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. 37 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended X
Amendment No. 39 X
SMITH BARNEY INVESTMENT FUNDS INC.
(formerly known as Smith Barney Shearson Investment Funds Inc.)
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 723 -9218
Christina T. Sydor
Secretary
SMITH BARNEY INVESTMENT FUNDS INC.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
on November 7, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
___ on _______________ pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ending December 31, 1994 will be filed on or about February
28, 1995.
SMITH BARNEY 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. Financial Highlights
Financial Highlights
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Additional
Information
5. Management of the Fund
Management of the Company
and the Fund; Distributor;
Additional Information; Annual
Report
6. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Dividends,
Distributions and Taxes;
Additional Information
7. Purchase of Securities Being
Offered
Valuation of Shares; Purchase of
Shares; Exchange Privilege;
Redemption of Shares; Minimum
Account Size; Distributor;
Additional Information
8 Redemption or Repurchase
Purchase of Shares ;
Redemption of Shares; Exchange
Privilege
9. Pending Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover page
11. Table of Contents
Contents
12. General Information and
History
Distributor; Additional
Information
13. Investment Objectives and
Policies
Investment Objective and
Management Policies
14. Management of the Fund
Management of the Company;
Distributor
15. Control Persons and Principal
Holders
of Securities
Management of the Company
16. Investment Advisory and Other
Services
Management of the Company;
Distributor
17. Brokerage Allocation and
Other Services
Investment Objective and
Management
Policies; Distributor
18. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Purchase
of Shares; Redemption of
Shares; Taxes
19. Purchase, Redemption and
Pricing
of Securities Being
Offered
Purchase of Shares; Redemption of
Shares; Valuation of Shares;
Distributor; Exchange
Privilege
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
SMITH BARNEY INVESTMENT FUNDS INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(b)
Part A (Prospectuses for Smith Barney Investment Grade Bond Fund and Smith
Barney European Fund ) are incorporated by reference to Post-Effective
Amendment Nos. 33 and 34, respectively, as filed with the Securities and
Exchange Commission ("SEC") on March 1, 1994 and March 7, 1994,
respectively.
<PAGE>
P R O S P E C T U S
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S M I T H B A R N E Y
GOVERNMENT
SECURITIES
FUND
N O V E M B E R 7, 1 9 9 4
PROSPECTUS BEGINS ON PAGE ONE
LOGO
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- ---------------------------------------------------------------------------
PROSPECTUS November 7, 1994
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Government Securities Fund (the "Fund") has an investment
objective of high current return through investments in U.S. government
securities. It may write covered call options and secured put options and
purchase put options on U.S. government securities. For hedging purposes, the
Fund may purchase and sell interest rate futures contracts and put and call
options thereon.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Investment Funds Inc. (the
"Company"). The Company is an open-end management investment company commonly
referred to as a mutual fund.
This Prospectus sets forth concisely certain information about the Fund and
the Company, 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 a Smith Barney
Financial Consultant.
Additional information about the Fund and the Company is contained in a
Statement of Additional Information dated November 7, 1994, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Company at the telephone number or address set
forth above or by contacting a Smith Barney Financial Consultant. The Statement
of Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this Prospectus in
its entirety.
SMITH BARNEY INC.
Distributor
GREENWICH STREET ADVISORS
Investment Adviser
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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FINANCIAL HIGHLIGHTS 11
----------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 15
----------------------------------------------------------------
VALUATION OF SHARES 24
----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 24
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PURCHASE OF SHARES 27
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EXCHANGE PRIVILEGE 38
----------------------------------------------------------------
REDEMPTION OF SHARES 42
----------------------------------------------------------------
MINIMUM ACCOUNT SIZE 44
----------------------------------------------------------------
PERFORMANCE 45
----------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 46
----------------------------------------------------------------
DISTRIBUTOR 48
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ADDITIONAL INFORMATION 49
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</TABLE>
2
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES 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 "TABLE OF CONTENTS."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified management investment
company that seeks high current return by investing in U.S. government
securities. The Fund may write covered call options and secured put options and
purchase put options on U.S. government securities. The Fund 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.
See "Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of the sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares, is
offered only to investors meeting an initial investment minimum of $5,000,000.
See "Purchase of Shares" and "Redemption of Shares."
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.50% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which when
combined with current holdings of Class A shares offered with a sales charge
equal or exceed $500,000 in the aggregate, will be made at net asset value with
no sales charge, but will be subject to a contingent deferred sales charge
("CDSC") of 1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial Sales Charge."
CLASS B SHARES. Class B shares are offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the first year
after purchase and 1.00% each year thereafter to zero. This CDSC may be waived
for certain redemptions. Class B shares are subject to an
3
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
annual service fee of 0.25% and an annual distribution fee of 0.50% of the
average daily net assets of the Class. The Class B shares' distribution fee may
cause that Class to have higher expenses and pay lower dividends than Class A
shares.
CLASS B SHARES CONVERSION FEATURE. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the date
of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class B
shares that have been acquired through the reinvestment of dividends and
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares -- Deferred Sales Charge Alternatives."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.45% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months of
purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Class C shares, which when combined
with current holdings of Class C shares of the Fund equal or exceed $500,000 in
the aggregate, should be made in Class A shares at net asset value with no sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.
CLASS Y SHARES. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
INTENDED HOLDING PERIOD. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges
4
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
and the shares are subject to lower ongoing expenses over the term of the
investment. As an investment alternative, Class B and Class C shares are sold
without any initial sales charge so the entire purchase price is immediately
invested in the Fund. Any investment return on these additional invested amounts
may partially or wholly offset the higher annual expenses of these Classes.
Because the Fund's future return cannot be predicted, however, there can be no
assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fee. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.
REDUCED OR NO INITIAL SALES CHARGE. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases,
which when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase. The $500,000 aggregate investment
may be met by adding the purchase to the net asset value of all Class A shares
held in funds sponsored by Smith Barney Inc. ("Smith Barney") listed under
"Exchange Privilege." Class A share purchases may also be eligible for a reduced
initial sales charge. See "Purchase of Shares." Because the ongoing expenses of
Class A shares may be lower than those for Class B and Class C shares,
purchasers eligible to purchase Class A shares at net asset value or at a
reduced sales charge should consider doing so.
5
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Company and the Fund" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes" and "Exchange Privilege" for other differences between the Classes of
shares.
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan sponsors
in the creation and operation of retirement plans under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as other types
of participant directed, tax-qualified employee benefit plans (collectively,
"Participating Plans"). Class A, Class B, Class C and Class Y shares are
available as investment alternatives for Participating Plans. See "Purchase of
Shares -- Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor, Smith
Barney, a broker that clears securities transactions through Smith Barney on a
fully disclosed basis (an "Introducing Broker") or an investment dealer in the
selling group. Direct purchases by certain retirement plans may be made through
the Fund's transfer agent, The Shareholder Services Group, Inc. ("TSSG"), a
subsidiary of First Data Corporation. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open an
account by making an initial investment of at least $1,000 for each account, or
$250 for an individual retirement account ("IRA") or a Self-Employed Retirement
Plan. Investors in Class Y shares may open an account for an initial investment
of $5,000,000. Subsequent investments of at least $50 may be made for all
Classes. For participants in retirement plans qualified under Section 403(b)(7)
or Section 401(a) of the Code, the minimum initial investment requirement for
Class A, Class B and Class C shares and the subsequent investment requirement
for all Classes is $25. The
6
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
minimum initial investment requirement for Class A, Class B and Class C shares
and the subsequent investment requirement for all Classes through the Systematic
Investment Plan described below is $100. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares in an amount of at least $100. See
"Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Greenwich Street Advisors, a division of Smith Barney
Mutual Funds Management Inc. ("Greenwich Street Advisors"), serves as the Fund's
investment adviser. Smith Barney Mutual Funds Management Inc. ("SBMFMI")
provides investment advisory and management services to investment companies
affiliated with Smith Barney. SBMFMI is a wholly owned subsidiary of Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers Inc. ("Travelers"), a diversified financial services holding company
engaged, through its subsidiaries, principally in four business segments:
Investment Services, Consumer Finance Services, Life Insurance Services and
Property & Casualty Insurance Services.
SBMFMI serves as the Fund's administrator and The Boston Company Advisors,
Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston Advisors
is a wholly owned subidiary of The Boston Company, Inc. ("TBC") which in turn is
an indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). See
"Management of the Company and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differential.
See "Exchange Privilege."
7
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. 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 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 in additional shares of the same Class at
current net asset value unless otherwise specified by an investor. Shares
acquired by dividend and distribution reinvestments will not be subject to any
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a PRO
RATA basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS 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 value
of the Fund's investments, and hence the net asset value of Fund shares, will
fluctuate in response to changes in interest rates and market and economic
conditions. The Fund may enter into interest rate futures contracts and put and
call options thereon for hedging purposes, which may be subject to certain risks
in addition to those inherent in investments in the underlying securities. The
Fund may also employ other investment techniques which involve certain other
risks, including entering into repurchase agreements and lending portfolio
securities. See "Investment Objective and Management Policies -- Additional
Investments."
8
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES 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 ON THE MAXIMUM SALES CHARGE OR MAXIMUM CDSC THAT MAY BE INCURRED
AT THE TIME OF PURCHASE OR REDEMPTION AND, UNLESS OTHERWISE NOTED, THE FUND'S
OPERATING EXPENSES FOR ITS MOST RECENT FISCAL YEAR:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
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SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% None None None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower) None* 4.50% 1.00% None
-------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.55% 0.55% 0.55% 0.55%
12b-1 fees** 0.25 0.75 0.70 None
Other expenses*** 0.12 0.10 0.10 0.12
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TOTAL FUND OPERATING EXPENSES .92% 1.40% 1.35% .67%
-------------------------------------------------------------------------------------
<FN>
*Purchases of Class A shares, which when combined with current holdings of Class A shares offered
with a sales charge, equal or exceed $500,000 in the aggregate, will be made at net asset value
with no sales charge, but will be subject to a CDSC of 1.00% on redemptions made within 12
months.
**Upon conversion of Class B shares to Class A shares, such shares will no longer be subject to a
distribution fee. Class C shares do not have a conversion feature and, therefore, are subject to
an ongoing distribution fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
***For Class Y shares, "Other expenses" have been estimated based on expenses incurred by the Class
A shares because Class Y shares were not available for purchase prior to November 7, 1994.
</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 actually
pay lower or no charges, depending on the amount purchased and, in the case of
Class B, Class C and certain Class A shares, the length of time the shares are
held and whether the shares are held through the Smith Barney 401(k) Program.
See "Purchase of Shares" and "Redemption of Shares." Smith Barney receives an
annual 12b-1 service fee of 0.25% of the value of average daily net assets of
Class A shares. Smith Barney also receives, with respect to Class B shares, an
annual 12b-1 fee of 0.75% of the value of average daily net assets of that
Class, consisting of a
9
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
0.50% distribution fee and a 0.25% service fee. For Class C shares, Smith Barney
receives an annual 12b-1 fee of 0.70% of the value of average daily net assets
of this Class, consisting of a 0.45% distribution fee and a 0.25% service fee.
"Other expenses" in the above table include fees for shareholder services,
custodial fees, legal and accounting fees, printing costs and registration fees.
EXAMPLE THE FOLLOWING EXAMPLE IS INTENDED TO ASSIST AN INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY
OR INDIRECTLY. THE EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES AT
THE LEVELS SET FORTH IN THE TABLE ABOVE. SEE "PURCHASE OF SHARES," "REDEMPTION
OF SHARES" AND "MANAGEMENT OF THE COMPANY AND THE FUND."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A $ 64 $ 73 $ 94 $ 153
Class B 59 74 87 155
Class C 24 43 74 162
Class Y 7 21 37 83
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A 54 73 94 153
Class B 14 44 77 155
Class C 14 43 74 162
Class Y 7 21 37 83
--------------------------------------------------------------------------------
<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.
</TABLE>
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be greater or
less than those shown.
10
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
EXCEPT WHERE OTHERWISE NOTED, 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, WHICH IS INCORPORATED BY REFERENCE
INTO THE STATEMENT OF ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR PERIOD
6/30/94+++ ENDED ENDED
(UNAUDITED) 12/31/93+++ 12/31/92*
<S> <C> <C> <C>
Net Asset Value, beginning of period $10.01 $ 9.69 $ 9.56
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income# 0.27 0.81 0.10
Net realized and unrealized gain/(loss) on investments (0.66) 0.23 0.13
- -------------------------------------------------------------------------------------
Total from investment operations (0.39) 1.04 0.23
Distributions to shareholders:
Distributions from net investment income (0.29) (0.72) (0.08)
Distributions from capital -- -- (0.02)
- -------------------------------------------------------------------------------------
Total distributions (0.29) (0.72) (0.10)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.33 $10.01 $ 9.69
- -------------------------------------------------------------------------------------
Total return+ (3.94)% 10.87% 2.41%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $7,324 $7,067 $ 275
Ratio of operating expenses to average net assets++ 1.00%** 0.92% 0.68%**
Ratio of net investment income to average net assets 5.76%** 7.76% 6.24%**
Portfolio turnover rate 119% 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 charge.
++The annualized operating expense ratios exclude interest expense. The ratios including interest expense for
the six months ended June 30, 1994, the year ended December 31, 1993 and the period ended December 31, 1992
were 1.37%, 1.07% and 1.01%, respectively. Annualized expense ratio before voluntary waiver of fees by the
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, which more appropriately
presents the per share data for these periods, since use of the undistributed method does not accord with
results of operations.
#Net investment income before voluntary waiver of fees by the investment adviser for the year ended December
31, 1993 was $0.71.
</TABLE>
11
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR
6/30/94+++ ENDED ENDED ENDED
(UNAUDITED) 12/31/93+++ 12/31/92* 12/31/91
<S> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 10.01 $ 9.68 $ 9.81 $ 9.11
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income# 0.25 0.73 0.53 0.70
Net realized and unrealized gain/(loss)
on investments (0.66) 0.27 (0.02) 0.71
- -------------------------------------------------------------------------------------
Total from investment operations (0.41) 1.00 0.51 1.41
Distributions to shareholders:
Distributions from net investment income (0.27) (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 (0.27) (0.67) (0.64) (0.71)
- -------------------------------------------------------------------------------------
Net Asset Value, end of year $ 9.33 $ 10.01 $ 9.68 $ 9.81
- -------------------------------------------------------------------------------------
Total return+ (4.18)% 10.45% 5.45% 16.28%
- -------------------------------------------------------------------------------------
Ratios to average net assets/
supplemental data:
Net assets, end of year (in 000's) $716,428 $851,350 $1,046,921 $1,285,937
Ratio of operating expenses to average
net assets++ 1.48%** 1.40% 1.45% 1.40%
Ratio of net investment income to average
net assets 5.28%** 7.28% 5.47% 6.80%
Portfolio turnover rate 119% 540% 426% 326%
- -------------------------------------------------------------------------------------
<FN>
*On November 6, 1992, the Fund commenced selling Class A shares. Those shares in existence prior to
November 6, 1992 were designated as Class B shares.
**Annualized.
+Total return represents aggregate total return for the period indicated and does not reflect any
applicable sales charge.
++The annualized operating expense ratios exclude interest expense. The ratios including interest
expense for the six months ended June 30, 1994 and the years ended December 31, 1993 and 1992
were 1.85%, 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, which more
appropriately presents the per share data for these periods, since use of the undistributed
method does not accord with results of operations.
@Not covered by Coopers & Lybrand's report.
#Net investment income before voluntary waiver of fees by the 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>
12
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/90 12/31/89 12/31/88@ 12/31/87@ 12/31/86@ 12/31/85@
<S> <C> <C> <C> <C> <C>
$ 9.25 $ 8.75 $ 8.90 $ 10.41 $ 10.20 $ 10.01
-------------------------------------------------------------------------------------
0.68 0.70 0.75 0.51 0.84 0.90
(0.08) 0.53 (0.16) (1.06) 0.50 0.77
-------------------------------------------------------------------------------------
0.60 1.23 0.59 (0.55) 1.34 1.67
(0.68) (0.70) (0.74) (0.51) (0.84) (1.18)
-- -- -- (0.05) -- --
-- -- -- (0.40) (0.29) (0.30)
(0.06) (0.03) -- -- -- --
-------------------------------------------------------------------------------------
(0.74) (0.73) (0.74) (0.96) (1.13) (1.48)
-------------------------------------------------------------------------------------
$ 9.11 $ 9.25 $ 8.75 $ 8.90 $ 10.41 $ 10.20
-------------------------------------------------------------------------------------
6.99% 14.58% 6.75% (5.27)% 13.62% 18.30%
-------------------------------------------------------------------------------------
$1,521,016 $2,001,740 $2,735,974 $4,383,816 $6,072,390 $3,053,758
1.43% 1.40% 1.34% 1.64% 1.56% 1.67%
7.60% 7.79% 8.00% 6.44% 6.20% 8.60%
274% 352% 281% 249% 353% 457%
-------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED PERIOD
6/30/94+++ ENDED
(UNAUDITED) 12/31/93*+++
<S> <C> <C>
Net Asset Value, beginning of period $10.01 $ 9.90
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income# 0.25 0.68
Net realized and unrealized gain/(loss) on investments (0.66) 0.04
- -------------------------------------------------------------------------------------
Total from investment operations (0.41) 0.72
Distributions to shareholders:
Distributions from net investment income (0.27) (0.61)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.33 $10.01
- -------------------------------------------------------------------------------------
Total return+ (4.18)% 7.36%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 398 $ 213
Ratio of operating expenses to average net assets++ 1.48%** 1.40%**
Ratio of net investment income to average net assets 5.28%** 7.28%**
Portfolio turnover rate 119% 540%
- -------------------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class C shares (previously designated as 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 six months ended June 30, 1994 and the period ended December 31,
1993 were 1.85% and 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, which more
appropriately presents the per share data for these periods, since use of the
undistributed method does not accord with results of operations.
#Net investment income before voluntary waiver of fees by the investment adviser for the
period ended December 31, 1993 was $0.55.
</TABLE>
PRIOR TO NOVEMBER 7, 1994, THE FUND DID NOT OFFER CLASS Y SHARES AND
ACCORDINGLY, NO COMPARABLE FINANCIAL INFORMATION IS AVAILABLE AT THIS TIME FOR
THAT CLASS.
14
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- ---------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective may not be changed without the approval of the
holders of a majority of the Fund's outstanding shares. There can be no
assurance that the Fund will achieve its investment objective.
The investment objective of the Fund is high current return. The Fund seeks to
achieve its investment objective by investing primarily in U.S. government
securities. U.S. government securities are obligations of, or are guaranteed by,
the United States government, its agencies or instrumentalities. These include
bills, certificates of indebtedness, and notes and bonds issued by the United
States Treasury or by agencies or instrumentalities of the United States
government. Some United States government securities, such as Treasury bills and
bonds, are supported by the full faith and credit of the United States Treasury;
others are supported by the right of the issuer to borrow from the United States
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the United States 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
interest, 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 of the Fund 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 United States government. While the United States
government guarantees the payment of principal and interest on GNMA
Certificates, the market value of the securities is not guaranteed and will
fluctuate. The Fund may write covered call options, secured put options and
purchase put options on U.S. government securities. The Fund also purchases and
sells interest rate futures contracts, and purchases and sells put and call
options on futures contracts, as a means of hedging against changes in interest
rates.
The Fund may invest up to 5% of its net assets in U.S. government securities
for which the principal repayment at maturity, while paid in U.S. dollars, is
determined by reference to the exchange rate between the
15
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
U.S. dollar and the currency of one or more foreign countries ("Exchange
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. government securities
in recognition of the foreign currency risk component of Exchange Rate-Related
Securities.
The Fund may borrow money (up to 25% of its total assets) to increase its
investments, thereby leveraging its portfolio and exaggerating the effect on net
asset value of any increase or decrease in the market value of the Fund's
securities. See "Leverage through Borrowing." The Fund may enter into repurchase
agreements, reverse repurchase agreements and firm commitment agreements and
"short sales against the box" and may lend its portfolio securities. The total
of the Fund's direct borrowing and borrowings in connection with entering into
reverse repurchase agreements will not exceed 33 1/3% of the Fund's total
assets. Except when in a temporary defensive investment position, the Fund
intends to maintain at least 65% of its assets invested in U.S. government
securities (including futures contracts and options thereon and options relating
to U.S. government securities).
The Fund's distributions may consist of interest income from U.S. government
securities, premiums from expired put and call options written by the Fund, net
gains from closing purchase and sale transactions in options, futures contracts
or related options, and net gains from sales of portfolio securities pursuant to
options or otherwise. The investments of the Fund involve certain special risks
set forth in the description of those techniques in this Prospectus and in the
Statement of Additional Information.
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 in response to 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.
16
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ADDITIONAL INVESTMENTS
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreement
transactions on U.S. government securities with banks which are the issuers of
instruments acceptable for purchase by the Fund 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. Greenwich Street Advisors, SBMFMI
or Boston Advisors, acting under the supervision of the Board of Directors,
reviews 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.
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"),
17
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 33 1/3% 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. The
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 33 1/3% 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.
OPTIONS ACTIVITIES. The Fund may write (I.E., sell) call options ("calls") if
the 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 segregated
account with the Company's custodian cash, cash equivalents or U.S. government
securities with a value sufficient to meet its obligations
18
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
under the call, or if the Fund owns an offsetting call option. When the Fund
writes a call, it receives a premium and gives the purchaser the right to buy
the underlying security at any time during the call period (usually not more
than nine months in the case of common stock or fifteen months in the case of
U.S. government securities) at a fixed exercise price regardless of market price
changes during the call period. If the call is exercised, the Fund foregoes any
gain from an increase in the market price of the underlying security over the
exercise price. The Fund may purchase call options on securities. However, the
Fund may only purchase a call on securities to effect a "closing purchase
transaction," which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by the Fund on which it wishes to terminate its obligation.
The Fund also may write and purchase put options ("puts"). When the Fund
writes a put, it receives a premium and gives the purchaser of the put the right
to sell the underlying 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 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 expiration date. The Fund will not purchase puts on
securities if more than 10% of its net assets would be invested 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. 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 the
Fund 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 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 premium, 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
19
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 "Dividends,
Distributions and Taxes."
There can be no assurance that a liquid secondary market will exist at a given
time for any particular option. In this regard, it is difficult to predict to
what extent liquid markets will develop or continue. See below for a discussion
of the purchase by the Fund of options on futures contracts. See the Statement
of Additional Information for a further discussion of risks involved in options
trading, and particular risks applicable to options trading on U.S. government
securities, including risks involved in options trading on GNMA Certificates.
INTEREST RATE FUTURES CONTRACTS. The Fund may purchase and sell interest 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. Futures contracts are traded on
designated "contracts markets" which, through their clearing corporations,
guarantee performance of the contracts. Currently, there are futures contracts
based on securities such as long-term Treasury bonds, Treasury notes, GNMA
Certificates and three-month Treasury bills.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although the 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
Greenwich Street Advisors 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 interest rates
increased and the value of the Fund's securities declined, the value of the
Fund's futures contracts would increase, thereby protecting the Fund by
preventing the net asset value from declining as much as it otherwise would
have. Similarly, entering into futures contracts 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 Greenwich Street Advisors expects long-term interest
rates to decline, the Fund might enter into futures contracts for the
20
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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-yielding short-term securities or
waiting for the long-term market to stabilize.
The Fund also may purchase 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
option 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 underlying futures contract in
the same manner as it purchases "protective puts" on securities. The purchase of
call options on interest rate futures contracts is intended to serve the same
purpose as the actual purchase of the futures contract, and the Fund will set
aside cash or cash equivalents sufficient to purchase the amount of portfolio
securities represented by the underlying futures contracts. See "Options
Activities" and "Dividends, Distributions and Taxes."
The Fund may not purchase futures contracts or related options if, immediately
thereafter, more than 30% of the Fund's total assets would be so invested. In
purchasing and selling futures contracts and related options, the Fund will
comply with rules and interpretations of the Commodity Futures Trading
Commission ("CFTC"), under which the Company is excluded from regulation as a
"commodity pool." CFTC regulations permit use of commodity futures and options
for bona fide hedging purposes without limitations on the amount of assets
committed to margin and option premiums.
The Fund will not engage in transactions involving 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
21
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
risks. The Fund's futures transactions will be entered into for traditional
hedging 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 securities it is
committed to purchase.
There is no assurance that the Fund will be able to close out its futures
positions at any time, in which case it would be required to maintain the margin
deposits on the contract. There can be no assurance that hedging transactions
will be successful, as there may be an imperfect correlation (or no correlation)
between movements in the prices of the futures contracts and of the debt
securities being hedged, or price distortions due to market conditions in the
futures markets. Where futures contracts are purchased to hedge against an
increase in the price of long-term securities, but the long-term market declines
and the Fund does not invest in long-term securities, the Fund would realize a
loss on the futures contracts, which would not be offset by a reduction in the
price of securities purchased. Where futures 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 or all of the benefit of the advance
due to offsetting losses in its futures positions.
FOREIGN CURRENCY RISKS. The Fund has the ability to invest up to 5% of its net
assets in U.S. government securities where the principal repayment amount may be
increased or decreased due to fluctuations of foreign currency exchange rates.
LEVERAGE THROUGH BORROWING. The Fund may borrow up to 25% of the value of its
net assets on an unsecured basis from banks to increase its holdings of
portfolio securities or to acquire securities to be placed in a segregated
account with the custodian for various purposes (e.g. to secure puts written by
the Fund). The Fund is required to maintain 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 fluctuations or otherwise, even if it is disadvantageous from
an investment standpoint. Leveraging will exaggerate the effect of any increase
or decrease in the value of portfolio securities
22
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
on the Fund's net asset value, and money borrowed will be subject to interest
costs (which may include commitment 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.
AMERICAN DEPOSITARY RECEIPTS. The Fund may purchase foreign securities and
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 brokers and dealers (including Smith Barney) which, in
its best judgment, provide prompt and reliable execution at favorable prices and
reasonable commission rates. Greenwich Street Advisors may select brokers and
dealers which provide it with research services and may cause the Fund to pay
such brokers and dealers commissions which exceed those other brokers and
dealers may have charged, if it views the commissions as reasonable in relation
to the value of the brokerage and/or research services.
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."
23
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
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. United
States over-the-counter securities are valued on the basis of the bid price at
the close of business on each day. Securities 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.
When the Fund writes a put or call option, it records the premium received as
an asset and equivalent liability, and thereafter adjusts the liability to the
market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by the Fund is recorded as
an asset and subsequently adjusted to market value.
- --------------------------------------------------------------------
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.
The Fund declares dividends daily consisting of estimated daily net investment
income, and pays dividends monthly. Any net realized gains, after utilization of
capital loss carryforwards, will be distributed at least annually,
24
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
and net realized short-term capital gains (including short-term capital gains
from options transactions, if any) may be paid more frequently, with the
distribution of dividends from net investment income.
If a shareholder does not otherwise instruct, dividends and capital gains will
be reinvested automatically in additional shares of the same Class at net asset
value subject to no sales charge or CDSC. Dividends and distributions are
treated the same for tax purposes whether taken in cash or reinvested in
additional shares. The per share dividends and distributions on Class B and
Class C shares may be lower than the per share dividends on Class A and Class Y
shares principally as a result of the distribution fee applicable with respect
to Class B and Class C shares. The per share dividends on Class A shares of the
Fund may be lower than the per share dividends on Class Y shares principally as
a result of the service fee applicable to Class A shares. Distributions of
capital gains, if any, will be in the same amount for Class A, Class B, Class C
and Class Y shares. 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.
25
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES 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. In order
to avoid 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 gain 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
consisting of interest from obligations of the United States government and
certain of its agencies and instrumentalities may be exempt from all state and
local income taxes. Shareholders should consult their tax advisors for specific
information on the tax consequences of particular types of distributions.
26
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without an
initial sales charge but are subject to a CDSC payable upon certain redemptions.
Class Y shares are sold without an initial sales charge or a CDSC and are
available only to investors investing a minimum of $5,000,000. See "Prospectus
Summary -- Alternative Purchase Arrangements" for a discussion of factors to
consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the selling
group, except for investors purchasing shares of the Fund through a qualified
retirement plan who may do so directly through TSSG. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A, Class B,
Class C or Class Y shares. No maintenance fee will be charged by the Fund in
connection with a brokerage account through which an investor purchases or holds
shares.
Investors in Class A, Class B and Class C shares may open an account by making
an initial investment of at least $1,000 for each account, or $250 for an IRA or
a Self-Employed Retirement Plan in the Fund. Investors in Class Y shares may
open an account by making an initial investment of $5,000,000. Subsequent
investments of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and Class
C shares and the subsequent investment requirement for all Classes in the Fund
is $25. For the Fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A, Class B and Class shares and the subsequent
investment requirement for all Classes is $100. There are no minimum investment
requirements for Class A shares for employees of Travelers and its subsidiaries,
including Smith Barney, Directors of the Company and their spouses and children.
