As filed with the Securities and Exchange Commission
on March 3, 1995
Registration No. 33-57217
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1 [ ] Post-Effective
Amendment No.
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
(Exact name of Registrant as
specified in Charter)
Area Code and Telephone Number: (212) 790-9218
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)
Christina T. Sydor, Esq.
Smith Barney Inc.
388 Greenwich Street New York, New York 10013 (22nd floor)
(Name and address of agent for service)
copies to:
Burton M. Leibert, Esq. John E.
Baumgardner, Jr., Esq.
Willkie Farr & Gallagher Sullivan & Cromwell
One Citicorp Center 125 Broad Street
153 East 53rd Street New York, NY 10004
New York, NY 10022
Approximate date of proposed public offering: As soon as possible
after the effective date of this Registration Statement.
Registrant has registered an indefinite amount of securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended; accordingly, no fee is payable herewith. Registrant's
Rule 24f-2 Notice for the fiscal period ended August 31, 1994 was
filed with the Securities and Exchange Commission on October 29,
1994.
Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may
determine.
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement contains the following pages and
documents:
Front Cover
Contents Page
Cross-Reference Sheet
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
FORM N-14 CROSS REFERENCE SHEET
Pursuant to Rule 481(a) Under the Securities Act of 1933
Prospectus/Proxy
Part A Item No. and Caption Statement
Caption
Item 1. Beginning of Registration Cover Page; Cross
Reference
Statement and Outside Front Sheet
Cover Page of Prospectus
Item 2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
Item 3. Synopsis Information and Summary; Risk
Factors; Comparison of Risk Factors
Investment Objectives and Policies
Item 4. Information About the Transaction Summary:
Reasons for the Reorganization;
Information About the Reorganization;
Information on Shareholder's Rights;
Exhibit A (Agreement and Plan of
Reorganization)
Item 5. Information About the Registrant Cover Page;
Summary; Information About
the Reorganization; Comparison of
Investment Objectives and Policies;
Comparative Information on Shareholder's
Rights; Additional
Information About the
Aggressive Growth Fund and the Capital
Appreciation Portfolio; Prospectus of the
Aggressive Growth Fund dated
November 7, 1994
Item 6. Information About the Summary;
Information About the
Company Being Acquired Reorganization;
Comparison of Investment
Objectives and Policies; Information on
Shareholder's Rights; Additional
Information About the Capital
Appreciation Portfolio
Item 7. Voting Information Summary;
Information About the
Reorganization; Comparative Information
on Shareholder's Rights; Voting
Information
Item 8. Interest of Certain Persons Financial
Statements and Experts; Legal
and Experts Matters
Item 9. Additional Information Not
Applicable
Required for Reoffering By
Persons Deemed to be Underwriters
Statement of Additional
Part B Item No. and Caption Information
Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. Additional Information Cover Page;
Statement of Additional About the Registrant
Information of the Aggressive Growth Fund dated November 7,
1994
Item 13. Additional Information Not Applicable
About the Company Being
Acquired
Item 14. Financial Statements Annual Report of
Aggressive Growth Fund;
Annual Report of Smith Barney
Funds, Inc.
Part C Item No. and Caption Other
Information Caption
Item 15. Indemnification Incorporated by
reference to Part A caption
"Comparative Information on
Shareholders' Rights - Liability of
Directors"
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
Smith Barney Mutual Funds
Investing for your future. Every day.
March __, 1995
Dear Valued Shareholder,
An Important Notice About the Smith Barney Funds/Capital Appreciation
Portfolio
We would like to inform you about a proposal that has recently been
reviewed and unanimously endorsed by the Board of Directors of Smith Barney
Funds, Inc. concerning the reorganization of the Capital Appreciation
Portfolio.
The proposal calls for all of the Capital Appreciation Portfolio's
assets to be acquired by the Smith Barney Aggressive Growth Fund. After
this reorganization, the Capital Appreciation Portfolio would be
terminated, and you will become a shareholder of the Aggressive Growth
Fund. You will receive shares with a total net asset value equal to the
total net asset value of your Capital Appreciation Portfolio investment at
the time of the transaction.
The Board of Directors believes that the proposed reorganization is
in the best interests of the Capital Appreciation Portfolio's shareholders
and should provide benefits due, in part, to savings in expenses paid by
shareholders. In our opinion, this will be a tax-free transaction.
Included with this proxy is a prospectus for the Aggressive Growth
Fund which includes historical performance information. Although past
performance is no guarantee of future results, over the past 10 years the
Aggressive Growth Fund has produced a cumulative total return of 324.93%*.
This performance placed the Fund in The Wall Street Journal's list of best
performing stock funds for the period.** The Fund has been managed by the
same portfolio manager since its inception in 1983.
Please complete, sign and mail the enclosed proxy card...today!
A Special Meeting of Shareholders will be held on May 11, 1995 to
consider this transaction. We strongly urge you to participate by
reviewing, completing and returning your proxy by no later than May 10,
1995 in the postage-paid envelope provided.
For more details about the proposed transaction, please refer to the
enclosed proxy statement. If you sign and date your proxy card, but do not
provide voting instructions, your shares will be voted FOR the proposal.
We thank you for your timely participation and look forward to
serving your investment needs with Smith Barney Mutual Funds. If you have
any questions, please call your Financial Consultant who will be pleased to
assist you.
Sincerely,
Stephen Treadway
Chairman of the Board of
Smith Barney Funds, Inc.
