the same circumstances in which the CDSC
applicable to Class B shares is waived. See "Redemption of Shares --
Contingent Deferred Sales Charge -- Class B Shares -- Waivers of
CDSC."</TABLE> REDUCED SALES CHARGES -- CLASS A SHARES Reduced sales
charges are available to investors who are eligible to combinetheir purchases
of Fund shares to receive volume discounts. Investors eligibleto receive
volume discounts include individuals and their immediate families,tax-
qualified employee benefit plans and trustees or other professionalfiduciaries
(including a bank, or an investment adviser registered with the SECunder the
Investment Advisers Act of 1940, as amended) purchasing shares for oneor more
trust estates or fiduciary accounts even though more than onebeneficiary is
involved. The initial sales charge is also reduced to 1.0% forSmith Barney
Shearson Personal Living Trust program participants for whom SmithBarney
Shearson acts as trustee. Reduced sales charges on Class A shares arealso
available under a combined right of accumulation, under which an investormay
combine the value of Class A shares already held in the Fund, in any otherfund
in the 28 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ----------
- --------------------------------------------------- PURCHASE OF SHARES
(CONTINUED) Company and in any of the other funds in the Smith Barney
Shearson Group ofFunds listed below (except those sold without a sales
charge), along with thevalue of the Class A shares being purchased, to qualify
for a reduced salescharge. For example, if an investor owns Class A shares of
the Fund, any otherfunds in the Company and other funds in the Smith Barney
Shearson Group of Fundsthat have an aggregate value of $22,000, and makes an
additional investment inClass A shares of the Fund of $4,000, the sales charge
applicable to theadditional investment would be 4.0%, rather than the 4.50%
normally charged on a$4,000 purchase. Investors interested in further
information regarding reducedsales charges should contact their Smith Barney
Shearson Financial Consultant. Class A shares may be offered without
any applicable sales charges to: (a)employees of Travelers and its
subsidiaries, including Smith Barney Shearson andemployee benefit plans for
such employees and their immediate families whenorders on their behalf are
placed by such employees; (b) accounts managed byregistered investment
advisory subsidiaries of Travelers; (c) directors,trustees or general partners
of any investment company for which Smith BarneyShearson serves as
distributor; (d) any other investment company in connectionwith the
combination of such company with the Fund by merger, acquisition ofassets or
otherwise; (e) shareholders who have redeemed Class A shares of theFund (or
Class A shares of any other fund in the Company or of another fund inthe Smith
Barney Shearson Group of Funds that are sold with a maximum 4.50%sales charge)
and who wish to reinvest their redemption proceeds in the Fund,provided the
reinvestment is made within 30 days of the redemption; and (f) anyclient of a
newly-employed Smith Barney Shearson Financial Consultant (for aperiod up to
90 days from the commencement of the Financial Consultant'semployment with
Smith Barney Shearson), on the condition that the purchase ismade with the
proceeds of the redemption of shares of a mutual fund that (i) wassponsored by
the Financial Consultant's prior employer, (ii) was sold to aclient by the
Financial Consultant, and (iii) when purchased, such shares weresold with a
sales charge or are subject to a charge upon redemption.
29 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- PURCHASE OF SHARES (CONTINUED)
CLASS B SHARES The public offering price for Class B shares is the per share
net asset valueof that Class. No initial sales charge is imposed at the time
of purchase. ACDSC is imposed, however, on certain redemptions of Class B
shares. See"Redemptions of Shares" which describes the CDSC in greater detail.
Smith Barney Shearson has adopted guidelines, in view of the relative
salescharges and distribution fees applicable to the Classes, directing Smith
BarneyShearson Financial Consultants and Introducing Brokers that all
purchases ofshares of $250,000 or more should be in Class A shares. Smith
Barney Shearsonreserves the right to vary these guidelines at any time.
SMITH BARNEY SHEARSON 401(K) PROGRAM Shareholders investing in
the Fund may be eligible to participate in the401(k) Program, which is
generally designed to assist employers or plan sponsorsin the creation and
operation of retirement plans qualified under Section 401(a)of the Code. To
the extent applicable, the same terms and conditions are offeredto all
Participating Plans in the 401(k) Program which include 401(k) plans,other
types of participant directed, tax qualified employee benefit plans
andemployer-sponsored non-qualified employee benefit plans. The Fund
offers to Participating Plans three classes of shares, Class A, ClassB and
Class D shares, as investment alternatives under the 401(k) Program. ClassA
shares are available to all Participating Plans and are the only
investmentalternative for Participating Plans that are eligible to purchase
Class A sharesat net asset value without a sales charge. In addition, Class B
shares areoffered only to Participating Plans satisfying certain criteria with
respect tothe amount of the initial investment and number of employees
eligible toparticipate in the Plan at that time. Alternatively, Class D shares
are offeredonly to Participating Plans that meet other criteria relating to
the amount ofinitial investment and number of employees eligible to
participate in the Planat that time, as described below. 30 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ PURCHASE OF SHARES (CONTINUED) The Class A and Class B
shares acquired through the 401(k) Program are subjectto the same service
and/or distribution fees as, but different sales charge andCDSC schedules
than, the Class A and Class B shares acquired by other investors.Class D
shares acquired by Participating Plans are offered at net asset valueper share
without any sales charges or CDSC. The Fund pays annual service
anddistribution fees based on the value of the average daily net
assetsattributable to this Class. Once a Participating Plan has made an
initial investment in the Fund, all ofits subsequent investments in the Fund
must be in the same Class of shares,except as otherwise described below.
CLASS A SHARES. The sales charges for Class A shares acquired by
ParticipatingPlans are as follows: <TABLE><CAPTION>
SALES CHARGE AS % SALES CHARGE AS % AMOUNT OF INVESTMENT
OF OFFERING PRICE OF NET ASSET VALUE<S>
<C> <C>-----------------------------------------------------
- ---------------------------- Less than $25,000 4.50%
4.71% $25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.50% 3.63% $250,000
but under $500,000 3.00% 3.09% $500,000 but
under $750,000 2.50% 2.56% $750,000 or more
0.00% 0.00%---------------------------------------------------
- ------------------------------</TABLE> A Participating Plan will have a
combined right of accumulation, under which,to qualify for a reduced sales
charge, it may combine the value of Class Ashares being purchased with the
value of Class A shares already held in the Fundand in any of the funds listed
below under "Exchange Privilege" that are soldwith a sales charge. Class
A shares of the Fund may be offered without any sales charge to
anyParticipating Plan that: (a) purchases $750,000 or more of Class A shares
of oneor more funds in the Smith Barney Shearson Group of Funds under the
combinedright of accumulation described above; (b) has 250 or more employees
eligible toparticipate in the Participating Plan at the time of initial
investment in theFund; or (c) currently holds Class A shares in the Fund that
were received as aresult of an exchange of Class B or Class D shares of the
Fund as describedbelow.
31 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- PURCHASE OF SHARES (CONTINUED)
Class A shares acquired through the 401(k) Program will not be subject to
aCDSC. CLASS B SHARES. Under the 401(k) Program, Class B shares are
offered toParticipating Plans that: (i) purchase less than $250,000 of Class B
shares ofone or more funds in the Smith Barney Shearson Group of Funds that
are soldsubject to a CDSC; and (ii) that have less than 100 employees eligible
toparticipate in the Participating Plan at the time of initial investment in
theFund. Class B shares acquired by such Plans will be subject to a CDSC of 3%
ofredemption proceeds, if redeemed within eight years of the date
theParticipating Plan first purchases Class B shares. No CDSC is imposed to
theextent that the net asset value of the Class B shares redeemed does not
exceed(a) the current net asset value of Class B shares purchased through
reinvestmentof dividends or capital gains distributions, plus (b) the current
net assetvalue of Class B shares purchased more than eight years prior to the
redemption,plus (c) increases in the net asset value of the shareholder's
Class B sharesabove the purchase payments made during the preceding eight
years. The CDSCapplicable to a Participating Plan depends on the number of
years since theParticipating Plan first became a holder of Class B shares,
unlike the CDSCapplicable to other Class B shareholders, which depends on the
number of yearssince those shareholders made the purchase payment from which
the amount isbeing redeemed. The CDSC will be waived on redemptions of
Class B shares in connection withlump-sum or other distributions made by a
Participating Plan as a result of: (a)the retirement of an employee in the
Participating Plan, (b) the termination ofemployment of an employee in the
Participating Plan, (c) the death or disabilityof an employee in the
Participating Plan, (d) the attainment of age 59 1/2 by anemployee in the
Participating Plan, (e) hardship of an employee in theParticipating Plan to
the extent permitted under Section 401(k) of the Code or(f) redemptions of
Class B shares in connection with a loan made by theParticipating Plan to an
employee. Eight years after the date a Participating Plan acquired its first
Class Bshare, it will be offered the opportunity to exchange all of its Class
B sharesfor Class A shares of the Fund. Such Plans will be notified of the
pendingexchange in writing approximately 60 days before the eighth anniversary
of thepurchase date and, unless the exchange has been rejected in writing, the
32 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- PURCHASE OF SHARES (CONTINUED)
exchange will occur on or about the eighth anniversary date. Once the
exchangehas occurred, a Participating Plan will not be eligible to acquire
additionalClass B shares of the Fund but instead may acquire Class A shares of
the Fund.If the Participating Plan elects not to exchange all of its Class B
shares atthat time, each Class B share held by the Participating Plan will
have the sameconversion feature as Class B shares held by other investors. See
"VariablePricing System -- Class B Shares." CLASS D SHARES. Class D
shares are offered to Participating Plans that: (i)purchase less than $750,000
but more than $250,000 of Class D shares of one ormore funds in the Smith
Barney Shearson Group of Funds that offer one or moreClasses of shares subject
to a sales charge and/or CDSC; or (ii) have at least100 but no more than 250
employees eligible to participate in the ParticipatingPlan at the time of
initial investment in the Fund. Class D shares acquired by
Participating Plans will be offered at net assetvalue per share without any
sales charges or CDSC. The Fund pays annual serviceand distribution fees based
on the value of the average daily net assetsattributable to this Class. Class
D shares are not subject to an automaticconversion feature as are the Class B
shares. However, beginning in December1993 and each year thereafter,
Participating Plans which hold Class D sharesvalued at $750,000 or more in any
fund or funds in the Smith Barney ShearsonGroup of Funds that offer one or
more Classes of shares subject to a salescharge and/or CDSC will be offered
the opportunity to exchange all of theirClass D shares for Class A shares.
Such Plans will be notified of the pendingexchange in writing within 30 days
after the last business day of the calendaryear, and unless the exchange offer
has been rejected in writing, the exchangewill occur on or about the last
business day of March in the following calendaryear. Once the exchange has
occurred, a Participating Plan will not be eligibleto acquire Class D shares
of the Fund but instead may acquire Class A shares ofthe Fund. Any Class D
shares not converted will continue to be subject to thedistribution fee.
Participating Plans wishing to acquire shares of the Fund through the
401(k)Program must purchase shares from the Fund's transfer agent. For
furtherinformation regarding the 401(k) Program, investors should contact
their SmithBarney Shearson Financial Consultant.
33 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ----------------------------------------------- REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Fund calculates
itsnet asset value. See "Valuation of Shares." Redemption requests received
inproper form prior to the close of regular trading on the NYSE are priced at
thenet asset value per share determined on that day. Redemption requests
receivedafter the close of regular trading on the NYSE are priced at the net
asset valuenext determined. If a shareholder holds shares in more than one
Class, anyrequest for redemption must specify the Class being redeemed. In the
event of afailure to specify which Class or if the investor owns fewer shares
of the Classthan specified, the redemption request will be delayed until the
Company'stransfer agent receives further instructions from Smith Barney
Shearson, or ifthe shareholder's account is not with Smith Barney Shearson,
from theshareholder directly. The Fund normally transmits redemption
proceeds for credit to theshareholder's account at Smith Barney Shearson or
the Introducing Broker at nocharge (other than any applicable CDSC) within
seven days after receipt of aredemption request. Generally, these funds will
not be invested for theshareholder's benefit without specific instruction and
Smith Barney Shearsonwill benefit from the use of temporarily uninvested
funds. A shareholder whopays for Fund shares by personal check will be
credited with the proceeds of aredemption of those shares only after the
purchase check has been collected,which may take up to 10 days or more. A
shareholder who anticipates the need formore immediate access to his or her
investment should purchase shares withfederal funds, by bank wire or by
certified or cashier's check. A Fund account that is reduced by a
shareholder to a value of $500 or less maybe subject to redemption by the
Fund, but only after the shareholder has beengiven at least 30 days in which
to increase the account balance to $500 or more. Shares may be redeemed in
one of the following ways: REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or
anIntroducing Broker. A shareholder desiring to redeem shares represented
bycertificates must also present such certificates to Smith Barney Shearson
or 34 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND --------------
- ----------------------------------------------- REDEMPTION OF SHARES
(CONTINUED) the Introducing Broker endorsed for transfer (or accompanied by an
endorsedstock power), signed exactly as the shares are registered. Redemption
requestsinvolving shares represented by certificates will not be deemed
received untilsuch certificates are received by the Company's transfer agent
in proper form. REDEMPTION BY MAIL Shares held by Smith Barney Shearson
as custodian must be redeemed bysubmitting a written request to the Smith
Barney Shearson Financial Consultant.All other shares may be redeemed by
submitting a written request for redemptionto: Smith Barney
Shearson Government Securities Fund Class A, B or D (please specify)
c/o The Shareholder Services Group, Inc. P.O. Box 9134 Boston,
Massachusetts 02205-9134 A written redemption request to the
Company's transfer agent, TSSG, or a SmithBarney Shearson Financial Consultant
must (a) state the Class and number ordollar amount of shares to be redeemed,
(b) identify the shareholder's accountnumber and (c) be signed by each
registered owner exactly as the shares areregistered. If the shares to be
redeemed were issued in certificate form, thecertificates must be endorsed for
transfer (or be accompanied by an endorsedstock power) and must be submitted
to TSSG together with the redemption request.Any signature appearing on a
redemption request, share certificate or stockpower must be guaranteed by a
domestic bank, savings and loan institution,domestic credit union, member bank
of the Federal Reserve System or member firmof a national securities exchange.
TSSG may require additional supportingdocuments for redemptions made by
corporations, executors, administrators,trustees or guardians. A redemption
request will not be deemed properly receiveduntil TSSG receives all required
documents in proper form.
35 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- REDEMPTION OF SHARES (CONTINUED)
AUTOMATIC CASH WITHDRAWAL PLAN The Fund offers shareholders an automatic
cash withdrawal plan, under whichshareholders who own shares with a value of
at least $10,000 may elect toreceive periodic cash payments of at least $50
monthly. Retirement plan accountsare eligible for automatic cash withdrawal
plans only where the shareholder iseligible to receive qualified distributions
and has an account value of at least$5,000. Any applicable CDSC will be waived
on amounts withdrawn by a shareholderthat do not exceed 2.00% per month of the
value of shareholder's shares subjectto the CDSC at the time the withdrawal
plan commences. For further informationregarding the automatic cash withdrawal
plan, shareholders should contact theirSmith Barney Shearson Financial
Consultant. CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES A
CDSC payable to Smith Barney Shearson is imposed on any redemption of ClassB
shares, however effected, that causes the current value of a
shareholder'saccount to fall below the dollar amount of all payments by the
shareholder forthe purchase of Class B shares ("purchase payments") during the
preceding fiveyears, except in the case of purchases by Participating Plans in
the 401(k)Program, as described above. See "Purchase of Shares -- Smith Barney
Shearson401(k) Program." No charge is imposed to the extent that the net asset
value ofthe Class B shares redeemed does not exceed (a) the current net asset
value ofClass B shares purchased through reinvestment of dividends or capital
gainsdistributions, plus (b) the current net asset value of Class B shares
purchasedmore than five years prior to the redemption, plus (c) increases in
the netasset value of the shareholder's Class B shares above the purchase
payments madeduring the preceding five years. In circumstances in
which the CDSC is imposed, the amount of the charge willdepend on the number
of years since the shareholder made the purchase paymentfrom which the amount
is being redeemed, except in the case of purchases throughParticipating Plans
in the 401(k) Program, which are subject to a differentCDSC. See "Purchase of
Shares -- Smith Barney Shearson 401(k) Program." Solelyfor purposes of
determining the number of years since a purchase payment, allpurchase payments
during a month 36 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND --
- ----------------------------------------------------------- REDEMPTION OF
SHARES (CONTINUED) will be aggregated and deemed to have been made on the
last day of the precedingSmith Barney Shearson statement month. The following
table sets forth the ratesof the charge for redemptions of Class B shares by
shareholders other thanParticipating Plans: <TABLE><CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE CDSC<S>
<C>---------------------------------------------------------------------------
- ------- First
4.50% Second
4.00% Third
3.00% Fourth
2.00% Fifth
1.00% Sixth
0.00% Seventh
0.00% Eighth
0.00%-------------------------------------------------------------------------
- ---------</TABLE> Class B shares will automatically convert to Class A
shares approximatelyeight years after the date on which they were purchased
and thereafter will nolonger be subject to a distribution fee. The first of
these conversions willcommence on or about September 30, 1994. See "Variable
Pricing System-- Class BShares." The purchase payment from which a
redemption of Class B shares is made isassumed to be the earliest purchase
payment from which a full redemption has notalready been effected. In the case
of redemptions of Class B shares of otherfunds in the Company or of other
funds in the Smith Barney Shearson Group ofFunds issued in exchange for Class
B shares of the Fund, the term "purchasepayments" refers to the purchase
payments for the shares given in exchange. Inthe event of an exchange of Class
B shares of funds with differing CDSCschedules, the shares will be, in all
cases, subject to the higher CDSCschedule. See "Exchange Privilege."
WAIVERS OF CDSC. The CDSC will be waived on: (a) exchanges (see
"ExchangePrivilege"), (b) automatic cash withdrawals in amounts that do not
exceed 2.00%per month of the value of the shareholder's Class B shares at the
time thewithdrawal plan commences (see above); (c) redemptions of shares
following thedeath or disability of the shareholder; (d) redemptionof shares
in connection with certain post-retirement distributions andwithdrawals from
retirement plans or IRAs; (e) involuntary redemptions;
37 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- REDEMPTION OF SHARES (CONTINUED)
(f) redemption proceeds from other funds in the Smith Barney Shearson Group
ofFunds that are reinvested within 30 days of the redemption; (g) redemptions
ofshares in connection with a combination of any investment company with the
Fundby merger, acquisition of assets or otherwise; and (h) certain redemptions
ofshares of the Fund in connection with lump-sum or other distributions made
by aParticipating Plan. See "Purchase of Shares -- Smith Barney Shearson
401(k)Program." ----------------------------------------------------------
- ---------- VALUATION OF SHARES Each Class' net asset value per share is
calculated separately on each day,Monday through Friday, except on days when
the NYSE is closed. The NYSEcurrently is scheduled to be closed on New Year's
Day, Presidents' Day, GoodFriday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmasand on the preceding Friday or subsequent Monday
when one of these holidaysfalls on a Saturday or Sunday, respectively. The
net asset value per share of a given Class is determined as of the laterof the
close of regular trading on the NYSE (currently 4:00 p.m., New York time)or
the Chicago Board Options Exchange (currently 4:15 p.m., New York time) andis
computed by dividing the value of the Fund's net assets attributable to
thatClass by the total number of shares of that Class outstanding.
Securities listed on an exchange are valued on the basis of the last saleprior
to the time the valuation is made. If there has been no sale since
theimmediately previous valuation, then the current bid price is used.
Quotationsare taken from the exchange where the security is primarily traded.
U.S.over-the-counter securities are valued on the basis of the bid price at
theclose of business on each day. Securities for which market quotations are
notreadily available are valued at fair value as determined in good faith by
orunder the direction of the Board of Directors. Notwithstanding the above,
bondsand other fixed-income securities are valued by using market quotations
and maybe valued on the basis of prices provided by a pricing service approved
by theBoard of Directors. 38 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES
FUND ------------------------------------------------------------- VALUATION
OF SHARES (CONTINUED) When the Fund writes a put or call option, it records
the premium received asan asset and equivalent liability, and thereafter
adjusts the liability to themarket value of the option determined in
accordance with the precedingparagraph. The premium paid for an option
purchased by the Fund is recorded asan asset and subsequently adjusted to
market value. ----------------------------------------------------------------
- ---- EXCHANGE PRIVILEGE Shares of each Class may be exchanged for shares
of the same Class in thefollowing funds in the Smith Barney Shearson Group of
Funds as indicated, to theextent shares are offered for sale in the
shareholder's state of residence: <TABLE><CAPTION>EXCHANGEABLEWITH
SHARESOF THEFOLLOWINGCLASSES: FUND NAME AND INVESTMENT OBJECTIVE:<S>
<C>---------------------------------------------------------------------------
MUNICIPAL BOND FUNDSA SMITH BARNEY SHEARSON LIMITED MATURITY
MUNICIPALS FUND, an intermediate-term municipal bond fund
investing in investment grade obligations.A, B SMITH
BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an intermediate-
and long-term municipal bond fund.A, B SMITH BARNEY SHEARSON TAX-
EXEMPT INCOME FUND, an intermediate- and long-term municipal bond
fund investing in medium and lower rated securities.A, B
SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for Arizona
investors.A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.</TABLE>
39 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- EXCHANGE PRIVILEGE (CONTINUED)
<TABLE><CAPTION>EXCHANGEABLEWITH SHARESOF THEFOLLOWINGCLASSES: FUND NAME
AND INVESTMENT OBJECTIVE:-----------------------------------------------------
- ----------------------<S> <C>A, B SMITH BARNEY SHEARSON
CALIFORNIA MUNICIPALS FUND INC., an intermediate- and long-term
municipal bond fund designed for California investors.A, B
SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an intermediate- and
long-term municipal bond fund designed for Florida investors.A, B
SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Massachusetts investors.A, B SMITH BARNEY SHEARSON NEW JERSEY
MUNICIPALS FUND INC., an intermediate- and long-term municipal
bond fund designed for New Jersey investors.A SMITH
BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK MUNICIPALS FUND,
an intermediate-term bond fund designed for New York investors.A, B
SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for New York
investors. INCOME FUNDSA, B, D+ SMITH BARNEY SHEARSON
ADJUSTABLE RATE GOVERNMENT INCOME FUND, seeks high current income
while limiting the degree of fluctuation in net asset value
resulting from movement in interest rates.A, B SMITH BARNEY SHEARSON
WORLDWIDE PRIME ASSETS FUND, invests in a portfolio of high
quality debt securities that may be denominated in U.S. dollars
or selected foreign currencies and that have remaining maturities
of not more than one year.</TABLE> 40 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT
SECURITIES FUND -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED) <TABLE><CAPTION>EXCHANGEABLEWITH SHARESOF
THEFOLLOWINGCLASSES: FUND NAME AND INVESTMENT OBJECTIVE:-----------------
- ----------------------------------------------------------<S> <C>A,
B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests in
high
quality, short-term debt securities denominated in U.S. dollars as well
as a range of foreign currencies.A SMITH BARNEY SHEARSON LIMITED
MATURITY TREASURY FUND, invests exclusively in securities issued
by the U.S. Treasury and other U.S. government securities.A, B,
D+ SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND, seeks high
current income primarily by allocating and reallocating its assets
among various types of fixed-income securities.A, B, D+ SMITH BARNEY
SHEARSON MANAGED GOVERNMENTS FUND INC., invests in obligations
issued or guaranteed by the United States government and its
agencies and instrumentalities with emphasis on mortgage-backed
government securities.A, B, D+ SMITH BARNEY SHEARSON INVESTMENT GRADE
BOND FUND, seeks a high level of current income consistent with
prudent investment management and preservation of capital by
investing in corporate bonds and other income producing
securities.A, B, D+ SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high
current income by investing in high-yielding corporate bonds,
debentures and notes.A, B, D+ SMITH BARNEY SHEARSON GLOBAL BOND FUND,
seeks current income and capital appreciation by investing in
bonds, debentures and notes of foreign and domestic
issuers.</TABLE>
41 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- EXCHANGE PRIVILEGE (CONTINUED)
<TABLE><CAPTION>EXCHANGEABLEWITH SHARESOF THEFOLLOWINGCLASSES: FUND NAME
AND INVESTMENT OBJECTIVE:-----------------------------------------------------
- ----------------------<S> <C> GROWTH AND INCOME
FUNDSA*, B*, D+ SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current
income and capital appreciation by investing in convertible
securities.A*, B*, D+ SMITH BARNEY SHEARSON UTILITIES FUND, seeks total
return by investing in equity and debt securities of utilities
companies.A*, B*, D+ SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks
high total return consisting of current income and capital
appreciation by investing in a combination of equity, fixed-
income and money market securities.A*, B*, D+ SMITH BARNEY SHEARSON PREMIUM
TOTAL RETURN FUND, seeks total return by investing in dividend-
paying common stocks.A*, B*, D+ SMITH BARNEY SHEARSON GROWTH AND INCOME
FUND, seeks income and long-term capital growth by investing in
income producing equity securities. GROWTH FUNDSA*,
B*, D+ SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-term
appreciation of capital.A*, B*, D+ SMITH BARNEY SHEARSON AGGRESSIVE GROWTH
FUND INC., seeks above-average capital growth.A*, B*, D+ SMITH
BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks long-term
capital growth with current income as a secondary objective.A*, B*, D+
SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital appreciation
by following a sector strategy.</TABLE> 42 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ EXCHANGE PRIVILEGE (CONTINUED)
<TABLE><CAPTION>EXCHANGEABLEWITH SHARESOF THEFOLLOWINGCLASSES: FUND NAME
AND INVESTMENT OBJECTIVE:-----------------------------------------------------
- ----------------------<S> <C>A*, B*, D+ SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND, seeks capital appreciation, with
income as a secondary consideration.A*, B*, D+ SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND, seeks long-term capital appreciation by
investing in equity securities primarily of emerging growth
companies.A*, B*, D+ SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks
long-term capital growth by investing principally in the common
stocks of foreign and domestic issuers.A*, B*, D+ SMITH BARNEY
SHEARSON EUROPEAN FUND, seeks long-term capital appreciation by
investing primarily in securities of issuers based in European
countries.A*, B*, D+ SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS
FUND INC., seeks long-term capital appreciation by investing
primarily in precious metal- and mineral-related companies and
gold bullion. MONEY MARKET FUNDS** SMITH BARNEY
SHEARSON MONEY MARKET FUND, invests in a diversified portfolio of
high quality money market instruments.*** SMITH BARNEY SHEARSON
DAILY DIVIDEND FUND, invests in a variety of money market
instruments.*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND,
invests in United States government and agency securities.++
SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND, invests in
short-term high quality municipal obligations.</TABLE>
43 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- EXCHANGE PRIVILEGE (CONTINUED)
<TABLE><CAPTION>EXCHANGEABLEWITH SHARESOF THEFOLLOWINGCLASSES: FUND NAME
AND INVESTMENT OBJECTIVE:-----------------------------------------------------
- ----------------------<S> <C>++ SMITH BARNEY SHEARSON
CALIFORNIA MUNICIPAL MONEY MARKET FUND, invests in short-term,
high quality California municipal obligations.++ SMITH BARNEY
SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND, invests in short-
term, high quality New York municipal obligations.----------------------------
- -----------------------------------------------<FN> *Shares of this fund are
subject to a higher sales charge or CDSC than that applicable to the Fund's
shares. **Shares of this money market fund may be exchanged for Class B shares
of the Fund.***Shares of this money market fund may be exchanged for Class A
and Class D shares of the Fund. +Class D shares of this Fund may be
acquired only by Participating Plans. ++Shares of this money market fund may
be exchanged for Class A shares of the Fund.</TABLE> TAX EFFECT. The
exchange of shares of one fund for shares of another fund istreated for
federal income tax purposes as a sale of the shares given inexchange by the
shareholder. Therefore, an exchanging shareholder may realize ataxable gain or
loss in connection with an exchange. CLASS A EXCHANGES. Class A
shareholders of the Fund and the other funds in theSmith Barney Shearson Group
of Funds sold without a sales charge or with amaximum sales charge of less
than 4.5% will be subject to the appropriate "salescharge differential" upon
the exchange of their shares for Class A shares offunds sold with a higher
sales charge. The "sales charge differential" islimited to a percentage rate
no greater than the excess of the sales charge rateapplicable to purchases of
shares of the mutual fund being acquired in theexchange over the sum of the
rates of all sales charges previously paid on themutual fund shares
relinquished in the exchange and on any predecessor of thoseshares. For
purposes of the exchange privilege, shares obtained throughautomatic
reinvestment of dividends, as described below, are treated as havingpaid the
same sales charges applicable to the shares on which the dividends werepaid.
However, except in the case of the 44 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ EXCHANGE PRIVILEGE (CONTINUED) 401(k) Program, if no sales
charge was imposed upon the initial purchase of theshares, any shares obtained
through automatic reinvestment will be subject to asales charge differential
upon exchange. CLASS B EXCHANGES. Class B shareholders of the Fund who
wish to exchange allor a portion of their Class B shares for Class B shares of
any of the fundsidentified above may do so without the imposition of an
exchange fee. In theevent Class B shareholders of the Fund wish to exchange
all or a portion oftheir Class B shares for Class B shares in any of the funds
listed aboveimposing a CDSC higher than that imposed by the Fund, the
exchanged Class Bshares will be subject to the higher applicable CDSC. Upon an
exchange, the newClass B shares will be deemed to have been purchased on the
same date as theClass B shares of the Fund which have been exchanged.
CLASS D EXCHANGES. Class D shareholders who wish to exchange all or part
oftheir Class D shares in any of these funds may do so without charge. Class
Dshares may be acquired only by Participating Plans. ADDITIONAL
INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Shareholdersexercising the
exchange privilege with other funds in the Company or any otherfund in the
Smith Barney Shearson Group of Funds should review the prospectusrelating to
the exchanged-for shares carefully prior to making an exchange.Smith Barney
Shearson reserves the right to reject any exchange request and theexchange
privilege may be modified or terminated at any time after writtennotice to
shareholders. Although the exchange privilege is an important
benefit, excessive exchangetransactions can be detrimental to the Fund's
performance and its shareholders.The Fund's investment adviser may determine
that a pattern of frequent exchangesis excessive and contrary to the best
interests of the Fund's othershareholders. In this event, the Fund's
investment adviser will notify SmithBarney Shearson, and Smith Barney Shearson
may, at its discretion, decide tolimit additional purchases and/or exchanges
by the shareholder. Upon such adetermination, Smith Barney Shearson will
provide notice in writing or bytelephone to the shareholder at least 15 days
prior to suspending the exchangeprivilege and during the 15-day period the
shareholder will be required to (a)redeem his or her shares in the Fund
or
45 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- EXCHANGE PRIVILEGE (CONTINUED)
(b) remain invested in the Fund or exchange into any of the other Smith
BarneyShearson funds ordinarily available, which position the shareholder
would expectto maintain for a significant period of time. All relevant factors
will beconsidered in determining what constitutes an abusive pattern of
exchanges. For further information regarding the exchange privilege
or to obtain acurrent prospectus for the other funds in the Company or any
other fund in theSmith Barney Shearson Group of Funds, shareholders should
contact their SmithBarney Shearson Financial Consultant. -----------------
- --------------------------------------------------- DISTRIBUTOR Smith
Barney Shearson is located at 388 Greenwich Street, New York, New York10013
and serves as distributor of the Fund's shares. Smith Barney Shearson is
awholly owned subsidiary of Holdings which is in turn an indirect wholly
ownedsubsidiary of Travelers. Smith Barney Shearson is paid an annual service
feewith respect to Class A, Class B and Class D shares of the Fund at the rate
of0.25% of the value of average daily net assets of the respective Class.
SmithBarney Shearson is also paid an annual distribution fee with respect to
Class Band Class D shares at the rate of 0.50% of the value of average daily
net assetsattributable to that Class. The fees are authorized pursuant to a
service anddistribution plan (the "Plan") adopted by the Fund pursuant to Rule
12b-1 underthe 1940 Act and are used by Smith Barney Shearson to pay its
FinancialConsultants for servicing shareholder accounts and, in the case of
Class Bshares and Class D shares, also to cover expenses primarily intended to
resultin the sale of shares of each Class. These expenses include: costs of
printingand distributing the Fund's Prospectus, Statement of Additional
Information andsales literature to prospective investors; an allocation of
overhead and otherSmith Barney Shearson's branch office distribution-related
expenses; payments toand expenses of Smith Barney Shearson Financial
Consultants and other personswho provide support services in connection with
the distribution of the shares;and accruals for interest on the amount of the
foregoing expenses that exceeddistribution fees and, in the case of Class B
shares, the CDSC received by SmithBarney Shearson. The payments to Smith
Barney Shearson 46 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND -
- ------------------------------------------------------------ DISTRIBUTOR
(CONTINUED) Financial Consultants for selling shares of a Class include a
commission paid atthe time of sale and a continuing fee for servicing
shareholder accounts for aslong as a shareholder remains a holder of that
Class. The service fee iscredited at the rate of 0.25% of the value of average
daily net assets of theClass that remain invested in the Fund. Smith Barney
Shearson FinancialConsultants may receive different levels of compensation for
selling one Classof shares over another. Although it is anticipated that
some promotional activities will be conductedon a Company-wide basis, payments
made by a fund under the Plan generally willbe used to finance the
distribution of shares of the Fund. Expenses incurred inconnection with
Company-wide activities may be allocated pro-rata among allfunds of the
Company on the basis of their relative net assets. Payments under the
Plan are not tied exclusively to the distribution andshareholder service
expenses actually incurred by Smith Barney Shearson, and thepayments may
exceed distribution expenses actually incurred. The Company's Boardof
Directors will evaluate the appropriateness of the Plan and its payment
termson a continuing basis and in doing so will consider all relevant
factors,including expenses borne by Smith Barney Shearson and the amount
received underthe Plan and the proceeds of the CDSC and sales charges
received. ----------------------------------------------------------------
- ---- DIVIDENDS, DISTRIBUTIONS AND TAXES DIVIDENDS AND DISTRIBUTIONS The
Fund will be treated separately from the Company's other funds indetermining
the amount of dividends from net investment income and distributionsof capital
gains payable to shareholders. Dividends and any distributionsautomatically
are reinvested in additional shares at net asset value unless theshareholder
has elected to receive distributions in cash. Dividends anddistributions are
treated the same for tax purposes whether taken in cash orreinvested in
additional shares. The Fund declares dividends daily consisting ofestimated
daily net investment income, and pays
47 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES
(CONTINUED) dividends monthly. Any net realized gains, after utilization of
capital losscarryforwards, will be distributed at least annually, and net
realized short-term capital gains (including short-term capital gains from
optionstransactions, if any) may be paid more frequently, with the
distribution ofdividends from net investment income. The per share dividends
and distributionson Class A shares will be higher than the per share dividends
and distributionson Class B and Class D shares as a result of lower
distribution and transferagency fees applicable to the Class A shares. See
"Variable Pricing System." Inaddition, as determined by the Board of
Directors, distributions of the Fund mayinclude a return of capital.
Shareholders will be notified of the amount of anydistribution that represents
a return of capital. In order to comply with acalendar year distribution
requirement under the Code, it may be necessary forthe Fund to make
distributions at times other than those set forth above. TAXES The Fund
will be treated as a separate taxpayer with the result that, forfederal tax
purposes, the amount of investment income and capital gains earnedwill be
determined on a fund-by-fund basis, rather than on a Company-wide basis.The
Fund intends to continue to qualify as a "regulated investment company"under
Subchapter M of the Code. In any taxable year in which the Fund soqualifies
and distributes at least 90% of its investment company taxable income(which
includes, among other items, dividends, interest and the excess of anynet
short-term capital gains over net long-term capital losses), the Fund (butnot
its shareholders) generally will be relieved of federal income tax on
theinvestment company taxable income and net realized capital gains (the
excess ofnet long-term capital gains over net short-term capital losses), if
any,distributed to shareholders. In order to qualify as a regulated
investmentcompany, the Fund will be required to meet various Code
requirements. Amounts not distributed on a timely basis in accordance with a
calendar yeardistribution requirement are subject to a nondeductible 4% excise
tax. Toprevent application of the excise tax, the Fund intends to make
itsdistributions in accordance with this requirement. 48 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Distributions of any investment company taxable income are taxable
toshareholders as ordinary income. Distributions of any net capital
gainsdesignated by the Fund as capital gain dividends are taxable to
shareholders aslong-term capital gain regardless of the length of time a
shareholder may haveheld shares of the Fund. Dividends (including capital
gain dividends) declared by the Fund in October,November or December of any
calendar year to shareholders of record on a date insuch a month will be
deemed to have been received by shareholders on December 31of that calendar
year, provided that the dividend is actually paid by the Fundduring January of
the following calendar year. Upon the disposition of shares of the Fund
(whether by redemption, sale orexchange), a shareholder generally will realize
a taxable gain or loss. Suchgain or loss generally will be a capital gain or
loss if the shares are capitalassets in the shareholder's hands, and generally
will be long-term or short-termdepending upon the shareholder's holding period
for the shares any loss realizedby a shareholder on disposition of Fund shares
held by the shareholder for sixmonths or less will be treated as long-term
capital loss to the extent of anydistributions of capital gain dividends
received by the shareholder with respectto such shares. Shareholders
will be notified annually about the amounts of dividends anddistributions,
including the amounts (if any) for that year which have beendesignated as
capital gain dividends. Dividends and distributions and gainsrealized upon a
disposition of Fund shares may also be subject to state, localor foreign taxes
depending on each shareholder's particular situation. Dividendsconsisting of
interest from obligations of the U.S. government and certain ofits agencies
and instrumentalities may be exempt from all state and local incometaxes.
Investors should consult their tax advisors for specific information onthe tax
consequences of particular types of distributions.
49 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ----------------------------------------------- THE FUND'S PERFORMANCE
YIELD From time to time, the Fund advertises the 30-day "yield" of
each Class ofshares. The Fund's yield refers to the income generated by an
investment inthose shares over the 30-day period identified in the
advertisement and iscomputed by dividing the net investment income per share
earned by the Classduring the period by the maximum offering price per share
on the last day of theperiod. This income is "annualized" by assuming the
amount of income isgenerated each month over a one-year period and is
compounded semi-annually. Theannualized income is then shown as a percentage
of the net asset value. The Fund's yield for Class A, Class B and
Class D shares for the 30-day periodended December 31, 1993, were 3.65%,
3.38%, and 3.33%, respectively. TOTAL RETURN From time to
time, the Fund may advertise its "average annual total return"over various
periods of time for each Class. Total return figures show theaverage
percentage change in value of an investment in the Class from thebeginning
date of the measuring period to the end of the measuring period. Thesefigures
reflect changes in the price of the shares and assume that any incomedividends
and/or capital gains distributions made by the Fund during the periodwere
reinvested in shares of the same Class. Class A total return figuresinclude
the maximum initial 4.50% sales charge and Class B total return figuresinclude
any applicable CDSC. These figures also take into account the serviceand
distribution fees, if any, payable with respect to each Class. Total
return figures will be given for recent one-, five-_and ten-year periodsor the
life of a Class to the extent it has not been in existence for any suchperiod,
and may be given for other periods as well, such as on a year-by-yearbasis.
When considering average annual total return figures for periods longerthan
one year, it is important to note that the total return for any one year inthe
period might have been greater or less than the average for the entireperiod.
"Aggregate" total return figures may be used for various periods,representing
the cumulative change in value of an 50 <PAGE>SMITH BARNEY
SHEARSONGOVERNMENT SECURITIES FUND -------------------------------------------
- ------------------ THE FUND'S PERFORMANCE (CONTINUED) investment in the
shares for the specific period (again reflecting changes inthe Fund's share
prices and assuming reinvestment of dividends anddistributions). Aggregate
total returns may be calculated either with or withoutthe effect of the
maximum 4.50% sales charge or any applicable CDSC and may beshown by means of
schedules, charts or graphs, and may indicate subtotals of thevarious
components of total return (that is, change in the value of initialinvestment,
income dividends, and capital gains distributions). Because of thedifferences
in sales charges and distribution and other fees, the total returnsfor each of
the Classes will differ. In reports or other communications to
shareholders or in advertising material,performance of the Classes may be
compared with that of other mutual funds orclasses of shares of other funds
listed in the rankings prepared by LipperAnalytical Services, Inc. or similar
independent services that monitor theperformance of mutual funds or with other
appropriate indices of investmentsecurities such as the Standard & Poor's 500
Composite Stock Price Index and theDow Jones Industrial Average. The
Performance information may also includeevaluations of the Fund published by
nationally recognized financialpublications such as BARRON'S, BUSINESS WEEK,
CDA INVESTMENT TECHNOLOGIES, INC.,FORBES, FORTUNE, INSTITUTIONAL INVESTOR,
INVESTORS DAILY, KIPLINGER'S PERSONALFINANCE MAGAZINE, MONEY, MORNINGSTAR
MUTUAL FUND VALUES, USA TODAY, THE NEW YORKTIMES and THE WALL STREET JOURNAL.
It is important to note that yield and totalreturn figures are based on
historical earnings and are not intended to indicatefuture performance. To the
extent any advertisement or sales literature of theFund describes the expenses
or performance of a Class it will also disclose suchinformation for the other
Classes. The Statement of Additional Informationfurther contains a description
of the methods used to determine performance.Performance figures may be
obtained from any Smith Barney Shearson FinancialConsultant. -------------
- ------------------------------------------------------- ADDITIONAL
INFORMATION The Company was organized as a Maryland corporation pursuant to
Articles ofIncorporation dated September 29, 1981, as amended from time to
time. TheCompany commenced operations on January 4, 1982 under the
51 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------------------
- ---------------------------------------- ADDITIONAL INFORMATION (CONTINUED)
name "Hutton Investment Series Inc." The Company's corporate name was
changed to"SLH Investment Portfolios Inc." on December 29, 1988. Effective
October 23,1992, the Board of Directors of the Company authorized the Company
to dobusiness under the name of "Shearson Lehman Brothers Investment Funds"
and alsoauthorized a change in the name of the Fund to Government Securities
Fund. OnJuly 30, 1993, the Company's corporate name was changed to its current
name"Smith Barney Shearson Investment Funds Inc." and the Fund's name was
changed to"Smith Barney Shearson Government Securities Fund." The
Fund offers shares of common stock currently classified into threeClasses, A,
B and D, with a par value of $0.001 per share. Each Class of shareshas the
same rights, privileges and preferences, except with respect to: (a)
thedesignation of each Class; (b) the effect of the respective sales charges,
ifany, for each Class; (c) the distribution and/or service fees borne by
eachClass; (d) the expenses allocable exclusively to each Class; (e) voting
rightson matters exclusively affecting a single Class; (f) the exchange
privilege ofeach Class; and (g) the conversion feature of the Class B shares.
The Board ofDirectors does not anticipate that there will be any conflicts
among theinterests of the holders of the different Classes of shares of the
Fund. TheDirectors, on an ongoing basis, will consider whether any such
conflict existsand, if so, take appropriate action. Boston Safe, a
wholly owned subsidiary of TBC, is located at One Boston Place,Boston,
Massachusetts 02108, and serves as custodian of the Company'sinvestments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves asthe Company's transfer agent. The Company does not hold
annual shareholder meetings. There normally will beno meeting of shareholders
for the purpose of electing Directors unless anduntil such time as less than a
majority of the Directors holding office havebeen elected by shareholders. The
Directors will call a meeting for any purposeupon written request of
shareholders holding at least 10% of the Company'soutstanding shares. When
matters are submitted for shareholder vote,shareholders of each Class will
have one vote for each full share owned and aproportionate, fractional vote
for any 52 <PAGE>SMITH BARNEY SHEARSONGOVERNMENT SECURITIES FUND ---------
- ---------------------------------------------------- ADDITIONAL INFORMATION
(CONTINUED) fractional share held of that Class. Generally, shares of the
Company will bevoted on a Company-wide basis on all matters except matters
affecting only theinterests of one Fund or one Class of shares. The
Fund sends its shareholder a semi-annual report and an audited annualreport,
each of which includes a list of the investment securities held by theFund at
the end of the reporting period. In an effort to reduce the Fund'sprinting and
mailing costs, the Company plans to consolidate the mailing of itssemi-annual
and annual reports by household. This consolidation means that ahousehold
having multiple accounts with the identical address of record willreceive a
single copy of each report. In addition, the Company also plans toconsolidate
the mailing of its Prospectuses so that a shareholder havingmultiple accounts
(I.E., individual, IRA and/or Self-Employed Retirement Planaccounts) will
receive a single Prospectus annually. When the Fund's annualreports are
combined with the Prospectus into a single document, the Fund willmail the
combined document to each shareholder to comply with legalrequirements. Any
shareholder who does not want this consolidation to apply tohis or her account
should contact their Smith Barney Shearson FinancialConsultant or the
Company's transfer agent. ------------------
- - NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANYREPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE
STATEMENT OFADDITIONAL INFORMATION AND/OR IN THE FUND'S OFFICIAL SALES
LITERATURE INCONNECTION WITH THE OFFERING OF THE FUND'S SHARES AND, IF GIVEN
OR MADE, SUCHOTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEENAUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANYSTATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
53<PAGE> SMITH BARNEY SHEARSON
GOVERNMENT SECURITIES
FUND Two World Trade Center
New York, New York 10048 Fund 105, 177,
212 FD0234 B4
PART A
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
PROSPECTUS
SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND
<PAGE>
MARCH 1, 1994
SMITH BARNEY SHEARSON
INVESTMENT
GRADE BOND
FUND
PROSPECTUS BEGINS
ON PAGE ONE.