The Fund reserves the right to waive or change minimums, to decline any order to
purchase its shares and to suspend the
27
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
offering of shares from time to time. Shares purchased will be held in the
shareholder's account by the Company's transfer agent, TSSG. Share certificates
are issued only upon a shareholder's written request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular trading
on the NYSE, on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day. Orders received by
dealers or Introducing Brokers prior to the close of regular trading on the NYSE
on any day the Fund calculates its net asset value, are priced according to the
net asset value determined on that day, provided the order is received by Smith
Barney prior to Smith Barney's close of business (the "trade date"). Currently,
payment for Fund shares is due on the fifth business day (the "settlement date")
after the trade date. The Fund anticipates that, in accordance with regulatory
changes, beginning on or about June 1, 1995, the settlement date will be the
third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is authorized through
preauthorized transfers of $100 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply cash held in the shareholder's Smith
Barney brokerage account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional information is
available from the Fund or a Smith Barney Financial Consultant.
28
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are as
follows:
<TABLE>
<CAPTION>
SALES SALES DEALERS
CHARGE AS % CHARGE AS % REALLOWANCE AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF AMOUNT INVESTED OF OFFERING PRICE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Less than $25,000 4.50% 4.71% 4.05%
$25,000 -- $49,999 4.00% 4.17% 3.60%
$50,000 -- $99,999 3.50% 3.63% 3.15%
$100,000 -- $249,999 2.50% 2.56% 2.25%
$250,000 -- $499,999 1.50% 1.52% 1.35%
$500,000 and over * * *
- -------------------------------------------------------------------------------------
<FN>
*Purchases of Class A shares, which when combined with current holdings of Class A shares offered with a
sales charge, equal or exceed $500,000 in the aggregate, will be made at net asset value without any
initial sales charge, but will be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase. The CDSC on Class A shares is payable to Smith Barney, which compensates Smith Barney
Financial Consultants and other dealers whose clients make purchases of $500,000 or more. The CDSC is
waived in the same circumstances in which the CDSC applicable to Class B and Class C shares is waived.
See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
</TABLE>
Members of the selling group may receive up to 90% of the sales charge and may
be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual, his or her spouse and children, or a trustee or other fiduciary of a
single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value of
all Class A shares held in funds sponsored by Smith Barney that are offered with
a sales charge listed under "Exchange Privileges."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Directors
of the Company and employees of Travelers and its subsidiaries,
29
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
or the spouses and children of such persons (including the surviving spouse of a
deceased Director or employee, and retired Directors or employees), or sales to
any trust, pension, profit-sharing or other benefit plan for such persons
provided such sales are made upon the assurance of the purchaser that the
purchase is made for investment purposes and that the securities will not be
re-sold except through redemption or repurchase; (b) offers of Class A shares to
any other investment company in connection with the combination of such company
with the Fund by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Smith Barney Financial
Consultant (for a period up to 90 days from the commencement of the Financial
Consultant's employment with Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption of shares of a mutual
fund which (i) was sponsored by the Financial Consultant's prior employer, (ii)
was sold to the client by the Financial Consultant and (iii) was subject to a
sales charge; (d) shareholders who have redeemed Class A shares in the Fund (or
Class A shares of another fund of the Smith Barney Mutual Funds that are offered
with a sales charge equal to or greater than the maximum sales charge of the
Fund) and who wish to reinvest their redemption proceeds in the Fund, provided
the reinvestment is made within 60 calendar days of the redemption; and (e)
accounts managed by registered investment advisory subsidiaries of Travelers. In
order to obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined above)
at a reduced sales charge or at net asset value determined by aggregating the
dollar amount of the new purchase and the total net asset value of all Class A
shares of the Fund and of funds sponsored by Smith Barney, which are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit verification
30
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
that the purchase qualifies for the reduced sales charge. The right of
accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan must be open
to specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
arrange for group meetings between representatives of the Fund and the members,
and must agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order
31
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
to obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity for
an investor to obtain a reduced sales charge by aggregating investments over a
13 month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all Class
A shares of the Fund and other funds of the Smith Barney Mutual Funds offered
with a sales charge over the 13 month period based on the total amount of
intended purchases plus the value of all Class A shares previously purchased and
still owned. An alternative is to compute the 13 month period starting up to 90
days before the date of execution of a Letter of Intent. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the period,
the investor must pay the difference between the sale charges applicable to the
purchases made and the charges previously paid, or an appropriate number of
escrowed shares will be redeemed. New Letters of Intent will be accepted
beginning January 1, 1995. Please contact a Smith Barney Financial Consultant or
TSSG to obtain a Letter of Intent application.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares which when combined with Class A shares offered
with a sales charge currently held by an investor equal or exceed $500,000 in
the aggregate.
32
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Any applicable CDSC will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class C shares and Class A shares that are CDSC
Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of determining the number of years
since a purchase payment, all purchase payments made during a month will be
aggregated and deemed to have been made on the last day of the preceding Smith
Barney statement month. The following table sets forth the rates of the charge
for redemptions of Class B shares by shareholders, except in the case of
purchases by Participating Plans, as described below. See "Purchase of Shares --
Smith Barney 401(k) Program."
<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 convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There also will be converted at that time
33
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
such proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. Shareholders who held Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange those shares for Class B shares of
the Fund will be offered the opportunity to exchange all such Class B shares for
Class A shares of the Fund four years after the date on which those shares were
deemed to have been purchased. Holders of such Class B shares will be notified
of the pending exchange in writing approximately 30 days before the fourth
anniversary of the purchase date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the fourth anniversary date. See
"Prospectus Summary -- Alternative Purchase Arrangements -- Class B Shares
Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other applicable Smith Barney Mutual Funds, and Fund
shares being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution reinvestments in such
other funds. For Federal income tax purposes, the amount of the CDSC will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 additional
shares through dividend reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his or her investment. Assuming
at the time of the redemption the net asset value had appreciated to $12 per
share, the value of the investor's shares would be $1,260 (105 shares at $12 per
share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
34
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see below) (provided, however, that automatic cash withdrawals in amounts equal
to or less than 2.00% per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to November 7, 1994);
(c) redemptions of shares within 12 months following the death or disability of
the shareholder; (d) redemption of shares made in connection with qualified
distributions from retirement plans or IRAs upon the attainment of age 59 1/2;
(e) involuntary redemptions; and (f) redemptions of shares in connection with a
combination of the Fund with any investment company by merger, acquisition of
assets or otherwise. In addition, a shareholder who has redeemed shares from
other funds of the Smith Barney Mutual Funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within 60 days and receive PRO
RATA credit for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by TSSG in the case of
all other shareholders) of the shareholder's status or holdings, as the case may
be.
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the Smith Barney 401(k) Program,
which is generally designed to assist plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Code. To the extent
applicable, the same terms and conditions are offered to all Participating Plans
in the Smith Barney 401(k) Program.
The Fund offers to Participating Plans Class A, Class B, Class C and Class Y
shares as investment alternatives under the Smith Barney 401(k) Program. Class
A, Class B and Class C shares acquired through the Smith Barney 401(k) Program
are subject to the same service and/or distribution fees as, but different sales
charge and CDSC schedules than, the
35
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Class A, Class B and Class C shares acquired by other investors. Similar to
those available to other investors, Class Y shares acquired through the Smith
Barney 401(k) Program are not subject to any initial sales charge, CDSC or
service or distribution fee. Once a Participating Plan has made an initial
investment in the Fund, all of its subsequent investments in the Fund must be in
the same Class of shares, except as otherwise described below.
CLASS A SHARES. Class A shares of the Fund are offered without any initial
sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
CLASS B SHARES. Class B shares of the Fund are offered to any Participating
Plan that purchases less than $250,000 of one or more funds of the Smith Barney
Mutual Funds. Class B shares acquired through the Smith Barney 401(k) Program
are subject to a CDSC of 3.00% of redemption proceeds, if the Participating Plan
terminates within eight years of the date the Participating Plan first enrolled
in the Smith Barney 401(k) Program.
Eight years after the date the Participating Plan enrolled in the Smith Barney
401(k) Program, it will be offered the opportunity to exchange all of its Class
B shares for Class A shares of the Fund. Such Plans will be notified of the
pending exchange in writing approximately 60 days before the eighth anniversary
of the enrollment date and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth anniversary date. Once the
exchange has occurred, a Participating Plan will not be eligible to acquire
additional Class B shares of the Fund but instead may acquire Class A shares of
the Fund. If the Participating Plan elects not to exchange all of its Class B
shares at that time each Class B share held by the Participating Plan will have
the same conversion feature as Class B shares held by other investors. See
"Purchase of Shares -- Deferred Sales Charge Alternatives."
36
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
CLASS C SHARES. Class C shares of the Fund are offered to any Participating
Plan that purchases from $250,000 to $499,999 of one or more funds of the Smith
Barney Mutual Funds. Class C shares acquired through the Smith Barney 401(k)
Program after November 7, 1994 will be subject to a CDSC of 1.00% of redemption
proceeds, if the Participating Plan terminates within four years of the date the
Participating Plan first enrolled in the Smith Barney 401(k) Program. In any
year after the date a Participating Plan enrolled in the Smith Barney 401(k)
Program if its total Class C holdings equal at least $500,000 as of the calendar
year-end, the Participating Plan will be offered the opportunity to exchange all
of its Class C shares for Class A shares of the Fund. Such Plans will be
notified in writing within 30 days after the last business day of the calendar
year, and unless the exchange offer has been rejected in writing, the exchange
will occur on or about the last business day of the following March. Once the
exchange has occurred, a Participating Plan will not be eligible to acquire
Class C shares of the Fund but instead may acquire Class A shares of the Fund.
Class C shares not converted will continue to be subject to the distribution
fee.
CLASS Y SHARES. Class Y shares of the Fund are offered without any service or
distribution fees, sales charge or CDSC to any Participating Plan that purchases
$5,000,000 or more of Class Y shares of one or more funds of the Smith Barney
Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to the extent that the net
asset value of the shares redeemed does not exceed the current net asset value
of the shares purchased through reinvestment of dividends or capital gain
distributions, plus (a) with respect to Class A and Class C shares, the current
net asset value of such shares purchased more than one year prior to redemption
and, with respect to Class B shares, the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus (b) with
respect to Class A and Class C shares, increases in the net asset value of the
shareholder's Class A or Class C shares above the purchase payments made during
the preceding year and, with respect to Class B shares, increases in the net
asset value of the shareholder's Class B shares above the purchase payments made
during the preceding eight years. Whether or not the CDSC applies to a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the
37
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Smith Barney 401(k) Program, unlike the applicability of the CDSC to other
shareholders, which depends on the number of years since those shareholders made
the purchase payment from which the amount is being redeemed.
The CDSC will be waived on redemptions of CDSC Shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of: (a)
the retirement of an employee in the Participating Plan; (b) the termination of
employment of an employee in the Participating Plan; (c) the death or disability
of an employee in the Participating Plan; (d) the attainment of age 59 1/2 by an
employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan made by the Participating
Plan to an employee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program must purchase such shares directly from TSSG. For further
information regarding the Smith Barney 401(k) Program, investors should contact
a Smith Barney Financial Consultant.
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the Smith Barney Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of Class A, Class B and
Class C shares are subject to minimum investment requirements and all shares are
subject to the other requirements of the fund into which exchanges are made and
a sales charge differential may apply.
<TABLE>
<C> <S>
FUND NAME
---------------------------------------------------------------------------------
GROWTH FUNDS
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Capital Appreciation Portfolio
</TABLE>
38
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
GROWTH AND INCOME FUNDS
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc. -- International Balanced Portfolio
INCOME FUNDS
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment Government Portfolio
+++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
MUNICIPAL BOND FUNDS
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
</TABLE>
39
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds -- California Limited Term Portfolio
Smith Barney Muni Funds -- California Portfolio
* Smith Barney Muni Funds -- Florida Limited Term Portfolio
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
MONEY MARKET FUNDS
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds -- California Money Market Portfolio
+++ Smith Barney Muni Funds -- New York Money Market Portfolio
<FN>
- ------------------------
* Available for exchange with Class A, Class C and Class Y shares of the Fund.
** Available for exchange with Class A, Class B and Class Y shares of the Fund.
In addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares of
this fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the Smith
Barney 401(k) Program may exchange those shares for Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
</TABLE>
40
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
CLASS A EXCHANGES. Class A shares of Smith Barney Mutual Funds sold without a
sales charge or with a maximum sales charge of less than the maximum charged by
other Smith Barney Mutual Funds will be subject to the appropriate "sales charge
differential" upon the exchange of such shares for Class A shares of a fund sold
with a higher sales charge. The "sales charge differential" is limited to a
percentage rate no greater than the excess of the sales charge rate applicable
to purchases of shares of the mutual fund being acquired in the exchange over
the sales charge rate(s) actually paid on the mutual fund shares relinquished in
the exchange and on any predecessor of those shares. For purposes of the
exchange privilege, shares obtained through automatic reinvestment of dividends
and capital gain distributions, are treated as having paid the same sales
charges applicable to the shares on which the dividends or distributions were
paid; however, except in the case of the Smith Barney 401(k) Program, if no
sales charge was imposed upon the initial purchase of the shares, any shares
obtained through automatic reinvestment will be subject to a sales charge
differential upon exchange.
CLASS B EXCHANGES. In the event a Class B shareholder (unless such shareholder
was a Class B shareholder of the Short-Term World Income Fund on July 15, 1994)
wishes to exchange all or a portion of his or her shares in any of the funds
imposing a higher CDSC than that imposed by the Fund, the exchanged Class B
shares will be subject to the higher applicable CDSC. Upon an exchange, the new
Class B shares will be deemed to have been purchased on the same date as the
Class B shares of the Fund that have been exchanged.
CLASS C EXCHANGES. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the Fund that have
been exchanged.
CLASS Y EXCHANGES. Class Y shareholders of the Fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Although the exchange
privilege is an important benefit, excessive exchange transactions can be
detrimental to the Fund's performance and its shareholders. Greenwich Street
Advisors may determine that a pattern of frequent
41
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
exchanges is excessive and contrary to the best interests of the Fund's other
shareholders. In this event, Greenwich Street Advisors will notify Smith Barney
and Smith Barney may, at its discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a determination, Smith Barney will
provide notice in writing or by telephone to the shareholder at least 15 days
prior to suspending the exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her shares in the Fund or (b)
remain invested in the Fund or exchange into any of the funds of the Smith
Barney Mutual Funds ordinarily available, which position the shareholder would
be expected to maintain for a significant period of time. All relevant factors
will be considered in determining what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net asset value next determined, plus any
applicable sales charge differential. Redemption procedures discussed below are
also applicable for exchanging shares, and exchanges will be made upon receipt
of all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the shares
of the fund exchanged, no signature guarantee is required. A capital gain or
loss for tax purposes will be realized upon the exchange, depending upon the
cost or other basis of shares redeemed. Before exchanging shares, investors
should read the current prospectus describing the shares to be acquired. The
Fund reserves the right to modify or discontinue exchange privileges upon 60
days' prior notice to shareholders.
- --------------------------------------------------------------------
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure
42
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
to specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. The Fund anticipates that, in
accordance with regulatory changes, beginning on or about June 1, 1995, payment
will be made on the third business day after receipt of proper tender.
Generally, if the redemption proceeds are remitted to a Smith Barney brokerage
account, these funds will not be invested for the shareholder's benefit without
specific instruction and Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other than
a certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Government Securities Fund
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to TSSG together with the redemption request. Any signature
appearing on a redemption request, share certificate or stock power must be
guaranteed by an eligible guarantor institution such as a domestic bank, savings
and loan institution, domestic
43
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. TSSG may require additional supporting documents
for redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until TSSG
receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $100 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not exceed
2.00% per month of the shareholder's shares subject to the CDSC.) For further
information regarding the automatic cash withdrawal plan, shareholders should
contact a Smith Barney Financial Consultant.
- --------------------------------------------------------------------
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
44
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------
PERFORMANCE
YIELD
From time to time, the Fund advertises the 30-day "yield" of each Class of
shares. The Fund's yield refers to the income generated by an investment in
those shares 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 maximum public offering price per share on the last day
of the period. This income is "annualized" by assuming the 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.
TOTAL RETURN
From time to time the Fund may include its total return, average annual total
return and current dividend return in advertisements and/or other types of sales
literature. These figures are computed separately for Class A, Class B, Class C
and Class Y shares of the Fund. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Total return is computed
for a specified period of time assuming deduction of the maximum sales charge,
if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount invested
and subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total return, which provides the ending redeemable
value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the last
day of the period for which current dividend return is presented. The current
dividend return for each Class may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating
current dividend return should be considered when comparing a
45
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
PERFORMANCE (CONTINUED)
Class' current return to yields published for other investment companies and
other investment vehicles. The Fund may also include comparative performance
information in advertising or marketing its shares. Such performance information
may include data from Lipper Analytical Services, Inc. and other financial
publications. The Fund will include performance data for Class A, Class B, Class
C and Class Y shares in any advertisement or information including performance
data of the Fund.
- --------------------------------------------------------------------
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 the companies that furnish services to the
Company and the Fund, including agreements with its distributor, investment
adviser, administrator, sub-administrator, custodian and transfer agent. The
day-to-day operations of the Fund are delegated to the Fund's investment
adviser, administrator and sub-administrator. The Statement of Additional
Information contains background information regarding each Director and
executive officer of the Company.
INVESTMENT ADVISER--GREENWICH STREET ADVISORS
Greenwich Street Advisors, located at 388 Greenwich Street, New York, New York
10013, 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 SBMFMI. SBMFMI is a registered investment adviser
whose principal executive offices are located at 388 Greenwich Street, New York,
New York 10013. Greenwich Street Advisors renders investment advice to
investment companies that had aggregate assets under management as of September
30, 1994 in excess of $45.8 billion.
Subject to the supervision and direction of the Company's Board of Directors,
Greenwich Street Advisors manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies, makes
46
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
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. For investment advisory services rendered, the
Fund pays Greenwich Street Advisors a fee at the following annual rates of
average daily net assets: 0.35% up to $2 billion, 0.30% of the next $2 billion,
0.25% of the next $2 billion, 0.20% of the next $2 billion and 0.15% of 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
0.35% of the value of its average daily net assets.
PORTFOLIO MANAGEMENT
James Conroy, Managing Director of Taxable Fixed Income Management of
Greenwich Street Advisors, has served as Investment Officer of the Fund since
the Fund's commencement of operations (March 20, 1984) and is responsible for
managing the day-to-day investment operations of the Fund, including the making
of investment decisions.
Management's discussion and analysis and additional performance information
regarding the Fund during the fiscal year ended December 31, 1993 is included in
the Fund's Annual Report dated December 31, 1993. A copy of the Annual Report
may be obtained upon request and without charge from a Smith Barney Financial
Consultant or by writing or calling the Fund at the address or phone number
listed on page one of this Prospectus.
ADMINISTRATOR--SBMFMI
SBMFMI serves as the Fund's administrator and generally assists in all aspects
of the Fund's administration and operation. SBMFMI provides investment
management and administration services to investment companies that had
aggregate assets under management as of September 30, 1994 in excess of $9.5
billion. For administration services rendered to the Fund, the Fund pays SBMFMI
a fee at the annual rate of 0.20% of the value of the Fund's average daily net
assets.
47
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
SUB-ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to investment
companies that had aggregate assets under management as of September 30, 1994,
in excess of $48.6 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFMI in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated May 5, 1994, Boston
Advisors is paid a portion of the fee paid by the Fund to SBMFMI at a rate
agreed upon from time to time between Boston Advisors and SBMFMI. Prior to May
5, 1994, Boston Advisors served as the Fund's administrator.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A, Class B and Class C shares of the respective Class at the
annual rate of 0.25% of the average daily net assets of the respective Class.
Smith Barney is also paid an annual distribution fee with respect to Class B and
Class C shares at the annual rate of 0.50% and 0.45%, respectively, of the
average daily net assets attributable to those Classes. Class B shares which
automatically convert to Class A shares eight years after the date of original
purchase will no longer be subject to distribution fees. The fees are used by
Smith Barney to pay its Financial Consultants for servicing shareholder accounts
and, in the case of Class B and Class C shares, to cover expenses primarily
intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to potential
investors; payments to and expenses of Smith Barney Financial Consultants and
other persons who
48
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
provide support services in connection with the distribution of shares; interest
and/or carrying charges; and indirect and overhead costs of Smith Barney
associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale, with respect to Class A, Class B and Class C shares, and a
continuing fee for servicing shareholder accounts for as long as a share-
holder remains a holder of that Class. Smith Barney Financial Consultants may
receive different levels of compensation for selling different Classes of
shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Company's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms on
a continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
- --------------------------------------------------------------------
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 Fund
offers shares of common stock currently classified into four Classes, A, B, C
and Y, 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 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
49
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
interests of the holders of the different Classes. The Directors, on an ongoing
basis, will consider whether any such conflict exists and, if so, take
appropriate action.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, is located at One Boston Place, Boston, Massachusetts 02108, and serves
as custodian of the Company's investments.
TSSG 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 and the Company will assist shareholders in calling such a
meeting as required by the 1940 Act. When matters are submitted for shareholder
vote, shareholders of each Class will have one vote for each full share owned
and 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. Shareholders who do not
want this consolidation to apply to their account should contact their Smith
Barney Financial Consultants or the Company's transfer agent.
-------------------
50
<PAGE>
SMITH BARNEY
GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR THE
DISTRIBUTOR TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
51
<PAGE>
LOGO
Smith Barney
Government
Securities
Fund
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
FUND 105, 177, 212
FD 0234 J4
LOGO
<PAGE>
P R O S P E C T U S
S M I T H B A R N E Y
Special
Equities
Fund
N O V E M B E R 7 , 1 9 9 4
PROSPECTUS BEGINS ON PAGE ONE
[LOGO]
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
PROSPECTUS November 7, 1994
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney 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 Investment Funds Inc ("the
Company"). The Company is an open-end, management investment company commonly
referred to as a mutual fund.
This Prospectus sets forth concisely 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 a Smith Barney Financial
Consultant.
Additional information about the Company and the Fund is contained in a
Statement of Additional Information dated November 7, 1994, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Company at the telephone number or address set
forth above or by contacting a Smith Barney Financial Consultant. The Statement
of Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this Prospectus in
its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
----------------------------------------------------------------
FINANCIAL HIGHLIGHTS 11
----------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 15
----------------------------------------------------------------
VALUATION OF SHARES 19
----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 19
----------------------------------------------------------------
PURCHASE OF SHARES 22
----------------------------------------------------------------
EXCHANGE PRIVILEGE 33
----------------------------------------------------------------
REDEMPTION OF SHARES 37
----------------------------------------------------------------
MINIMUM ACCOUNT SIZE 39
----------------------------------------------------------------
PERFORMANCE 39
----------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND 40
----------------------------------------------------------------
DISTRIBUTOR 42
----------------------------------------------------------------
ADDITIONAL INFORMATION 43
----------------------------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY
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 "TABLE OF CONTENTS."
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."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of the sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares, is
offered only to investors meeting an initial investment minimum of $5,000,000.
See "Purchase of Shares" and "Redemption of Shares."
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which when
combined with current holdings of Class A shares offered with a sales charge
equal or exceed $500,000 in the aggregate, will be made at net asset value with
no sales charge, but will be subject to a contingent deferred sales charge
("CDSC") of 1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial Sales Charge."
CLASS B SHARES. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year after
the date of purchase to zero. This CDSC may be waived for certain redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class. The
Class B shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares.
3
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
CLASS B SHARES CONVERSION FEATURE. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the date
of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class B
shares that have been acquired through the reinvestment of dividends and
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares -- Deferred Sales Charge Alternatives."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months of
purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Class C shares, which when combined
with current holdings of Class C shares of the Fund equal or exceed $500,000 in
the aggregate, should be made in Class A shares at net asset value with no sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.
CLASS Y SHARES. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
INTENDED HOLDING PERIOD. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an investment
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional
4
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
invested amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fee. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.
REDUCED OR NO INITIAL SALES CHARGE. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases,
which when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject
to a CDSC of 1.00% on redemptions made within 12 months of purchase. The
$500,000 aggregate investment may be met by adding the purchase to the net asset
value of all Class A shares held in funds sponsored by Smith Barney Inc. ("Smith
Barney") listed under "Exchange Privilege." Class A share purchases may also be
eligible for a reduced initial sales charge. See "Purchase of Shares." Because
the ongoing expenses of Class A shares may be lower than those for Class B and
Class C shares, purchasers eligible to purchase Class A shares at net asset
value or at a reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
5
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
See "Purchase of Shares" and "Management of the Company and the Fund" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes" and "Exchange Privilege" for other differences between the Classes of
shares.
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan sponsors
in the creation and operation of retirement plans under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as other types
of participant directed, tax-qualified employee benefit plans (collectively,
"Participating Plans"). Class A, Class B, Class C and Class Y shares are
available as investment alternatives for Participating Plans. See "Purchase of
Shares -- Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor, Smith
Barney, a broker that clears securities transactions through Smith Barney on a
fully disclosed basis (an "Introducing Broker") or an investment dealer in the
selling group. Direct purchases by certain retirement plans may be made through
the Fund's transfer agent, The Shareholder Services Group, Inc. ("TSSG"), a
subsidiary of First Data Corporation. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open an
account by making an initial investment of at least $1,000 for each account, or
$250 for an individual retirement account ("IRA") or a Self-Employed Retirement
Plan. Investors in Class Y shares may open an account for an initial investment
of $5,000,000. Subsequent investments of at least $50 may be made for all
Classes. For participants in retirement plans qualified under Section 403(b)(7)
or Section 401(a) of the Code, the minimum initial investment requirement for
Class A, Class B and Class C shares and the subsequent investment requirement
for all classes is $25. The minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes through the Systematic Investment Plan described below is $100. See
"Purchase of Shares."
6
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares in an amount of at least $100. See
"Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment adviser. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. ("Travelers"), a
diversified financial services holding company engaged, through its subsidiaries
principally in four business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
SBMFM also serves as the Fund's administrator and The Boston Company Advisors,
Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston Advisors
is a wholly owned subsidiary of The Boston Company, Inc. ("TBC") which in turn
is a wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). See
"Management of the Company and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differential.
See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and
distributions of net realized capital gains, if any, are declared and paid
annually. See "Dividends, Distributions and Taxes."
7
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically in additional shares of the same Class at
current net asset value unless otherwise specified by an investor. Shares
acquired by dividend and distribution reinvestments will not be subject to any
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a PRO
RATA basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS 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."
8
<PAGE>
SMITH BARNEY
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 ON THE MAXIMUM SALES CHARGE OR MAXIMUM CDSC THAT MAY BE INCURRED
AT THE TIME OF PURCHASE OR REDEMPTION AND, UNLESS OTHERWISE NOTED, THE FUND'S
OPERATING EXPENSES FOR ITS MOST RECENT FISCAL YEAR:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower) None* 5.00% 1.00% None
-------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.75% 0.75% 0.75% 0.75%
12b-1 fees** 0.25% 1.00% 1.00% None
Other expenses*** 0.67% 0.59% 0.44% 0.67%
-------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.67% 2.34% 2.19% 1.42%
-------------------------------------------------------------------------------------
<FN>
*Purchases of Class A shares, which when combined with current holdings of Class A shares offered
with a sales charge, equal or exceed $500,000 in the aggregate, will be made at net asset value
with no sales charge, but will be subject to a CDSC of 1.00% on redemptions within 12 months.
**Upon conversion of Class B shares to Class A shares, such shares will no longer be subject to a
distribution fee. Class C shares do not have a conversion feature and, therefore, are subject to
an ongoing distribution fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
***For Class Y shares, "Other expenses" have been estimated based on expenses incurred by the Class
A shares because Class Y shares were not available for purchase prior to November 7, 1994.
</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 actually
pay lower or no charges, depending on the amount purchased and, in the case of
Class B, Class C and certain Class A shares, the length of time the shares are
held and whether shares are held through the Smith Barney 401(k) Program. See
"Purchase of Shares" and "Redemption of Shares." Smith Barney receives an annual
12b-1 service fee of 0.25% of the value of average daily net assets of Class A
shares. Smith Barney also receives, with respect to Class B shares, an annual
12b-1 fee of 1.00% of the value of average daily net assets of that Class,
consisting of a 0.75%
9
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
distribution fee and a 0.25% service fee. For Class C shares, Smith Barney
receives an annual 12b-1 fee of 1.00% of the value of average daily net assets
of this Class, consisting of a 0.75% distribution fee and a 0.25% service fee.
"Other expenses" in the above table include fees for shareholder services,
custodial fees, legal and accounting fees, printing costs and registration fees.
EXAMPLE THE FOLLOWING EXAMPLE IS INTENDED TO ASSIST AN INVESTOR IN UNDERSTANDING
THE VARIOUS COSTS THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY OR INDIRECTLY.
