SMITH BARNEY
- ------
AGGRESSIVE GROWTH FUND 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 Prospectus of Smith Barney Aggressive
Growth Fund Inc. (the "Fund"), dated November 7, 1994, as amended or
supple-
mented from time to time, and should be read in conjunction with the Fund's
Prospectus. The Fund's Prospectus may be obtained from any Smith Barney
Finan-
cial Consultant, or by writing or calling the Fund at the address or
telephone
number set forth above. This Statement of Additional Information, although
not
in itself a prospectus, is incorporated by reference into the Prospectus in
its entirety.
CONTENTS
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For ease of reference, the same section headings are used in both the
Prospectus and this Statement of Additional Information, except where shown
below:
<TABLE>
<S>
<C>
Management of the
Fund................................................... 1
Investment Objective and Management
Policies............................. 5
Purchase of
Shares....................................................... 11
Redemption of
Shares..................................................... 12
Distributor..............................................................
13
Valuation of
Shares...................................................... 14
Exchange
Privilege....................................................... 15
Performance Data (See in the Prospectus
"Performance")................... 16
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes")....... 18
Additional
Information................................................... 19
Financial
Statements..................................................... 20
</TABLE>
MANAGEMENT OF THE FUND
- ------
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations are
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 Fund are
discussed in the Prospectus and in this Statement of Additional
Information.
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Directors and executive officers of the Fund, together with
information
as to their principal business occupations during the past five years, are
shown below. Each Director who is an "interested person" of the Fund, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
is
indicated by an asterisk.
Paul R. Ades, Director. Partner in the law firm of Murov & Ades. His
address
is 272 South Wellwood Avenue, P.O. Box 504, 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
Administration, Harvard University. His address is Graduate School of
Business
Administration, Harvard University, Boston, Massachusetts 02163.
Frank G. Hubbard, Corporate Vice President, Materials Management and
Marketing 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 Avenue,
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 the Board of Smith Barney Strategy Advisers Inc.;
prior
to July 1993, Senior Executive Vice President of Shearson Lehman Brothers
Inc.
("Shearson Lehman Brothers"); Vice Chairman of Shearson Asset Management; a
Director of PanAgora Asset Management, Inc. and PanAgora Asset Management
Limited. His address is 388 Greenwich Street, New York, New York 10013.
Ken Miller, Director. President of Young Stuff Apparel Group, Inc. His
address is 1411 Broadway, 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; President of Smith Barney Strategy Advisers Inc.; prior to July
1993,
Senior Vice President of Shearson Lehman Brothers;
2
President of Shearson Lehman Investment Strategy Advisors Inc. His address
is
388 Greenwich Street, New York, New York 10013.
Richard A. Freeman, Vice President and Investment Officer; Managing
Director
of Asset Management; prior to July 1993, Executive Vice President of
Shearson
Asset Management. His address is 388 Greenwich Street, New York, New York
10013.
Lewis E. Daidone, Treasurer. Managing Director and Chief Financial
Officer
of Smith Barney; Director and Senior Vice President of SBMFM. His address
is
388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary. Managing Director of Smith Barney; General
Counsel and Secretary of SBMFM. Her address is 388 Greenwich Street, New
York,
New York 10013.
Each Director also serves as a director, trustee and/or general partner
of
certain other mutual funds for which Smith Barney serves as distributor. As
of
October 31, 1994, the Directors and officers of the Fund, as a group, owned
less than 1.00% of the outstanding common stock of the Fund.
No officer, director or employee of Smith Barney or any parent or
subsidiary
receives any compensation from the Fund for serving as an
officer or Director of the Fund. The Fund pays each Director who is not an
officer , director or employee of Smith Barney or any of its
affiliates a fee of $3,000
per annum plus $500 per meeting attended and reimburses them for travel and
out-of-pocket expenses. For the Fund's fiscal year ended August 31, 1994,
such
fees and expenses totalled $45,370.
INVESTMENT ADVISER AND ADMINISTRATOR--SBMFM
SBMFM (formerly known as Smith, Barney Advisers, Inc.) serves as
investment adviser to the Fund pursuant to a written agreement (the
"Advisory Agreement"), which was most recently approved by the Fund's Board
of Directors, including a majority of the Directors who are not
"interested persons" of the Fund or SBMFM, on April 7, 1993, and by
shareholders on June 9, 1993. The services provided by SBMFM under the
Advisory Agreement are described in the Prospectus under "Management of the
Fund." SBMFM pays the salary of any officer and employee who is employed by
both it and the Fund. SBMFM bears all expenses in connection with the
performance of its services. SBMFM is a wholly
owned subsidiary of Smith Barney Holdings Inc. ("Holdings"), which is in
turn
a wholly owned subsidiary of The Travelers Inc. ("Travelers").
As compensation for investment advisory services , the
Fund pays
SBMFM a fee computed daily and paid monthly at the annual rate
of 0.60% of the value of the Fund's average daily net assets. For
the 1994,
1993 and 1992 fiscal years, the Fund paid $1,494,432, $1,239,641 and
$1,093,428, respectively, in investment advisory fees.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement dated April 20, 1994 (the "Administration Agreement"), which was
most recently approved by the Fund's Board of Directors, including a
majority
of Directors who are not "interested persons" of the Fund or SBMFM, on July
21, 1994. The services provided by SBMFM under the Administration Agreement
are described in the Prospectus under "Management of the Fund." SBMFM pays
the
salary of any officer and employee
3
who is employed by both it and the Fund and bears all expenses in
connection
with the performance of its services.
For administration services rendered to the Fund, SBMFM
receives a fee at the annual rate of 0.20% of the value
of the Fund's average daily net assets. For the 1994 fiscal period, the
Fund
paid SBMFM $81,334 in administration fees.
SUB-ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors serves as sub-administrator to the Fund pursuant to
a written
agreement (the "Sub-Administration Agreement") dated April 20, 1994, which
was
most recently approved by the Fund's Board of Directors, including a
majority
of Directors who are not "interested persons" of the Fund or Boston
Advisors
on July 21, 1994. As compensation for Boston Advisors' services rendered
to the Fund, Boston
Advisors is paid a portion of the administration fee paid by the Fund to
SBMFM
at a rate agreed upon from time to time between Boston Advisors and
SBMFM.
Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), a financial services holding company, which is in
turn
a wholly owned subsidiary of Mellon Bank Corporation ("Mellon").
Prior to April 20, 1994, Boston Advisors served as the Fund's
administrator
and received a fee computed daily and paid monthly at the annual rate of
0.20%
of the value of the Fund's average daily net assets. For the period
September
1, 1993 to April 19, 1994 and the 1993 and 1992 fiscal years, Boston
Advisors
received $416,810, $413,214 and $364,476 respectively, in sub-investment
advisory and/or administration fees.
Certain of the services provided to the Fund by Boston Advisors
are described in the Prospectus under "Management of the Fund." In addition
to
those services, Boston Advisors pays the salaries of
all officers and employees who are employed by both it and the Fund,
maintains
office facilities for the Fund, furnishes the Fund with statistical and
research data, clerical help and accounting, data processing, bookkeeping,
internal auditing and legal services and certain other services required by
the Fund, prepares reports to the Fund's shareholders and prepares tax
returns, reports to and filings with the Securities and Exchange Commission
(the "SEC") and state Blue Sky authorities. Boston Advisors bears all
expenses
in connection with the performance of its services.
The Fund bears expenses incurred in its operation, including:
taxes,
interest, brokerage fees and commissions, if any; fees of Directors who are
not officers, directors, shareholders or employees of Smith Barney, SBMFM
or
Boston Advisors; SEC fees and state Blue Sky qualification fees; charges of
custodians; transfer and dividend disbursing agent's fees; certain
insurance
premiums; outside auditing and legal expenses; costs of maintenance of
corporate existence; investor services (including allocated telephone and
personnel expenses); and costs of preparation and printing of prospectuses
and statements of additional information 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
aggregate expenses of the Fund (including fees paid pursuant to the
Advisory,
Administration and Sub-Administration Agreements, but excluding interest,
taxes, brokerage , fees paid pursuant to the Fund's services and
distribution plan
and, with the prior written consent of the necessary state
securities commissions, extraordinary expenses) exceed the expense
limitation
of any state having jurisdiction over the Fund, SBMFM and Boston Advisors
will, to the extent required by state law, reduce their management
fees by such
excess expense. Such a fee reduction, if any, will be reconciled on a
monthly
basis. The most restrictive state limitation applicable to the Fund would
require SBMFM and Boston Advisors to reduce their fees in any year that
such
excess expenses exceed 2.50% of the first $30 million of average net
assets,
4
2.00% of the next $70 million of average net assets and
1.50% of the remaining
average net assets. No fee reduction was required for the 1994, 1993 and
1992
fiscal years.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as counsel to the Fund. The Directors who
are not "interested persons" of the Fund have selected Stroock & Stroock &
Lavan as their legal counsel.
KPMG Peat Marwick L.L.P. , independent accountants, 345 Park
Avenue, New York,
New York 10154, serve as auditors of the Fund and will render an opinion on
the Fund's financial statements annually. Prior to October 20, 1994,
Coopers &
Lybrand L.L.P., independent accountants, served as auditors of the Fund and
rendered an opinion on the Fund's financial statements for the fiscal year
ended August 31, 1994.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
- ------
The Prospectus discusses the Fund's investment objective and the policies
it
employs to achieve its objective. The following discussion supplements the
description of the Fund's investment objective and management policies in
the
Prospectus.
LEVERAGING
The Fund may from time to time leverage its investments by purchasing
securities with borrowed money. The Fund may borrow money only from banks
and
in an amount not to exceed 33 1/3% of the total value of its assets less
its
liabilities. The amount of the Fund's borrowings also may be limited by the
availability and cost of credit and by restrictions imposed by the Federal
Reserve Board.
The Fund is required under the 1940 Act to maintain at all times an asset
coverage of 300% of the amount of its borrowings. If, as a result of market
fluctuations or for any other reason, the Fund's asset coverage drops below
300%, the Fund must reduce its outstanding bank debt within three business
days so as to restore its asset coverage to the 300% level.
Any gain in the value of securities purchased with borrowed money that
exceeds the interest paid on the amount borrowed would cause the net asset
value of the Fund's shares to increase more rapidly than otherwise would be
the case. Conversely, any decline in the value of securities purchased
would
cause the net asset value of the Fund's shares to decrease more rapidly
than
otherwise would be the case. Borrowed money thus creates an opportunity for
greater capital gain but at the same time increases exposure to capital
risk.
The net cost of any borrowed money would be an expense that otherwise would
not be incurred, and this expense could restrict or eliminate the Fund's
net
investment income in any given period.
LENDING OF PORTFOLIO SECURITIES
As stated in the Prospectus, the Fund has the ability to lend securities
from its portfolio to brokers, dealers and other financial organizations.
Such
loans, if and when made, will not exceed 33 1/3% of the Fund's total
assets.
The Fund may not lend its portfolio securities to Smith Barney or its
affiliates unless it has applied for and received specific authority from
the
SEC. Loans of portfolio securities by the Fund will be collateralized by
cash,
letters of credit or securities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. government
securities")
which will be maintained at all times in an amount equal to at least 100%
of
the current market value of the loaned securities. From
5
time to time, the Fund may return a part of the interest earned from the
investment of collateral received for securities loaned to the borrower
and/or
a third party, which is unaffiliated with the Fund or with Smith Barney,
and
which is acting as a "finder."