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------
PROSPECTUS March 1, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Investment Grade Bond Fund (the "Fund"), has an
investment objective of high current income consistent with prudent investment
management and preservation of capital by investing in bonds and other
income-producing securities.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Shearson Investment Funds Inc.
(the "Company"). The Company is an open-end management investment company
commonly referred to as a mutual fund.
This Prospectus briefly sets forth certain information about the Company and
the Fund, including sales charges, distribution and service fees and expenses,
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and to retain it
for
future reference. Shares of other funds offered by the Company are described
in
separate Prospectuses that may be obtained by calling the Company at the
telephone number set forth above or by contacting any Smith Barney Shearson
Financial Consultant. The net asset value per share of the Fund will fluctuate
in response to changes in market conditions and other factors.
Additional information about the Company and the Fund is contained in a
Statement of Additional Information dated March 1, 1994, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Company at the telephone number or address
set
forth above or by contacting any Smith Barney Shearson Financial Consultant.
The
Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY SHEARSON INC.
Distributor
GREENWICH STREET ADVISORS
Investment Adviser
THE BOSTON COMPANY ADVISORS, INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
----------------------------------------------------------------
FINANCIAL HIGHLIGHTS 9
----------------------------------------------------------------
VARIABLE PRICING SYSTEM 13
----------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
----------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 20
----------------------------------------------------------------
PURCHASE OF SHARES 22
----------------------------------------------------------------
REDEMPTION OF SHARES 29
----------------------------------------------------------------
VALUATION OF SHARES 33
----------------------------------------------------------------
EXCHANGE PRIVILEGE 34
----------------------------------------------------------------
DISTRIBUTOR 41
----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 42
----------------------------------------------------------------
THE FUND'S PERFORMANCE 44
----------------------------------------------------------------
ADDITIONAL INFORMATION 46
----------------------------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- ---------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION. CROSS REFERENCES IN THIS SUMMARY ARE TO HEADINGS IN THE
PROSPECTUS.
SEE THE "TABLE OF CONTENTS."
BENEFITS TO INVESTORS THE FUND OFFERS INVESTORS SEVERAL IMPORTANT BENEFITS:
- - Investment liquidity through convenient purchase and redemption procedures.
- - A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
- - Different methods for purchasing shares that allow investment flexibility
and
a wider range of investment alternatives.
- - An automatic dividend reinvestment feature, plus an exchange privilege
within
the same class of shares of the other funds in the Company and of most
other
funds in the Smith Barney Shearson Group of Funds.
INVESTMENT OBJECTIVE The Fund is an open-end diversified management investment
company that seeks to provide a high level of current income as is consistent
with prudent investment management and preservation of capital. Under normal
circumstances, the Fund will invest at least 65% of its assets in bonds. See
"Investment Objective and Management Policies."
VARIABLE PRICING SYSTEM 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 two
classes
of shares, Class A shares and Class B shares, which differ principally in
terms
of the sales charges and rates of expenses to which they are subject. In
addition, a third class -- Class D shares -- is offered only to plans
participating in the Smith Barney Shearson 401(k) Program (the "401(k)
Program"). See "Variable Pricing System" and "Purchase of Shares -- Smith
Barney
Shearson 401(k) Program."
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.50%. The Fund pays an annual service fee of
0.25% of the value of average daily net assets of this Class. See "Purchase of
Shares."
3
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 4.50% of redemption
proceeds, declining by 0.50% after the first year and by 1.00% each year
thereafter to zero. The Fund pays an annual service fee of 0.25% and an annual
distribution fee of 0.50% of the value of average daily net assets
attributable
to this Class. See "Purchase of Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, approximately eight years after the
date of original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. The first of these conversions will
commence on or about September 30, 1994. See "Variable Pricing System -- Class
B
Shares."
SMITH BARNEY SHEARSON 401(K) PROGRAM Investors may be eligible to participate
in
the 401(k) Program, which is generally designed to assist employers or 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 and
employer
sponsored non-qualified employee benefit plans (collectively, "Participating
Plans"). Class A, Class B and Class D shares are available as investment
alternatives for Participating Plans. Class A and Class B shares acquired
through the 401(k) Program are subject to the same service and/or distribution
fees as, but different sales charges and CDSC schedules than, the Class A and
Class B shares acquired by other investors. Class D shares acquired by
Participating Plans are offered at net asset value per share without any sales
charges or CDSC. The Fund pays annual service and distribution fees based on
the
value of average daily net assets attributable to this Class. See "Purchase of
Shares --Smith Barney Shearson 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Company's distributor,
Smith Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that clears
securities transactions through Smith Barney Shearson on a fully disclosed
basis
(an "Introducing Broker"). Direct purchases of certain retirement plans may be
made through The Shareholder Services Group, Inc. ("TSSG"), the Company's
transfer agent, a subsidiary of First Data
4
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
Corporation ("FDC"). Smith Barney Shearson recommends that, in most cases,
single investments of $250,000 or more should be in Class A shares. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Employed
Retirement Plans, the minimum initial investment requirement is $250 and the
minimum subsequent investment requirement is $100 and for certain qualified
retirement plans, the minimum initial and subsequent investment requirement is
$25. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund also offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount not less
than
$100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A and Class D shares are
redeemable at net asset value and Class B shares are redeemable at net asset
value less any applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Greenwich Street Advisors Division ("Greenwich Street
Advisors") of Mutual Management Corp. ("MMC") serves as the Fund's investment
adviser. MMC provides investment advisory and management services to
investment
companies affiliated with Smith Barney Shearson. MMC is controlled by Smith
Barney Shearson Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of The Travelers Inc. (which was formerly known as Primerica
Corporation) ("Travelers"), a diversified financial services holding company
principally engaged in the businesses of providing investment, consumer
finance
and insurance services. Greenwich Street Advisors had aggregate assets under
management in excess of $42.8 billion on December 31, 1993.
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), a financial services holding company which in turn is
an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). As of
December 31, 1993 Boston Advisors provides investment
5
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
management, investment advisory, and/or administrative services to investment
companies, which had aggregate assets under management in excess of $86.6
billion. See "Management of the Company and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of most other funds in the Smith Barney Shearson Group of Funds and
certain money market funds. Certain exchanges may be subject to a sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from any Smith
Barney
Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are declared
daily and paid on the last business day of the Smith Barney Shearson statement
month. Distributions of net realized long- and short-term capital gains, if
any,
are declared and paid annually after the end of the fiscal year in which they
are earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically unless otherwise specified by an investor in
additional shares of the same Class at current net asset value. Shares
acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Company is designed for long-term
investors and not for investors who intend to liquidate their investment after
a
short period. Neither the Company as a whole nor any particular fund in the
Company, including the Fund, constitutes a balanced investment plan. There can
be no assurance that the Fund will achieve its investment objective. The Fund
may employ investment techniques which involve certain risks, including
entering
into repurchase agreements and reverse repurchase agreements, lending
portfolio
securities, selling securities short and investing in foreign securities
through
the use of American Depositary Receipts. See "Investment Objective and
Management Policies -- Additional Investments."
6
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the costs and expenses
that an investor will incur either directly or indirectly as a shareholder of
the Fund based upon the maximum sales charge and maximum CDSC that may be
incurred at the time of purchase or redemption and an estimate of the Fund's
current operating expenses:
<TABLE>
<CAPTION>
CLASS A CLASS B
CLASS D
<S> <C> <C>
<C>
-----------------------------------------------------------------------------
- --------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% --
- --
Maximum CDSC (as a percentage of redemption
proceeds) -- 4.50%
- --
-----------------------------------------------------------------------------
- --------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.65% 0.65%
0.65%
12b-1 fees* 0.25% 0.75%
0.75%
Other expenses** 0.21% 0.18%
0.21%
-----------------------------------------------------------------------------
- --------
TOTAL FUND OPERATING EXPENSES 1.11% 1.58%
1.61%
-----------------------------------------------------------------------------
- --------
<FN>
*Upon conversion of Class B shares to Class A shares, such shares will no
longer be
subject to a distribution fee. Class D shares do not have a conversion
feature and,
therefore, are subject to an ongoing distribution fee.
**All expenses are based on data for the Fund's fiscal year ended December
31, 1993.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges
imposed upon purchases or redemptions of Fund shares and investors may pay
actual charges less than 4.50%, depending on the amount purchased and, in the
case of Class B shares, the length of time the shares are held and whether the
shares are held through the 401(k) Program. See "Purchase of Shares" and
"Redemption of Shares." Management fees payable by the Fund include investment
advisory fees paid to Greenwich Street Advisors at the maximum annual rate of
0.45% of the value of the Fund's average daily net assets and administration
fees paid to Boston Advisors at the maximum annual rate of 0.20% of the value
of
the Fund's average daily net assets. The nature of the services for which the
Fund is obligated to pay management fees is described under "Management of the
Company and the Fund." Smith Barney Shearson receives an annual Rule 12b-1
service fee of 0.25% of the value of average daily net assets of Class A
shares.
Smith Barney Shearson also receives with respect to Class B
7
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
shares and Class D shares an annual Rule 12b-1 fee of 0.75% of the value of
average daily net assets of Class B shares and Class D shares, respectively,
consisting of a 0.50% distribution fee and a 0.25% service fee. "Other
expenses"
in the above table include fees for shareholder services, custodial fees,
legal
and accounting fees, printing costs and registration fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to
a hypothetical $1,000 investment in the Fund assuming a 5.00% annual total
return. THE EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES AT THE
LEVELS SET FORTH IN THE ABOVE TABLE. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR
LESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5.00% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5.00%.
<TABLE>
<CAPTION>
3
1 YEAR YEARS 5 YEARS 10
YEARS*
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
- --
Class A shares:** $56 $79 $103 $174
Class B shares:
Assumes complete redemption at the
end of each time period*** $61 $80 $96 $175
Assumes no redemption $16 $50 $86 $175
Class D shares: $16 $51 $88 $191
-----------------------------------------------------------------------------
- --
<FN>
*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.
**Assumes deduction at the time of purchase of the maximum 4.50% sales
charge.
***Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
</TABLE>
8
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS & LYBRAND, INDEPENDENT
ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE FUND'S ANNUAL REPORT DATED
DECEMBER 31, 1993. THIS INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR IN THE FUND'S ANNUAL
REPORT DATED DECEMBER 31, 1993, WHICH IS INCORPORATED BY REFERENCE INTO THE
STATEMENT OF ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
12/31/93+++
12/31/92*
<S> <C>
<C>
Net Asset Value, beginning of period $ 11.89
$11.67
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.88
0.14
Net realized and unrealized gain on investments 1.27
0.23
- ------------------------------------------------------------------------------
- -------
Total from investment operations 2.15
0.37
Distributions to shareholders:
Distributions from net investment income (0.88)
(0.14)
Distributions in excess of net investment income (0.01)
- --
Distributions from net realized capital gains (0.14)
- --
Distributions from capital --
(0.01)
- ------------------------------------------------------------------------------
- -------
Total distributions (1.03)
(0.15)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 13.01
$11.89
- ------------------------------------------------------------------------------
- -------
Total return+ 18.73%
3.25%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $10,137 $
933
Ratio of operating expenses to average net assets 1.11%
1.03%**++
Ratio of net investment income to average net assets 6.67%
7.53%++
Portfolio turnover rate 65%
47%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992.
**The annualized operating expense ratio excludes interest expense. The ratio
including interest expense for the period ended December 31, 1992 was
1.04%.
+Total return represents aggregate total return for the period indicated and
does not
reflect any applicable sales charges.
++Annualized.
+++Per share amounts have been calculated using the monthly average share
method.
</TABLE>
9
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.*
<TABLE>
<CAPTION>
YEAR YEAR
YEAR YEAR
ENDED ENDED
ENDED ENDED
12/31/93+++ 12/31/92
12/31/91 12/31/90
<S> <C> <C>
<C> <C>
Net Asset Value, beginning of year $ 11.89 $ 11.80 $
10.43 $ 11.01
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.80 0.83
0.86 0.86
Net realized and unrealized gain/(loss) on
investments 1.29 0.12
1.38 (0.57)
- ------------------------------------------------------------------------------
- -------
Total from investment operations 2.09 0.95
2.24 0.29
Distributions to shareholders:
Distributions from net investment income (0.82) (0.83)
(0.87) (0.87)
Distributions in excess of net investment
income (0.01) --
- -- --
Distributions from net realized capital
gains (0.14) --
- -- --
Distributions from capital -- (0.03)
- -- --
- ------------------------------------------------------------------------------
- -------
Total distributions (0.97) (0.86)
(0.87) (0.87)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of year $ 13.01 $ 11.89 $
11.80 $ 10.43
- ------------------------------------------------------------------------------
- -------
Total return+ 18.06% 8.36%
22.50% 2.98%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental
data:
Net assets, end of year (in 000's) $476,008 $431,783
$413,878 $405,779
Ratio of operating expenses to average
net assets 1.58% 1.57%**
1.53% 1.58%
Ratio of net investment income to
average net assets 6.20% 6.99%
7.90% 8.20%
Portfolio turnover rate 65% 47%
82% 59%
- ------------------------------------------------------------------------------
- -------
<FN>
*On November 6, 1992 the Fund commenced selling Class A shares. Those shares
in existence
prior to November 6, 1992 were designated Class B shares.
**The operating expense ratio excludes interest expense. The ratio including
interest expense
for the year ended December 31, 1992 was 1.58%.
***Expense ratio before waiver of fees by the distributor for the year ended
December 31, 1989
was 1.66%.
+Total return represents aggregate total return for the period indicated and
does not reflect
any applicable sales charges.
++Not covered by Coopers & Lybrand's report.
+++Per share amounts have been calculated using the monthly average share
method.
#Net investment income before waiver of fees by the distributor for the year
ended December
31, 1989 was $0.86.
</TABLE>
10
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- ---------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
YEAR
ENDED ENDED ENDED ENDED ENDED
ENDED
12/31/89 12/31/88++ 12/31/87++ 12/31/86++ 12/31/85++
12/31/84++
<S> <C> <C> <C> <C>
<C>
$ 10.33 $ 10.55 $ 12.91 $ 12.00 $ 10.88
$ 10.86
- ------------------------------------------------------------------------------
- ------
0.87# 0.90 0.89 1.10 1.08
1.25
0.68 (0.24) (1.24) 1.16 1.54
0.14
- ------------------------------------------------------------------------------
- ------
1.55 0.66 (0.35) 2.26 2.62
1.39
(0.87) (0.88) (1.12) (1.10) (1.39)
(1.19)
-- -- -- -- --
- --
-- (0.89) (0.25) (0.11) (0.18)
-- -- -- -- --
- --
- ------------------------------------------------------------------------------
- ------
(0.87) (0.88) (2.01) (1.35) (1.50)
(1.37)
- ------------------------------------------------------------------------------
- ------
$ 11.01 $ 10.33 $ 10.55 $ 12.91 $ 12.00
$ 10.88
- ------------------------------------------------------------------------------
- ------
15.57% 6.43% (2.83)% 19.54% 26.43%
14.59%
- ------------------------------------------------------------------------------
- ------
$483,382 $532,794 $705,561 $421,011 $233,880
$171,621
1.63%*** 1.22% 1.62% 1.62% 1.79%
1.88%
8.07% 8.74% 7.96% 7.74% 9.78%
12.11%
118% 72% 79% 211% 717%
477%
- ------------------------------------------------------------------------------
- ------
</TABLE>
11
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
12/31/93*++
<S> <C>
Net Asset Value, beginning of period $12.56
- ------------------------------------------------------
Income from investment operations:
Net investment income 0.63
Net realized and unrealized gain on
investments 0.65
- ------------------------------------------------------
Total from investment operations 1.28
Distributions to shareholders:
Distributions from net investment income (0.68)
Distributions in excess of net investment
income (0.01)
Distributions from net realized capital
gains (0.14)
- ------------------------------------------------------
Total distributions (0.83)
- ------------------------------------------------------
Net Asset Value, end of period $13.01
- ------------------------------------------------------
Total return+ 10.38%
- ------------------------------------------------------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 208
Ratio of operating expenses to average net
assets 1.61%**
Ratio of net investment income to average
net assets 6.17%**
Portfolio turnover rate 65%
- ------------------------------------------------------
<FN>
*The Fund commenced selling Class D shares on
February 26, 1993.
**Annualized.
+Total return represents aggregate total return for
the period indicated.
++Per share amounts have been calculated using the
monthly average share method.
</TABLE>
12
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- ---------------------------------------------------------------------------
VARIABLE PRICING SYSTEM
The Smith Barney Shearson Group of Funds offers individual investors two
methods of purchasing shares, thus enabling investors to choose the Class that
best suits their needs, given the amount of purchase and intended length of
investment. A third class -- Class D -- is offered only to Participating
Plans.
CLASS A SHARES. Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 4.50% imposed at the time of purchase. The
initial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to an annual service fee of 0.25% of the value of the
Fund's
average daily net assets attributable to the Class. The annual service fee is
used by Smith Barney Shearson to compensate its Financial Consultants for
ongoing services provided to shareholders. The sales charge is used to
compensate Smith Barney Shearson for expenses incurred in selling Class A
shares. See "Purchase of Shares."
CLASS B SHARES. Class B shares are sold at net asset value per share subject
to a maximum 4.50% CDSC, which is assessed only if the shareholder redeems
shares within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Fund. After the first
year
after the purchase of shares, the CDSC declines to 4.00%. For each of the next
four years thereafter, the applicable CDSC declines by 1.00%; in year six, the
applicable CDSC is reduced to 0%. See "Purchase of Shares" and "Redemption of
Shares."
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.50% of the value of the Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearson's branch office overhead expenses
and marketing costs associated with Class B shares, such as preparation of
sales
literature, advertising and printing and distributing prospectuses, statements
of additional information and other materials to prospective investors in
Class
B shares. A Smith Barney Shearson Financial Consultant may receive different
levels of compensation for selling different Classes. Class B shares are
subject
to a distribution fee
13
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
VARIABLE PRICING SYSTEM (CONTINUED)
and are subject to higher transfer agency fees than Class A shares which
generally will cause Class B shares to have a higher expense ratio and pay
lower
dividends than Class A shares.
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
shares of each Class, and will no longer be subject to a distribution fee. In
addition, a certain portion of Class B shares that have been acquired through
the reinvestment of dividends and distributions ("Class B Dividend Shares")
will
be converted. That portion will be a percentage of the total number of
outstanding Class B Dividend Shares, which percentage will be determined by
the
ratio of the total number of Class B shares converting at the time to the
total
number of outstanding Class B shares (other than Class B Dividend Shares). The
first of these conversions will commence on or about September 30, 1994. The
conversion of Class B shares into Class A shares is subject to the continuing
availability of an opinion of counsel or an Internal Revenue Service ruling to
the effect that such conversions will not constitute taxable events for
federal
tax purposes.
CLASS D SHARES. Class D shares of the Fund are sold to Participating Plans
at
net asset value per share and are not subject to an initial sales charge or
CDSC. This Class of shares is subject to an annual service fee of 0.25% and an
annual distribution fee of 0.50% of the value of the Fund's average daily net
assets attributable to the Class. The distribution fee is used by Smith Barney
Shearson for expenses incurred in selling Class D shares, and the service fee
is
used to compensate Smith Barney Shearson Financial Consultants for ongoing
services provided to Class D shareholders. Class D shares are subject to a
distribution fee which will cause Class D shares to have a higher expense
ratio
and to pay lower dividends than Class A shares.
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
Set forth below is a description of the investment objective and policies of
the Fund. There can be no assurance that the Fund will achieve its investment
objective. Certain instruments and techniques discussed in this summary are
described in greater detail in this Prospectus under "Additional Investments"
and in the Statement of Additional Information. A description
14
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
of the rating systems of Moody's Investors Services Inc. ("Moody's") and
Standard & Poors Corporation ("S&P") is contained in the Appendix to the
Statement of Additional Information.
The Statement of Additional Information contains specific investment
restrictions which govern the Fund's investments. These restrictions and the
Fund's investment objective are fundamental policies, which means that they
may
not be changed without a majority vote of shareholders of the Fund. Except for
the objective and those restrictions specifically identified as fundamental,
all
investment policies and practices described in this Prospectus and in the
Statement of Additional Information are non-fundamental, so that the Board of
Directors may change them without shareholder approval. The fundamental
restrictions applicable to the Fund include a prohibition on (a) purchasing a
security if, as a result, more than 5% of the assets of the Fund would be
invested in the securities of the issuer (with certain exceptions) or the Fund
would own more than 10% of the outstanding voting securities of the issuer,
(b)
investing more than 10% of the Fund's total assets in "illiquid" securities
(which includes repurchase agreements with more than seven days to maturity),
and (c) investing more than 25% of the Fund's total assets in the securities
of
issuers in a particular industry (with exceptions for U.S. government
securities
and certain money market instruments).
The Fund's investment objective is to provide as high a level of current
income as is consistent with prudent investment management and preservation of
capital. The Fund seeks to achieve its objective by investing in any of the
following securities; corporate bonds rated Baa or better by Moody's or BBB or
better by S&P; U.S. government securities; commercial paper issued by domestic
corporations and rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P, or,
if not rated, issued by a corporation having an outstanding debt issue rated
Aa
or better by Moody's or AA or better by S&P; negotiable bank certificates of
deposit and bankers acceptances issued by domestic banks (but not their
foreign
branches) having total assets in excess of $1 billion; and high-yielding
common
stocks and warrants. Obligations rated in the lowest of the top four rating
categories (Baa by Moody's or BBB by S&P) may have speculative characteristics
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments, including
a
greater possibility of default or bankruptcy of the issuer, than is the case
15
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
with higher grade bonds. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the
minimum
required for the purchase by the Fund. In addition, it is possible that
Moody's
and S&P might not timely change their ratings of a particular issue to reflect
subsequent events. None of these events will require the sale of the
securities
by the Fund, although the investment adviser will consider these events in
determining whether the Fund should continue to hold the securities. To the
extent that the ratings given by Moody's or S&P for securities may change as a
result of changes in the rating systems or due to a corporate reorganization
of
Moody's and/or S&P, the Fund will attempt to use comparable ratings as
standards
for its investments in accordance with the investment objectives and policies
of
the Fund.
The Fund may enter into repurchase agreements, reverse repurchase
agreements,
firm commitment agreements, "short sales against the box" and may lend its
portfolio securities. Except when in a temporary defensive investment
position,
the Fund intends to maintain at least 65% of its assets invested in bonds.
The value of securities in which the Fund invests (and therefore, the Fund's
net asset value per share) generally will vary inversely with changes in
interest rates and also will fluctuate according to changes in market
conditions
and other factors.
In making purchases of securities consistent with the above policies, the
Fund
will be subject to the applicable restrictions referred to under "Investment
Restrictions" in the Statement of Additional Information.
ADDITIONAL INVESTMENTS
U.S. GOVERNMENT SECURITIES. U.S. government securities are obligations of,
or
are guaranteed by, the U.S. government, its agencies or instrumentalities.
These
include bills, certificates of indebtedness, and notes and bonds issued by the
U.S. Treasury or by agencies or instrumentalities of the U.S. government. Some
U.S. government securities, such as U.S. Treasury bills and bonds, are
supported
by the full faith and credit of the U.S. Treasury; others are supported by the
right of the issuer to borrow from the U.S. Treasury; others, such as those of
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. government to
16
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association and the Federal Home Loan Mortgage Corporation
("FHLMC") are supported only by the credit of the instrumentality. Mortgage
participation certificates issued by the FHLMC generally represent ownership
interests in a pool of fixed-rate conventional mortgages. Timely payment of
principal and interest on these certificates is guaranteed solely by the
issuer
of the certificates. Other investments will include Government National
Mortgage
Association Certificates ("GNMA Certificates"), which are mortgage-backed
securities representing part ownership of a pool of mortgage loans on which
timely payment of interest and principal is guaranteed by the full faith and
credit of the U.S. government. While the U.S. government guarantees the
payment
of principal and interest on GNMA Certificates, the market value of the
securities is not guaranteed and will fluctuate.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreement
transactions on U.S. government securities with certain member banks of the
Federal Reserve System having assets in excess of $100 million and with
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 an
underlying debt obligation for a relatively short period (usually not more
than
one week) subject to an obligation of the seller to repurchase, and the Fund
to
resell, the obligation at an agreed-upon price and time, thereby determining
the
yield during the Fund's holding period. This arrangement results in a fixed
rate
of return that is not subject to market fluctuations during the Fund's holding
period. The value of the underlying securities will be at least equal at all
times to the total amount of the repurchase obligation, including interest.
The
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed or prevented
from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during
the
period while the Fund seeks to assert these 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. The Fund's investment adviser
and
administrator, acting under the supervision of the Board of Directors, review
on
an ongoing basis the creditworthiness and the value of the collateral of those
banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
17
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement involves the
sale of a money market instrument by the Fund and its agreement to repurchase
the instrument at a specified time and price. The Fund will maintain a
segregated account consisting of U.S. government securities or cash or cash
equivalents to cover its obligations under reverse repurchase agreements with
broker-dealers (but not banks). The Fund will invest the proceeds in other
money
market instruments or repurchase agreements maturing not later than the
expiration of the reverse repurchase agreement. Under the Investment Company
Act
of 1940, as amended (the "1940 Act"), reverse repurchase agreements may be
considered borrowings by the seller; accordingly, the Fund will limit its
investments in reverse repurchase agreements and other borrowings to no more
than one-third of its total assets.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED PURCHASES. Firm commitment
agreements and when-issued purchases call for the purchase of securities at an
agreed-upon price on a specified future date, and would be used, for example,
when a decline in the yield of securities of a given issuer is anticipated. A
Fund as purchaser assumes the risk of any decline in value of the security
beginning on the date of the agreement or purchase. The Fund will not use such
transactions for leveraging purposes, and accordingly will segregate U.S.
government securities, cash or cash equivalents in an amount sufficient to
meet
its purchase obligations under the agreement.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
provided (a) the loan is secured continuously by collateral consisting of U.S.
government securities or cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned; (b) the Fund may at any time call the loan and
obtain
the return of the securities loaned; (c) the Fund will receive any interest or
dividends paid on the loaned securities; and (d) the aggregate market value of
securities loaned will not at any time exceed 20% of the total assets of the
Fund.
SHORT SALES. The Fund may sell securities "short against the box." While a
short sale is the sale of a security the Fund does not own, it is "against the
box" if at all times when the short position is open, the Fund owns an equal
amount of the securities or securities convertible into, or exchangeable
18
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
without further consideration for, securities of the same issue as the
securities sold short. Short sales "against the box" are used to defer
recognition of capital gains or losses.
AMERICAN DEPOSITARY RECEIPTS. The Fund may purchase American Depositary
Receipts ("ADRs"), which are dollar-denominated receipts issued generally by
domestic banks and 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.
PORTFOLIO TRANSACTIONS AND TURNOVER
Greenwich Street Advisors arranges for the purchase and sale of the Fund's
securities and selects broker-dealers which, in its best judgment, provide
prompt and reliable execution at favorable prices and reasonable commission
rates. Greenwich Street Advisors may select broker-dealers which provide it
with
research services and may cause the Fund to pay such broker-dealers
commissions
which exceed those other broker-dealers may have charged, if it views the
commissions as reasonable in relation to the value of the brokerage and/or
research services. Smith Barney Shearson and its affiliates may serve as
regular
brokers for the Fund in effecting portfolio transactions on a national
securities or commodities exchange, and may retain commissions, in accordance
with certain regulations of the SEC.
For reporting purposes, the Fund's portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
fiscal
year by the monthly average of the value of the Fund's securities, with money
market instruments with less than one year to maturity excluded. A 100%
portfolio turnover rate would occur, for example, if all included securities
were replaced once during the year. The Fund's portfolio turnover rates for
each
of the past fiscal years are set forth under "Financial Highlights."
19
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Company rests
with the Company's Board of Directors. The Directors approve all significant
agreements between the Company and companies that furnish services to the Fund
and the Company, including agreements with its distributor, investment
adviser,
administrator, custodian and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's investment adviser and administrator. The
Statement of Additional Information contains general and background
information
regarding each Director and executive officer of the Company.
INVESTMENT ADVISER -- GREENWICH STREET ADVISORS
Greenwich Street Advisors, located at Two World Trade Center, New York, New
York 10048, serves as the Fund's investment adviser. Greenwich Street Advisors
(through its predecessors) has been in the investment counseling business
since
1934 and is a division of MMC, which was incorporated in 1978. MMC is a
registered investment adviser whose principal executive offices are located at
1345 Avenue of the Americas. Greenwich Street Advisors renders investment
advice
to investment companies that had aggregate assets under management as of
December 31, 1993 in excess of $42.8 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
Greenwich Street Advisors manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies, makes investment decisions
for
the Fund, places orders to purchase and sell securities and employs
professional
portfolio managers and securities analysts who provide research services to
the
Fund. Under an investment advisory agreement, the Fund pays Greenwich Street
Advisors a monthly fee at the annual rate of 0.45% of the value of the Fund's
average daily net assets up to $500 million and 0.42% of the value of average
daily net assets thereafter. For the fiscal year ended December 31, 1993, the
Fund paid investment advisory fees to Greenwich Street Advisors in an amount
equal to 0.45% of the value of its average daily net assets.
20
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
PORTFOLIO MANAGEMENT
George Mueller, Senior Vice President of Taxable Fixed Income Management of
Greenwich Street Advisors, has served as the Investment Officer of the Fund
since January 1, 1985, and is primarily responsible for managing the day-to-
day
investment operations of the Fund, including the making of investment
decisions.
Mr. Mueller's management discussion and analysis of the Fund's performance
during the fiscal year ended December 31, 1993 (including a line graph
comparing
the Fund's performance to the Lehman Brothers Long-Term Corporate Bond Index)
is
included in the Fund's Annual Report to Shareholders dated December 31, 1993.
The Fund's Annual Report may be obtained upon request and without charge from
any Smith Barney Shearson Financial Consultant or by writing or calling the
Fund
at the address or phone number listed on page 1 of this Prospectus.
ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. Boston Advisors is an indirect wholly
owned
subsidiary of Mellon. Boston Advisors provides investment management,
investment
advisory and/or administrative services to investment companies which had
aggregate assets under management as of December 31, 1993, in excess of $86.6
billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists in all aspects of the Fund's administration and operation.
Under an administration agreement, the Fund pays Boston Advisors a fee at the
annual rate of 0.20% of the value of the Fund's average daily net assets up to
$500 million and 0.18% of the value of the Fund's average daily net assets
thereafter. For the fiscal year ended December 31, 1993, the Fund paid fees to
Boston Advisors in an amount equal to 0.20% of the value of the Fund's average
daily net assets.
21
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------
PURCHASE OF SHARES
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney Shearson or with an Introducing Broker, except that
investors
purchasing shares of the Fund through a qualified retirement plan may do so
directly through the Company's transfer agent. When purchasing shares of the
Fund, investors must specify whether the purchase is for Class A, Class B or,
in
the case of Participating Plans, Class D shares. No maintenance fee will be
charged in connection with a brokerage account through which an investor
purchases or holds shares. Purchases are effected at the public offering price
next determined after a purchase order is received by Smith Barney Shearson or
an Introducing Broker (the "trade date"). Payment generally is due to Smith
Barney Shearson or an Introducing Broker on the fifth business day (the
"settlement date") after the order is placed. Investors who make payment prior
to the settlement date may permit the payment to be held in their brokerage
accounts or may designate a temporary investment (such as a money market fund
in
the Smith Barney Shearson Group of Funds) for such payment until the
settlement
date. The Company reserves the right to reject any purchase order and to
suspend
the offering of shares for any period of time.
Purchase orders received by Smith Barney Shearson or the Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York
time, on any day the Fund's net asset value is calculated are priced according
to the net asset value determined on that day. Purchase orders received after
the close of regular trading on the NYSE are priced as of the time the net
asset
value per share is next determined. See "Valuation of Shares."
SYSTEMATIC INVESTMENT PLAN. The Fund offers shareholders a Systematic
Investment Plan under which shareholders may authorize Smith Barney Shearson
or
an Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid
automatically
from cash held in the shareholder's Smith Barney Shearson brokerage account or
through the automatic redemption of the shareholder's shares of a Smith Barney
Shearson money market fund. For further information regarding the Systematic
Investment Plan, shareholders should contact their Smith Barney Shearson
Financial Consultants.
MINIMUM INVESTMENTS. The minimum initial investment in the Fund is $1,000
and
the minimum subsequent investment is $200 except that for
22
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
purchases through (a) IRAs and Self-Employed Retirement Plans, the minimum
initial and subsequent investments are $250 and $100, respectively, (b)
retirement plans qualified under Sections 401(a) and 403(b)(7) of the Code,
the
minimum initial and subsequent investment is $25, and (c) the Fund's
Systematic
Investment Plan, the minimum initial and subsequent investments are both $100.
There are no minimum requirements for employees of Travelers and its
subsidiaries, including Smith Barney Shearson. The Company reserves the right
at
any time to vary the initial and subsequent investment minimums. Certificates
for Fund shares are issued upon request to the Company's transfer agent, TSSG.
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class next determined after a purchase order is received plus a sales
charge, which is imposed in accordance with the following schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE
AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET
VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- --------
Less than $25,000 4.50% 4.71%
$25,000 but under $50,000 4.00% 4.17%
$50,000 but under $100,000 3.50% 3.63%
$100,000 but under $250,000 3.00% 3.09%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 1.50% 1.52%
$1,000,000 or more** 0.00% 0.00%
- ------------------------------------------------------------------------------
- -------
<FN>
*Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and
Introducing Brokers that single investments of $250,000 or more should be
made in
Class A shares.
**No sales charge is imposed on purchases of Class A shares of $1 million or
more;
however, a CDSC of 0.75% is imposed on redemptions made within the first
year after
purchase. The CDSC on Class A shares will be payable to Smith Barney
Shearson which
compensates Smith Barney Shearson Financial Consultants upon the sale of
these
shares. The CDSC will be waived in the same circumstances in which the CDSC
applicable to Class B shares is waived. See "Redemption of Shares --
Contingent
Deferred Sales Charge -- Class B Shares -- Waivers of CDSC."
</TABLE>
REDUCED SALES CHARGES -- CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Fund shares to receive volume discounts. Investors eligible
to receive volume discounts include individuals and their
23
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
immediate families, tax-qualified employee benefit plans and trustees or other
professional fiduciaries (including a bank, or an investment adviser
registered
with the SEC under the Investment Advisers Act of 1940, as amended) purchasing
shares for one or more trust estates or fiduciary accounts even though more
than
one beneficiary is involved. The initial sales charge is also reduced to 1.0%
for Smith Barney Shearson Personal Living Trust program participants for whom
Smith Barney Shearson acts as trustee. Reduced sales charges on Class A shares
are also available under a combined right of accumulation, under which an
investor may combine the value of Class A shares already held in the Fund, in
any other fund in the Company and in any of the other funds in the Smith
Barney
Shearson Group of Funds listed below (except those sold without a sales
charge),
along with the value of the Class A shares being purchased, to qualify for a
reduced sales charge. For example, if an investor owns Class A shares of the
Fund, any other funds in the Company and other funds in the Smith Barney
Shearson Group of Funds that have an aggregate value of $22,000, and makes an
additional investment in Class A shares of the Fund of $4,000, the sales
charge
applicable to the additional investment would be 4.00%, rather than the 4.50%
normally charged on a $4,000 purchase. Investors interested in further
information regarding reduced sales charges should contact their Smith Barney
Shearson Financial Consultant.
Class A shares may be offered without any applicable sales charges to: (a)
employees of Travelers and its subsidiaries, including Smith Barney Shearson,
and employee benefit plans for such employees and their immediate families
when
orders on their behalf are placed by such employees; (b) accounts managed by
registered investment advisory subsidiaries of Travelers; (c) directors,
trustees or general partners of any investment company for which Smith Barney
Shearson serves as distributor; (d) any other investment company in connection
with the combination of such company with the Fund by merger, acquisition of
assets or otherwise; (e) shareholders who have redeemed Class A shares of the
Fund (or Class A shares of any other fund in the Company or of another fund in
the Smith Barney Shearson Group of Funds that are sold with a maximum 4.50%
sales charge) and who wish to reinvest their redemption proceeds in the Fund,
provided the reinvestment is made within 30 days of the redemption; and (f)
any
client of a newly-employed Smith Barney Shearson Financial Consultant (for a
period up to 90 days from the commencement of the Financial Consultant's
employment with Smith Barney Shearson), on the
24
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
condition that the purchase is made with the proceeds of the redemption of
shares of a mutual fund that (i) was sponsored by the Financial Consultant's
prior employer, (ii) was sold to a client by the Financial Consultant, and
(iii)
when purchased, such shares were sold with a sales charge or are subject to a
sales charge upon redemption.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of purchase. A
CDSC is imposed, however, on certain redemptions of Class B shares. See
"Redemptions of Shares" which describes the CDSC in greater detail.
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Smith
Barney
Shearson Financial Consultants and Introducing Brokers that all purchases of
shares of $250,000 or more should be in Class A shares. Smith Barney Shearson
reserves the right to vary these guidelines at any time.
SMITH BARNEY SHEARSON 401(K) PROGRAM
Shareholders investing in the Fund may be eligible to participate in the
401(k) Program, which is generally designed to assist employers or plan
sponsors
in the creation and operation of retirement plans qualified under Section
401(a)
of the Code. To the extent applicable, the same terms and conditions are
offered
to all Participating Plans in the 401(k) Program, which include 401(k) plans,
other types of participant directed, tax-qualified employee benefit plans and
employer-sponsored non-qualified employee benefit plans.
The Fund offers to Participating Plans three classes of shares, Class A,
Class
B and Class D shares, as investment alternatives under the 401(k) Program.
Class
A shares are available to all Participating Plans and are the only investment
alternative for Participating Plans that are eligible to purchase Class A
shares
at net asset value without a sales charge. In addition, Class B shares are
offered only to Participating Plans satisfying certain criteria with respect
to
the amount of the initial investment and number of employees eligible to
participate in the Plan at that time. Alternatively, Class D shares are
offered
only to Participating Plans that
25
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
meet other criteria relating to the amount of initial investment and number of
employees eligible to participate in the Plan at that time, as described
below.
The Class A and Class B shares acquired through the 401(k) Program are
subject
to the same service and/or distribution fees as, but different sales charge
and
CDSC schedules than, the Class A and Class B shares acquired by other
investors.
Class D shares acquired by Participating Plans are offered at net asset value
per share without any sales charges or CDSC. The Fund pays annual service and
distribution fees based on the value of the average daily net assets
attributable to this Class.
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. The sales charges for Class A shares acquired by
Participating
Plans are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE
AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF NET ASSET
VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- --------
Less than $25,000 4.50% 4.71%
$25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.50% 3.63%
$250,000 but under $500,000 3.00% 3.09%
$500,000 but under $750,000 2.50% 2.56%
$750,000 or more 0.00% 0.00%
- ------------------------------------------------------------------------------
- -------
</TABLE>
A Participating Plan will have a combined right of accumulation, under
which,
to qualify for a reduced sales charge, it may combine the value of Class A
shares being purchased with the value of Class A shares already held in the
Fund
and in any of the funds listed below under "Exchange Privilege" that are sold
with a sales charge.
Class A shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of Class A shares of
one
or more funds in the Smith Barney Shearson Group of Funds under the combined
right of accumulation described above; (b) has 250 or more employees eligible
to
participate in the Participating Plan at the time of
26
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
initial investment in the Fund; or (c) currently holds Class A shares in the
Fund that were received as a result of an exchange of Class B or Class D
shares
of the Fund as described below.
CLASS B SHARES. Under the 401(k) Program, Class B shares are offered to
Participating Plans that: (i) purchase less than $250,000 of Class B shares of
one or more funds in the Smith Barney Shearson Group of Funds that are sold
subject to a CDSC; and (ii) that have less than 100 employees eligible to
participate in the Participating Plan at the time of initial investment in the
Fund. Class B shares acquired by such Plans will be subject to a CDSC of 3% of
redemption proceeds, if redeemed within eight years of the date the
Participating Plan first purchases Class B shares. No CDSC is imposed to the
extent that the net asset value of the Class B shares redeemed does not exceed
(a) the current net asset value of Class B shares purchased through
reinvestment
of dividends or capital gains distributions, plus (b) the current net asset
value of Class B shares purchased more than eight years prior to the
redemption,
plus (c) increases in the net asset value of the shareholder's Class B shares
above the purchase payments made during the preceding eight years. The CDSC
applicable to a Participating Plan depends on the number of years since the
Participating Plan first became a holder of Class B shares, unlike the CDSC
applicable to other Class B shareholders, which depends on the number of years
since those shareholders made the purchase payment from which the amount is
being redeemed.
The CDSC will be waived on redemptions of 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 termination
of
employment of an employee in the Participating Plan, (c) the death or
disability
of an employee in the Participating Plan, (d) the attainment of age 59 1/2 by
an
employee in the Participating Plan, (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code or
(f) redemptions of Class B shares in connection with a loan made by the
Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class B
share, it will be offered the opportunity to exchange all of its Class B
shares
for Class A shares of the Fund. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of the
purchase date and, unless the exchange has been rejected in writing, the
27
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
exchange will occur on or about the eighth anniversary date. Once the exchange
has occurred, a Participating Plan will not be eligible to acquire additional
Class B shares of the Fund but instead may acquire Class A shares of the Fund.
If the Participating Plan elects not to exchange all of its Class B shares at
that time, each Class B share held by the Participating Plan will have the
same
conversion feature as Class B shares held by other investors. See "Variable
Pricing System -- Class B Shares."
CLASS D SHARES. Class D shares are offered to Participating Plans that: (i)
purchase less than $750,000 but more than $250,000 of Class D shares of one or
more funds in the Smith Barney Shearson Group of Funds that offer one or more
Classes of shares subject to a sales charge and/or CDSC; or (ii) have at least
100 but no more than 250 employees eligible to participate in the
Participating
Plan at the time of initial investment in the Fund.
Class D shares acquired by Participating Plans will be offered at net asset
value per share without any sales charges or CDSC. The Fund pays annual
service
and distribution fees based on the value of the average daily net assets
attributable to this Class. Class D shares are not subject to an automatic
conversion feature as are the Class B shares. However, beginning in December
1993 and each year thereafter, Participating Plans which hold Class D shares
valued at $750,000 or more in any fund or funds in the Smith Barney Shearson
Group of Funds that offer one or more Classes of shares subject to a sales
charge and/or CDSC will be offered the opportunity to exchange all of their
Class D shares for Class A shares. Such Plans will be notified of the pending
exchange 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 March in the following
calendar
year. Once the exchange has occurred, a Participating Plan will not be
eligible
to acquire Class D shares of the Fund but instead may acquire Class A shares
of
the Fund. Any Class D shares not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the Fund through the 401(k)
Program must purchase shares from the Fund's transfer agent. For further
information regarding the 401(k) Program, investors should contact their Smith
Barney Shearson Financial Consultant.
28
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Fund calculates its
net asset value. See "Valuation of Shares." Redemption requests received in
proper form prior to the close of regular trading on the NYSE are priced at
the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value
next determined. If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being redeemed. In the event of
a
failure to specify which Class or if the investor owns fewer shares of the
Class
than specified, the redemption request will be delayed until the Fund's
transfer
agent receives further instructions from Smith Barney Shearson, or if the
shareholder's account is not with Smith Barney Shearson, from the shareholder
directly.
The Fund normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney Shearson or the Introducing Broker at no
charge (other than any applicable CDSC) within seven days after receipt of a
redemption request. Generally, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney Shearson
will benefit from the use of temporarily uninvested funds. A shareholder who
pays for Fund shares by personal check will be credited with the proceeds of a
redemption of those shares only after the purchase check has been collected,
which may take up to 10 days or more. A shareholder who anticipates the need
for
more immediate access to his or her investment should purchase shares with
federal funds, by bank wire or by certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less
may
be subject to redemption by the Fund, but only after the shareholder has been
given at least 30 days in which to increase the account balance to $500 or
more.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A shareholder desiring to redeem shares represented by
certificates must also present such certificates to Smith Barney Shearson or
the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered.
29
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- ---------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
Redemption requests involving shares represented by certificates will not be
deemed received until such certificates are received by the Company's transfer
agent in proper form.
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submitting a written request to the Smith Barney Shearson Financial
Consultant.
All other shares may be redeemed by submitting a written request for
redemption
to:
Smith Barney Shearson Investment Grade Bond Fund
Class A, B or D (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to the Company's transfer agent, TSSG, or a
Smith
Barney Shearson Financial Consultant must (a) state the Class and number or
dollar amount of shares to be redeemed, (b) identify the shareholder's account
number and (c) be signed by each registered owner exactly as the shares are
registered. If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an endorsed
stock power) and must be submitted to TSSG together with the redemption
request.
Any signature appearing on a redemption request, share certificate or stock
power must be guaranteed by a domestic bank, savings and loan institution,
domestic credit union, member bank of a Federal Reserve System or member firm
of
a national securities exchange. TSSG may require additional supporting
documents
for redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until
TSSG
receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly. Retirement plan
accounts
are eligible for automatic cash withdrawal plans only where the shareholder is
eligible to receive qualified distributions and has an
30
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
account value of at least $5,000. Any applicable CDSC will be waived on
amounts
withdrawn by a shareholder that do not exceed 2.0% per month of the value of
shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. For further information regarding the automatic cash withdrawal
plan,
shareholders should contact their Smith Barney Shearson Financial Consultant.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years, except in the case of purchases by Participating Plans in the 401(k)
Program, as described above. See "Purchase of Shares -- Smith Barney Shearson
401(k) Program." No charge is imposed to the extent that the net asset value
of
the Class B shares redeemed does not exceed (a) the current net asset value of
Class B shares purchased through reinvestment of dividends or capital gains
distributions, plus (b) the current net asset value of Class B shares
purchased
more than five years prior to the redemption, plus (c) increases in the net
asset value of the shareholder's Class B shares above the purchase payments
made
during the preceding five years.