THE EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES AT THE LEVELS SET
FORTH IN THE TABLE ABOVE. SEE "PURCHASE OF SHARES," "REDEMPTION OF SHARES" AND
"MANAGEMENT OF THE COMPANY AND THE FUND."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A $66 $100 $136 $238
Class B 74 103 135 251
Class C 32 69 117 252
Class Y 14 45 78 170
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A 66 100 136 238
Class B 24 73 125 251
Class C 22 69 117 252
Class Y 14 45 78 170
--------------------------------------------------------------------------------
<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.
</TABLE>
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
10
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
EXCEPT WHERE OTHERWISE NOTED, 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, WHICH IS INCORPORATED BY REFERENCE
INTO THE STATEMENT OF ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR PERIOD
6/30/94 ENDED ENDED
(UNAUDITED) 12/31/93++ 12/31/92*
<S> <C> <C> <C>
Net Asset Value, beginning of period $20.23 $15.47 $14.13
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income/(loss) 0.09 (0.08) (0.01)
Net realized and unrealized gain on investments (3.03) 5.17 1.35
- -------------------------------------------------------------------------------------
Total from investment operations (3.12) 5.09 1.34
- -------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.33) --
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $17.11 $20.23 $15.47
- -------------------------------------------------------------------------------------
Total return+ (15.42)% 32.90% 9.48%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $39,795 $50,121 $ 195
Ratio of expenses to average net assets 1.53%** 1.67% 1.51%**
Ratio of net investment income/(loss) to average
net assets 0.95%** (0.46)% (0.97)%**
Portfolio turnover rate 51% 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 charge.
++Per share amounts have been calculated using the average shares method, which more
appropriately presents per share data for this year since use of the undistributed income
methods did not accord with results of operations.
</TABLE>
11
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.*
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR
6/30/94 ENDED ENDED ENDED
(UNAUDITED) 12/31/93++ 12/31/92 12/31/91
<S> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 20.08 $ 15.47 $ 14.18 $ 9.82
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income/(loss) (0.15) (0.20) (0.26) (0.07)
Net realized and unrealized gain/(loss) on
investments (3.01) 5.14 1.55 4.46
- -------------------------------------------------------------------------------------
Total from investment operations (3.16) 4.94 1.29 4.39
- -------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income -- -- -- --
Distributions from net realized gains -- (0.33) -- --
Distributions from capital -- -- -- (0.03)
- -------------------------------------------------------------------------------------
Total distributions -- (0.33) 0.00 (0.03)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 16.92 $ 20.08 $ 15.47 $ 14.18
- -------------------------------------------------------------------------------------
Total return+ (15.74)% 31.93% 9.10% 44.76%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental
data:
Net assets, end of year (in 000's) $136,700 $138,401 $78,130 $81,618
Ratio of expenses to average net assets 2.25%*** 2.34% 2.32% 2.31%
Ratio of net investment income/(loss) to
average net assets (1.67)%*** (1.13)% (1.77)% (0.74)%
Portfolio turnover rate 51% 112% 211% 379%
- -------------------------------------------------------------------------------------
<FN>
*On November 6, 1992, the Fund commenced selling Class A shares. All shares previously in
existence were designated as Class B shares.
**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%.
***Annualized.
#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.
+Total return represents aggregate total return for the period indicated and does not
reflect any applicable sales charge.
++Per share amounts have been calculated using the average shares method, which more
appropriately presents per share data for this year since use of the undistributed income
methods did not accord with results of operations.
</TABLE>
12
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR
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>
$ 13.77 $ 12.04 $ 11.48 $ 13.02 $ 13.15 $ 9.94 $ 11.83
--------------------------------------------------------------------------------
0.29 0.28 0.71# (0.10) (0.05) 0.05 0.21
(3.70) 1.96 0.70 (1.30) 0.97 3.37 (1.35)
--------------------------------------------------------------------------------
(3.41) 2.24 1.41 (1.40) 0.92 3.42 (1.14)
--------------------------------------------------------------------------------
(0.29) (0.27) (0.55) -- (0.05) (0.21) (0.05)
(0.23) -- (0.30) (0.14) (1.00) -- (0.70)
(0.02) (0.24) -- -- -- -- --
--------------------------------------------------------------------------------
(0.54) (0.51) (0.85) (0.14) (1.05) (0.21) (0.75)
--------------------------------------------------------------------------------
$ 9.82 $ 13.77 $ 12.04 $ 11.48 $ 13.02 $ 13.15 $ 9.94
--------------------------------------------------------------------------------
(24.71)% 18.60% 12.60% (10.91)% 7.05% 35.17% (10.24)%
--------------------------------------------------------------------------------
$76,009 $141,630 $169,983 $178,905 $214,419 $163,468 $129,856
2.30% 2.34% 2.32%** 2.09% 2.12% 2.20% 2.10%
%
2.12 1.69% 5.23% (0.63)% (0.34)% 0.43% 2.01%
372% 228% 165% 148% 114% 146% 163%
--------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
6/30/94 ENDED
(UNAUDITED) 12/31/93*++
<S> <C> <C>
Net Asset Value, beginning of period $20.08 $ 22.62
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.08) (0.16)
Net realized and unrealized gain on investments (3.08) (2.05)
- ---------------------------------------------------------------------------------
Total from investment operations (3.16) (2.21)
Less distributions:
Distributions from net investment income -- (0.33)
- ---------------------------------------------------------------------------------
Net Asset Value, end of period $16.92 $ 20.08
- ---------------------------------------------------------------------------------
Total return+ (15.74)% (9.77)%
- ---------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 774 $ 185
Ratio of expenses to average net assets 2.03%** 2.19%**
Ratio of net investment income to average net
assets (1.45)%** (0.98)%**
Portfolio turnover rate 51% 112%
- ---------------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class C shares (previously designated as Class D
shares) on October 18, 1993.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
++Per share amounts have been calculated using the monthly average share method,
which more appropriately presents per share data for this year since use of
the undistributed income methods did not accord with results of operations.
</TABLE>
PRIOR TO NOVEMBER 7, 1994, THE FUND DID NOT OFFER CLASS Y SHARES AND
ACCORDINGLY, NO COMPARABLE FINANCIAL INFORMATION IS AVAILABLE AT THIS TIME FOR
THAT CLASS.
14
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
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. There can be no assurance that
the Fund will achieve its investment objective.
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., securities issued
by companies whose market capitalization is under $100 million.
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. 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
15
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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).
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 banks which are the issuers of
instruments acceptable for purchase by the Fund 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
16
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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. Under each repurchase agreement, the selling institution will be
required to maintain the value of the securities subject 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 restrictions upon the Fund's ability to dispose of
the underlying securities, the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert its
rights to them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or part of the income from the agreement.
SBMFM or Boston Advisors, acting under the supervision of the Board of
Directors, reviews on an ongoing basis to evaluate potential risks, the value of
the collateral and the creditworthiness of those banks and dealers with which
the Fund enters into repurchase agreements.
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 33 1/3% 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.
17
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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
SBMFM arranges for the purchase and sale of the Fund's securities and selects
brokers and dealers (including Smith Barney) which, in its best judgment,
provide prompt and reliable execution at favorable prices and reasonable
commission rates. SBMFM may select brokers and dealers which provide it with
research services and may cause the Fund to pay such brokers and dealers
commissions which exceed those other brokers and dealers may have charged, if it
views the commissions as reasonable in relation to the value of the brokerage
and/or research services.
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."
18
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- --------------------------------------------------------------------
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
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 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 as 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.
- --------------------------------------------------------------------
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.
19
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
The Fund's policy is to distribute its investment income (that is, its income
other than its net realized capital gains) and net realized capital gains, if
any, once a year, normally at the end of the year in which earned or at the
beginning of the next year.
If a shareholder does not otherwise instruct, dividends and capital gain
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed
ordinary income or capital gains and expects to pay any other dividends and
distributions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may be lower
than the per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the service
fee applicable to Class A shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund 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 has qualified and intends to continue to qualify as a "regulated
investment company" under 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
20
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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.
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 gains dividends are taxable to shareholders as
long-term capital gains 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
consisting of interest from U.S. government securities may be exempt from all
state and local income taxes. Shareholders should consult their tax advisors for
specific information on the tax consequences of particular types of
distributions.
21
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- --------------------------------------------------------------------
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without an
initial sales charge but are subject to a CDSC payable upon certain redemptions.
Class Y shares are sold without an initial sales charge or a CDSC and are
available only to investors investing a minimum of $5,000,000. See "Prospectus
Summary -- Alternative Purchase Arrangements" for a discussion of factors to
consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the selling
group, except for investors purchasing shares of the Fund through a qualified
retirement plan who may do so directly through TSSG. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A, Class B,
Class C or Class Y shares. No maintenance fee will be charged by the Fund in
connection with a brokerage account through which an investor purchases or holds
shares.
Investors in Class A, Class B and Class C shares may open an account by making
an initial investment of at least $1,000 for each account, or $250 for an IRA or
a Self-Employed Retirement Plan in the Fund. Investors in Class Y shares may
open an account by making an initial investment of $5,000,000. Subsequent
investments of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and Class
C shares and the subsequent investment requirement for all Classes in the Fund
is $25. For the Fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes is $100. There are no minimum
investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors of the Company and their spouses
and children. The Fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the shareholder's account by
the Company's transfer agent, TSSG. Share certificates are issued only upon a
shareholder's written request to TSSG.
22
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Purchase orders received by Smith Barney prior to the close of regular trading
on the NYSE, on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day. Orders received by
dealers or Introducing Brokers prior to the close of regular trading on the NYSE
on any day the Fund calculates its net asset value, are priced according to the
net asset value determined on that day, provided the order is received by Smith
Barney prior to Smith Barney's close of business (the "trade date"). Currently,
payment for Fund shares is due on the fifth business day after the trade date
(the "settlement date"). The Fund anticipates that, in accordance with
regulatory changes, beginning on or about June 1, 1995, the settlement date will
be the third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is authorized through
preauthorized transfers of $100 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply cash held in the shareholder's Smith
Barney brokerage account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional information is
available from the Fund or a Smith Barney Financial Consultant.
23
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are as
follows:
<TABLE>
<CAPTION>
DEALERS
REALLOWANCE
AS
SALES CHARGE AS SALES CHARGE AS % OF
% OF % OF AMOUNT OFFERING
AMOUNT OF INVESTMENT OFFERING PRICE INVESTED PRICE
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Less than $25,000 5.00% 5.26% 4.50%
$25,000 -- $49,999 4.00% 4.17% 3.60%
$50,000 -- $99,999 3.50% 3.63% 3.15%
$100,000 -- $249,999 3.00% 3.09% 2.70%
$250,000 -- $499,999 2.00% 2.04% 1.80%
$500,000 and over * * *
- -------------------------------------------------------------------------------------
<FN>
*Purchases of Class A shares, which when combined with current holdings of Class A shares
offered with a sales charge, equal or exceed $500,000 in the aggregate, will be made at net
asset value without any initial sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase. The CDSC on Class A shares is payable to
Smith Barney, which compensates Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the same circumstances in
which the CDSC applicable to Class B and Class C shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
</TABLE>
Members of the selling group may receive up to 90% of the sales charge and may
be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual, his or her spouse and children, or a trustee or other fiduciary of a
single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value of
all Class A shares held in funds sponsored by Smith Barney that are offered with
a sales charge listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Directors
of the Company and employees of Travelers and its subsidiaries, or the spouses
and children of such persons (including the surviving spouse
24
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
of a deceased Director or employee, and retired Directors or employees), or
sales to any trust, pension, profit-sharing or other benefit plan for such
persons provided such sales are made upon the assurance of the purchaser that
the purchase is made for investment purposes and that the securities will not be
re-sold except through redemption or repurchase; (b) offers of Class A shares to
any other investment company in connection with the combination of such company
with the Fund by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Smith Barney Financial
Consultant (for a period up to 90 days from the commencement of the Financial
Consultant's employment with Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption of shares of a mutual
fund which (i) was sponsored by the Financial Consultant's prior employer, (ii)
was sold to the client by the Financial Consultant and (iii) was subject to a
sales charge; (d) shareholders who have redeemed Class A shares in the Fund (or
Class A shares of another fund of the Smith Barney Mutual Funds that are offered
with a sales charge equal to or greater than the maximum sales charge of the
Fund) and who wish to reinvest their redemption proceeds in the Fund, provided
the reinvestment is made within 60 calendar days of the redemption; and (e)
accounts managed by registered investment advisory subsidiaries of Travelers. In
order to obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined above)
at a reduced sales charge or at net asset value determined by aggregating the
dollar amount of the new purchase and the total net asset value of all Class A
shares of the Fund and of funds sponsored by Smith Barney which are offered with
a sales charge listed under "Exchange Privilege" then held by such person and
applying the sales charge applicable to such aggregate. In order to obtain such
discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
25
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer-or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
arrange for group meetings between representatives of the Fund and the members,
and must agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
26
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity for
an investor to obtain a reduced sales charge by aggregating investments over a
13-month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all Class
A shares of the Fund and other funds of the Smith Barney Mutual Funds offered
with a sales charge over the 13-month period based on the total amount of
intended purchases plus the value of all Class A shares previously purchased and
still owned. An alternative is to compute the 13-month period starting up to 90
days before the date of execution of a Letter of Intent. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the period,
the investor must pay the difference between the sales charges applicable to the
purchases made and the charges previously paid, or an appropriate number of
escrowed shares will be redeemed. New Letters of Intent will be accepted
beginning January 1, 1995. Please contact a Smith Barney Financial Consultant or
TSSG to obtain a Letter of Intent application.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares which when combined with Class A shares offered
with a sales charge currently held by an investor equal or exceed $500,000 in
the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than
27
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
five years after their purchase; or (d) with respect to Class C shares and Class
A shares that are CDSC Shares, shares redeemed more than 12 months after their
purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of determining the number of years
since a purchase payment, all purchase payments made during a month will be
aggregated and deemed to have been made on the last day of the preceding Smith
Barney statement month. The following table sets forth the rates of the charge
for redemptions of Class B shares by shareholders, except in the case of
purchases by Participating Plans, as described below. See "Purchase of Shares --
Smith Barney 401(k) Program."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
<S> <C>
- ----------------------------------------------------------------------------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
- ----------------------------------------------------------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fee. There also will be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. Shareholders who held Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange those shares for Class B shares of
the Fund will be offered the opportunity to exchange all such Class B shares for
Class A shares of the Fund four
28
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
years after the date on which those shares were deemed to have been purchased.
Holders of such Class B shares will be notified of the pending exchange in
writing approximately 30 days before the fourth anniversary of the purchase date
and, unless the exchange has been rejected in writing, the exchange will occur
on or about the fourth anniversary date. See "Prospectus Summary -- Alternative
Purchase Arrangements -- Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other applicable Smith Barney Mutual Funds, and Fund
shares being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gain distribution reinvestments in such
other funds. For Federal income tax purposes, the amount of the CDSC will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 additional
shares through dividend reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his or her investment. Assuming
at the time of the redemption the net asset value had appreciated to $12 per
share, the value of the investor's shares would be $1,260 (105 shares at $12 per
share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see below) (provided, however, that automatic cash withdrawals in amounts equal
to or less than 2.00% per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to November 7, 1994);
(c) redemptions of shares within 12
29
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares in connection with a combination of the Fund with any
investment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other funds of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive PRO RATA credit for any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by TSSG in the case of
all other shareholders) of the shareholder's status or holdings, as the case may
be.
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the Smith Barney 401(k) Program,
which is generally designed to assist plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Code. To the extent
applicable, the same terms and conditions are offered to all Participating Plans
in the Smith Barney 401(k) Program.
The Fund offers to Participating Plans Class A, Class B, Class C and Class Y
shares as investment alternatives under the Smith Barney 401(k) Program. Class
A, Class B and Class C shares acquired through the Smith Barney 401(k) Program
are subject to the same service and/or distribution fees as, but different sales
charge and CDSC schedules than, the Class A, Class B and Class C shares acquired
by other investors. Similar to those available to other investors, Class Y
shares acquired through the Smith Barney 401(k) Program are not subject to any
initial sales charge, CDSC or service or distribution fee. Once a Participating
Plan has made an initial investment in the Fund, all of its subsequent
investments in the Fund must be in the same Class of shares, except as otherwise
described below.
CLASS A SHARES. Class A shares of the Fund are offered without any initial
sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of
30
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
redemption proceeds, if the Participating Plan terminates within four years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program.
CLASS B SHARES. Class B shares of the Fund are offered to any Participating
Plan that purchases less than $250,000 of one or more funds of the Smith Barney
Mutual Funds. Class B shares acquired through the Smith Barney 401(k) Program
are subject to a CDSC of 3.00% of redemption proceeds, if the Participating Plan
terminates within eight years of the date the Participating Plan first enrolled
in the Smith Barney 401(k) Program.
Eight years after the date the Participating Plan enrolled in the Smith Barney
401(k) Program, it will be offered the opportunity to exchange all of its Class
B shares for Class A shares of the Fund. Such Plans will be notified of the
pending exchange in writing approximately 60 days before the eighth anniversary
of the enrollment date and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth anniversary date. Once the
exchange has occurred, a Participating Plan will not be eligible to acquire
additional Class B shares of the Fund but instead may acquire Class A shares of
the Fund. If the Participating Plan elects not to exchange all of its Class B
shares at that time, each Class B share held by the Participating Plan will have
the same conversion feature as Class B shares held by other investors. See
"Purchase of Shares -- Deferred Sales Charge Alternatives."
CLASS C SHARES. Class C shares of the Fund are offered to any Participating
Plan that purchases from $250,000 to $499,999 of one or more funds of the Smith
Barney Mutual Funds. Class C shares acquired through the Smith Barney 401(k)
Program after November 7, 1994 will be subject to a CDSC of 1.00% of redemption
proceeds, if the Participating Plan terminates within four years of the date the
Participating Plan first enrolled in the Smith Barney 401(k) Program. In any
year after the date a Participating Plan enrolled in the Smith Barney 401(k)
Program if its total Class C holdings equal at least $500,000 as of the calendar
year-end, the Participating Plan will be offered the opportunity to exchange all
of its Class C shares for Class A shares of the Fund. Such Plans will be
notified in writing within 30 days after the last business day of the calendar
year, and unless the exchange offer has been rejected in writing, the exchange
will
31
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
occur on or about the last business day of the following March. Once the
exchange has occurred, a Participating Plan will not be eligible to acquire
Class C shares of the Fund but instead may acquire Class A shares of the Fund.
Class C shares not converted will continue to be subject to the distribution
fee.
CLASS Y SHARES. Class Y shares of the Fund are offered without any service or
distribution fee, sales charge or CDSC to any Participating Plan that purchases
$5,000,000 or more of Class Y shares of one or more funds of the Smith Barney
Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to the extent that the net
asset value of the shares redeemed does not exceed the current net asset value
of the shares purchased through reinvestment of dividends or capital gain
distributions, plus (a) with respect to Class A and Class C shares, the current
net asset value of such shares purchased more than one year prior to redemption
and, with respect to Class B shares, the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus (b) with
respect to Class A and Class C shares, increases in the net asset value of the
shareholder's Class A or Class C shares above the purchase payments made during
the preceding year and, with respect to Class B shares, increases in the net
asset value of the shareholder's Class B shares above the purchase payments made
during the preceding eight years. Whether or not the CDSC applies to a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the CDSC to other shareholders, which depends on the number of
years since those shareholders made the purchase payment from which the amount
is being redeemed.
The CDSC will be waived on redemptions of CDSC Shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of: (a)
the retirement of an employee in the Participating Plan; (b) the termination of
employment of an employee in the Participating Plan; (c) the death or disability
of an employee in the Participating Plan; (d) the attainment of age 59 1/2 by an
employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan made by the Participating
Plan to an employee.
32
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- ---------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program must purchase such shares directly from TSSG. For further
information regarding the Smith Barney 401(k) Program, investors should contact
a Smith Barney Financial Consultant.
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the Smith Barney Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of Class A, Class B and
Class C shares are subject to minimum investment requirements and all shares are
subject to the other requirements of the fund into which exchanges are made and
a sales charge differential may apply.
<TABLE>
<C> <S>
FUND NAME
GROWTH FUNDS
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
GROWTH AND INCOME FUNDS
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
</TABLE>
33
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
Smith Barney World Funds -- International Balanced Portfolio
INCOME FUNDS
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment Government Portfolio
+++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
MUNICIPAL BOND FUNDS
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds -- California Limited Term Portfolio
Smith Barney Muni Funds -- California Portfolio
* Smith Barney Muni Funds -- Florida Limited Term Portfolio
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
</TABLE>
34
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
MONEY MARKET FUNDS
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++ Smith Barney Muni Funds -- California Money Market Portfolio
+++ Smith Barney Muni Funds -- New York Money Market Portfolio
+++ Smith Barney Municipal Money Fund, Inc.
<FN>
------------------------
*Available for exchange with Class A, Class C and Class Y shares of the Fund.
**Available for exchange with Class A, Class B and Class Y shares of the Fund.
In addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares of
this fund.
***Available for exchange with Class A shares of the Fund.
+Available for exchange with Class B and Class C shares of the Fund.
++Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the Smith
Barney 401(k) Program may exchange those shares for Class C shares of this
fund.
+++Available for exchange with Class A and Class Y shares of the Fund.
</TABLE>
CLASS A EXCHANGES. Class A shares of Smith Barney Mutual Funds sold without a
sales charge or with a maximum sales charge of less than the maximum charged by
other Smith Barney Mutual Funds will be subject to the appropriate "sales charge
differential" upon the exchange of such shares for Class A shares of a fund sold
with a higher sales charge. The "sales charge differential" is limited to a
percentage rate no greater than the excess of the sales charge rate applicable
to purchases of shares of the mutual fund being acquired in the exchange over
the sales charge rate(s) actually paid on the mutual fund shares relinquished in
the exchange and on any predecessor of those shares. For purposes of the
exchange privilege, shares obtained through automatic reinvestment of dividends
and capital gain distributions, are treated as having paid the same sales
charges applicable to the shares on which the dividends or distributions were
paid; however, except in the case of the Smith Barney 401(k) Program, if no
sales charge was imposed upon the initial purchase of the shares, any shares
obtained through automatic reinvestment will be subject to a sales charge
differential upon exchange.
35
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
CLASS B EXCHANGES. In the event a Class B shareholder (unless such shareholder
was a Class B shareholder of the Short-Term World Income Fund on July 15, 1994)
wishes to exchange all or a portion of his or her shares in any of the funds
imposing a higher CDSC than that imposed by the Fund, the exchanged Class B
shares will be subject to the higher applicable CDSC. Upon an exchange, the new
Class B shares will be deemed to have been purchased on the same date as the
Class B shares of the Fund that have been exchanged.
CLASS C EXCHANGES. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the Fund that have
been exchanged.
CLASS Y EXCHANGES. Class Y shareholders of the Fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Although the exchange
privilege is an important benefit, excessive exchange transactions can be
detrimental to the Fund's performance and its shareholders. SBMFM may determine
that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, SBMFM will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit additional
purchases and/or exchanges by a shareholder. Upon such a determination, Smith
Barney will provide notice in writing or by telephone to the shareholder at
least 15 days prior to suspending the exchange privilege and during the 15-day
period the shareholder will be required to (a) redeem his or her shares in the
Fund or (b) remain invested in the Fund or exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of time. All relevant
factors will be considered in determining what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net asset value next determined, plus any
applicable sales charge differential. Redemption procedures discussed below are
also applicable for exchanging shares, and exchanges will be made upon receipt
of all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the shares
of the fund exchanged, no signature guarantee is
36
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
- --------------------------------------------------------------------
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as permitted
under the Investment Company Act of 1940, as amended (the "1940 Act") in
extraordinary circumstances. The Fund anticipates that, in accordance with
regulatory changes, beginning on or about June 1, 1995, payment will be made on
the third business day after receipt of proper tender. Generally, if the
redemption proceeds are remitted to a Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without specific
instruction and Smith Barney will benefit from the use of temporarily uninvested
funds. Redemption proceeds for shares purchased by check, other than a certified
or official bank check, will be remitted upon clearance of the check, which may
take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares
37
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
other than those held by Smith Barney as custodian may be redeemed through an
investor's Financial Consultant, Introducing Broker or dealer in the selling
group or by submitting a written request for redemption to:
Smith Barney Special Equities Fund
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to TSSG together with the redemption request. Any signature
appearing on a redemption request, share certificate or stock power must be
guaranteed by an eligible guarantor institution such as a domestic bank, savings
and loan institution, domestic credit union, member bank of the Federal Reserve
System or member firm of a national securities exchange. TSSG may require
additional supporting documents for redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption request will not be deemed
properly received until TSSG receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $100 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not exceed
2.00% per month
38
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
of the value of the shareholder's shares subject to the CDSC). For further
information regarding the automatic cash withdrawal plan, shareholders should
contact a Smith Barney Financial Consultant.
- --------------------------------------------------------------------
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
- --------------------------------------------------------------------
PERFORMANCE
TOTAL RETURN
From time to time the Fund may include its total return, average annual total
return and current dividend return in advertisements and/or other types of sales
literature. These figures are computed separately for Class A, Class B, Class C
and Class Y shares of the Fund. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Total return is computed
for a specified period of time assuming deduction of the maximum sales charge,
if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount invested
and subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total return, which provides the ending redeemable
value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most
39
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
PERFORMANCE (CONTINUED)
recent monthly distribution and dividing by the net asset value or the maximum
public offering price (including sales charge) on the last day of the period for
which current dividend return is presented. The current dividend return for each
Class may vary from time to time depending on market conditions, the composition
of its investment portfolio and operating expenses. These factors and possible
differences in the methods used in calculating current dividend return should be
considered when comparing a Class' current return to yields published for other
investment companies and other investment vehicles. The Fund may also include
comparative performance information in advertising or marketing its shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and other financial publications. The Fund will include performance data for
Class A, Class B, Class C and Class Y shares in any advertisement or information
including performance data of the Fund.
- --------------------------------------------------------------------
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 the companies that furnish services to the
Fund and the Company, including agreements with its distributor, investment
adviser, administrator, sub-administrator, custodian and transfer agent. The
day-to-day operations of the Fund are delegated to the Fund's investment
adviser, administrator and sub-administrator. The Statement of Additional
Information contains background information regarding each Director and
executive officer of the Company.
INVESTMENT ADVISER--SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser pursuant to a transfer of the advisory agreement,
effective November 7, 1994, from its affiliate Mutual Management Corp. (Mutual
Management Corp. and SBMFM are both wholly owned subsidiaries of Holdings.)
Investment advisory services continue to be provided to the Fund by the same
portfolio managers who had provided services under the agreement with Mutual
Management Corp. SBMFM (through its predecessors) has been in the investment
counseling business
40
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
since 1934 and is a registered investment adviser. SBMFM renders investment
advice to investment companies that had aggregate assets under management as of
September 30, 1994, in excess of $52.4 billion.
Subject to the supervision and direction of the Company's Board of Directors,
SBMFM manages the Fund's portfolio in accordance with the Fund's stated
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities and employs professional portfolio
managers and securities analysts who provide research services to the Fund. For
investment advisory services rendered, the Fund pays SBMFM a monthly fee at the
annual rate of 0.55% of the value of its average daily net assets.
PORTFOLIO MANAGEMENT
George Novello, an Investment Officer of SBMFM, 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.
Management's discussion and analysis and additional performance information
regarding the Fund during the fiscal year ended December 31, 1993 is included in
the Fund's Annual Report dated December 31, 1993. A copy of the Annual Report
may be obtained upon request and without charge from a Smith Barney Financial
Consultant or by writing or calling the Fund at the address or phone number
listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of the
Fund's administration. For administration services rendered to the Fund, the
Fund pays SBMFM a fee at the annual rate of .20% of the value of the Fund's
average daily net assets.
SUB-ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to investment
companies that had aggregate assets under management as of September 30, 1994,
in excess of $48.6 billion.
41
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
MANAGEMENT OF THE COMPANY AND THE FUND (CONTINUED)
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated May 5, 1994, Boston
Advisors is paid a portion of the fee paid by the Fund to SBMFM at a rate agreed
upon from time to time between Boston Advisors and SBMFM. Prior to May 5, 1994,
Boston Advisors served as the Fund's administrator.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A, Class B and Class C shares of the respective Class at the
annual rate of 0.25% of the average daily net assets of the respective Class.