*-1.65%, 10.21% and 15.57% are the 1-, 5- and 10-year average annual total
returns, respectively. All performance data as of 12/31/94. Figures are
for Class A shares and include changes in share prices, reinvestment of
dividends and capital gains and the effect of the Fund's 5.00% maximum
sales charge. Share price and returns will vary. **As cited in The Wall
Street Journal (Quarterly Mutual Fund Review) dated January 6, 1995.
Source: Lipper Analytical Services.
SMITH BARNEY FUNDS, INC. - CAPITAL APPRECIATION PORTFOLIO
388 Greenwich Street
New York, New York 10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On May 11, 1995
___________________
Notice is hereby given that a Special Meeting of
Shareholders (the "Meeting") of Smith Barney Capital Appreciation
Portfolio (the "Portfolio"), will be held at 388 Greenwich Street,
New York, New York on May 1 1 , 1995, at 1:00 p.m. for
the following purposes:
1. To consider and act upon the Agreement and Plan of
Reorganization (the "Plan") dated as of March 7, 1995 ,
providing for: (i) the acquisition of all or substantially all of
the assets of the Portfolio, an investment portfolio of Smith
Barney Funds, Inc., by the Smith Barney Aggressive Growth Fund
(the "Aggressive Growth Fund") in exchange for shares of the
Aggressive Growth Fund and the assumption by the Aggressive Growth
Fund of certain liabilities of the Portfolio; (ii) the distribution
of such shares of the Aggressive Growth Fund to shareholders of the
Portfolio in liquidation of the Portfolio; and (iii) the
subsequent termination of the Portfolio.
2. To transact any other business which may properly
come before the Meeting or any adjournment thereof.
The Board of Directors of Smith Barney Funds,
Inc. has fixed the close of business on February 21,
1995 , as the record date for the determination of shareholders
of the Portfolio entitled to notice of and to vote at this Meeting
or any adjournment thereof (the "Record Date").
IT IS IMPORTANT THAT PROXIES BE RETURNED
PROMPTLY.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND IN PERSON ARE
URGED TO SIGN AND RETURN WITHOUT DELAY THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT THEIR SHARES
MAY BE REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET FORTH ON THE FOLLOWING PAGE. PROXIES
MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY THE
SUBSEQUENT EXECUTION AND SUBMISSION OF A REVISED PROXY BY GIVING
WRITTEN NOTICE OF REVOCATION TO THE PORTFOLIO AT ANY TIME BEFORE
THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE MEETING.
By order
of the
Board of
Directors
Christina T. Sydor
Secretary
March , 1995
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO
AVOID THE EXPENSE OF FURTHER SOLICITATION.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy
cards may be of assistance to you and avoid the time and expense
involved in validating your vote if you fail to sign your proxy
card properly.
1. Individual Accounts: Sign your name exactly as it
appears in the registration on the proxy card.
2. Joint Accounts: Either party may sign, but the
name of the party signing should conform
exactly to the name shown on the registration on the proxy card.
3. All other Accounts: The capacity of the individual
signing the proxy card should be indicated
unless it is reflected in the form of registration. For example:
Registration Valid
Signatures
Corporate Accounts
(1) ABC Corp. ABC Corp
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp
c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
Trust Accounts
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA John B. Smith
(2) John B. Smith John B. Smith, Jr., Executor
PROSPECTUS/PROXY STATEMENT DATED MARCH , 1995
Acquisition of the Assets Of
SMITH BARNEY FUNDS, INC. -- CAPITAL APPRECIATION PORTFOLIO
388 Greenwich Street
New York, New York 10013
800 - 224-7523
By And In Exchange For Shares Of
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
388 Greenwich Street
New York, New York 10013
800 - 224-7523
This Prospectus/Proxy Statement is being furnished to
shareholders of the Capital Appreciation Portfolio, a separate
series of Smith Barney Funds, Inc. (the "Capital
Appreciation Portfolio"), in connection with a proposed plan of
reorganization, to be submitted to shareholders for consideration
at a Special Meeting of Shareholders to be held on May 11, 1995
at 1:00 p.m. , New York City time, at the offices of Smith
Barney Inc., located at 388 Greenwich Street, 22nd Floor, New York,
New York, and any adjournments thereof (collectively, the
"Meeting").
The Plan provides for all or substantially all of
the assets of the Capital Appreciation Portfolio to be acquired by
the Smith Barney Aggressive Growth Fund Inc. (the "Aggressive
Growth Fund"), in exchange for shares of the Aggressive Growth Fund
and the assumption by the Aggressive Growth Fund of certain
liabilities of the Capital Appreciation Portfolio (hereinafter
referred to as the "Reorganization"). (The Capital Appreciation
Portfolio and the Aggressive Growth Fund are herein referred
to individually as a "Fund" and collectively as the "Funds").
Following the Reorganization, shares of the Aggressive Growth Fund
will be distributed to shareholders of the Capital Appreciation
Portfolio in liquidation of the Capital Appreciation Portfolio and
the Capital Appreciation Portfolio will be terminated. As a
result of the proposed Reorganization, each shareholder of the
Capital Appreciation Portfolio will receive that number of shares
of the Aggressive Growth Fund having an aggregate net asset value
equal to the aggregate net asset value of such shareholder's shares
of the Capital Appreciation Portfolio. Holders of Class A shares
in the Capital Appreciation Portfolio will receive Class A shares
of the Aggressive Growth Fund, and no sales charge will be imposed
on the Class A shares of the Aggressive Growth Fund received by the
Capital Appreciation Portfolio Class A shareholders. Holders of
Class B and Class C shares in the Capital Appreciation Portfolio
will receive corresponding Class B and Class C shares,
respectively, of the Aggressive Growth Fund; any contingent
deferred sales charge ("CDSC") which is applicable to a
shareholder's investment will continue to apply, and in calculating
the applicable CDSC payable upon the subsequent redemption of Class
B or Class C shares of the Aggressive Growth Fund, the period
during which a Capital Appreciation Portfolio shareholder held
Class B or Class C shares of the Capital Appreciation Portfolio
will be counted. Holders of Class Y shares of the Capital
Appreciation Portfolio will receive Class Y shares of the
Aggressive Growth Fund. This transaction is being structured as a
tax-free reorganization.