In circumstances in which the CDSC is imposed, 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, except in the case of purchases
through
Participating Plans in the 401(k) Program, which are subject to a different
CDSC. See "Purchase of Shares -- Smith Barney Shearson 401(k) Program." Solely
for purposes of determining the number of years since a purchase payment, all
purchase payments during a month will be aggregated and deemed to have been
made
on the last day of the
31
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
preceding Smith Barney Shearson statement month. The following table sets
forth
the rates of the charge for redemptions of Class B shares by shareholders
other
than Participating Plans:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
<S> <C>
- ------------------------------------------------------------------------------
- ----
First
4.50%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
- ------------------------------------------------------------------------------
- ----
</TABLE>
Class B shares will automatically convert to Class A shares approximately
eight years after the date on which they were purchased and thereafter will no
longer be subject to a distribution fee. The first of these conversions will
commence on or about September 30, 1994. See "Variable Pricing System-- Class
B
Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not
already been effected. In the case of redemptions of Class B shares of other
funds in the Company or of other funds in the Smith Barney Shearson Group of
Funds issued in exchange for Class B shares of the Fund, the term "purchase
payments" refers to the purchase payments for the shares given in exchange. In
the event of an exchange of Class B shares of funds with differing CDSC
schedules, the shares will be, in all cases, subject to the higher CDSC
schedule. See "Exchange Privilege."
WAIVERS OF CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"), (b) automatic cash withdrawals in amounts that do not exceed
2.00%
per month of the value of the shareholder's Class B shares at the time the
withdrawal plan commences (see above); (c) redemptions of shares following the
death or disability of the shareholder; (d) redemption of shares in connection
with certain post-retirement distributions and withdrawals from retirement
plans
or IRAs; (e) involuntary redemptions; (f) redemption proceeds from other funds
in the Smith Barney Shearson Group of Funds that are reinvested within 30 days
of the redemption;
32
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
(g) redemptions of shares in connection with a combination of any investment
company with the Fund by merger, acquisition of assets or otherwise, and (h)
certain redemptions of shares of the Fund in connection with lump-sum or other
distributions made by a Participating Plan. See "Purchase of Shares -- Smith
Barney Shearson 401(k) Program."
- --------------------------------------------------------------------
VALUATION OF SHARES
Each Class' net asset value per share is calculated separately on each day,
Monday through Friday, except on days when the NYSE is closed. The NYSE
currently is scheduled to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively.
The net asset value per share of a given Class is determined as of the later
of the close of regular trading on the NYSE (currently 4:00 p.m., New York
time)
or the Chicago Board Options Exchange (currently 4:15 p.m., New York time) and
is computed by dividing the value of the Fund's net assets attributable to
that
Class by the total number of shares of that Class outstanding.
A security that is primarily traded on a United States or foreign stock
exchange is valued at the last sale price on that exchange or, if there were
no
sales during the day, at the current quoted bid price. In cases where
securities
are traded on more than one exchange, the securities are valued on the
exchange
designated by or under the authority of the Board of Directors as the primary
market. Fund securities which are primarily traded on foreign exchanges may be
valued with the assistance of a pricing service and are generally valued at
the
preceding closing values of such securities on their respective exchanges,
except that when an occurrence subsequent to the time a foreign security is
valued is likely to have changed such value, then the fair value of those
securities will be determined by consideration of other factors by or under
the
direction of the Board of Directors. Unlisted foreign securities are valued at
the mean between the last available bid and offer price prior to the time of
valuation. U.S. over-the-counter securities will be
33
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
VALUATION OF SHARES (CONTINUED)
valued on the basis of the bid price at the close of business on each day.
Securities and assets for which market quotations are not readily available
are
valued at fair value as determined in good faith by or under the direction of
the Board of Directors. Notwithstanding the above, bonds and other fixed
income
securities are valued by using market quotations and may be valued on the
basis
of prices provided by a pricing service approved by the Board of Directors.
Any
assets or liabilities initially expressed in terms of foreign currencies will
be
converted into U.S. dollar values at the mean between the bid and offered
quotations of such currencies against U.S. dollars as last quoted by any
recognized dealer.
- ---------------------------------------------
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence:
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-----------------------------------------------------------------------------
- --
MUNICIPAL BOND FUNDS
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in
investment
grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate- and long-term municipal bond fund investing in
medium and lower rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
Arizona investors.
</TABLE>
34
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Massachusetts investors.
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term bond fund designed for
New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New York investors.
INCOME FUNDS
A, B, D+ SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME
FUND,
seeks high current income while limiting the degree of
fluctuation in net asset value resulting from movement in
interest rates.
</TABLE>
35
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests
in
a portfolio of high quality debt securities that may be
denominated in U.S. dollars or selected foreign currencies
and
that have remaining maturities of not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests
in
high quality, short-term debt securities denominated in U.S.
dollars as well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests
exclusively in securities issued by the U.S. Treasury and
other U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND,
seeks
high current income primarily by allocating and reallocating
its assets among various types of fixed-income securities.
A, B, D+ SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC., invests
in obligations issued or guaranteed by the United States
government and its agencies and instrumentalities with
emphasis on mortgage-backed government securities.
A, B, D+ SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a
high
current return by investing in U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income by investing in high-yielding corporate bonds,
debentures and notes.
A, B, D+ SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current income
and capital appreciation by investing in bonds, debentures
and
notes of foreign and domestic issuers.
</TABLE>
36
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
GROWTH AND INCOME FUNDS
A*, B*, D+ SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income
and capital appreciation by investing in convertible
securities.
A*, B*, D+ SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing in equity and debt securities of utilities
companies.
A*, B*, D+ SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high
total return consisting of current income and capital
appreciation by investing in a combination of equity, fixed-
income and money market securities.
A*, B*, D+ SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by investing in dividend-paying common stocks.
A*, B*, D+ SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks income
and
long-term capital growth by investing in income producing
equity securities.
GROWTH FUNDS
A*, B*, D+ SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-
term
appreciation of capital.
A*, B*, D+ SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks
long-term capital growth with current income as a secondary
objective.
A*, B*, D+ SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
A*, B*, D+ SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND, seeks
capital appreciation, with income as a secondary
consideration.
</TABLE>
37
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A*, B*, D+ SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A*, B*, D+ SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-term
capital appreciation by investing in equity securities
primarily of emerging growth companies.
A*, B*, D+ SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks
long-term capital growth by investing principally in the
common stocks of foreign and domestic issuers.
A*, B*, D+ SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in European countries.
A*, B*, D+ SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND
INC.,
seeks long-term capital appreciation by investing primarily
in
precious metal- and mineral-related companies and gold
bullion.
MONEY MARKET FUNDS
** SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of high quality money market
instruments.
*** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND, invests in a
variety of money market instruments.
*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND, invests
in
United States government and agency securities.
++ SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND, invests
in
short-term high quality municipal obligations.
++ SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND,
investors invests in short-term, high quality California
municipal obligations.
</TABLE>
38
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
++ SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND,
invests in short-term, high quality New York municipal
obligations.
--------------------------------------------------------------------
<FN>
*Shares of this fund are subject to a higher sales charge or CDSC than that
applicable to the Fund's shares.
**Shares of this money market fund may be exchanged for Class B shares of
the
Fund.
***Shares of this money market fund may be exchanged for Class A or Class D
shares of the Fund.
+Class D shares of this Fund may be acquired only by Participating Plans.
++Shares of this money market fund may be exchanged for Class A shares of
the
Fund.
</TABLE>
TAX EFFECT. The exchange of shares of one fund for shares of another fund is
treated for federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
CLASS A EXCHANGES. Class A shareholders of the Fund and other funds in the
Smith Barney Shearson Group of Funds sold without a sales charge or with a
maximum sales charge of 4.50% or less will be subject to the appropriate
"sales
charge differential" upon the exchange of their shares for Class A shares of
funds sold with a higher sales charge. The "sales charge differential" is
limited to a percentage rate no greater than the excess of the sales charge
rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sum of the rates of all sales charges previously paid on the
mutual fund shares relinquished in the exchange and on any predecessor of
those
shares. For purposes of the exchange privilege, shares obtained through
automatic reinvestment of dividends, as described below, are treated as having
paid the same sales charges applicable to the shares on which the dividends
were
paid. However, except in the case of the 401(k) Program, if no sales charge
was
imposed upon the initial purchase of the shares, any shares obtained through
automatic reinvestment will be subject to a sales charge differential upon
exchange.
CLASS B EXCHANGES. Class B shareholders of the Fund who wish to exchange all
or a portion of their Class B shares for Class B shares of any of the funds
identified above may do so without the imposition of an exchange
39
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
fee. In the event Class B shareholders of the Fund wish to exchange all or a
portion of their shares for Class B shares in any of the funds listed above
imposing a CDSC higher 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 which have been exchanged.
CLASS D EXCHANGES. Class D shares of the Fund will be exchangeable for Class
D
shares of the funds listed above. Class D shareholders who wish to exchange
all
or part of their Class D shares in any of these funds may do so without
charge.
Class D shares may be acquired only by Participating Plans.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Shareholders
exercising the exchange privilege with other funds in the Company or any other
fund in the Smith Barney Shearson Group of Funds should review the prospectus
relating to the exchanged-for shares carefully prior to making an exchange.
Smith Barney Shearson reserves the right to reject any exchange request and
the
exchange privilege may be modified or terminated at any time after written
notice to shareholders.
Although the exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the Fund's performance and its
shareholders.
The Fund's investment adviser may determine that a pattern of frequent
exchanges
is excessive and contrary to the best interests of the Fund's other
shareholders. In this event, the Fund's investment adviser will notify Smith
Barney Shearson, and Smith Barney Shearson may, at its discretion, decide to
limit additional purchases and/or exchanges by the shareholder. Upon such a
determination, Smith Barney Shearson 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 other Smith Barney Shearson funds ordinarily
available,
which position the shareholder would expect to maintain for a significant
period
of time. All relevant factors will be considered in determining what
constitutes
an abusive pattern of exchanges.
40
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
For further information regarding the exchange privilege or to obtain a
current prospectus for the other funds in the Company or any other fund in the
Smith Barney Shearson Group of Funds, shareholders should contact their Smith
Barney Shearson Financial Consultant.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013, and serves as distributor of the Fund's shares. Smith Barney Shearson
is
a wholly owned subsidiary of Smith Barney Shearson Holdings Inc., which is in
turn a wholly owned subsidiary of Travelers. Smith Barney Shearson is paid an
annual service fee with respect to Class A, Class B and Class D shares of the
Fund at the rate of 0.25% of the value of average daily net assets
attributable
to the respective Class. Smith Barney Shearson is also paid an annual
distribution fee with respect to Class B and Class D shares at the rate of
0.50%
of the value of average daily net assets attributable to that Class. The fees
are authorized pursuant to a distribution and service plan (the "Plan")
adopted
by the Fund pursuant to Rule 12b-1 under the 1940 Act and are used by Smith
Barney Shearson to pay its Financial Consultants for servicing shareholder
accounts and in the case of Class B and Class D shares, to cover expenses
primarily intended to result in the sale of those shares of the Fund. These
expenses include: costs of printing and distributing the Fund's Prospectus,
Statement of Additional Information and sales literature to prospective
investors; an allocation of overhead and other Smith Barney Shearson's branch
office distribution-related expenses; payments to and expenses of Smith Barney
Shearson Financial Consultants and other persons who provide support services
in
connection with the distribution of the shares; and accruals for interest on
the
amount of the foregoing expenses that exceed distribution fees and, in the
case
of Class B shares, the CDSC received by Smith Barney Shearson. The payments to
Smith Barney Shearson Financial Consultants for selling shares of a class
include a commission paid at the time of sale and a continuing fee for
servicing
shareholder accounts for as long as a shareholder remains a holder of that
Class. The service fee is credited at the rate of 0.25% of the value of the
average daily net assets of the Class that
41
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
remain invested in the Fund. Smith Barney Shearson Financial Consultants may
receive different levels of compensation for selling one Class of shares over
another.
Although it is anticipated that some promotional activities will be
conducted
on a Company-wide basis, payments made by a fund under the Plan generally will
be used to finance the distribution of shares of the Fund. Expenses incurred
in
connection with Company-wide activities may be allocated pro-rata among all
funds of the Company on the basis of their relative net assets.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson, and
the
payments may exceed distribution expenses actually incurred. The Company's
Board
of Directors evaluates the appropriateness of the Plan and its payment terms
on
a continuing basis and in doing so will consider all relevant factors,
including
expenses borne by Smith Barney Shearson and the amount received under the Plan
and the proceeds of the CDSC and sales charges received.
- --------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund will be treated separately from the Company's other funds in
determining the amount of dividends from net investment income and
distributions
of capital gains payable to shareholders. Dividends and any distributions
automatically are reinvested in additional shares at net asset value unless
the
shareholder has elected to receive distributions in cash. Dividends and
distributions are treated the same for tax purposes whether taken in cash or
reinvested in additional shares. The Fund declares dividends daily consisting
of
estimated daily net investment income, and pays dividends monthly. Any net
realized long-term capital gains, after utilization of capital loss
carryforwards, will be distributed at least annually. Net realized short-term
capital gains may be paid with the distribution of dividends from net
investment
income. The per share dividends and distributions on Class A shares will be
higher than the per share dividends
42
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
and distributions on Class B and Class D shares as a result of lower
distribution and transfer agency fees applicable to the Class A shares. See
"Variable Pricing System." In addition, as determined by the Board of
Directors,
distributions of the Fund may include a return of capital. Shareholders will
be
notified of the amount of any distribution that represents a return of
capital.
In order to comply with a calendar year distribution requirement under the
Code,
it may be necessary for the Fund to make distributions at times other than
those
set forth above.
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
federal tax purposes, the amount of investment income and capital gains earned
will be determined on a fund-by-fund basis, rather than on a Company-wide
basis.
The Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Code. In any taxable year in which the Fund so
qualifies and distributes at least 90% of its investment company taxable
income
(which includes, among other items, dividends, interest and the excess of any
net short-term capital gains over net long-term capital losses), the Fund (but
not its shareholders) generally will be relieved of federal income tax on the
investment company taxable income and net realized capital gains (the excess
of
net long-term capital gains over net short-term capital losses), if any,
distributed to shareholders. In order to qualify as a regulated investment
company, the Fund will be required to meet various Code requirements.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with this requirement.
Distributions of any investment company taxable income are taxable to
shareholders as ordinary income. Distributions of any net capital gains
designated by the Fund as capital gain dividends are taxable to shareholders
as
long-term capital gain regardless of the length of time a shareholder may have
held shares of the Fund.
Dividends (including capital gain dividends) declared by the Fund in
October,
November or December of any calendar year to shareholders of record on a date
in
such a month will be deemed to have been received by
43
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
shareholders on December 31 of that calendar year, provided that the dividend
is
actually paid by the Fund during January of the following calendar year.
Upon the disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder generally will realize a taxable gain or loss. Such
gain or loss generally will be a capital gain or loss if the shares are
capital
assets in the shareholder's hands, and generally will be long-term or short-
term
depending upon the shareholder's holding period for the shares. Any loss
realized by a shareholder on disposition of Fund shares held by the
shareholder
for six months or less will be treated as long-term capital loss to the extent
of any distributions of capital gains dividends received by the shareholder
with
respect to such shares.
Shareholders will be notified annually about the amounts of dividends and
distributions, including the amounts (if any) for that year which have been
designated as capital gain dividends. Dividends and distributions, and gains
realized upon a disposition of Fund shares, may also be subject to state,
local
or foreign taxes depending on each shareholder's particular situation.
Dividends, if any, consisting of interest from obligations of the U.S.
government and certain of its agencies and instrumentalities may be exempt
from
all state and local income taxes. Investors should consult their tax advisors
for specific information on the tax consequences of particular types of
distributions.
- --------------------------------------------------------------------
THE FUND'S PERFORMANCE
YIELD
From time to time, the Fund may advertise its 30-day "yield" for each Class
of
shares. The yield of a Class refers to the income generated by an investment
in
such Class over the 30-day period identified in the advertisement, and is
computed by dividing the net investment income per share earned by the Class
during the period by the net asset value per share on the last day of the
period. This income is "annualized" by assuming that the
44
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
amount of income is generated each month over a one-year period and is
compounded semi-annually. The annualized income is then shown as a percentage
of
the net asset value.
The Fund's yield for Class A, Class B and Class D shares for the 30-day
period
ended December 31, 1993, were 6.50%, 6.29% and 6.30%, respectively.
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total return"
over various periods of time for each Class of shares. Such total return
figures
show the average percentage change in value of an investment in the Class from
the beginning date of the measuring period to the end of the measuring period.
These figures reflect changes in the price of the shares and assume that any
income dividends and/or capital gains distributions made by the Fund during
the
period were reinvested in shares of the same Class. Class A total return
figures
include the maximum initial 4.50% sales charge and Class B total return
figures
include any applicable CDSC. These figures also take into account the service
and distribution fees, if any, payable with respect to the Classes.
Total return figures will be given for recent one-, five- and ten-year
periods
or the life of a Class to the extent it has not been in existence for any such
period, and may be given for other periods as well, such as on a year-by-year
basis. When considering average annual total return figures for periods longer
than one year, it is important to note that the total return for any one year
in
the period might have been greater or less than the average for the entire
period. "Aggregate" total return figures may be used for various periods,
representing the cumulative change in value of an investment in the shares for
the specific period (again reflecting changes in the Fund's share prices and
assuming reinvestment of dividends and distributions). Aggregate total returns
may be calculated either with or without the effect of the maximum 4.50% sales
charge or any applicable CDSC and may be shown by means of schedules, charts
or
graphs, and may indicate subtotals of the various components of total return
(I.E., change in the value of initial investment, income dividends, and
capital
gains distributions). Because of the differences in sales charges and
distribution and other fees, the total returns for each of the Classes will
differ.
45
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
In reports or other communications to shareholders or in advertising
material,
performance of a Class may be compared with that of other mutual funds or
classes of shares of other funds listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds or with other appropriate indices of investment
securities such as the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average and Morgan Stanley Capital International World
Index. The performance information may also include evaluations of the Fund
published by nationally recognized financial publications such as BARRON'S,
BUSINESS WEEK, CDA INVESTMENT TECHNOLOGIES, INC., FORBES, FORTUNE,
INSTITUTIONAL
INVESTOR, INVESTORS DAILY, KIPLINGER'S PERSONAL FINANCE MAGAZINE, MONEY,
MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES, THE WALL STREET JOURNAL
and
USA TODAY. It is important to note that yield and total return figures are
based
on historical earnings and are not intended to indicate future performance. To
the extent any advertisement or sales literature of the Fund describes the
expenses or performance of a Class, it will also disclose such information for
the other Classes. For a description of the methods used to determine total
return for the Fund, see the Statement of Additional Information. Performance
figures may be obtained from any Smith Barney Shearson Financial Consultant.
- --------------------------------------------------------------------
ADDITIONAL INFORMATION
The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The
Company commenced operations on January 4, 1982 under the name "Hutton
Investment Series Inc". The Company's corporate name was changed to "SLH
Investment Portfolios Inc." on December 29, 1988. On October 23, 1992, the
Board
of Directors of the Company authorized the Company to do business under the
name
of "Shearson Lehman Brothers Investment Funds" and also authorized a change in
the name of the Fund to Investment Grade Bond Fund. On July 30, 1993, the
Company's corporate name was changed to its current name "Smith Barney
Shearson
Investment Funds Inc." and the Fund's name was changed to "Smith Barney
Shearson
Investment Grade Bond Fund."
46
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
The Fund offers shares of common stock currently classified into three
Classes, A, B and D, with a par value of $.001 per share. Each Class of shares
has the same rights, privileges and preferences, except with respect to: (a)
the
designation of each Class; (b) the effect of the respective sales charges, if
any, for each Class; (c) the distribution and/or service fees borne by each
Class; (d) the expenses allocable exclusively to each Class; (e) voting rights
on matters exclusively affecting a single Class; (f) the exchange privilege of
each Class; and (g) the conversion feature of the Class B shares. The Board of
Directors does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes of shares of the Fund. The
Directors, on an ongoing basis, will consider whether any such conflict exists
and, if so, take appropriate action.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place,
Boston, Massachusetts 02108, and serves as custodian of the Company's
investments.
TSSG, a subsidiary of FDC, is located at Exchange Place, Boston,
Massachusetts
02109, and serves as the Company's transfer agent.
The Company does not hold annual shareholder meetings. There normally will
be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any
purpose
upon written request of shareholders holding at least 10% of the Company's
outstanding shares. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full share owned and a
proportionate, fractional vote for any fractional share held of that Class.
Generally, shares of the Company will be voted on a Company-wide basis on all
matters except matters affecting only the interests of one Fund or one Class
of
shares.
The Fund sends its shareholders a semi-annual report and an audited annual
report, each of which includes a list of the investment securities held by the
Fund at the end of the reporting period. In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to consolidate the mailing of its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. In addition, the Fund also plans to
consolidate the mailing of its Prospectuses so that a shareholder
47
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
having multiple accounts (I.E., individual, IRA and/or Self-Employed
Retirement
Plan accounts) will receive a single Prospectus annually. When the Fund's
annual
reports are combined with the Prospectus into a single document, the Fund will
mail the combined document to each shareholder to comply with legal
requirements. Any shareholder who does not want this consolidation to apply to
his or her account should contact his/her Smith Barney Shearson Financial
Consultant or the Company's transfer agent.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT
OF
ADDITIONAL INFORMATION AND/OR IN THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE FUND'S SHARES AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
48
<PAGE>
SMITH BARNEY SHEARSON
INVESTMENT
GRADE BOND
FUND
Two World Trade Center
New York, New York 10048
Fund 104, 234, 242
FD0233 B4
PART A
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
PROSPECTUS
SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND
<PAGE>
MARCH 1, 1994
SMITH BARNEY SHEARSON
SPECIAL
EQUITIES
FUND
PROSPECTUS BEGINS
ON PAGE ONE.
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
PROSPECTUS March 1, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Special Equities Fund (the "Fund") has an investment
objective of long-term capital appreciation by investing in a diversified
managed portfolio of common stocks or securities convertible into or
exchangeable for common stocks, primarily of secondary growth companies as
identified by the Fund's investment adviser.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Shearson Investment Funds Inc.
(the "Company"). The Company is an open-end management investment company
commonly referred to as a mutual fund.
This Prospectus briefly sets forth certain information about the Company and
the Fund, including sales charges, distribution and service fees and expenses,
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and to retain it
for
future reference. Shares of other funds offered by the Company are described
in
separate Prospectuses that may be obtained by calling the Company at the
telephone number set forth above or by contacting any Smith Barney Shearson
Financial Consultant. The net asset value per share of the Fund will fluctuate
in response to changes in market conditions and other factors.
Additional information about the Company and the Fund is contained in a
Statement of Additional Information dated March 1, 1994, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Company at the telephone number or address
set
forth above or by contacting any Smith Barney Shearson Financial Consultant.
The
Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY SHEARSON INC.
Distributor
GREENWICH STREET ADVISORS
Investment Adviser
THE BOSTON COMPANY ADVISORS, INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
----------------------------------------------------------------
FINANCIAL HIGHLIGHTS 9
----------------------------------------------------------------
VARIABLE PRICING SYSTEM 13
----------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
----------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 19
----------------------------------------------------------------
PURCHASE OF SHARES 20
----------------------------------------------------------------
REDEMPTION OF SHARES 28
----------------------------------------------------------------
VALUATION OF SHARES 32
----------------------------------------------------------------
EXCHANGE PRIVILEGE 33
----------------------------------------------------------------
DISTRIBUTOR 39
----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 41
----------------------------------------------------------------
THE FUND'S PERFORMANCE 43
----------------------------------------------------------------
ADDITIONAL INFORMATION 44
----------------------------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION. CROSS REFERENCES IN THIS SUMMARY ARE TO HEADINGS IN THE
PROSPECTUS.
SEE THE "TABLE OF CONTENTS."
BENEFITS TO INVESTORS THE FUND OFFERS INVESTORS SEVERAL IMPORTANT BENEFITS:
- - Investment liquidity through convenient purchase and redemption procedures.
- - A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
- - Different methods for purchasing shares that allow investment flexibility
and
a wider range of investment alternatives.
- - An automatic dividend reinvestment feature, plus an exchange privilege
within
the same class of shares of the other funds in the Company and of most
other
funds in the Smith Barney Shearson Group of Funds.
INVESTMENT OBJECTIVE The Fund is an open-end diversified management investment
company that seeks long-term capital appreciation by investing in equity
securities consisting of common stocks or securities which are convertible
into
or exchangeable for such stocks, including warrants, which the investment
adviser believes to have superior appreciation potential. See "Investment
Objective and Management Policies."
VARIABLE PRICING SYSTEM 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 two
classes
of shares, Class A shares and Class B shares, which differ principally in
terms
of the sales charges and rates of expenses to which they are subject. In
addition, a third class -- Class D shares -- is offered only to plans
participating in the Smith Barney Shearson 401(k) Program (the "401(k)
Program"). See "Variable Pricing System" and "Purchase of Shares -- Smith
Barney
Shearson 401(k) Program."
3
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 5.00%. The Fund pays an annual service fee of
0.25% of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 5.00% of redemption
proceeds, declining by 1.00% each year after the date of purchase to zero. The
Fund pays an annual service fee of 0.25% and an annual distribution fee of
0.75%
of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, approximately eight years after the
date of original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. The first of these conversions will
commence on or about September 30, 1994. See "Variable Pricing System -- Class
B
Shares."
SMITH BARNEY SHEARSON 401(K) PROGRAM Investors may be eligible to participate
in
the 401(k) Program, which is generally designed to assist employers or 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 and
employer
sponsored non-qualified employee benefit plans (collectively, "Participating
Plans"). Class A, Class B and Class D shares are available as investment
alternatives for Participating Plans. Class A and Class B shares acquired
through the 401(k) Program are subject to the same service and/or distribution
fees as, but different sales charges and CDSC schedules than, the Class A and
Class B shares acquired by other investors. Class D shares acquired by
Participating Plans are offered at net asset value per share without any sales
charges or CDSC. The Fund pays annual service and distribution fees based on
the
value of average daily net assets attributable to this Class. See "Purchase of
Shares -- Smith Barney Shearson 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Company's distributor,
Smith Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that clears
securities transactions through Smith Barney Shearson on a fully disclosed
basis
(an "Introducing Broker"). Direct purchases of certain
4
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
retirement plans may be made through The Shareholder Services Group, Inc.
("TSSG"), the Company's transfer agent, a subsidiary of First Data Corporation
("FDC"). Smith Barney Shearson recommends that, in most cases, single
investments of $250,000 or more should be in Class A shares. See "Purchase of
Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Employed
Retirement Plans, the minimum initial investment requirement is $250 and the
minimum subsequent investment requirement is $100 and for certain qualified
retirement plans, the minimum initial and subsequent investment requirement is
$25. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund also offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount not less
than
$100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A and Class D shares are
redeemable at net asset value and Class B shares are redeemable at net asset
value less any applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Greenwich Street Advisors Division ("Greenwich Street
Advisors") of Mutual Management Corp. ("MMC") serves as the Fund's investment
adviser. MMC provides investment advisory and management services to
investment
companies affiliated with Smith Barney Shearson. MMC is controlled by Smith
Barney Shearson Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of The Travelers Inc. (which was formerly known as Primerica
Corporation) ("Travelers"), a diversified financial services holding company
principally engaged in the businesses of providing investment, consumer
finance,
and insurance services. As of December 31, 1993, Greenwich Street Advisors had
aggregate assets under management in excess of $42.8 billion.
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), a financial services holding company which
5
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
in turn is an indirect wholly owned subsidiary of Mellon Bank Corporation
("Mellon"). As of December 31, 1993, Boston Advisors provides investment
management, investment advisory, and/or administrative services to investment
companies which had aggregate assets under management in excess of $86.6
billion. See "Management of the Company and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of most other funds in the Smith Barney Shearson Group of Funds and
certain money market funds. Certain exchanges may be subject to a sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from any Smith
Barney
Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends and distributions are paid at least
annually from net investment income and net realized long-and short-term
capital
gains. See "Dividends, Distributions and Taxes" and "Variable Pricing System."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically unless otherwise specified by an investor in
additional shares of the same Class at current net asset value. Shares
acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Company is designed for long-term
investors and not for investors who intend to liquidate their investment after
a
short period. Neither the Company as a whole nor any particular fund in the
Company, including the Fund, constitutes a balanced investment plan. There can
be no assurance that the Fund will achieve its investment objective. The Fund
may employ investment techniques which involve certain risks, including
entering
into repurchase agreements, lending portfolio securities, investing in
restricted securities, selling securities short and investing in foreign
securities through the use of American Depositary Receipts. See "Investment
Objective and Management Policies -- Additional Investments."
6
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the costs and expenses
that an investor will incur either directly or indirectly as a shareholder of
the Fund based upon the maximum sales charge and maximum CDSC that may be
incurred at the time of purchase or redemption and an estimate of the Fund's
current operating expenses:
<TABLE>
<CAPTION>
CLASS A CLASS B
CLASS D
<S> <C> <C>
<C>
-----------------------------------------------------------------------------
- --------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% --
- --
Maximum CDSC (as a percentage of redemption
proceeds) -- 5.00%
- --
-----------------------------------------------------------------------------
- --------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.75% 0.75%
0.75%
12b-1 fees* 0.25 1.00
1.00
Other expenses** 0.67 0.59
0.44
-----------------------------------------------------------------------------
- --------
TOTAL FUND OPERATING EXPENSES 1.67% 2.34%
2.19%
-----------------------------------------------------------------------------
- --------
<FN>
*Upon conversion of Class B shares to Class A shares, such shares will no
longer be
subject to a distribution fee. Class D shares do not have a conversion
feature and,
therefore, are subject to an ongoing distribution fee.
**All expenses are based on data for the Fund's fiscal year ended December
31, 1993.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges
imposed upon purchases or redemptions of Fund shares and investors may pay
actual charges less than 5.00%, depending on the amount purchased and, in the
case of Class B shares, the length of time the shares are held and whether
shares are held through the 401(k) Program. See "Purchase of Shares" and
"Redemption of Shares." Management fees payable by the Fund include investment
advisory fees paid to Greenwich Street Advisors at the annual rate of 0.55% of
the value of the Fund's average daily net assets and administration fees paid
to
Boston Advisors at the annual rate of 0.20% of the value of the Fund's average
daily net assets. The nature of the services for which the Fund is obligated
to
pay management fees is described under "Management of the Company and the
Fund."
Smith Barney Shearson receives an annual Rule 12b-1 service fee of 0.25% of
the
value of average daily net assets of Class A shares. Smith Barney Shearson
also
receives, with respect to Class B and Class D shares,
7
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
an annual Rule 12b-1 fee of 1.00% of the value of average daily net assets of
Class B shares and Class D shares, respectively, consisting of a 0.75%
distribution fee and a 0.25% service fee. "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to
a hypothetical $1,000 investment in the Fund assuming a 5.00% annual total
return. THE EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES AT THE
LEVELS SET FORTH IN THE ABOVE TABLE. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR
LESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5.00% ANNUAL
RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5.00%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10
YEARS*
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
- ---
Class A shares**: $ 66 $ 100 $ 136 $
238
Class B shares:
Assumes complete redemption at the
end of each time period*** 74 103 135
251
Assumes no redemption 24 73 125
251
Class D shares: 22 69 117
252
-----------------------------------------------------------------------------
- ---
<FN>
*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.
**Assumes deduction at the time of purchase of the maximum 5.00% sales
charge.
***Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
</TABLE>
8
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS & LYBRAND, INDEPENDENT
ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE FUND'S ANNUAL REPORT DATED
DECEMBER 31, 1993. THE INFORMATION SET OUT BELOW SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR IN THE FUND'S
ANNUAL REPORT DATED DECEMBER 31, 1993, WHICH IS INCORPORATED BY REFERENCE INTO
THE STATEMENT OF ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
12/31/93++
12/31/92*
<S> <C> <C>
Net Asset Value, beginning of period $ 15.47 $
14.13
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment loss (0.08)
(0.01)
Net realized and unrealized gain on investments 5.17
1.35
- ------------------------------------------------------------------------------
- -------
Distributions from net realized gains (0.33) -
- -
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 20.23 $
15.47
- ------------------------------------------------------------------------------
- -------
Total return+ 32.90%
9.48%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 50,121 $
195
Ratio of operating expenses to average net assets 1.67%
1.51%**
Ratio of net investment loss to average net
assets (0.46)%
(0.97)%**
Portfolio turnover rate 112%
211%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not
reflect any applicable sales charges.
++Per share amounts have been calculated using the monthly average share
method.
</TABLE>
9
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.*
<TABLE>
<CAPTION>
YEAR YEAR YEAR
YEAR YEAR
ENDED ENDED ENDED
ENDED ENDED
12/31/93+++ 12/31/92
12/31/91 12/31/90 12/31/89
<S> <C> <C> <C>
<C> <C>
Net Asset Value, beginning of year $ 15.47 $ 14.18 $
9.82 $ 13.77 $ 12.04
- ------------------------------------------------------------------------------
- -------
Income from investment
operations:
Net investment income/(loss) (0.20) (0.26)
(0.07) 0.29 0.28
Net realized and unrealized gain/
(loss) on investments 5.14 1.55
4.46 (3.70) 1.96
- ------------------------------------------------------------------------------
- -------
Total from investment operations 4.94 1.29
4.39 (3.41) 2.24
Distributions to shareholders:
Distributions from net investment
income -- -- --
(0.29) (0.27)
Distributions from net realized
gains (0.33) -- --
(0.23) --
Distributions from capital -- --
(0.03) (0.02) (0.24)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.33) 0.00
(0.03) (0.54) (0.51)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of year $ 20.08 $ 15.47 $
14.18 $ 9.82 $ 13.77
- ------------------------------------------------------------------------------
- -------
Total return+ 31.93% 9.10%
44.76% (24.71)% 18.60%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/
supplemental data:
Net assets, end of year (in 000's) $ 138,401 $ 78,130 $
81,618 $ 76,009 $ 141,630
Ratio of operating expenses to
average net assets 2.34% 2.32%
2.31% 2.30% 2.34%
Ratio of net investment income/
(loss) to average net assets (1.13)% (1.77)%
(0.74)% 2.12% 1.69%
Portfolio turnover rate 112% 211%
379% 372% 228%
- ------------------------------------------------------------------------------
- -------
<FN>
*On November 6, 1992 the Fund commenced selling Class A shares. Those shares
in existence prior to November 6,
1992 were designated Class B shares.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable
sales charges.
+++Per share amounts have been calculated using the monthly average share
method.
</TABLE>
10
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR
YEAR YEAR YEAR
ENDED ENDED
ENDED ENDED ENDED
12/31/88++ 12/31/87++
12/31/86++ 12/31/85++ 12/31/84++
<S> <C> <C> <C>
<C> <C>
Net Asset Value, beginning of year $ 11.48 $ 13.02 $
13.15 $ 9.94 $ 11.83
- ------------------------------------------------------------------------------
- -------
Income from investment
operations:
Net investment income/(loss) 0.71# (0.10)
(0.05) 0.05 0.21
Net realized and unrealized gain/
(loss) on investments 0.70 (1.30)
0.97 3.37 (1.35)
- ------------------------------------------------------------------------------
- -------
Total from investment operations 1.41 (1.40)
0.92 3.42 (1.14)
Distributions to shareholders:
Distributions from net investment
income (0.55) --
(0.05) (0.21) (0.05)
Distributions from net realized
gains (0.30) (0.14)
(1.00) -- (0.70)
Distributions from capital -- -- --
- -- --
- ------------------------------------------------------------------------------
- -------
Total distributions (0.85) (0.14)
(1.05) (0.21) (0.75)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of year $ 12.04 $ 11.48 $
13.02 $ 13.15 $ 9.94
- ------------------------------------------------------------------------------
- -------
Total return+ 12.60% (10.91)%
7.05% 35.17% (10.24)%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/
supplemental data:
Net assets, end of year (in 000's) $ 169,983 $ 178,905 $
214,419 $ 163,468 $ 129,856
Ratio of operating expenses to
average net assets 2.32%** 2.09%
2.12% 2.20% 2.10%
Ratio of net investment income/
(loss) to average net assets 5.23% (0.63)%
(0.34)% 0.43% 2.01%
Portfolio turnover rate 165% 148%
114% 146% 163%
- ------------------------------------------------------------------------------
- -------
<FN>
**Expense ratio before reimbursement of expenses by investment adviser and
sub-investment adviser and
administrator for the year ended December 31, 1988 was 2.39%.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable
sales charges.
++Not covered by Coopers & Lybrand's report.
#Net investment income before reimbursement of expenses by investment adviser
and sub-investment adviser and
administrator for the year ended December 31, 1988 was $0.70.
</TABLE>
11
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<S> <C>
PERIOD
ENDED
12/31/93*++
Net Asset Value, beginning of period $ 22.62
- -----------------------------------------------------------------
Income from investment operations:
Net investment loss (0.16)
Net realized and unrealized loss on investments (2.05)
- -----------------------------------------------------------------
Total from investment operations (2.21)
Distributions from net realized gains (0.33)
- -----------------------------------------------------------------
Net Asset Value, end of period $ 20.08
- -----------------------------------------------------------------
Total return+ (9.77)%
- -----------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 185
Ratio of operating expenses to average net assets 2.19 %**
Ratio of net investment loss to average net
assets (0.98)%**
Portfolio turnover rate 112 %
- -----------------------------------------------------------------
<FN>
*The Fund commenced selling Class D shares on October 18, 1993.
**Annualized.
+Total return represents aggregate total return for the period
indicated.
++Per share amounts have been calculated using the monthly
average share method.
</TABLE>
12
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
VARIABLE PRICING SYSTEM
The Smith Barney Shearson Group of Funds offers individual investors two
methods of purchasing shares, thus enabling investors to choose the Class of
shares that best suits their needs, given the amount of purchase and intended
length of investment. A third class -- Class D shares -- is offered only to
Participating Plans.
CLASS A SHARES. Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 5.00% imposed at the time of purchase. The
initial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to an annual service fee of 0.25% of the value of the
Fund's
average daily net assets attributable to the Class. The annual service fee is
used by Smith Barney Shearson to compensate its Financial Consultants for
ongoing services provided to shareholders. The sales charge is used to
compensate Smith Barney Shearson for expenses incurred in selling Class A
shares. See "Purchase of Shares."
CLASS B SHARES. Class B shares are sold at net asset value per share subject
to a maximum 5.00% CDSC, which is assessed only if the shareholder redeems
shares within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Fund. For each year of
investment within the five-year time frame, the applicable CDSC declines by
1.00%; in year six, the applicable CDSC is reduced to 0%. See "Purchase of
Shares" and "Redemption of Shares."
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the value of the Fund's average daily net assets
attributable to the Class B shares. Like the service fee applicable to Class A
shares, the Class B service fee is used to compensate Smith Barney Shearson
Financial Consultants for ongoing services provided to shareholders.
Additionally, the distribution fee paid with respect to Class B shares
compensates Smith Barney Shearson for expenses incurred in selling those
shares,
including expenses such as sales commissions, Smith Barney Shearson's branch
office overhead expenses, and marketing costs associated with Class B shares,
such as preparation of sales literature, advertising and printing and
distributing prospectuses, statements of additional information and other
materials to prospective investors in Class B shares. A Smith Barney Shearson
Financial Consultant may receive different levels of compensation for selling
different Classes. Class B shares are subject to a
13
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
VARIABLE PRICING SYSTEM (CONTINUED)
distribution fee and are subject to higher transfer agency fees than Class A
shares which generally will cause Class B shares to have a higher expense
ratio
and pay lower dividends than Class A shares.
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
shares of each of the Classes, and will no longer be subject to a distribution
fee. In addition, a certain portion of Class B shares that have been acquired
through the reinvestment of dividends and distributions ("Class B Dividend
Shares") will be converted at that time. That portion will be a percentage of
the total number of outstanding Class B Dividend Shares, which percentage will
be determined by the ratio of the total number of Class B shares converting at
the time to the total number of outstanding Class B shares (other than Class B
Dividend Shares). The first of these conversions will commence on or about
September 30, 1994. The conversion of Class B shares into Class A shares is
subject to the continuing availability of an opinion of counsel or an Internal
Revenue Service ruling to the effect that such conversions will not constitute
taxable events for federal tax purposes.
CLASS D SHARES. Class D shares of the Fund are sold to Participating Plans
at
net asset value per share and are not subject to an initial sales charge or
CDSC. This Class of shares is subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the value of the Fund's average daily net
assets attributable to the Class. The distribution fee is used by Smith Barney
Shearson for expenses incurred in selling Class D shares, and the service fee
is
used to compensate Smith Barney Shearson Financial Consultants for ongoing
services provided to Class D shareholders. Class D shares are subject to a
distribution fee which will cause Class D shares to have a higher expense
ratio
and to pay lower dividends than Class A shares.
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
Set forth below is a description of the investment objective and policies of
the Fund. There can be no assurance that the Fund will achieve its investment
objective. Certain instruments and techniques discussed in this summary are
described in greater detail in this Prospectus under "Additional Investments"
and in the Statement of Additional Information.
14
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Statement of Additional Information contains specific investment
restrictions which govern the Fund's investments. These restrictions and the
Fund's investment objective are fundamental policies, which means that they
may
not be changed without a majority vote of shareholders of the Fund. Except for
the objective and those restrictions specifically identified as fundamental,
all
investment policies and practices described in this Prospectus and in the
Statement of Additional Information are non-fundamental, so that the Board of
Directors may change them without shareholder approval. The fundamental
restrictions applicable to the Fund include a prohibition on (a) purchasing a
security if, as a result, more than 5% of the assets of the Fund would be
invested in the securities of the issuer (with certain exceptions) or the Fund
would own more than 10% of the outstanding voting securities of the issuer,
(b)
investing more than 10% of the Fund's total assets in "illiquid" securities
(which includes repurchase agreements with more than seven days to maturity),
and (c) investing more than 25% of the Fund's total assets in the securities
of
issuers in a particular industry (with exceptions for U.S. government
securities
and certain money market instruments).
The Fund has an investment objective of achieving long-term capital
appreciation. It seeks to achieve this objective by investing in equity
securities (common stocks or securities which are convertible into or
exchangeable for such stocks, including warrants) which the investment adviser
believes to have superior appreciation potential.
The Fund invests primarily in equity securities of secondary growth
companies,
generally not within the Standard & Poor's 500 Composite Stock Price Index
("S&P
500"), as identified by the investment adviser. These companies may not have
reached a fully mature stage of earnings growth, since they may still be in
the
developmental stage, or may be older companies which appear to be entering a
new
stage of more rapid earnings progress due to factors such as management change
or development of new technology, products or markets. A significant number of
these companies may be in technology areas, including health care related
sectors, and may have annual sales of less than $300 million. The Fund may
also
choose to invest in some relatively unseasoned stocks, I.E., companies whose
market capitalization is under $100 million.
15
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Investing in smaller, newer issuers generally involves greater risk than
investing in larger, more established issuers. The Fund may purchase
restricted
securities (subject to a limit on all illiquid securities of 10% of total
assets), invest in money market instruments, enter into repurchase agreements
for temporary defensive purposes, lend its portfolio securities and enter into
"short sales against the box."
In making purchases of securities consistent with the above policies, the
Fund
will be subject to the applicable restrictions referred to under "Investment
Restrictions" in the Statement of Additional Information.
ADDITIONAL INVESTMENTS
U.S. GOVERNMENT SECURITIES. U.S. government securities are obligations of,
or
are guaranteed by, the U.S. government, its agencies or instrumentalities.
These
include bills, certificates of indebtedness, and notes and bonds issued by the
U.S. Treasury or by agencies or instrumentalities of the U.S. government. Some
U.S. government securities, such as U.S. Treasury bills and bonds, are
supported
by the full faith and credit of the U.S. Treasury; others are supported by the
right of the issuer to borrow from the U.S. Treasury; others, such as those of
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association and the
Federal
Home Loan Mortgage Corporation ("FHLMC"), are supported only by the credit of
the instrumentality. Mortgage participation certificates issued by the FHLMC
generally represent ownership interests in a pool of fixed-rate conventional
mortgages. Timely payment of principal and interest on these certificates is
guaranteed solely by the issuer of the certificates. Other investments will
include Government National Mortgage Association Certificates ("GNMA
Certificates"), which are mortgage-backed securities representing part
ownership
of a pool of mortgage loans on which timely payment of interest and principal
is
guaranteed by the full faith and credit of the U.S. government. While the U.S.
government guarantees the payment of principal and interest on GNMA
Certificates, the market value of the securities is not guaranteed and will
fluctuate.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreement
transactions on U.S. government securities with certain member banks of the
16
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Federal Reserve System having assets in excess of $100 million and with
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 an
underlying debt obligation for a relatively short period (usually not more
than
one week) subject to an obligation of the seller to repurchase, and the Fund
to
resell, the obligation at an agreed-upon price and time, thereby determining
the
yield during the Fund's holding period. This arrangement results in a fixed
rate
of return that is not subject to market fluctuations during the Fund's holding
period. The value of the underlying securities will be at least equal at all
times to the total amount of the repurchase obligation, including interest.
The
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed or prevented
from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during
the
period while the Fund seeks to assert these 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. The Fund's investment adviser
and
administrator, acting under the supervision of the Board of Directors, review
on
an ongoing basis the creditworthiness and the value of the collateral of those
banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
provided (a) the loan is secured continuously by collateral consisting of U.S.
government securities or cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned; (b) the Fund may at any time call the loan and
obtain
the return of the securities loaned; (c) the Fund will receive any interest or
dividends paid on the loaned securities; and (d) the aggregate market value of
securities loaned will not at any time exceed one-third of the total assets of
the Fund.