Smith Barney is also paid an annual distribution fee with respect to Class B and
Class C shares at the annual rate of 0.75% of the average daily net assets
attributable to those Classes. Class B shares that automatically convert to
Class A shares eight years after the date of original purchase will no longer be
subject to distribution fees. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses; the cost
of printing and mailing prospectuses to potential investors; payments to and
expenses of Smith Barney Financial Consultants and other persons who provide
support services in connection with the distribution of shares; interest and/or
carrying charges; and indirect and overhead costs of Smith Barney associated
with the sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares,
42
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES FUND
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
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
annual rate of up to 0.25% of the value of the average daily net assets of the
Class that remain invested in the Fund. Smith Barney Financial Consultants may
receive different levels of compensation for selling different Classes of
shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Company's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms on
a continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
- --------------------------------------------------------------------
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 Fund
offers shares of common stock currently classified into four Classes, A, B, C
and Y, 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 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. The Directors, on an ongoing basis, will consider
whether any such conflict exists and, if so, take appropriate action.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, is located at One Boston Place, Boston, Massachusetts 02108, and serves
as custodian of the Company's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Company's transfer agent.
43
<PAGE>
SMITH BARNEY
SPECIAL EQUITIES 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 and the Company will assist shareholders in calling such a
meeting as required by the 1940 Act. When matters are submitted for shareholder
vote, shareholders of each Class will have one vote for each full share owned
and 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. Shareholders who do not
want this consolidation to apply to their accounts should contact their Smith
Barney Financial Consultants or the Fund's transfer agent.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR THE
DISTRIBUTOR TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
44
<PAGE>
[LOGO]
SMITH BARNEY
SPECIAL
EQUITIES
FUND
388 Greenwich Street
New York, New York 10013
Fund 102, 193, 253
FD 0232 J4
[LOGO]
<PAGE>
SMITH BARNEY
ADJUSTABLE RATE GOVERNMENT INCOME FUND
ARIZONA MUNICIPALS FUND INC.
EUROPEAN FUND
FLORIDA MUNICIPALS FUND
GLOBAL OPPORTUNITIES FUND
GROWTH AND INCOME FUND
INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS FUND
INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND
INVESTMENT GRADE BOND FUND
LIMITED MATURITY MUNICIPALS FUND
LIMITED MATURITY TREASURY FUND
MASSACHUSETTS MUNICIPALS FUND
OREGON MUNICIPALS FUND
PRECIOUS METALS AND MINERALS FUND INC.
TELECOMMUNICATIONS GROWTH FUND
SUPPLEMENT DATED NOVEMBER 7, 1994 TO PROSPECTUSES*
INTRODUCTION. To complete the consolidation of the Smith Barney Shearson
and the Smith Barney mutual fund complexes, on November 7, 1994, the above funds
(each a "Fund") implemented a uniform class and sales charge structure. This
pricing system, which is based on a recently completed, comprehensive study by
Smith Barney Inc. ("Smith Barney") of both the Smith Barney mutual funds and
their competitors, entails adding and reclassifying certain share classes and
minor adjustments of certain sales charges.
Under the new system, almost every Fund now offers Class A, B, C and Y
shares to the public. The Class A and Class B shares under the new pricing
structure are identical to the former Class A and Class B shares of the Funds.
Class D shares have been reclassified as "Class C" shares and have the
distribution fee and service fee shown below. Class C shares purchased under the
universal pricing system are subject to a one-year, 1% contingent deferred sales
charge ("CDSC"). Shares of Smith Barney Global Opportunities Fund that were
classified as "Class C" shares prior to the universal pricing system have been
reclassified as "Class Z" shares and are not subject to any sales charges or
distribution or service fee. These shares, which are offered pursuant to a
separate prospectus, are available exclusively to (a) tax-exempt employee
benefit plans of Smith Barney and its affiliates and (b) unit investment trusts
("UITs") sponsored by Smith Barney and its affiliates. In addition, a new class
of shares, Class Y shares, is offered to purchasers who invest at least $5
million. These shares are not subject to any sales charges, distribution or
service fees.
<PAGE>
Effective as of November 7, 1994, the following changes to the disclosure in the
Fund's prospectus apply:
EQUITY FUNDS
------------
EUROPEAN FUND
GLOBAL OPPORTUNITIES FUND
GROWTH AND INCOME FUND
PRECIOUS METALS AND MINERALS FUND
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
FRONT-END
CLASS A SALES CHARGE SERVICE FEE
- --------- ------------- ------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 0.25%
$25,000 to $49,999 4.00 0.25
$50,000 to $99,999 3.50 0.25
$100,000 to $249,999 3.00 0.25
$250,000 to $499,999 2.00 0.25
$500,000 and over* 0.00 0.25
<CAPTION>
CLASS B CDSC SERVICE FEE DISTRIBUTION FEE
- --------- ----------- ------------- ------------------
<S> <C> <C> <C>
Year 1 5.00% 0.25% 0.75%
Year 2 4.00 0.25 0.75
Year 3 3.00 0.25 0.75
Year 4 2.00 0.25 0.75
Year 5 1.00 0.25 0.75
Year 6 0.00 0.25 0.75
<CAPTION>
CLASS C CDSC SERVICE FEE DISTRIBUTION FEE
- --------- ----------- ------------- ------------------
<S> <C> <C> <C>
Year 1 1.00% 0.25% 0.75%
Year 2 0.00 0.25 0.75
<FN>
- ------------------------
* These shares are subject to a 1.00% CDSC for the first year only. Smith
Barney, at its own expense, provides a "finder's fee" to Financial Consultants
in respect of these sales.
</TABLE>
-2-
<PAGE>
TAXABLE FIXED INCOME
--------------------
INVESTMENT GRADE BOND FUND
<TABLE>
<CAPTION>
FRONT-END
CLASS A SALES CHARGE SERVICE FEE
- --------- ------------- ------------------
<S> <C> <C> <C>
Less than $25,000 4.50% 0.25%
$25,000 to $49,999 4.00 0.25
$50,000 to $99,999 3.50 0.25
$100,000 to $249,999 2.50 0.25
$250,000 to $499,999 1.50 0.25
$500,000 and over* 0.00 0.25
<CAPTION>
CLASS B CDSC SERVICE FEE DISTRIBUTION FEE
- --------- ----------- ------------- ------------------
<S> <C> <C> <C>
Year 1 4.50% 0.25% 0.50%
Year 2 4.00 0.25 0.50
Year 3 3.00 0.25 0.50
Year 4 2.00 0.25 0.50
Year 5 1.00 0.25 0.50
Year 6 0.00 0.25 0.50
<CAPTION>
CLASS C CDSC SERVICE FEE DISTRIBUTION FEE
- --------- ----------- ------------- ------------------
<S> <C> <C> <C>
Year 1 1.00% 0.25% 0.45%
Year 2 0.00 0.25 0.45
<FN>
- ------------------------
* These shares are subject to a 1.00% CDSC for the first year only. Smith
Barney, at its own expense, provides a "finder's fee" to Financial Consultants
in respect of these sales.
</TABLE>
MUNICIPAL FUNDS
----------------
ARIZONA MUNICIPALS FUND
FLORIDA MUNICIPALS FUND
MASSACHUSETTS MUNICIPALS FUND
OREGON MUNICIPALS FUND
<TABLE>
<CAPTION>
FRONT-END
CLASS A SALES CHARGE SERVICE FEE
- --------- ------------- ------------------
<S> <C> <C> <C>
Less than $25,000 4.00% 0.15%
$25,000 to $49,999 3.50 0.15
$50,000 to $99,999 3.00 0.15
$100,000 to $249,999 2.50 0.15
$250,000 to $499,999 1.50 0.15
$500,000 and over* 0.00 0.15
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
CLASS B CDSC SERVICE FEE DISTRIBUTION FEE
- --------- ------------- ------------- ------------------
<S> <C> <C> <C>
Year 1 4.50% 0.15% 0.50%
Year 2 4.00 0.15 0.50
Year 3 3.00 0.15 0.50
Year 4 2.00 0.15 0.50
Year 5 1.00 0.15 0.50
Year 6 0.00 0.15 0.50
<CAPTION>
CLASS C CDSC SERVICE FEE DISTRIBUTION FEE
- --------- ------------- ------------- ------------------
<S> <C> <C> <C>
Year 1 1.00% 0.15% 0.55%
Year 2 0.00 0.15 0.55
<FN>
- ------------------------
* These shares are subject to a 1.00% CDSC for the first year only. Smith
Barney, at its own expense, provides a "finder's fee" to Financial Consultants
in respect of these sales.
</TABLE>
SMITH BARNEY INCOME TRUST
-------------------------------
INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS FUND
INTERMEDIATE MATURITY NEW YORK MUNICIPALS FUND
LIMITED MATURITY MUNICIPALS FUND
LIMITED MATURITY TREASURY FUND
<TABLE>
<CAPTION>
FRONT-END
CLASS A SALES CHARGE SERVICE FEE
- --------- ------------- ------------------
<S> <C> <C> <C>
Less than $500,000 2.00% 0.15%
$500,000 and over* 0.00 0.15
<CAPTION>
CLASS C CDSC SERVICE FEE DISTRIBUTION FEE
- --------- ------------- ------------- ------------------
<S> <C> <C> <C>
Year 1 1.00% 0.15% 0.20%
Year 2 0.00 0.15 0.20
<FN>
- ------------------------
*These shares are subject to a 1.00% CDSC for the first year only. The
investment adviser, at its own expense, provides a "finder's fee" to Financial
Consultants in respect of these sales.
</TABLE>
-4-
<PAGE>
ADJUSTABLE RATE GOVERNMENT INCOME FUND
-------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTION
FRONT-END AND
CLASS SALES CHARGE CDSC SERVICE FEE
- ----------- ------------- ------------- --------------
<S> <C> <C> <C>
Class A 0.00% 0.00% 0.75%
Class B* 0.00 0.00 0.25
Class C** 0.00 1.00 0.25
<FN>
- ------------------------
*Investors in the Smith Barney 401(k) Program may purchase Class B shares of the
Fund; all other investors may acquire Class B shares of the Fund through
exchange only. Upon an exchange, the new Class B shares will be subject to the
same CDSC, and will be deemed to have been purchased on the same date, as the
Class B shares of the fund that have been exchanged. Class B shares acquired by
participating plans will be subject to an eight year 3.00% CDSC, payable upon a
participating plan's withdrawal from the Smith Barney 401(k) Program. See "Smith
Barney 401(k) Program," below.
**Only investors in the Smith Barney 401(k) Program may purchase Class C shares
of the Fund. Class C shares acquired by participating plans will be subject to a
four year 1.00% CDSC, payable upon a participating plan's withdrawal from the
Smith Barney 401(k) Program. See "Smith Barney 401(k) Program," below.
</TABLE>
Each share of Class A, B, C, Y and Z represents an identical pro rata
interest in the investment portfolio of the respective Funds. The only
difference between the Classes is the varying expenses that will be incurred for
distribution fees, transfer agency fees and certain other expenses clearly
identifiable to a single Class. To the extent those expenses differ, investment
returns of the Classes will vary. All other expenses, including investment
advisory and administrative fees, custody fees and other generally applicable
fund expenses, will continue to be incurred at the portfolio level and would
therefore be reflected in each shareholder's investment return equally,
regardless of Class.
MODIFICATION OF SERVICES AND DISTRIBUTION PLANS. Under the universal
pricing system, the newly-identified Class C shares are subject to an annual
service fee equal to 0.25% of the average daily net assets of the Class for
Smith Barney Adjustable Rate Government Income Fund and the equity and taxable
fixed income funds and 0.15% for municipal funds and Smith Barney Income Trust.
In addition, Class C shares are subject to an annual distribution fee equal to
0.75% of the average daily net assets of the Class for equity funds, 0.45% for
taxable fixed income funds, 0.55% for municipal funds and 0.20% for Smith Barney
Income Trust. The distribution fee is intended to compensate Smith Barney over
time for its expenses in paying Financial Consultants upon the sale of those
shares, thus allowing an investor to have all of his or her funds invested
immediately and to spread the sales cost over time.
The Class B and Class C distribution fees are paid as compensation for
services, and not as reimbursement for specific expenses incurred. Thus, even if
the distributor's actual expenses exceed the 12b-1 fee, a Fund would not be
obligated to pay more than that fee. Conversely, if the distributor's expenses
are less than the
-5-
<PAGE>
12b-1 fee, it would be entitled to retain the full fee and realize a profit,
which would be subject to the Board's regular review and consideration in
connection with the annual renewal of the Fund's amended Services and
Distribution Plan.
SMITH BARNEY 401(K) PROGRAM. Investors may be eligible to participate in
the Smith Barney 401(k) Program (the "Smith Barney 401(k) Program"), which is
generally designed to assist plan sponsors in the creation and operation of
retirement plans under Section 401(a) of the Internal Revenue Code of 1986, as
amended (collectively, the "Participating Plans"). Class A, Class B, Class C and
Class Y shares may be available as investment alternatives to Participating
Plans.
Under the universal pricing system, Class A shares are offered without
any sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds that are offered with a sales charge. Class A shares acquired through the
Smith Barney 401(k) Program are subject to an annual service fee of 0.25% of the
average daily net assets of the Class (0.15% in the case of the Smith Barney
Income Trust and 0.75% in the case of Smith Barney Adjustable Rate Government
Income Fund). In addition, if a Participating Plan withdraws from the Smith
Barney 401(k) Program within four years from the date of its enrollment in the
Program a CDSC of 1.00% will be assessed on all redeemed Class A shares that
were subject to a sales charge upon initial purchase. Class A shares held by a
Participating Plan upon implementation of the universal pricing system will not
be subject to any CDSC.
Class B shares are offered to any Participating Plan that purchases less
than $250,000 of one or more funds of the Smith Barney Mutual Funds. Class B
shares acquired through the Smith Barney 401(k) Program are subject to an annual
service fee of 0.25% of the average daily net assets of the Class, an annual
distribution fee of 0.75% (0.50% in the case of taxable fixed income funds and
0.25% in the case of Smith Barney Adjustable Rate Government Income Fund) and a
3.00% CDSC payable if the Participating Plan terminates within eight years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program. After eight years from the date of a Plan's enrollment, all Class B
shares held by such Plan shall be eligible for conversion to Class A shares of
the Fund.
Class C shares are offered to Participating Plans that purchase from
$250,000 to $499,999 of one or more funds of the Smith Barney Mutual Funds that
are offered with a sales charge. Class C shares acquired through the Smith
Barney 401(k) Program after the implementation of the universal pricing system
are subject to an annual service fee of 0.25% of the average daily net assets of
the Class (0.15% in the case of Smith Barney Income Trust), a distribution fee
of 0.75%, (0.45% in the case of taxable fixed income funds and 0.20% in the case
of Smith Barney Income Trust) and a CDSC of 1.00% if the Participating Plan
terminates within four years from the date of its enrollment in the Smith Barney
401(k) Program. Class C shares (formerly Class D shares) held by a Participating
Plan upon implementation of the universal pricing system will not be subject to
any
-6-
<PAGE>
CDSC. In any year that the Class C shares held by a Participating Plan of any
funds of the Smith Barney Mutual Funds offered with a sales charge (except Smith
Barney Adjustable Rate Government Income Fund) equal $500,000 at year end, the
Class C shares shall be eligible to be exchanged for Class A shares of the Fund.
Class Y shares are offered without any service or distribution fees,
sales charges or CDSC to any Participating Plan that purchases $5,000,000 or
more of Class Y shares of one or more funds of the Smith Barney Mutual Funds.
The CDSC will be waived on redemptions of Class A, Class B and Class C
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 Internal Revenue Code of 1986, as
amended (the "Code"); or (f) redemptions of shares in connection with a loan
made by the Participating Plan to an employee.
Participating Plans wishing to acquire shares of a Fund through the Smith
Barney 401(k) Program must purchase such shares directly from The Shareholder
Services Group, Inc., a subsidiary of First Data Corporation ("TSSG"). For
further information regarding the Smith Barney 401(k) Program, investors should
contact a Smith Barney Financial Consultant.
PURCHASE OPTIONS CONSIDERATIONS. The decision as to which Class of
shares is more beneficial to an investor depends on the amount and intended
length of his or her investment. Shareholders who are planning to establish a
program of regular investment may wish to consider Class A shares; as the
investment accumulates shareholders may qualify for reduced sales charges and
the shares are subject to lower ongoing expenses over the term of the
investment. As an alternative, Class B and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested in the
Fund. Any investment return on these additional invested amounts may partially
or wholly offset the higher annual expenses of these Classes. Because the Fund's
future return cannot be predicted, however, there can be no assurance that this
would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
-7-
<PAGE>
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fee. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.
INVESTMENT MINIMUMS. Investors in Class A, Class B and Class C shares
may open an account by making an initial investment of at least $1,000 for each
account, or $250 for an IRA or Self-Employed Retirement Plan in the Fund.
Investors in Class Y shares may open an account for an initial investment of
$5,000,000. Subsequent investments of at least $50 may be made for all Classes.
For participants in retirement plans qualified under Section 403(b)(7) or
Section 401(a) of the Code, the minimum initial investment requirement for Class
A, Class B and Class C shares and the subsequent investment requirement for all
Classes is $25. The minimum initial investment requirement for Class A, Class B
and Class C shares and subsequent investment requirement for all Classes through
the Systematic Investment Plan described below is $100. There are no minimum
investment requirements for (a) employees of The Travelers Inc. ("Travelers")
and its subsidiaries, including Smith Barney, (b) board members of a Fund and
their spouses and children, and (c) with respect to Smith Barney Global
Opportunities Fund and Smith Barney Limited Maturity Municipals Fund,
unitholders who invest distributions from a UIT.
SYSTEMATIC INVESTMENT PLAN. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan, Smith Barney
or TSSG is authorized through pre-authorized transfers of $100 or more to charge
the regular bank account or other financial institution indicated by the
shareholder on a monthly or quarterly basis to provide systematic additions to
the shareholder's account. A shareholder who has insufficient funds to complete
the transfer will be charged a fee of up to $25 by Smith Barney or TSSG. The
Systematic Investment Plan also authorizes Smith Barney to apply cash held in
the shareholder's Smith Barney brokerage account or redeem the shareholder's
shares of a Smith Barney money market fund to make additions to the account.
Additional information is available from a Fund or a Financial Consultant.
INITIAL SALES CHARGE WAIVERS -- CLASS A SHARES. Purchases of Class A
shares may be made at net asset value without a sales charge in the following
circumstances: (a) sales of Class A shares to board members of a Fund and
employees of Travelers and its subsidiaries, or the spouses and children of such
persons (including the surviving spouse of a deceased board member or employee,
and retired board members or employees), or sales to any trust, pension, profit-
sharing or other benefit plan for such persons provided such sales are made upon
the assurance of the purchaser that the purchase is made for investment purposes
-8-
<PAGE>
and that the securities will not be re-sold except through redemption or
repurchase; (b) offers of Class A shares to any other investment company in
connection with the combination of such company with a Fund by merger,
acquisition of assets or otherwise; (c) purchases of Class A shares by any
client of a newly-employed Smith Barney Financial Consultant (for a period up to
90 days from the commencement of the Financial Consultant's employment with
Smith Barney), on the condition the purchase of Class A shares is made with the
proceeds of the redemption of shares of a mutual fund which (i) was sponsored by
the Financial Consultant's prior employer, (ii) was sold to the client by the
Financial Consultant and (iii) was subject to a sales charge; (d) shareholders
who have redeemed Class A shares in a Fund (or Class A shares of another fund of
the Smith Barney Mutual Funds that are offered with a sales charge equal to or
greater than the maximum sales charge of the Fund) and who wish to reinvest
their redemption proceeds in the Fund, provided the reinvestment is made within
60 calendar days of the redemption; (e) accounts managed by registered
investment advisory subsidiaries of Travelers; and (f) with respect to Smith
Barney Global Opportunities Fund and Smith Barney Limited Maturity Municipals
Fund, investments of distributions from a UIT sponsored by Smith Barney. In
order to obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION. Class A shares of a Fund may be purchased by "any
person" (as defined above) at a reduced sales charge or at net asset value
determined by aggregating the dollar amount of the new purchase and the total
net asset value of all Class A shares of the Fund and of funds sponsored by
Smith Barney, which are offered with a sales charge listed under "Exchange
Privilege," then held by such person and applying the sales charge applicable to
such aggregate. In order to obtain such discount, the purchaser must provide
sufficient information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The right of accumulation is
subject to modification or discontinuance at any time with respect to all shares
purchased thereafter.
GROUP PURCHASES. Upon completion of certain automated systems, a reduced
sales charge or purchase at net asset value will also be available to employees
(and partners) of the same employer purchasing as a group, provided each
participant makes the minimum initial investment required. The sales charge
applicable to purchases by each member of such a group will be determined by the
tables set forth above and will be based upon the aggregate sales of Class A
shares of Smith Barney Mutual Funds offered with a sales charge to, and share
holdings of, all members of the group. To be eligible for such reduced sales
charges or to purchase at net asset value, all purchases must be pursuant to an
employer- or partnership-sanctioned plan meeting certain requirements. One such
requirement is that the plan must be open to specified partners or employees of
the employer and its subsidiaries, if any. Such plan may, but is not required
to, provide for payroll deductions, IRAs or investments pursuant to retirement
plans under Sections 401
-9-
<PAGE>
or 408 of the Code. Smith Barney may also offer a reduced sales charge or net
asset value purchase for aggregating related fiduciary accounts under such
conditions that Smith Barney will realize economies of sales efforts and sales
related expenses. An individual who is a member of a qualified group may also
purchase Class A shares of a Fund at the reduced sales charge applicable to the
group as a whole. The sales charge is based upon the aggregate dollar value of
Class A shares offered with a sales charge that have been previously purchased
and are still owned by the group, plus the amount of the current purchase. A
"qualified group" is one which (a) has been in existence for more than six
months, (b) has a purpose other than acquiring Fund shares at a discount and (c)
satisfies uniform criteria which enables Smith Barney to realize economies of
scale in its costs of distributing shares. A qualified group must have more than
10 members, must be available to arrange for group meetings between
representatives of the Fund and the members, and must agree to include sales and
other materials related to the Fund in its publications and mailings to members
at no cost to Smith Barney. In order to obtain such reduced sales charge or to
purchase at net asset value, the purchaser must provide sufficient information
at the time of purchase to permit verification that the purchase qualifies for
the reduced sales charge. Approval of group purchase reduced sales charge plans
is subject to the discretion of Smith Barney.
LETTER OF INTENT. A Letter of Intent for amounts of $50,000 or more
provides an opportunity for an investor to obtain a reduced sales charge by
aggregating the investment in Class A shares over a 13 month period, provided
that the investor refers to such Letter when placing orders. For purposes of a
Letter of Intent, the amount of investment in the above sales charge tables
includes purchases of all Class A shares of a Fund and other funds of the Smith
Barney Mutual Funds offered with a sales charge over the 13 month period based
on the total amount of intended purchases plus the value of all Class A shares
offered with a sales charge that have been previously purchased and are still
owned. An alternative is to compute the 13 month period starting up to 90 days
before the date of execution of a Letter of Intent. Each investment made during
the period receives the reduced sales charge applicable to the total amount of
the investment goal. If the goal is not achieved within the period, the investor
must pay the difference between the sales charges applicable to the purchases
made and the charges previously paid, or an appropriate number of escrowed
shares will be redeemed. New Letters of Intent will be accepted beginning
January 1, 1995. Please contact a Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent application.
WAIVERS OF CDSC -- CLASS A, CLASS B AND CLASS C SHARES. "CDSC Shares"
are sold at net asset value next determined without an initial sales charge so
that the full amount of an investor's purchase payment may be immediately
invested in a Fund. A CDSC, however, may be imposed on certain redemptions of
these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C shares; and (c)
Class A shares which when combined with Class A shares offered with a sales
charge
-10-
<PAGE>
currently held by an investor, equal or exceed $500,000 in the aggregate. The
CDSC on CDSC Shares will be waived on: (a) exchanges; (b) automatic cash
withdrawals in amounts equal to or less than 1.00% per month of the value of the
shareholder's shares at the time the withdrawal plan commences (see below)
(provided, however, that automatic cash withdrawals in amounts equal to or less
than 2.00% per month of the value of the shareholder's shares will be permitted
for withdrawal plans that were established prior to November 7, 1994); (c)
redemptions of shares within twelve months following the death or disability of
the shareholder; (d) redemption of shares made in connection with qualified
distributions from retirement plans or IRAs upon attainment of age 59 1/2; (e)
involuntary redemptions; and (f) redemptions of shares in connection with a
combination of a Fund with any investment company by merger, acquisition of
assets or otherwise. In addition, a shareholder who has redeemed shares from
other funds of the Smith Barney Mutual Funds may, under certain circumstances,
reinvest all or part of the redemption proceeds within 60 days and receive PRO
RATA credit for any CDSC imposed on the prior redemption.
EXCHANGE PRIVILEGE. Except as otherwise noted below, shares of each
Class may be exchanged at the net asset value next determined for shares of the
same Class in the following funds of the Smith Barney Mutual Funds, to the
extent shares are offered for sale in the shareholder's state of residence.
Exchanges of Class A, Class B and Class C shares are subject to minimum
investment requirements and all shares are subject to the other requirements of
the fund into which exchanges are made and a sales charge differential may
apply.
<TABLE>
<C> <S>
Fund Name
---------------------------------------------------------------------------------
GROWTH FUNDS
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
GROWTH AND INCOME FUNDS
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
</TABLE>
-11-
<PAGE>
<TABLE>
<C> <S>
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc. -- International Balanced Portfolio
INCOME FUNDS
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment Government Portfolio
+++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
MUNICIPAL BOND FUNDS
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds -- California Limited Term Portfolio
Smith Barney Muni Funds -- California Portfolio
* Smith Barney Muni Funds -- Florida Limited Term Portfolio
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
</TABLE>
-12-
<PAGE>
<TABLE>
<C> <S>
MONEY MARKET FUNDS
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds -- California Money Market Portfolio
+++ Smith Barney Muni Funds -- New York Money Market Portfolio
<FN>
- ------------------------
* Available for exchange with Class A, Class C and Class Y shares of the Fund.
** Available for exchange with Class A, Class B and Class Y shares of the Fund.
In addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares of
this fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the Smith
Barney 401(k) Program may exchange those shares for Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
</TABLE>
Investors who held Class B shares of the Smith Barney Shearson Short-Term
World Income Fund on July 15, 1994 and who subsequently exchange those shares
for Class B shares of a Fund will be offered the opportunity to exchange all
such Class B shares for Class A shares of the Fund four years after the date on
which those shares were deemed to have been purchased. Holders of such Class B
shares will be notified of the pending exchange in writing approximately 30 days
before the fourth anniversary of the purchase date and, unless the exchange is
rejected in writing, the exchange will occur on or about the fourth anniversary
date.
AUTOMATIC CASH WITHDRAWAL PLAN. Each 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 $100 monthly or quarterly. Retirement plan accounts are eligible for
automatic cash withdrawal plans only where the shareholder is eligible to
receive qualified distributions and has an account value of at least $5,000. The
withdrawal plan will be carried over on exchanges between funds or Classes of a
Fund. Any applicable CDSC will not be waived on amounts withdrawn by a
shareholder that exceed 1.00% per month of the value of the shareholder's shares
subject to the CDSC at the time the withdrawal plan commences. (With respect to
withdrawal plans in effect prior to November 7, 1994, any applicable CDSC will
be waived on amounts withdrawn that do not exceed 2.00% per month of the
shareholder's shares subject to the CDSC.) For further information regarding the
automatic cash withdrawal plan, shareholders should contact a Smith Barney
Financial Consultant.
MINIMUM ACCOUNT SIZE. Each Fund reserves the right to involuntarily
liquidate any shareholder's account in the Fund if the aggregate net asset value
of the shares held in the Fund account is less than $500. (If a shareholder has
more than one account in the Fund, each account must satisfy the minimum account
-13-
<PAGE>
size.) The Fund, however, will not redeem shares based solely on market
reductions in net asset value. Before the Fund exercises such right,
shareholders will receive written notice and will be permitted 60 days to bring
accounts up to the minimum to avoid automatic redemption.
MANAGEMENT OF THE FUND. The day-to-day operations of each Fund are
delegated to the Fund's investment adviser, administrator and sub-administrator.
The investment adviser of each Fund is:
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT
FUND INVESTMENT ADVISER AS OF SEPTEMBER 30, 1994
- -------------------------- ------------------------- ------------------------
<S> <C> <C>
Adjustable Rate Government Smith Barney Strategy
Income Fund Advisers Inc. ("SBSA") $3.03 billion
Arizona Municipals Fund Smith Barney Mutual Funds
Management Inc.
("SBMFM")* $52.4 billion
European Fund SBMFM** $52.4 billion
Florida Municipals Fund SBMFM* $52.4 billion
Global Opportunities Fund SBMFM** $52.4 billion
Growth and Income Fund SBMFM* $52.4 billion
Intermediate Maturity SBMFM* $52.4 billion
California Municipals
Fund
Intermediate Maturity New SBMFM* $52.4 billion
York Municipals Fund
Investment Grade Bond Fund SBMFM* $52.4 billion
Limited Maturity SBMFM* $52.4 billion
Municipals Fund
Limited Maturity Treasury SBMFM* $52.4 billion
Fund
Massachusetts Municipals SBMFM* $52.4 billion
Fund
Oregon Municipals Fund SBMFM* $52.4 billion
Precious Metals and SBSA $3.03 billion
Minerals Fund
Telecommunications Growth SBSA $3.03 billion
Fund
<FN>
- ------------------------------
* The fund's advisory agreement was transferred to SBMFM effective November 7,
1994, from its affiliate, Mutual Management Corp. (Mutual Management Corp.
and SBMFM are both wholly owned subsidiaries of Smith Barney Holdings Inc.)