In lending its portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by
either
investing the cash collateral in short-term instruments or obtaining yield
in
the form of interest paid by the borrower when government securities are
used
as collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (a) the Fund must receive at
least
100% cash collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (c) the Fund must be
able
to terminate the loan at any time; (d) the Fund must receive reasonable
interest on the loan, as well as an amount equal to any dividends, interest
or
other distributions on the loaned securities, and any increase in market
value; (e) the Fund may pay only reasonable custodian fees in connection
with
the loan; and (f) voting rights on the loaned securities may pass to the
borrower; however, if a material event adversely affecting the investment
occurs, the Fund's Board of Directors must terminate the loan and regain
the
right to vote the securities. The risks in lending portfolio securities, as
with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail
financially. Loans will be made to firms deemed by SBMFM to be of good
standing and will not be made unless, in the judgment of SBMFM the
consideration to be earned from such loans would justify the risk.
MONEY MARKET INSTRUMENTS
As stated in the Prospectus, the Fund may invest for defensive purposes
in
corporate and government bonds and notes and money market instruments.
Money
market instruments in which the Fund may invest include: U.S. government
securities; certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located outside the
United
States and subsidiaries located in Canada), domestic branches of foreign
banks, savings and loan associations and similar institutions; high grade
commercial paper; and repurchase agreements with respect to the foregoing
types of instruments. The following is a more detailed description of such
money market instruments.
Bank Obligations. Certificates of deposits ("CDs") are short-term,
negotiable obligations of commercial banks. Time deposits ("TDs") are non-
negotiable deposits maintained in banking institutions for specified
periods
of time at stated interest rates. Bankers' acceptances are time drafts
drawn
on commercial banks by borrowers, usually in connection with international
transactions.
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members
of
the Federal Reserve System and to be insured by the Federal Deposit
Insurance
Corporation (the "FDIC"). Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit
to
the Fund, depending upon the principal amount of CDs of each bank held by
the
Fund) and are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of governmental regulations,
domestic
branches of domestic banks are, among other things, generally required to
maintain specified levels of reserves, and are subject to other supervision
and regulation designed to promote financial soundness.
6
Obligations of foreign branches of domestic banks, such as CDs and TDs,
may
be general obligations of the parent bank in addition to the issuing
branch,
or may be limited by the terms of a specific obligation and governmental
regulation. Such obligations are subject to different risks than are those
of
domestic banks or domestic branches of foreign banks. These risks include
foreign economic and political developments, foreign governmental
restrictions
that may adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding and other
taxes
on interest income. Foreign branches of domestic banks are not necessarily
subject to the same or similar regulatory requirements that apply to
domestic
banks, such as mandatory reserve requirements, loan limitations, and
accounting, auditing and financial recordkeeping requirements. In addition,
less information may be publicly available about a foreign branch of a
domestic bank than about a domestic bank. CDs issued by wholly owned
Canadian
subsidiaries of domestic banks are guaranteed as to repayment of principal
and
interest (but not as to sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations
of the parent bank in addition to the issuing branch, or may be limited by
the
terms of a specific obligation and by governmental regulation as well as
governmental action in the country in which the foreign bank has its head
office. A domestic branch of a foreign bank with assets in excess of $1
billion may or may not be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is located if
the
branch is licensed in that state. In addition, branches licensed by the
Comptroller of the Currency and branches licensed by certain states ("State
Branches") may or may not be required to: (a) pledge to the regulator by
depositing assets with a designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (b) maintain assets within
the state in an amount equal to a specified percentage of the aggregate
amount
of liabilities of the foreign bank payable at or through all of its
agencies
or branches within the state. The deposits of State Branches may not
necessarily be insured by the FDIC. In addition, there may be less publicly
available information about a domestic branch of a foreign bank than about
a
domestic bank.
In view of the foregoing factors associated with the purchase of CDs and
TDs
issued by foreign branches of domestic banks or by domestic branches of
foreign banks, SBMFM will carefully evaluate such investments on a case-by-
case basis.
Savings and loans associations whose CDs may be purchased by the Fund are
supervised by the Office of Thrift Supervision and are insured by the
Savings
Association Insurance Fund which is administered by the FDIC and is backed
by
the full faith and credit of the United States government. As a result,
such
savings and loan associations are subject to regulation and examination.
CONVERTIBLE SECURITIES
Convertible securities are fixed-income securities that may be converted
at
either a stated price or stated rate into underlying shares of common
stock.
Convertible securities have general characteristics similar to both fixed-
income and equity securities. Although to a lesser extent than with fixed-
income securities generally, the market value of convertible securities
tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in
the
market value of the underlying common stocks and therefore also will react
to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
7
stock declines, convertible securities tend to trade increasingly on a
yield
basis, and so may not experience market value declines to the same extent
as
the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities
generally
entail less risk than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than
common
stocks. Of course, like all fixed-income securities, there can be no
assurance
of current income because the issuers of the convertible securities may
default on their obligations. Convertible securities, however, generally
offer
lower interest or dividend yields than non-convertible securities of
similar
quality because of the potential for capital appreciation. A convertible
security, in addition to providing fixed income, offers the potential for
capital appreciation through the conversion feature, which enables the
holder
to benefit from increases in the market price of the underlying common
stock.
There can be no assurance of capital appreciation, however, because
securities
prices fluctuate.
Convertible securities generally are subordinated to other similar but
non-
convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all
equity
securities, and convertible preferred stock is senior to common stock, of
the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible
securities.
WARRANTS
Because a warrant does not carry with it the right to dividends or voting
rights with respect to the securities that the warrant holder is entitled
to
purchase, and because it does not represent any rights to the assets of the
issuer, warrants may be considered more speculative than certain other
types
of investments. Also, the value of a warrant does not necessarily change
with
the value of the underlying securities and a warrant ceases to have value
if
it is not exercised prior to its expiration date.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the
protection of shareholders. Restrictions 1 through 8 cannot be changed
without
approval by the holders of a majority of the outstanding shares of the
Fund,
defined as the lesser of (a) 67% or more of the Fund's shares present at a
meeting, if the holders of more than 50% of the outstanding shares are
present
in person or by proxy or (b) more than 50% of the Fund's outstanding
shares.
The remaining restrictions may be changed by the Board of Directors at any
time. The Fund may not:
1. With respect to 75% of the value of its total assets, invest more
than 5% of its total assets in securities of any one issuer, except
securities issued or guaranteed by the United States government, or
purchase more than 10% of the outstanding voting securities of such
issuer.