SHORT SALES. The Fund may sell securities "short against the box." While a
short sale is the sale of a security the Fund does not own, it is "against the
box" if at all times when the short position is open, the Fund owns an equal
amount of the securities or securities convertible into, or exchangeable
17
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
without further consideration for, securities of the same issue as the
securities sold short. Short sales "against the box" are used to defer
recognition of capital gains or losses.
AMERICAN DEPOSITARY RECEIPTS. The Fund may purchase American Depositary
Receipts ("ADRs"), which are dollar-denominated receipts issued generally by
domestic banks and 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.
RESTRICTED SECURITIES. The Fund may invest in restricted securities.
Restricted securities are securities subject to legal or contractual
restrictions on their resale. Such restrictions might prevent the sale of
restricted securities at a time when such a sale would otherwise be desirable.
Restricted securities and securities for which there is no readily available
market ("illiquid assets") will not be acquired if such acquisition would
cause
the aggregate value of illiquid assets and restricted securities to exceed 10%
of the Fund's total assets.
PORTFOLIO TRANSACTIONS AND TURNOVER
Greenwich Street Advisors arranges for the purchase and sale of the Fund's
securities and selects broker-dealers which, in its best judgment, provide
prompt and reliable execution at favorable prices and reasonable commission
rates. Greenwich Street Advisors may select broker-dealers which provide it
with
research services and may cause the Fund to pay such broker-dealers
commissions
which exceed those other broker-dealers may have charged, if it views the
commissions as reasonable in relation to the value of the brokerage and/or
research services. Smith Barney Shearson and its affiliates may serve as a
regular broker for the Fund in effecting portfolio transactions on a national
securities or commodities exchange, and may retain commissions, in accordance
with certain regulations of the SEC.
For reporting purposes, the Fund's portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
fiscal
year by the monthly average of the value of the Fund's securities, with money
market instruments with less than one year to maturity excluded. A 100%
portfolio turnover rate would occur, for example, if all included
18
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
securities were replaced once during the year. The Fund's portfolio turnover
rates for each of the past fiscal years are set forth under "Financial
Highlights."
- --------------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Company rests
with the Company's Board of Directors. The Directors approve all significant
agreements between the Company and companies that furnish services to the Fund
and the Company, including agreements with its distributor, investment
adviser,
administrator, custodian and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's investment adviser and administrator. The
Statement of Additional Information contains general and background
information
regarding each Director and executive officer of the Company.
INVESTMENT ADVISER -- GREENWICH STREET ADVISORS
Greenwich Street Advisors, located at Two World Trade Center, New York, New
York 10048, serves as the Fund's investment adviser. Greenwich Street Advisors
(through its predecessors) has been in the investment counseling business
since
1934 and is a division of MMC, which was incorporated in 1978. MMC is a
registered investment adviser whose principal executive offices are located at
1345 Avenue of the Americas. Greenwich Street Advisors renders investment
advice
to investment companies that had aggregate assets under management as of
December 31, 1993, in excess of $42.8 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
Greenwich Street Advisors manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies, makes investment decisions
for
the Fund, places orders to purchase and sell securities and employs
professional
portfolio managers and securities analysts who provide research services to
the
Fund. Under an Investment Advisory Agreement, the Fund pays Greenwich Street
Advisors a monthly fee at the annual rate of 0.55% of the value of its average
daily net assets.
19
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
PORTFOLIO MANAGEMENT
George Novello, Managing Director of Greenwich Street Advisors, has served
as
Investment Officer of the Fund since September 1990 and is responsible for
managing the day-to-day investment operations of the Fund, including the
making
of investment decisions. Prior to that time, Mr. Novello was a Managing
Director
at McKinley-Allsopp where he served as Head of Research.
Mr. Novello's management discussion and analysis of the Fund's performance
during the fiscal year ended December 31, 1993 (including a line
graph comparing the Fund's performance to the S&P 500, an unmanaged index
composed of 500 widely held common stocks used to portray the movement of
common
stock prices) is included in the Fund's Annual Report to Shareholders dated
December 31, 1993. The Fund's Annual Report may be obtained upon request and
without charge from any Smith Barney Shearson Financial Consultant or by
writing
or calling the Fund at the address or phone number listed on page 1 of this
Prospectus.
ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. Boston Advisors is an indirect wholly
owned
subsidiary of Mellon. Boston Advisors provides investment management,
investment
advisory, and/or administrative services to investment companies which had
aggregate assets under management as of December 31, 1993, in excess of $86.6
billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists in all aspects of the Fund's administration and operation.
Under an administration agreement the Fund pays Boston Advisors a fee at the
annual rate of 0.20% of the value of the Fund's average daily net assets.
- --------------------------------------------------------------------
PURCHASE OF SHARES
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney Shearson or with an Introducing Broker, except that
investors
purchasing shares of the Fund through a qualified
20
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
retirement plan may do so directly through the Company's transfer agent. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B or, in the case of Participating Plans, Class D shares.
No
maintenance fee will be charged in connection with a brokerage account through
which an investor purchases or holds shares. Purchases are effected at the
public offering price next determined after a purchase order is received by
Smith Barney Shearson or an Introducing Broker (the "trade date"). Payment
generally is due to Smith Barney Shearson or an Introducing Broker on the
fifth
business day (the "settlement date") after the order is placed. Investors who
make payment prior to the settlement date may permit the payment to be held in
their brokerage accounts or may designate a temporary investment (such as a
money market fund in the Smith Barney Shearson Group of Funds) for such
payment
until the settlement date. The Company reserves the right to reject any
purchase
order and to suspend the offering of shares for any period of time.
Purchase orders received by Smith Barney Shearson or the Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York
time, on any day the Fund's net asset value is calculated are priced according
to the net asset value determined on that day. Purchase orders received after
the close of regular trading on the NYSE are priced as of the time the net
asset
value per share is next determined. See "Valuation of Shares."
SYSTEMATIC INVESTMENT PLAN. The Fund offers shareholders a Systematic
Investment Plan under which shareholders may authorize Smith Barney Shearson
or
an Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid
automatically
from cash held in the shareholder's Smith Barney Shearson brokerage account or
through the automatic redemption of the shareholder's shares of a Smith Barney
Shearson money market fund. For further information regarding the Systematic
Investment Plan, shareholders should contact their Smith Barney Shearson
Financial Consultants.
MINIMUM INVESTMENTS. The minimum initial investment in the Fund is $1,000
and
the minimum subsequent investment is $200 except that for purchases through
(a)
IRAs and Self-Employed Retirement Plans, the minimum initial and subsequent
investments are $250 and $100, respectively, (b) retirement plans qualified
under Sections 401(a) and 403(b)(7) of
21
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
the Code, the minimum initial and subsequent investment is $25 and (c) the
Fund's Systematic Investment Plan, the minimum initial and subsequent
investments are both $100. There are no minimum requirements for employees of
Travelers and its subsidiaries, including Smith Barney Shearson. The Company
reserves the right at any time to vary the initial and subsequent investment
minimums. Certificates for Fund shares are issued upon request to the
Company's
transfer agent, TSSG.
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class next determined after a purchase order is received plus a sales
charge, which is imposed in accordance with the following schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- ---
Less than $25,000 5.00% 5.26%
$25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.25% 3.36%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 2.00% 2.04%
$1,000,000 or more** 0.00 0.00
- ------------------------------------------------------------------------------
- ---
<FN>
*Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and Introducing Brokers that single investments of $250,000 or
more
should be made in Class A shares.
**No sales charge is imposed on purchases of Class A shares of $1 million or
more; however, a CDSC of 0.75% is imposed on redemptions made within the
first
year after purchase. The CDSC on Class A shares will be payable to Smith
Barney
Shearson which compensates Smith Barney Shearson Financial Consultants upon
the
sale of these shares. The CDSC will be waived in the same circumstances in
which the CDSC applicable to Class B shares is waived. See "Redemption of
Shares -- Contingent Deferred Sales Charge -- Class B Shares -- Waivers of
CDSC."
</TABLE>
REDUCED SALES CHARGES -- CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Fund shares to receive volume discounts. Investors eligible
to receive volume discounts include individuals and their immediate families,
tax-qualified employee benefit plans and trustees or other professional
fiduciaries (including a bank, or an investment adviser registered with the
SEC
under the Investment Advisers Act of 1940, as amended) purchasing shares for
one
or more trust estates or fiduciary
22
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
accounts even though more than one beneficiary is involved. The initial sales
charge is also reduced to 1.00% for Smith Barney Shearson Personal Living
Trust
program participants for whom Smith Barney Shearson acts as trustee. Reduced
sales charges on Class A shares are also available under a combined right of
accumulation, under which an investor may combine the value of Class A shares
already held in the Fund, in any other fund in the Company and in any of the
other funds in the Smith Barney Shearson Group of Funds listed below (except
those sold without a sales charge), along with the value of Class A shares
being
purchased, to qualify for a reduced sales charge. For example, if an investor
owns Class A shares of the Fund, any other funds in the Company and other
funds
in the Smith Barney Shearson Group of Funds that have an aggregate value of
$22,000, and makes an additional investment in Class A shares of the Fund of
$4,000, the sales charge applicable to the additional investment would be
4.00%,
rather than the 5.00% normally charged on a $4,000 purchase. Investors
interested in further information regarding reduced sales charges should
contact
their Smith Barney Shearson Financial Consultant.
Class A shares may be offered without any applicable sales charges to: (a)
employees of Travelers and its subsidiaries, including Smith Barney Shearson,
and employee benefit plans for such employees and their immediate families
when
orders on their behalf are placed by such employees; (b) accounts managed by
registered investment advisory subsidiaries of Travelers; (c) directors,
trustees or general partners of any investment company for which Smith Barney
Shearson serves as distributor; (d) any other investment company in connection
with the combination of such company with the Fund by merger, acquisition of
assets or otherwise; (e) shareholders who have redeemed Class A shares in the
Fund (or Class A shares of any other fund in the Company or of another fund in
the Smith Barney Shearson Group of Funds that are sold with a maximum 5.00%
sales charge) and who wish to reinvest their redemption proceeds in the Fund,
provided the reinvestment is made within 30 days of the redemption; and (f)
any
client of a newly-employed Smith Barney Shearson Financial Consultant (for a
period up to 90 days from the commencement of the Financial Consultant's
employment with Smith Barney Shearson), on the condition that the purchase is
made with the proceeds of the redemption of shares of a mutual fund that (i)
was
sponsored by the Financial Consultant's
23
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
prior employer, (ii) was sold to a client by the Financial Consultant, and
(iii)
when purchased, such shares were sold with a sales charge or are subject to a
sales charge upon redemption.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of purchase. A
CDSC is imposed, however, on certain redemptions of Class B shares. See
"Redemptions of Shares" which describes the CDSC in greater detail.
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Smith
Barney
Shearson Financial Consultants and Introducing Brokers that all purchases of
shares of $250,000 or more should be for Class A shares. Smith Barney Shearson
reserves the right to vary these guidelines at any time.
SMITH BARNEY SHEARSON 401(K) PROGRAM
Shareholders investing in the Fund may be eligible to participate in the
401(k) Program, which is generally designed to assist employers or plan
sponsors
in the creation and operation of retirement plans qualified under Section
401(a)
of the Code. To the extent applicable, the same terms and conditions are
offered
to all Participating Plans in the 401(k) Program which include 401(k) plans,
other types of participant directed, tax-qualified employee benefit plans and
employer-sponsored non-qualified employee benefit plans.
The Fund offers to Participating Plans three classes of shares, Class A,
Class
B and Class D shares, as investment alternatives under the 401(k) Program.
Class
A shares are available to all Participating Plans and are the only investment
alternative for Participating Plans that are eligible to purchase Class A
shares
at net asset value without a sales charge. In addition, Class B shares are
offered only to Participating Plans satisfying certain criteria with respect
to
the amount of the initial investment and number of employees eligible to
participate in the Plan at that time. Alternatively, Class D shares are
offered
only to Participating Plans that
24
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
meet other criteria relating to the amount of initial investment and number of
employees eligible to participate in the Plan at that time, as described
below.
The Class A and Class B shares acquired through the 401(k) Program are
subject
to the same service and/or distribution fees as, but different sales charge
and
CDSC schedules than, the Class A and Class B shares acquired by other
investors.
Class D shares acquired by Participating Plans are offered at net asset value
per share without any sales charges or CDSC. The Fund pays annual service and
distribution fees based on the value of the average daily net assets
attributable to this Class.
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. The sales charges for Class A shares acquired by
Participating
Plans are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF NET ASSET VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- ---
Less than $25,000 5.00% 5.26%
$25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.25% 3.36%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $750,000 2.00% 2.04%
$750,000 or more 0.00% 0.00%
- ------------------------------------------------------------------------------
- ---
</TABLE>
A Participating Plan will have a combined right of accumulation, under
which,
to qualify for a reduced sales charge, it may combine the value of Class A
shares being purchased with the value of Class A shares already held in the
Fund
and in any of the funds listed below under "Exchange Privilege" that are sold
with a sales charge.
Class A shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of Class A shares of
one
or more funds in the Smith Barney Shearson Group of Funds under the combined
right of accumulation described above; (b) has 250 or more employees eligible
to
participate in the Participating Plan at the time of
25
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
initial investment in the Fund; or (c) currently holds Class A shares in the
Fund that were received as a result of an exchange of Class B or Class D
shares
of the Fund as described below.
Class A shares acquired through the 401(k) Program will not be subject to a
CDSC.
CLASS B SHARES. Under the 401(k) Program, Class B shares are offered to
Participating Plans that: (i) purchase less than $250,000 of Class B shares of
one or more funds in the Smith Barney Shearson Group of Funds that are sold
subject to a CDSC; and (ii) that have less than 100 employees eligible to
participate in the Participating Plan at the time of initial investment in the
Fund. Class B shares acquired by such Plans will be subject to a CDSC of 3% of
redemption proceeds if redeemed within eight years of the date the
Participating
Plan first purchases Class B shares. No CDSC is imposed to the extent that the
net asset value of the Class B shares redeemed does not exceed (a) the current
net asset value of Class B shares purchased through reinvestment of dividends
or
capital gains distributions, plus (b) the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus (c)
increases in the net asset value of the shareholder's Class B shares above the
purchase payments made during the preceding eight years. The CDSC applicable
to
a Participating Plan depends on the number of years since the Participating
Plan
first became a holder of Class B shares, unlike the CDSC applicable to other
Class B shareholders, which depends on the number of years since those
shareholders made the purchase payment from which the amount is being
redeemed.
The CDSC will be waived on redemptions of 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 termination
of
employment of an employee in the Participating Plan, (c) the death or
disability
of an employee in the Participating Plan, (d) the attainment of age 59 1/2 by
an
employee in the Participating Plan, (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code or
(f) redemptions of Class B shares in connection with a loan made by the
Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class B
share, it will be offered the opportunity to exchange all of its Class B
shares
for Class A shares of the Fund. Such Plans will be notified of the pending
26
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
exchange in writing approximately 60 days before the eighth anniversary of the
purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the eighth anniversary date. Once the exchange
has occurred, a Participating Plan will not be eligible to acquire additional
Class B shares of the Fund but instead may acquire Class A shares of the Fund.
If the Participating Plan elects not to exchange all of its Class B shares at
that time, each Class B share held by the Participating Plan will have the
same
conversion feature as Class B shares held by other investors. See "Variable
Pricing System -- Class B Shares."
CLASS D SHARES. Class D shares are offered to Participating Plans that: (i)
purchase less than $750,000 but more than $250,000 of Class D shares of one or
more funds in the Smith Barney Shearson Group of Funds that offer one or more
Classes of shares subject to a sales charge and/or CDSC; or (ii) have at least
100 but no more than 250 employees eligible to participate in the
Participating
Plan at the time of initial investment in the Fund.
Class D shares acquired by Participating Plans will be offered at net asset
value per share without any sales charges or CDSC. The Fund pays annual
service
and distribution fees based on the value of the average daily net assets
attributable to this Class. Class D shares are not subject to an automatic
conversion feature as are the Class B shares. However, beginning in December
1993 and each year thereafter, Participating Plans which hold Class D shares
valued at $750,000 or more in any fund or funds in the Smith Barney Shearson
Group of Funds that offer one or more Classes of shares subject to a sales
charge and/or CDSC will be offered the opportunity to exchange all of their
Class D shares for Class A shares. Such Plans will be notified of the pending
exchange 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 March in the following
calendar
year. Once the exchange has occurred, a Participating Plan will not be
eligible
to acquire Class D shares of the Fund but instead may acquire Class A shares
of
the Fund. Any Class D shares not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the Fund through the 401(k)
Program must purchase shares from the Fund's transfer agent.
27
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
For further information regarding the 401(k) Program, investors should
contact
their Smith Barney Shearson Financial Consultant.
- --------------------------------------------------------------------
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Fund calculates its
net asset value. See "Valuation of Shares." Redemption requests received in
proper form prior to the close of regular trading on the NYSE are priced at
the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value
next determined. If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being redeemed. In the event of
a
failure to specify which Class or if the investor owns fewer shares of the
Class
than specified, the redemption request will be delayed until the Fund's
transfer
agent receives further instructions from Smith Barney Shearson, or if the
shareholder's account is not with Smith Barney Shearson, from the shareholder
directly.
The Fund normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney Shearson or the Introducing Broker at no
charge (other than any applicable CDSC) within seven days after receipt of a
redemption request. Generally, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney Shearson
will benefit from the use of temporarily uninvested funds. A shareholder who
pays for Fund shares by personal check will be credited with the proceeds of a
redemption of those shares only after the purchase check has been collected,
which may take up to 10 days or more. A shareholder who anticipates the need
for
more immediate access to his or her investment should purchase shares with
federal funds, by bank wire or by certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less
may
be subject to redemption by the Fund, but only after the shareholder has been
given at least 30 days in which to increase the account balance to $500 or
more.
28
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A shareholder desiring to redeem shares represented by
certificates must also present such certificates to Smith Barney Shearson or
the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
such certificates are received by the Company's transfer agent in proper form.
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submitting a written request to the Smith Barney Shearson Financial
Consultant.
All other shares may be redeemed by submitting a written request for
redemption
to:
Smith Barney Shearson Special
Equities Fund
Class A, B or D (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to the Company's transfer agent, TSSG, or a
Smith
Barney Shearson Financial Consultant must (a) state the Class and number or
dollar amount of shares to be redeemed, (b) identify the shareholder's account
number and (c) be signed by each registered owner exactly as the shares are
registered. If the shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by an endorsed
stock power) and must be submitted to TSSG together with the redemption
request.
Any signature appearing on a redemption request, share certificate or stock
power must be guaranteed by a domestic bank, savings and loan institution,
domestic credit union, member bank of a Federal Reserve System or member firm
of
a national securities exchange. TSSG may require additional supporting
documents
for
29
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until
TSSG
receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly. Retirement plan
accounts
are eligible for automatic cash withdrawal plans only where the shareholder is
eligible to receive qualified distributions and has an account value of at
least
$5,000. Any applicable CDSC will be waived on amounts withdrawn by a
shareholder
that do not exceed 2.00% per month of the value of shareholder's shares
subject
to the CDSC at the time the withdrawal plan commences. For further information
regarding the automatic cash withdrawal plan, shareholders should contact
their
Smith Barney Shearson Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years, except in the case of purchases by Participating Plans in the 401(k)
Program, as described above. See "Purchase of Shares -- Smith Barney Shearson
401(k) Program." No charge is imposed to the extent that the net asset value
of
the Class B shares redeemed does not exceed (a) the current net asset value of
Class B shares purchased through reinvestment of dividends or capital gains
distributions, plus (b) the current net asset value of Class B shares
purchased
more than five years prior to the redemption, plus (c) increases in the net
asset value of the shareholder's Class B shares above the purchase payments
made
during the preceding five years.
In circumstances in which the CDSC is imposed, 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, except in the case of purchases
through
Participating Plans in the 401(k) Program, which
30
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
are subject to a different CDSC. See "Purchase of Shares -- Smith Barney
Shearson 401(k) Program." Solely for purposes of determining the number of
years
since a purchase payment, all purchase payments during a month will be
aggregated and deemed to have been made on the last day of the preceding Smith
Barney Shearson statement month. The following table sets forth the rates of
the
charge for redemptions of Class B shares by shareholders other than
Participating Plans:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
<S> <C>
- ------------------------------------------------------------------------------
- ----
First
5.00%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
- ------------------------------------------------------------------------------
- ----
</TABLE>
Class B shares will automatically convert to Class A shares approximately
eight years after the date on which they were purchased and thereafter will no
longer be subject to a distribution fee. The first of these conversions will
commence on or about September 30, 1994. See "Variable Pricing System -- Class
B
Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not
already been effected. In the case of redemptions of Class B shares of other
funds in the Company or of other funds in the Smith Barney Shearson Group of
Funds issued in exchange for Class B shares of the Fund, the term "purchase
payments" refers to the purchase payments for the shares given in exchange. In
the event of an exchange of Class B shares of funds with differing CDSC
schedules, the shares will be, in all cases, subject to the higher CDSC
schedule. See "Exchange Privilege."
WAIVERS OF CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"), (b) automatic cash withdrawals in amounts that do not exceed
2.00%
per month of the value of the shareholder's Class B shares at the time the
withdrawal plan commences (see above); (c) redemptions of shares following the
death or disability of the shareholder; (d) redemption of
31
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
shares in connection with certain post-retirement distributions and
withdrawals
from retirement plans or IRAs; (e) involuntary redemptions; (f) redemption
proceeds from other funds in the Smith Barney Shearson Group of Funds that are
reinvested within 30 days of the redemption; (g) redemptions of shares in
connection with a combination of any investment company with the Fund by
merger,
acquisition of assets or otherwise, and (h) certain redemptions of shares of
the
Fund in connection with lump-sum or other distributions made by a
Participating
Plan. See "Purchase of Shares -- Smith Barney Shearson 401(k) Program."
- --------------------------------------------------------------------
VALUATION OF SHARES
Each Class' net asset value per share is calculated separately on each day,
Monday through Friday, except on days when the NYSE is closed. The NYSE
currently is scheduled to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively.
The net asset value per share of a given Class is determined as of the later
of the close of regular trading on the NYSE (currently 4:00 p.m., New York
time)
or the Chicago Board Options Exchange (currently 4:15 p.m. New York time) and
is
computed by dividing the value of the Fund's net assets attributable to that
Class by the total number of shares of that Class outstanding.
Securities listed on an exchange are valued on the basis of the last sale
prior to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used. Quotations
are taken from the exchange where the security is primarily traded. Portfolio
securities which are primarily traded on foreign exchanges may be valued with
the assistance of a pricing service and are generally valued at the preceding
closing values of such securities on their respective exchange, except that
when
an occurrence subsequent to the time a foreign security is valued is likely to
have changed such value, then the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Directors. Over-the-counter securities are
32
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
VALUATION OF SHARES (CONTINUED)
valued on the basis of the bid price at the close of business on each day.
Unlisted foreign securities are valued at the mean between the last available
bid and offer price prior to the time of valuation. Any assets or liabilities
initially expressed in terms of foreign currencies will be converted into U.S.
dollar values at the mean between the bid and offered quotations of such
currencies against U.S. dollars at last quoted by any recognized dealer.
Securities for which market quotations are not readily available are valued at
fair value. Notwithstanding the above, bonds and other fixed-income securities
are valued by using market quotations and may be valued on the basis of prices
provided by a pricing service approved by the Board of Directors.
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence:
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-----------------------------------------------------------------------------
- --
MUNICIPAL BOND FUNDS
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in
investment
grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate- and long-term municipal bond fund investing in
medium and lower rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
Arizona investors.
</TABLE>
33
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Massachusetts investors.
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term bond fund designed for
New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New York investors.
INCOME FUNDS
A, B, D+ SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME
FUND,
seeks high current income while limiting the degree of
fluctuation in net asset value resulting from movement in
interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests
in
a portfolio of high quality debt securities that may be
denominated in U.S. dollars or selected foreign currencies
and
that have remaining maturities of not more than one year.
</TABLE>
34
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests
in
high quality, short-term debt securities denominated in U.S.
dollars as well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests
exclusively in securities issued by the U.S. Treasury and
other U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND,
seeks
high current income primarily by allocating and reallocating
its assets among various types of fixed-income securities.
A, B, D+ SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC., invests
in obligations issued or guaranteed by the United States
government and its agencies and instrumentalities with
emphasis on mortgage-backed government securities.
A, B, D+ SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a
high
current return by investment in U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks a
high
level of current income consistent with prudent investment
management and preservation of capital by investing in
corporate bonds and other income producing securities.
A, B, D+ SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income by investing in high-yielding corporate bonds,
debentures and notes.
A, B, D+ SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current income
and capital appreciation by investing in bonds, debentures
and
notes of foreign and domestic issuers.
</TABLE>
35
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
GROWTH AND INCOME FUNDS
A, B, D+ SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income
and capital appreciation by investing in convertible
securities.
A, B, D+ SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing in equity and debt securities of utilities
companies.
A, B, D+ SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high
total return consisting of current income and capital
appreciation by investing in a combination of equity, fixed-
income and money market securities.
A, B, D+ SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by investing in dividend-paying common stocks.
A, B, D+ SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks income
and
long-term capital growth by investing in income producing
equity securities.
GROWTH FUNDS
A, B, D+ SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-
term
appreciation of capital.
A, B, D+ SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks
long-term capital growth with current income as a secondary
objective.
A, B, D+ SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
A, B, D+ SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND, seeks
capital appreciation, with income as a secondary
consideration.
A, B, D+ SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
</TABLE>
36
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A, B, D+ SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks
long-term capital growth by investing principally in the
common stocks of foreign and domestic issuers.
A, B, D+ SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in countries of Europe.
A, B, D+ SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND
INC.,
seeks long-term capital appreciation by investing primarily
in
precious metal- and mineral-related companies and gold
bullion.
MONEY MARKET FUNDS
* SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of high quality money market
instruments.
** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND, invests in a
variety of money market instruments.
** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND, invests
in
United States government and agency securities.
++ SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND, invests
in
short-term high quality municipal obligations.
++ SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND,
designed for California investors in short-term, high
quality
California municipal obligations.
++ SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND,
designed for New York investors in short-term, high quality
New York municipal obligations.
---------------------------------------------------------------------------
<FN>
*Shares of this money market fund may be for exchanged for Class B shares of
the Fund.
**Shares of this money market fund may be exchanged for Class A and Class D
shares of the Fund.
+Class D shares of this Fund may be acquired only by Participating Plans.
++Shares of this money market fund may be exchanged for Class A shares of the
Fund.
</TABLE>
37
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
TAX EFFECT. The exchange of shares of one fund for shares of another fund is
treated for federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
CLASS A EXCHANGES. Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 5.00% will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A shares of the Fund
or other funds sold with a higher sales charge. The "sales charge
differential"
is limited to a percentage rate no greater than the excess of the sales charge
rate applicable to purchases of shares of the mutual fund being acquired in
the
exchange over the sum of the rates of all sales charges previously paid on the
mutual fund shares relinquished in the exchange and on any predecessor of
those
shares. For purposes of the exchange privilege, shares obtained through
automatic reinvestment of dividends, as described below, are treated as having
paid the same sales charges applicable to the shares on which the dividends
were
paid. However, except in the case of the 401(k) Program, if no sales charge
was
imposed upon the initial purchase of the shares, any shares obtained through
automatic reinvestment will be subject to a sales charge differential upon
exchange.
CLASS B EXCHANGES. Smith Barney Shearson Class B shareholders of the Fund
who
wish to exchange all or a part of their Class B shares for Class B shares of
any
of the funds identified above may do so without the imposition of an exchange
fee. 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 which have been
exchanged.
CLASS D EXCHANGES. Smith Barney Shearson Class D shares of the Fund will be
exchangeable for Class D shares of the funds listed above. Class D
shareholders
who wish to exchange all or a portion of their Class D shares in any of these
funds may do so without charge. Class D shares may be acquired only by
Participating Plans.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Shareholders
exercising the exchange privilege with other funds in the Company or any other
fund in the Smith Barney Shearson Group of Funds should review the prospectus
relating to the exchanged-for shares carefully prior to making an
38
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
exchange. Smith Barney Shearson reserves the right to reject any exchange
request and the exchange privilege may be modified or terminated at any time
after written notice to Shareholders.
Although the exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the Fund's performance and its
shareholders.
The Fund's investment adviser may determine that a pattern of frequent
exchanges
is excessive and contrary to the best interests of the Fund's other
shareholders. In this event, the Fund's investment adviser will notify Smith
Barney Shearson, and Smith Barney Shearson may, at its discretion, decide to
limit additional purchases and/or exchanges by the shareholder. Upon such a
determination, Smith Barney Shearson 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 other Smith Barney Shearson funds ordinarily
available,
which position the shareholder would expect to maintain for a significant
period
of time. All relevant factors will be considered in determining what
constitutes
an abusive pattern of exchanges.
For further information regarding the exchange privilege or to obtain a
current prospectus for the other funds in the Company or any other fund in the
Smith Barney Shearson Group of Funds, shareholders should contact their Smith
Barney Shearson Financial Consultant.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013, and serves as distributor of the Fund's shares. Smith Barney Shearson
is
a wholly owned subsidiary of Holdings which in turn is an indirect wholly
owned
subsidiary of Travelers. Smith Barney Shearson is paid an annual service fee
with respect to Class A, Class B and Class D shares of the Fund at the rate of
0.25% of the value of average daily net assets of the respective Class. Smith
Barney Shearson is also paid an annual distribution fee with respect to Class
B
and Class D shares at the rate of 0.75% of the value of average daily net
assets
attributable to those shares. The fees are authorized pursuant to a
distribution
and service plan (the
39
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
"Plan") adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act and are
used by Smith Barney Shearson to pay its Financial Consultants for servicing
shareholder accounts and, in the case of Class B and Class D shares, to cover
expenses primarily intended to result in the sale of shares. These expenses
include: costs of printing and distributing the Fund's Prospectus, Statement
of
Additional Information and sales literature to prospective investors; an
allocation of overhead and other Smith Barney Shearsons' branch office
distribution-related expenses; payments to and expenses of Smith Barney
Shearson
Financial Consultants and other persons who provide support services in
connection with the distribution of the shares; and accruals for interest on
the
amount of the foregoing expenses that exceed distribution fees and, in the
case
of Class B shares, the CDSC received by Smith Barney Shearson. The payments to
Smith Barney Shearson Financial Consultants for selling shares of a class
include a commission paid at the time of sale and a continuing fee for
servicing
shareholder accounts for as long as a shareholder remains a holder of that
Class. The service fee is credited at the rate of 0.25% of the value of
average
daily net assets of the Class of shares that remain invested in the Fund.
Smith
Barney Shearson Financial Consultants, may receive different levels of
compensation for selling one Class of shares over another.
Although it is anticipated that some promotional activities will be
conducted
on a Company-wide basis, payments made by a fund under the Plan generally will
be used to finance the distribution of shares of the Fund. Expenses incurred
in
connection with Company-wide activities may be allocated pro-rata among all
funds of the Company on the basis of their relative net assets.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson, and
the
payments may exceed distribution expenses actually incurred. The Company's
Board
of Directors evaluates the appropriateness of the Plan and its payment terms
on
a continuing basis and in doing so considers all relevant factors, including
expenses borne by Smith Barney Shearson and the amount received under the Plan
and the proceeds of the CDSC and sales charges received.
40
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- --------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund will be treated separately from the Company's other funds in
determining the amount of dividends from net investment income and
distributions
of capital gains payable to shareholders. Dividends and any distributions
automatically are reinvested in additional shares at net asset value unless
the
shareholder has elected to receive distributions in cash. Dividends and
distributions are treated the same for tax purposes whether taken in cash or
reinvested in additional shares. Dividends, if any, consisting of net
investment
income of the Fund will be declared and paid at least annually. Any net
realized
long-term capital gains, after utilization of capital loss carryforwards, will
be distributed at least annually. Net realized short-term capital gains may be
paid with the distribution of dividends from net investment income. The per
share dividends and distributions on Class A shares will be higher than the
per
share dividends and distributions on Class B and Class D shares as a result of
lower distribution and transfer agency fees applicable to the Class A shares.
See "Variable Pricing System." In addition, as determined by the Board of
Directors, distributions of the Fund may include a return of capital.
Shareholders will be notified of the amount of any distribution that
represents
a return of capital. In order to comply with a calendar year distribution
requirement under the Code, it may be necessary for the Fund to make
distributions at times other than those set forth above.
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
federal tax purposes, the amount of investment income and capital gains earned
will be determined on a fund-by-fund basis, rather than on a Company-wide
basis.
The Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Code. In any taxable year in which the Fund so
qualifies and distributes at least 90% of its investment company taxable
income
(which includes, among other items, dividends, interest and the excess of any
net short-term capital gains over net long-term capital losses), the Fund (but
not its shareholders) generally will be relieved of federal income tax on the
investment company taxable income and net realized capital gains (the excess
of
net long-term capital gains over net short-term capital losses), if any,
distributed to shareholders. In order to qualify as a regulated investment
company, the Fund will be required to meet various Code requirements.
41
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with this requirement.
Distributions of any investment company taxable income are taxable to
shareholders as ordinary income. Distributions of any net capital gains
designated by the Fund as capital gain dividends are taxable to shareholders
as
long-term capital gain regardless of the length of time a shareholder may have
held shares of the Fund.
Dividends (including capital gain dividends) declared by the Fund in
October,
November or December of any calendar year to shareholders of record on a date
in
such a month will be deemed to have been received by shareholders on December
31
of that calendar year, provided that the dividend is actually paid by the Fund
during January of the following calendar year.
Upon the disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder generally will realize a taxable gain or loss. Such
gain or loss generally will be a capital gain or loss if the shares are
capital
assets in the shareholder's hands, and generally will be long-term or short-
term
depending upon the shareholder's holding period for the shares. Any loss
realized by a shareholder on disposition of Fund shares held by the
shareholder
for six months or less will be treated as long-term capital loss to the extent
of any distributions of capital gains dividends received by the shareholder
with
respect to such shares.
Shareholders will be notified annually about the amounts of dividends and
distributions, including the amounts (if any) for that year which have been
designated as capital gain dividends. Dividends and distributions, and gains
realized upon a disposition of Fund shares, may also be subject to state,
local
or foreign taxes depending on each shareholder's particular situation.
Dividends, if any, consisting of interest from obligations of the U.S.
government and certain of its agencies and instrumentalities may be exempt
from
all state and local income taxes. Investors should consult their tax advisors
for specific information on the tax consequences of particular types of
distributions.
42
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- --------------------------------------------------------------------
THE FUND'S PERFORMANCE
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total return"
over various periods of time for each Class. Such total return figures show
the
average percentage change in value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the
period
were reinvested in shares of the same Class. Class A total return figures
include the maximum initial 5.00% sales charge and Class B total return
figures
include any applicable CDSC. These figures also take into account the service
and distribution fees, if any, payable with respect to each Class.
Total return figures will be given for recent one-, five- and ten-year
periods
or the life of a Class to the extent it has not been in existence for any such
period, and may be given for other periods as well, such as on a year-by-year
basis. When considering average annual total return figures for periods longer
than one year, it is important to note that the total return for any one year
in
the period might have been greater or less than the average for the entire
period. "Aggregate" total return figures may be used for various periods,
representing the cumulative change in value of an investment in the shares for
the specific period (again reflecting changes in the Fund's share prices and
assuming reinvestment of dividends and distributions). Aggregate total returns
may be calculated either with or without the effect of the maximum 5.00% sales
charge or any applicable CDSC and may be shown by means of schedules, charts
or
graphs, and may indicate subtotals of the various components of total return
(that is, change in the value of initial investment, income dividends, and
capital gains distributions). Because of the differences in sales charges and
distribution and other fees, the total returns for each of the Classes will
differ.
In reports or other communications to shareholders or in advertising
material,
performance of a Class may be compared with that of other mutual funds or
classes of shares of other funds listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds or with other appropriate indices of investment
securities such as the S&P 500, the Dow Jones Industrial Average and Morgan
Stanley Capital International World Index. The performance information may
also
include evaluations of the Fund published by nationally recognized financial
publications such as BARRON'S,
43
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
BUSINESS WEEK, CDA INVESTMENT TECHNOLOGIES, INC., FORBES, FORTUNE,
INSTITUTIONAL
INVESTOR, INVESTORS DAILY, KIPLINGER'S PERSONAL FINANCE MAGAZINE, MONEY,
MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES, USA TODAY and THE WALL
STREET JOURNAL. It is important to note that total return figures are based on
historical earnings and are not intended to indicate future performance. To
the
extent any advertisement or sales literature of the Fund describes the
expenses
or performance of a Class, it will also disclose such information for the
other
Classes. For a description of the methods used to determine total return for
the
Fund, see the Statement of Additional Information. Performance figures may be
obtained from any Smith Barney Shearson Financial Consultant.
- --------------------------------------------------------------------
ADDITIONAL INFORMATION
The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The
Company commenced operations on January 4, 1982 under the name "Hutton
Investment Series Inc." The Company's corporate name was changed to "SLH
Investment Portfolios Inc." on December 29, 1988. On October 23, 1992, the
Board
of Directors of the Company authorized the Company to do business under the
name
of "Shearson Lehman Brothers Investment Funds" and also authorized a change in
the name of the Fund to Special Equities Fund. On July 30, 1993, the Company's
corporate name was changed to its current name "Smith Barney Shearson
Investment
Funds Inc." and the Fund's name was changed to "Smith Barney Shearson Special
Equities Fund."
The Fund offers shares of common stock currently classified into three
Classes, A, B and D, with a par value of $0.001 per share. Each Class of
shares
has the same rights, privileges and preferences, except with respect to: (a)
the
designation of each Class; (b) the effect of the respective sales charges, if
any, for each Class; (c) the distribution and/or service fees borne by each
Class; (d) the expenses allocable exclusively to each Class; (e) voting rights
on matters exclusively affecting a single Class; (f) the exchange privilege of
each Class; and (g) the conversion feature of the Class B shares. The Board of
Directors does not anticipate that there will be any conflicts
44
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
among the interests of the holders of the different Classes of shares of the
Fund. The Directors, on an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place,
Boston, Massachusetts 02108, and serves as custodian of the Company's
investments.
TSSG, a subsidiary of FDC, is located at Exchange Place, Boston,
Massachusetts
02109, and serves as the Company's transfer agent.
The Company does not hold annual shareholder meetings. There normally will
be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any
purpose
upon written request of shareholders holding at least 10% of the Company's
outstanding shares. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full share owned and a
proportionate, fractional vote for any fractional share held of that Class.
Generally, shares of the Company will be voted on a Company-wide basis on all
matters except matters affecting only the interests of one Fund or one Class
of
shares.
The Fund sends its shareholders a semi-annual report and an audited annual
report, each of which includes a list of the 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 Company plans to consolidate the mailing of
its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. In addition, the Company also plans to
consolidate the mailing of its Prospectuses so that a shareholder having
multiple accounts (I.E., individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a single Prospectus annually. When the Fund's annual
reports are combined with the Prospectus into a single document, the Fund will
mail the combined document to each shareholder to comply with legal
requirements. Any shareholder who does not want this consolidation to apply to
his or her account should contact their Smith Barney Shearson Financial
Consultant or the Fund's transfer agent.
45
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT
OF
ADDITIONAL INFORMATION AND/OR IN THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE FUND'S SHARES AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
46
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL EQUITIES FUND
DIRECTORS
Dwight B. Crane
Alger B. Chapman
Frank G. Hubbard
Allan R. Johnson
Heath B. McLendon
John F. White
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
George Novello
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
Paul F. Roye
ASSISTANT SECRETARY
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit
and Trust Company
One Boston Place
Boston, Massachusetts 02108
47
<PAGE>
SMITH BARNEY SHEARSON
SPECIAL
EQUITIES
FUND
Two World Trade Center
New York, New York 10048
Fund 102, 193, 253
FD0232 B4
PART A
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
PROSPECTUS
SMITH BARNEY SHEARSON EUROPEAN FUND
<PAGE>
MARCH 1, 1994
SMITH BARNEY SHEARSON
EUROPEAN
FUND
PROSPECTUS BEGINS
ON PAGE ONE.
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- ---------------------------------------------------------------------------
PROSPECTUS March 1, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson European Fund (the "Fund") has an investment objective
of long-term capital appreciation by investing primarily in securities of
issuers based in countries of Europe, including Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, The
Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey and
the United Kingdom. The decision to invest in the Fund's shares requires
consideration of certain factors that are not normally involved in an
investment
in U.S. securities.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Shearson Investment Funds Inc.
(the "Company"). The Company is an open-end management investment company
commonly referred to as a mutual fund.
This Prospectus briefly sets forth certain information about the Company and
the Fund, including sales charges, distribution and service fees and expenses
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and to retain it
for
future reference. Shares of other funds offered by the Company are described
in
separate Prospectuses that may be obtained by calling the Company at the
telephone number set forth above or by contacting any Smith Barney Shearson
Financial Consultant. The net asset value per share of the Fund will fluctuate
in response to changes in market conditions and other factors.
Additional information about the Company and the Fund is contained in a
Statement of Additional Information dated March 1, 1994, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Company at the telephone number or address
set
forth above or by contacting any Smith Barney Shearson Financial Consultant.
The
Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY SHEARSON INC.
Distributor
LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT LIMITED
Investment Adviser
THE BOSTON COMPANY ADVISORS, INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- ---------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
-----------------------------------------------
FINANCIAL HIGHLIGHTS 9
-----------------------------------------------
VARIABLE PRICING SYSTEM 12
-----------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES 13
-----------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 21
-----------------------------------------------
PURCHASE OF SHARES 23
-----------------------------------------------
REDEMPTION OF SHARES 30
-----------------------------------------------
VALUATION OF SHARES 34
-----------------------------------------------
EXCHANGE PRIVILEGE 36
-----------------------------------------------
DISTRIBUTOR 42
-----------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 44
-----------------------------------------------
THE FUND'S PERFORMANCE 47
-----------------------------------------------
ADDITIONAL INFORMATION 49
-----------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- ---------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION. CROSS REFERENCES IN THIS SUMMARY ARE TO HEADINGS IN THE
PROSPECTUS.
SEE THE "TABLE OF CONTENTS."
BENEFITS TO INVESTORS THE FUND OFFERS INVESTORS SEVERAL IMPORTANT BENEFITS:
- - Investment liquidity through convenient purchase and redemption procedures.
- - A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
- - Different methods for purchasing shares that allow investment flexibility
and
a wider range of investment alternatives.
- - An automatic dividend reinvestment feature, plus an exchange privilege
within
the same class of shares of the other funds in the Company and of most
other
funds in the Smith Barney Shearson Group of Funds.
INVESTMENT OBJECTIVE The Fund is an open-end diversified management investment
company that seeks long-term capital appreciation by investing in issuers
based
in the countries of Europe, including Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, The Netherlands,
Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey and the United
Kingdom. Under normal circumstances, the Fund will invest at least 65% of its
assets in a diversified portfolio of equity securities of issuers domiciled in
the above named countries. See "Investment Objective and Management Policies."
VARIABLE PRICING SYSTEM 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 two
classes
of shares, Class A shares and Class B shares, which differ principally in
terms
of the sales charges and rates of expenses to which they are subject. In
addition, a third class -- Class D shares -- is offered only to plans
participating in the Smith Barney Shearson 401(k) Program (the "401(k)
Program"). See "Variable Pricing System" and "Purchase of Shares -- Smith
Barney
Shearson 401(k) Program."
3
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 5.00%. The Fund pays an annual service fee of
0.25% of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 5.00% of redemption
proceeds, declining by 1.0% each year after the date of purchase to zero. The
Fund pays an annual service fee of 0.25% and an annual distribution fee of
0.75%
of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, approximately eight years after the
date of original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. The first of these conversions will
commence on or about September 30, 1994. See "Variable Pricing System -- Class
B
Shares."
SMITH BARNEY SHEARSON 401(K) PROGRAM Investors may be eligible to participate
in
the 401(k) Program, which is generally designed to assist employers or 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 and
employer
sponsored non-qualified employee benefit plans (collectively, "Participating
Plans"). Class A, Class B and Class D shares are available as investment
alternatives for Participating Plans. Class A and Class B shares acquired
through the 401(k) Program are subject to the same service and/or distribution
fees as, but different sales charges and CDSC schedules than, the Class A and
Class B shares acquired by other investors. Class D shares acquired by
Participating Plans are offered at net asset value per share without any sales
charges or CDSC. The Fund pays annual service and distribution fees based on
the
value of average daily net assets attributable to this Class. See "Purchase of
Shares -- Smith Barney Shearson 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Company's distributor,
Smith Barney Shearson Inc. ("Smith Barney Shearson"). Shares may also be
purchased through a broker that clears securities transactions through Smith
Barney Shearson on a fully disclosed basis (an "Introducing
4
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
Broker"). Direct purchases of certain retirement plans may be made through The
Shareholder Services Group, Inc. ("TSSG"), the Company's transfer agent, a
subsidiary of First Data Corporation ("FDC"). Smith Barney Shearson recommends
that, in most cases, single investments of $250,000 or more should be made in
Class A shares. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Employed
Retirement Plans, the minimum initial investment requirement is $250 and the
minimum subsequent investment requirement is $100 and for certain qualified
retirement plans, the minimum initial and subsequent investment requirement is
$25. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund also offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount not less
than
$100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A and Class D shares are
redeemable at net asset value and Class B shares are redeemable at net asset
value less any applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Lehman Brothers Global Asset Management Limited
("Global
Asset Management") serves as the Fund's investment adviser. Global Asset
Management is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Holdings"), a full-line investment firm serving U.S. and foreign securities
and commodities markets. Holdings is in turn a wholly owned subsidiary of
American Express Company ("American Express"), which is principally engaged in
the businesses of providing travel-related services, information services,
investment services, international banking services and investors' diversified
financial services. American Express owns 100% of Holdings' issued and
outstanding common stock, which represents approximately 92% of Holdings'
issued
and outstanding common stock. The remainder of Holdings' voting stock is owned
by Nippon Life Insurance Company. As of December 31, 1993 Global Asset
Management had aggregate assets under management in excess of $8.1 billion.