** The adviser of this fund has changed its name from "Smith, Barney Advisers,
Inc." to "Smith Barney Mutual Funds Management Inc."
</TABLE>
ADMINISTRATOR. The Funds' administrator has changed its name from
"Smith, Barney Advisers, Inc." to "Smith Barney Mutual Funds Management Inc."
FINANCIAL HIGHLIGHTS. The information set forth in Appendix A should be
read in conjunction with the financial statements and related notes that appear
in the Fund's Semi-Annual Report.
-14-
<PAGE>
- ------------------------
*Prospectuses dated:
<TABLE>
<S> <C>
Adjustable Rate Government
Income Fund 07/30/94
Arizona Municipals Fund Inc. 07/30/94
European Fund 03/01/94
Florida Municipals Fund 12/30/93
Global Opportunities Fund 06/29/94
Growth and Income Fund 04/01/94
Intermediate Maturity California
Municipals Fund 01/29/94
Intermediate Maturity New York
Municipals Fund 01/29/94
Investment Grade Bond Fund 03/01/94
Limited Maturity Municipals Fund 01/29/94
Limited Maturity Treasury Fund 01/29/94
Massachusetts Municipals Fund 01/29/94
Oregon Municipals Fund 05/23/94
Precious Metals and Minerals
Fund Inc. 12/30/93
Telecommunications Growth Fund 03/01/94
</TABLE>
-15-
<PAGE>
APPENDIX A
SMITH BARNEY
FOR A CLASS A SHARE OUTSTANDING FOR THE PERIOD.
<TABLE>
<CAPTION>
PRECIOUS
INVESTMENT METALS
FLORIDA GRADE MASSACHUSETTS AND TELECOMMUNICATIONS
EUROPEAN MUNICIPALS BOND MUNICIPALS MINERALS GROWTH
FUND# FUND FUND FUND FUND INC. FUND
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
<CAPTION>
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
6/30/94 4/30/94 6/30/94 5/31/94 4/30/94 6/30/94
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $14.47 $ 10.53 $ 13.01 $ 13.26 $ 18.89 $ 12.86
Income from
investment
operations:
Net investment
income/(loss)...... 0.05 0.25+ 0.42 0.35+ (0.03) (0.02)
Net realized and
unrealized
gain/(loss) on
investments........ (0.41) (0.83) (1.69) (0.87) 0.75 (1.34)
------------------------------------------------------------------------------------------------------------
Total from
investment
operations......... (0.36) (0.58) (1.27) (0.52) 0.72 (1.36)
------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment
income........... -- (0.26) (0.44) (0.36) -- --
Distributions from
net realized
capital gains.... -- (0.03) -- (0.05) -- --
------------------------------------------------------------------------------------------------------------
Total
distributions...... 0.00 (0.29) (0.44) (0.41) 0.00 0.00
------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $14.11 $ 9.66 $ 11.30 $ 12.33 $ 19.61 $ 11.50
------------------------------------------------------------------------------------------------------------
Total return++...... (2.49)% (5.67)% (9.82)% (4.04)% 3.81% (10.58)%
------------------------------------------------------------------------------------------------------------
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in
000's)............. $2,041 $14,764 $12,381 $30,452 $24,404 $74,838
Ratio of operating
expenses to average
net assets......... 2.20%** 0.99%**+++ 1.08%** 0.81%**+++ 1.81%** 1.24%**
Ratio of net
investment
income/(loss) to
average net
assets............. 0.80%** 4.94%** 7.06%** 5.44%** (0.25)%** (0.28)%**
------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate............... 50% 20% 12% 26% 12% 5%
------------------------------------------------------------------------------------------------------------
<FN>
** Annualized.
+ Net investment income before waiver of fees by investment adviser and
administrator for six months ended April 30, 1994 and May 31, 1994 were $0.24
and $0.33, respectively.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Annualized expense ratio before waiver of fees by investment adviser and
administrator for the six months ended April 30, 1994 and May 31, 1994 were
1.26% and 1.07%, respectively.
# As of May 10, 1994, the Fund changed its investment adviser from Lehman
Brothers Global Asset Management Limited to its current adviser.
</TABLE>
<PAGE>
SMITH BARNEY
FOR A CLASS B SHARE OUTSTANDING FOR THE PERIOD.
<TABLE>
<CAPTION>
PRECIOUS
INVESTMENT METALS
FLORIDA GRADE MASSACHUSETTS AND TELECOMMUNICATIONS
EUROPEAN MUNICIPALS BOND MUNICIPALS MINERALS GROWTH
FUND# FUND FUND FUND FUND INC. FUND
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
6/30/94 4/30/94 6/30/94 5/31/94 4/30/94 6/30/94
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $ 14.40 $ 10.53 $ 13.01 $ 13.26 $ 18.75 $ 12.77
Income from
investment
operations:
Net investment
income/(loss)...... 0.01 0.23+ 0.39 0.32+ (0.09) (0.06)
Net realized and
unrealized
gain/(loss) on
investments........ (0.43) (0.83) (1.69) (0.87) 0.73 (1.34)
----------------------------------------------------------------------------------------------------------------
Total from
investment
operations......... (0.42) (0.60) (1.30) (0.55) 0.64 (1.40)
----------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment
income........... -- (0.24) (0.41) (0.33) -- --
Distributions from
net realized
capital gains.... -- (0.03) -- (0.05) -- --
----------------------------------------------------------------------------------------------------------------
Total
distributions...... 0.00 (0.27) (0.41) (0.38) 0.00 0.00
----------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $ 13.98 $ 9.66 $ 11.30 $ 12.33 $ 19.39 $ 11.37
----------------------------------------------------------------------------------------------------------------
Total return++...... (2.92)% (5.87)% (10.05)% (4.26)% 3.41% (10.96)%
----------------------------------------------------------------------------------------------------------------
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in
000's)............. $38,029 $36,661 $401,515 $24,388 $57,005 $185,419
Ratio of operating
expenses to average
net assets......... 2.89%** 1.49%**+++ 1.58%** 1.33%**+++ 2.57%** 2.07%**
Ratio of net
investment
income/(loss) to
average net
assets............. 0.11%** 4.44%** 6.56%** 4.92%** (1.01)%** (1.10)%**
----------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate............... 50% 20% 12% 26% 12% 5%
----------------------------------------------------------------------------------------------------------------
<FN>
** Annualized.
+ Net investment income before waiver of fees by investment adviser and
administrator for six months ended April 30, 1994 and May 31, 1994 were $0.21
and $0.30, respectively.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Annualized expense ratios before waiver of fees by investment adviser and
administrator for the six months ended April 30, 1994 and May 31, 1994 were
1.77% and 1.59%, respectively.
# As of May 10, 1994, the Fund changed its investment adviser from Lehman
Brothers Global Asset Management Limited to its current adviser.
</TABLE>
<PAGE>
SMITH BARNEY
FOR A FUND SHARE OUTSTANDING FOR THE PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS ENDED 5/31/94 (UNAUDITED)
<S> <C> <C> <C> <C>
INTERMEDIATE INTERMEDIATE
LIMITED LIMITED MATURITY MATURITY
MATURITY MATURITY CALIFORNIA NEW YORK
MUNICIPALS TREASURY MUNICIPALS MUNICIPALS
FUND FUND FUND FUND
Net asset value,
beginning of period..... $ 8.26 $ 8.14 $ 8.50 $ 8.54
Income from investment
operations:
Net investment income+... 0.17 0.16 0.19 0.20
Net realized and
unrealized gain/(loss)
on investments.......... (0.17) (0.49) (0.32) (0.32)
----------------------------------------------------------------------------------------
Total from investment
operations.............. 0.00* (0.33) (0.13) (0.12)
----------------------------------------------------------------------------------------
Distributions:
Dividends from net
investment income..... (0.17) (0.16) (0.19) (0.20)
Distributions from net
realized capital
gains................. -- (0.33) (0.01) (0.01)
----------------------------------------------------------------------------------------
Total distributions...... (0.17) (0.49) (0.20) (0.21)
----------------------------------------------------------------------------------------
Net asset value, end of
period.................. $ 8.09 $ 7.32 $ 8.17 $ 8.21
----------------------------------------------------------------------------------------
Total return++........... (0.05)% (4.29)% (1.52)% (1.45)%
----------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's).............. $94,135 $44,293 $32,242 $69,765
Ratio of operating
expenses to average net
assets+++............... 0.80%** 0.90%** 0.75%** 0.65%**
Ratio of net investment
income/(loss) to average
net assets.............. 4.05%** 4.21%** 4.56%** 4.66%**
----------------------------------------------------------------------------------------
Portfolio turnover
rate.................... 16% 95% 21% 49%
----------------------------------------------------------------------------------------
<FN>
* Amounts represent less than $0.01 per share.
** Annualized.
+ Net investment income before waiver of fees by investment adviser and
administrator for the six months ended May 31, 1994 were $0.16, $0.16, $0.18
and $0.18, respectively.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Annualized operating expense ratio before waiver of fees and/or
reimbursement by investment adviser and administrator for the six months
ended May 31, 1994 were 0.91%, 1.06%, 1.13% and 0.94%, respectively.
</TABLE>
Smith Barney
INVESTMENT FUNDS INC.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 7, 1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectuses of Smith Barney Invest-
ment Funds Inc. (the "Company"), dated November 7, 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 a Smith Barney Financial Consultant, 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 Prospectuses in its en-
tirety.
CONTENTS
For ease of reference, the same section headings are used in the Prospec-
tuses 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 Objectives 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 "Performance") 28
Taxes (See in the Prospectuses "Dividends, Distributions and Taxes") 32
Additional Information 36
Financial Statements 36
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>
Smith Barney Inc.
("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM") Investment Adviser and Administrator
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-Administrator
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.
Paul R. Ades, Director. Partner in the law firm of Murov & Ades. His ad-
dress is 272 South Wellwood Avenue, Lindenhurst, New York 11757.
Herbert Barg, Director. Private investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Alger B. Chapman, Director. Chairman and Chief Operating Officer of the
Chicago Board of Options Exchange. His address is Chicago Board of Options
Exchange, LaSalle at Van Buren, Chicago, Illinois 60605.
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.
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, New Jersey 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 and Chairman of Smith Barney Strategy Advisers Inc. ("SBSA");
prior to July 1993, Senior Executive Vice President of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), Vice Chairman of Shearson
Asset Management, a Director of PanAgora Asset Management, Inc. and PanAg-
ora Asset Management Limited. His address is 388 Greenwich Street, New
York, New York 10013.
Ken Miller, Director. President of Young Stuff Apparel Group, Inc. His ad-
dress is 1407 Broadway, 6th Floor, New York, New York 10018.
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; Director and President of SBMFM, and Trustee of Corporate
Realty Income Trust I. His address is 388 Greenwich Street, New York, New
York 10013.
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney and President of SBSA; prior to July 1993, Senior Vice President of
Shearson Lehman Brothers and President of Shearson Lehman Investment
Strategy Advisors Inc. His address is 388 Greenwich Street, New York, New
York 10013.
James E. Conroy, First Vice President. Investment Officer of SBMFM; prior
to July 1993, Managing Director of Shearson Lehman Advisors. His address
is 388 Greenwich Street, New York, New York 10013.
Kenneth A. Egan, First Vice President. Investment Officer of SBMFM; prior
to July 1993, Managing Director of Shearson Lehman Advisors. His address
is 388 Greenwich Street, New York, New York 10013.
R. Jay Gerken, Investment Officer. Investment Officer of SBMFM; prior to
July 1993, Senior Vice President of Shearson Lehman Advisors. His address
is 388 Greenwich Street, New York, New York 10013.
George E. Mueller, Jr., Investment Officer. Investment Officer of SBMFM;
prior to July 1993, Managing Director of Shearson Lehman Advisors. His ad-
dress is 388 Greenwich Street, New York, New York 10013.
George V. Novello, Investment Officer. Investment Officer of SBMFM; prior
to July 1993, Managing Director of Shearson Lehman Advisors. Prior to Sep-
tember 1990, Mr. Novello was a Managing Director at McKinley-Allsopp where
he served as Head of Research. His address is 388 Greenwich Street, New
York, New York 10013.
Jeffrey L. Russell, Managing Director, Senior International Equity Portfo-
lio Manager, SBA; prior to 1990 Vice President of Drexel Burham, Lambert.
His address is 1345 Avenue of the Americas, New York, New York 10022.
Lewis E. Daidone, Treasurer. Managing Director of Smith Barney and Direc-
tor and Senior Vice President of SBMFM; prior to January, 1990, Senior
Vice President and Chief Financial Officer of Cortland Financial Group,
Inc. His address is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary. Managing Director of Smith Barney and Sec-
retary of SBMFM. Her address is 388 Greenwich Street, New York, New York,
10013.
Each Director also serves as a director, trustee and/or individual general
partner of certain other mutual funds for which Smith Barney serves as
distributor. As of September 30, 1994, the Directors and officers of the
Company, as a group, owned less than 1.00% of the outstanding common stock
of the Company.
No officer, director or employee of Smith Barney or of any parent or sub-
sidiary of Smith Barney 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 or any of its
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.
INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM
SUB-ADMINISTRATOR -- BOSTON ADVISORS
SBMFM serves as investment adviser to one or more of the Funds pursuant to
written agreements with the Funds (the "Advisory Agreements") which were
most recently approved by the Board of Directors, including a majority of
the Directors who are not "interested persons" of the Company or the in-
vestment advisers (the "Independent Directors"), on August 5, 1993 and by
shareholders of the respective Funds with the exception of the European
Funds' Advisory Agreement on June 9, 1993. The Advisory Agreement for Eu-
ropean Fund was most recently approved by shareholders of European Fund on
May 10, 1994. Each of the investment advisers bears all expenses in con-
nection with the performance of its services and pays the salary of any
officer and employee who is employed by both it and the Company. The ser-
vices provided by the investment advisers under the Advisory Agreements
are described in the Prospectuses under "Management of the Company and the
Fund." SBMFM provides investment advisory and management services to in-
vestment companies affiliated with Smith Barney. Smith Barney is a wholly
owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is
in turn a wholly owned subsidiary of The Travelers Inc. ("Travelers").
As compensation for SBMFM's services rendered to Investment Grade Bond
Fund and Special Equities Fund, each Fund pays a fee computed daily and
paid monthly at the annual rates of 0.45% and 0.55%, respectively, of the
value of their average daily net assets.
As compensation for SBMFM's services rendered to Government Securities
Fund, the Fund pays a fee computed daily and paid monthly at the following
annual rates of average daily net assets: 0.35% up to $2 billion; 0.30% on
the next $2 billion; 0.25% on the next $2 billion; 0.20% on the next $2
billion; and 0.15% on net assets thereafter.
As compensation for SBMFM's services rendered to the European Fund, the
Fund pays a fee computed daily and paid monthly at the annual rate of .70%
of the value of its average daily net asset.
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>
On February 8, 1994, the Company's Board of Directors determined to termi-
nate the Company's investment advisory agreement with LBGAM, at that time
an indirect wholly owned subsidiary of American Express Company, with re-
spect to European Fund, and to enter into an investment advisory agreement
with SBMFM. Such agreement, which was ratified by European Fund's share-
holders on May 10, 1994, provides for the provision of investment advisory
services by SBMFM to European Fund for the same fee as was paid to LBGAM.
SBMFM also serves as administrator to each Fund pursuant to a written
agreement dated May 4, 1994 (the "Administration Agreement"), which was
first approved by the Board of Directors, including a majority of the In-
dependent Directors, on May 4, 1994.
As compensation for SBMFM's services rendered as administrator, each Fund
pays a fee computed daily and paid monthly at the annual rate of .20% of
the value of its average daily net assets.
Prior to May 4, 1994, Boston Advisors served as administrator to each
Fund. Boston Advisors currently serves as sub-administrator to each Fund
under a written agreement (the "Sub-Administration Agreement") dated May
4, 1994, which was first approved by the Company's Board of Directors, in-
cluding a majority of Directors who are not "interested persons" of the
Company or Boston Advisors on May 4, 1994. Prior to the close of business
on May 21, 1993, Boston Advisors also acted in the capacity as the Funds'
sub-investment adviser and administrator. Boston Advisors is a wholly
owned subsidiary of The Boston Company, Inc. ("TBC"), a financial services
holding company, which is in turn an indirect wholly owned subsidiary of
Mellon Bank Corporation ("Mellon").
Certain of the services provided to the Company by SBMFM and Boston Advi-
sors pursuant to the Administration and Sub-Administration Agreements are
described in the Prospectuses under "Management of the Company and the
Fund." In addition to those services, SBMFM and Boston Advisors pay the
salaries of all officers and employees who are employed by both of them
and the Company, maintain office facilities for the Company, furnish the
Company with statistical and research data, clerical help and accounting,
data processing, bookkeeping, internal auditing and legal services and
certain other services required by the Company, prepares reports to the
Company's shareholders and prepares tax returns, reports to and filings
with the Securities and Exchange Commission (the "SEC") and state Blue Sky
authorities. SBMFM and Boston Advisors bear all expenses in connection
with the performance of their services.
For the fiscal years ended December 31, 1991, 1992 and 1993, the Funds
paid sub-investment advisory 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 Smith Barney, SBMFM
or Boston Advisors; SEC fees and state Blue Sky qualification fees;
charges of custodians; transfer and dividend disbursing agent's fees; cer-
tain insurance premiums; outside auditing and legal expenses; costs of
maintenance of corporate existence; investor services (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.
SBMFM and Boston Advisors have agreed that if in any fiscal year the ag-
gregate expenses of a Fund (including fees paid pursuant to the Advisory,
Administration and Sub-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, SBMFM and Boston Advisors will, to the extent required by law,
reduce their management fees for the Fund by the amount of such excess ex-
pense, such amount to be allocated between them in the proportion that
their respective fees bear to the aggregate of such fees paid by the Fund.
Such a fee reduction, if any, will be reconciled on a monthly basis. The
most restrictive state limitation applicable to the Company would require
SBMFM and Boston Advisors to reduce their fees in any year that such ex-
cess 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
Willkie Farr & Gallagher serves as counsel to the Company. The Directors
who are not "interested persons" of the Company have selected Stroock &
Stroock & Lavan as their counsel.
Coopers & Lybrand L.L.P., independent accountants, One Post Office Square,
Boston, Massachusetts 02109, serve as auditors of the Company and render
an opinion on the Company's financial statements annually.
INVESTMENT OBJECTIVES 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 securi-
ties (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 Appendix);
negotiable bank certificates of deposit or bankers' acceptances issued by
domestic banks (but not their foreign branches) having together with
branches or subsidiaries, total assets in excess of $1 billion; high-
yielding common stocks (which may be purchased directly or acquired
through the exercise of warrants or the conversion of fixed-income securi-
ties); and 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 objective 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 objective and policies of the Fund.
As a condition of its continuing registration in a state, the Investment
Grade Bond Fund has undertaken that its 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 its assets will be invested
in bonds, 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 (such as short-term U.S. government secu-
rities, 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 par-
ticular 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 shareholder approval in the event the SEC
guidelines are modified.
Repurchase Agreements. The Fund may purchase securities and concurrently
enter into repurchase agreements with banks which are the issuers of in-
struments acceptable for purchase by the Fund and certain dealers on the
Federal Reserve Bank of New York's list of reporting dealers. Repurchase
agreements are contracts under which the buyer of a security simulta-
neously 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 subject to the
repurchase agreement at not less than their repurchase price. Repurchase
agreements could involve certain risks in the event of default or insol-
vency of the other party, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities, the risk of a pos-
sible decline in the value of the underlying securities during the period
in which the Fund seeks to assert its rights to them, the risk of incur-
ring expenses associated with asserting those rights and the risk of los-
ing all or part of the income from the repurchase agreement. SBMFM or Bos-
ton Advisors, acting under the supervision of the Company's Board of Di-
rectors, 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 evaluate potential risks. The Fund will not
enter into repurchase agreements that would cause more than 10% of its
total assets to be invested in "illiquid" 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 Investment Grade Bond Fund is ob-
ligated to purchase such securities, it will maintain in a segregated ac-
count with the Company'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 securi-
ties from its portfolio to brokers, dealers and other financial organiza-
tions. 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 Barney or its affiliates 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 secu-
rities which are maintained at all times in an amount at least 100% of the
current market value of the loaned securities.
In 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. Requirements of the SEC, which may be subject to
future modifications, currently provide that the following conditions must
be met whenever the Fund's 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 col-
lateral; (c) the Fund must be able to terminate the loan at any time; (d)
the Fund must receive reasonable interest on the loan, as well as an
amount equal to dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan; and (f) voting
rights on the loaned securities may pass to the borrower; provided, how-
ever, that if a material event adversely affecting the investment in the
loaned securities occurs, the Board of Directors must terminate the loan
and regain the right to vote the securities. The risks in lending portfo-
lio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of
the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to firms deemed by the
Fund's investment adviser to be of good standing and will not be made un-
less, in the judgment of the Fund's investment adviser, the consideration
to be earned from such loans would justify the risk. From time to time,
the Fund may return a part of the interest earned from the investment of
collateral received for securities loaned to: (a) the borrower; and/or (b)
a third party, which is unaffiliated with the Fund or with Smith Barney
and, which is acting as a "finder."
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 United States Treasury, securi-
ties issued or guaranteed by the United States government, its agencies or
instrumentalities include securities issued or guaranteed by the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of
the United States, Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal In-
termediate Credit Banks, Federal Land Banks, Federal Maritime Administra-
tion, the Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association, International Bank for Reconstruction
and Development, Resolution Trust Corporation and Federal National Mort-
gage Association ("FNMA"). The Fund will invest in obligations of an in-
strumentality to which the United States 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 unsuitable for investment by the Fund.
Some U.S. government securities are supported by the full faith and credit
of the United States Treasury; others are supported by the right of the
issuers to borrow from the United States Treasury; others, such as those
of FNMA, are supported by the discretionary authority of the United States
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 instrumentality. No assurance can be given that the United
States 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 mini-
mal.
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
complied with.
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 SE-
CURITIES
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 may be deemed to constitute a group for these
purposes. In light of these limits, the Board of Directors may determine
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 the Fund's investment adviser,
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 obligations 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 Fund is not aware at this time of the existence of any investment or
exchange control regulations which might substantially impair its opera-
tions as described in the Prospectus and this Statement of Additional In-
formation. It should be noted, however, that this situation 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 Depositary 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 in accordance with the
guidelines set forth above. 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 (and, 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 (for purposes of this restriction, issuers include predecessors,
sponsors, controlling persons, general guarantors and originators of un-
derlying assets which have less than three years of continuous operation
or relevant business experiences);
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. SEC rules require that commissions
paid to Smith Barney by a Fund on exchange transactions not exceed "usual
and customary brokerage commissions." The rules define "usual and custom-
ary" commissions to include amounts which are "reasonable and fair com-
pared to the commission, fee or other remuneration received or to be re-
ceived by other brokers in connection with comparable transactions involv-
ing similar securities being purchased or sold on a securities exchange
during a comparable period of time." The Board of Directors, particularly
those members who are not "interested persons" of the Company (as defined
in the 1940 Act), has adopted procedures for evaluating the reasonableness
of commissions paid to Smith Barney and reviews these procedures periodi-
cally. In addition, under rules adopted by the SEC, Smith Barney may di-
rectly execute transactions for a Fund on the floor of any national secu-
rities exchange, provided: (a) the Board of Directors has expressly autho-
rized Smith Barney to effect such transactions; and (b) Smith Barney
annually advises the Fund of the aggregate compensation it earned on such
transactions.
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 and other affiliated broker-dealers if, in the judg-
ment 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 comparable
unaffiliated customers in similar transactions.
Portfolio securities are not purchased from or through Smith Barney or any
affiliated person (as defined in the 1940 Act) of Smith Barney where such
entities are acting as principal, except pursuant to the terms and condi-
tions of exemptive rules or orders promulgated by the SEC. Pursuant to
conditions set forth in rules of the SEC, the Company may purchase securi-
ties from an underwriting syndicate of which Smith Barney is a member (but
not from Smith Barney). 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 reviewed periodically by the Board
of Directors, particularly those Directors who are not interested persons
of the Company.
The Funds may use Smith Barney as a commodities broker in connection with
entering into futures contracts and commodity options. Smith Barney has
agreed to charge the Funds commodity commissions at rates comparable to
those charged by Smith Barney to its most favored 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:
<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*
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*
% of Total Transactions 1993 .07%** 11.7% 10.56%
involving Commissions paid
to Smith Barney*
* Includes commissions paid to Shearson Lehman Brothers, the Company's
distributor prior to Smith Barney.
** The disproportional amount between the percentage of total brokerage
commissions paid to Smith Barney and the percentage of total transac-
tions involving commissions paid to Smith Barney for the Government Se-
curities Fund resulted from higher brokerage commissions for options
and futures transactions which were the only commission transactions
involving Smith Barney.
</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 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 secu-
rities 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 equi-
table to each, with emphasis on purchasing or selling entire orders wher-
ever 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's spouse and his
or her children purchasing shares for his or her own account; (c) a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account; (d) a pension, profit-sharing or other employee
benefit plan qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and qualified employee benefit plans of
employers who are "affiliated persons" of each other within the meaning of
the 1940 Act; (e) tax-exempt organizations enumerated in Section 501(c)(3)
or (13) of the Code; and (f) a trustee or other professional fiduciary
(including a bank, or an investment adviser registered with the SEC under
the Investment Advisers Act of 1940, as amended) purchasing shares of a
Fund for one or more trust estates or fiduciary accounts. Purchasers who
wish to combine purchase orders to take advantage of volume discounts on
Class A shares should contact their Smith Barney Financial 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 of the Smith Barney Mutual Funds that are
offered with an initial sales charge, including the purchase being made,
of any purchaser is $25,000 or more. The reduced sales charge is subject
to confirmation of the shareholder's holdings through a check of appropri-
ate records. Each Fund reserves the right to terminate or amend the com-
bined right of accumulation at any time after notice to shareholders. For
further information regarding the rights of accumulation, shareholders
should contact a Smith Barney 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 an initial sales charge
based on the aggregate amount of the investment. The public offering price
for Class B shares, Class C shares and Class Y shares (and Class A share
purchases, including applicable rights of accumulation, equalling or ex-
ceeding $500,000, is equal to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of purchase. A contin-
gent deferred sales charge ("CDSC"), however, is imposed on certain re-
demptions of Class B shares, Class C shares, and Class A shares when pur-
chased in amounts equalling or exceeding $500,000. The method of computa-
tion of the public offering price is shown in each Fund's financial
statements accompanying this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the NYSE is closed (other than for custom-
ary weekend and holiday closings), (b) when trading in markets a Fund nor-
mally utilizes is restricted, or an emergency exists, as determined by the
SEC, so that disposal of the Fund's investments or determination of net
asset value is not reasonably practicable or (c) for such other periods as
the SEC by order may permit for the protection of the Fund's shareholders.
DISTRIBUTIONS IN KIND
If the Company's Board of Directors determines that it would be detrimen-
tal to the best interests of the remaining shareholders of a Fund to make
a redemption payment wholly in cash, the Fund may pay, in accordance with
rules adopted by the SEC, any portion of a redemption in excess of the
lesser of $250,000 or 1% of the Fund's net assets by a distribution in
kind of portfolio securities in lieu of cash. Portfolio securities issued
in a distribution in kind will be readily marketable, although sharehold-
ers receiving distributions in kind may incur brokerage commissions when
subsequently disposing of those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $100 may be made under the
Withdrawal Plan by redeeming as many shares of a Fund as may be necessary
to cover the stipulated withdrawal payment. Any applicable CDSC will not
be waived on amounts withdrawn by shareholders that exceed 1.00% per month
of the value of a shareholder's shares at the time the Withdrawal Plan
commences. (With respect to Withdrawal Plans in effect prior to November
7, 1994, any applicable CDSC waived on amounts withdrawn that do not ex-
ceed 2.00% per month of the shareholder's shares are subject to a CDSC.)
To the extent withdrawals exceed dividends, distributions and appreciation
of shareholder's investment in a Fund, 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. With-
drawal payments should not be considered as income from investment in the
Fund. Furthermore, as it would not generally be advantageous to a share-
holder to make additional investments in the Fund at the same time that he
or she is participating in the Withdrawal Plan, purchases by such share-
holders 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. Effective November 7,
1994, Withdrawal Plans should be set up with any Smith Barney Financial
Consultant. A shareholder who purchases shares directly through TSSG may
continue to do so and applications for participation in the Withdrawal
Plan must be received by TSSG no later than the eighth day of the month to
be eligible for participation beginning with that month's withdrawal. For
additional information, shareholders should contact a Smith Barney Finan-
cial Consultant.