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/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Aggressive Growth Fund is an open-end, diversified
management investment company whose principal investment objective
is to seek capital appreciation by investing primarily in common
stock of companies the Fund's investment adviser believes are
experiencing, or have the potential to experience, growth in
earnings that exceed the average earnings growth rate of
companies whose securities are included in the Standard &
Poor's Daily Price Index of 500 Common Stocks. The Capital
Appreciation Portfolio is also an open-end diversified management
investment company whose investment objective is capital
appreciation. Each Fund invests primarily, but not exclusively, in
common stocks. Smith Barney Mutual Funds Management Inc. (the
"Manager") serves as investment manager to the Aggressive Growth
Fund and to the Capital Appreciation Portfolio. The Manager is a
wholly-owned subsidiary of Smith Barney Holdings Inc. ("SBH")
which, in turn, is a wholly-owned subsidiary of The Travelers Inc.
("Travelers").
The investment policies of the Aggressive Growth Fund
are generally similar to those of the Capital Appreciation
Portfolio. However, certain differences in the Funds' investment
policies are described under "Comparison of Investment Objectives
and Policies" in this Prospectus\Proxy Statement.
This Prospectus\Proxy Statement, which should be
retained for future reference, sets forth concisely the information
about the Aggressive Growth Fund that a prospective investor should
know before investing. Certain relevant documents listed below,
which have been filed with the Securities and Exchange Commission
("SEC"), are incorporated by reference. A Statement of Additional
Information dated March , 1995 relating to this
Prospectus\Proxy Statement and the Reorganization, has been filed
with the SEC and is incorporated by reference into this
Prospectus\Proxy Statement. A copy of such Statement of Additional
Information and the Capital Appreciation Portfolio Prospectus
referred to below are available upon request and without charge by
writing or calling the Capital Appreciation Portfolio at the
telephone number or address listed on the cover page of this
Prospectus/Proxy Statement or by contacting a Smith Barney
Financial Consultant.
1. The Prospectus dated November 7, 1994 of Smith
Barney Aggressive Growth Fund Inc. is incorporated in its
entirety by reference herein.
2. The Prospectus dated November 7, 1994 of Smith
Barney Funds, Inc.-- Capital Appreciation Portfolio is incorporated
in its entirety by reference.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a
copy of the Agreement and Plan of Reorganization (the "Plan") for
the proposed transaction.
TABLE OF CONTENTS
Page
Additional Materials 1
Summary 1
Risk Factors 4
Reasons for the Reorganization 4
Information about the Reorganization 5
Information about the Aggressive Growth Fund 9
Information about the Capital Appreciation Portfolio
10
Comparison of Investment Objectives and Policies 11
Comparative Information on Shareholders' Rights 13
Additional Information About the Aggressive Growth Fund
and
the Capital Appreciation Portfolio 15
Other Business 15
Voting Information 16
Financial Statements and Experts 17
Legal Matters 17
Exhibit A: Agreement and Plan of Reorganization. .
A-1
ADDITIONAL MATERIALS
The following additional materials, which have been
incorporated by reference into the Statement of Additional
Information dated March , 1995 relating to this
Prospectus/Proxy Statement and the Reorganization, will be sent to
all shareholders requesting a copy of such Statement of Additional
Information.
1. Statement of Additional Information of Smith Barney Funds,
Inc. dated November 7, 1994.
2. Statement of Additional Information of Smith Barney
Aggressive Growth Fund, Inc. dated November 7, 1994.
3. Annual Report of Smith Barney Aggressive Growth Fund, Inc.
dated August 31, 1994.
4. Annual Report of Smith Barney Funds, Inc. -- Capital
Appreciation Portfolio dated December 31, 1994.
FEE TABLE
Following are tables showing the current costs and expenses of the
Aggressive Growth Fund and the Capital Appreciation Portfolio and the
Pro Forma costs and expenses expected to be incurred by the
Aggressive Growth Fund after giving effect to the Reorganization,
each based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption:
CLASS A SHARES Aggressive Capital
Pro Forma
Growth
Appreciation
Fund Portfolio
Shareholder Transaction Expenses
Maximum sales charge imposed
on purchases 5.00% 5.00%
5.00%
(as a percentage of
offering price)
Maximum CDSC None* None*
None*
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees 0.80% 0.90%
0.80%
12b-1 fees 0.25 0.25
0.25
Other expenses** 0.37 0.47
0.37
Total Portfolio Operating 1.42% 1.62%
1.42%
Expenses
*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.
**These expenses for Class A shares of the Aggressive Growth Fund are
based on amounts for the fiscal year ended August 31, 1994; for the
Capital Appreciation Portfolio, actual amounts for the fiscal year
ended December 31, 1994; and for the Pro Forma numbers, on estimated
amounts for the fiscal year ending August 31, 1995.