5
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC") a financial services holding company which in turn is an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). As of
December 31, 1993 Boston Advisors provides investment management, investment
advisory, and/or administrative services to investment companies, which had
aggregate assets under management in excess of $86.6 billion. See "Management
of
the Company and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of most other funds in the Smith Barney Shearson Group of Funds and
certain money market funds. Certain exchanges may be subject to a sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from any Smith
Barney
Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends and distributions are paid at least
annually from net investment income and net realized long-_and short-term
capital gains. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically unless otherwise specified by an investor in
additional shares of the same Class at current net asset value. Shares
acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Company is designed for long-term
investors and not for investors who intend to liquidate their investment after
a
short period. Neither the Company as a whole nor any particular fund in the
Company, including the Fund, constitutes a balanced investment plan. There can
be no assurance that the Fund will achieve its investment objective. The
foreign
securities in which the Fund invests may be subject to certain risks in
addition
to those inherent in domestic investments. The Fund may employ investment
techniques which involve
6
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
certain other risks, including entering into repurchase agreements, lending
portfolio securities and selling securities short. See "Investment Objective
and
Management Policies -- Additional Investments."
THE FUND'S EXPENSES The following expense table lists the costs and expenses
that an investor will incur either directly or indirectly as a shareholder of
the Fund based upon the maximum sales charge and the maximum CDSC that may be
incurred at the time of purchase or redemption and an estimate of the Fund's
current operating expenses:
<TABLE>
<CAPTION>
CLASS A CLASS B
CLASS D
<S> <C> <C>
<C>
-----------------------------------------------------------------------------
- --------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% --
- --
Maximum CDSC (as a percentage of redemption
proceeds) -- 5.00%
- --
-----------------------------------------------------------------------------
- --------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.90 0.90
0.90%
12b-1 fees* 0.25 1.00
1.00
Other expenses** 1.17 1.15
1.09
-----------------------------------------------------------------------------
- --------
TOTAL FUND OPERATING EXPENSES 2.32% 3.05%
2.99%
-----------------------------------------------------------------------------
- --------
<FN>
*Upon conversion of Class B shares to Class A shares, such shares will no
longer be
subject to a distribution fee. Class D shares do not have a conversion
feature and,
therefore, are subject to an ongoing distribution fee.
**All expenses are based on data for the Fund's fiscal year ended December
31, 1993.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges
imposed upon purchases or redemptions of Fund shares and investors may pay
actual charges less than 5.00%, depending on the amount purchased and, in the
case of Class B shares, the length of time the shares are held and whether the
shares are held through the 401(k) Program. See "Purchase of Shares" and
"Redemption of Shares." Management fees payable by the Fund include investment
advisory fees paid to Global Asset Management at the annual rate of 0.70% of
the
value of the Fund's average daily net assets and administration fees paid to
Boston Advisors at the annual rate of 0.20% of the value of the Fund's average
daily net assets. The nature of the services for which the Fund pays
management
fees is described
7
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
under "Management of the Company and the Fund." Smith Barney Shearson receives
an annual Rule 12b-1 service fee of 0.25% of the value of average daily net
assets of Class A shares. Smith Barney Shearson also receives, with respect to
Class B shares and Class D shares, an annual Rule 12b-1 fee of 1.00% of the
value of average daily net assets of Class B shares and Class D shares,
respectively, consisting of a 0.75% distribution fee and a 0.25% service fee.
"Other expenses" in the above table include fees for shareholder services,
custodial fees, legal and accounting fees, printing costs and registration
fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to
a hypothetical $1,000 investment in the Fund assuming a 5.0% annual total
return. THE EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES AT THE
LEVELS SET FORTH IN THE ABOVE TABLE. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR
LESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5.0% ANNUAL
RETURN,
THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5.0%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10
YEARS*
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
- ---
Class A shares:** $72 $119 $168
$303
Class B shares:
Assumes complete redemption at the
end of each time period *** 81 124 170
319
Assumes no redemption 31 94 160
319
Class D shares: 26 81 136
292
-----------------------------------------------------------------------------
- ---
<FN>
*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.
**Assumes deduction at the time of purchase of the maximum 5.00% sales
charge.
***Assumes deduction at the time redemption of the maximum CDSC applicable
for that
time period.
</TABLE>
8
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS & LYBRAND, INDEPENDENT
ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE FUND'S ANNUAL REPORT DATED
DECEMBER 31, 1993. THE INFORMATION BELOW SHOULD BE READ IN CONJUNCTION WITH
THE
FINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR IN THE FUND'S ANNUAL
REPORT DATED DECEMBER 31, 1993, WHICH IS INCORPORATED BY REFERENCE INTO THE
STATEMENT OF ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
12/31/93## 12/31/92*
<S> <C>
<C>
Net Asset Value, beginning of period $11.72
$11.52
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income/(loss) 0.07
0.00++
Net realized and unrealized gain on investments 2.68
0.20
- ------------------------------------------------------------------------------
- -------
Total from investment operations 2.75
0.20
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $14.47
$11.72
- ------------------------------------------------------------------------------
- -------
Total return+ 23.46%
1.74%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/ supplemental data:
Net assets, end of period (in 000's) $1,707
$ 46
Ratio of operating expenses to average net assets 2.32%
1.87%**
Ratio of net investment income/(loss) to average net assets 0.48%
(0.04)%**
Portfolio turnover rate 68%
108%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not
reflect any applicable sales charges.
++Amount represents less than (0.01).
##Per share amounts have been calculated using the monthly average share
method.
</TABLE>
9
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.**
<TABLE>
<CAPTION>
YEAR YEAR
ENDED
ENDED
12/31/93##
12/31/92
<S> <C> <C>
Net Asset Value, beginning of year $ 11.72 $
12.80
- ------------------------------------------------------------------------------
- ---
Income from investment operations:
Net investment income/(loss) (0.03)
(0.12)
Net realized and unrealized gain/(loss) on
investments 2.71
(0.96)
- ------------------------------------------------------------------------------
- ---
Total from investment operations 2.68
(1.08)
Distributions to shareholders:
Distributions from net investment income -- --
Distributions from net realized gains -- --
Distributions from capital -- --
- ------------------------------------------------------------------------------
- ---
Total distributions -- --
- ------------------------------------------------------------------------------
- ---
Net Asset Value, end of year $ 14.40 $
11.72
- ------------------------------------------------------------------------------
- ---
Total return+ 22.87%
(8.44)%
- ------------------------------------------------------------------------------
- ---
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $35,698
$23,120
Ratio of operating expenses to average net assets 3.05%
2.68%
Ratio of net investment income/(loss) to average net
assets (0.25)%
(0.85)%
Portfolio turnover rate 68%
108%
- ------------------------------------------------------------------------------
- ---
<FN>
*The Fund commenced operations on November 6, 1987.
**Shares in existence prior to November 6, 1992 have been designated Class B
shares.
***Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
++Anualized expense ratios before waiver of fees and reimbursement of
expenses
by investment adviser, sub-investment adviser and administrator for the
years
ended December 31, 1989 and 1988 and the period ended December 31, 1987
were
8.33%, 9.11% and 18.07%, respectively.
+++Not covered by Coopers & Lybrand's report.
#Net investment income/loss before waiver of fees and reimbursement of
expenses
by the investment adviser, sub-investment adviser and administrator for the
years ended December 31, 1989 and 1988 and the period ended December 31,
1987
were $1.00, $0.58 and $0.09, respectively.
##Per share amounts have been calculated using the monthly average share
method.
</TABLE>
10
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
12/31/91 12/31/90 12/31/89 12/31/88+++
12/31/87*+++
<S> <C> <C> <C> <C>
$ 12.97 $ 13.29 $11.32 $10.44 $10.00
- ------------------------------------------------------------------------------
- ---
0.19 0.24 0.14# (0.06)# 0.05#
(0.08) (0.09) 2.38 1.33 0.39
- ------------------------------------------------------------------------------
- ---
0.11 0.15 2.52 1.27 0.44
(0.27) (0.16) (0.05) (0.12) --
-- (0.31) (0.48) (0.27) --
(0.01) -- (0.02) -- --
- ------------------------------------------------------------------------------
- ---
(0.28) (0.47) (0.55) (0.39) --
- ------------------------------------------------------------------------------
- ---
$ 12.80 $ 12.97 $13.29 $11.32 $10.44
- ------------------------------------------------------------------------------
- ---
0.88% 1.17% 22.26% 12.28% 4.40%
- ------------------------------------------------------------------------------
- ---
$28,634 $28,017 $7,445 $2,287 $1,708
2.55% 2.92% 2.37%++ 2.51%++
4.30%***++
1.49% 2.21% 0.97% (0.71)%
4.73%***
94% 118% 109% 105% 167%
- ------------------------------------------------------------------------------
- ---
</TABLE>
11
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- ---------------------------------------------
VARIABLE PRICING SYSTEM
The Smith Barney Shearson Group of Funds offers individual investors two
methods of purchasing shares, thus enabling investors to choose the Class that
best suits their needs, given the amount of purchase and intended length of
investment. A third class -- Class D -- is offered only to Participating
Plans.
CLASS A SHARES. Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 5.0% imposed at the time of purchase. The
initial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to an annual service fee of 0.25% of the value of the
Fund's
average daily net assets attributable to the Class. The annual service fee is
used by Smith Barney Shearson to compensate its Financial Consultants for
ongoing services provided to shareholders. The sales charge is used to
compensate Smith Barney Shearson for expenses incurred in selling Class A
shares. See "Purchase of Shares."
CLASS B SHARES. Class B shares are sold at net asset value per share subject
to a maximum 5.00% CDSC, which is assessed only if the shareholder redeems
shares within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Fund. For each year of
investment within the five-year time frame, the applicable CDSC declines by
1.00%; in year six, the applicable CDSC is reduced to 0%. See "Purchase of
Shares" and "Redemption of Shares."
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the value of the Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearson's branch office overhead expenses
and marketing costs associated with Class B shares, such as preparation of
sales
literature, advertising and printing and distributing prospectuses, statements
of additional information and other materials to prospective investors in
Class
B shares. A Financial Consultant may receive different levels of compensation
for selling different Classes. Class B shares are subject to a distribution
fee
and are subject to higher transfer agency fees than Class A shares which
generally will cause Class B shares to have a higher expense ratio and pay
lower
dividends than Class A shares.
12
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- ---------------------------------------------------------------------------
VARIABLE PRICING SYSTEM (CONTINUED)
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
shares of each Class, and will no longer be subject to a distribution fee. In
addition, a certain portion of Class B shares that have been acquired through
the reinvestment of dividends and distributions ("Class B Dividend Shares")
will
be converted at that time. That portion will be a percentage of the total
number
of outstanding Class B Dividend Shares, which percentage will be determined by
the ratio of the total number of Class B shares converting at the time to the
total number of outstanding Class B shares (other than Class B Dividend
Shares).
The first of these conversions will commence on or about September 30, 1994.
The
conversion of Class B shares into Class A shares is subject to the continuing
availability of an opinion of counsel or an Internal Revenue Service ruling to
the effect that such conversions will not constitute taxable events for
federal
tax purposes.
CLASS D SHARES. Class D shares of the Fund are sold to Participating Plans
at
net asset value per share and are not subject to an initial sales charge or
CDSC. This Class of shares is subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the value of the Fund's average daily net
assets attributable to the Class. The distribution fee is used by Smith Barney
Shearson for expenses incurred in selling Class D shares, and the service fee
is
used to compensate Smith Barney Shearson Financial Consultants for ongoing
services provided to Class D shareholders. Class D shares are subject to a
distribution fee which will cause Class D shares to have a higher expense
ratio
and to pay lower dividends than Class A shares.
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
Set forth below is a description of the investment objective and policies of
the Fund. There can be no assurance that the Fund will achieve its investment
objective. Certain instruments and techniques discussed in this summary are
described in greater detail in this Prospectus under "Additional Investments"
and in the Statement of Additional Information.
The Statement of Additional Information contains specific investment
restrictions which govern the Fund's investments. These restrictions and the
Fund's investment objective are fundamental policies, which means that they
13
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
may not be changed without a majority vote of shareholders of the Fund. Except
for the objective and those restrictions specifically identified as
fundamental,
all investment policies and practices described in this Prospectus and in the
Statement of Additional Information are non-fundamental, so that the Board of
Directors may change them without shareholder approval. The fundamental
restrictions applicable to the Fund include a prohibition on (a) purchasing a
security if, as a result, more than 5% of the assets of the Fund would be
invested in the securities of the issuer (with certain exceptions) or the Fund
would own more than 10% of the outstanding voting securities of the issuer,
(b)
investing more than 10% of the Fund's total assets in "illiquid" securities
(which includes repurchase agreements with more than seven days to maturity),
and (c) investing more than 25% of the Fund's total assets in the securities
of
issuers in a particular industry (with exceptions for U.S. government
securities
and certain money market instruments).
The Fund has an investment objective of achieving long-term capital
appreciation. The Fund seeks to achieve its objective by investing primarily
in
equity securities (common and preferred stock) of issuers in countries of
Europe, including Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Luxembourg, The Netherlands, Norway, Poland,
Portugal,
Spain, Sweden, Switzerland, Turkey and the United Kingdom ("Primary Investment
Area"). Global Asset Management, the Fund's investment adviser, believes that
the Fund's objective can best be achieved by an investment policy based on the
identification of countries and industries with above-average growth rates,
the
assessment of currency factors, and the identification of companies in those
countries and industries with potential for above-average growth in earnings.
It
is a fundamental policy of the Fund to invest, under normal circumstances, at
least 65% of its total assets in a diversified portfolio of equity securities
of
issuers domiciled in the Primary Investment Area of the Fund.
In addition, the Fund may invest in other kinds of securities, E.G.,
convertible bonds, warrants, Samurai and Yankee bonds, Eurobonds, American
Depositary Receipts, which are dollar-denominated receipts issued generally by
domestic banks and representing the deposit with the bank of a security of a
foreign issuer ("ADRs") and European Depositary Receipts, which are receipts
similar to ADRs issued and traded in Europe ("EDRs"), securities issued by
companies domiciled outside the Primary Investment
14
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Area of the Fund, including, but not limited to, Eastern Europe, U.S. and
foreign government securities, and U.S. and non-U.S. money market securities.
Money market securities will generally be held by the Fund for temporary and
defensive purposes. With respect to certain countries, investments by the Fund
presently may only be made by acquiring shares of other investment companies
with local governmental authority to invest in those countries. It is not
expected that the income yield of the Fund will be significant.
The Fund also may hold cash in U.S. dollars to meet redemption requests and
other expenses and cash in other currencies to meet settlement requirements
for
foreign securities. The Fund may engage in currency exchange transactions in
order to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar or between foreign
currencies in which the Fund's securities are or may be denominated. The Fund
may conduct its currency exchange transactions either on a "spot" (I.E., cash)
basis at the rate prevailing in the currency exchange market or through
entering
into forward contracts to purchase or sell currencies. The Fund's dealings in
forward foreign currency exchange contracts will be limited to hedging
involving
either specific transactions or aggregate portfolio positions. See "Foreign
Securities and American Depositary Receipts" and "Foreign Currency Risks"
herein
and see the Statement of Additional Information for further details concerning
these transactions.
The Fund may invest in yen-denominated bonds sold in Japan by non-Japanese
issuers. Such bonds are commonly called "Samurai bonds" and correspond to
"Yankee bonds" or dollar-denominated bonds sold in the United States by non-
U.S.
issuers. As compared with domestic issues, E.G., those of the government of
Japan and its agencies, Samurai bond issues normally carry a higher interest
rate but are less actively traded and therefore may be volatile. Moreover, as
with other securities denominated in foreign currencies, their value is
affected
by fluctuations in currency exchange rates. It is the policy of the Fund to
invest in Samurai bond issues only after taking into account considerations of
quality and liquidity, as well as yield. These bonds would be of Organization
for Economic Cooperation and Development ("OECD") governments or would have
AAA
ratings.
15
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Fund may borrow money from a bank as a temporary measure for emergency
or
extraordinary purposes in an amount not exceeding 10% of the value of its
total
assets, and may invest no more than 10% of its total assets in securities that
are not readily marketable (I.E., trading in the security is suspended or, in
the case of unlisted securities, market makers do not exist or will not
entertain bids or offers). When the Fund has borrowed in excess of 5% of the
value of its total assets, the Fund will not make further investments. The
Fund
will not invest more than 25% of the value of its total assets in the
securities
of issuers engaged in any one industry (other than the U.S. government, its
agencies and instrumentalities). The Fund will invest no more than 10% of the
value of its net assets in warrants valued at the lower of cost or market. The
Fund does not currently intend to engage in trading of options or futures
contracts but may do so in the future if determined to be in the Fund's best
interests by the Fund's Board of Directors.
In making purchases of securities consistent with the above policies, the
Fund
will be subject to the applicable restrictions referred to under "Investment
Restrictions" in the Statement of Additional Information.
ADDITIONAL INVESTMENTS
U.S. GOVERNMENT SECURITIES. U.S. government securities are obligations of,
or
are guaranteed by, the U.S. government, its agencies or instrumentalities.
These
include bills, certificates of indebtedness, and notes and bonds issued by the
U.S. Treasury or by agencies or instrumentalities of the U.S. government. Some
U.S. government securities, such as U.S. Treasury bills and bonds, are
supported
by the full faith and credit of the U.S. Treasury; others are supported by the
right of the issuer to borrow from the U.S. Treasury; others, such as those of
the Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Student Loan Marketing Association and the
Federal
Home Loan Mortgage Corporation ("FHLMC"), are supported only by the credit of
the instrumentality. Mortgage participation certificates issued by the FHLMC
generally represent ownership interests in a pool of fixed-rate conventional
mortgages. Timely payment of principal and interest on these certificates is
guaranteed solely by the issuer of the certificates. Other
16
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
investments will include Government National Mortgage Association Certificates
("GNMA Certificates"), which are mortgage-backed securities representing part
ownership of a pool of mortgage loans on which timely payment of interest and
principal is guaranteed by the full faith and credit of the U.S. government.
While the U.S. government guarantees the payment of principal and interest on
GNMA Certificates, the market value of the securities is not guaranteed and
will
fluctuate.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreement
transactions on U.S. government securities with certain member banks of the
Federal Reserve System having assets in excess of $100 million and with
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 an
underlying debt obligation for a relatively short period (usually not more
than
one week) subject to an obligation of the seller to repurchase, and the Fund
to
resell, the obligation at an agreed-upon price and time, thereby determining
the
yield during the Fund's holding period. This arrangement results in a fixed
rate
of return that is not subject to market fluctuations during the Fund's holding
period. The value of the underlying securities will be at least equal at all
times to the total amount of the repurchase obligation, including interest.
The
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed or prevented
from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during
the
period while the Fund seeks to assert these 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. The Fund's investment adviser
and
administrator, acting under the supervision of the Board of Directors, review
on
an ongoing basis the creditworthiness and the value of the collateral of those
banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
provided (a) the loan is secured continuously by collateral consisting of U.S.
government securities or cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned; (b) the Fund may at any time call the loan and
obtain
the return of the securities loaned; (c) the Fund will receive any
17
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
interest or dividends paid on the loaned securities; and (d) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of the Fund.
SHORT SALES. The Fund may sell securities "short against the box." While a
short sale is the sale of a security the Fund does not own, it is "against the
box" if at all times when the short position is open, the Fund owns an equal
amount of the securities or securities convertible into, or exchangeable
without
further consideration for, securities of the same issue as the securities sold
short. Short sales "against the box" are used to defer recognition of capital
gains or losses.
FOREIGN SECURITIES AND AMERICAN DEPOSITARY RECEIPTS. The Fund may purchase
foreign securities and ADRs. ADRs are publicly traded on exchanges or
over-the-counter in the United States. The Fund also may purchase EDRs and may
invest directly in securities of foreign companies which are held and traded
abroad.
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, dividends payable on foreign
securities may be subject to foreign withholding and other taxes withheld
prior
to distribution. Foreign securities often trade with less frequency and volume
than domestic securities and therefore may exhibit greater price volatility,
and
changes in foreign exchange rates will affect the value of those securities
which are denominated or quoted in currencies other than the U.S. dollar. Many
of the foreign securities held by the Fund will not be registered with, nor
the
issuers thereof be subject to, the reporting requirements of the SEC.
Accordingly, there may be less publicly available information about the
securities and about the foreign company issuing them than is available about
a
domestic company and its securities. Moreover, individual foreign economies
may
differ favorably or unfavorably from the United States economy in such
respects
as growth of Gross National Product, rate of inflation, capital reinvestment,
resource self-
18
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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.
The Fund will calculate its net asset value and complete orders to purchase,
exchange or redeem shares only on a Monday through Friday basis excluding
holidays on which the NYSE is closed. The Fund's securities are primarily
listed
on foreign stock exchanges which may trade on other days (such as a Saturday).
As a result, the net asset value of the Fund's shares may be significantly
affected by such trading on days when a shareholder has no access to the Fund.
FOREIGN CURRENCY RISKS. The Fund will invest primarily in securities
denominated in currencies other than the U.S. dollar, and since the Fund may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, it may be affected favorably or unfavorably
by exchange control regulations or changes in the exchange rates between such
currencies and the dollar. Changes in foreign currency exchange rates will
influence values within the Fund from the perspective of U.S. investors, and
may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities, and net investment income and gains, if
any,
to be distributed to shareholders by the Fund. The rate of exchange between
the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
The Fund may enter into forward foreign currency exchange contracts in order
to protect against uncertainty in the level of future foreign exchange rates
between a particular foreign currency and the U.S. dollar or between foreign
currencies in which the Fund's securities are or may be denominated. A forward
foreign currency exchange contract involves an obligation to purchase or sell
a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the
time
of the contract. The Fund also may utilize forward currency contracts
denominated in the European Currency Unit to hedge portfolio security
positions
when a security or securities are denominated in
19
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
currencies of member countries in the European Monetary System. Forward
foreign
currency exchange contracts are entered into in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. Forward foreign currency exchange contracts may be bought or sold
to
protect the Fund against a possible loss resulting from an adverse change in
the
relationship between foreign currencies and the U.S. dollar or between foreign
currencies. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase. In addition, the Fund could be exposed to risks of loss or
delay in fulfilling the terms of the contracts if the counterparties to the
contracts are unable to meet the terms of their contracts.
RESTRICTED SECURITIES. The Fund may invest in restricted securities.
Restricted securities are securities subject to legal or contractual
restrictions on their resale. Such restrictions might prevent the sale of
restricted securities at a time when such a sale would otherwise be desirable.
Restricted securities and securities for which there is no readily available
market ("illiquid assets") will not be acquired if such acquisition would
cause
the aggregate value of illiquid assets and restricted securities to exceed 10%
of the Fund's total assets.
PORTFOLIO TRANSACTIONS AND TURNOVER
Global Asset Management arranges for the purchase and sale of the Fund's
securities and selects broker-dealers which, in its best judgment, provide
prompt and reliable execution at favorable prices and reasonable commission
rates. Global Asset Management may select broker-dealers which provide it with
research services and may cause the Fund to pay such broker-dealers
commissions
which exceed those other broker-dealers may have charged, if it views the
commissions as reasonable in relation to the value of the brokerage and/or
research services. Smith Barney Shearson and its affiliates may serve as a
regular broker for the Fund in effecting portfolio transactions on a national
securities or commodities exchange, and may retain commissions, in accordance
with certain regulations of the SEC.
For reporting purposes, the Fund's portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
fiscal
20
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
year by the monthly average of the value of the Fund's securities, with money
market instruments with less than one year to maturity excluded. A 100%
portfolio turnover rate would occur, for example, if all included securities
were replaced once during the year.
The Fund will not normally engage in the trading of securities for the
purpose
of realizing short-term profits, but will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions, and
portfolio
turnover will not be a limiting factor should Global Asset Management deem it
advisable to purchase or sell securities. While it is not possible to predict
future market conditions or portfolio turnover rates with any certainty,
Global
Asset Management anticipates that, under normal market conditions, the annual
portfolio turnover rate for the Fund may exceed 100%. Any portfolio turnover
rate in excess of 100% generally would exceed that of most other mutual funds,
including other funds with the investment objective of capital appreciation.
The
Fund's portfolio turnover rates for each of the past fiscal years are set
forth
under "Financial Highlights."
Increased portfolio turnover may result in greater brokerage commissions and
in realization of net short-term capital gains which, when distributed, are
taxed to shareholders (other than retirement plans) at ordinary income tax
rates.
- --------------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Company rests
with the Company's Board of Directors. The Directors approve all significant
agreements between the Company and companies that furnish services to the Fund
and the Company, including agreements with its distributor, investment
adviser,
administrator, custodian and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's investment adviser and administrator. The
Statement of Additional Information contains general and background
information
regarding each Director and executive officer of the Company.
21
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
INVESTMENT ADVISER -- GLOBAL ASSET MANAGEMENT
Global Asset Management, located at Two Broadgate, London EC2M7HA, United
Kingdom. Global Asset Management renders investment advice to institutional
clients (including other investment companies), with total assets under
management, as of December 31, 1993, in excess of $8.1 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
Global Asset Management manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies, makes investment decisions
for
the Fund, places orders to purchase and sell securities and employs
professional
portfolio managers and securities analysts who provide research services to
the
Fund. Global Asset Management receives an investment advisory fee computed
daily
and paid monthly at the annual rate of 0.70% of the value of the average daily
net assets of the Fund. The investment advisory fees of the Fund are higher
than
investment advisory fees of most other mutual funds that invest in domestic
securities, since the costs associated with managing foreign securities are
generally higher than those usually incurred in managing domestic securities.
PORTFOLIO MANAGEMENT
Erich Stock of Global Asset Management has served as Investment Officer of
the
Fund since 1989 and is responsible for managing the day-to-day investment
operations of the Fund, including the making of investment decisions.
Mr. Stock's management discussion and analysis of the Fund's performance
during the fiscal year ended December 31, 1993 (including a line graph
comparing
the Fund's performance to the Morgan Stanley Capital International European
Index) is included in the Fund's Annual Report to Shareholders dated December
31, 1993. The Fund's Annual Report may be obtained upon request and without
charge from any Smith Barney Shearson Financial Consultant or by writing or
calling the Fund at the address or phone number listed on page 1 of this
prospectus.
22
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. Boston Advisors is an indirect wholly
owned
subsidiary of Mellon. Boston Advisors provides investment management,
investment
advisory, and/or administrative services to investment companies which had
aggregate assets under management as of December 31, 1993, in excess of $86.6
billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists in all aspects of the Fund's administration and operation.
Under an Administration Agreement the Fund pays Boston Advisors a fee at the
annual rate of 0.20% of value of the Fund's average daily net assets.
- --------------------------------------------------------------------
PURCHASE OF SHARES
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney Shearson or with an Introducing Broker, except that
investors
purchasing shares of the Fund through a qualified retirement plan may do so
directly through the Company's transfer agent. When purchasing shares of the
Fund, investors must specify whether the purchase is for Class A, Class B or,
in
the case of Participating Plans, Class D shares. No maintenance fee will be
charged in connection with a brokerage account through which an investor
purchases or holds shares. Purchases are effected at the public offering price
next determined after a purchase order is received by Smith Barney Shearson or
an Introducing Broker (the "trade date"). Payment generally is due to Smith
Barney Shearson or an Introducing Broker on the fifth business day (the
"settlement date") after the order is placed. Investors who make payment prior
to the settlement date may permit the payment to be held in their brokerage
accounts or may designate a temporary investment (such as a money market fund
in
the Smith Barney Shearson Group of Funds) for such payment until the
settlement
date. The Company reserves the right to reject any purchase order and to
suspend
the offering of shares for any period of time.
Purchase orders received by Smith Barney Shearson or the Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York
time, on any day the Fund's net asset value is
23
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
calculated are priced according to the net asset value determined on that day.
Purchase orders received after the close of regular trading on the NYSE are
priced as of the time the net asset value per share is next determined. See
"Valuation of Shares."
SYSTEMATIC INVESTMENT PLAN. The Fund offers shareholders a Systematic
Investment Plan under which shareholders may authorize Smith Barney Shearson
or
an Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid
automatically
from cash held in the shareholder's Smith Barney Shearson brokerage account or
through the automatic redemption of the shareholder's shares of a Smith Barney
Shearson money market fund. For further information regarding the Systematic
Investment Plan, shareholders should contact their Smith Barney Shearson
Financial Consultants.
MINIMUM INVESTMENTS. The minimum initial investment in the Fund is $1,000
and
the minimum subsequent investment is $200 except that for purchases through
(a)
IRAs and Self-Employed Retirement Plans, the minimum initial and subsequent
investments are $250 and $100, respectively, (b) retirement plans qualified
under sections 401(a) and 403(b)(7) of the Code, the minimum and subsequent
investment is $25 and (c) the Fund's Systematic Investment Plan, the minimum
initial and subsequent investments are both $100. There are no minimum
requirements for employees of The Travelers Inc. (which was formerly known as
Primerica Corporation) ("Travelers") and its subsidiaries, including Smith
Barney Shearson. The Company reserves the right at any time to vary the
initial
and subsequent investment minimums. Certificates for Fund shares are issued
upon
request to the Company's transfer agent, TSSG.
24
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class next determined after a purchase order is received plus a sales
charge, which is imposed in accordance with the following schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE
AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET
VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- --------
Less than $25,000 5.00% 5.26%
$25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.25% 3.36%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 2.00% 2.04%
$1,000,000 or more** 0.00% 0.00%
- ------------------------------------------------------------------------------
- -------
<FN>
*Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and
Introducing Brokers that single investments of $250,000 or more should be
made in
Class A shares.
**No sales charge is imposed on purchases of Class A shares of $1 million or
more;
however, a CDSC of .75% for the first year after purchase is imposed. The
CDSC on
Class A shares will be payable to Smith Barney Shearson which compensates
Smith
Barney Shearson Financial Consultants upon the sale of these shares. The
CDSC will
be waived in the same circumstances in which the CDSC applicable to Class B
shares
is waived. See "Redemption of Shares -- Contingent Deferred Sales Charge --
Class B
Shares -- Waivers of CDSC."
</TABLE>
REDUCED SALES CHARGES -- CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Fund shares to receive volume discounts. Investors eligible
to receive volume discounts include individuals and their immediate families,
tax-qualified employee benefit plans and trustees or other professional
fiduciaries (including a bank, or an investment adviser registered with the
SEC
under the Investment Advisers Act of 1940, as amended) purchasing shares for
one
or more trust estates or fiduciary accounts even though more than one
beneficiary is involved. The initial sales charge is also reduced to 1.00% for
Smith Barney Shearson Personal Living Trust program participants for whom
Smith
Barney Shearson acts as trustee. Reduced sales charges on Class A shares are
also available under a combined right of accumulation, under which an investor
may combine the value of Class A shares already held in the Fund, in any other
fund in the Company and in any of the other funds in the Smith Barney Shearson
Group of Funds listed below (except those sold without a sales charge), along
with the value of the Class A shares being purchased, to qualify for a
25
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
reduced sales charge. For example, if an investor owns Class A shares of the
Fund, any other funds in the Company and other funds in the Smith Barney
Shearson Group of Funds that have an aggregate value of $22,000, and makes an
additional investment in Class A shares of the Fund of $4,000, the sales
charge
applicable to the additional investment would be 4.00%, rather than the 5.0%
normally charged on a $4,000 purchase. Investors interested in further
information regarding reduced sales charges should contact their Smith Barney
Shearson Financial Consultant.
Class A shares may be offered without any applicable sales charges to: (a)
employees of Travelers and its subsidiaries, including Smith Barney Shearson
and
employee benefit plans for such employees and their immediate families when
orders on their behalf are placed by such employees; (b) accounts managed by
registered investment advisory subsidiaries of Travelers; (c) directors,
trustees or general partners of any investment company for which Smith Barney
Shearson serves as distributor; (d) any other investment company in connection
with the combination of such company with the Fund by merger, acquisition of
assets or otherwise; (e) shareholders who have redeemed Class A shares in the
Fund (or Class A shares of any other fund in the Company or of another fund in
the Smith Barney Shearson Group of Funds that are sold with a maximum 5.00%
sales charge) and who wish to reinvest their redemption proceeds in the Fund,
provided the reinvestment is made within 30 days of the redemption; and (f)
any
client of a newly-employed Smith Barney Shearson Financial Consultant (for a
period up to 90 days from the commencement of the Financial Consultant's
employment with Smith Barney Shearson), on the condition that the purchase is
made with the proceeds of the redemption of shares of a mutual fund that (i)
was
sponsored by the Financial Consultant's prior employer, (ii) was sold to a
client by the Financial Consultant, and (iii) when purchased, such shares were
sold with a sales charge or are subject to a sales charge upon redemption.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of purchase. A
CDSC is imposed, however, on certain redemptions of Class B shares. See
"Redemptions of Shares" which describes the CDSC in greater detail.
26
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Smith
Barney
Shearson Financial Consultants and Introducing Brokers that all purchases of
shares of $250,000 or more should be for Class A shares. Smith Barney Shearson
reserves the right to vary these guidelines at any time.
SMITH BARNEY SHEARSON 401(K) PROGRAM
Shareholders investing in the Fund may be eligible to participate in the
401(k) Program, which is generally designed to assist employers or plan
sponsors
in the creation and operation of retirement plans qualified under Section
401(a)
of the Code. To the extent applicable, the same terms and conditions are
offered
all Participating Plans in the 401(k) Program which include 401(k) plans,
other
types of participant directed, tax-qualified employee benefit plans and
employer-sponsored non-qualified employee benefit plans.
The Fund offers to Participating Plans three classes of shares, Class A,
Class
B and Class D shares, as investment alternatives under the 401(k) Program.
Class
A shares are available to all Participating Plans and are the only investment
alternative for Participating Plans that are eligible to purchase Class A
shares
at net asset value without a sales charge. In addition, Class B shares are
offered only to Participating Plans satisfying certain criteria with respect
to
the amount of the initial investment and number of employees eligible to
participate in the Plan at that time. Alternatively, Class D shares are
offered
only to Participating Plans that meet other criteria relating to the amount of
initial investment and number of employees eligible to participate in the Plan
at that time, as described below.
The Class A and Class B shares acquired through the 401(k) Program are
subject
to the same service and/or distribution fees as, but different sales charge
and
CDSC schedules than, the Class A and Class B shares acquired by other
investors.
Class D shares acquired by Participating Plans are offered at net asset value
per share without any sales charges or CDSC. The Fund pays annual service and
distribution fees based on the value of the average daily net assets
attributable to this Class.
27
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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. The sales charges for Class A shares acquired by
Participating
Plans are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE
AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF NET ASSET
VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- --------
Less than $25,000 5.00% 5.26%
$25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.25% 3.36%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $750,000 2.00% 2.04%
$750,000 or more 0.00% 0.00%
- ------------------------------------------------------------------------------
- -------
</TABLE>
A Participating Plan will have a combined right of accumulation, under
which,
to qualify for a reduced sales charge, it may combine the value of Class A
shares being purchased with the value of Class A shares already held in the
Fund
and in any of the funds listed below under "Exchange Privilege" that are sold
with a sales charge.
Class A shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of Class A shares of
one
or more funds in the Smith Barney Shearson Group of Funds under the combined
right of accumulation described above; (b) has 250 or more employees eligible
to
participate in the Participating Plan at the time of initial investment in the
Fund; or (c) currently holds Class A shares in the Fund that were received as
a
result of an exchange of Class B or Class D shares of the Fund as described
below.
Class A shares acquired through the 401(k) Program will not be subject to a
CDSC.
CLASS B SHARES. Under the 401(k) Program, Class B shares are offered to
Participating Plans that: (i) purchase less than $250,000 of Class B shares of
one or more funds in the Smith Barney Shearson Group of Funds that are sold
subject to a CDSC; and (ii) that have less than 100 employees eligible to
participate in the Participating Plan at the time of initial investment in the
Fund. Class B shares acquired by such Plans will be subject to a CDSC of
28
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
3% of redemption proceeds, if redeemed within eight years of the date the
Participating Plan first purchases Class B shares. No CDSC is imposed to the
extent that the net asset value of the Class B shares redeemed does not exceed
(a) the current net asset value of Class B shares purchased through
reinvestment
of dividends or capital gains distributions, plus (b) the current net asset
value of Class B shares purchased more than eight years prior to the
redemption,
plus (c) increases in the net asset value of the shareholder's Class B shares
above the purchase payments made during the preceding eight years. The CDSC
applicable to a Participating Plan depends on the number of years since the
Participating Plan first became a holder of Class B shares, unlike the CDSC
applicable to other Class B shareholders, which depends on the number of years
since those shareholders made the purchase payment from which the amount is
being redeemed.
The CDSC will be waived on redemptions of 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 termination
of
employment of an employee in the Participating Plan, (c) the death or
disability
of an employee in the Participating Plan, (d) the attainment of age 59 1/2 by
an
employee in the Participating Plan, (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code or
(f) redemptions of Class B shares in connection with a loan made by the
Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class B
share, it will be offered the opportunity to exchange all of its Class B
shares
for Class A shares of the Fund. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of the
purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the eighth anniversary date. Once the exchange
has occurred, a Participating Plan will not be eligible to acquire additional
Class B shares of the Fund but instead may acquire Class A shares of the Fund.
If the Participating Plan elects not to exchange all of its Class B shares at
that time, each Class B share held by the Participating Plan will have the
same
conversion feature as Class B shares held by other investors. See "Variable
Pricing System -- Class B Shares."
CLASS D SHARES. Class D shares are offered to Participating Plans that: (i)
purchase less than $750,000 but more than $250,000 of Class D shares
29
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
of one or more funds in the Smith Barney Shearson Group of Funds that offer
one
or more Classes of shares subject to a sales charge and/or CDSC; or (ii) have
no
more than 250 employees eligible to participate in the Participating Plan at
the
time of initial investment in the Fund.
Class D shares acquired by Participating Plans will be offered at net asset
value per share without any sales charges or CDSC. The Fund pays annual
service
and distribution fees based on the value of the average daily net assets
attributable to this Class. Class D shares are not subject to an automatic
conversion feature as are the Class B shares. However, beginning in December
1993 and each year thereafter, Participating Plans which hold Class D shares
valued at $750,000 or more in any fund or funds in the Smith Barney Shearson
Group of Funds that offer one or more Classes of shares subject to a sales
charge and/or CDSC will be offered the opportunity to exchange all of their
Class D shares for Class A shares. Such Plans will be notified of the pending
exchange 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 March in the following
calendar
year. Once the exchange has occurred, a Participating Plan will not be
eligible
to acquire Class D shares of the Fund but instead may acquire Class A shares
of
the Fund. Any Class D shares not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the Fund through the 401(k)
Program must purchase shares from the Fund's transfer agent.
For further information regarding the 401(k) Program, investors should
contact
their Smith Barney Shearson Financial Consultants.
- --------------------------------------------------------------------
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Fund calculates its
net asset value. See "Valuation of Shares." Redemption requests received in
proper form prior to the close of regular trading on the NYSE are priced at
the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value
next determined. If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being redeemed. In
30
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
the event of a failure to specify which Class or if the investor owns fewer
shares of the Class than specified, the redemption request will be delayed
until
the Fund's transfer agent receives further instructions from Smith Barney
Shearson, or if the shareholder's account is not with Smith Barney Shearson,
from the shareholder directly.
The Fund normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney Shearson or the Introducing Broker at no
charge (other than any applicable CDSC) within seven days after receipt of a
redemption request. Generally, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney Shearson
will benefit from the use of temporarily uninvested funds. A shareholder who
pays for Fund shares by personal check will be credited with the proceeds of a
redemption of those shares only after the purchase check has been collected,
which may take up to 10 days or more. A shareholder who anticipates the need
for
more immediate access to his or her investment should purchase shares with
federal funds, by bank wire or by certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less
may
be subject to redemption by the Fund, but only after the shareholder has been
given at least 30 days in which to increase the account balance to $500 or
more.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A shareholder desiring to redeem shares represented by
certificates must also present such certificates to Smith Barney Shearson or
the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
such certificates are received by the Company's transfer agent in proper form.
31
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- ---------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submitting a written request to the Smith Barney Shearson Financial
Consultant.
All other shares may be redeemed by submitting a written request for
redemption
to:
Smith Barney Shearson European Fund
Class A, B or D (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to TSSG or a Smith Barney Shearson Financial
Consultant must (a) state the Class and number or dollar amount of shares to
be
redeemed, (b) identify the shareholder's account number and (c) be signed by
each registered owner exactly as the shares are registered. If the shares to
be
redeemed were issued in certificate form, the certificates must be endorsed
for
transfer (or be accompanied by an endorsed stock power) and must be submitted
to
TSSG together with the redemption request. Any signature appearing on a
redemption request, share certificate or stock power must be guaranteed by a
domestic bank, savings and loan institution, domestic credit union, member
bank
of a Federal Reserve System or member firm of a national securities exchange.
TSSG may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A redemption
request will not be deemed properly received until TSSG receives all required
documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly. Retirement plan
accounts
are eligible for automatic cash withdrawal plans only where the shareholder is
eligible to receive qualified distributions and has an account value of at
least
$5,000. Any applicable CDSC will be waived on amounts withdrawn by a
shareholder
that do not exceed 2.0% per month of the value of shareholder's shares subject
to the CDSC at the time the withdrawal plan commences. For further information
regarding the automatic cash withdrawal plan, shareholders should contact
their
Smith Barney Shearson Financial Consultants.
32
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years, except in the case of purchases by Participating Plans in the 401(k)
Program, as described above. See "Purchase of Shares -- Smith Barney Shearson
401(k) Program." No charge is imposed to the extent that the net asset value
of
the Class B shares redeemed does not exceed (a) the current net asset value of
Class B shares purchased through reinvestment of dividends or capital gains
distributions, plus (b) the current net asset value of Class B shares
purchased
more than five years prior to the redemption, plus (c) increases in the net
asset value of the shareholder's Class B shares above the purchase payments
made
during the preceding five years.
In circumstances in which the CDSC is imposed, 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, except in the case of purchases
through
Participating Plans in the 401(k) Program, which are subject to a different
CDSC. See "Purchase of Shares -- Smith Barney Shearson 401(k) Program." Solely
for purposes of determining the number of years since a purchase payment, all
purchase payments during a month will be aggregated and deemed to have been
made
on the last day of the preceding Smith Barney Shearson statement month. The
following table sets forth the rates of the charge for redemptions of Class B
shares by shareholders other than Participating Plans:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
<S> <C>
- ------------------------------------------------------------------------------
- ----
First
5.00%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
- ------------------------------------------------------------------------------
- ----
</TABLE>
33
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
Class B shares will automatically convert to Class A shares approximately
eight years after the date on which they were purchased and thereafter will no
longer be subject to a distribution fee. The first of these conversions will
commence on or about September 30, 1994. See "Variable Pricing System -- Class
B
Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not
already been effected. In the case of redemptions of Class B shares of other
funds in the Company or of other funds in the Smith Barney Shearson Group of
Funds issued in exchange for Class B shares of the Fund, the term "purchase
payments" refers to the purchase payments for the shares given in exchange. In
the event of an exchange of Class B shares of funds with differing CDSC
schedules, the shares will be, in all cases, subject to the higher CDSC
schedule. See "Exchange Privilege."
WAIVERS OF CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"), (b) automatic cash withdrawals in amounts that do not exceed 2.0%
per month of the value of the shareholder's Class B shares at the time the
withdrawal plan commences (see below); (c) redemptions of shares following the
death or disability of the shareholder; (d) redemptions of shares in
connection
with certain post-retirement distributions and withdrawals from retirement
plans
or IRAs; (e) involuntary redemptions; (f) redemption proceeds from other funds
in the Smith Barney Shearson Group of Funds that are reinvested within 30 days
of the redemption; (g) redemptions of shares in connection with a combination
of
any investment company with the Fund by merger, acquisition of assets or
otherwise, and (h) certain redemptions of shares of the Fund in connection
with
lump-sum or other distributions made by a Participating Plan. See "Purchase of
Shares -- Smith Barney Shearson 401(k) Program."
- --------------------------------------------------------------------
VALUATION OF SHARES
Each Class' net asset value per share is calculated separately on each day,
Monday through Friday, except on days when the NYSE is closed. The NYSE
currently is scheduled to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day,
34
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
VALUATION OF SHARES (CONTINUED)
Thanksgiving and Christmas and on the preceding Friday or subsequent Monday
when
one of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of a given Class is determined as of the later
of the close of regular trading on the NYSE (currently 4:00 p.m., New York
time)
or the Chicago Board Options Exchange (currently 4:15 p.m., New York time) and
is computed by dividing the value of the Fund's net assets attributable to
that
Class by the total number of shares of that Class of the Fund outstanding.