DISTRIBUTOR
Smith Barney serves as the Company's distributor on a best efforts basis
pursuant to a distribution agreement (the "Distribution Agreement") which
was most recently approved by the Company's Board of Directors on August
4, 1994. During the fiscal period from November 6, 1992 through December
31, 1992 and the fiscal year ended December 31, 1993, Shearson Lehman
Brothers and/or Smith Barney received $24,792 and $341,355, respectively,
in sales charges from the sale of Class A shares and did not reallow any
portion therof to dealers. 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 redemptions of Class B
shares of the Funds. During the fiscal year ended December 31, 1993, Smith
Barney and Shearson Lehman Brothers received $699,139 and $871,809, re-
spectively, representing the CDSC on redemptions of Class B shares of the
Company.
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 Barney may
benefit from the temporary use of the funds. The investor may designate
another use for the funds prior to settlement date, such as investment in
a money market fund (other than the Smith Barney Exchange Reserve Fund) of
the Smith Barney Mutual Funds. If the investor instructs Smith Barney to
invest the funds in a money market fund in the Smith Barney Group of
Funds, the amount of the investment will be included as part of the aver-
age daily net assets of both the Company and the money market fund, and
affiliates of Smith Barney which serve the funds in an investment advisory
capacity will benefit from the fact that they are receiving fees from both
such investment companies for managing these assets computed on the basis
of their average daily net assets. The Company's Board of Directors has
been advised of the benefits to Smith Barney resulting from these settle-
ment procedures and will take such benefits into consideration when re-
viewing the Advisory, Administration and Distribution Agreements for con-
tinuance.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney for the services it provides and for the ex-
pense 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 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 C shares (previously designated as Class D
shares). In addition, holders of Class B shares and Class C shares pay a
distribution fee primarily intended to compensate Smith Barney for its
initial expense of paying Financial Consultants a commission 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 C
shares with respect to Special Equities Fund and European Fund, 0.50% of
the value of average daily net assets attributable to the Class B shares
and 0.45% of the value of average daily net assets attributable to Class C
shares, with respect to Government Securities Fund and Investment Grade
Bond Fund.
For the fiscal years ended December 31, 1991 and 1992 Shearson Lehman
Brothers, the Company's distributor prior to Smith Barney, received ap-
proximately $24,762,000 and $14,563,000, respectively, from the Funds in
distribution fees. During the fiscal year ended December 31, 1993, Smith
Barney and Shearson Lehman Brothers received $5,652,418 and $7,949,875,
respectively. During the fiscal year ended December 31, 1993, Shearson Le-
hman Brothers and Smith Barney incurred distribution 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 Independent Directors. The Plan may not be amended to
increase the amount to be spent for the services provided by Smith Barney
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 In-
dependent 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 will provide the Board of Directors periodic reports of
amounts expended under the Plan and the purpose for which such expendi-
tures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE cur-
rently is scheduled to be closed on New Years's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. Because of the
differences in distribution fees and Class-specific expenses, the per
share net asset value of each Class may differ. The following is a de-
scription of the procedures used by the Funds in valuing its assets.
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, SBMFM, as administrator, or Boston Advisors, as sub-
administrator, may consult with an independent pricing service (the "Pric-
ing Service") retained by the Company.
Debt securities of U.S. issuers (other than U.S. government securities and
short-term investments) are valued by SBMFM, as administrator, or Boston
Advisors, as sub-administrator, after consultation with the Pricing Ser-
vice approved by the Board of Directors. 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. In-
vestments for which, in the judgment of the Pricing Service, there are no
readily obtainable market quotations are carried at fair value as deter-
mined by the Pricing Service. The procedures of the Pricing Service are
reviewed periodically by the officers of the Company under the general su-
pervision and responsibility of the Board of Directors.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney Mutual
Funds may exchange all or part of their shares for shares of the same
class of other funds of the Smith Barney Mutual Funds as listed in the
Prospectuses, 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 deemed to
be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the ac-
count number in order to accomplish an exchange of shares of Smith Barney
High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. This
privilege is available to shareholders 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 a Smith Barney 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 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. The Fund
may include comparative performance information in advertising or market-
ing the Fund's shares. Such performance information may include the fol-
lowing industry and financial publications: Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes, Fortune, Institu-
tional Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of a Fund describes the expenses 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[(abcd + 1)6 |m- 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
dividends.
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 C 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.
Class A's average annual total returns were as follows for the periods in-
dicated:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 6, 1992*
NAME OF FUND DECEMBER 31, 1993 THROUGH DECEMBER 31, 1993
<S> <C> <C>
Investment Grade Bond Fund 13.12% 14.46%
Government Securities Fund 5.88 7.29
Special Equities Fund 26.26 32.88
European Fund 17.29 16.79
* The Funds commenced selling Class A shares on November 6, 1992.
</TABLE>
Class B's average annual total returns were as follows for the periods in-
dicated:
<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>
<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.
Class A's aggregate total returns were as follows for the periods indi-
cated:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
ONE YEAR NOVEMBER 6, 1992* ONE YEAR NOVEMBER 6, 1992
PERIOD ENDED THROUGH PERIOD ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NAME OF FUND 1993** 1993** 1993*** 1993**
<S> <C> <C> <C> <C>
Investment Grade
Bond Fund 18.45% 22.30% 13.12% 16.80%
Government Secu-
rities 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
* 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>
Class B's aggregate total returns were as follows for the periods indi-
cated:
<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% 234.05%<F1> 13.56% 85.51% 234.05%<F1>
Government
Securi-
ties Fund 10.45 66.04 140.36 <F2> 5.95 65.04 140.36 <F2>
Special
Equities
Fund 31.93 86.06 142.43 <F1> 26.93 85.06 142.43 <F1>
European
Fund 22.87 40.38 64.56 <F3> 17.87 39.38 64.56 <F3>
* 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.
Class C's (formerly Class D) aggregate total returns 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 10.38%
Government Securities Fund 7.36
Special Equities Fund (9.77)
European Fund **
* The Funds commenced selling Class C shares on January 29, 1993. Class C
shares are sold at net asset value without any sales charge or CDSC.
** As of December 31, 1993, no publically offered Class C shares of the
Fund had been purchased, and therefore no meaningful performance infor-
mation is available.
</TABLE>
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.
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 "backup withholding tax" with re-
spect to (a) any taxable dividends and distributions and (b) any proceeds
of any redemption of Company shares. An individual's taxpayer identifica-
tion number is his or her social security number. The 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.
ADDITIONAL INFORMATION
The Company was incorporated on September 29, 1981 under the name Hutton
Investment Series Inc. The Company's corporate name was changed on Decem-
ber 29, 1988, October 23, 1992 and October 14, 1994, to SLH Investment
Portfolios Inc., Shearson Lehman Investment Funds Inc. and Smith Barney
Investment Funds Inc., respectively.
Boston Safe, an indirect, wholly owned subsidiary of Mellon, is located at
One Boston Place, Boston, Massachusetts 02108, and serves as the custodian
of the 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.
TSSG, a subsidiary of First Data Corporation, is located at Exchange
Place, Boston, Massachusetts 02109 and serves as the Company's transfer
agent. 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 and Semi-Annual Reports for each Fund for the fiscal year ended
December 31, 1993 and the semi-annual period ended June 30, 1994 accompany
this Statement of Additional Information and 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
INVESTMENT FUNDS INC.
388 Greenwich Street
New York, New York 10013
Smith Barney
INVESTMENT FUNDS INC.
SMITH BARNEY INVESTMENT GRADE BOND FUND
SMITH BARNEY GOVERNMENT SECURITIES FUND
SMITH BARNEY SPECIAL EQUITIES FUND
SMITH BARNEY EUROPEAN FUND
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 7, 1994
SMITH BARNEY INVESTMENT FUNDS INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Reports for the fiscal year ended December 31, 1993
and the Reports of Independent Accountants dated February 2, 1994 are
incorporated by reference to the Definitive 30b-2 filed on March 1, 1994 as
Accession # 0000053798-94-000110.
The Registrant's Semi-Annual Reports for the six month period ended June
30, 1994 are incorporated by reference to the Definitive 30b-2 filed on
August 31, 1994 as Accession # 0000053798-94-000445.R>
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
All references are to the Registrant's registration
statement on Form N-1A (the "Registration Statement") as
filed with the SEC on October 2, 1981 (File Nos. 2-74288 and
811-3275).
(1) Articles of Restatement dated September 17, 1993 to Registrant's
Articles of Incorporation dated September 28, 1981, Articles of Amendment
dated October 14, 1994, Form of Articles Supplementary, Form of Articles
of Amendments and Form of Certificates of Correction are filed herein.
(2) Registrant's By-Laws, as amended on September 30, 1992 are
incorporated by reference to Post-Effective Amendment No. 30 filed on April
30, 1993.
(3) Not Applicable.
(4) Registrant's form of stock certificate for Class A, Class B and Class
D are incorporated by reference to Post-Effective Amendment No. 27 filed on
October 23, 1992.
(5)(a) Investment Advisory Agreement dated July 30, 1993, between the
Registrant on behalf of Smith Barney Shearson Investment Grade Bond Fund,
Smith Barney Shearson Government Securities Fund and Smith Barney Shearson
Special Equities Fund and Greenwich Street Advisors is incorporated by
reference to the registration statement filed on Form N-14 on September 2,
1993. File No. 33-50153.
(b) Investment Advisory Agreement dated April 8, 1994, between the
Registrant on behalf of Smith Barney Shearson European Fund and Smith,
Barney Advisers, Inc. is incorporated by reference to Post-Effective
Amendment No. 35 filed on June 23, 1994.
(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) Not Applicable.
(8) Custodian Agreement with Boston Safe Deposit and Trust Company is
incorporated by reference to Post-Effective Amendment No. 20 as filed on
September 6, 1988.
9(a) Administration Agreement dated May 5, 1994, between the Registrant
and Smith, Barney Advisers, Inc. ("SBA") is filed herein.
(b) Sub-Administration Agreement dated May 5, 1994, between the
Registrant, SBA and The Boston Company Advisors, Inc. is filed herein.
(c) Transfer Agency and Registrar Agreement dated August 5, 1993 with The
Shareholder Services Group, Inc. is incorporated by reference to Post-
Effective Amendment No. 31 as filed on December 22, 1993 ("Post-Effective
Amendment No. 31").
(10) Not Applicable.
(11) Consent of Independent Accountants is filed herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Amended Services and Distribution Plans pursuant to Rule 12b-1
between the Registrant on behalf of Smith Barney Investment Grade Bond
Fund, Smith Barney Government Securities Fund, Smith Barney Special
Equities Fund and Smith Barney European Fund and Smith Barney, Inc. ("Smith
Barney") are filed herein.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 22 as filed on May 1, 1989.
(17) Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 31.
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 September 23, 1994
Common Stock par value Class A Class B Class D
$.001 per share
Special Equities Fund
8, 731
25,930
27
Investment Grade Bond Fund
17,277
16,316
17
Government Securities Fund
1,025
44,296
13
European Fund
2,052
4,944
1
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 of Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management Inc., formerly
known as Smith, Barney Advisers, Inc. ("SBMFM")
SBFMF was incorporated in December 1968 under the laws of the State of
Delaware. SBFMF is a wholly owned subsidiary of Smith Barney Holdings Inc.
(formerly known as Smith Barney Shearson Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation) ("Travelers"). SBMFM is registered as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SBMFM pursuant to the Advisers Act
(SEC File No. 801-8314).
Prior to the close of business on November 7, 1994, Greenwich Street
Advisors served as investment adviser. 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 Holdings Inc.
(formerly known as Smith Barney Shearson Holdings Inc.) ("Holdings"), which
is in turn a wholly owned subsidiary of The Travelers Inc. (formerly known
as Primerica Corporation) ("Travelers"). 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 Inc.
(formerly known as Smith Barney Shearson Inc.) acquired the domestic retail
brokerage and asset management business of Shearson Lehman Brothers, which
included the business of the Registrant's prior investment adviser.
Shearson Lehman Brothers was a wholly owned subsidiary of Shearson Lehman
Brothers Holdings Inc. ("Shearson Holdings"). All of the issued and
outstanding common stock of Shearson Holdings (representing 92% of the
voting stock) was held by American Express Company. Information as to any
past business vocation or employment of a substantial nature engaged in by
officers and directors of Shearson 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)
11/3/94
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Global Opportunities Fund,
Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund
Inc., Smith Barney Principal Return Fund, Smith Barney Shearson Municipal
Money Market Fund Inc., Smith Barney Daily Dividend Fund Inc., Smith Barney
Government and Agencies Fund Inc., Smith Barney Managed Governments Fund
Inc., Smith Barney New York Municipal Money Market Fund, Smith Barney
California Municipal Money Market Fund, Smith Barney Income Funds, Smith
Barney Equity Funds, Smith Barney Investment Funds Inc., Smith Barney
Precious Metals and Minerals Fund Inc., Smith Barney Telecommunications
Trust, Smith Barney Arizona Municipals Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., The USA High Yield Fund N.V., Garzarelli Sector
Analysis Portfolio N.V., The Advisors Fund L.P., Smith Barney Fundamental
Value Fund Inc., Smith Barney Series Fund, Consulting Group Capital Markets
Funds, Smith Barney Income Trust, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Florida Municipals Fund, Smith Barney Oregon
Municipals Fund, Smith Barney Funds, Inc., Smith Barney Muni Funds, Smith
Barney World Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney Tax
Free Money Fund, Inc., Smith Barney Variable Account Funds, Smith Barney
U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), Smith Barney International Fund (Luxembourg)
and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation) ("Travelers"). On June 1, 1994, Smith Barney changed its
name from Smith Barney Inc. to its current name. The information required
by this Item 29 with respect to each director, officer and partner of Smith
Barney is incorporated by reference to Schedule A of FORM BD filed by Smith
Barney pursuant to the Securities Exchange Act of 1934 (SEC File No. 812-
8510).
11/4/94
Item 30. Location of Accounts and Records
(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(5) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
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.
485(b) Certification
The Registrant hereby certifies that it meets all requirements for
effectiveness pursuant to Rule 485(b)(1)(ix) under the Securities Act of
1933, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, SMITH BARNEY INVESTMENT FUNDS INC., has duly caused
this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the
City of New York, State of New York on the 3rd day of November,
1994.
SMITH BARNEY
INVESTMENT FUNDS
INC.
By: /s/ Heath B.
McLendon
Heath B. McLendon
Chief Executive Officer
We, the undersigned, hereby severally constitute and
appoint Heath B. McLendon, Christina T. Sydor and Lee D. Augsburger
and each of them singly, our true and lawful attorneys, with full
power to them and each of them to sign for us, and in our hands and
in the capacities indicated below, any and all Amendments to this
Registration Statement and to file the same, with all exhibits
thereto, and other documents therewith, with the Securities and
Exchange Commission, granting unto said attorneys, and each of
them, acting alone, full authority and power to do and perform each
and every act and thing requisite or necessary to be done in the
premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said
attorneys or any of them may lawfully do or cause to be done by
virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above
Power of Attorney has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board
11/3/94
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Treasurer (Chief Financial
11/3/94
Lewis E. Daidone and Accounting Officer)
Signature Title Date
/s/ Paul R. Ades Director 11/3/94
Paul R. Ades
/s/ Herbert Barg Director 11/3/94
Herbert Barg
/s/ Alger B. Chapman Director 11/3/94
Alger B. Chapman
/s/ Dwight B. Crane Director 11/3/94
Dwight B. Crane
/s/ Frank Hubbard Director
11/3/94
Frank Hubbard
/s/ Allan R. Johnson Director 11/3/94
Allan R. Johnson
/s/ Ken Miller Director 11/3/94
Ken Miller
/s/ John F. White Director 11/3/94
John F. White
SLIV/PEAS/PEA#36
EXHIBIT 1
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
ARTICLES OF RESTATEMENT
Smith Barney Shearson Investment Funds Inc., a Maryland corporation
having its principal office in the City of Baltimore, Maryland (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
I. The Corporation desires to restate its Articles of
Incorporation originally filed with the State Department of Assessments and
Taxation on September 28, 1981, as amended and supplemented from time to
time, as currently in effect (the "Charter").
II. The provisions set forth in these Articles of Restatement are
all of the provisions of the Charter currently in effect and no amendments
to the Charter are contained herein.
III. These Articles of Restatement were approved by all of the
Directors of the Corporation pursuant to a Unanimous Written Consent of
Directors dated July 1, 1993. The Board of Directors currently consists of
six members - Dwight B. Crane, Allan R. Johnson, Heath B. McLendon, John F.
White, Frank G. Hubbard and Alger B. Chapman.
IV. The current address of the principal office of the Corporation
and the name and address of the Corporation's current resident agent are as
set forth in the Charter as restated.
V. The Charter is hereby restated as follows:
FIRST: Allan S. Mostoff, whose post office address is 888 17th
Street, N.W., Washington, D.C. 20006, being at least eighteen years of age,
under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator
with the intention of forming a corporation.
SECOND: The name of the corporation is SMITH BARNEY SHEARSON
INVESTMENT FUNDS INC. (the "Corporation").
THIRD: The duration of the Corporation shall be perpetual.
FOURTH: The purposes for which the Corporation is formed are:
(a) to hold, invest and reinvest its funds, and in connection therewith
to hold part or all of its funds in cash, and to purchase, subscribe for or
otherwise acquire, hold for investment or otherwise, to trade and deal in,
write, sell, assign, negotiate, transfer, exchange, lend, pledge or
otherwise dispose of or turn to account or realize upon, securities (which
term "securities" shall, for the purchases of these Articles of
Incorporation, without limiting the generality thereof, be deemed to
include any stocks, shares, bonds, debentures, bills, notes, mortgages or
other obligations or evidences of indebtedness, and any options,
certificates, receipts, warrants or other instruments representing rights
to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets; and any negotiable or non-negotiable instruments and money market
instruments, including bank certificates of deposit, finance paper,
commercial paper, bankers' acceptances and all kinds of repurchase or
reverse repurchase agreements) created or issued by any United States or
foreign issuer (which term "issuer" shall, for the purpose of these
Articles of Incorporation, without limiting the generality thereof, be
deemed to include any persons, firms, associations, partnerships,
corporations, syndicates, combinations, organizations, governments or
subdivisions, agencies or instrumentalities of any government) and to
exercise, as owner or holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things for
the preservation, protection, improvement and enhancement in value of any
and all such securities.
(b) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation heretofore or
hereafter engaged in any business similar to any business which the
Corporation has the power to conduct, and to hold, utilize, enjoy and in
any manner dispose of the whole or any part of the rights, property and
business so acquired, and to assume in connection therewith any liabilities
of any such person, firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which may be
capable of being used for any of the purposes of the Corporation; and to
use, exercise, develop, grant licenses in respect of, sell and otherwise
turn to account, the same.
(d) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities) now or hereafter
permitted by the laws of the State of Maryland, by the Investment Company
Act of 1940 (the "1940 Act") and by these Articles of Incorporation, as its
Board of Directors may determine.
(e) To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue or cancel (all without the vote or consent of the stockholders of
the Corporation) shares of its capital stock in any manner and to the
extent now or hereafter permitted by the laws of the State of Maryland, by
the 1940 Act and by these Articles of Incorporation.
(f) To conduct its business in all its branches at one or more offices in
Maryland and elsewhere in any part of the world, without restrictions or
limit as to extent.
(g) To exercise and enjoy, in Maryland and in any other states,
territories, districts and United States dependencies and in foreign
countries, all of the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State of Maryland
now or hereafter in force.
(h) In general to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary, suitable
or proper for the accomplishment of such purposes or for the attainment of
any object or the furtherance of any power hereinbefore set forth, either
alone or in association with others, to do every other act or thing
incidental or appurtenant to or growing out of or connected with its
business or purposes, objects or powers, and, subject to the foregoing, to
have and exercise all the powers, rights and privileges conferred upon
corporations by the laws of the State of Maryland as in force from time to
time.
The foregoing objects and purposes shall, except as otherwise
expressly provided, be in no way limited or restricted by reference to, or
inference from, the terms of any other clause of this or any other Article
of these Articles of Incorporation, and shall each be regarded as
independent and construed as a power as well as an object and a purpose,
and the enumeration of specific purposes, objects and powers shall not be
construed to limit or restrict in any manner the meaning of general terms
or the general powers of the Corporation now or hereafter conferred by the
laws of Maryland, nor shall the expression of one thing be deemed to
exclude another though it be of like nature, not expressed; provided
however, that the Corporation shall not have power to carry on within the
State of Maryland any business whatsoever the carrying on of which would
preclude it from being classified as an ordinary business corporation under
the laws of said State; nor shall it carry on any business, or exercise any
powers, in any other state, territory, district or country except to the
extent that the same may lawfully be carried on or exercised under the laws
thereof.
Incident to meeting the purposes specified above, the Corporation
also shall have the power:
(1) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose (by sale or otherwise) of any property, real
or personal, and any interest therein.
(2) To borrow money and, in this connection, issue notes or other
evidence of indebtedness.
(3) Subject to any applicable provisions of law, to buy, hold, sell, and
otherwise deal in and with foreign exchange.
FIFTH: The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the
resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, a corporation of the State of Maryland, and
the post office address of the resident agent is 32 South Street,
Baltimore, Maryland 21202.
SIXTH: The total number of shares of capital stock of all classes,
which the Corporation shall have authority to issue is ten billion
(10,000,000,000) shares, of the par value of one-tenth of one cent ($.001)
(the "Shares"), and of the aggregate par value of ten million dollars
($10,000,000). One and one-half billion of such shares may be issued in
the following classes, each class comprising the number of shares and
having the designations indicated; subject, however, to the authority
herein granted to the Board of Directors to increase or decrease any such
number of shares:
Number of Shares (in millions)
Class A Class C Class D
Fund Common Stock Common Stock Common Stock
Common Stock
Directions Value Fund 25 25 25 25
Government Securities Fund 250 250 250 250
Investment Grade Bond Fund 50 50 50 50
Special Equities Fund 25 25 25 25
European Fund 25 25 25 25
The balance of eight and one-half billion Shares may be issued by the Board
of Directors in such classes, or in any new class or classes, each
comprising such number of Shares and having such preferences, rights,
voting powers, restrictions, limitations as to dividends, qualifications,
and terms and conditions of redemption as shall be fixed and determined
from time to time by resolution or resolutions providing for the issuance
of such Shares adopted by the Board of Directors, to whom authority so to
fix and determine the same is hereby expressly granted. In addition, the
Board of Directors is hereby expressly granted authority to increase or
decrease the number of Shares of any class, but the number of Shares of any
class shall not be decreased by the Board of Directors below the number of
Shares thereof then outstanding.
The Board of Directors may classify or reclassify any unissued Shares
into one or more classes that may be established and designated from time
to time. The Corporation may hold as treasury Shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at their discretion from time to time, any Shares of any class
reacquired by the Corporation.
SEVENTH: Section 7.1. Procedure for Designation.
The establishment and designation of any class of Shares in addition
to those established and designated in Section 7.2 shall be effective upon
(i) the authorization of such class by vote of a majority of the Board of
Directors, including the establishment and designation of the preferences,
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of such class, and
(ii) the filing for record of the articles supplementary required by
Section 2-208 of the Maryland General Corporation Law with the State
Department of Assessments and Taxation of Maryland. At any time when there
are no Shares outstanding or subscribed for a particular class previously
established and designated by the Board of Directors, the class may be
liquidated by similar means.
Section 7.2. Establishment and Designation of Classes.
Without limiting the authority of the Board of Directors set forth herein
to establish and designate any further classes, there are hereby
established and designated twenty classes of stock to be known as:
Directions Value Fund Common Stock, Directions Value Fund Class A Common
Stock, Directions Value Fund Class C Common Stock, Directions Value Fund
Class D Common Stock, Government Securities Fund Common Stock, Government
Securities Fund Class A Common Stock, Government Securities Fund Class C
Common Stock, Government Securities Fund Class D Common Stock, Investment
Grade Bond Fund Common Stock, Investment Grade Bond Fund Class A Common
Stock, Investment Grade Bond Fund Class C Common Stock, Investment Grade
Bond Fund Class D Common Stock, Special Equities Fund Common Stock, Special
Equities Fund Class A Common Stock, Special Equities Fund Class C Common
Stock, Special Equities Fund Class D Common Stock, European Fund Common
Stock, European Fund Class A Common Stock, European Fund Class C Common
Stock and European Fund Class D Common Stock. The Shares of said classes
and any Shares of any further class that may from time to time be
established and designated by the Board of Directors (unless provided
otherwise by the Board of Directors with respect to such further class at
the time of establishing and designating such further class) shall have the
following relative preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption:
(a) Assets Belonging to Classes. The assets belonging to each of the
Common Stock, Class A Common Stock, Class C Common Stock and Class D Common
Stock of each of the Funds may be invested in the same investment portfolio
of the Fund as the assets belonging to any other class of capital stock of
such Fund. All consideration received by the Corporation for the issue or
sale of Shares of a particular class, together with all assets in which
such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that class for all purposes, subject
only to the rights of creditors, and shall be so recorded upon the books
and accounts of the Corporation. Such consideration, assets, income,
earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment or such proceeds, in whatever form
the same may be, together with any General Items allocated to that class as
provided in the following sentence, are herein referred to as "assets
belonging to" that class. In the event that there are any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular class (collectively
"General Items"), such General Items shall be allocated by or under the
supervision of the Board of Directors to and among any one or more of the
classes established and designated from time to time in such manner and on
such basis as the Board of Directors, in its sole discretion, deems fair
and equitable, and any General Items so allocated to a particular class
shall belong to that class. Each such allocation by the Board of Directors
shall be conclusive and binding for all purposes.
(b) Liabilities Belonging to Class. The assets belonging to each
particular class shall be charged with the liabilities of the Corporation
in respect of that class and all expenses, costs, charges and reserves
attributable to that class, and any general liabilities, expenses, costs,
charges or reserves of the Corporation which are not readily identifiable
as belonging to any particular class shall be allocated and charged by or
under the supervision of the Board of Directors to and among any one or
more of the classes established and designated from time to time in such
manner and on such basis as the Board of Directors, in its sole discretion,
deems fair and equitable. The liabilities, expenses, costs, charges and
reserves allocated and so charged to a class are herein referred to as
"liabilities belonging to" that class. Each allocation of liabilities,
expenses, costs, charges and reserves by the Board of Directors shall be
conclusive and binding for all purposes.
(c) Income Belonging to Class. The Board of Directors shall have full
discretion, to the extent not inconsistent with the Maryland General
Corporation Law and the 1940 Act, to determine which items shall be treated
as income and which items as capital; and each such determination and
allocation shall be conclusive and binding. "Income belonging to" a class
includes all income, earnings and profits derived from assets belonging to
that class, less any expenses, costs, charges or reserves belonging to that
class, for the relevant time period.
(d) Dividends. Dividends and distributions on Shares of a particular
class may be declared and paid with such frequency, in such form and in
such amount as the Board of Directors may from time to time determine. The
dividends and distributions of investment income and capital gains with
respect to each of the Class A Common Stock, Class C Common Stock and Class
D Common Stock, if applicable, of each of the Funds shall be in such
amounts as may be declared from time to time by the Board of Directors, and
such dividends and distributions with respect to each class of capital
stock may vary from dividends and distributions with respect to each other
class of capital stock to reflect differing allocations of expenses of each
such class and any resultant differences among the net asset value per
share of each such class to such extent and for such purposes as the Board
of Directors make deem appropriate. Dividends may be declared daily or
otherwise pursuant to a standing resolution or resolutions adopted only
once or with such frequency as the Board of Directors may determine, after
providing for actual and accrued liabilities belonging to that class.
All dividends on Shares of a particular class shall be paid only out of the
income belonging to that class and capital gains distributions on Shares of
a particular class shall be paid only out of the capital gains belonging to
that class. All dividends and distributions on Shares of a particular
class shall be distributed pro rata to the holders of that class in
proportion to the number of Shares of that class held by such holders at
the date and time of record established for the payment of such dividends
or distributions, except that in connection with any dividend or
distribution program or procedure the Board of Directors may determine that
no dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment have not been received by the
time or times established by the Board of Directors under such program or
procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends, including dividends designated
in whole or in part as capital gains distributions, amounts sufficient, in
the opinion of the Board of Directors, to enable the Corporation to qualify
as a regulated investment company under the Internal Revenue Code of 1954,
as amended, or any successor or comparable statute thereto, and regulations
promulgated thereunder, and to avoid liability of the Corporation for
Federal income tax in respect of that year. However, nothing in the
foregoing shall limit the authority of the Board of Directors to make
distributions greater than or less than the amount necessary to qualify as
a regulated investment company and to avoid liability of the Corporation
for such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to
any program that the Board of Directors may have in effect at the time.