CLASS B SHARES Aggressive Capital
Pro Forma
Growth
Appreciation
Fund Portfolio
Shareholder Transaction Expenses
Maximum sales charge imposed
on purchases None None
None
(as a percentage of
offering price)
Maximum CDSC 5.00% 5.00%
5.00%
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees 0.80% 0.90%
0.80%
12b-1 fees* 1.00 1.00
1.00
Other expenses** 0.42 0.29
0.29
Total Portfolio Operating 2.22% 2.19%
2.09%
Expenses
______________________
*Upon conversion of Class B shares to Class A shares, such shares
will no longer be subject to a distribution fee, but will continue to
be subject to a 0.25% service fee.
**These expenses for Class B shares of the Aggressive Growth Fund are
based on actual amounts for the fiscal year ended August 31, 1994;
for the Capital Appreciation Portfolio, actual amounts for the fiscal
year ended December 31, 1994; and for the Pro Forma numbers, on
estimated amounts for the fiscal year ending August 31, 1995.
CLASS C SHARES* Aggressive Capital
Pro Forma
Growth
Appreciation
Fund Portfolio
Shareholder Transaction Expenses
Maximum sales charge imposed
on purchases None None
None
(as a percentage of
offering price)
Maximum CDSC 1.00% 1.00%
1.00%
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees 0.80% 0.90%
0.80%
12b-1 fees** 1.00 1.00
1.00
Other expenses*** 0.28 0.23
0.28
Total Portfolio Operating 2.08% 2.13%
2.08%
Expenses
*Prior to November 7, 1994, Class C shares of the Aggressive Growth
Fund were designated as Class D shares and Class C shares of the
Capital Appreciation Portfolio were designated as Class B shares.
**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.
***These expenses for Class C shares of the Aggressive Growth Fund
are based on actual amounts for the fiscal year ended August 31,
1994; for the Capital Appreciation Portfolio, actual amounts for the
fiscal year ended December 31, 1994; and for the Pro Forma numbers,
on estimated amounts for the fiscal year ending August 31, 1995.
</R
CLASS Y SHARES Aggressive Capital
ProForma
Growth
Appreciation
Fund Portfolio
Shareholder Transaction Expenses
Maximum sales charge imposed
on purchases None None
None
(as a percentage of
offering price)
Maximum CDSC None None
None
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees 0.80% 0.90%
0.80%
12b-1 fees - -
-
Other expenses* 0.37 0.37
0.37
Total Portfolio Operating 1.17% 1.27%
1.17%
Expenses
*These expenses for Class Y shares of the Aggressive Growth Fund are
based on estimated amounts for the fiscal year ending August 31, 1995
because Class Y shares were not available for purchase prior to
November 7, 1994; for the Capital Appreciation Portfolio, actual
amounts for the fiscal year ended December 31, 1994; and for the Pro
Forma numbers, on estimated amounts for the fiscal year ending August
31, 1995.
Examples
The following examples are intended to assist an investor in
understanding the various costs that an investor will bear directly
or indirectly. The examples assume payment of operating expenses at
the levels set forth in the tables above.
1 Year 3 Years
5 Years 10 Years*
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
Aggressive Growth Fund $64 $73
$124 $212
Capital Appreciation Portfolio 66 99
134 233
Pro Forma 64 93
124 212
Class B
Aggressive Growth Fund $73 $99
$129 $235
Capital Appreciation Portfolio 72 99
127 233
Pro Forma 71 95
122 223
Class C
Aggressive Growth Fund $31 $65
$112 $241
Capital Appreciation Portfolio 32 67
114 246
Pro Forma 31 65
112 241
Class Y
Aggressive Growth Fund $12 $37
$64 $142
Capital Appreciation Portfolio 13 40
70 153
Pro Forma 12 37
64 142
An investor would pay the following
expenses on the same investment,
assuming the same annual return
and no redemption:
1 Year 3 Years
5 Years 10 Years*
Class A
Aggressive Growth Fund $64 $93
$124 $212
Capital Appreciation Portfolio 66 99
134 233
Pro Forma 64 93
124 212
Class B
Aggressive Growth Fund $23 $69
$119 $235
Capital Appreciation Portfolio 22 69
117 233
Pro Forma 21 65
112 223
Class C
Aggressive Growth Fund $21 $65
$112 $241
Capital Appreciation Portfolio 22 67
114 246
Pro Forma 21 65
112 241
Class Y
Aggressive Growth Fund $12 $37
$64 $142
Capital Appreciation Portfolio 13 40
70 153
Pro Forma 12 37
64 142
________________________
*Ten-year figures assume conversion of Class B shares to Class A
shares at the end of the eighth year following the date of purchase.
The examples also provide 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%.
These examples should not be considered representations of past or
future expenses and actual expenses may be greater or less than those
shown.
SUMMARY
This summary is qualified in its entirety by reference to
the additional information contained elsewhere in this
Prospectus/Proxy Statement, the Prospectus and Statement of
Additional Information of the Aggressive Growth Fund each dated
November 7, 1994, the Prospectus of the Capital Appreciation
Portfolio and Statement of Additional Information of the Smith Barney
Funds, Inc. ("Smith Barney Funds"), each dated November 7,
1994, and the Plan, a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A.
Proposed Reorganization. The Plan provides for the
transfer of all or substantially all of the assets of the
Capital Appreciation Portfolio in exchange for shares of the
Aggressive Growth Fund and the assumption by the Aggressive Growth
Fund of certain liabilities of the Capital Appreciation Portfolio.
The Plan also calls for the distribution of shares of the Aggressive
Growth Fund to the Capital Appreciation Portfolio shareholders in
liquidation of the Capital Appreciation Portfolio. (The foregoing
proposed transaction is referred to in this Prospectus/Proxy
Statement as the "Reorganization.") As a result of the
Reorganization, each shareholder of the Capital Appreciation
Portfolio will become the owner of that number of full and fractional
shares of the Aggressive Growth Fund having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's
shares of the Capital Appreciation Portfolio as of the close of
business on the date that the Capital Appreciation Portfolio's assets
are exchanged for shares of the Aggressive Growth Fund.