A security that is primarily traded on a United States or foreign stock
exchange is valued at the last sale price on that exchange or, if there were
no
sales during the day, at the current quoted bid price. In cases where
securities
are traded on more than one exchange, the securities are valued on the
exchange
designated by or under the authority of the Board of Directors as the primary
market. Fund securities which are primarily traded on foreign exchanges may be
valued with the assistance of a pricing service and are generally valued at
the
preceding closing values of such securities on their respective exchanges,
except that when an occurrence subsequent to the time a foreign security is
valued is likely to have changed such value, then the fair value of those
securities will be determined by consideration of other factors by or under
the
direction of the Board of Directors. Unlisted foreign securities are valued at
the mean between the last available bid and offer price prior to the time of
valuation. U.S. over-the-counter securities will be valued on the basis of the
bid price at the close of business on each day. Securities and assets for
which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors.
Any assets or liabilities initially expressed in terms of foreign currencies
will be converted into U.S. dollar values at the mean between the bid and
offered quotations of such currencies against U.S. dollars as last quoted by
any
recognized dealer.
35
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class in the
following funds in the Smith Barney Shearson Group of Funds to the extent
shares
are offered for sale in the shareholder's state of residence:
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-----------------------------------------------------------------------------
- --
MUNICIPAL BOND FUNDS
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in
investment
grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate- and long-term municipal bond fund investing in
medium and lower rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
Arizona investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Massachusetts investors.
</TABLE>
36
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term bond fund designed for
New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New York investors.
INCOME FUNDS
A, B, D+ SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME
FUND,
seeks high current income while limiting the degree of
fluctuation in net asset value resulting from movement in
interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests
in
a portfolio of high quality debt securities that may be
denominated in U.S. dollars or selected foreign currencies
and
that have remaining maturities of not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests
in
high quality, short-term debt securities denominated in U.S.
dollars as well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests
exclusively in securities issued by the U.S. Treasury and
other U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND,
seeks
high current income primarily by allocating and reallocating
its assets among various types of fixed-income securities.
</TABLE>
37
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A, B, D+ SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC., invests
in obligations issued or guaranteed by the United States
government and its agencies and instrumentalities with
emphasis on mortgage-backed government securities.
A, B, D+ SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a
high
current return by investing in U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks a
high
level of current income consistent with prudent investment
management and preservation of capital by investing in
corporate bonds and other income producing securities.
A, B, D+ SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income by investing in high-yielding corporate bonds,
debentures and notes.
A, B, D+ SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current income
and capital appreciation by investing in bonds, debentures
and
notes of foreign and domestic issuers.
GROWTH AND INCOME FUNDS
A, B, D+ SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income
and capital appreciation by investing in convertible
securities.
A, B, D+ SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing in equity and debt securities of utilities
companies.
</TABLE>
38
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A, B, D+ SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high
total return consisting of current income and capital
appreciation by investing in a combination of equity, fixed-
income and money market securities.
A, B, D+ SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by investing in dividend-paying common stocks.
A, B, D+ SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks income
and
long-term capital growth by investing in income producing
equity securities.
GROWTH FUNDS
A, B, D+ SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-
term
appreciation of capital.
A, B, D+ SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks
long-term capital growth with current income as a secondary
objective.
A, B, D+ SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
A, B, D+ SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND, seeks
capital appreciation, with income as a secondary
consideration.
A, B, D+ SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A, B, D+ SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-term
capital appreciation by investing in equity securities
primarily of emerging growth companies.
A, B, D+ SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks
long-term capital growth by investing principally in the
common stocks of foreign and domestic issuers.
</TABLE>
39
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
-----------------------------------------------------------------------------
- --
<S> <C>
A, B, D+ SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND
INC.,
seeks long-term capital appreciation by investing primarily
in
precious metal- and mineral-related companies and gold
bullion.
MONEY MARKET FUNDS
* SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of high quality money market
instruments.
** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND, invests in a
variety of money market instruments.
** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND, invests
in
United States government and agency securities.
++ SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND, invests
in
short-term high quality municipal obligations.
++ SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND,
invests in short-term, high quality California municipal
obligations.
++ SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND,
invests in short-term, high quality New York municipal
obligations.
---------------------------------------------------------------------------
<FN>
*Shares of this money market fund may be exchanged for Class B shares of the
Fund.
**Shares of this money market fund may be exchanged for Class A and Class D
shares of the Fund.
+Class D shares of this Fund may be acquired only by Participating Plans.
++Shares of this money market fund may be exchanged for Class A shares of the
Fund.
</TABLE>
TAX EFFECT. The exchange of shares of one fund for shares of another fund is
treated for federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
40
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
CLASS A EXCHANGES. Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 5.00% will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A shares of the Fund
or other funds sold with a higher sales charge. The "sales charge
differential"is limited to a percentage rate no greater than the excess of the
sales charge rate applicable to purchases of shares of the mutual fund being
acquired in the exchange over the sum of the rates of all sales charges
previously paid on the mutual fund shares relinquished in the exchange and on
any predecessor of those shares. For purposes of the exchange privilege,
shares
obtained through automatic reinvestment of dividends, as described below, are
treated as having paid the same sales charges applicable to the shares on
which
the dividends were paid. However, except in the case of the 401(k) Program, if
no sales charge was imposed upon the initial purchase of the shares, any
shares
obtained through automatic reinvestment will be subject to a sales charge
differential upon exchange.
CLASS B EXCHANGES. Class B shareholders of the Fund who wish to exchange all
or part of their Class B shares for Class B shares of any of the funds
identified above may do so without the imposition of an exchange fee. 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 which have been exchanged.
CLASS D EXCHANGES. Class D shares of the Fund will be exchangeable for Class
D
shares of the funds listed above. Class D shareholders who wish to exchange
all
or part of their Class D shares in any of these funds may do so without
charge.
Class D shares may be acquired only by Participating Plans.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Shareholders
exercising the exchange privilege with other funds in the Company or any other
fund in the Smith Barney Shearson Group of Funds should review the prospectus
relating to the exchanged-for shares carefully prior to making an exchange.
Smith Barney Shearson reserves the right to reject any exchange request and
the
exchange privilege may be modified or terminated at any time after notice to
shareholders.
Although the exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the Fund's performance and its
shareholders.
The Fund's investment adviser may determine that a pattern of
41
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
frequent exchanges is excessive and contrary to the best interests of the
Fund's
other shareholders. In this event, the Fund's investment adviser will notify
Smith Barney Shearson, and Smith Barney Shearson may, at its discretion,
decide
to limit additional purchases and/or exchanges by the shareholder. Upon such a
determination, Smith Barney Shearson 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 other Smith Barney Shearson funds ordinarily
available,
which position the shareholder would expect to maintain for a significant
period
of time. All relevant factors will be considered in determining what
constitutes
an abusive pattern of exchanges.
For further information regarding the exchange privilege or to obtain a
current prospectus for the other funds in the Company or any other fund in the
Smith Barney Shearson Group of Funds, shareholders should contact their Smith
Barney Shearson Financial Consultant.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013, and serves as the distributor of the Fund's shares. Smith Barney
Shearson
is a wholly owned subsidiary of Holdings which is in turn an indirect wholly
owned subsidiary of Travelers. Smith Barney Shearson is paid an annual service
fee with respect to Class A, Class B and Class D shares of the Fund at the
rate
of 0.25% of the value of the average daily net assets of the respective Class.
Smith Barney Shearson is also paid an annual distribution fee with respect to
Class B and Class D shares at the rate of 0.75% of the value of the average
daily net assets attributable to those classes. The fees are authorized
pursuant
to a distribution and service plan (the "Plan") adopted by the Fund pursuant
to
Rule 12b-1 under the 1940 Act and are used by Smith Barney Shearson to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class D shares, to cover expenses primarily intended to result in
the sale of those shares of the Fund. These expenses include: costs of
printing
and distributing the Fund's Prospectus, Statement of
42
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- ---------------------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
Additional Information and sales literature to prospective investors; an
allocation of overhead and other Smith Barney Shearson's branch office
distribution-related expenses; payments to and expenses of Smith Barney
Shearson
Financial consultants and other persons who provide support services in
connection with the distribution of the shares; and accruals for interest on
the
amount of the foregoing expenses that exceed distribution fees and, in the
case
of Class B shares, the CDSC received by Smith Barney Shearson. The payments to
Smith Barney Shearson Financial Consultants for selling shares of a class
include a commission paid at the time of sale and a continuing fee for
servicing
shareholder accounts for as long as a shareholder remains a holder of that
Class. The service fee is credited at the rate of 0.25% of the value of
average
daily net assets of the Class that remain invested in the Fund. Smith Barney
Shearson Financial Consultants may receive different levels of compensation
for
selling one Class of shares over another.
Although it is anticipated that some promotional activities will be
conducted
on a Company-wide basis, payments made by a fund under the Plan generally will
be used to finance the distribution of shares of such fund. Expenses incurred
in
connection with Company-wide activities may be allocated pro-rata among all
funds of the Company on the basis of their relative net assets.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson, and
the
payments may exceed distribution expenses actually incurred. The Company's
Board
of Directors evaluates the appropriateness of the Plan and its payment terms
on
a continuing basis and in doing so will consider all relevant factors,
including
expenses borne by Smith Barney Shearson and the amount received under the Plan
and the proceeds of the CDSC and sales charges received.
On a quarterly basis, the Company's Board of Directors reviews a report on
expenditures under the Plan and the purposes for which those expenditures were
made. The Directors conduct an additional, more extensive review annually in
determining whether the Plan will be continued. By its terms, continuation of
the Plan from year to year is contingent on annual approval by a majority of
the
Company's Directors and by a majority of the Directors who are not "interested
persons" as defined in the 1940 Act, and who have no direct or indirect
financial interest in the
43
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- --------------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
operation of the Plan or related agreements (the "Plan Directors"). The Plan
may
be terminated with respect to the Fund at any time by vote of a majority of
the
Plan Directors or a majority of the outstanding shares of the Fund.
For additional information on the Plan, see the discussion under
"Distribution
Arrangements" in the Statement of Additional Information.
- --------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund will be treated separately from the Company's other funds in
determining the amount of dividends from net investment income and
distributions
of capital gains payable to shareholders. Dividends and any distributions
automatically are reinvested in additional shares at net asset value unless
the
shareholder has elected to receive distributions in cash. Dividends and
distributions are treated the same for tax purposes whether taken in cash or
reinvested in additional shares. Dividends, if any, consisting of net
investment
income of the Fund will be declared and paid annually. Any net realized
long-term capital gains, after distribution of capital loss carryforwards,
will
be distributed at least annually. Net realized short-term capital gains may be
paid with the distribution of dividends from net investment income. The per
share dividends and distributions on Class A shares will be higher than the
per
share dividends and distributions on Class B and Class D shares as a result of
lower distribution and transfer agency fees applicable to the Class A shares.
See "Variable Pricing System." In addition, as determined by the Board of
Directors, distributions of the Fund may include a return of capital.
Shareholders will be notified of the amount of any distribution that
represents
a return of capital. In order to comply with a calendar year distribution
requirement under the Code, it may be necessary for the Fund to make
distributions at times other than those set forth above.
44
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
federal tax purposes, the amount of investment income and capital gains earned
will be determined on a fund-by-fund basis, rather than on a Company-wide
basis.
The Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Code. In any taxable year in which the Fund so
qualifies and distributes at least 90% of its investment company taxable
income
(which includes, among other items, dividends, interest and the excess of any
net short-term capital gains over net long-term capital losses), the Fund (but
not its shareholders) generally will be relieved of federal income tax on the
investment company taxable income and net realized capital gains (the excess
of
net long-term capital gains over net short-term capital losses), if any,
distributed to shareholders. In order to qualify as a regulated investment
company, the Fund will be required to meet various Code requirements.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with this requirement.
Distributions of any investment company taxable income are taxable to
shareholders as ordinary income. Distributions of any net capital gains
designated by the Fund as capital gain dividends are taxable to shareholders
as
long-term capital gain regardless of the length of time a shareholder may have
held shares of the Fund.
Dividends (including capital gain dividends) declared by the Fund in
October,
November or December of any calendar year to shareholders of record on a date
in
such a month will be deemed to have been received by shareholders on December
31
of that calendar year, provided that the dividend is actually paid by the Fund
during January of the following calendar year.
Certain foreign currency forward contracts in which the Fund may invest are
"section 1256 contracts." Gains or losses in section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses
("60/40%"); however, foreign currency gains or losses arising from certain
section 1256 contracts (including foreign currency forward contracts)
45
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
generally are treated as ordinary income or loss. Also, section 1256 contracts
held by the Fund at the end of each taxable year are "marked-to-market" with
the
result that unrealized gains or losses are treated as though they were
realized.
These contracts also may be marked-to-market for purposes of the 4% excise tax
and for other purposes under rules prescribed pursuant to the Code.
Certain foreign currency forward contracts entered into by the Fund may
result
in "straddles" for federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund on straddle positions.
In addition, losses realized by the Fund on straddle positions may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized. The
Fund may make one or more of the elections applicable to straddles. If the
Fund
makes any of the elections, the amount, character and timing of the
recognition
of gains and losses from the affected straddle positions will be determined
under rules that vary according to the elections made. Because only a few of
the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Fund are not entirely clear.
Under the Code, gains or losses attributable to fluctuations in exchange
rates
which occur between the time the Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and
the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of foreign currency forward contracts, gains or losses
attributable
to fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
generally are treated as ordinary gain or loss. These gains or losses,
referred
to under the Code as "section 988" gains or losses, may increase or decrease
the
amount of the Fund's investment company taxable income to be distributed to
its
shareholders.
It is expected that certain dividends and interest received by the Fund will
be subject to foreign withholding taxes. If more than 50% in value of the
Fund's
total assets at the close of any fiscal year consists of stocks or securities
of
foreign corporations, the Fund may elect to treat any foreign income and
similar
taxes paid by it as paid by its shareholders. If the Fund makes the election,
shareholders will be required to include in income their
46
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
proportionate share of the amount of foreign taxes paid or accrued by the Fund
and will be entitled to claim, subject to limitations, either a credit or
deduction (if they itemize their deductions) for their share of the taxes in
computing their federal income tax.
Upon the disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder generally will realize a taxable gain or loss. Such
gain or loss generally will be a capital gain or loss if the shares are
capital
assets in the shareholder's hands, and generally will be long-term or short-
term
depending upon the shareholder's holding period for the shares. Any loss
realized by a shareholder on disposition of Fund shares held by the
shareholder
for six months or less will be treated as long-term capital loss to the extent
of any distributions of capital gains dividends received by the shareholder
with
respect to such shares.
Shareholders will be notified annually about the amounts of dividends and
distributions, including the amounts (if any) for that year which have been
designated as capital gain dividends. Dividends and distributions and gains
realized upon a disposition of Fund shares may also be subject to state, local
or foreign taxes depending on each shareholder's particular situation.
Dividends, if any, consisting of interest from obligations of the U.S.
government and certain of its agencies and instrumentalities may be exempt
from
all state and local income taxes. Investors should consult their tax advisors
for specific information on the tax consequences of particular types of
distributions.
- --------------------------------------------------------------------
THE FUND'S PERFORMANCE
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total return"
over various periods of time for each Class. Such total return figures show
the
average percentage change in value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the
period
were reinvested in shares of the same Class. Class A total return figures
include the maximum initial 5.00% sales charge and
47
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
Class B total return figures include any applicable CDSC. These figures also
take into account the service and distribution fees, if any, payable with
respect to the Classes.
Total return figures will be given for recent one-, five- and ten-year
periods
or the life of a Class to the extent it has not been in existence for any such
period, and may be given for other periods as well, such as on a year-by-year
basis. When considering average annual total return figures for periods longer
than one year, it is important to note that the total return for any one year
in
the period might have been greater or less than the average for the entire
period. "Aggregate" total return figures may be used for various periods,
representing the cumulative change in value of an investment in the shares for
the specific period (again reflecting changes in the Fund's share prices and
assuming reinvestment of dividends and distributions). Aggregate total returns
may be calculated either with or without the effect of the maximum 5.00% sales
charge or any applicable CDSC and may be shown by means of schedules, charts
or
graphs, and may indicate subtotals of the various components of total return
(I.E., change in the value of initial investment, income dividends, and
capital
gains distributions). Because of the differences in sales charges and
distribution and other fees, the total returns for each of the Classes will
differ.
In reports or other communications to shareholders or in advertising
material,
performance of a Class may be compared with that of other mutual funds or
classes of shares of other funds listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds or with other appropriate indices of investment
securities such as the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average and Morgan Stanley Capital International World
Index. The performance information may also include evaluations of the Fund
published by nationally recognized financial publications such as BARRON'S,
BUSINESS WEEK, CDA INVESTMENT TECHNOLOGIES, INC., FORBES, FORTUNE,
INSTITUTIONAL
INVESTOR, INVESTORS DAILY, KIPLINGER'S PERSONAL FINANCE MAGAZINE, MONEY,
MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES, USA TODAY and THE WALL
STREET JOURNAL. It is important to note that yield and total return figures
are
based on historical earnings and are not intended to indicate future
performance. To the extent any advertisement or sales literature of the Fund
describes the expenses or performance of a Class, it will also disclose such
information for the other
48
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
Classes. For a description of the methods used to determine total return, see
the Statement of Additional Information. Performance figures may be obtained
from any Smith Barney Shearson Financial Consultant.
- --------------------------------------------------------------------
ADDITIONAL INFORMATION
The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The
Company commenced operations on January 4, 1982 under the name "Hutton
Investment Series Inc." The Company's corporate name was changed to "SLH
Investment Portfolios Inc." on December 29, 1988. On October 23, 1992, the
Board
of Directors of the Company authorized the Company to do business under the
name
of "Shearson Lehman Brothers Investment Funds" and also authorized a change in
the name of the Fund to European Fund.
On July 30, 1993, the Company's corporate name was changed to its current
name
"Smith Barney Shearson Investment Funds Inc." and the Fund's name was changed
to
Smith Barney Shearson European Fund.
The Fund offers shares of common stock currently classified into three
Classes, A, B and D, with a par value of $.001 per share. Each Class of shares
has the same rights, privileges and preferences, except with respect to: (a)
the
designation of each Class; (b) the effect of the respective sales charges, if
any, for each Class; (c) the distribution and/or service fees borne by each
Class; (d) the expenses allocable exclusively to each Class; (e) voting rights
on matters exclusively affecting a single Class; (f) the exchange privilege of
each Class; and (g) the conversion feature of the Class B shares. The Board of
Directors does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes of shares of the Fund. The
Directors, on an ongoing basis, will consider whether any such conflict exists
and, if so, take appropriate action.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place,
Boston, Massachusetts 02108, and serves as custodian of the Company's
investments.
TSSG, a subsidiary of FDC, is located at Exchange Place, Boston,
Massachusetts
02109, and serves as the Company's transfer agent.
49
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
The Company does not hold annual shareholder meetings. There normally will
be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any
purpose
upon written request of shareholders holding at least 10% of the Company's
outstanding shares. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full share owned and a
proportionate, fractional vote for any fractional share held of that Class.
Generally, shares of the Company will be voted on a Company-wide basis on all
matters except matters affecting only the interests of one Fund or one Class
of
shares.
The Fund sends its shareholders a semi-annual report and an audited annual
report, each of which includes a list of the 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 Company plans to consolidate the mailing of
its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. In addition, the Company also plans to
consolidate the mailing of its Prospectuses so that a shareholder having
multiple accounts (I.E., individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a single Prospectus annually. When the Fund's annual
reports are combined with the Prospectus into a single document, the Fund will
mail the combined document to each shareholder to comply with legal
requirements. Any shareholder who does not want this consolidation to apply to
his or her account should contact their Smith Barney Shearson Financial
Consultant or the Fund's transfer agent.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT
OF
ADDITIONAL INFORMATION AND/OR IN THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE FUND'S SHARES AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
50
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN FUND
DIRECTORS
Alger B. Chapman
Dwight B. Crane
Frank G. Hubbard
Allan R. Johnson
Heath B. McLendon
John F. White
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
Erich Stock
INVESTMENT OFFICER
Kenneth A. Egan
FIRST VICE PRESIDENT
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
Paul F. Roye
ASSISTANT SECRETARY
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Lehman Brothers Global Asset
Management Limited
Two Broadgate
London EC2M 7HA
United Kingdom
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
TRANSFER AGENT
The Shareholders Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit
and Trust Company
One Boston Place
Boston, Massachusetts 02108
51
<PAGE>
SMITH BARNEY SHEARSON
EUROPEAN
FUND
Two World Trade Center
New York, New York 10048
Fund 109, 203, 255
FD0236 B4
PART B
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
STATEMENT OF ADDITIONAL INFORMATION
Smith Barney Shearson
INVESTMENT FUNDS INC.
Two World Trade Center
New York, New York 10048
(212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectuses of Smith Barney Shearson
Investment Funds Inc. (the "Company"), dated March 1, 1994, as amended or
supplemented from time to time, and should be read in conjunction with the
Company's Prospectuses. The Company issues a Prospectus for each of the
investment funds offered by the Company (the "Funds"). The Company's Pro-
spectuses may be obtained from any Smith Barney Shearson Financial Con-
sultant, or by writing or calling the Company at the address or telephone
number listed above. This Statement of Additional Information, although
not in itself a prospectus, is incorporated by reference into the Prospec-
tuses in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the Pro-
spectuses and this Statement of Additional Information, except where shown
below:
<TABLE>
<S>
<C>
Management of the Company (see in the Prospectuses "Management of the Company
and the Fund")
1
Investment Objective and Management Policies
6
Purchase of Shares
24
Redemption of Shares
25
Distributor
26
Valuation of Shares
27
Exchange Privilege
28
Performance Data (see in the Prospectuses "The Fund's Performance")
29
Taxes (see in the Prospectuses "Dividends, Distributions and Taxes")
33
Custodian and Transfer Agent
37
Financial Statements
37
Appendix
A-1
</TABLE>
MANAGEMENT OF THE COMPANY
The executive officers of the Company are employees of certain of the or-
ganizations that provide services to the Company. These organizations are
the following:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Greenwich Street Advisors
("Greenwich Street Advisors") Investment Advisers
Lehman Brothers Global Asset Management Limited
("Global Asset Management")
The Boston Company Advisors, Inc.
("Boston Advisors") Administrator
Smith Barney Shearson Inc.
("Smith Barney Shearson") Distributor
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation Transfer Agent
</TABLE>
These organizations and the functions they perform for the Company are
discussed in the Prospectuses and in this Statement of Additional Informa-
tion.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company, together with infor-
mation as to their principal business occupations during the past five
years, are shown below. Each Director who is an "interested person" of the
Company, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), is indicated by an asterisk.
Dwight B. Crane, Director. Professor, Graduate School of Business Adminis-
tration, Harvard University. His address is Graduate School of Business
Administration, Harvard University, Boston, Massachusetts 02163.
Alger B. Chapman, Chairman and Chief Operating Officer of the Chicago
Board Options Exchange. His address is Chicago Board Options Exchange, La-
Salle at Van Buren, Chicago, IL 60605.
Frank G. Hubbard, Corporate Vice President, Materials Management and Mar-
keting Services of Huls America, Inc. His address is 80 Centennial Avenue
P.O. Box 456, Piscataway, NJ 08855-0456.
Allan R. Johnson, Director. Retired; Former Chairman, Retail Division of
BATUS, Inc., and Chairman and Chief Executive Officer of Saks Fifth Ave-
nue, Inc. His address is 2 Sutton Place South, New York, New York 10022.
*Heath B. McLendon, Chairman of the Board. Executive Vice President of
Smith Barney Shearson and Chairman of Smith Barney Shearson Strategy Ad-
visers Inc., an investment advisory affiliate of Smith Barney Shearson
("SBSSA"). Prior to July 1993, Senior Executive Vice President of Shearson
Lehman Brothers Inc. ("Shearson Lehman Brothers") and Vice Chairman of the
Board of Shearson Asset Management, a member of the Asset Management Group
of Shearson Lehman Brothers. His address is Two World Trade Center, New
York, New York 10048.
John F. White, Director. President Emeritus of The Cooper Union for the
Advancement of Science and Art; Special Assistant to the President of the
Aspen Institute. His address is Crows Nest Road, Tuxedo Park, New York
10987.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney Shearson; Director and President of Mutual Management Corp.
and Smith Barney Advisers, Inc., and Trustee of Corporate Realty Income
Trust I. His address is 1345 Avenue of the Americas, New York, New York
10105.
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney Shearson; President of SBSSA. Prior to July 1993, Senior Vice Pres-
ident of Shearson Lehman Brothers and Vice President of Shearson Lehman
Investment Strategy Advisors Inc., an investment advisory affiliate of
Shearson Lehman Brothers. His address is Two World Trade Center, New York,
New York 10048.
James E. Conroy, First Vice President. Managing Director of Greenwich
Street Advisors. Prior to July 1993, Managing Director of Shearson Lehman
Advisors. His address is Two World Trade Center, New York, New York 10048.
Kenneth A. Egan, First Vice President. Managing Director of Greenwich
Street Advisors. Prior to July 1993, Managing Director of Shearson Lehman
Advisors. His address is Two World Trade Center, New York, New York 10048.
R. Jay Gerken, Investment Officer. Senior Vice President of Greenwich
Street Advisors. Prior to July 1993, Senior Vice President of Shearson Le-
hman Advisors. His address is Two World Trade Center, New York, New York
10048.
George E. Mueller, Jr., Investment Officer. Senior Vice President of
Greenwich Street Advisors. Prior to July 1993, Managing Director of Shear-
son Lehman Advisors. His address is Two World Trade Center, New York, New
York 10048.
George V. Novello, Investment Officer. Managing Director of Greenwich
Street Advisors. Prior to July 1993, Managing Director of Shearson Lehman
Advisors. Prior to September 1990, Mr. Novello was a Managing Director at
McKinley-Allsopp where he served as Head of Research. His address is Two
World Trade Center, New York, New York 10048.
Erich Stock, Investment Officer. Director-Equities, Global Asset Manage-
ment. His address is Two Broadgate, London EC2M, 7HA, United Kingdom.
Vincent Nave, Treasurer. Senior Vice President of Boston Advisors and Bos-
ton Safe. His address is One Boston Place, Boston, Massachusetts 02108.
Francis J. McNamara, III, Secretary. Senior Vice President and General
Counsel of Boston Advisors; prior to June 1989, Vice President and Associ-
ate Counsel of Boston Advisors. His address is One Boston Place, Boston,
Massachusetts 02108.
Paul F. Roye, Assistant Secretary. Partner in the law firm of Dechert
Price & Rhoads. His address is 1500 K Street, N.W., Washington, D.C.
20005.
Messrs. Crane, Johnson, White and McLendon also serve as directors, trust-
ees and/or individual general partners of certain other mutual funds for
which Smith Barney Shearson serves as distributor. As of December 31,
1993, the Directors and officers of the Company, as a group, owned less
than 1% of the outstanding common stock of the Company.
No officer, director or employee of Smith Barney Shearson or Boston Advi-
sors or of any parent or subsidiary receives any compensation from the
Company for serving as an officer or Director of the Company. The Company
pays each Director who is not an officer or employee of Smith Barney
Shearson or Boston Advisors or any of their affiliates a fee of $14,000
per annum plus $3,000 per meeting attended and reimburses travel and out-
of-pocket expenses. For the fiscal year ended December 31, 1993, such fees
and expenses totalled approximately $147,980.00.
INVESTMENT ADVISERS--GREENWICH STREET ADVISORS AND GLOBAL ASSET MANAGEMENT
ADMINISTRATOR--BOSTON ADVISORS
Greenwich Street Advisors and Global Asset Management serve as investment
advisers to one or more of the Funds pursuant to written agreements with
the Funds (the "Advisory Agreements"), which, with the exception of the
European Funds' Advisory Agreement, were most recently approved by the
Board of Directors, including a majority of the Directors who are not "in-
terested persons" of the Company or the investment advisers (the "Indepen-
dent Directors"), on April 7, 1993 and by shareholders of the respective
Funds on June 9, 1993. The Advisory Agreement for European Fund was most
recently approved by the Board of Directors, including a majority of the
Independent Directors, on August 5, 1993 and by shareholders of European
Fund on November 4, 1988. Each of the investment advisers pays the salary
of any officer and employee who is employed by both it and the Company.
The services provided by the investment advisers under the Advisory Agree-
ments are described in the Prospectuses under "Management of the Company."
Greenwich Street Advisors, a division of Mutual Management Corp., provides
investment advisory and management services to investment companies affil-
iated with Smith Barney Shearson. Smith Barney Shearson is a wholly owned
subsidiary of Smith Barney Shearson Holdings Inc., which is in turn a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation) ("Travelers"). Global Asset Management is a wholly owned sub-
sidiary of Lehman Brothers Holdings Inc. ("Holdings"). American Express
Company ("American Express") owns 100% of Holdings' issued and outstanding
common stock, which represents approximately 92% of Holdings' issued and
outstanding voting stock. The remainder of Holdings' voting stock is owned
by Nippon Life Insurance Company. On January 21, 1994, American Express
announced plans to issue a special dividend to its common shareholders
consisting of the common stock of Holdings which it owns immediately pre-
ceding such dividend. Final terms of the proposed transaction, which is
expected to be completed during the second quarter of 1994 and would re-
sult in Holdings emerging as an independent publicly-owned corporation,
have not yet been determined.
For the fiscal years ended December 31, 1991, 1992 and 1993, the Funds ac-
crued approximate advisory fees as follows:
<TABLE>
<CAPTION>
FUND 1991 1992 1993
<S> <C> <C> <C>
Investment Grade Bond Fund $1,792,000 $1,879,000
$2,157,373
Government Securities Fund 4,771,000 3,926,000
3,357,123
Special Equities Fund 421,000 385,000
548,764
European Fund 203,000 189,000
195,586
</TABLE>
Boston Advisors serves as administrator to each Fund pursuant to a written
agreement dated May 21, 1993 (the "Administration Agreement"), which was
first approved by the Board of Directors, including a majority of the In-
dependent Directors, on November 4, 1992. Prior to the close of business
on May 21, 1993, Boston Advisors acted as the Funds' sub-investment ad-
viser and administrator. Boston Advisors is a wholly owned subsidiary of
The Boston Company, Inc. ("TBC"), a financial services holding company,
which is in turn a wholly owned subsidiary of Mellon Bank Corporation
("Mellon").
Prior to the close of business on May 21, 1993 (the "Closing"), TBC was an
affiliate of Shearson Lehman Brothers and, in connection with its sale to
Mellon, Shearson Lehman Brothers conditionally agreed (with certain excep-
tions) that neither it nor its subsidiaries would provide custody services
(other than to investment companies) or master trust services for a period
of three years, and that neither it nor its subsidiaries would provide
custody or administration services to certain investment companies and/or
clients of TBC and its subsidiaries for a period of one to seven years. In
addition, Shearson Lehman Brothers conditionally agreed (with certain ex-
ceptions) that, for a period of seven years (a) with respect to each in-
vestment company for which both (i) TBC or its subsidiary provided custody
services, administration services or investment advisory services (not su-
badvisory services) on September 14, 1992 and (ii) Shearson Lehman Broth-
ers or its subsidiaries serve as investment adviser or principal under-
writer, Shearson Lehman Brothers would to the extent consistent with its
fiduciary duties and other applicable law recommend TBC or its subsidiary
as a provider of such services, and (b) it would recommend TBC or its sub-
sidiary as the provider of custody services and administration services
for any investment company for which Shearson Lehman Brothers or its sub-
sidiaries become an investment adviser or principal underwriter.
On July 30, 1993, Travelers and Smith Barney Harris Upham & Co. Incorpo-
rated ("Smith Barney") purchased certain assets and assumed certain lia-
bilities of Shearson Lehman Brothers and Smith Barney was renamed "Smith
Barney Shearson Inc." Under the asset purchase agreement between Smith
Barney and Shearson Lehman Brothers, as regards the above-described provi-
sions, Smith Barney agreed with American Express that Smith Barney and its
pertinent affiliates would be bound by those provisions described in the
preceding paragraph to the extent that Shearson Lehman Brothers and its
pertinent affiliates would have been bound if the sale to Smith Barney had
not occurred.
Certain of the services provided to the Company by Boston Advisors pursu-
ant to the Administration Agreement are described in the Prospectuses
under "Management of the Company and the Fund." In addition to those ser-
vices, Boston Advisors pays the salaries of all officers and employees who
are employed by both it and the Company, maintains office facilities for
the Company, furnishes the Company with statistical and research data,
clerical help and accounting, data processing, bookkeeping, internal au-
diting and legal services and certain other services required by the Com-
pany, prepares reports to the Company's shareholders and prepares tax re-
turns, reports to and filings with the Securities and Exchange Commission
(the "SEC") and state Blue Sky authorities. Boston Advisors bears all ex-
penses in connection with the performance of its services.
For the fiscal years ended December 31, 1991, 1992 and 1993, the Funds ac-
crued approximate sub-investment and/or administration fees as follows:
<TABLE>
<CAPTION>
FUND 1991 1992 1993
<S> <C> <C> <C>
Investment Grade Bond Fund $ 796,000 $ 835,000 $
958,700
Government Securities Fund 2,726,000 2,243,000
1,918,367
Special Equities Fund 153,000 140,000
199,551
European Fund 60,000* 53,000
55,902
<FN>
* For the fiscal year ended December 31, 1991, 100% of the sub-investment
advisory and administration fees were waived by Boston Advisors for the
European Fund.
</TABLE>
The Company bears expenses incurred in its operation, including taxes, in-
terest, brokerage fees and commissions, if any; fees of Directors who are
not officers, directors, shareholders or employees of the investment ad-
visers, Smith Barney Shearson or Boston Advisors; SEC fees and state Blue
Sky qualification fees; charges of custodians; transfer and dividend dis-
bursing agent's fees; certain insurance premiums; outside auditing and
legal expenses; costs of maintenance of corporate existence; investor ser-
vices (including allocated telephone and personnel expenses); and costs of
preparation and printing of prospectuses for regulatory purposes and for
distribution to existing shareholders, shareholders' reports and corporate
meetings.
Each investment adviser and Boston Advisors have agreed that if in any
fiscal year the aggregate expenses of a Fund (including fees paid pursuant
to the Advisory and Administration Agreements, but excluding interest,
taxes, brokerage and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Fund, the investment
advisers and Boston Advisors will, to the extent required by law, reduce
their management fees for the Fund by the amount of such excess expense,
such amount to be allocated between them in the proportion that their re-
spective fees bear to the aggregate of such fees paid by the Fund. Such a
fee reduction, if any, will be reconciled on a monthly basis. The most re-
strictive state limitation applicable to the Company would require the in-
vestment advisers and Boston Advisors to reduce their fees in any year
that such excess expenses exceed 2.5% of the first $30 million of average
net assets, 2% of the next $70 million of average net assets and 1.5% of
the remaining average net assets. No fee reduction was required for the
1993, 1992 and 1991 fiscal years.
COUNSEL AND AUDITORS
Dechert Price & Rhoads serves as counsel to the Company and Smith Barney
Shearson and from time to time provides certain legal services to Boston
Advisors. Paul F. Roye, a partner at Dechert Price & Rhoads, is Assistant
Secretary of the Company. Sullivan & Worcester serves as counsel to the
Directors who are not "interested persons" of the Company.
Coopers & Lybrand, independent accountants, One Post Office Square, Bos-
ton, Massachusetts 02109, serve as auditors of the Company and render an
opinion on the Company's financial statements annually.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectuses discuss the investment objectives of each Fund and the
policies they employ to achieve such objectives. The following discussion
supplements the description of the Funds' investment objectives and man-
agement policies contained in the Prospectuses.
INVESTMENT GRADE BOND FUND
The investment objective of the Investment Grade Bond Fund is to provide
as high a level of current income as is consistent with prudent investment
management and preservation of capital. The Fund seeks to achieve its ob-
jective by investing in the following securities: -- Corporate bonds which
are rated Aaa, Aa, A, or Baa by Moody's Investors Service, Inc.
("Moody's") or AAA, AA, A, or BBB by Standard & Poor's Corporation ("S&P")
(See Appendix for a description of these ratings). -- U.S. government se-
curities (See below). -- Commercial paper issued by domestic corporations
rated Prime-1 or Prime-2 by Moody's or A-1+, A-1 or A-2 by S&P or, if not
rated by Moody's or S&P, issued by a corporation having an outstanding
debt issue rated Aa or better by Moody's or AA or better by S&P (See Ap-
pendix). -- Negotiable bank certificates of deposit or bankers' acceptan-
ces issued by domestic banks (but not their foreign branches) having to-
gether with branches or subsidiaries, total assets in excess of $1 bil-
lion. -- High-yielding common stocks (which may be purchased directly or
acquired through the exercise of warrants or the conversion of fixed-
income securities) -- Warrants.
The ratings of Moody's and S&P generally represent the opinions of those
organizations as to the quality of the securities that they rate. Such
ratings, however, are relative and subjective, are not absolute standards
of quality and do not evaluate the market risk of the securities. Although
the Fund's investment adviser uses these ratings as a criterion for the
selection of securities for the Fund, the Fund's investment adviser also
relies on its independent analysis to evaluate potential investments for
the Fund. The Fund's achievement of its investment objectives may be more
dependent on the investment adviser's credit analysis of low-rated and un-
rated securities than would be the case for a portfolio of higher-rated
securities.
Subsequent to its purchase by the Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. In addition, it is possible that Moody's and S&P
might not timely change their ratings of a particular issue to reflect
subsequent events. None of these events will require the sale of the secu-
rities by the Fund, although the investment adviser will consider these
events in determining whether the Fund should continue to hold the securi-
ties. To the extent that the ratings given by Moody's or S&P for securi-
ties may change as a result of changes in the rating systems or due to a
corporate reorganization of Moody's and/or S&P, the Fund will attempt to
use comparable ratings as standards for its investments in accordance with
the investment objectives and policies of the Fund.
As a condition of its continuing registration in a state, the Fund has un-
dertaken that Investment Grade Bond Fund's investments in warrants, valued
at the lower of cost or market, will not exceed 5% of the value of its net
assets. Included within that amount, but not to exceed 2% of the Fund's
net assets, may be warrants which are not listed on either the New York
Stock Exchange, Inc. (the "NYSE") or the American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities will be deemed to
be without value for purposes of this restriction. These limits are not
fundamental policies of the Fund and may be changed by the Board of Direc-
tors without shareholder approval.
Investment Grade Bond Fund may enter into repurchase agreements, reverse
repurchase agreements and firm commitment agreements and may lend its
portfolio securities, in each case in accordance with the description of
those techniques (and subject to the same risks) set forth below. The Fund
may purchase American Depositary Receipts ("ADRs"), which are dollar-
denominated receipts issued generally by domestic banks and representing
the deposit with the bank of a security of a foreign issuer. ADRs are pub-
licly traded on exchanges or over-the-counter in the United States.
Investment Grade Bond Fund may also sell securities "short against the
box." While a short sale is the sale of a security the Fund does not own,
it is "against the box" if at all times when the short position is open,
the Fund owns an equal amount of the securities or securities convertible
into, or exchangeable without further consideration for, securities of the
same issue as the securities sold short. Short sales against the box are
used to defer recognition of capital gains or losses or to extend the
holding period of securities for certain federal income tax purposes.
It is the Fund's policy that at least 65% of the assets of Investment
Grade Bond Fund will be invested in bonds, except during times when the
investment adviser believes that adoption of a temporary defensive posi-
tion by investing more heavily in cash or money market instruments (such
as short-term U.S. government securities, commercial paper, and negotiable
bank certificates of deposit) is desirable due to prevailing market or
economic conditions. This policy was adopted in accordance with guidelines
of the SEC which require that any investment company whose name implies
that it invests primarily in a particular type of security have a policy
of investing at least 65% of its total assets in that type of security
under normal market conditions. This policy may be changed without share-
holder approval in the event the SEC guidelines are modified.
Repurchase Agreements. The Fund may purchase securities and concurrently
enter into repurchase agreements with certain member banks of the Federal
Reserve System having total assets in excess of $100 million and certain
dealers on the Federal Reserve Bank of New York's list of reporting deal-
ers. Repurchase agreements are contracts under which the buyer of a secu-
rity simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under each repurchase agreement, the selling
institution will be required to maintain the value of the securities sub-
ject to the repurchase agreement at not less than their repurchase price.
Repurchase agreements could involve certain risks in the event of default
or insolvency of the other party, including possible delays or restric-
tions upon a Fund's ability to dispose of the underlying securities, the
risk of a possible decline in the value of the underlying securities dur-
ing 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 repurchase agreement.
The investment adviser and the administrator of the Fund, acting under the
supervision of the Company's Board of Directors, review on an ongoing
basis the value of the collateral and the creditworthiness of those banks
and dealers with which the Fund enters into repurchase agreements to eval-
uate potential risks. The Fund will not enter into repurchase agreements
that would cause more than 10% of its total assets to be invested in "il-
liquid" securities.
Reverse Repurchase Agreements. A reverse repurchase agreement involves
the sale of a money market instrument held by the Fund coupled with an
agreement by the Fund to repurchase the instrument at a stated price, date
and interest payment. The Fund will use the proceeds of a reverse repur-
chase agreement to purchase other money market instruments which either
mature at a date simultaneous with or prior to the expiration of the re-
verse repurchase agreement or which are held under an agreement to resell
maturing as of that time.
The Fund will enter into a reverse repurchase agreement only when the in-
terest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. Under
the 1940 Act, reverse repurchase agreements may be considered to be bor-
rowings by the seller. The Fund may not enter into a reverse repurchase
agreement if, as a result, its current obligations under such agreements
would exceed one-third of the current market value of the Fund's total as-
sets (less all of its liabilities other than obligations under such agree-
ments).
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers. Entry into such agreements with broker-dealers requires
the creation and maintenance of a segregated account with the Company's
custodian consisting of U.S. government securities or cash or cash equiva-
lents.
Firm Commitment Agreements. The Fund may enter into firm commitment
agreements (when-issued purchases) for the purchase of securities at an
agreed-upon price on a specified future date. Such agreements might be en-
tered into, for example, when a decline in the yield of securities of a
given issuer is anticipated and a more advantageous yield may be obtained
by committing currently to purchase securities to be issued later.
The Fund will not enter into such agreements for the purpose of investment
leverage. Liability for the purchase price, and all the rights and risks
of ownership of the securities, accrue to the Fund at the time it becomes
obligated to purchase such securities, although delivery and payment occur
at a later date. Accordingly, if the market price of the security should
decline, the effect of the agreement would be to obligate the Fund to pur-
chase the security at a price above the current market price on the date
of delivery and payment. During the time the Fund is obligated to purchase
such securities, it will maintain in a segregated account with the Compa-
ny's custodian, U.S. government securities or cash or cash equivalents of
an aggregate current value sufficient to make payment for the securities.
Lending of Portfolio Securities. The Fund has the ability to lend portfo-
lio securities to brokers, dealers and other financial organizations. Such
loans, if and when made, may not exceed 20% of the Fund's total assets
taken at value. The Fund will not lend portfolio securities to Smith Bar-
ney Shearson unless it has applied for and received specific authority to
do so from the SEC. Loans of portfolio securities will be collateralized
by cash, letters of credit or U.S. government securities which are main-
tained at all times in an amount at least equal to the current market
value of the loaned securities. From time to time, the Fund may pay a part
of the interest earned from the investment of collateral received for se-
curities loaned to the borrower and/or a third party which is unaffiliated
with the Fund and is acting as a "finder."
By lending its securities, the Fund can increase its income by continuing
to receive interest on the loaned securities as well as by either invest-
ing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when U.S. government securities
are used as collateral. The Fund will adhere to the following conditions
whenever its 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 loaned rises above the level of such collateral; (c) the
Fund must be able to terminate the loan at any time; (d) the Fund must re-
ceive reasonable interest on the loan, as well as any dividends, interest
or other distributions on the loaned securities, and any increase in mar-
ket value; (e) the Fund may pay only reasonable custodian fees in connec-
tion with the loan; and (f) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event ad-
versely affecting the investment in the loaned securities occurs, the
Board of Directors must terminate the loan and regain the right to vote
the securities.
GOVERNMENT SECURITIES FUND
The investment objective of Government Securities Fund is high current re-
turn. It seeks to achieve its objective by investing in U.S. government
securities and by writing covered call options and secured put options and
by purchasing put options on U.S. government securities. The Fund also may
purchase and sell interest rate futures contracts, and purchase and sell
put and call options on futures contracts, as a means of hedging against
changes in interest rates.
U.S. Government Securities. Direct obligations of the U.S. Treasury in-
clude a variety of securities, which differ in their interest rates, matu-
rities and dates of issuance. Treasury Bills have maturities of one year
or less; Treasury Notes have maturities of one to ten years and Treasury
Bonds generally have maturities of greater than ten years at the date of
issuance.
In addition to direct obligations of the U.S. Treasury, securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities
include securities issued or guaranteed by the Federal Housing Administra-
tion, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Asso-
ciation ("GNMA"), General Services Administration, Central Bank for Coop-
eratives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Federal Land Banks, Federal Maritime Administration, the
Tennessee Valley Authority, District of Columbia Armory Board, Student
Loan Marketing Association, International Bank for Reconstruction and De-
velopment, Resolution Trust Corporation and Federal National Mortgage As-
sociation ("FNMA"). The Fund will invest in obligations of an instrumen-
tality to which the U.S. government is not obligated by law to provide
support only if the Fund's investment adviser determines that the credit
risk with respect to the instrumentality does not make its securities un-
suitable for investment by the Fund.
Some U.S. government securities are supported by the full faith and credit
of the U.S. Treasury; others are supported by the right of the issuers to
borrow from the U.S. Treasury; others, such as those of FNMA, are sup-
ported by the discretionary authority of the U.S. government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumen-
tality. No assurance can be given that the U.S. government would provide
financial support to a U.S. government-sponsored instrumentality when it
is not obligated to do so by law. The Fund will invest in the securities
of such U.S. government agencies and instrumentalities only when it is
satisfied that the credit risk is minimal.