2. Issue senior securities as defined in the 1940 Act and any rules and
orders thereunder, except insofar as the Fund may be deemed to have
issued senior securities by reason of: (a) borrowing money or
purchasing securities on a when-issued or delayed-delivery basis,
(b)
purchasing or selling futures contracts and options on futures
contracts and other similar instruments and (c) issuing separate
classes of shares.
8
3. Invest more than 25% of its total assets in securities, the issuers
of which are in the same industry. For purposes of this limitation,
U.S. government securities and securities of state or municipal
governments and their political subdivisions are not considered to
be
issued by members of any industry.
4. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies, (b) repurchase agreements and (c)
loans of its portfolio securities.
5. Engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be
deemed
to be an underwriter under the Securities Act of 1933, as amended,
in
disposing of portfolio securities.
6. Purchase or sell real estate, real estate mortgages, real estate
investment trust securities, commodities or commodity contracts, but
this shall not prevent the Fund from: (a) investing in securities of
issuers engaged in the real estate business and securities which are
secured by real estate or interests therein, (b) holding or selling
real estate received in connection with securities it holds, or (c)
trading in futures contracts and options on futures contracts.
7. Purchase any securities on margin (except for each short-term
credits
as are necessary for the clearance of purchases and sales of
portfolio securities) or sell any securities short (except against
the box). For purposes of this restriction, the deposit or payment
by
the Fund of initial or maintenance margin in connection with futures
contracts and related options and options on securities is not
considered to be the purchase of a security on margin.
8. Borrow money in excess of 33 1/3% of the total value of its assets
(including the amount borrowed) less its liabilities (not including
its borrowings).
9. Purchase or otherwise acquire any security if, as a result, more
than
15% of its net assets would be invested in securities that are
illiquid.
10. Invest more than 5% of the value of its net assets (valued at the
lower of cost or market) in warrants, of which no more than 2% of
net
assets may be invested in warrants not listed on the New York Stock
Exchange, Inc. (the "NYSE") or the American Stock Exchange. The
acquisition of warrants attached to other securities is not subject
to this restriction.
11. Purchase, sell or write put, call, straddle or spread options.
12. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs.
13. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets.
14. Invest in companies for the purpose of exercising management or
control.
15. Purchase or hold the securities of any issuer if those officers or
Directors of the Fund, or of SBMFM, who individually own
beneficially
more than 1/2 of 1% of the outstanding securities of the issuer,
together own beneficially more than 5% of those securities.
16. Invest more than 5% of the value of its total assets in securities
of
issuers having a record of fewer than three years of continual
operation except that the restriction will not apply to U.S.
government securities. (For purposes of this restriction, issuers
include predecessors, sponsors, controlling persons, general
partners, guarantors of underlying assets.)
9
Certain restrictions listed above permit the Fund without shareholder
approval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current
investment
practices as otherwise described in the Prospectus and this Statement of
Additional Information and any future change in these practices would
require
Board approval. If any percentage restriction described above is complied
with
at the time of an investment, a later increase or decrease in percentage
resulting from a change in values or assets will not constitute a violation
of
such restriction. The Fund may make commitments more restrictive than the
restrictions listed above such as those regarding oil and mineral leases
and
real estate limited partnerships so as to permit the sale of Fund shares in
certain states. Should the Fund determine that any such commitment is no
longer in the best interests of the Fund and its shareholders, it will
revoke
the commitment by terminating sales of its shares in the state involved.
PORTFOLIO TURNOVER
The Fund's investment policies may result in its experiencing a greater
portfolio turnover rate than those of investment companies that seek to
produce income or to maintain a balanced investment position. Although the
Fund's portfolio turnover rate cannot be predicted and will vary from year
to
year, SBMFM expects that the Fund's annual portfolio turnover rate may
exceed
100%, but will not exceed 200%. A 100% portfolio turnover rate would occur,
for instance, if all securities in the Fund's portfolio were replaced once
during a period of one year. A high rate of portfolio turnover in any year
will increase brokerage commissions paid and could result in high amounts
of
realized investment gain subject to the payment of taxes by shareholders.
Any
realized short-term investment gain will be taxed to shareholders as
ordinary
income. For the 1994 and 1993 fiscal years, the Fund's portfolio turnover
rates were 11% and 13%, respectively.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by SBMFM,
subject
to the overall supervision and review of the Fund's Board of Directors.
Portfolio securities transactions for the Fund are effected by or under the
supervision of SBMFM.
Transactions on stock exchanges involve the payment of negotiated
brokerage
commissions. There is generally no stated commission in the case of
securities
traded in the over-the-counter markets, but the price of those securities
includes an undisclosed commission or mark-up. The cost of securities
purchased from underwriters includes an underwriting commission or
concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down. For the 1994, 1993 and 1992 fiscal
years, the Fund paid $34,996, $64,201 and $45,385, respectively, in
brokerage
commissions.
In executing portfolio transactions and selecting brokers or dealers, it
is
the Fund's policy to seek the best overall terms available. The Advisory
Agreement between the Fund and SBMFM provides that, in assessing the best
overall terms available for any transaction, SBMFM shall consider the
factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of
the
broker or dealer, and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, the Advisory
Agreement authorizes SBMFM, in selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms
10
available, to consider the brokerage and research services (as those terms
are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided
to
the Fund and/or other accounts over which SBMFM or an affiliate exercises
investment discretion.
The Fund's Board of Directors will periodically review the commissions
paid
by the Fund to determine if the commissions paid over representative
periods
of time were reasonable in relation to the benefits inuring to the Fund. It
is
possible that certain of the services received will primarily benefit one
or
more other accounts for which investment discretion is exercised.
Conversely,
the Fund may be the primary beneficiary of services received as a result of
portfolio transactions effected for other accounts. SBMFM's fee under the
Advisory Agreement is not reduced by reason of SBMFM's receiving such
brokerage and research services.