(Shareholders of Class A, Class B, Class C and Class Y shares of the
Capital Appreciation Portfolio will receive Class A, Class B, Class C
and Class Y shares, respectively, of the Aggressive Growth
Portfolio.) See "Information About the Reorganization."
For the reasons set forth below under "Reasons for the
Reorganization," the Board of Directors of Smith Barney Funds,
including all of the "non-interested" Directors, as that term is
defined in the Investment Company Act of 1940, as amended (the "1940
Act"), has unanimously concluded that the Reorganization would be in
the best interests of the shareholders of the Capital Appreciation
Portfolio and that the interests of the Capital Appreciation
Portfolio's existing shareholders would not be diluted as a result of
the transaction contemplated by the Reorganization, and therefore has
submitted the Plan for approval by the Capital Appreciation
Portfolio's shareholders. The Board of Directors of Smith Barney
Funds recommends approval of the Plan effecting the
Reorganization.
The Board of Directors of the Aggressive Growth Fund also
has approved the Reorganization.
Approval of the Reorganization will require the
affirmative vote of a majority of the outstanding shares of the
Capital Appreciation Portfolio. See "Voting Information."
Tax Consequences. Prior to completion of the
Reorganization, the Capital Appreciation Portfolio will have received
from counsel an opinion that, upon the Reorganization and the
transfer of the assets of the Capital Appreciation Portfolio, no gain
or loss will be recognized by the Capital Appreciation Portfolio or
its shareholders for Federal income tax purposes. The holding period
and tax basis of shares of the Aggressive Growth Fund that are
received by each Capital Appreciation Portfolio shareholder will be
the same as the holding period and tax basis of the shares of the
Capital Appreciation Portfolio previously held by such shareholder.
In addition, the holding period and tax basis of the assets of the
Capital Appreciation Portfolio in the hands of the Aggressive Growth
Fund as a result of the Reorganization will be the same as in the
hands of the Capital Appreciation Portfolio immediately prior to the
Reorganization.
Investment Objectives, Policies and Restrictions. The
Capital Appreciation Portfolio and the Aggressive Growth Fund have
generally similar investment objectives, policies and restrictions.
The Aggressive Growth Fund seeks capital appreciation by investing
primarily in common stock of companies the Manager believes are
experiencing, or have the potential to experience, growth in earnings
that exceed the average earnings growth rate of companies whose
securities are included in the Standard & Poor's Daily Price Index of
500 Common Stocks. The Capital Appreciation Portfolio seeks capital
appreciation by investing primarily in equity securities that the
Fund's portfolio manager believes have a gook potential for capital
appreciation. Each attempts to achieve its objective by
investing primarily, but not exclusively, in common stocks.
Although the respective investment objectives and policies
of the Aggressive Growth Fund and the Capital Appreciation Portfolio
are generally similar, shareholders of the Capital Appreciation
Portfolio should consider certain differences in such objectives and
policies. See "Information About the Aggressive Growth Fund",
"Information About the Capital Appreciation Portfolio" and
"Comparison of Investment Objectives and Policies."
Purchase and Redemption Procedures. Purchases of shares
of the Aggressive Growth Fund and the Capital Appreciation Portfolio
may be made through Smith Barney, a broker that clears securities
transactions through Smith Barney on a fully disclosed basis (an
"Introducing Broker"), or investment dealers in the selling group at
their respective public offering prices (net asset value next
determined plus any applicable sales charge). Class A shares of both
the Aggressive Growth Fund and Capital Appreciation Portfolio are
sold subject to a maximum initial sales charge of 5.00% of the public
offering price. Class B and Class C shares of both Funds are sold
without an initial sales charge but are subject to certain
higher ongoing expenses and a CDSC payable upon certain redemptions.
Class Y shares of both Funds are sold without an initial sales charge
or CDSC, and are available only to investors investing a minimum of
$5,000,000.
Class A and Class Y shares of both the Aggressive Growth
Fund and the Capital Appreciation Portfolio may be redeemed at their
next determined net asset value per share without charge, except for
certain purchases of Class A shares which exceed $500,000 in the
aggregate and are made at net asset value, which are subject to a
CDSC of 1.00% on redemptions made within 12 months. Class B shares
of both Funds may be redeemed at their net asset value per share,
subject to a maximum CDSC of 5.00% of the lower of original cost
or redemption proceeds declining by 1.00% each year after the
date of purchase to zero. Class C shares of both Funds may be
redeemed at their net asset value per share, subject to a CDSC of
1.00% if such shares are redeemed during the first 12 months
following purchase. Shares of both Funds held by Smith Barney as
custodian may be redeemed by submitting a written request to a Smith
Barney Financial Consultant. All other shares may be redeemed
through a Financial Consultant, Introducing Broker or dealer in
the selling group, or by forwarding an appropriate written
request for redemption with signature guarantee to The Shareholder
Services Group, Inc. ("TSSG" or the "the shareholder servicing
agent"), a subsidiary of First Data Corporation. See "Redemption of
Shares" in the accompanying Prospectus of the Aggressive Growth Fund.
Exchange Privileges. The exchange privileges available to
shareholders of the Aggressive Growth Fund are identical to those
available to shareholders of the Capital Appreciation Portfolio.