It is the Fund's policy that at least 65% of its total assets will be in-
vested in U.S. government securities, including options and futures con-
tracts thereon, except during times when the investment adviser believes
that adoption of a temporary defensive position by investing more heavily
in cash or money market instruments is desirable due to prevailing market
or economic conditions. This policy was adopted in accordance with guide-
lines of the SEC which require that any investment company whose name im-
plies that it invests primarily in a particular type of security have a
policy of investing at least 65% of its total assets in that type of secu-
rity under normal market conditions. This policy may be changed without
shareholder approval in the event that the SEC's guidelines are modified.
The Fund's current distribution return consists generally of interest in-
come from U.S. government securities, premiums from expired put and call
options written by the Fund, net gains from closing purchase and sale
transactions, and net gains from sales of portfolio securities pursuant to
options or otherwise.
Exchange Rate-Related U.S. Government Securities. Government Securities
Fund has the ability to invest up to 5% of its net assets in U.S. govern-
ment securities for which the principal repayment at maturity, while paid
in U.S. dollars, is determined by reference to the exchange rate between
the U.S. dollar and the currency of one or more foreign countries ("Ex-
change Rate-Related Securities"). The interest payable on these securities
is denominated in U.S. dollars, is not subject to foreign currency risk
and, in most cases, is paid at rates higher than most other U.S. govern-
ment securities in recognition of the foreign currency risk component of
Exchange Rate-Related Securities.
Exchange Rate-Related Securities are issued in a variety of forms, depend-
ing on the structure of the principal repayment formula. The principal re-
payment formula may be structured so that the securityholder will benefit
if a particular foreign currency to which the security is linked is stable
or appreciates against the U.S. dollar. In the alternative, the principal
repayment formula may be structured so that the securityholder benefits if
the U.S. dollar is stable or appreciates against the linked foreign cur-
rency. Finally, the principal repayment formula can be a function of more
than one currency and, therefore, be designed in either of the aforemen-
tioned forms or a combination of those forms.
Investments in Exchange Rate-Related Securities entail special risks.
There is the possibility of significant changes in rates of exchange be-
tween the U.S. dollar and any foreign currency to which an Exchange Rate-
Related Security is linked. If currency exchange rates do not move in the
direction or to the extent anticipated at the time of purchase of the se-
curity, the amount of principal repaid at maturity might be significantly
below the par value of the security, which might not be offset by the in-
terest earned by the Fund over the term of the security. The rate of ex-
change between the U.S. dollar and other currencies is determined by the
forces of supply and demand in the foreign exchange markets. These forces
are affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation and other
factors. The imposition or modification of foreign exchange controls by
the United States or foreign governments or intervention by central banks
also could affect exchange rates. Finally, there is no assurance that suf-
ficient trading interest to create a liquid secondary market will exist
for particular Exchange Rate-Related Securities due to conditions in the
debt and foreign currency markets. Illiquidity in the forward foreign ex-
change market and the high volatility of the foreign exchange market may
from time to time combine to make it difficult to sell an Exchange Rate-
Related Security prior to maturity without incurring a significant price
loss.
Options Activities. Government Securities Fund may write (i.e., sell)
call options on U.S. government securities ("calls"). The Fund writes only
"covered" call options, which means that so long as the Fund is obligated
as the writer of a call option, it will own the underlying securities sub-
ject to the option, or, in the case of options on certain U.S. government
securities as described further below, it will maintain in a segregated
account with the Company's custodian, cash or cash equivalents or U.S.
government securities with a value sufficient to meet its obligations
under the call.
When the Fund writes a call, it receives a premium and gives the purchaser
the right to buy the underlying U.S. government security at any time dur-
ing the call period (usually between three and nine months, but not more
than fifteen months) at a fixed exercise price regardless of market price
changes during the call period. If the call is exercised, the Fund forgoes
any gain from an increase in the market price of the underlying security
over the exercise price.
The Fund may purchase a call on securities only to effect a "closing pur-
chase transaction," which is the purchase of a call covering the same un-
derlying security and having the same exercise price and expiration date
as the call previously written by the Fund on which it wishes to terminate
its obligation. Government Securities Fund also may purchase call options
on futures contracts, as described below. If the Fund is unable to effect
a closing purchase transaction, it will not be able to sell the underlying
security until the call previously written by the Fund expires (or until
the call is exercised and the Fund delivers the underlying security).
The Fund will realize a gain (or loss) on a closing purchase transaction
with respect to a call or put previously written by the Fund if the pre-
mium, plus commission costs, paid to purchase the call or put is less (or
greater) than the premium, less commission costs, received on the sale of
the call or put. A gain also will be realized if a call or put which the
Fund has written lapses unexercised, because the Fund would retain the
premium. See "Taxes."
Government Securities Fund also may write and purchase put options
("puts") on U.S. government securities. When the Fund writes a put, it re-
ceives a premium and gives the purchaser of the put the right to sell the
underlying U.S. government security to the Fund at the exercise price at
any time during the option period. When the Fund purchases a put, it pays
a premium in return for the right to sell the underlying U.S. government
security at the exercise price at any time during the option period. If
any put is not exercised or sold, it will become worthless on its expira-
tion date. The Fund will not purchase puts if more than 10% of its net as-
sets would be invested in premiums on puts.
The Fund may write puts only if they are "secured." A put is "secured" if
the Fund maintains cash, cash equivalents or U.S. government securities
with a value equal to the exercise price in a segregated account or holds
a put on the same underlying security at an equal or greater exercise
price. The aggregate value of the obligations underlying puts written by a
Fund will not exceed 50% of its net assets. The Fund also may write
"straddles," which are combinations of secured puts and covered calls on
the same underlying U.S. government security.
There can be no assurance that a liquid secondary market will exist at a
given time for any particular option. In this regard, trading in options
on U.S. government securities is relatively new, so that it is impossible
to predict to what extent liquid markets will develop or continue. The
Fund has undertaken with a state securities commission that it will limit
losses from all options transactions to 5% of its average net assets per
year, or cease options transactions until in compliance with the 5% limi-
tation, but there can be no absolute assurance that these limits can be
adhered to.
The Company's custodian, or a securities depository acting for it, will
act as escrow agent as to the securities on which the Fund has written
puts or calls, or as to other securities acceptable for such escrow, so
that no margin deposit will be required of the Fund. Until the underlying
securities are released from escrow, they cannot be sold by the Fund.
SPECIAL CONSIDERATIONS RELATING TO OPTIONS ON CERTAIN U.S. GOVERNMENT
SECURITIES
Treasury Bonds and Notes. Because trading interest in U.S. Treasury bonds
and notes tends to center on the most recently auctioned issues, the ex-
changes will not continue indefinitely to introduce new expirations to re-
place expiring options on particular issues. The expirations introduced at
the commencement of options trading on a particular issue will be allowed
to run, with the possible addition of a limited number of new expirations
as the original expirations expire. Options trading on each issue of bonds
or notes will thus be phased out as new options are listed on more recent
issues, and a full range of expirations will not ordinarily be available
for every issue on which options are traded.
Treasury Bills. Because the deliverable U.S. Treasury bill changes from
week to week, writers of U.S. Treasury bill calls cannot provide in ad-
vance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long posi-
tion in U.S. Treasury bills with a principal amount corresponding to the
contract size of the option, it may be hedged from a risk standpoint. In
addition, the Fund will maintain U.S. Treasury bills maturing no later
than those which would be deliverable in the event of the exercise of a
call option it has written in a segregated account with its custodian so
that it will be treated as being covered for margin purposes.
GNMA Certificates. GNMA Certificates are mortgage-backed securities rep-
resenting part ownership of a pool of mortgage loans. These loans are made
by private lenders and are either insured by the Federal Housing Adminis-
tration or guaranteed by the Veterans Administration. Once approved by
GNMA, the timely payment of interest and principal on each mortgage in a
"pool" of such mortgages is guaranteed by the full faith and credit of the
U.S. government. Unlike most debt securities, GNMA Certificates provide
for repayment of principal over the term of the loan rather than in a lump
sum at maturity. GNMA Certificates are called "pass-through" securities
because both interest and principal payments on the mortgages are passed
through to the holder.
Since the remaining principal balance of GNMA Certificates declines each
month as mortgage payments are made, the Fund as a writer of a GNMA call
may find that the GNMA Certificates it holds no longer have a sufficient
remaining principal balance to satisfy its delivery obligation in the
event of exercise of the call option it has written. Should this occur,
additional GNMA Certificates from the same pool (if obtainable) or re-
placement GNMA Certificates will have to be purchased in the cash market
to meet delivery obligations.
The Fund will either replace GNMA Certificates representing cover for call
options it has written or will maintain in a segregated account with its
custodian cash or cash equivalents or U.S. government securities having an
aggregate value equal to the market value of the GNMA Certificates under-
lying the call options it has written.
Other Risks. In the event of a shortage of the underlying securities de-
liverable on exercise of an option, the Options Clearing Corporation has
the authority to permit other, generally comparable securities to be de-
livered in fulfillment of option exercise obligations. If the Options
Clearing Corporation exercises its discretionary authority to allow such
other securities to be delivered it may also adjust the exercise prices of
the affected options by setting different prices at which otherwise ineli-
gible securities may be delivered. As an alternative to permitting such
substitute deliveries, the Options Clearing Corporation may impose special
exercise settlement procedures.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To
the extent that the options markets close before the markets for the un-
derlying securities, significant price and rate movements can take place
in the underlying markets that cannot be reflected in the options markets.
Options are traded on exchanges on only a limited number of U.S. govern-
ment securities, and exchange regulations limit the maximum number of op-
tions which may be written or purchased by a single investor or a group of
investors acting in concert. The Company and other clients advised by af-
filiates of Smith Barney Shearson may be deemed to constitute a group for
these purposes. In light of these limits, the Board of Directors may de-
termine at any time to restrict or terminate the public offering of the
Fund's shares (including through exchanges from the other Funds).
Exchange markets in options on U.S. government securities are a relatively
new and untested concept. It is impossible to predict the amount of trad-
ing interest that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
Interest Rate Futures Transactions. The Fund may purchase and sell inter-
est rate futures contracts ("futures contracts") as a hedge against
changes in interest rates. A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future date. Fu-
tures contracts are traded on designated "contracts markets" which,
through their clearing corporations, guarantee performance of the con-
tracts. Currently there are futures contracts based on securities such as
long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA Certificates and
three-month U.S. Treasury bills.
Generally, if the market interest rates increase, the value of outstanding
debt securities declines (and vice versa). Entering into a futures con-
tract for the sale of securities has an effect similar to the actual sale
of securities, although sale of the futures contract might be accomplished
more easily and quickly. For example, if the Fund holds long-term U.S.
government securities and the investment adviser anticipates a rise in
long-term interest rates, it could, in lieu of disposing of its portfolio
securities, enter into futures contracts for the sale of similar long-term
securities. If rates increased and the value of the Fund's securities de-
clined, the value of the Fund's futures contracts would increase, thereby
protecting the Fund by preventing net asset value from declining as much
as it otherwise would have. Similarly, entering into a futures contract
for the purchase of securities has an effect similar to actual purchase of
the underlying securities, but permits the continued holding of securities
other than the underlying securities. For example, if the investment ad-
viser expects long-term interest rates to decline, the Fund might enter
into futures contracts for the purchase of long-term securities, so that
it could gain rapid market exposure that may offset anticipated increases
in the cost of securities it intends to purchase, while continuing to hold
higher-yield short-term securities or waiting for the long-term market to
stabilize. See "Taxes."
The Appendix contains additional information on the characteristics and
risks of interest rate futures contracts.
Options on Futures Contracts. Government Securities Fund also may pur-
chase and sell listed put and call options on futures contracts. An option
on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position
if the option is a call and a short position if the option is a put), at a
specified exercise price at any time during the option period. When an op-
tion on a futures contract is exercised, delivery of the futures position
is accompanied by cash representing the difference between the current
market price of the futures contract and the exercise price of the option.
The Fund may purchase put options on interest rate futures contracts in
lieu of, and for the same purpose as, sale of a futures contract. It also
may purchase such put options in order to hedge a long position in the un-
derlying futures contract in the same manner as it purchases "protective
puts" on securities. See "Options Activities."
The purchase of call options on interest rate futures contracts is in-
tended to serve the same purpose as the actual purchase of the futures
contract, and the Fund will set aside cash and cash equivalents sufficient
to purchase the amount of portfolio securities represented by the underly-
ing futures contracts. The Fund generally would purchase call options on
interest rate futures contracts in anticipation of a market advance when
it is not fully invested.
The Fund would write a call option on a futures contract in order to hedge
against a decline in the prices of the debt securities underlying the fu-
tures contracts. If the price of the futures contract at expiration is
below the exercise price, the Fund would retain the option premium, which
would offset, in part, any decline in the value of its portfolio securi-
ties.
The writing of a put option on a futures contract is similar to the pur-
chase of the futures contract, except that, if the market price declines,
the Fund would pay more than the market price for the underlying securi-
ties. The net cost to the Fund will be reduced, however, by the premium on
the sale of the put, less any transaction costs. See "Taxes."
Limitations on Transactions in Futures and Options on Futures. Government
Securities Fund will not engage in transactions in futures contracts or
related options for speculation but only as a hedge against changes in the
market values of debt securities held, or intended to be purchased by, the
Fund, and where the transactions are appropriate to reduction of the
Fund's risks. The Fund may not purchase futures contracts or related op-
tions if, immediately thereafter, more than 30% of the Fund's total assets
would be so invested. In purchasing and selling futures contracts and re-
lated options, the Fund will comply with rules and interpretations of the
Commodity Futures Trading Commissions ("CFTC"), under which the Fund is
excluded from regulation as a "commodity pool." In order to prevent lever-
age in connection with the purchase of futures contracts by the Fund, an
amount of cash, cash equivalents and/or U.S. government securities equal
to the market value of futures contracts purchased will be maintained in a
segregated account with the custodian (or broker).
The Fund's futures transactions will be entered into for traditional hedg-
ing purposes -- that is, futures contracts will be sold (or related put
options purchased) to protect against a decline in the price of securities
that the Fund owns, or futures contracts (or related call options) will be
purchased to protect the Fund against an increase in the price of securi-
ties it is committed to purchase. See Appendix, "Supplementary Description
of Interest Rate Futures Contracts and Related Options."
Leverage Through Borrowing. Government Securities Fund may borrow up to
25% of the value of its net assets on an unsecured basis from banks to in-
crease its holdings of portfolio securities or to acquire securities to be
placed in a segregated account with its custodian for various purposes
(e.g., to secure puts written by the Fund). The Fund is required to main-
tain continuous asset coverage of 300% with respect to such borrowings,
and to sell (within three days) sufficient portfolio holdings to restore
such coverage, if it should decline to less than 300% due to market fluc-
tuations or otherwise, even if disadvantageous from an investment stand-
point. Leveraging will exaggerate the effect of any increase or decrease
in the value of portfolio securities on the Fund's net asset value, and
money borrowed will be subject to interest costs (which may include com-
mitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the interest and option premiums received from
the securities purchased with borrowed funds.
SPECIAL EQUITIES FUND
The investment objective of Special Equities Fund is long-term capital ap-
preciation. It seeks to achieve this objective by investing in common
stocks, or securities convertible into or exchangeable for common stocks
(such as convertible preferred stocks, convertible debentures or war-
rants), which the investment adviser believes to have superior apprecia-
tion potential.
The Fund invests primarily in equity securities of secondary companies
that have yet to reach a fully mature stage of earnings growth. These com-
panies may still be in the developmental stage or may be older companies
that appear to be entering a new stage of more rapid earnings progress due
to factors such as management change or development of new technology,
products or markets. A significant number of these companies may be in
technology areas and may have annual sales less than $300 million.
Some of the securities in which the Fund invests may not be listed on a
national securities exchange, but such securities will usually have an es-
tablished over-the-counter market. However, some of the securities in
which the Fund invests may have limited marketability, and the Fund may
invest up to 10% of its total assets in securities the disposition of
which would be subject to legal restrictions ("restricted securities"). It
may be difficult to sell restricted securities at a price which represents
the investment adviser's opinion of their fair value until they may be
sold publicly. The Fund ordinarily will acquire the right to have such se-
curities registered at the expense of the issuer within some specified pe-
riod of time. Where registration is required prior to sale, a considerable
period of time may elapse between a decision to sell the restricted secu-
rities and the time when the Fund could sell them, during which period the
price may change. The Fund may not invest in restricted securities of pub-
lic utilities.
The Fund may also acquire securities subject to contractual restrictions
on its right to resell them. These restrictions might prevent their sale
at a time when sale would otherwise be desirable. No restricted securities
and no securities for which there is no readily available market ("illiq-
uid securities") will be acquired if such acquisition would cause the ag-
gregate value of illiquid and restricted securities to exceed 10% of the
Fund's total assets. The Fund may not invest more than 5% of its total as-
sets in securities of issuers which, together with any predecessor, have
been in operation for less than three years.
Special Equities Fund also may invest in, or enter into repurchase agree-
ments with respect to, corporate bonds, U.S. government securities, com-
mercial paper, certificates of deposit or other money market securities
during periods when the investment adviser believes that adoption of a de-
fensive position is desirable due to prevailing market or economic condi-
tions. Special Equities Fund may lend its portfolio securities, in accor-
dance with the description set forth under "Investment Grade Bond Fund --
Lending of Portfolio Securities" above. Special Equities Fund's invest-
ments in warrants are subject to the same undertaking applicable to In-
vestment Grade Bond Fund, as described above. The limits contained in that
undertaking are not fundamental policies of the Fund and may be changed by
the Board of Directors without the vote of shareholders. Special Equities
Fund may also sell securities "short against the box," in accordance with
the description set forth above. The Fund may also purchase ADRs.
Investors should realize that the very nature of investing in smaller,
newer companies involves greater risk than is customarily associated with
investing in larger, more established companies. Smaller, newer companies
often have limited product lines, markets or financial resources, and they
may be dependent for management upon one of a few key persons. The securi-
ties of such companies may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or than
the market averages in general. In accordance with its investment objec-
tive of long-term capital appreciation, securities purchased for Special
Equities Fund will not generally be traded for short-term profits, but
will be retained for their longer-term appreciation potential. This gen-
eral practice limits the Fund's ability to adopt a defensive position by
investing in money market instruments during periods of market downturn.
Accordingly, while in periods of market upturn the Fund may outperform the
market averages, in periods of downturn, it is likely to underperform the
market averages. Thus, investing in Special Equities Fund may involve
greater risk than investing in the other Funds.
EUROPEAN FUND
European Fund's investment objective is long-term capital appreciation,
which the Fund seeks to achieve by investing primarily in equity securi-
ties of issuers in its investment area.
Selecting Investments. In determining the appropriate distribution of in-
vestments among various countries and geographic regions for European
Fund, the investment adviser ordinarily considers the following factors:
prospects for relative economic growth among foreign countries; expected
levels of inflation; government policies influencing business conditions;
the outlook for currency relationships; and the range of the individual
investment opportunities available to international investors.
In analyzing companies for investment by the Fund, the investment adviser
ordinarily looks for one or more of the following characteristics: an
above-average earnings growth per share; high return on invested capital;
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and
product development and marketing; efficient service; pricing flexibility;
strength of management; and general operating characteristics which will
enable the companies to compete successfully in their respective market-
place.
There may be times when, in the opinion of management, prevailing market,
economic or political conditions warrant reducing the proportion invested
in equity securities from the primary investment areas below 65% of the
Fund's assets and increasing the proportion held in cash or short-term ob-
ligations denominated in dollars or other currencies. A portion of the
Fund's assets will normally be held in dollars or short-term interest-
bearing dollar-denominated securities to provide for ongoing expenses and
redemptions.
Because European Fund will buy and sell securities denominated in curren-
cies other than the U.S. dollar, and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Fund will engage in
foreign currency exchange transactions. These transactions will either be
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or the Fund will use forward contracts to pur-
chase or sell foreign currencies. A forward foreign currency exchange con-
tract will involve an obligation by the Fund to purchase or sell a spe-
cific amount of currency at a future date, which may be any fixed number
of days from the date of the contract upon which the parties agree, at a
price set at the time of the contract. These contracts are transferable in
the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward contract generally
has no deposit requirement, and no commissions are charged at any stage
for trades. Neither spot transactions nor forward exchange contracts will
eliminate fluctuations in the prices of the Fund's securities or in for-
eign exchange rates, or prevent loss if the prices of such securities
should decline.
European Fund may enter into forward foreign exchange contracts in order
to hedge against risks arising from either specific transactions or aggre-
gate portfolio positions. When the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency which the
Fund does not hold, it may desire to "lock in" the price of the security
on the basis of current or anticipated exchange rates. The Fund will then
enter into a forward contract for the purchase or sale of the amount of
foreign currency involved in the underlying securities transactions; in
this manner, the Fund will be better able to protect itself against a pos-
sible loss resulting from an adverse change in exchange rates during the
period between the date the securities are purchased or sold and the date
on which payment is made or received. In such cases, the Fund will retain
in a segregated account the full amount in the relevant currency needed to
cover this forward contract.
When the investment adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar
or another foreign currency, it may enter into a forward contract to sell
the amount of foreign currency approximating the value of some or all of
the Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such se-
curities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-
term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain. The Fund
generally will not attempt to hedge all of its portfolio positions and
will enter into such transactions only to the extent, if any, deemed ap-
propriate by the investment adviser. The Fund generally will not enter
into such forward contracts or maintain a net exposure to such contracts
when the consummation of the contracts would obligate the Fund to deliver
an amount of foreign currency in excess of the value of the Fund's securi-
ties or other assets denominated in that currency. Under normal circum-
stances, the Fund expects that any appreciation (depreciation) on such
forward exchange contracts will be approximately offset by the deprecia-
tion (appreciation) in translation of the underlying foreign investment
arising from fluctuations in foreign currency exchange rates.
Although the Fund values its assets daily in terms of U.S. dollars, the
Fund will not normally convert its holdings of foreign currencies into
U.S. dollars on a daily basis. The Fund will do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do real-
ize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to sell that currency to
the dealer.
The Company is not aware at this time of the existence of any investment
or exchange control regulations which might substantially impair the oper-
ations of the Company as described in the Prospectuses and this Statement
of Additional Information. It should be noted, however, that this situa-
tion could change at any time.
The Fund will recognize the unrealized appreciation or depreciation from
the fluctuation in a foreign currency forward contract as an increase or
decrease in the Fund's net assets on a daily basis, thereby providing an
appropriate measure of the Fund's financial position and changes in finan-
cial position.
The Fund may invest in yen-denominated bonds sold in Japan by non-Japanese
issuers ("Samurai Bonds") and may invest in dollar-denominated bonds sold
in the United States by non-U.S. issuers ("Yankee Bonds"). As compared
with the bonds issued in their countries of domicile, such bond issues
normally carry a higher interest rate but are less actively traded. It is
the policy of the Fund to invest in Samurai or Yankee Bond issues only
after taking into account considerations of quality and liquidity, as well
as yield. These bonds would be issued by Organization for European Cooper-
ation and Development ("OECD") governments or would have "AAA" ratings.
European Fund may invest in ADRs, European Depository Receipts ("EDRs"),
which are designed for trading in European securities markets and are re-
ceipts issued in Europe which evidence a similar ownership arrangement to
ADRs, or securities convertible into securities of eligible European or
Far Eastern issuers. These convertible securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in
American securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
European Fund may lend its portfolio securities if: (a) such loans are se-
cured continuously by collateral consisting of cash or U.S. government se-
curities maintained on a daily basis as an amount or of a market value at
least equal at all times to the market value of the securities loaned; (b)
the Fund may at any time call such loans and obtain the securities loaned;
(c) the Fund will receive an amount in cash at least equal to the interest
paid by the issuer of the loaned securities during the existence of such
loan; and (d) the Fund will be entitled to the interest paid upon invest-
ment of the cash collateral in its permitted investments or to the payment
of a premium for the loan.
European Fund will invest no more than 10% of the value of its net assets
in warrants valued at the lower of cost or market.
INVESTMENT RESTRICTIONS
The Funds' investment objectives and the investment restrictions set forth
below are fundamental policies of each Fund, i.e., they may not be changed
with respect to a Fund without a majority vote of the outstanding shares
of that Fund. (All other investment practices described in the Prospec-
tuses and the Statement of Additional Information may be changed by the
Board of Directors without the approval of shareholders.)
Unless otherwise indicated, all percentage limitations apply to each Fund
on an individual basis, and apply only at the time a transaction is en-
tered into. (Accordingly, if a percentage restriction is complied with at
the time of investment, a later increase or decrease in the percentage
which results from a relative change in values or from a change in the
Fund's net assets will not be considered a violation.)
Restrictions Applicable to All Funds. No Fund may:
1. purchase the securities of any one issuer, other than the U.S. govern-
ment or its agencies or instrumentalities (or, for European Fund, govern-
ments, agencies or instrumentalities of any jurisdiction in the primary
investment area of the Fund and other OECD countries and the World Bank),
if immediately after such purchase more than 5% of the value of the total
assets of the Fund would be invested in securities of such issuer;
2. invest in real estate, real estate mortgage loans, or interests in
oil, gas and/or mineral exploration or development programs, provided that
this limitation shall not prohibit the purchase of securities issued by
companies, including real estate investment trusts, which invest in real
estate or interests therein;
3. purchase securities of any other investment company, except in connec-
tion with a merger, consolidation, reorganization, or acquisition or as-
sets. European Fund may, under certain circumstances, invest in securities
of other companies. See "Restrictions Applicable to European Fund." (For
purposes of this limitation, foreign banks or their agencies or subsidiar-
ies are not considered "investment companies");
4. make investments in securities for the purpose of exercising control
over or management of the issuer;
5. participate on a joint or a joint and several basis in any trading ac-
count in securities. (The "bunching" of orders of two or more Funds -- or
of one or more Funds and of other accounts -- for the sale or purchase of
portfolio securities shall not be considered participation in a joint se-
curities trading account);
6. purchase the securities of any one issuer if, immediately after such
purchase, the Fund would own more than 10% of the outstanding voting secu-
rities of such issuer;
7. purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions. (For this purpose, the de-
posit or payment by Government Securities Fund of initial or maintenance
margin in connection with futures contracts and related options is not
considered to be the purchase of a security on margin. Additionally, bor-
rowing by Government Securities Fund and European Fund to increase their
holdings of portfolio securities is not considered to be the purchase of
securities on margin);
8. make loans, except that this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly distributed debt
securities, (b) the lending of portfolio securities, or (c) entry into re-
purchase agreements;
9. invest in securities of an issuer which, together with any predeces-
sor, has been in operation for less than three years if, as a result, more
than 5% of the total assets of the Fund would then be invested in such se-
curities;
10. purchase the securities of an issuer if, to the Company's knowledge,
one or more of the Directors or officers of the Company individually own
beneficially more than 1/2 of 1% of the outstanding securities of such is-
suer or together own beneficially more than 5% of such securities;
11. purchase a security which is not readily marketable if, as a result,
more than 10% of the Fund's total assets would consist of such securities.
(For purposes of this limitation, restricted securities and repurchase
agreements having more than seven days remaining to maturity are consid-
ered not readily marketable);
12. sell securities short, unless at all times when a short position is
open, it owns an equal amount of the securities or securities convertible
into, or exchangeable without payment of any further consideration for,
securities of the same issue as the securities sold short; or
13. purchase the securities of issuers conducting their principal busi-
ness activities in the same industry, if immediately after such purchase
the value of its investments in such industry would exceed 25% of the
value of the total assets of the Fund, provided that (a) neither all util-
ity companies (including telephone companies), as a group, nor all banks,
savings and loan associations and savings banks, as a group, will be con-
sidered a single industry for purposes of this limitation, and (b) there
is no such limitation with respect to repurchase agreements or to invest-
ments in U.S. government securities or certificates of deposit or bankers'
acceptances issued by domestic institutions (but not their foreign
branches).
Restrictions Applicable to All Funds Except Government Securities Fund and
European Fund. The Funds may not:
1. invest in commodities or commodity futures contracts;
2. borrow amounts in excess of 5% of their total assets taken at cost or
at market value, whichever is lower, and then only from banks as a tempo-
rary measure for extraordinary or emergency purposes. A Fund may not mort-
gage, pledge or in any other manner transfer any of its assets as security
for any indebtedness. This restriction shall not prohibit entry into re-
verse repurchase agreements, provided that a Fund may not enter into a re-
verse repurchase agreement if, as a result, its current obligations under
such agreements would exceed one-third of the current market value of the
Fund's total assets (less its liabilities other than obligations under
such agreements); or
3. write, purchase or sell puts, calls, straddles, spreads or any combi-
nations thereof.
Restrictions Applicable to All Funds Except Special Equities Fund and Eu-
ropean Fund. The Funds may not:
1. purchase securities which may not be resold to the public without reg-
istration under the Securities Act of 1933, as amended (the "1933 Act");
or
2. act as an underwriter of securities.
Restrictions Applicable to Special Equities Fund and European Fund. The
Funds may not act as an underwriter of securities, except that each Fund
may invest up to 10% of its total assets in securities which it may not be
free to resell without registration under the 1933 Act, in which registra-
tion the Fund may technically be deemed an underwriter for purposes of the
1933 Act.
Restrictions Applicable to Investment Grade Bond Fund Only. Investment
Grade Bond Fund may not purchase corporate bonds unless rated at the time
of purchase Baa or better by Moody's or BBB or better by S&P, or purchase
commercial paper unless issued by a U.S. corporation and rated at the time
of purchase Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P (or, if not
rated, issued by a corporation having outstanding debt rated Aa or better
by Moody's or AA or better by S&P), although it may continue to hold a se-
curity if its quality rating is reduced by a rating service below those
specified.
Restrictions Applicable to European Fund Only. The Fund may invest in
shares of other investment companies to the extent permitted by the 1940
Act. With respect to certain countries (e.g., South Korea and Taiwan), in-
vestments by the Fund may only presently be made by acquiring shares of
other investment companies with local governmental approval to invest in
those countries. The 1940 Act provides that the Fund may purchase shares
in an investment company unless (a) such a purchase would cause the Fund
to own in aggregate more than 3% of the total outstanding voting stock of
the company, or (b) such a purchase would cause the Fund to have more than
5% of its assets invested in the company or more than 10% of its assets
invested in an aggregate of all such investment companies. (Investment
through a limited number of approved vehicles may also involve the payment
of substantial premiums above the value of such companies' portfolio secu-
rities. The yield of such securities will be reduced by operating expenses
of such companies including payments to the investment managers of those
investment companies. At such time as direct investment in these countries
is allowed, the Fund anticipates investing directly in these markets.)
BROKERAGE
In selecting brokers or dealers to execute securities transactions on be-
half of a Fund, the Fund's investment adviser seeks the best overall terms
available. In assessing the best overall terms available for any transac-
tion, each investment adviser will consider the factors that the invest-
ment adviser 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 commis-
sion, if any, for the specific transaction and on a continuing basis. In
addition, each investment advisory agreement between the Company and an
investment adviser authorizes the investment adviser, 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 Company, the other Funds and other accounts
over which the investment adviser or its affiliates exercise investment
discretion. The fees under the investment advisory agreements and the ad-
ministration agreement between the Company and the investment advisers and
administrator, respectively, are not reduced by reason of their receiving
such brokerage and research services. The Board of Directors periodically
will review the commissions paid by the Funds to determine if the commis-
sions paid over representative periods of time were reasonable in relation
to the benefits inuring to the Company.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the SEC thereunder, the Board of Di-
rectors has determined that transactions for a Fund may be executed
through Smith Barney Shearson and other affiliated broker-dealers if, in
the judgment of the Fund's investment adviser, the use of such broker-
dealer is likely to result in price and execution at least as favorable as
those of other qualified broker-dealers, and if, in the transaction, such
broker-dealer charges the Fund a rate consistent with that charged to com-
parable unaffiliated customers in similar transactions.
SEC rules require that commissions paid to Smith Barney Shearson by a Fund
on exchange transactions not exceed "usual and customary brokerage commis-
sions." The rules define "usual and customary" commissions to include
amounts which are "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connec-
tion with comparable transactions involving similar securities being pur-
chased or sold on a securities exchange during a comparable period of
time." The Board of Directors, particularly those members who are not "in-
terested persons" of the Company (as defined in the 1940 Act), has adopted
procedures for evaluating the reasonableness of commissions paid to Smith
Barney Shearson and reviews these procedures periodically.
Portfolio securities are not purchased from or through Smith Barney Shear-
son or any affiliated person (as defined in the 1940 Act) of Smith Barney
Shearson where such entities are acting as principal, except pursuant to
the terms and conditions of exemptive rules or orders promulgated by the
SEC. Pursuant to an exemption granted by the SEC, the Company may engage
in transactions involving certain money market instruments when Smith Bar-
ney Shearson and certain of its affiliates are acting as principal. Pursu-
ant to conditions set forth in rules of the SEC, the Company may purchase
securities from an underwriting syndicate of which Smith Barney Shearson
is a member (but not from Smith Barney Shearson ). Such conditions relate
to the price and amount of the securities purchased, the commission or
spread paid, and the quality of the issuer. The rules further require that
such purchases take place in accordance with procedures adopted and re-
viewed periodically by the Board of Directors, particularly those Direc-
tors who are not interested persons of the Company.
Under rules adopted by the SEC, Smith Barney Shearson may directly execute
transactions for a Fund on the floor of any national securities exchange,
provided: (i) the Board of Directors has expressly authorized Smith Barney
Shearson to effect such transactions; and (ii) Smith Barney Shearson annu-
ally advises the Fund of the aggregate compensation it earned on such
transactions.
The Funds may use Smith Barney Shearson as a commodities broker in connec-
tion with entering into futures contracts and commodity options. Smith
Barney Shearson has agreed to charge the Funds commodity commissions at
rates comparable to those charged by Smith Barney Shearson to its most fa-
vored clients for comparable trades in comparable accounts.
The following table sets forth certain information regarding each Fund's
payment of brokerage commissions to Smith Barney Shearson:
<TABLE>
<CAPTION>
FISCAL YEAR GOVERNMENT SPECIAL
ENDED SECURITIES EQUITIES
EUROPEAN
DECEMBER 31, FUND FUND FUND
<S> <C> <C> <C> <C>
Total Brokerage Commissions 1991 $196,809 $551,741
$139,159
1992 $238,425 $267,089
$143,776
1993 $717,340 --
$100,366
Commissions paid to 1991 $187,850 $ 74,657 $
8,106
Smith Barney Shearson* 1992 $ 0 $ 56,498 $
3,142
1993 $ 87,550 $ 16,614 $
9,401
% of Total Brokerage 1993 12.2%** 11.9%
9.37%
Commissions paid to
Smith Barney Shearson*
% of Total Transactions 1993 .07%** 11.7%
10.56%
involving Commissions paid
to Smith Barney Shearson*
<FN>
* Includes commissions paid to Shearson Lehman Brothers prior to the ac-
quisition of certain assets of Shearson Lehman Brothers by Smith Barney
on July 30, 1993.
** The disproprtionate amount between the % of total brokerage commissions
paid to Smith Barney Shearson and the % of total transactions involving
commissions paid to Smith Barney Shearson for the Government Securities
Fund resulted from higher brokerage commissions for options and futures
transactions which were the only commission transactions involving Smith
Barney Shearson.
</TABLE>
PORTFOLIO TURNOVER
For reporting purposes, a Fund's portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the
fiscal year by the monthly average of the value of the portfolio securi-
ties owned by the Fund during the fiscal year. In determining such portfo-
lio turnover, all securities whose maturities at the time of acquisition
were one year or less are excluded. A 100% portfolio turnover rate would
occur, for example, if all of the securities in the Fund's investment
portfolio (other than short-term money market securities) were replaced
once during the fiscal year.
Investment Grade Bond Fund will not normally engage in the trading of se-
curities for the purpose of realizing short-term profits, but it will ad-
just its portfolio as considered advisable in view of prevailing or antic-
ipated market conditions. Portfolio turnover will not be a limiting factor
should the Fund's investment adviser deem it advisable to purchase or sell
securities.
Special Equities Fund and European Fund invest for long-term capital ap-
preciation and will not generally trade for short-term profits. However,
each portfolio will be adjusted as deemed advisable by the investment ad-
viser, and portfolio turnover will not be a limiting factor should the
Fund's investment adviser deem it advisable to purchase or sell securi-
ties.
The options activities of Government Securities Fund may affect its port-
folio turnover rate and the amount of brokerage commissions paid by the
Fund. The exercise of calls written by the Fund may cause the Fund to sell
portfolio securities, thus increasing its turnover rate. The exercise of
puts also may cause the sale of securities and increase turnover; although
such exercise is within the Fund's control, holding a protective put might
cause the Fund to sell the underlying securities for reasons which would
not exist in the absence of the put. The Fund will pay a brokerage commis-
sion each time it buys or sells a security in connection with the exercise
of a put or call. Some commissions may be higher than those which would
apply to direct purchases or sales of portfolio securities. High portfolio
turnover involves correspondingly greater commission expenses and transac-
tion costs.
For the fiscal years ended December 31, 1992 and 1993, the portfolio turn-
over rates were as follows:
<TABLE>
<CAPTION>
FUND 1992 1993
<S> <C> <C>
Investment Grade Bond Fund 47% 65%
Government Securities Fund 426% 540%
Special Equities Fund 211% 112%
European Fund 108% 68%
</TABLE>
Increased portfolio turnover necessarily results in correspondingly
greater brokerage commissions which must be paid by the Fund. To the ex-
tent that portfolio trading results in realization of net short-term capi-
tal gains, shareholders will be taxed on such gains at ordinary income tax
rates (except shareholders who invest through IRAs and other retirement
plans which are not taxed currently on accumulations in their accounts).
The Funds' investment advisers manage a number of private investment ac-
counts on a discretionary basis. Neither investment adviser is bound by
the recommendations of the Smith Barney Shearson research department in
managing the Funds. Although investment decisions are made individually
for each client, at times decisions may be made to purchase or sell the
same securities for one or more of the Funds and/or for one or more of the
other accounts managed by the investment adviser or fund manager. When two
or more such accounts simultaneously are engaged in the purchase or sale
of the same security, transactions are allocated in a manner considered
equitable to each, with emphasis on purchasing or selling entire orders
wherever possible. In some cases, this procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained or
disposed of by the Fund.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedules of sales charges on Class A shares described in the Prospec-
tuses apply to purchases made by any "purchaser," which is defined to in-
clude the following: (a) an individual; (b) an individual or his or her
immediate family purchasing shares for his or her own account; (c) a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account; (d) a pension, profit-sharing or other employee
benefit plan qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and qualified employee benefit plans of
employers who are "affiliated persons" of each other within the meaning of
the 1940 Act; (e) tax-exempt organizations enumerated in Section 501(c)(3)
or (13) of the Code; (f) any other organized group of persons, provided
that the organization has been in existence for at least six months and
was organized for a purpose other than the purchase of investment company
securities at a discount; or (g) a trustee or other professional fiduciary
(including a bank, or an investment adviser registered with the SEC under
the Investment Advisers Act of 1940) purchasing shares of a Fund for one
or more trust estates or fiduciary accounts. Purchasers who wish to com-
bine purchase orders to take advantage of volume discounts on Class A
shares should contact their Smith Barney Shearson Financial Consultant.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospec-
tuses, apply to any purchase of Class A shares if the aggregate investment
in Class A shares of a Fund and in Class A shares of the other funds in
the Company and of other funds in the Smith Barney Shearson Group of Funds
that are sold with a sales charge, including the purchase being made, of
any "purchaser" (as defined above) is $25,000 or more. The reduced sales
charge is subject to confirmation of the shareholder's holdings through a
check of appropriate records. Each Fund reserves the right to terminate or
amend the combined right of accumulation at any time after notice to
shareholders. For further information regarding the rights of accumula-
tion, shareholders should contact their Smith Barney Shearson Financial
Consultant.
DETERMINATION OF PUBLIC OFFERING PRICE
Each Fund offers its shares to the public on a continuous basis. The pub-
lic offering price for Class A shares of each Fund is equal to the net
asset value per share at the time of purchase plus a sales charge based on
the aggregate amount of the investment. The public offering price for
Class B shares and Class D shares (and Class A share purchases, including
applicable rights of accumulation, equalling or exceeding $1 million or,
in the case of investors purchasing through the Smith Barney Shearson
401(k) Program, equalling or exceeding $750,000), is equal to the net
asset value per share at the time of purchase and no sales charge is im-
posed at the time of purchase. A contingent deferred sales charge
("CDSC"), however, is imposed on certain redemptions of Class B shares and
Class A shares when purchased in amounts equalling or exceeding $1 mil-
lion. The method of computation of the public offering price is shown in
each Fund's financial statements accompanying this Statement of Additional
Information.
REDEMPTION OF SHARES
Detailed information on how to redeem shares of a Fund is included in each
Prospectus. The right of redemption may be suspended or the date of pay-
ment postponed (a) for any period during which the NYSE is closed (other
than for customary weekend and holiday closings), (b) when trading in mar-
kets a Fund normally utilizes is restricted, or an emergency exists, as
determined by the SEC, so that disposal of the Fund's investments or de-
termination of net asset value is not reasonably practicable or (c) for
such other periods as the SEC by order may permit for the protection of
the Fund's shareholders.
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 periodically. Withdrawals of at
least $50 monthly may be made under the Withdrawal Plan by redeeming as
many shares of a Fund as may be necessary to cover the stipulated with-
drawal payment. Any applicable CDSC will not be waived on amounts with-
drawn by shareholders that exceed 2.00% per month of the value of a share-
holder's shares at the time the Withdrawal Plan commences. To the extent
withdrawals exceed dividends, distributions and appreciation of sharehold-
er's investment in the Company, there will be a reduction in the value of
the shareholder's investment and continued withdrawal payments may reduce
the shareholder's investment and ultimately exhaust it. Withdrawal pay-
ments should not be considered as income from investment in the Fund. Fur-
thermore, as it would not generally be advantageous to a shareholder to
make additional investments in the Fund at the same time that he or she is
participating in the Withdrawal Plan, purchases by such shareholders in
amounts of less than $5,000 will not ordinarily be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates
with TSSG as agent for Withdrawal Plan members. All dividends and distri-
butions on shares in the Withdrawal Plan are automatically reinvested at
net asset value in additional shares of the Company. All applications for
participation in the Withdrawal Plan must be received by TSSG as With-
drawal Plan agent no later than the eighth day of the month to be eligible
for participation beginning with that month's withdrawal. The Withdrawal
Plan will not be carried over on exchanges between Funds or classes
("Classes"). A new Withdrawal Plan application is required to establish
the Withdrawal Plan in the new fund or Class. For additional information,
shareholders should contact their Smith Barney Shearson Financial Consult-
ant.
DISTRIBUTOR
Smith Barney Shearson serves as the Company's distributor on a best ef-
forts basis pursuant to a distribution agreement (the "Distribution Agree-
ment").
Smith Barney Shearson forwards investors' funds for the purchase of shares
five business days after placement of purchase orders (i.e., the "settle-
ment date"). When payment is made by the investor before the 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 Bar-
ney Shearson may benefit from the temporary use of the funds. The investor
may designate another use for the funds prior to settlement date, such as
investment in a money market fund (other than the Smith Barney Shearson
Money Market Fund) in the Smith Barney Shearson Group of Funds. If the in-
vestor instructs Smith Barney Shearson to invest the funds in a money mar-
ket fund in the Smith Barney Shearson Group of Funds, the amount of the
investment will be included as part of the average daily net assets of
both the Company and the money market fund, and affiliates of Smith Barney
Shearson which serve the funds in an investment advisory capacity will
benefit from the fact that they are receiving fees from both such invest-
ment companies for managing these assets computed on the basis of their
average daily net assets. The Company's Board of Directors has been ad-
vised of the benefits to Smith Barney Shearson resulting from five-day
settlement procedures and will take such benefits into consideration when
reviewing the Advisory, Administration and Distribution Agreements for
continuance.
DISTRIBUTION ARRANGEMENTS
Shares of the Company are distributed on a best efforts basis by Smith
Barney Shearson as exclusive sales agent of the Company pursuant to the
Distribution Agreement. To compensate Smith Barney Shearson for the ser-
vices it provides and for the expense it bears under the Distribution
Agreement, the Company has adopted a services and distribution plan (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each
Fund pays Smith Barney Shearson a service fee, accrued daily and paid
monthly, calculated at the annual rate of 0.25% of the value of each
Fund's average daily net assets attributable to the Class A, Class B and
Class D shares. In addition, holders of Class B shares and Class D shares
pay a distribution fee primarily intended to compensate Smith Barney
Shearson for its initial expense of paying Financial Consultants a commis-
sion upon sales of the respective shares. Such shares distribution fees,
which are accrued daily and paid monthly, are calculated at the annual
rate of 0.75% of the value of average daily net assets attributable to the
Class B and Class D shares with respect to Special Equities Fund and Euro-
pean Fund, and 0.50% of the value of average daily net assets attributable
to the Class B and Class D Shares with respect to Government Securities
Fund and Investment Grade Bond Fund.
Prior to July 30, 1993, Shearson Lehman Brothers served as the distributor
of the Company's shares pursuant to a distribution agreement ("SLB Distri-
bution Agreement") substantially the same as the Distribution Agreement.