The Fund's Board of Directors has determined that any portfolio
transaction
for the Fund may be executed through Smith Barney if, in SBMFM's judgment,
the
use of Smith Barney is likely to result in price and execution at least as
favorable as those of other qualified brokers, and if, in the transaction,
Smith Barney charges the Fund a commission rate consistent with those
charged
by Smith Barney to comparable unaffiliated customers in similar
transactions.
In addition, under rules recently adopted by the SEC, Smith Barney may
directly execute such transactions for the Fund on the floor of any
national
securities exchange, provided (a) the Board of Directors has expressly
authorized Smith Barney to effect such transactions and (b) Smith Barney
annually advises the Fund of the aggregate compensation it earned on such
transactions. Smith Barney will not participate in commissions from
brokerage
given by the Fund to other brokers or dealers and will not receive any
reciprocal brokerage business resulting therefrom. Over-the-counter
purchases
and sales are transacted directly with principal market makers except in
those
cases in which better prices and executions may be obtained elsewhere. For
the
1994, 1993 and 1992 fiscal years, the Fund paid $3,800, $3,800 and $4,800,
respectively, in brokerage commissions to Smith Barney and/or Shearson
Lehman
Brothers. For the 1994 fiscal year, Smith Barney received 10.9% of the
brokerage commissions paid by the Fund and effected 10.1% of the total
dollar
amount of transactions for the Fund involving the payment of brokerage
commissions.
Even though investment decisions for the Fund are made independently from
those of the other accounts managed by SBMFM, investments of the kind made
by
the Fund also may be made by those other accounts. When the Fund and one or
more accounts managed by SBMFM are prepared to invest in, or desire to
dispose
of, the same security, available investments or opportunities for sales
will
be allocated in a manner believed by SBMFM to be equitable. In some cases,
this procedure may adversely affect the price paid or received by the Fund
or
the size of the position obtained for or disposed of by the Fund.
PURCHASE OF SHARES
- ------
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the
Prospectus
applies to purchases made by any "purchaser," which is defined to include
the
following: (a) an individual; (b) an individual's spouse and his or her
children purchasing shares for his or her own account; (c) a trustee or
other
fiduciary
11
purchasing shares for a single trust estate or single fiduciary account;
(d) a
pension, profit-sharing or other employee benefit plan qualified under
Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and
qualified employee benefit plans of employers who are "affiliated persons"
of
each other within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; and (f) a trustee or
other professional fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, as
amended)
purchasing shares of the Fund for one or more trust estates or fiduciary
accounts. Purchasers who wish to combine purchase orders to take advantage
of
volume discounts should contact a Smith Barney Financial
Consultant .
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in
Class A
shares of the Fund and in Class A shares of other funds of the Smith Barney
Mutual Funds that are offered with a sales charge, including the
purchase being made, of any purchaser is $25,000 or more. The reduced sales
charge is subject to confirmation of the shareholder's holdings through a
check of appropriate records. The Fund reserves the right to terminate or
amend the combined rights of accumulation at any time after written
notice to
shareholders. For further information regarding the right of accumulation,
shareholders should contact a Smith Barney Financial Consultant.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The
public
offering price for a Class A, Class Y and Class Z share of
the Fund is equal to
the net asset value per share at the time of purchase, plus for Class A
shares
an initial sales charge based on the aggregate amount of the investment.
The
public offering price for a Class B and Class C share
(and Class A share
purchases, including applicable rights of accumulation, equalling or
exceeding
$500,000), is equal to the net asset value per share at the time of
purchase
and no sales charge is imposed at the time of purchase. A contingent
deferred
sales charge ("CDSC"), however, is imposed on certain redemptions of Class
B
and Class C shares, and of Class A shares when purchased in amounts
equalling
or exceeding $500,000. The method of computation of the public offering
price
is shown in the Fund's financial statements incorporated by reference in
their
entirety to this Statement of Additional Information.
REDEMPTION OF SHARES
- ------
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the NYSE is closed (other than for
customary
weekend or holiday closings), (b) when trading in markets the Fund normally
utilizes is restricted, or an emergency 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 Board of Directors of the Fund determines that it
would be detrimental to
the best interests of the remaining shareholders of the Fund to make a
redemption payment wholly in cash, the Fund may pay, in
12
accordance with SEC rules, any portion of a redemption in excess of the
lesser
of $250,000 or 1% of the Fund's net assets by distribution in kind of
portfolio securities in lieu of cash. Securities issued as a distribution
in
kind may incur brokerage commissions when shareholders subsequently sell
those
securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $100 may be made under the
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary
to
cover the stipulated withdrawal payment. Any applicable CDSC will not be
waived on amounts withdrawn by shareholders that exceed 1.00% per month of
the
value of a shareholder's shares at the time the Withdrawal Plan commences.
(With respect to Withdrawal Plans in effect prior to November 7, 1994 any
applicable CDSC will be waived on amounts withdrawn that do not
exceed 2.00% per month
of the value of a shareholder's shares at the time the Withdrawal Plan
commences.) To the extent withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued
withdrawal payments will reduce the shareholder's investment and ultimately
may exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. Furthermore, as it generally would not be
advantageous
to a shareholder to make additional investments in the Fund at the same
time
that he or she is participating in the Withdrawal Plan, purchases by such
shareholders in amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with
TSSG as agent for Withdrawal Plan members. All dividends and distributions
on
shares in the Withdrawal Plan are reinvested automatically at net asset
value
in additional shares of the Fund. Effective November 7, 1994, Withdrawal
Plans
should be set up with a Smith Barney Financial Consultant. A
shareholder who
purchases shares directly through TSSG may continue to do so and
applications
for participation in the Withdrawal Plan must be received by TSSG no later
than the eighth day of the month to be eligible for participation beginning
with that month's withdrawal. For additional information, shareholders
should
contact a Smith Barney Financial Consultant.