Any such dividend or distribution paid in Shares will be paid at the
current net asset value thereof as defined in subsection 7.2(h).
(e) Liquidation. In the event of the liquidation of the Corporation or
of a particular class, the Shareholders of each class that has been
established and designated and is being liquidated shall be entitled to
receive, as a class, when and as declared by the Board of Directors, the
excess of the assets belonging to that class over the liabilities belonging
to that class. The holders of Shares of any class shall not be entitled
thereby to any distribution upon liquidation of any other class. The
assets so distributable to the Shareholders of any particular class shall
be distributed among such Shareholders in proportion to the number of
Shares of that class held by them and recorded on the books of the
Corporation. The liquidation of any particular class in which there are
Shares then outstanding may be authorized by vote of a majority of the
Board of Directors then in office, subject to the approval of a majority of
the outstanding securities of that class, as defined in the 1940 Act.
(f) Voting. On each matter submitted to a vote of the Shareholders, each
holder of a Share shall be entitled to one vote for each Share standing in
his name on the books of the Corporation, irrespective of the class
thereof, and all Shares of all classes shall vote as a single class
("Single Class Voting"); provided, however, that (i) as to any matter with
respect to which a separate vote of any class is required by the 1940 Act
or by the Maryland General Corporation Law, such requirement as to a
separate vote by that class shall apply in lieu of Single Class Voting as
described above; (ii) in the event that the separate vote requirements
referred to in (i) above apply with respect to one or more classes, then,
subject to (iii) below, the Shares of all other classes shall vote as a
single class; and (iii) as to any matter which does not affect the interest
of a particular class, only the holders of Shares of the one or more
affected classes shall be entitled to vote.
(g) Redemption by Shareholder. Each holder of Shares of a particular
class shall have the right at such times as may be permitted by the
Corporation to require the Corporation to redeem all or any part of his
Shares of that class at a redemption price per share equal to the net asset
value per Share of that class next determined (in accordance with
subsection (h) of this Section 7.2) after the Shares are properly tendered
for redemption, less such contingent deferred Sales Charge or other charge
as is determined by the Board of Directors and described in the
Corporation's registration statement under the Securities Act of 1933.
Payment of the proceeds of redemption shall be in cash unless the Board of
Directors determines, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable.
In the event of such a determination, the Corporation may make payment
wholly or partly in securities or other assets belonging to the class of
which the Shares being redeemed are part at the value of such securities or
assets used in such determination of net asset value. Notwithstanding the
foregoing, the Corporation may postpone payment of the redemption price and
may suspend the right of the holders of Shares of any class to require the
Corporation to redeem Shares of that class during any period or at any time
when and to the extent permissable under the 1940 Act.
(h) Net Asset Value per Share. The net asset value per Share of any
class shall be the quotient obtained by dividing the value of the net
assets of that class (being the value of the assets belonging to that class
less the liabilities belonging to that class) by the total number of Shares
of that class outstanding.
The Board of Directors may determine to maintain the net asset value per
Share of any class at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of income attributable to that class as dividends
payable in additional Shares of that class at the designated constant
dollar amount and for the handling of any losses attributable to that
class.
(i) Equality. All Shares of each particular class shall represent an
equal proportionate interest in the assets belonging to that class (subject
to the liabilities belonging to that class), and each Share of any
particular class shall be equal to each other Share of that class. The
Board of Directors may from time to time divide or combine the Shares of
any particular class into a greater or lesser number of Shares of that
class without thereby changing the proportionate beneficial interest in the
assets belonging to that Class or in any way affecting the rights of Shares
of any other class.
(j) Conversion or Exchange Rights. Subject to compliance with the
requirements of the 1940 Act, the Board of Directors shall have the
authority to provide that holders of Shares of any class shall have the
right to convert or exchange said Shares into Shares of one or more other
classes of Shares in accordance with such requirements and procedures as
may be established by the Board of Directors.
(k) Redemption by the Corporation. The Board of Directors may cause the
Corporation to redeem at current net asset value the Shares of any class
from a Shareholder whose Shares of the Corporation of all classes have an
aggregate current net asset value of less than two hundred fifty dollars
($250). No such redemption shall be effected unless the Corporation has
given the Shareholder at least sixty (60) days' notice of its intention to
redeem the Shares and an opportunity to purchase a sufficient number of
additional Shares to bring the aggregate current net asset value of his
Shares to two hundred fifty dollars ($250). Upon redemption of Shares
pursuant to this Section, the Corporation shall promptly cause payment of
the full redemption price to be made to the holder of Shares so redeemed.
EIGHTH: Section 8.1. Issuance of New Stock. The Board of
Directors is authorized to issue and sell or cause to be issued and sold
from time to time (without the necessity of offering the same or any part
thereof to existing shareholders) all or any portion or portions of the
entire authorized but unissued Shares of the Corporation, and all or any
portion or portions of the Shares of the Corporation from time to time in
its treasury, for cash or for any other lawful consideration or
considerations and on or for any terms, conditions, or prices consistent
with the provisions of law and of the Article of Incorporation at the time
in force; provided, however, that in no event shall Shares of the
Corporation having a par value be issued or sold for a consideration or
considerations less in amount or value than the par value of the Shares so
issued or sold, and provided further that in no event shall any Shares of
the Corporation be issued or sold for a consideration (which shall be net
to the Corporation after underwriting discounts or commissions) less in
amount or value than the net asset value of the Shares so issued or sold
determined next after an order to purchase such Shares is accepted, except
that Shares may be sold to an underwriter at (a) the net asset value
determined next after such orders are received by a dealer with whom such
underwriter has a sales agreement or (b) the net asset value determined at
a later time.
Section 8.2. Fractional Shares. The Corporation may
issue and sell fractions of Shares having pro rata all the rights of full
Shares, including, without limitation, the right to vote and to receive
dividends, and wherever the words "Share" or "Shares" are used in these
Articles or in the Bylaws they shall be deemed to include fractions of
Shares, where the context does not clearly indicate that only full Shares
are intended.
NINTH: The number of directors constituting the Board of Directors
shall be three, which number may be changed in accordance with the Bylaws
of the Corporation but shall never be less than three.
TENTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all classes (or of any class
entitled to vote thereon as a separate class) to take or authorize any
action, in accordance with the authority granted by Section 2-104(b)(5) of
the Maryland General Corporation Law, the Corporation is hereby authorized
to take such action upon the concurrence of a majority of the aggregate
number of Shares entitled to vote thereon (or of a majority of the
aggregate number of Shares of a class entitled to vote thereon as a
separate class). The right to cumulate votes in the election of directors
is expressly prohibited.
ELEVENTH: Except as may otherwise be provided in the Bylaws, the
Board of Directors of the Corporation is expressly authorized to make,
alter, amend and repeal Bylaws or to adopt new Bylaws of the Corporation,
without any action on the part of the Shareholders; but the Bylaws made the
Board of Directors and the power so conferred may be altered or repealed by
the Shareholders.
TWELFTH: To the fullest extent permitted by the Maryland General
Corporation Law, as amended from time to time, no director or officer of
the Corporation shall be personally liable to the Corporation or its
stockholders for money damages, except to the extent such exemption from
liability or limitation thereof is not permitted by the Investment Company
Act of 1940, as amended from time to time. No amendment to these Articles
of Incorporation or repeal of any of its provisions shall limit or
eliminate the benefits provided to directors and officers under this
provision with respect to any act or omission which occurred prior to such
amendment or repeal.
THIRTEENTH: The Corporation reserves the right from time to time to
make any amendment of these Articles of Incorporation, now or hereafter
authorized by law, including any amendment which alters contract rights, as
expressly set forth in these Articles of Incorporation, of any outstanding
Share. Any amendment to these Articles of Incorporation may be adopted at
either an annual or special meeting of the shareholders upon receiving an
affirmative majority vote of all outstanding Shares and an affirmative
majority of the outstanding Shares of each class entitled to vote thereon
separately as a class in accordance with Section 7.2(f) hereof.
The undersigned Chairman acknowledges these Articles of Restatement
to be the corporate act of the Corporation and states to the best of his
knowledge, information and belief that the matters and facts set forth in
these Articles with respect to authorization and approval are true in all
material respects and that this statement is made under the penalties of
perjury.
IN WITNESS WHEREOF, SMITH BARNEY SHEARSON INVESTMENT FUNDS INC. has
caused these Articles of Restatement to be signed in its name and on its
behalf by its Chairman and witnessed by its Assistant Secretary on September
9, 1993.
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC.
By: /s/ Heath B.McLendon
Heath B. McLendon, Chairman
WITNESS:
/s/ Mary E. Moran
Mary E. Moran, Assistant Secretary
SMITH BARNEY SHEARSON INVESTMENT FUNDS INC. ARTICLES OF AMENDMENT
Smith Barney Shearson Investment Funds Inc., a Maryland corporation
having its principal office in the State of Maryland in Baltimore City
(hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation, as
amended, are hereby further amended by deleting Article SECOND and
inserting in lieu thereof the following:
SECOND: The name of the corporation (hereinafter called the
"Corporation") is
Smith Barney Investment Funds Inc.
SECOND: The foregoing amendment to the charter of the Corporation
was approved by a majority of the entire Board of Directors of the
Corporation; the charter amendment is limited to a change expressly
permitted by Section 2-605 of Title 2 of Subtitle 6 of the Maryland General
Corporation Law to be made without action by the stockholders, and the
Corporation is registered as an open-end company under the Investment
Company Act of 1940.
The undersigned Chairman acknowledges these Articles of Amendment to
be the corporate act of the Corporation and states to the best of his
knowledge, information and belief that the matters and facts set forth in
these Articles with respect to authorization and approval are true in all
material respects and that this statement is made under the penalties of
perjury.
IN WITNESS WHEREOF, Smith Barney Shearson Investment Funds Inc. has
caused these Articles of Amendment to be signed in its name and on its
behalf by its Chairman and witnessed by its Assistant Secretary on October
, 1994.
SMITH BARNEY SHEARSON
INVESTMENT FUNDS INC.
By: /s/ Heath B. McLendon Heath B. McLendon,
Chairman
WITNESS:
/s/Lee D. Augsburger
Lee D. Augsburger
Assistant Secretary
FORM OF ARTICLES SUPPLEMENTARY
SMITH BARNEY INVESTMENT FUNDS INC.
Smith Barney Investment Funds Inc., a Maryland corporation
having its principal office in the State of Maryland in Baltimore City
(hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation is authorized to issue ten billion
shares of capital stock, par value $.001 per share, with an aggregate par
value of $10,000,000. These Articles Supplementary do not increase the
total authorized capital stock of the Corporation or the aggregate par
value thereof. The Board of Directors hereby classifies and reclassifies
all of the unissued shares of capital stock of all classes of the
Corporation in such manner that the Corporation's capital stock will be
classified into four Funds, each of which will have five classes of capital
stock, for an aggregate of twenty classes of capital stock, each with a par
value of $.001 per share, as follows:
<TABLE>
<CAPTION>
Fund Total Shares
<S> <C>
European Fund 2.25 billion Class A Common Class B Common Class C
Common Class Y Common Class Z Common
Stock Stock Stock
Stock Stock
Government
Securities Fund 2.35 billion Class A Common Class B Common Class C
Common Class Y Common Class Z Common
Stock Stock Stock
Stock Stock
Investment Grade
Bond Fund 2.25 billion Class A Common Class B Common Class C
Common Class Y Common Class Z Common
Stock Stock Stock
Stock Stock
Special Equities
Fund 3.15 billion Class A Common Class B Common Class C
Common Class Y Common Class Z Common
Stock Stock Stock
Stock Stock
10 billion
</TABLE>
(1) The Corporation shall be authorized to issue up to
2.25 billion shares of each of the Class A Common Stock, Class B
Common Stock, Class C Common Stock, Class Y Common Stock and Class Z Common
Stock of the European Fund less, at any time, the total
number of shares of all such other classes of capital stock of the European
Fund then issued and outstanding. At no time may the Corporation cause to be
issued and outstanding more than 2.25
billion shares of the capital stock of all such classes of the
European Fund in the aggregate unless such number be hereafter increased in
accordance with the Maryland General Corporation Law.
(2) The Corporation shall be authorized to issue up to 2.35 billion
shares of each of the Class A Common Stock, Class B Common Stock, Class C
Common Stock, Class Y Common Stock and Class Z Common Stock of the Government
Securities Fund less, at any time, the total number of shares of all such
other classes of capital stock of the Government Securities Fund then issued
and outstanding. At no time may the Corporation cause to be issued and
outstanding more than 2.35 billion shares of the capital stock of all such
classes of the Government Securities Fund in the aggregate unless such number
be hereafter increased in accordance with the Maryland General Corporation
Law.
(3) The Corporation shall be authorized to issue up to 2.25 billion
shares of each of the Class A Common Stock, Class B Common Stock, Class C
Common Stock, Class Y Common Stock and Class Z Common Stock of the Investment
Grade Bond Fund less, at any time, the total number of shares of all such
other classes of capital stock of the Investment Grade Bond Fund then issued
and outstanding. At no time may the Corporation cause to be issued and
outstanding more than 2.25 billion shares of the capital stock of all such
classes of the Investment Grade Bond Fund in the aggregate unless such number
be hereafter increased in accordance with the Maryland General Corporation
Law.
(4) The Corporation shall be authorized to issue up to 3.15 billion
shares of each of the Class A Common Stock, Class B Common Stock, Class C
Common Stock, Class Y Common Stock and Class Z Common Stock of the Special
Equities Fund less, at any time, the total number of shares of all such other
classes of capital stock of the Special Equities Fund then issued and
outstanding. At no time may the Corporation cause to be issued and
outstanding more than 3.15 billion shares of the capital stock of all such
classes of the Special Equities Fund in the aggregate unless such number be
hereafter increased in accordance with the Maryland General Corporation Law.
SECOND: The shares of Class A Common Stock, Class B Common Stock, Class
C Common Stock, and Class Z Common Stock of each of the above designated Funds
classified hereby shall have the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption as currently set forth in the charter of
the Corporation with respect to those respective classes of capital stock.
The Class Y Common Stock of each of the above-designated Funds classified
hereby shall have the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as currently set forth in Article SEVENTH of the
Corporation's Articles
of Incorporation and shall be subject to all provisions of its Articles of
Incorporation relating to stock of the Corporation generally, and those set
forth as follows:
(1) The assets belonging to the Class Y Common Stock of each of the above
designated Funds shall be invested in the same investment portfolio of the
Corporation as the assets belonging to any other class of capital stock of
such Fund.
(2) The dividends and distributions of investment income and capital gains
with respect to the Class Y Common Stock of each of the above designated Funds
shall be in such amounts as may be declared from time to time by the Board of
Directors, and such dividends and distributions with respect to the Class Y
Common Stock of each such Fund may vary from dividends and distributions with
respect to each other class of capital stock of such Fund to reflect differing
allocations of the expenses of the Fund among the holders of each such class
and any resultant differences among the net asset values per share of each
such class, to such extent and for such purposes as the Board of Directors may
deem appropriate.
(3) The allocation of investment income, capital gains and losses, expenses
and liabilities of the Corporation among the Class Y Common Stock of each
above designated Fund and any other class of the Corporation's stock shall be
determined conclusively by the Board of Directors in a manner that is
consistent with the order dated July 7, 1992 (Investment Company Act of 1940
Release No. 18832), as amended January 19, 1993 (Investment Company Act
Release No. 19216), and January 28, 1994 (Investment Company Act of 1940,
Release No. 20042) issued by the Securities and Exchange Commission in
connection with the application for exemption filed by Smith Barney
Appreciation Fund, Inc. (formerly Shearson Lehman Brothers Appreciation Fund
Inc.) et al., and any existing or future amendment to such order or any rule
or interpretation under the Investment Company Act of 1940 that modifies or
supersedes such order.
THIRD: The Board of Directors of the Corporation has classified the
shares described above pursuant to authority contained in the Corporation's
charter.
FOURTH: These Articles Supplementary will become effective at 9:01 A.M.
on November 7, 1994.
The undersigned Chairman of the Board of the Corporation acknowledges
these Articles Supplementary to be the corporate act of the Corporation and
states that to the best of his knowledge, information and belief, the matters
and facts set forth in these Articles with respect to authorization and
approval are true in all material respects and that this statement is made
under penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Investment Funds Inc. has caused these
Articles Supplementary to be signed and filed in its name and on its behalf by
its Chairman of the Board, and witnessed by its Assistant Secretary on
, 1994.
SMITH BARNEY INVESTMENT FUNDS INC.
By: Heath B. McLendon,
Chairman of the Board
WITNESS:
Lee D. Augsburger,
Assistant Secretary
SMITH BARNEY INVESTMENT FUNDS INC. ARTICLES OF AMENDMENT
Smith Barney Investment Funds Inc., a Maryland corporation having its
principal office in the State of Maryland in Baltimore City (hereinafter
called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended to provide
that the "European Fund Class C Common Stock," "Government Securities Fund
Class C Common Stock," "Investment Grade Bond Fund Class C Common Stock" and
"Special Equities Fund Class C Common Stock" are hereby redesignated as
"European Fund Class Z Common Stock," Government Securities Fund Class Z
Common Stock," "Investment Grade Bond Fund Class Z Common Stock" and "Special
Equities Fund Class Z Common Stock," respectively.
SECOND: The charter of the Corporation is hereby amended further to
provide that the "European Fund Class D Common Stock," "Government Securities
Fund Class D Common Stock," "Investment Grade Bond Fund Class D Common Stock"
and "Special Equities Fund Class D Common Stock" are hereby redesignated as
"European Fund Class C Common Stock," "Government Securities Fund Class C
Common Stock," "Investment Grade Bond Class C Common Stock," and "Special
Equities Fund Class C Common Stock," respectively.
THIRD: The charter of the Corporation is hereby amended further to
provide that the classes of shares of "European Fund capital stock,"
Government Securities Fund capital stock," "Investment Grade Bond Fund capital
stock" and "Special Equities Fund capital stock" that have not been previously
further designated are hereby designated as "European Fund Class B Common
Stock," "Government Securities Fund Class B Common Stock," "Investment Grade
Bond Fund Class B Common Stock" and "Special Equities Fund Class B Common
Stock," respectively.
FOURTH: The foregoing amendments to the charter of the Corporation
were approved by a majority of the entire Board of Directors of the
Corporation; the charter amendments are limited to changes expressly permitted
by Section 2-605 of Title 2 of Subtitle 6 of the Maryland General Corporation
Law to be made without action by the stockholders, and the
Corporation is registered as an open-end company under the Investment Company
Act of 1940.
FIFTH: These Articles of Amendment will become effective at 9:00 A.M.
on November 7, 1994.
The undersigned Chairman of the Board of the Corporation acknowledges
these Articles of Amendment to be the corporate act of the Corporation and
states to the best of his knowledge, information and belief that the matters
and facts set forth in these Articles with respect to authorization and
approval are true in all material respects and that this statement is made
under the penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Investment Funds Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
Chairman of the Board, and witnessed by its Assistant Secretary on
, 1994.
SMITH BARNEY INVESTMENT
FUNDS INC.
By: Heath B. McLendon,
Chairman of the Board
WITNESS:
Lee D. Augsburger,
Assistant Secretary
SMITH BARNEY INVESTMENT FUNDS INC. ARTICLES OF AMENDMENT
Smith Barney Investment Funds Inc., a Maryland corporation having its
principal office in the State of Maryland in Baltimore City (hereinafter
called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended to provide
that shares, if any, of capital stock of the Directions Value Fund's Class A
Common Stock, Directions Value Fund's Class C Common Stock, Directions Value
Fund's Class D Common Stock, and Directions Value Fund capital stock without
further designation issued and outstanding immediately prior to these Articles
of Amendment becoming effective, shall, upon these Articles becoming
effective, be cancelled and shall be authorized but unissued shares of capital
stock of the Corporation.
SECOND: The foregoing amendment to the charter of the Corporation was
advised by the board of directors of the Corporation and approved by the
stockholders.
The undersigned Chairman of the Board of the Corporation acknowledges
these Articles of Amendment to be the corporate act of the Corporation and
states to the best of his knowledge, information and belief that the matters
and facts set forth in these Articles with respect to authorization and
approval are true in all material respects and that this statement is made
under the penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Investment Funds Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
Chairman of the Board, and witnessed by its Assistant Secretary on
, l994.
SMITH BARNEY INVESTMENT FUNDS INC.
By:
Heath B. McLendon,
Chairman of the Board
WITNESS:
Lee D. Augsburger,
Assistant Secretary
SMITH BARNEY INVESTMENT FUNDS INC. CERTIFICATE OF CORRECTION
Smith Barney Investment Funds Inc., a Maryland
corporation having its principal office in Maryland in the City of Baltimore,
Maryland (hereinafter the "Corporation"), certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The title of the document being corrected
is:
Articles of Amendment
SLH Investment Portfolios Inc.
SECOND: The only party to the document being
corrected is Smith Barney Investment Funds Inc.
THIRD: The document being corrected was filed with
the State Department of Assessments and Taxation of Maryland on May 21, 1993.
FOURTH: The document being corrected refers to the
"SLH Appreciation Portfolio" of the Corporation, which was the distribution
name used in distributing shares for the portfolio that is designated in the
Corporation's charter documents as its "Growth Portfolio" and this Certificate
of Correction is filed solely to correct that reference as follows:
(1) The provision in the document as previously filed read
as follows:
FIRST: All shares of capital
stock of SLH Appreciation Portfolio, SLH Precious Metals Portfolio and SLH
Global Equity Portfolio issued and outstanding immediately prior to these
Articles of Amendment becoming effective, shall, upon these Articles becoming
effective, be cancelled.
(2) The provision in the document as corrected reads
as follows:
FIRST: All shares of capital
stock of Growth Portfolio, SLH Precious Metals Portfolio and SLH Global Equity
Portfolio issued and outstanding immediately prior to these Articles of
Amendment becoming effective, shall, upon these Articles becoming effective,
be cancelled.
The undersigned Chairman of the Board of the Corporation acknowledges
this Certificate of Correction to be the corporate act of the Corporation and
states to the best of his knowledge, information and belief that the matters
and facts set forth in this Certificate of Correction with respect to
authorization and approval are true in all material respects and that this
statement is made under the penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Investment Funds Inc. has caused this
Certificate of Correction to be signed in its name and on its behalf by its
Chairman of the Board and witnessed by its Assistant Secretary on
, 1994.
SMITH BARNEY INVESTMENT FUNDS INC.
By: Heath B. McLendon,
Chairman of the Board
WITNESS:
Lee D. Augsburger,
Assistant Secretary
CERTIFICATE OF CORRECTION
Smith Barney Investment Funds Inc., a Maryland corporation, having its
principal office in Maryland in the City of Baltimore, Maryland, and Smith
Barney Appreciation Fund Inc., a Maryland corporation having its principal
office in Maryland in Baltimore City, Maryland, hereby certify to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The title of the document being corrected is
"Articles of Transfer."
SECOND: The only parties to the document being corrected
are Smith Barney Investment Funds Inc. (the "Transferor") and Smith Barney
Appreciation Fund Inc. (the "Transferee").
THIRD: The document being corrected was filed with the
State Department of Assessments and Taxation on November 20, 1992 and,
pursuant to its terms, became effective at 5:00 P.M. on that date.
FOURTH: The document being corrected refers in several
places to the "Appreciation Portfolio" of the Transferor, which was the
distribution name used in distributing shares for the portfolio that is
designated in the Transferor's charter documents as its "Growth Portfolio" and
this Certificate of Correction is filed solely to correct that reference as
follows:
A(1) A provision in the document as previously filed reads as follows:
SLH Investment Portfolios Inc. (the "Transferor"), a Maryland
corporation having its principal office in Baltimore City, Maryland, on behalf
of Appreciation Portfolio (the "Portfolio"), and Shearson Lehman Brothers
Appreciation Fund Inc. (the "Transferee"), a Maryland corporation having its
principal place of business at Two World Trade Center, New York, New York
10048, hereby certify to the State Department of Assessments and Taxation of
Maryland that:
(2) That provision in the document as corrected reads as follows:
SLH Investment Portfolios Inc. (the "Transferor"), a Maryland
corporation having its principal office in Baltimore City, Maryland, on behalf
of Growth Portfolio (the "Portfolio"), and Shearson Lehman Brothers
Appreciation Fund Inc.
(the "Transferee"), a Maryland corporation having
its principal place of business at Two World Trade Center, New York, New York
10048, hereby certify to the State Department of Assessments and Taxation of
Maryland that:
B(1) A provision in the document as previously filed reads as follows:
IN WITNESS WHEREOF: SLH Investment Portfolios Inc., on behalf of the
Appreciation Portfolio, has caused these presents to be signed in its name and
on its behalf by its President and attested to by its Assistant Secretary on
November 19, 1992, and Shearson Lehman Brothers Appreciation Fund Inc., has
caused these presents to be signed in its name and on its behalf by its
President and attested to by its Assistant Secretary on November 19, 1992.
(2) That provision in the document as corrected reads as follows:
IN WITNESS WHEREOF: SLH Investment Portfolios Inc., on behalf of the
Growth Portfolio, has caused these presents to be signed in its name and on
its behalf by its President and attested to by its Assistant Secretary on
November 19, 1992, and Shearson Lehman Brothers Appreciation Fund Inc., has
caused these presents to be signed in its name and on its behalf by its
President and attested to by its Assistant Secretary on November 19, 1992.
C(1) Similarly, the execution provision in the document as previously
filed was incorrect in its reference to the Appreciation Portfolio rather than
the Growth Portfolio of the Transferor and as previously filed reads as
follows:
ATTEST: SLH INVESTMENT PORTFOLIOS INC.
on behalf of the APPRECIATION PORTFOLIO
By: /s/ Paul F. Roye By: /s/ Richard P. Roelofs
Name: Paul F. Roye Name: Richard P. Roelofs
Title: Assistant Secretary Title: President
(2) That execution provision in the document as corrected reads:
ATTEST: SLH INVESTMENT PORTFOLIOS INC.
on behalf of the GROWTH PORTFOLIO
By: /s/ Paul F. Roye By: /s/ Richard P. Roelofs
Name: Paul F. Roye Name: Richard P. Roelofs
Title: Assistant Secretary Title: President
D.(1) A certification in the document as previously
filed reads as follows:
I, Paul F. Roye, Assistant Secretary of SLH Investment Portfolios Inc.,
on behalf of the Appreciation Portfolio, do hereby verify that I have executed
these Articles of Transfer and acknowledge the same to be my act; that
adoption of these Articles of Transfer was a valid corporate act; that, to the
best of my knowledge, information and belief, the matters and facts set forth
herein are true in all material respects; and that this statement is made
under the penalties of perjury.
/s/ Paul F. Roye
(2) That certification provision in the document as
corrected reads as follows:
I, Paul F. Roye, Assistant Secretary of SLH Investment Portfolios Inc.,
on behalf of the Growth Portfolio, do hereby verify that I have executed these
Articles of Transfer and acknowledge the same to be my act; that adoption of
these Articles of Transfer was a valid corporate act; that, to the best of my
knowledge, information and belief, the matters and facts set forth herein are
true in all material respects; and that this statement is made under the
penalties of perjury.
/s/ Paul F. Roye
IN WITNESS WHEREOF, this Certificate of Correction has been executed on
behalf of the Transferor and the Transferee as of
, 1994. Each person executing this Certificate of
Correction on behalf of the Transferor and Transferee acknowledges it to be
the corporate act of the entity on behalf of which he has
<PAGE> 4
executed it and certifies under the penalties of perjury that to the best of
his knowledge, information and belief, all matters and facts set forth herein
with respect to the authorization and approval hereof are true in all material
respects.
SMITH BARNEY APPRECIATION
FUND INC.
By: Heath B. McLendon
Chairman of the Board ATTEST:
By:
Lee D. Augsburger
Assistant Secretary
SMITH BARNEY INVESTMENT FUNDS INC. on behalf of the GROWTH PORTFOLIO
By: Heath B. McLendon
Chairman of the Board
ATTEST:
By:
Lee D. Augsburger
Assistant Secretary
- -23-
EXHIBIT 9(a)
ADMINISTRATION AGREEMENT
May 5, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson Investment Funds Inc., a Maryland Corporation
organized under the laws of the State of Maryland, on behalf of its
investment portfolios including Investment Grade Bond Fund, Government
Securities Fund, Special Equities Fund and European Fund (each a
"Portfolio", collectively, the "Portfolios") confirms its agreement with
Smith, Barney Advisors, Inc. ("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Restated Articles of Incorporation dated
September 17, 1993, as amended from time to time (the "Charter"), in each
Portfolio's Prospectus and Statement of Additional Information as from time
to time in effect and in such manner and to such extent as may from time to
time be approved by the Board of Directors of the Fund (the "Board").