During the fiscal years ended December 31, 1991 and 1992 Shearson Lehman
Brothers received approximately $24,762,000 and $14,563,000, respectively,
from the Funds under the SLB Distribution Agreement. During the fiscal
year ended December 31, 1993, Smith Barney Shearson and Shearson Lehman
Brothers received $5,652,418 and $7,949,875, respectively, under their re-
spective Distribution Agreements. During the fiscal years ended December
31, 1991 and 1992, Shearson Lehman Brothers received approximately
$3,942,000 and $1,320,000, respectively, representing the CDSC on redemp-
tions of Class B shares of the Funds. During the fiscal year ended Decem-
ber 31, 1993, Smith Barney Shearson and Shearson Lehman Brothers received
$699,139 and $871,809, respectively, representing the CDSC on redemptions
of Class B shares of the Funds. During the fiscal year ended December 31,
1993, Shearson Lehman Brothers and Smith Barney Shearson incurred distri-
bution expenses totalling approximately $18,866,000, consisting of
$11,059,000 for support services, $7,479,000 to Financial Consultants,
$50,000 for advertising expenses, and $278,000 for printing and mailing
expenses.
Under its terms, the Plan continues from year to year, provided such con-
tinuance is approved annually by vote of the Board of Directors, including
a majority of the Directors who are not interested persons of the Company
and who have no direct or indirect financial interest in the operation of
the Plan (the "Independent Directors"). The Plan may not be amended to in-
crease the amount to be spent for the services provided by Smith Barney
Shearson without shareholder approval, and all amendments of the Plan also
must be approved by the Directors in the manner described above. The Plan
may be terminated at any time, without penalty, by vote of a majority of
the Independent Directors or by a vote of a majority of the outstanding
voting securities of the Company (as defined in the 1940 Act) on not more
than 30 days' written notice to any other party to the Plan. Pursuant to
the Plan, Smith Barney Shearson will provide the Board of Directors peri-
odic reports of amounts expended under the Plan and the purpose for which
such expenditures were made.
VALUATION OF SHARES
The Prospectuses discuss the time at which the net asset value of shares
of each Class is determined for purposes of sales and redemptions. Because
of the differences in distribution fees and Class-specific expenses, the
per share net asset value of each Class will differ. The following is a
description of the procedures used by the Funds in valuing its assets.
As noted in the Prospectuses, the Company will not calculate the net asset
value of the Funds on certain holidays. On those days, securities paid by
a Fund may nevertheless be actively traded, and the value of the Fund's
shares could be significantly affected.
Because of the need to obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of the net asset value on
European Fund may not take place contemporaneously with the determination
of the prices of many of its respective portfolio securities used in such
calculation. A security which is listed or traded on more than one ex-
change is valued at the quotation on the exchange determined to be the
primary market for such security. All assets and liabilities initially ex-
pressed in foreign currency values will be converted into U.S. dollar val-
ues at the mean between the bid and offered quotations of such currencies
against U.S. dollars as last quoted by any recognized dealer. If such quo-
tations are not available, the rate of exchange will be determined in good
faith by the Board of Directors. In carrying out the Board of Director's
valuation policies, Boston Advisors, as administrator, may consult with an
independent pricing service (the "Pricing Service") retained by the Com-
pany.
Debt securities of U.S. issuers (other than U.S. government securities and
short-term investments) are valued by Boston Advisors, as administrator,
after consultation with the Pricing Service approved by the Board of Di-
rectors. When, in the judgment of the Pricing Service, quoted bid prices
for investments are readily available and are representative of the bid
side of the market, these investments are valued at the mean between the
quoted bid prices and asked prices. Investments for which, in the judgment
of the Pricing Service, there are no readily obtainable market quotations
are carried at fair value as determined by the Pricing Service. The proce-
dures of the Pricing Service are reviewed periodically by the officers of
the Company under the general supervision and responsibility of the Board
of Directors.
EXCHANGE PRIVILEGE
Class A, Class B and Class D shares of any Fund in the Company may be ex-
changed for shares of the respective Class of many of the funds in the
Smith Barney Shearson Group of Funds, as indicated in the Prospectuses, to
the extent such shares are offered for sale in the shareholder's state of
residence.
Except as noted below, shareholders of any Fund in the Company and of any
fund in the Smith Barney Shearson Group of Funds may exchange all or part
of their shares for shares of the same class of other funds in the Company
and in the Smith Barney Shearson Group of Funds as listed in the Prospec-
tuses, on the basis of relative net asset value per share at the time of
exchange as follows:
A. Class A shares of any Fund or company purchased with a sales charge
may be exchanged for Class A shares of any of the other funds, and the
sales charge differential, if any, will be applied. Class A shares of any
fund may be exchanged without a sales charge for shares of the funds that
are offered without a sales charge. Class A shares of any fund purchased
without a sales charge may be exchanged for shares sold with a sales
charge, and the appropriate sales charge differential will be applied.
B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of any
of the other funds, and the sales charge differential, if any, will be ap-
plied.
C. Class B shares of any fund may be exchanged without a sales charge.
Class B shares of the Fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the two funds and, for
purposes of calculating CDSC rates and conversion periods, will be deemed
to have been held since the date the shares being exchanged were pur-
chased.
Dealers other than Smith Barney Shearson must notify TSSG of the inves-
tor's prior ownership of Class A shares of Smith Barney Shearson High In-
come Fund and the account number in order to accomplish an exchange of
shares of High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
class in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. This
privilege is available to shareholders resident 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 any Smith Barney Shearson Financial Consultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current net
asset value and the proceeds are immediately invested at a price as de-
scribed above, in shares of the fund being acquired with such shares being
subject to any applicable CDSC. Smith Barney Shearson 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, a Fund may quote its yield or total return in adver-
tisements or in reports and other communications to shareholders. To the
extent any advertisement or sales literature of a Fund describes the ex-
penses or performance of a Class, it will also disclose such information
for the other Classes.
YIELD
A Fund's 30-day yield figure described in the Prospectuses is calculated
according to a formula prescribed by the SEC. The formula can be expressed
as follows:
YIELD = 2[(ab/cd +1)6 -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimburse-
ment).
c = the average daily number of shares outstanding dur-
ing the period that were entitled to receive divi-
dends.
d = the maximum offering price per share on the last day
of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by the Fund at a discount
or premium, the formula generally calls for amortization of the discount
or premium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
Investors should recognize that, in periods of declining interest rates, a
Fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates, the Fund's yield will tend to be
somewhat lower. In addition, when interest rates are falling, the inflow
of net new money to the Fund from the continuous sale of its shares will
likely be invested in portfolio instruments producing lower yields than
the balance of such Fund's investments, thereby reducing the current yield
of the Fund. In periods of rising interest rates, the opposite can be ex-
pected to occur.
The yields for the 30-day period ended December 31, 1993 for Class A,
Class B and Class D shares of Investment Grade Bond Fund were 6.50%, 6.29%
and 6.31%, respectively, and of Government Securities Fund were 3.65%,
3.38% and 3.33%, respectively.
AVERAGE ANNUAL TOTAL RETURN
A Class' "average annual total return" figures, as described and shown in
the Prospectuses, 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 a 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.
A Class' total return figures calculated in accordance with the above for-
mula assume that the maximum applicable sales charge or maximum applicable
CDSC, as the case may be, has been deducted from the hypothetical $1,000
initial investment at the time of purchase or redemption, as applicable.
The Funds' average annual total returns for Class A shares were as follows
for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 6,
1992*
NAME OF FUND DECEMBER 31, 1993 THROUGH DECEMBER
31, 1993
<S> <C> <C>
Investment Grade Bond Fund 13.39% 14.70%
Government Securities Fund 5.88 7.29
Special Equities Fund 26.26 32.88
European Fund 17.29 16.79
<FN>
* The Funds commenced selling Class A shares on November 6, 1992.
</TABLE>
The Funds' average annual total returns for Class B shares were as follows
for the periods indicated:
<TABLE>
<CAPTION>
TEN YEAR PERIOD OR
PERIOD FROM
COMMENCEMENT OF
YEAR ENDED FIVE YEARS ENDED
OPERATIONS THROUGH
NAME OF FUND DECEMBER 31, 1993 DECEMBER 31, 1993
DECEMBER 31, 1993
<S> <C> <C>
<C>
Investment Grade Bond Fund 13.56% 13.15%
12.82%<F1>
Government Securities Fund 5.95 10.54
9.38 <F2>
Special Equities Fund 26.93 13.10
9.26 <F1>
European Fund 17.87 6.87
8.44 <F3>
<FN>
<F1> Figures are for the ten-year period ended December 31, 1993.
<F2> Fund commenced operations on March 20, 1984.
<F3> Fund commenced operations on November 6, 1987.
</TABLE>
These average annual total return figures reflect the deduction of the ap-
plicable CDSC (maximum of 5.00% for Special Equities Fund and European
Fund and 4.50% for Investment Grade Bond Fund and Government Securities
Fund) that would have been deducted upon a redemption of shares at the end
of the periods indicated.
AGGREGATE TOTAL RETURN
A Class' aggregate total return figures, as described and shown in the
Prospectuses, represent the cumulative change in the value of an invest-
ment in the Class for the specified period and are computed by the follow-
ing 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 a 1-, 5- or
10-year period (or fractional portion thereof) at
the end of the 1-, 5- or 10-year period (or frac-
tional portion thereof), assuming reinvestment of
all dividends and distributions.
A Class' performance will vary from time to time depending upon market
conditions, the composition of the Fund's investment portfolio and operat-
ing expenses and the expenses exclusively attributable to the Class. Con-
sequently, any given performance quotation should not be considered repre-
sentative of the Class' performance for any specified period in the fu-
ture. 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 invest-
ment companies' portfolio securities.
The aggregate total returns of the Class A shares of the Funds were as
follows for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM
ONE YEAR NOVEMBER 6, 1992*
ONE YEAR NOVEMBER 6, 1992
PERIOD ENDED THROUGH
PERIOD ENDED THROUGH
NAME OF FUND DECEMBER 31, 1993** DECEMBER 31, 1993**
DECEMBER 31, 1993*** DECEMBER 31, 1993**
<S> <C> <C>
<C> <C>
Investment Grade Bond Fund 18.45% 22.30%
13.12% 16.80%
Government Securities Fund 10.87 13.54
5.88 8.43
Special Equities Fund 32.90 45.51
26.26 38.23
European Fund 23.46 25.61
17.29 19.33
<FN>
* The Funds commended selling Class A shares on November 6, 1992.
** Figures do not include the effect of the maximum sales charge.
*** Figures include the effect of the maximum sales charge.
</TABLE>
The Funds' aggregate total returns for Class B shares were as follows for
the periods indicated:
<TABLE>
<CAPTION>
TEN YEAR PERIOD
TEN YEAR PERIOD
OR PERIOD FROM
OR PERIOD FROM
COMMENCEMENT
COMMENCEMENT
ONE YEAR FIVE YEAR OF OPERATIONS
ONE YEAR FIVE YEAR OF OPERATIONS
PERIOD ENDED PERIOD ENDED THROUGH
PERIOD ENDED PERIOD ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31,
NAME OF FUND 1993* 1993* 1993*
1993** 1993** 1993**
<S> <C> <C> <C>
<C> <C> <C>
Investment Grade Bond Fund 18.06% 86.51% 347.76%<F1>
13.56% 85.51% 347.76%<F1>
Government Securities Fund 10.45 66.04 140.36 <F2>
5.95 65.04 140.36 <F2>
Special Equities Fund 31.93 86.06 187.94 <F1>
26.93 85.06 187.94 <F1>
European Fund 22.95 40.48 64.67 <F3>
17.95 39.48 64.67 <F3>
<FN>
* Figures do not include the effect of the CDSC (maximum 4.50% for In-
vestment Grade Bond Fund and Government Securities Fund and 5.00% for
the other Funds).
** Figures include the effect of the applicable CDSC, if any.
<F1> Figures are for the ten-year period ending December 31, 1993.
<F2> The Fund commenced operations on March 20, 1984.
<F3> The Fund commenced operations on November 6, 1987.
</TABLE>
It is important to note that the yield and total return figures set forth
above are based on historical earnings and are not intended to indicate
future performance.
The aggregate total returns of the Class D shares of the Funds were as
follows for the period indicated:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 29, 1993*
THROUGH
NAME OF FUND DECEMBER 31, 1993
<S> <C>
Investment Grade Bond Fund 10.35%
Government Securities Fund 7.48
Special Equities Fund (9.77)
European Fund **
<FN>
* The Funds commenced selling Class D shares on January 29, 1993. Class D
shares are sold at net asset value without any sales charge or CDSC.
** As of December 31, 1993, no publically offered Class D shares of the
Fund had been purchased, and therefore no meaningful performance infor-
mation is available.
</TABLE>
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its investments, and its operating ex-
penses. Consequently, any given performance quotation should not be con-
sidered representative of the Fund's performance for any specified period
in the future. Because performance will vary, it may not provide a basis
for comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time.
Comparative performance information may be used from time to time in ad-
vertising the Company's shares, including data from Lipper Analytical Ser-
vices, Inc., the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average and other publications.
TAXES
Set forth below is a summary of certain federal income tax considerations
generally affecting the Company and its shareholders. The summary is not
intended as a substitute for individual tax planning, and investors are
urged to consult their tax advisors with specific reference to their own
federal, state or local tax situations.
TAX STATUS OF THE FUNDS
Each Fund will be treated as a separate taxable entity for federal tax
purposes.
The Company intends that each Fund qualify separately as a "regulated in-
vestment company" under the Code. A qualified Fund generally will not be
liable for federal income taxes to the extent that its taxable net invest-
ment income and net realized capital gains are distributed to its share-
holders, provided that each Fund distributes at least 90% of its net in-
vestment income.
Each Fund intends to accrue dividend income for federal income tax pur-
poses in accordance with the rules applicable to regulated investment com-
panies. In some cases, these rules may have the effect of accelerating (in
comparison to other recipients of the dividend) the time at which the div-
idend is taken into account by a Fund as taxable income.
Certain options, futures contracts and forward contracts in which the
Funds may invest are "section 1256 contracts." Gains or losses on section
1256 contracts generally are considered 60% long-term and 40% short-term
capital gains or losses ("60/40"); however, foreign currency gains or
losses arising from certain section 1256 contracts may be treated as ordi-
nary income or loss. Also, section 1256 contracts held by a Fund at the
end of each taxable year are "marked-to-market" with the result that unre-
alized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as 60/40 gain or loss as ordinary income
or loss, as the case may be. These contracts also may be marked-to-market
for purposes of the 4% excise tax under rules prescribed in the Code.
Many of the hedging transactions undertaken by the Funds will result in
"straddles" for federal income tax purposes. Straddles are defined to in-
clude "offsetting positions" in actively traded personal property. It is
not entirely clear under what circumstances one investment made by a Fund
will be treated as offsetting another investment held by the Fund. In gen-
eral, positions are 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. The straddle rules may effect the character of gains (or
losses) realized on straddle positions. In addition, losses realized by a
Fund on straddle positions may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for
the taxable year in which losses are realized. The hedging transactions
may also increase the amount of gains from assets held less than three
months. As a result, the 30% limit on gains from certain assets held less
than three months, which applies to regulated investment companies, may
restrict a Fund in the amount of hedging transactions which it may under-
take. In addition, hedging transactions may increase the amount of short-
term capital gain realized by a Fund which is taxed as ordinary income
when distributed to the shareholders. The Fund may make one or more of the
elections available under the Code which are applicable to straddles. If a
Fund makes any of the elections, the amount, character and timing of the
recognition of gain or losses from the affected straddle positions will be
determined under rules that vary according to the election(s) made. Be-
cause only a few regulations implementing the straddle rules have been
promulgated, the consequences of straddle transactions to a Fund are not
entirely clear.
Distributions of investment company taxable income generally are taxable
to shareholders as ordinary income. In view of each Fund's investment pol-
icy, it is expected that dividends from domestic corporations will consti-
tute a portion of the gross income of several of the Funds but not of oth-
ers. Therefore, it is expected that a portion of the income distributed by
the Special Equities Fund but not others (Investment Grade Bond Fund, Gov-
ernment Securities Fund and European Fund) may be eligible for the
dividends-received deduction for corporations.
Distributions of net realized capital gains designated by a Fund as capi-
tal gains dividends are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of a Fund have been held by a
shareholder. Distributions of capital gains, whether long or short-term,
are not eligible for the dividends-received deduction.
Dividends (including capital gain dividends) declared by a Fund in Octo-
ber, November or December of any calendar year to shareholders of record
on a date in such a month will be deemed to have been received by share-
holders on December 31 of that calendar year, provided that the dividend
is actually paid by the Fund during January of the following calendar
year.
All dividends are taxable to the shareholder whether reinvested in addi-
tional shares or received in cash. Shareholders receiving distributions in
the form of additional shares will have a cost basis for federal income
tax purposes in each share received equal to the net asset value of a
share of the Fund on the reinvestment date. Shareholders will be notified
annually as to federal tax status of distributions.
Under the Code, gains or losses attributable to fluctuations in currency
exchange rates which occur between the time a Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a for-
eign currency and the time a Fund actually collects such receivables or
pays such liabilities, generally are treated as ordinary income or ordi-
nary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the
value of certain currency between the date of acquisition of the security
and the date of disposition also are treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "section 988" gains
or losses, may increase or decrease the amount of a Fund's investment com-
pany taxable income to be distributed to its shareholders as ordinary in-
come.
It is expected that certain dividends and interest received by the Fund
will be subject to foreign withholding taxes. So long as more than 50% in
value of a Fund's total assets at the close of a given taxable year con-
sists of stocks or securities of foreign corporations, the Fund may elect
to treat any foreign taxes paid or accrued by it as paid by its sharehold-
ers. Each Fund will notify shareholders in writing each year whether it
makes the election and the amount of foreign taxes it has elected to have
treated as paid by the shareholders. If a Fund makes the election, share-
holders will be required to include as income their proportionate share of
the amount of foreign taxes paid or accrued by the Fund and generally will
be entitled to claim either a credit or deduction (as an itemized deduc-
tion) for their share of the taxes in computing their federal income tax,
subject to limitations.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through elec-
tion is made, the source of the electing Fund's income will flow through
to its shareholders. With respect to a Fund, gains from the sales of secu-
rities generally will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign cur-
rency denominated debt securities, receivables and payables, will be
treated as ordinary income derived from U.S. sources. The limitation on
the foreign tax credit is applied separately to foreign source passive in-
come (as defined for purposes of the foreign tax credit), including the
foreign source passive income passed through by a Fund. Shareholders may
be unable to claim a credit for the full amount of their proportionate
share of the foreign tax paid or accrued by a Fund. A foreign tax credit
can be used to offset only 90% of the alternative minimum tax (as computed
under the Code for purposes of the limitation) imposed on corporations and
individuals. If a Fund is not eligible to make the election to "pass
through" to its shareholders its foreign taxes, the foreign taxes it pays
will reduce investment company taxable income and the distributions by
that Fund will be treated as United States source income.
The foregoing is only a general description of the foreign tax credit. Be-
cause application of the credit depends on the particular circumstances of
each shareholder, shareholders are advised to consult their own tax advi-
sors.
Distributions by a Fund reduces the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's
cost basis, such distribution nevertheless generally would be taxable to
the shareholder as ordinary income or capital gains as described above,
even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should be careful to consider
the tax implications of buying shares just prior to a distribution. The
price of shares purchased at that time includes the amount of the forth-
coming distribution but the distribution generally would be taxable to
him.
Upon redemption, sale or exchange of his shares, a shareholder will real-
ize a taxable gain or loss depending upon his basis for his shares. Such
gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands. Such gain or loss generally
will be long-term or short-term depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
sale of shares of a Fund with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated
as long-term capital loss if such shares have been held by the shareholder
for six months or less. A gain realized on a redemption, sale or exchange
will not be affected by a reacquisition of shares. A loss realized on a
redemption, sale or exchange, however, will be disallowed to the extent
the shares disposed of are replaced (whether through reinvestment of dis-
tributions or otherwise) within a period of 61 days beginning 30 days be-
fore and ending 30 days after the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disal-
lowed loss.
For the purposes of computing the revised alternative minimum tax of 20%
for corporations, 75% of the excess of the adjusted current earnings (as
defined in the Code) over other alternative minimum taxable income is
treated as an adjustment item. Shareholders are advised to consult their
own tax advisors for details regarding the alternative minimum tax.
If a Fund purchases shares in certain foreign investment funds classified
under the Code as a "passive foreign investment company", the Fund may be
subject to federal income tax on a portion of an "excess distribution" and
gain from the disposition of such shares, even though such income may have
to be distributed as a taxable dividend by the Fund to its shareholders.
In addition, gains on the disposition of shares in a passive foreign in-
vestment company generally are treated as ordinary income even though the
shares are capital assets in the hands of the Company. Certain interest
charges may be imposed on either the Fund or its shareholders in respect
of any taxes arising from such distributions or gains. A Fund may be eli-
gible to elect to include in its gross income its share of earnings of a
passive foreign investment company on a current basis. Generally the elec-
tion would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Fund compared to a
fund that did not make the election. In addition, another election may be
available that would involve marking to market a Fund's passive foreign
investment company shares at the end of each taxable year (and on certain
other dates prescribed in the Code), with the result that unrealized gains
are treated as though they were realized. If this election were made, tax
at the Fund level under the passive foreign investment company rules would
generally be eliminated, but the Fund could, in limited circumstances,
incur nondeductible interest charges. Each Fund's intention to qualify an-
nually as a regulated investment company may limit its elections with re-
spect to shares of passive foreign investment companies.
Because the application of the passive foreign investment company rules
may affect, among other things, the character of gains, the amount of gain
or loss and the timing of the recognition of income with respect to pas-
sive foreign investment company shares, as well as subject a Fund itself
to tax on certain income from such shares, the amount that must be dis-
tributed to shareholders, and which will be taxed to shareholders as ordi-
nary income or long-term capital gain, may be increased or decreased sub-
stantially as compared to a fund that did not invest in passive foreign
investment companies.
If a shareholder (a) incurs a sales charge in acquiring shares of the Com-
pany, (b) disposes of those shares within 90 days and (c) acquires shares
in a mutual fund for which the otherwise applicable sales charge is re-
duced by reason of a reinvestment right (i.e., exchange privilege), the
original sales charge increases the shareholder's tax basis in the origi-
nal 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 dispo-
sition of the newly acquired shares made within 90 days of the subsequent
acquisition. This provision prevents a shareholder from immediately de-
ducting the sales charge by shifting his or her investment in a family of
mutual funds.
Backup Withholding. If a shareholder fails to furnish a correct taxpayer
identification number, fails to fully report dividend or interest income,
or fails to certify that he or she has provided a correct taxpayer identi-
fication number and that he or she is not subject to such withholding,
then the shareholder may be subject to a 31% "backup withholding tax" with
respect to (a) any taxable dividends and distributions and (b) any pro-
ceeds of any redemption of Company shares. An individual's taxpayer iden-
tification 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.
The foregoing discussion relates only to federal income tax law as appli-
cable to U.S. persons. Distributions by the Funds also may be subject to
state, local and foreign taxes, and their treatment under state, local and
foreign income tax laws may differ from the federal income tax treatment.
The Government Securities Fund's dividends, to the extent they consist of
interest from obligations of the U.S. government and certain of its agen-
cies and instrumentalities, may be exempt from state and local income
taxes in some jurisdictions. The Company intends to advise shareholders of
the proportion of that Fund's dividends which are derived from such inter-
est. Shareholders should consult their tax advisors with respect to par-
ticular questions of federal, state and local taxation.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as the custodian of the
Company. Under its custody agreement with the Company, Boston Safe holds
the Company's fund securities and keeps all necessary accounts and
records. For its services, Boston Safe receives a monthly fee based upon
the month-end market value of securities held in custody and also receives
securities transaction charges. Boston Safe is authorized to establish
separate accounts for foreign securities owned by the Company to be held
with foreign branches of other domestic banks as well as with certain for-
eign banks and securities depositories. The assets of the Company are held
under bank custodianship in compliance with the 1940 Act.
The Shareholders Services Group, Inc. ("TSSG"), a subsidiary of First Data
Corporation ("FDC"), is located at Exchange Place, Boston, Massachusetts
02109 and serves as the Company's transfer agent. The outstanding shares
of FDC are partially owned by American Express. Under the transfer agency
agreement, TSSG maintains the shareholder account records for the Company,
handles certain communications between shareholders and the Company and
distributes dividends and distributions payable by the Company. For these
services, TSSG receives a monthly fee computed on the basis of the number
of shareholder accounts it maintains for the Company during the month and
is reimbursed for out-of-pocket expenses.
FINANCIAL STATEMENTS
The Annual Reports for each Fund for the fiscal year ended December 31,
1993 are incorporated herein by reference in their entirety.
APPENDIX
CORPORATE BONDS AND COMMERCIAL PAPER RATINGS
Corporate Bonds. Bonds rated Aa by Moody's are judged by Moody's to be of
high-quality by all standards. Together with bonds rated Aaa (Moody's
highest rating) they comprise what are generally known as high-grade
bonds. Aa bonds are rated lower than Aaa bonds because margins of protec-
tion may not be as large as those of Aaa bonds, or fluctuation of protec-
tive elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than those
applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and inter-
est are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Moody's Baa rated bonds are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain pro-
tective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Bonds rated AA by S&P are judged by S&P to be the high-grade obligations
and in the majority of instances differ only in small degree from issues
rated AAA (S&P highest rating). Bonds rated AAA are considered by S&P to
be the highest grade obligations and possess the ultimate degree of pro-
tection as to principal and interest. With AA bonds, as with AAA bonds,
prices move with the long-term money market. Bonds rated A by S&P have a
strong capacity to pay principal and interest, although they are somewhat
more susceptible to the adverse effects of changes in circumstances and
economic conditions.
Bonds rated BBB by S&P, or medium-grade category bonds, are borderline be-
tween definitely sound obligations and those where speculative elements
begin to predominate. These bonds have adequate asset coverage and nor-
mally are protected by satisfactory earnings. Their susceptibility to
changing conditions, particularly to depressions, necessitates constant
watching. These bonds generally are more responsive to business and trade
conditions than to interest rates. This group is the lowest which quali-
fies for commercial bank investment.
Commercial Paper. The Prime rating is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (a) evaluation of the management of the issuer;
(b) economic evaluation of the issuer's industry or industries and an ap-
praisal of speculative-type risks which may be inherent in certain areas;
(c) evaluation of the issuer's products in relation to competition and
customer acceptance; (d) liquidity; (e) amount and quality of long-term
debt; (f) trend of earnings over a period of ten years; (g) financial
strength of a parent company and the relationships which exist with the
issuer; and (h) recognition by management of obligations which may be
present or may arise as a result of public interest questions and prepara-
tions to meet such obligations. Issuers within the Prime category may be
given ratings 1, 2 or 3, depending on the relative strengths of these fac-
tors.
Commercial paper rated A by S&P has the following characteristics: (a) li-
quidity ratios are adequate to meet cash requirements; (b) long-term se-
nior debt rating should be A or better, although in some cases BBB credits
may be allowed if other factors outweigh the BBB; (c) the issuer should
have access to at least two additional channels of borrowing; (d) basic
earnings and cash flow should have an upward trend with allowances made
for unusual circumstances; and (e) typically the issuer's industry should
be well established and the issuer should have a strong position within
its industry, and the reliability and quality of management should be un-
questioned. Issuers rated A are further referred to by use of number 1, 2
and 3 to denote relative strength within this highest classification.
SUPPLEMENTARY DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS AND RELATED
OPTIONS
Characteristics of Futures Contracts. Currently, futures contracts can be
purchased and sold on such securities as U.S. Treasury bonds, U.S. Trea-
sury notes, GNMAs and U.S. Treasury bills. Unlike when the Fund purchases
or sells a security, no price is paid or received by the Fund upon the
purchase or sales of a futures contract. The Fund will initially be re-
quired to deposit with the custodian or the broker an amount of "initial
margin" of cash of U.S. Treasury bills. The nature of initial margin in
futures transactions is different from that of margin in security transac-
tions in that futures contract initial margin does not involve the borrow-
ing of funds by their customer to finance the transaction. Rather, the
initial margin is in the nature of a performance bond or good faith de-
posit on the contract which is returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been sat-
isfied. Subsequent payments, called maintenance margin, to and from the
broker, will be made on a daily basis as the price of the underlying debt
security fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marked-to-market." For
example, when the Fund has purchased a futures contract and the price of
the underlying debt security has risen, that position will have increased
in value and the Fund will receive from the broker a maintenance margin
payment equal to that increase in value. Conversely, when the Fund has
purchased a futures contract and the price of the underlying debt security
has declined, the position would be less valuable and the Fund would be
required to make a maintenance margin payment to the broker. At any time
prior to expiration of the futures contract, the Fund may elect to close
the position by taking an opposite position which will operate to termi-
nate the Fund's position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by
or released to the Fund, and the Fund realizes a loss or a gain.
While futures contracts based on debt securities do provide for the deliv-
ery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, the futures contract is terminated by entering
into an offsetting transaction. An offsetting transaction for a futures
contract sale is effected by the Fund entering into a futures contract
purchase for the same aggregate amount of the specific type of financial
instrument and same delivery date. If the price in the sale exceeds the
price in the offsetting purchase, the Fund pays the difference and real-
izes the loss. Similarly, the closing out of a futures contract purchase
is effected by the Fund entering into a futures contract sale. If the off-
setting sale price exceeds the purchase price, the Fund realizes a gain,
and if the purchase price exceeds the offsetting price, the Fund realizes
a loss.
Risks of Transactions in Futures Contracts. There are several risks in
connection with the use of futures contracts by Government Securities Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the futures contracts and movements in
the price of the debt securities which are the subject of the hedge. The
price of the futures contract may move more than or less than the price of
the debt securities being hedged. If the price of the futures contract
moves less than the price of the securities which are the subject of the
hedge, the hedge will not be fully effective, but, if the price of the se-
curities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it has not hedged at all. If the
price of the securities being hedged has moved in a favorable direction,
this advantage will be partially offset by the movement in the price of
the futures contract. If the price of the futures contracts moves more
than the price of the security, the Fund will experience either a loss or
a gain on the future which will not be completely offset by movements in
the prices of the debt securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the prices of the futures con-
tracts, the Fund may buy or sell futures contracts in a greater dollar
amount than the dollar amount of the securities being hedged if the his-
torical volatility of the prices of such securities has been greater than
the historical volatility of the futures contracts. Conversely, the Fund
may buy or sell fewer futures contracts if the historical volatility of
the price of the securities being hedged is less than the historical vola-
tility of the futures contracts. It is also possible that, where the Fund
has sold futures to hedge its portfolio against decline in the market, the
market may advance and the value of securities held in the Fund's portfo-
lio may decline. If this occurred, the Fund would lose money on the fu-
tures contracts and also experience a decline in value in its portfolio
securities. However, while this could occur for a very brief period or to
a very small degree, over time the value of a diversified portfolio will
tend to move in the same direction as the futures contracts.
Where futures are purchased to hedge against a possible increase in prices
of securities before the Fund is able to invest its cash (or cash equiva-
lents) in U.S. government securities (or options) in an orderly fashion,
it is possible that the market may decline instead; if the Fund then con-
cludes not to invest in U.S. government securities or options at that time
because of concern as to possible further market decline or for other rea-
sons, the Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures contracts and
the portion of the portfolio being hedged, the market prices of futures
contracts may be affected by certain factors. First, all participants in
the futures market are subject to margin deposit and maintenance require-
ments. Rather than meeting additional margin deposit requirements, inves-
tors may close futures contracts though offsetting transactions which
could distort the normal relationship between the debt securities and fu-
tures markets; second, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin require-
ments in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distor-
tions. Due to the possibility of price distortion in the futures market
and because of the imperfect correlation between movements in the debt se-
curities and movements in the prices of futures contracts, a correct fore-
cast of interest rate trends by the investment advisor may still not re-
sult in a successful hedging transaction over a very short time frame.
Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Al-
though Government Securities Fund intends to purchase or sell futures only
on exchanges or boards of trade where there appears to be an active sec-
ondary market, there is no assurance that a liquid secondary market on an
exchange or board of trade will exist for any particular contract or at
any particular time. In such event, it may not be possible to close a fu-
tures position, and in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation
margin. However, in the event that the futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the fu-
tures contracts can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset
losses on the futures contracts. However, as described above, there is no
guarantee that the price of the securities will, in fact, correlate with
the price movements of the futures contracts and thus provide an offset to
losses on futures contracts.
Successful use of futures contracts by the Fund is also subject to the in-
vestment adviser's ability to predict correctly movements in the direction
of interest rates and other factors affecting markets of debt securities.
For example, if the Fund has hedged against the possibility of an increase
in interest rates which would adversely affect debt securities held in its
portfolio and prices of such securities increase instead, the Fund will
lose part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin re-
quirements. Such sale of securities may be, but will not necessarily be,
at increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so.
Characteristics of Options on Futures Contracts. As with options on debt
securities, the holder of an option may terminate his position by selling
an option of the same series. There is no guarantee that such closing
transactions can be effected. The Fund will be required to deposit initial
margin and maintenance margin with respect to put and call options on fu-
tures contracts written by it pursuant to brokers' requirements similar to
those applicable to interest rate futures contracts described above, and,
in addition, net option premiums received will be included as initial mar-
gin deposits.
In addition to the risks which apply to all options transactions, there
are several special risks relating to options on futures contracts. Trad-
ing in such options commenced in October 1982. The ability to establish
and close out positions on such options will be subject to the development
and maintenance of a liquid secondary market. It is not certain that this
market will develop. The Fund will not purchase options on futures con-
tracts on any exchange unless and until, in the investment advisor's opin-
ion, the market for such options had developed sufficiently that the risks
in connection with options on futures contracts are not greater than the
risks in connection with futures contracts. Compared to the use of futures
contracts, the purchase of options on futures contracts involves less po-
tential risk to the Fund because the maximum amount of risk is the premium
paid for the options (plus transaction costs). However, there may be cir-
cumstances when the use of an option on a futures contract would result in
a loss to the Fund when the use of a futures contract would not, such as
when there is no movement in the prices of debt securities. Writing an op-
tion on a futures contract involves risks similar to those arising in the
sale of futures contracts, as described above.
SMITH BARNEY SHEARSON
INVESTMENT FUNDS
Two World Trade Center
New York, New York 10048
Smith Barney Shearson
INVESTMENT FUNDS INC.
INVESTMENT GRADE BOND FUND
GOVERNMENT SECURITIES FUND
SPECIAL EQUITIES FUND
EUROPEAN FUND
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1994
SMITH BARNEY SHEARSON
PART C
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
FINANCIAL STATEMENTS
EXHIBITS
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
Condensed Financial Information Tax Information
Included in Part C:
Consent of Independent Accountants is filed herein
(b) Exhibits
All references are to Registrant's Registration Statement on
Form N-1A (the "Registration Statement") as filed with the
Securities and Exchange Commission on October 2, 1981 (File
Nos. 2-74288 and 811-3275).
(1) (a) Articles of Restatement, dated February 12, 1993, to the Articles
of Incorporation are incorporated by reference to Post-Effective Amendment No.
29 to the Registration Statement, filed on March 3, 1993.
(1) (b) Articles of Amendment, dated May 21, 1993, to the Articles of
Incorporation are incorporated by reference to the Registrant's Registration
Statement filed on Form N-14 on September 2, 1993.
(1) (c) Articles of Amendment dated July 30, 1993, to the Articles of
Incorporation are incorporated by reference to the Registrant's Registration
Statement filed on Form N-14 on September 2, 1993.
(1) (d) Articles Supplementary, dated August 9, 1993, to the Articles of
Incorporation are incorporated by reference to the Registrant's Registration
Statement filed on Form N-14 on September 2, 1993.
(2) Registrant's By-Laws, as amended on September 30, 1992, are incorporated
by reference to Post-Effective Amendment No. 30 to the Registration Statement,
filed on April 30, 1993.
(3) Inapplicable.
(4)(a) Registrant's form of stock certificate relating to Class A shares
is incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement filed on October 23, 1992.
(4)(b) Registrant's form of stock certificate relating to Class B shares
is incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement filed on October 23, 1992.
(4)(c) Registrant's form of stock certificate relating to Class D shares
is incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement filed on October 23, 1992.
(5)(a) Investment Advisory Agreement between the Registrant and Lehman
Brothers Global Asset Management Limited (formerly Shearson Lehman Global
Asset Management S.A.) is incorporated by reference to the Registration
Statement filed on Form N-14 filed on August 15, 1988.
(5)(b) Investment Advisory Agreement dated July 30, 1993, between the
Registrant and Greenwich Street Advisors Division of Mutual Management
Corporation is incorporated by reference to the Registration Statement filed
on Form N-14 on September 2, 1993. File No 33-50153.
5(c) Administration Agreement dated May 21, 1993, between the Registrant and
The Boston Company Advisors, Inc. is incorporated by reference to the
Registration Statement filed on Form N-14 on September 2, 1993. File No. 33-
50153
(6) Distribution Agreement, dated July 30, 1993, between the Registrant and
Smith Barney Shearson Inc. is incorporated by reference to the Registration
Statement filed on Form N-14 on September 2, 1993. File No. 33-50153
(7) Inapplicable
(8) Custodian Agreement with Boston Safe Deposit and Trust Company is
incorporated by reference to Post-Effective Amendment No. 20 to the
Registration Statement, filed on September 6, 1988.
(9) Transfer Agency and Registration Agreement dated August 5, 1993 with The
Shareholder Services Group, Inc. is incorporated by reference to Post-
Effective Amendment No. 31 to the Registration Statement, filed on December
22, 1993.
(10) Opinion of Counsel relating to legality of shares is incorporated by
reference to Post-Effective Amendment No. 31 to the Registration Statement,
filed on December 22, 1993.
(11)
Consent of Independent Accountants is filed herein .
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Services and Distribution Plan dated July 30, 1993 between the
Registrant and Smith Barney Shearson Inc. is incorporated by reference to the
Registration Statement filed on Form N-14 on September 2, 1993. File No. 33-
50153
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 22 to the Registration Statement filed on May 1, 1989.
(17) Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 31 to the Registration Statement, filed on December 22,
1993.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders as of February 25,1994
Common Stock par value Class A Class B Class D
$.001 per share
FUND
Special Equities Fund 9,096 24,094 10
Investment Grade Bond Fund 766 29,549 7
Government Securities Fund 526 49,410 11
*Directions Value Fund 15,196 37,486 12
European Fund 379 5,558 1
*Directions Value Fund ceased offering shares to the public on December
23, 1993 in anticipation of its merger with and into Smith Barney Sheason
Growth and Income Fund.
Item 27. Indemnification
The response to this item is incorporated by reference to Pre-Effective
Amendment No. 1 to the Registration Statement filed on Form N-14 on October 8,
1993. File No. 33-50153
Item 28(a). Business and Other Connections Investment Adviser
Investment Adviser - - Greenwich Street Advisors
Greenwich Street Advisors, through its predecessors, has been in the
investment counseling business since 1934 and is a division of Mutual
Management Corp. ("MMC"). MMC was incorporated in 1978 and is a wholly owned
subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"), which is in
turn a wholly owned subsidiary of The Travelers Inc.("Travelers") (formerly
known as Primerica Corporation).
The list required by this Item 28 of officers and directors of MMC and
Greenwich Street Advisors, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by MMC on behalf of Greenwich
Street Advisors pursuant to the Advisers Act (SEC File No. 801-14437).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Advisors, a member of the Asset Management Group of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), served as the Registrant's
investment adviser. On the Closing, Travelers and Smith Barney Shearson Inc.
(formerly Smith Barney, Harris Upham & Co. Incorporated) acquired the domestic
retail brokerage and asset management business of Shearson Lehman Brothers,
which included the business of the Registrant's prior investment adviser.
Shearson Lehman Brothers was a wholly owned subsidiary of Shearson Lehman
Brothers Holdings Inc. ("Shearson Holdings"). All of the issued and
outstanding common stock of Shearson Holdings (representing 92% of the voting
stock) was held by American Express Company. Information as to any past
business vocation or employment of a substantial nature engaged in by officers
and directors of Shearson Lehman Advisors can be located in Schedules A and D
of FORM ADV filed by Shearson Lehman Brothers on behalf of Shearson Lehman
Advisors prior to July 30, 1993. (SEC FILE NO. 801-3701)
8/23/93
Item 28(b). Business and Other Connections of Investment Adviser
Investment Adviser - - Lehman Brothers Global Asset
Management Limited
Lehman Brothers Global Asset Management Limited ("Global Asset Management"),
is a wholly owned subsidiary of Lehman Brothers Holdings Inc. Global Asset
Management is a registered investment adviser under the Investment Advisers
Act of 1940 (the "Advisers Act") and serves as investment adviser to
investment companies and institutional clients.
On July 30, 1993, Shearson Lehman Brothers Holdings Inc. changed its name to
Lehman Brothers Holdings Inc. ("Holdings"). All of the issued and outstanding
common stock (representing 92% of the voting stock) of Holdings is held by
American Express Company. The list required by this Item 28 of officers and
directors of Global Asset Management, together with information as to any
other business, profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two years, is
incorporated by reference to Schedules A and D of FORM ADV filed by Global
Asset Management pursuant to the Advisers Act (SEC File No. 801-21068).
8/23/93
Item 29. Principal Underwriters
Smith Barney Shearson Inc. ("Smith Barney Shearson") currently acts as
distributor for Smith Barney Shearson Managed Municipals Fund Inc., Smith
Barney Shearson New York Municipals Fund Inc., Smith Barney Shearson
California Municipals Fund Inc., Smith Barney Shearson Massachusetts
Municipals Fund, Smith Barney Shearson Global Opportunities Fund, Smith Barney
Shearson Aggressive Growth Fund Inc., Smith Barney Shearson Appreciation Fund
Inc., Smith Barney Shearson Worldwide Prime Assets Fund, Smith Barney Shearson
Short-Term World Income Fund, Smith Barney Shearson Principal Return Fund,
Smith Barney Shearson Municipal Money Market Fund Inc., Smith Barney Shearson
Daily Dividend Fund Inc., Smith Barney Shearson Government and Agencies Fund
Inc., Smith Barney Shearson Managed Governments Fund Inc., Smith Barney
Shearson New York Municipal Money Market Fund, Smith Barney Shearson
California Municipal Money Market Fund, Smith Barney Shearson Income Funds,
Smith Barney Shearson Equity Funds, Smith Barney Shearson Investment Funds
Inc., Smith Barney Shearson Precious Metals and Minerals Fund Inc., Smith
Barney Shearson Telecommunications Trust, Smith Barney Shearson Arizona
Municipals Fund Inc., Smith Barney Shearson New Jersey Municipals Fund Inc.,
The USA High Yield Fund N.V., Garzarelli Sector Analysis Portfolio N.V., The
Advisors Fund L.P., Smith Barney Shearson Fundamental Value Fund Inc., Smith
Barney Shearson Series Fund, The Trust for TRAK Investments, Smith Barney
Shearson Income Trust, Smith Barney Shearson FMA R Trust, Smith Barney
Shearson Adjustable Rate Government Income Fund, Smith Barney Shearson Florida
Municipals Fund, Smith Barney Funds, Inc., Smith Barney Equity Funds, Inc.,
Smith Barney Muni Funds, Smith Barney World Funds, Inc., Smith Barney Money
Funds, Inc., Smith Barney Tax Free Money Fund, Inc., Smith Barney Variable
Account Funds, Smith Barney U.S. Dollar Reserve Fund (Cayman), Worldwide
Special Fund, N.V., Worldwide Securities Limited, (Bermuda), and various
series of unit investment trusts.
Smith Barney Shearson is a wholly owned subsidiary of Smith Barney
Shearson Holdings Inc., which in turn is a wholly owned subsidiary of The
Travelers Inc.("Travelers") (formerly known as Primerica Corporation). The
information required by this Item 29 with respect to each director, officer
and partner of Smith Barney Shearson is incorporated by reference to Schedule
A of FORM BD filed by Smith Barney Shearson pursuant to the Securities
Exchange Act of 1934 (SEC File No. 812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney Shearson Investment Funds Inc.
Two World Trade Center
New York, New York 10048
(2) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(3) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(4) Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
(5) Lehman Brothers Global Asset Management Limited
Two Broadgate
London Ed 2M 7HA
United Kingdom
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant hereby undertakes to furnish to each person to whom a
prospectus of any series of the Registrant is delivered a copy of the
Registrant's latest annual report, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and State of New York, on the 28th
day of February, 1994.
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.,
Registrant
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chariman of the Board
______________________________________________________________________________
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature: Title: Date:
/s/Stephen J. Treadway President February 28, 1994
Stephen J. Treadway
/s/Richard P. Roelofs Executive Vice-President
February 28, 1994
Richard P. Roelofs
/s/Vincent Nave Treasurer (Chief Financial February 28,
1994
Vincent Nave and Accounting Officer)
/s/Heath B. McLendon Chairman of the Board February 28, 1994
Heath B. McLendon (Chief Executive Officer)
/s/Alger B. Chapman Director February 28,
1994
Alger B. Chapman
/s/Dwight B. Crane Director February 28,
1994
Dwight B. Crane
/s/Frank G. Hubbard Director February 28,
1994
Frank G. Hubbard
/s/Allan R. Johnson Director February 28,
1994
Allan R. Johnson
/s/John F. White Director February 28, 1994
John F. White
SLIV/PEA/PEA#33
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney Shearson Investment Funds:
We hereby consent to the following with respect to
Post-Effective Amendment No. 33 to the Registration Statement on
Form N-1A (File No. 2-74288) under the Securities Act of 1933,
as amended, of Smith Barney Shearson Investment Funds:
1. The incorporation by reference of our reports dated February
2, 1994 accompanying the Annual Reports for the fiscal year
ended December 31, 1993 of Investment Grade Bond Fund,
Government Securities Fund, and Special Equities Fund, and our
report dated February 8, 1994 accompanying the Annual Report for
the fiscal year ended December 31, 1993 of the European Fund, in
the Statement of Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectuses.
3. The reference to our firm under the heading "Counsel and
Auditors" in the Statement of Additional Information.
COOPERS & LYBRAND
Boston, Massachusetts
February 28, 1994