DISTRIBUTOR
- ------
Smith Barney serves as the Fund's distributor on a best efforts basis
pursuant to a written agreement (the "Distribution Agreement"), which was
most recently approved by the Fund's Board of Directors on July
21, 1994. For the
1994, 1993 and 1992 fiscal years, Smith Barney or its predecessor,
Shearson Lehman Brothers,
received $242,673, $314,155 and $1,765,161, respectively, in sales the sale
of Class A shares, and did not reallow any portion thereof to
dealers. For the period from November 6, 1992 through August 31, 1993
and the fiscal year ended August 31, 1994, Smith Barney received from
shareholders $147,433 and $101,447, respectively, in CDSC on the
redemption of Class B shares. No comparable information is available for
1992 because that was the year that the variable pricing system was
implemented.
When payment is made by the investor before settlement date, unless
otherwise directed by the investor, the funds will be held as a free credit
balance in the investor's brokerage account and Smith Barney may benefit
from
the temporary use of the funds. The investor may designate another use for
the
funds prior to settlement date, such as an investment in a money market
fund
(other than Smith Barney Exchange Reserve Fund) of the Smith Barney Mutual
of
Funds. If the investor instructs Smith Barney to invest the funds in a
Smith
Barney money market fund, the amount of the investment will be included as
13
part of the average daily net assets of both the Fund and the Smith Barney
money market fund, and affiliates of Smith Barney that serve the funds in
an
investment advisory capacity or administrative capacity will benefit from
the
fact that they are receiving fees from both such investment companies for
managing these assets computed on the basis of their average daily net
assets.
The Fund's Board of Directors has been advised of the benefits to Smith
Barney
resulting from these settlement procedures and will take such benefits into
consideration when reviewing the Advisory, Administration and Distribution
Agreements for continuance.
For the fiscal year ended August 31, 1994, Smith Barney incurred
distribution expenses totaling approximately $711,000, consisting of
approximately $3,000 for advertising, $2,000 for printing and mailing of
Prospectuses, $234,000 for support services, $450,000 to Smith Barney
Financial Consultants, and $22,000 in accruals for interest on the excess
of Smith Barney expenses incurred in distributing the Fund's shares over
the sum of the distribution fees and CDSC received by Smith Barney from the
Fund.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney for the services it provides and for the
expense
it bears under the Distribution Agreement, the Fund has adopted a services
and
distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Under the Plan, the Fund pays Smith Barney a service fee, accrued daily and
paid monthly, calculated at the annual rate of 0.25% of the value of the
Fund's average daily net assets attributable to the Class A, Class B and
Class
C shares. In addition, the Fund pays Smith Barney a distribution fee with
respect to Class B and Class C shares primarily intended to
compensate Smith Barney
for its initial expense of paying Financial Consultants a commission upon
sales of those shares. The Class B and Class C distribution fee is
calculated
at the annual rate of 0.75% of the value of the Fund's average net assets
attributable to the shares of the respective Class.
For the period from November 6, 1992 through August 31, 1993, the Fund
incurred $312,312 and $22,840 in service fees for Class A and Class B
shares, respectively. For the fiscal year ended August 31, 1994, the
Fund incurred $435,857 and $80,526 in service fees for Class A and Class B
shares, respectively. For the period from May 13, 1993 through August
31, 1993, the Fund incurred $10 in service fees for its Class C shares.
For the fiscal year ended August 31, 1994, the Fund incurred $366
in service fees for its Class C shares. In addition, Class B and Class C
shares pay a distribution fee primarily intended to compensate Smith Barney
for its initial expense of
paying its Financial Consultants a commission upon the sale of its Class B
and
Class C shares. These distribution fees are calculated at the annual rate
of
0.75% of the value of the average daily net assets attributable to the
respective Class. For the period from November 6, 1992 through August
31, 1993 and the period from May 13, 1993 through August 31, 1993, the Fund
incurred $68,520 and $31 for Class B and Class C shares, respectively, in
distribution fees. For the fiscal year ended August 31, 1994, the Fund
incurred $241,578 and $1,095 for Class B and Class C shares, respectively,
in
distribution fees.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Directors,
including
a majority of the Directors who are not interested persons of the Fund and
who
have no direct or indirect financial interest in the operation of the Plan
or
in the Distribution Agreement (the "Independent Directors"). The Plan may
not
be amended to increase the amount of the service and distribution fees
without
shareholder approval, and all material amendments of the Plan also must be
approved by the Directors and Independent Directors in the manner described
above. The Plan may be terminated with respect to a Class of the Fund at
any
time, without penalty, by vote of a majority of the Independent
Directors
or by vote of a majority of the outstanding voting securities of
the Class
(as defined in the 1940 Act). Pursuant to the Plan, Smith Barney will
provide
the Fund's Board of Directors with periodic reports of amounts expended
under
the Plan and the purpose for which such expenditures were made.
VALUATION OF SHARES
- ------
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently
is
scheduled to be closed on New Year's Day,
14
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent
Monday
when one of these holidays falls on a Saturday or Sunday, respectively.
Because of the differences in distribution fees and Class-specific
expenses,
the per share net asset value of each Class may differ. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a national securities exchange will be valued on the
basis of the last sale on the date on which the valuation is made or, in
the
absence of sales, at the mean between the closing bid and asked prices.
Over-
the-counter securities will be valued on the basis of the bid price at the
close of business on each day, or, if market quotations for those
securities
are not readily available, at fair value, as determined in good faith by
the
Fund's Board of Directors. Short-term obligations with maturities of 60
days
or less are valued at amortized cost, which constitutes fair value as
determined by the Fund's Board of Directors. Amortized cost
involves valuing an
instrument at its original cost to the Fund and thereafter assuming a
constant
amortization to maturity of any discount or premium, regardless of the
effect
of fluctuating interest rates on the market value of the instrument. All
other
securities and other assets of the Fund will be valued at fair value as
determined in good faith by the Fund's Board of Directors.