Shareholders of both the Capital Appreciation Portfolio and the
Aggressive Growth Fund may exchange at net asset value all or a
portion of their shares for shares of the same class in certain funds
of the Smith Barney Mutual Funds at the respective net asset values
next determined, plus any applicable sales charge differential. Any
exchange will be a taxable event for which a shareholder may have to
recognize a gain or a loss under Federal income tax provisions. No
initial sales charge is imposed on the shares being acquired, and no
CDSC is imposed on the shares being disposed of, through an exchange.
However, a sales charge differential may apply to exchanges of Class
A shares with other Smith Barney Mutual Funds. With respect
to Class B and Class C shares of the Funds, the Class B and Class C
shares acquired in the exchange will be deemed to have been purchased
on the same date as the Class B and Class C shares that were
exchanged. Class B shares of the Funds that are exchanged for
Class B shares of other Smith Barney Mutual Funds imposing a higher
CDSC will be subject to the higher applicable CDSC.
Dividends. The policies of each Fund with regard to
dividends and distributions are generally the same. Both
Funds declare and pay dividends of net
investment income annually. Each Fund's policy is to make
distributions of any realized capital gains annually. Unless a
shareholder otherwise instructs, 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. The distribution option currently in effect
for a shareholder of the Capital Appreciation Portfolio will remain
in effect after the Reorganization. After the Reorganization,
however, the former Capital Appreciation Portfolio shareholders may
change their distribution option at any time by contacting TSSG in
writing. See "Dividends, Distributions and Taxes" in the
accompanying prospectus of the Aggressive Growth Fund.
Shareholder Voting Rights. The Aggressive Growth Fund and
Smith Barney Funds are both open-end, diversified investment
companies, incorporated in Maryland. As permitted by Maryland law,
there will normally be no meetings 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.
At that time, the directors in each Fund then in office will call a
shareholders' meeting for the election of directors. Shareholders
may, at any meeting called for the purpose, remove a director by the
affirmative vote of the holders of record of a majority of the votes
entitled to be cast for the election of directors. For purposes of
voting with respect to the Reorganization, the Class A, Class B,
Class C and Class Y shares of the Capital Appreciation Portfolio
shall vote together as a single class. See "Comparative Information
on Shareholder's Rights-Voting Rights."
RISK FACTORS
Due to the similarities of investment objectives and
policies of the Aggressive Growth Fund and the Capital Appreciation
Portfolio, the investment risks are generally similar. Such risks
are generally those typically associated with investing in common
stocks of U.S. companies. Such risks associated with investing in
the Funds are discussed under the caption "Comparison of Investment
Objectives and Policies".
REASONS FOR THE REORGANIZATION
The Board of Directors of Smith Barney Funds has
determined that it is advantageous to combine the Capital
Appreciation Portfolio with the Aggressive Growth Fund. The Funds
have generally similar investment objectives and policies and the
Funds have the same investment adviser and shareholder servicing
agent.
The Board of Directors of Smith Barney Funds has
determined that the Reorganization should provide certain benefits to
its shareholders. In making such a determination, the Board of
Directors considered, among other things: (i) the terms and
conditions of the Reorganization; (ii) the savings in expenses borne
by shareholders expected to be realized by the Reorganization; (iii)
the fact that the Reorganization will be effected as a tax-free
reorganization; (iv) the comparative investment performance of the
Funds; and (v) the advantages of eliminating duplication inherent in
marketing two funds with similar investment objectives.
In light of the foregoing, the Board of Directors of
Smith Barney Funds, including a majority of the non-interested
Directors, have decided that it is in the best interests of the
Capital Appreciation Portfolio and its shareholders to combine with
the Aggressive Growth Fund. The Board of Directors also has
determined that the interests of the Capital Appreciation Portfolio
shareholders will not be diluted as a result of the Reorganization.
The Board of Directors of the Aggressive Growth Fund
considered the following factors, among others, in approving the
Reorganization and determining that it is advantageous to acquire the
assets of the Capital Appreciation Portfolio: (i) the terms and
conditions of the Reorganization; (ii) the fact that the
Reorganization will be effected as a tax-free reorganization; and
(iii) the savings in expenses borne by shareholders expected to be
realized by the Reorganization. Accordingly, the Board of Directors
of the Aggressive Growth Fund, including a majority of the non-
interested Directors, has determined that the Reorganization is in
the best interests of the Aggressive Growth Fund's shareholders and
that the interests of the Aggressive Growth Fund's shareholders will
not be diluted as a result of the Reorganization.
INFORMATION ABOUT THE REORGANIZATION
Plan of Reorganization. The following summary of the Plan
is qualified in its entirety by reference to the Plan (Exhibit A
hereto). The Plan provides that the Aggressive Growth Fund will
acquire all or substantially all of the assets of the Capital
Appreciation Portfolio in exchange for shares of the Aggressive
Growth Fund and the assumption by the Aggressive Growth Fund of
certain liabilities of the Capital Appreciation Portfolio on May 19,
1995, or such later date as may be agreed upon by the parties (the
"Closing Date"). Prior to the Closing Date, the Capital Appreciation
Portfolio will endeavor to discharge all of its known liabilities and
obligations. The Aggressive Growth Fund will not assume any
liabilities or obligations of the Capital Appreciation Portfolio
other than those reflected in an unaudited statement of assets and
liabilities of the Capital Appreciation Portfolio prepared as of the
close of regular trading on the New York Stock Exchange, Inc. (the
"NYSE"), currently 4:00 p.m. New York time, on the Closing Date.