Copies of each Portfolio's Prospectus, Statement of Additional Information
and Charter have been or will be submitted to SBA. Greenwich Street
Advisors ("Greenwich Street") serves as the Fund's investment adviser; The
Boston Company Advisors, Inc. serves as the Fund's sub-investment adviser;
and the Fund desires to employ and hereby appoints SBA to act as its
administrator. SBA accepts this appointment and agrees to furnish the
services to the Fund for the compensation set forth below. SBA is hereby
authorized to retain third parties and is hereby authorized to delegate
some or all of its duties and obligations hereunder to such persons
provided that such persons shall remain under the general supervision of
SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Portfolio's operations
except those performed by the Fund's investment adviser under its
investment advisory agreement; (b) supply the Fund with office facilities
(which may be in SBA's own offices), statistical and research data, data
processing services, clerical, accounting and bookkeeping services,
including, but not limited to, the calculation of (i) the net asset value
of shares of the Fund, (ii) applicable contingent deferred sales charges
and similar fees and charges and (iii) distribution fees, internal auditing
and legal services, internal executive and administrative services, and
stationary and office supplies; and (c) prepare reports to shareholders of
the Fund's Portfolios, tax returns and reports to and filings with the
Securities and Exchange Commission (the "SEC") and state blue sky
authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at an annual rate of .20 of 1.00% of each
Portfolio's average daily net assets. The fee for the period from the date
the Fund's initial registration statement is declared effective by the SEC
to the end of the month during which the initial registration statement is
declared effective shall be prorated according to the proportion that such
period bears to the full monthly period. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of termination
of this Agreement. For the purpose of determining fees payable to SBA, the
value of each Portfolio's net assets shall be computed at the times and in
the manner specified in the each Portfolio's Prospectus and Statement of
Additional Information as from time to time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Charter. The
execution and delivery of this Agreement has been duly authorized by the
Fund, SBA and Boston Advisors, and signed by an authorized officer of each,
acting as such. Neither the authorization by the Board members of the
Fund, nor the execution and delivery by the officer of the Fund shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the assets and
property of the Fund as provided in the Charter and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the enclosed
copy hereof.
Very truly yours,
Smith Barney Shearson Investment
Funds Inc.
By: /s/ Heath B.
McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to each of the
Fund's Portfolios;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Articles of Incorporation and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Smith Barney Advisers, Inc.
May 5, 1994
Page 8
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shared\domestic\clients\shearson\agr.doc
EXHIBIT 9(b)
SUB-ADMINISTRATION AGREEMENT
May 5, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson Investment Funds Inc. (the "Fund"), a
Maryland Corporation organized under the laws of the State of Maryland, on
behalf of its investment portfolios including Investment Grade Bond Fund,
Government Securities Fund, Special Equities Fund and European Fund (each a
"Portfolio", collectively, the "Portfolios") and Smith, Barney Advisers,
Inc. ("SBA") confirm their agreement with The Boston Company Advisors, Inc.
("Boston Advisors") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Restated Articles of Incorporation dated
September 17, 1993, as amended from time to time (the "Charter"), in each
of the Portfolio's Prospectus and Statement of Additional Information as
from time to time in effect, and in such manner and to such extent as may
from time to time be approved by the Board of Directors of the Fund (the
"Board"). Copies of each Portfolio's Prospectus, Statement of Additional
Information and Charter have been or will be submitted to you. The Fund
employs SBA as its administrator, and the Fund and SBA desire to employ and
hereby appoint Boston Advisors as the Fund's sub-administrator. Boston
Advisors accepts this appointment and agrees to furnish the services to the
Fund, for the compensation set forth below, under the general supervision
of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and SBA,
Boston Advisors will: (a) assist in supervising all aspects of the
Portfolio's operations except those performed by the Fund's investment
adviser under the Fund's investment advisory agreement; (b) supply the Fund
with office facilities (which may be in Boston Advisor's own offices),
statistical and research data, data processing services, clerical,
accounting and bookkeeping services, including, but not limited to, the
calculation of (i) the net asset value of shares of the Fund, (ii)
applicable contingent deferred sales charges and similar fees and changes
and (iii) distribution fees, internal auditing and legal services, internal
executive and administrative services, and stationery and office supplies;
and (c) prepare reports to shareholders of the Fund, tax returns and
reports to and filings with the Securities and Exchange Commission (the
"SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of each
month a fee for the previous month calculated in accordance with the terms
set forth in Appendix B, and as agreed to from time to time by the Fund,
SBA and Boston Advisors. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Boston Advisors, the value
of the each Portfolio's Fund's net assets shall be computed at the times
and in the manner specified in the each Portfolio's Prospectus and
Statement of Additional Information as from time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of the Board members
of the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc., Boston Advisors of their affiliates; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and its Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston Advisory
will reimburse the Fund for that excess expense to the extent required by
state law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of Boston Advisors will be limited to the amount
of its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering
the services listed in paragraph 2 above. Boston Advisors shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to
protect Boston Advisors against liability to the Fund or to its
shareholders to which Boston Advisors would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of Boston Advisor's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without the
written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or more
other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of Boston
Advisors or its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind of nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including reasonable
attorney's fees) resulting or arising in connection with this Agreement or
from the performance or failure to perform any act hereunder, provided that
not such indemnification shall be available if the indemnitee violated the
standard of care in paragraph 6 above. This indemnification shall be
limited by the 1940 Act, and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance with the requirements
of the 1940 Act and the rules, regulations and interpretations thereof as
in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Charter and
Bylaws. The execution and delivery of this Agreement has been duly
authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board Members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Charter.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
Smith Barney Shearson Investment Funds Inc.
By: /s/ Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By:_________________
Title
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
- Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
- Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
- Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
- Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
- Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
- Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
- Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
- System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
- Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
- Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
- Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
- Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
- Provide an Assistant Treasurer for the Fund;
- Authorize payment of bills for expenses of the Fund;
- Establish and monitor the rate of expense accruals;
- Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
- Monitor mark-to-market comparisons for money market funds;
- Recommend valuations to be used for securities which are not
readily saleable;
- Function as a liaison with the Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
- Prepare and file forms with the Internal Revenue Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
- File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
- Provide an Assistant Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
- Organize, attend and keep minutes of shareholder meetings;
- Maintain Articles of Incorporation or Master Trust
Agreements and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
- Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
- Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
- Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Schedule B
Fee
The Boston Company Advisors, Inc.
May 5, 1994
Page 4
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A-4
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shared\domestic\clients\shearson\agr.doc
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney Investment Funds:
We hereby consent to the following with respect to
Post-Effective Amendment No. 37 to the Registration Statement
on Form N-1A (File No. 2-74288) under the Securities Act of
1933, as amended, of Smith Barney Investment Funds (formerly
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 L.L.P.
Boston, Massachusetts
November 2, 1994
EXHIBIT 15
AMENDED SERVICES AND DISTRIBUTION PLAN
SMITH BARNEY EUROPEAN FUND
This Services and Distribution Plan (the "Plan") is adopted in
accordance with rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Smith Barney European Fund, a
corporation organized under the laws of the State of Maryland (the "Fund"),
subject to the following terms and conditions:
Section 1. Annual Fee
(a) Class A Service Fee. The Fund will pay to the distributor of its
shares, Smith Barney Inc., a corporation organized under the laws of the
State of Delaware ("Distributor"), a service fee under the Plan at the
annual rate of .25% of the average daily net assets of the Fund
attributable to the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class B shares
(the "Class B Service Fee").
(c) Service Fee for Class C shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class C shares
(the "Class C Service Fee," and collectively with the Class A Service Fee
and the Class B Service Fee, the "Service Fees").
(d) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .75% of the average daily net assets of the fund
attributable to the Class B Distribution Fee, the "Distribution Fees").
(e) Distribution Fee for Class C shares. In addition to the Class C
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .75% of the average daily net assets of the Fund
attributable to the Class C shares (the "Class C Distribution Fee," and
collectively with the Class B Distribution Fee, the "Distribution Fees").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated daily and paid monthly by the Fund with respect to the foregoing
classes of the fund's shares (each a "Class" and together the "Classes") at
the annual rates indicated above.
Section 2. Expenses Covered by the Plan
With respect to expenses incurred by each Class its respective
Service Fees and/or Distribution Fees may be used for; (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs
involved in preparing, printing and distributing sales literature
pertaining o the Fund; (c) an allocation of overhead and other branch
office distribution-related expenses of the Distributor; (d) payments made
to, and expenses of Smith Barney Financial Consultants and other persons
who provide support services in connection with the distribution of the
Fund's shares, including but not limited to, office space and equipment,
telephone
facilities, answering routine inquires regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's Transfer agent; and (e) accruals for
interest on the amount of the foregoing expenses that exceed the
Distribution Fee and, in the case of Class B shares, the contingent
deferred sales charge received by the Distributor; provided, however, that
the Distribution Fees may be used by the Distributor only to cover expenses
primarily intended to result in the sale of the Fund's Class B and C
shares, including without limitation, payments to Distributor's financial
consultants ant the time of the sale of Class B and C shares. In addition,
Service Fees are intended to be used by the Distributor primarily to pay
its financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval of Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of the Plan, with respect to a Class until the
Plan has been approved by a vote of a least a majority of the outstanding
voting securities of the Class. The Plan will be deemed to have been
approved with respect to a class so longer as a majority of the outstanding
voting securities of the Class votes for the approval of the Plan,
notwithstanding that: (a) the Plan has not been approved by a major of the
outstanding voting securities of any other Class, or (b) the Plan has not
been approved by a majority of the outstanding voting securities of the
Fund.
Section 4. Approval of Directors
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Directors of the Fund
and (b) those Directors who are not interested persons of the Fund and who
have not direct or indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified Directors"), cast in
person at a meeting called for the purpose of voting on the Plan and the
related agreements.
Section 5. Continuance of the Plan
The Plan will continue in effect with respect to each Class until
November 7, 1995, and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the Directors of the Fund and by
a majority of the Qualified Directors.
Section 6. Termination
The Plan may be terminated at any time with respect to a Class (i) by
the Fund without the payment of any penalty, by the vote of a majority of
the outstanding voting securities of such Class or (ii) by a vote of the
Qualified Directors. The Plan may remain in effect with respect to a
particular Class even if the Plan has been terminated in accordance with
this Section 6 with respect to any other Class.
Section 7. Amendments
The Plan may to be amended with respect to any Class so as to
increase materially the amounts of the Fees described in Section 1 above,
unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of that class. No material
amendment to the Plan may be made unless approved by the Fund's Board of
Directors in the manner described in Section 4 above.
Section 8. Selection of Certain Directors
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, a person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Directors and the Board will review, at least
quarterly, written reports complying with the requirements of the Rule,
which sets out the amounts expended under the Plan and the purposes for
which those expenditures were made.
Section 10. Preservation of Materials
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of
not less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning
that those terms have under the 1940 Act by the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the Fund execute the Plan as of November 7, 1994.
SMITH BARNEY
EUROPEAN FUND
By: /s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
AMENDED SERVICES AND DISTRIBUTION PLAN
SMITH BARNEY GOVERNMENT SECURITIES FUND
This Services and Distribution Plan (the "Plan") is adopted in
accordance with rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Smith Barney Government Securities
Fund, a corporation organized under the laws of the State of Maryland (the
"Fund"), subject to the following terms and conditions:
Section 1. Annual Fee
(a) Class A Service Fee. The Fund will pay to the distributor of its
shares, Smith Barney Inc., a corporation organized under the laws of the
State of Delaware ("Distributor"), a service fee under the Plan at the
annual rate of .25% of the average daily net assets of the Fund
attributable to the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class B shares
(the "Class B Service Fee").
(c) Service Fee for Class C shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class C shares
(the "Class C Service Fee," and collectively with the Class A Service Fee
and the Class B Service Fee, the "Service Fees").
(d) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .50% of the average daily net assets of the fund
attributable to the Class B Distribution Fee, the "Distribution Fees").
(e) Distribution Fee for Class C shares. In addition to the Class C
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .45% of the average daily net assets of the Fund
attributable to the Class C shares (the "Class C Distribution Fee," and
collectively with the Class B Distribution Fee, the "Distribution Fees").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated daily and paid monthly by the Fund with respect to the foregoing
classes of the fund's shares (each a "Class" and together the "Classes") at
the annual rates indicated above.
Section 2. Expenses Covered by the Plan
With respect to expenses incurred by each Class its respective
Service Fees and/or Distribution Fees may be used for; (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs
involved in preparing, printing and distributing sales literature
pertaining o the Fund; (c) an allocation of overhead and other branch
office distribution-related expenses of the Distributor; (d) payments made
to, and expenses of Smith Barney Financial Consultants and other persons
who provide support services in connection with the distribution of the
Fund's shares, including but not limited to, office space and equipment,
telephone
facilities, answering routine inquires regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's Transfer agent; and (e) accruals for
interest on the amount of the foregoing expenses that exceed the
Distribution Fee and, in the case of Class B shares, the contingent
deferred sales charge received by the Distributor; provided, however, that
the Distribution Fees may be used by the Distributor only to cover expenses
primarily intended to result in the sale of the Fund's Class B and C
shares, including without limitation, payments to Distributor's financial
consultants ant the time of the sale of Class B and C shares. In addition,
Service Fees are intended to be used by the Distributor primarily to pay
its financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval of Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of the Plan, with respect to a Class until the
Plan has been approved by a vote of a least a majority of the outstanding
voting securities of the Class. The Plan will be deemed to have been
approved with respect to a class so longer as a majority of the outstanding
voting securities of the Class votes for the approval of the Plan,
notwithstanding that: (a) the Plan has not been approved by a major of the
outstanding voting securities of any other Class, or (b) the Plan has not
been approved by a majority of the outstanding voting securities of the
Fund.
Section 4. Approval of Directors
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Directors of the Fund
and (b) those Directors who are not interested persons of the Fund and who
have not direct or indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified Directors"), cast in
person at a meeting called for the purpose of voting on the Plan and the
related agreements.
Section 5. Continuance of the Plan
The Plan will continue in effect with respect to each Class until
November 7, 1995, and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the Directors of the Fund and by
a majority of the Qualified Directors.
Section 6. Termination
The Plan may be terminated at any time with respect to a Class (i) by
the Fund without the payment of any penalty, by the vote of a majority of
the outstanding voting securities of such Class or (ii) by a vote of the
Qualified Directors. The Plan may remain in effect with respect to a
particular Class even if the Plan has been terminated in accordance with
this Section 6 with respect to any other Class.
Section 7. Amendments
The Plan may to be amended with respect to any Class so as to
increase materially the amounts of the Fees described in Section 1 above,
unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of that class. No material
amendment to the Plan may be made unless approved by the Fund's Board of
Directors in the manner described in Section 4 above.
Section 8. Selection of Certain Directors
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, a person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Directors and the Board will review, at least
quarterly, written reports complying with the requirements of the Rule,
which sets out the amounts expended under the Plan and the purposes for
which those expenditures were made.
Section 10. Preservation of Materials
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of
not less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning
that those terms have under the 1940 Act by the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the Fund execute the Plan as of November 7, 1994.
SMITH BARNEY
GOVERNMENT SECURITIES FUND
By: /s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
AMENDED SERVICES AND DISTRIBUTION PLAN
SMITH BARNEY INVESTMENT GRADE BOND FUND
This Services and Distribution Plan (the "Plan") is adopted in
accordance with rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Smith Barney Investment Grade Bond
Fund, a corporation organized under the laws of the State of Maryland (the
"Fund"), subject to the following terms and conditions:
Section 1. Annual Fee
(a) Class A Service Fee. The Fund will pay to the distributor of its
shares, Smith Barney Inc., a corporation organized under the laws of the
State of Delaware ("Distributor"), a service fee under the Plan at the
annual rate of .25% of the average daily net assets of the Fund
attributable to the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class B shares
(the "Class B Service Fee").
(c) Service Fee for Class C shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class C shares
(the "Class C Service Fee," and collectively with the Class A Service Fee
and the Class B Service Fee, the "Service Fees").
(d) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .50% of the average daily net assets of the fund
attributable to the Class B Distribution Fee, the "Distribution Fees").
(e) Distribution Fee for Class C shares. In addition to the Class C
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .45% of the average daily net assets of the Fund
attributable to the Class C shares (the "Class C Distribution Fee," and
collectively with the Class B Distribution Fee, the "Distribution Fees").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated daily and paid monthly by the Fund with respect to the foregoing
classes of the fund's shares (each a "Class" and together the "Classes") at
the annual rates indicated above.
Section 2. Expenses Covered by the Plan
With respect to expenses incurred by each Class its respective
Service Fees and/or Distribution Fees may be used for; (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs
involved in preparing, printing and distributing sales literature
pertaining o the Fund; (c) an allocation of overhead and other branch
office distribution-related expenses of the Distributor; (d) payments made
to, and expenses of Smith Barney Financial Consultants and other persons
who provide support services in connection with the distribution of the
Fund's shares, including but not limited to, office space and equipment,
telephone
facilities, answering routine inquires regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's Transfer agent; and (e) accruals for
interest on the amount of the foregoing expenses that exceed the
Distribution Fee and, in the case of Class B shares, the contingent
deferred sales charge received by the Distributor; provided, however, that
the Distribution Fees may be used by the Distributor only to cover expenses
primarily intended to result in the sale of the Fund's Class B and C
shares, including without limitation, payments to Distributor's financial
consultants ant the time of the sale of Class B and C shares. In addition,
Service Fees are intended to be used by the Distributor primarily to pay
its financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval of Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of the Plan, with respect to a Class until the
Plan has been approved by a vote of a least a majority of the outstanding
voting securities of the Class. The Plan will be deemed to have been
approved with respect to a class so longer as a majority of the outstanding
voting securities of the Class votes for the approval of the Plan,
notwithstanding that: (a) the Plan has not been approved by a major of the
outstanding voting securities of any other Class, or (b) the Plan has not
been approved by a majority of the outstanding voting securities of the
Fund.
Section 4. Approval of Directors
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Directors of the Fund
and (b) those Directors who are not interested persons of the Fund and who
have not direct or indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified Directors"), cast in
person at a meeting called for the purpose of voting on the Plan and the
related agreements.
Section 5. Continuance of the Plan
The Plan will continue in effect with respect to each Class until
November 7, 1995, and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the Directors of the Fund and by
a majority of the Qualified Directors.
Section 6. Termination
The Plan may be terminated at any time with respect to a Class (i) by
the Fund without the payment of any penalty, by the vote of a majority of
the outstanding voting securities of such Class or (ii) by a vote of the
Qualified Directors. The Plan may remain in effect with respect to a
particular Class even if the Plan has been terminated in accordance with
this Section 6 with respect to any other Class.
Section 7. Amendments
The Plan may to be amended with respect to any Class so as to
increase materially the amounts of the Fees described in Section 1 above,
unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of that class. No material
amendment to the Plan may be made unless approved by the Fund's Board of
Directors in the manner described in Section 4 above.
Section 8. Selection of Certain Directors
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, a person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Directors and the Board will review, at least
quarterly, written reports complying with the requirements of the Rule,
which sets out the amounts expended under the Plan and the purposes for
which those expenditures were made.
Section 10. Preservation of Materials
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of
not less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning
that those terms have under the 1940 Act by the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the Fund execute the Plan as of November 7, 1994.
SMITH BARNEY
INVESTMENT GRADE BOND FUND
By: /s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
AMENDED SERVICES AND DISTRIBUTION PLAN
SMITH BARNEY SPECIAL EQUITIES FUND
This Services and Distribution Plan (the "Plan") is adopted in
accordance with rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Smith Barney Special Equities Fund, a
corporation organized under the laws of the State of Maryland (the "Fund"),
subject to the following terms and conditions:
Section 1. Annual Fee
(a) Class A Service Fee. The Fund will pay to the distributor of its
shares, Smith Barney Inc., a corporation organized under the laws of the
State of Delaware ("Distributor"), a service fee under the Plan at the
annual rate of .25% of the average daily net assets of the Fund
attributable to the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class B shares
(the "Class B Service Fee").
(c) Service Fee for Class C shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .25% of the
average daily net assets of the Fund attributable to the Class C shares
(the "Class C Service Fee," and collectively with the Class A Service Fee
and the Class B Service Fee, the "Service Fees").
(d) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .75% of the average daily net assets of the fund
attributable to the Class B Distribution Fee, the "Distribution Fees").
(e) Distribution Fee for Class C shares. In addition to the Class C
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .75% of the average daily net assets of the Fund
attributable to the Class C shares (the "Class C Distribution Fee," and
collectively with the Class B Distribution Fee, the "Distribution Fees").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated daily and paid monthly by the Fund with respect to the foregoing
classes of the fund's shares (each a "Class" and together the "Classes") at
the annual rates indicated above.
Section 2. Expenses Covered by the Plan
With respect to expenses incurred by each Class its respective
Service Fees and/or Distribution Fees may be used for; (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs
involved in preparing, printing and distributing sales literature
pertaining o the Fund; (c) an allocation of overhead and other branch
office distribution-related expenses of the Distributor; (d) payments made
to, and expenses of Smith Barney Financial Consultants and other persons
who provide support services in connection with the distribution of the
Fund's shares, including but not limited to, office space and equipment,
telephone
facilities, answering routine inquires regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's Transfer agent; and (e) accruals for
interest on the amount of the foregoing expenses that exceed the
Distribution Fee and, in the case of Class B shares, the contingent
deferred sales charge received by the Distributor; provided, however, that
the Distribution Fees may be used by the Distributor only to cover expenses
primarily intended to result in the sale of the Fund's Class B and C
shares, including without limitation, payments to Distributor's financial
consultants ant the time of the sale of Class B and C shares. In addition,
Service Fees are intended to be used by the Distributor primarily to pay
its financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval of Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of the Plan, with respect to a Class until the
Plan has been approved by a vote of a least a majority of the outstanding
voting securities of the Class. The Plan will be deemed to have been
approved with respect to a class so longer as a majority of the outstanding
voting securities of the Class votes for the approval of the Plan,
notwithstanding that: (a) the Plan has not been approved by a major of the
outstanding voting securities of any other Class, or (b) the Plan has not
been approved by a majority of the outstanding voting securities of the
Fund.
Section 4. Approval of Directors
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Directors of the Fund
and (b) those Directors who are not interested persons of the Fund and who
have not direct or indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified Directors"), cast in
person at a meeting called for the purpose of voting on the Plan and the
related agreements.
Section 5. Continuance of the Plan
The Plan will continue in effect with respect to each Class until
November 7, 1995, and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the Directors of the Fund and by
a majority of the Qualified Directors.
Section 6. Termination
The Plan may be terminated at any time with respect to a Class (i) by
the Fund without the payment of any penalty, by the vote of a majority of
the outstanding voting securities of such Class or (ii) by a vote of the
Qualified Directors. The Plan may remain in effect with respect to a
particular Class even if the Plan has been terminated in accordance with
this Section 6 with respect to any other Class.
Section 7. Amendments
The Plan may to be amended with respect to any Class so as to
increase materially the amounts of the Fees described in Section 1 above,
unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of that class. No material
amendment to the Plan may be made unless approved by the Fund's Board of
Directors in the manner described in Section 4 above.
Section 8. Selection of Certain Directors
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, a person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Directors and the Board will review, at least
quarterly, written reports complying with the requirements of the Rule,
which sets out the amounts expended under the Plan and the purposes for
which those expenditures were made.
Section 10. Preservation of Materials
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of
not less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning
that those terms have under the 1940 Act by the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the Fund execute the Plan as of November 7, 1994.
SMITH BARNEY
SPECIAL EQUITIES FUND
By: /s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
g\shared\domestic\clients\shearson\funds\eurp\12b1pln2.doc09:05 AM
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> SBS Investment Funds - European, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 36,256,570
<INVESTMENTS-AT-VALUE> 38,668,347
<RECEIVABLES> 1,472,550
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 659,127
<TOTAL-ASSETS> 40,800,024
<PAYABLE-FOR-SECURITIES> 255,935
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 474,350
<TOTAL-LIABILITIES> 730,285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,214,231
<SHARES-COMMON-STOCK> 144,686
<SHARES-COMMON-PRIOR> 118,021
<ACCUMULATED-NII-CURRENT> 28,857
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (598,619)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,425,270
<NET-ASSETS> 40,069,739
<DIVIDEND-INCOME> 539,843
<INTEREST-INCOME> 60,881
<OTHER-INCOME> 0
<EXPENSES-NET> 571,867
<NET-INVESTMENT-INCOME> 28,857
<REALIZED-GAINS-CURRENT> 1,324,431
<APPREC-INCREASE-CURRENT> (2,564,662)
<NET-CHANGE-FROM-OPS> (1,211,374)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 311,500
<NUMBER-OF-SHARES-REDEEMED> 284,835
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,664,373
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,923,050)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 140,021
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 571,867
<AVERAGE-NET-ASSETS> 40,118,480
<PER-SHARE-NAV-BEGIN> 14.47
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.41)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.11
<EXPENSE-RATIO> 2.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> SBS Investment Funds - European, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 36,256,570
<INVESTMENTS-AT-VALUE> 38,668,347
<RECEIVABLES> 1,472,550
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 659,127
<TOTAL-ASSETS> 40,800,024
<PAYABLE-FOR-SECURITIES> 255,935
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 474,350
<TOTAL-LIABILITIES> 730,285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,214,231
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> SBS Investment Funds - European, Class D
<S> <C>
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<EXPENSES-NET> 571,867
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<PER-SHARE-NAV-END> 14.00
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SBS Government Securities Fund Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 748,273,309
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<NUMBER-OF-SHARES-SOLD> 158,242
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<NET-CHANGE-IN-ASSETS> (134,480,672)
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<PER-SHARE-GAIN-APPREC> (0.66)
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<PER-SHARE-NAV-END> 9.33
<EXPENSE-RATIO> 1.00
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SBS Government Securities Fund Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 748,273,309
<INVESTMENTS-AT-VALUE> 715,654,259
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<DIVIDEND-INCOME> 0
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<REALIZED-GAINS-CURRENT> (29,153,891)
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<OVERDIST-NET-GAINS-PRIOR> (556,625,868)
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<GROSS-EXPENSE> 5,764,943
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<PER-SHARE-GAIN-APPREC> (0.66)
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<PER-SHARE-NAV-END> 9.33
<EXPENSE-RATIO> 1.48
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SBS Government Securities Fund Class D
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 748,273,309
<INVESTMENTS-AT-VALUE> 715,654,259
<RECEIVABLES> 139,310,315
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<EXPENSES-NET> 7,211,405
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<REALIZED-GAINS-CURRENT> (29,153,891)
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<NET-CHANGE-IN-ASSETS> (134,480,672)
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<GROSS-EXPENSE> 5,764,943
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<PER-SHARE-NAV-END> 9.33
<EXPENSE-RATIO> 1.48
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 0
<NAME> SBS SPECIAL EQUITIES FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 175,008,622
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<RECEIVABLES> 6,515,748
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<OTHER-ITEMS-ASSETS> 3,943
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<PAID-IN-CAPITAL-COMMON> 174,220,028
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<NET-ASSETS> 177,269,420
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<INTEREST-INCOME> 414,703
<OTHER-INCOME> 0
<EXPENSES-NET> 1,979,625
<NET-INVESTMENT-INCOME> (1,425,277)
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<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 889,689
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<NET-CHANGE-IN-ASSETS> (11,437,627)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (270,779)
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<GROSS-EXPENSE> 1,979,625
<AVERAGE-NET-ASSETS> 192,094,787
<PER-SHARE-NAV-BEGIN> 20.23
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> (3.03)
<PER-SHARE-DIVIDEND> 0.00
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<PER-SHARE-NAV-END> 17.11
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 0
<NAME> SBS SPECIAL EQUITIES FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 175,008,622
<INVESTMENTS-AT-VALUE> 185,581,973
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 174,220,028
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,425,277)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,098,682)
<ACCUM-APPREC-OR-DEPREC> 10,573,351
<NET-ASSETS> 177,269,420
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<NET-INVESTMENT-INCOME> (1,425,277)
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<NUMBER-OF-SHARES-SOLD> 3,575,685
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<NET-CHANGE-IN-ASSETS> (11,437,627)
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (270,779)
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<GROSS-EXPENSE> 1,979,625
<AVERAGE-NET-ASSETS> 192,094,787
<PER-SHARE-NAV-BEGIN> 20.08
<PER-SHARE-NII> (0.15)
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<PER-SHARE-NAV-END> 16.92
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 0
<NAME> SBS SPECIAL EQUITIES FUND CLASS D
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 175,008,622
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<PAID-IN-CAPITAL-COMMON> 174,220,028
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<NET-INVESTMENT-INCOME> (1,425,277)
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<PER-SHARE-NII> (0.08)
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<PER-SHARE-NAV-END> 16.92
<EXPENSE-RATIO> 2.03
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 0
<NAME> SBS INVESTMENT GRADE BOND FUND CLASS A
<S> <C>
A
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 434,625,438
<INVESTMENTS-AT-VALUE> 404,609,820
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> SBS INVESTMENT GRADE BOND FUND CLASS B
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<NAME> SBS INVESTMENT GRADE BOND FUND CLASS D
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