EXCHANGE PRIVILEGE
- ------
Except as noted below, shareholders of any fund of the Smith Barney
Mutual
Funds may exchange all or part of their shares for shares of the same
class of
other funds of the Smith Barney Mutual Funds, to the extent such shares are
offered for sale in the shareholder's state of residence, on the basis of
relative net asset value per share at the time of exchange as follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds, and the
sales charge differential, if any, will be applied. Class A shares
of any fund may be exchanged without a sales charge for shares of
the funds that are offered without a sales charge. Class A shares of
any fund purchased without a sales charge may be exchanged for
shares sold with a sales charge, and the appropriate sales charge
differential will be applied.
B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of
any of the other funds, and the sales charge differential, if any,
will be applied.
C. Class B shares of any fund may be exchanged without a sales charge.
Class B shares of the Fund exchanged for Class B shares of another
fund will be subject to the higher applicable CDSC of the two funds
and, for purposes of calculating CDSC rates and conversion periods,
will be deemed to have been held since the date the shares being
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
account
number in order to accomplish an exchange of shares of Smith Barney High
Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe that
a
shift between funds is an appropriate investment decision. This privilege
is
available to shareholders residing in any state in which the fund shares
being
15
acquired may legally be sold. Prior to any exchange, the shareholder should
obtain and review a copy of the current prospectus of each fund into which
an
exchange is being considered. Prospectuses may be obtained from a Smith
Barney
Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents,
shares submitted for exchange are redeemed at the then-current net asset
value
and, subject to any applicable CDSC, the proceeds are immediately invested,
at
a price as described above, in shares of the fund being acquired. Smith
Barney
reserves the right to reject any exchange request. The exchange privilege
may
be modified or terminated at any time after written notice to shareholders.
PERFORMANCE DATA
- ------
From time to time, the Fund may quote total return of the Classes in
advertisements or in reports and other communications to shareholders.
The Fund may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include data
from the following industry and financial publications: Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. To
the extent any advertisement or sales literature of the Fund describes the
expenses or performance of Class A, Class B, Class C or Class Y, it will
also
disclose such information for the other Classes.
AVERAGE ANNUAL TOTAL RETURN
"Average annual total return" figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
P(1 + T)n = ERV
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return.
n= number of years.
ERV= Ending Redeemable Value of a hypothetical $1,000
investment
made at the beginning of 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.
Class A's average annual total return was as follows for the periods
indicated:
<TABLE>
<C> <S>
7.77% for the one-year period beginning on September 1, 1993 through
August
31, 1994;
10.11% per annum during the five-year period beginning on September 1,
1989
through August 31, 1994; and
14.50% per annum during the ten-year period beginning on September 1, 1984
through August 31, 1994.
</TABLE>
Class B's average annual total return was as follows for the periods
indicated:
<TABLE>
<C> <S>
7.62% for the one-year period beginning on September 1, 1993 through
August
31, 1994; and
12.94% per annum from November 6, 1992 through August 31, 1994.
</TABLE>
Class C's average annual total return was as follows for the periods
indicated:
<TABLE>
<C> <S>
11.57% for the one-year period beginning on September 1, 1993 through
August
31, 1994; and
18.69% per annum from May 13, 1993 through August 31, 1994.
</TABLE>
Class Z's average annual total return was as follows for the periods
indicated:
<TABLE>
<C> <S>
13.81% for the one-year period beginning on September 1, 1993 through
August
31, 1994; and
16.17% per annum from November 6, 1992 through August 31, 1994.
</TABLE>
Average annual total return figures calculated in accordance with the
above
formula assume that the maximum 5.00% sales charge or maximum applicable
CDSC,
as the case may be, has been deducted from the hypothetical investment.
16
AGGREGATE TOTAL RETURN
"Aggregate total return" figures represent the cumulative change in the
value of an investment in the Class for the specified period and are
computed
by the following formula:
ERV-P
AGGREGATE TOTAL RETURN = -----
P
Where:
P= a hypothetical initial payment of $10,000.
ERV= Ending Redeemable Value of a hypothetical $10,000
investment
made at the beginning of the 1-, 5-, or 10-year period at
the end of the 1-, 5-, or 10-year period (or fractional
portion thereof), assuming reinvestment of all dividends
and
distributions.
Class A's aggregate total return was as follows for the periods
indicated:
<TABLE>
<C> <S>
13.44% for the one-year period from September 1, 1993 through August 31,
1994.
70.34% for the five-year period from September 1, 1989 through August
31,1994; and
307.81% for the ten-year period from September 1, 1984 through August 31,
1994.
</TABLE>
These aggregate total return figures do not assume the maximum 5.00%
sales
charge has been deducted from the investment at the time of purchase. If
the
maximum sales charge had been deducted at the time of purchase, the Fund's
aggregate total return for those same periods would have been 7.77%, 61.83%
and 287.42%, respectively.
Class B's aggregate total return was as follows for the periods
indicated:
<TABLE>
<C> <S>
12.62% for one-year period from September 1, 1993 through August 31, 1994;
and
28.75% for the period from November 6, 1992 through August 31, 1994.
</TABLE>
Class B's aggregate total return figures assume that
the maximum applicable CDSC has not been deducted from the investment at
the time of purchase. If the maximum applicable CDSC had been
reflected, Class B's aggregate total return for the same periods
would have been 7.62% and 24.75%, respectively.
Class C's aggregate total return was as follows for the periods
indicated:
<TABLE>
<C> <S>
12.57% for the one-year period from September 1, 1993 through August 31,
1994;
and
24.98% for the period from May 13, 1993 through August 31, 1994.
</TABLE>
Class Z's aggregate total return was as follows for the periods
indicated:
<TABLE>
<C> <S>
13.81% for the one-year period from September 1, 1993 through August 31,
1994;
and
31.29% for the period from November 6, 1992 through August 31, 1994.
</TABLE>
Performance will vary from time to time depending upon market conditions,
the composition of the Fund's portfolio, operating expenses and the
expenses
exclusively attributable to the Class. Consequently, any given
17
performance quotation should not be considered representative of the Class'
performance for any specified period in the future. Because performance
will
vary, it may not provide a basis for comparing an investment in the Class
with
certain bank deposits or other investments that pay a fixed yield for a
stated
period of time. Investors comparing the Class' performance with that of
other
mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future
performance.