The Aggressive Growth Fund will assume the liability for payment
of any unpaid amounts under the Capital Appreciation Portfolio's Rule
12b-1 plan which were carried over as of the Closing Date. The
number of full and fractional Class A, Class B, Class C and Class Y
shares of the Aggressive Growth Fund to be issued to the Capital
Appreciation Portfolio shareholders will be determined on the basis
of the Aggressive Growth Fund's and the Capital Appreciation
Portfolio's relative net asset values per Class A, Class B, Class C
and Class Y shares, respectively, computed as of the close of regular
trading on the NYSE on the Closing Date. The net asset value per
share of each Class will be determined by dividing assets less
liabilities, by the total number of outstanding shares.
Both the Capital Appreciation Portfolio and the Aggressive
Growth Fund will utilize the procedures set forth in the Prospectus
of the Aggressive Growth Fund to determine the value of their
respective portfolio securities. The method of valuation employed
will be consistent with the requirements set forth in the
Prospectus of the Aggressive Growth Fund, Rule 22c-1 under the 1940
Act, and with the interpretation of such rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, the Capital Appreciation
Portfolio will, and the Aggressive Growth Fund may, declare a
dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to their
respective shareholders all taxable income for the taxable year
ending on or prior to the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gains,
if any, realized in the taxable year ending on or prior to the
Closing Date (after reductions for any capital loss carry forwards).
As soon after the Closing Date as conveniently
practicable, the Capital Appreciation Portfolio will liquidate and
distribute pro rata to shareholders of record as of the close of
business on the Closing Date the full and fractional shares of the
Aggressive Growth Fund received by the Capital Appreciation
Portfolio. Such liquidation and distribution will be accomplished by
the establishment of accounts in the names of the Capital
Appreciation Portfolio's shareholders on the share records of the
Aggressive Growth Fund's shareholder servicing agent. Each account
will represent the respective pro rata number of full and fractional
shares of the Aggressive Growth Fund due to each of the Capital
Appreciation Portfolio's shareholders. After such distribution and
the winding up of its affairs, the Capital Appreciation Portfolio
will be terminated.
The consummation of the Reorganization is subject to the
conditions set forth in the Plan. Notwithstanding approval of the
Capital Appreciation Portfolio's shareholders, the Plan may be
terminated at any time at or prior to the Closing Date: (i) by
mutual agreement of the Capital Appreciation Portfolio and the
Aggressive Growth Fund; (ii) by either party to the Plan upon a
material breach by the other party of any representation, warranty or
agreement contained therein to be performed at or prior to the
Closing Date; or (iii) by either party if a condition therein
expressed to be precedent to the obligations of the terminating party
has not been met and it reasonably appears that it will not or cannot
be met.
Approval of the Plan will require the affirmative vote of
a majority of the outstanding shares of the Capital Appreciation
Portfolio. If the Reorganization is not approved by shareholders of
the Capital Appreciation Portfolio, the Board of Directors
will consider other possible courses of action, including liquidation
of the Capital Appreciation Portfolio.
Description of the Aggressive Growth Fund's Shares. Full
and fractional shares of the respective Class of shares of common
stock of the Aggressive Growth Fund will be issued to the Capital
Appreciation Portfolio in accordance with the procedures detailed in
the Plan and as described in the Aggressive Growth Fund's Prospectus.
Generally, the Aggressive Growth Fund does not issue share
certificates to shareholders unless a specific request is submitted
to the Aggressive Growth Fund's shareholder servicing agent. The
shares of the Aggressive Growth Fund to be issued to the Capital
Appreciation Portfolio shareholders and registered on the shareholder
records of the shareholder servicing agent will have no preemptive or
conversion rights.
Federal Income Tax Consequences. The exchange of assets
for shares of the Aggressive Growth Fund is intended to qualify for
Federal income tax purposes as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). As a condition to the closing of the Reorganization, the
Capital Appreciation Portfolio will receive an opinion from Willkie
Farr & Gallagher, counsel to the Aggressive Growth Fund, to the
effect that, on the basis of the existing provisions of the Code,
U.S. Treasury regulations issued thereunder, current administrative
rules, pronouncements and court decisions, for Federal income tax
purposes, upon consummation of the Reorganization:
(1) the transfer of all or substantially all of the
Capital Appreciation Portfolio's assets in exchange for the
Aggressive Growth Fund's shares and the assumption by the Aggressive
Growth Fund of certain liabilities of the Capital Appreciation
Portfolio will constitute a "reorganization" within the meaning of
Section 368 (a)(1)(C) of the Code, and the Aggressive Growth Fund and
the Capital Appreciation Portfolio are each a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the
Aggressive Growth Fund upon the receipt of the assets of the Capital
Appreciation Portfolio in exchange for the Aggressive Growth Fund's
shares and the assumption by the Aggressive Growth Fund of certain
scheduled liabilities of the Capital Appreciation Portfolio;
(3) no gain or loss will be recognized by the Capital
Appreciation Portfolio upon the transfer of the Capital Appreciation
Portfolio's assets to the Aggressive Growth Fund in exchange for the
Aggressive Growth Fund's shares and the assumption by the Aggressive
Growth Fund of certain scheduled liabilities of the Capital
Appreciation Portfolio or upon the distribution (whether actual or
constructive) of the Aggressive Growth Fund's shares to the Capital
Appreciation Portfolio's shareholders;
(4) no gain or loss will be recognized by shareholders
of the Capital Appreciation Portfolio upon the exchange of their
shares for the Aggressive Growth Fund shares and the assumption by
the Aggressive Growth Fund of certain scheduled liabilities of the
Capital Appreciation Portfolio;
(5) the aggregate tax basis of the Aggressive Growth
Fund shares received by each Capital Appreciation Portfolio
shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the Capital Appreciation Portfolio shares
surrendered in exchange therefor and the holding period of the
Aggressive Growth Fund shares to be received by each Capital
Appreciation Portfolio shareholder will include the period during
which the shares of the Capital Appreciation Portfolio which were
surrendered in exchange therefor were held by such shareholder
(provided the Capital Appreciation Portfolio shares were held as
capital assets on the date of the Reorganization); and
(6) the tax basis of the Capital Appreciation
Portfolio's assets acquired by the Aggressive Growth Fund will be the
same as the tax basis of such assets to the Capital Appreciation
Portfolio immediately prior to the Reorganization and the holding
period of the assets of the Capital Appreciation Portfolio in the
hands of the Aggressive Growth Fund will include the period during
which such assets were held by the Capital Appreciation
Portfolio.