TAXES
- ------
The following is a summary of certain Federal income tax considerations
that
may affect the Fund and its shareholders. The summary is not intended as a
substitute for individual tax advice and investors are urged to consult
their
own tax advisors as to the tax consequences of an investment in the Fund.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Provided that the Fund (a) is
a
regulated investment company and (b) distributes at least 90% of its net
investment income (including, for this purpose, net realized short-term
capital gains), the Fund will not be liable for Federal income taxes to the
extent its net investment income and its net realized long- and short-term
capital gains, if any, are distributed to its shareholders. Although the
Fund
expects to be relieved of all or substantially all Federal, state, and
local
income or franchise taxes, depending upon the extent of its activities in
states and localities in which its offices are maintained, in which its
agents
or independent contractors are located, or in which it is otherwise deemed
to
be conducting business, that portion of the Fund's income which is treated
as
earned in any such state or locality could be subject to state and local
taxes. Any such taxes paid by the Fund would reduce the amount of income
and
gains available for distribution to shareholders. All net investment income
and net capital gains earned by the Fund will be reinvested automatically
in
additional shares of the same Class of the Fund at net asset value, unless
the
shareholder elects to receive dividends and distributions in cash.
Gains or losses on the sales of securities by the Fund generally will be
long-term capital gains or losses if the Fund has held the securities for
more
than one year. Gains or losses on the sales of securities held for not more
than one year generally will be short-term capital gains or losses. If the
Fund acquires a debt security at a substantial discount, a portion of any
gain
upon the sale or redemption will be taxed as ordinary income, rather than
capital gain to the extent it reflects accrued market discount.
Dividends of net investment income and distributions of net realized
short-
term capital gains will be taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares. Dividends received by corporate shareholders will
qualify
for the dividends-received deduction only to the extent that the Fund
designates the amount distributed as a dividend and the amount so
designated
does not exceed the aggregate amount of dividends received by the Fund from
domestic corporations for the taxable year. The Federal dividends-received
deduction for corporate shareholders may be further reduced or disallowed
if
the shares with respect to which dividends are received are treated as
debt-
financed or are deemed to have been held for less than 46 days.
18
Foreign countries may impose withholding and other taxes on dividends and
interest paid to the Fund with respect to investments in foreign
securities.
However, certain foreign countries have entered into tax conventions with
the
United States to reduce or eliminate such taxes.
Distributions of long-term capital gains will be taxable to shareholders
as
such, whether paid in cash or reinvested in additional shares and
regardless
of the length of time that the shareholder has held his or her interest in
the
Fund. If a shareholder receives a distribution taxable as long-term capital
gain with respect to his or her investment in the Fund and redeems or
exchanges the shares before he or she has held them for more than six
months,
any loss on the redemption or exchange that is less than or equal to the
amount of the distribution will be treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring or redeeming
shares
of the Fund, (b) disposes of those shares within 90 days and (c) acquires
shares in a mutual fund for which the otherwise applicable sales charge is
reduced by reason of a reinvestment right (i.e., exchange privilege), the
original sales charge increases the shareholder's tax basis in the original
shares only to the extent the otherwise applicable sales charge for the
second
acquisition is not reduced. The portion of the original sales charge that
does
not increase the shareholder's tax basis in the original shares would be
treated as incurred with respect to the second acquisition and, as a
general
rule, would increase the shareholder's tax basis in the newly acquired
shares.
Furthermore, the same rule also applies to a disposition of the newly
acquired
or redeemed shares made within 90 days of the second acquisition. This
provision prevents a shareholder from immediately deducting the sales
charge
by shifting his or her investment in a family of mutual funds.
Investors considering buying shares of the Fund on or just prior to a
record
date for a taxable dividend or capital gain distribution should be aware
that,
regardless of whether the price of the Fund shares to be purchased reflects
the amount of the forthcoming dividend or distribution payment, any such
payment will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification
number,
fails to report dividend and interest income in full, or fails to certify
that
he or she has provided a correct taxpayer identification number and that he
or
she is not subject to such withholding, the shareholder may be subject to a
31% "backup withholding" tax with respect to (a) any taxable dividends and
distributions and (b) any proceeds of any redemption of Fund shares. An
individual's taxpayer identification number is his or her social security
number. The backup withholding tax is not an additional tax and may be
credited against a shareholder's regular Federal income tax liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax
advisors
with specific reference to their own tax situations, including their state
and
local tax liabilities.
ADDITIONAL INFORMATION
- ------
The Fund was incorporated on May 12, 1983 under the name Shearson
Aggressive
Growth Fund Inc. On May 20, 1988, November 6, 1992, July 30, 1993 and
October
14, 1994, the Fund changed
19
its name to Shearson Lehman Aggressive Growth Fund Inc., Shearson Lehman
Brothers Aggressive Growth Fund Inc., Smith Barney Shearson Aggressive
Growth
Fund Inc. and Smith Barney Aggressive Growth Fund 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 Fund. Under its agreement with the Fund, Boston Safe holds the Fund's
portfolio 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 Fund to be held with foreign branches of other
domestic banks as well as with certain foreign banks and securities
depositories. The assets of the Fund are held under bank custodianship in
compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves
as the Fund's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and distributes dividends
and
distributions payable by the Fund. For these services, TSSG receives a
monthly
fee computed on the basis of the number of shareholder accounts it
maintains
for the Fund during the month and is reimbursed for out-of-pocket expenses.
FINANCIAL STATEMENTS
- ------
The Fund's Annual Report for the fiscal year ended August 31, 1994,
accompanies this Statement of Additional Information and is incorporated
herein by reference in its entirety.
20
SMITH BARNEY
AGGRESSIVE GROWTH FUND INC.
388 Greenwich Street
New York, New York 10013 Fund 9,188,214
___________________________________________________________________________
____
SMITH BARNEY
AGGRESSIVE
GROWTH FUND INC.
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 7, 1994
[LOGO OF SMITH BARNEY APPEARS HERE]