Shareholders of the Capital Appreciation Portfolio should
consult their tax advisors regarding the effect, if any, of the
proposed Reorganization in light of their individual circumstances.
Since the foregoing discussion only relates to the Federal income tax
consequences of the Reorganization, shareholders of the Capital
Appreciation Portfolio should also consult their tax advisors as to
state and local tax consequences, if any, of the Reorganization.
Capitalization. The following table, which is unaudited,
shows the capitalization of the Aggressive Growth Fund and the
Capital Appreciation Portfolio as of January 31, 1995 and on a
pro forma basis as of that date, giving effect to the proposed
acquisition of assets at net asset value:
(In thousands, except
per share values)
(Unaudited)
Cap. App. Aggressive Pro Forma
for
Class A Shares Portfolio GrowthFund
Reorganization
Net Assets............... $52,872 $177,826,043
$177,878,915
Net asset value
per share....... $13.43 $26.09
$26.09
Shares outstanding..... 3,937 6,815,973
6,818,000
Cap. App. Aggressive Pro Forma
for
Class B Shares Portfolio Growth Fund
Reorganization
Net Assets............... $277 $50,924,292
$50,924,569
Net asset value
per share....... $13.40 $25.66
$25.66
Shares outstanding..... 21 1,984,601
1,984,612
Cap. App. Aggressive Pro Forma
for
Class C Shares Portfolio Growth Fund
Reorganization
Net Assets............... $65,684 $1,148,978
$1,214,662
Net asset value
per share....... $13.21 $25.66
$25.66
Shares outstanding..... 4,971 44,774
47,333
Cap. App. Aggressive Pro Forma
for
Class Y Shares Portfolio Growth Fund
Reorganization
Net Assets............... $-- $23,047,281
$23,047,281
Net asset value
per share....... $-- $26.31
$26.31
Shares outstanding..... 0 0
0
As of the Record Date, there were 3,824,358
outstanding Class A shares, 24,738 outstanding Class B
shares, 4,706,968 outstanding Class C shares and 0
outstanding Class Y shares of the Capital Appreciation Portfolio
and 6,689,243 outstanding Class A shares, 2,050,536
outstanding Class B shares, 74,716 outstanding Class C
shares and 0 outstanding Class Y shares of the Aggressive Growth
Fund. As of the Record Date, the officers and directors of the
Capital Appreciation Portfolio beneficially owned as a group less
than 1% of the outstanding shares of the Capital Appreciation
Portfolio. To the best knowledge of the Directors, as of the Record
Date, no shareholder or "group" (as that term is used in Section
13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
owned beneficially or of record more than 5% of the Capital
Appreciation Portfolio. As of the Record Date, the officers and
Directors of the Aggressive Growth Fund beneficially owned as a group
less than 1% of the outstanding shares of the Aggressive Growth Fund.
To the best knowledge of the Directors of the Aggressive Growth Fund,
as of the Record Date, no shareholder or "group" (as that term is
used in Section 13(d) of the Exchange Act) owned beneficially or of
record more than 5% of the Aggressive Growth Fund.
INFORMATION ABOUT THE AGGRESSIVE GROWTH FUND
Management's Discussion and Analysis of Market Conditions and
Portfolio Review
As 1995 begins, the Federal Reserve Board has now raised
the federal funds rate - the rate banks charge each other for
overnight loans - seven times in the past year. In the opinion of
the Manager, short-term interest rates may not rise any further over
the near-term because of growing indications that the economy is
slowing down. As the economy slows, careful stock selection will be
key to finding the best growth potential.
In the August 31, 1994 report, the Manager stated that the
Fund would concentrate on buying the stocks of companies in emerging
industries whose sales and earnings are derived from innovative
research and positions of leadership in their respective fields
rather than from economic trends. Therefore, the Manager believes
that a slowing economy should not have a negative impact on the
corporate earnings of the companies in the Fund.
The Aggressive Growth Fund's portfolio remains positioned
much as it was at the end of August with many of the same names in
the list of top-ten holdings. Emerging Health Care/Biotechnology is
still the Fund's largest sector weighting. The Manager has
optimistic views toward top-tier biotechnology companies and
telecommunications equipment suppliers and believe that its
prediction of mergers and consolidations had begun in the industry.
Chiron and Forest Labs are two companies within this sector which
appear among the Fund's top-ten positions. Companies within the
technology sector make up the Aggressive Growth Fund's second largest
portfolio weighting. Computer technology has been one of the fastest
growing industries in our society. The Fund tends to invest in
companies that have proprietary products, for instance Lotus with
Lotus Notes, or that are in middle of a new product cycle as is Intel
with the Pentium Chip.
Managed Health care is another major investment theme.
The Aggressive Growth Fund participates in this industry by investing
in companies that have consistently shown the strongest earnings and
enrollment growth which include United Healthcare and Value Health.
The other major sectors represented in the Funds's portfolio are
broadcasting, cable and wireless communications. The Manager
believes that the companies which dominate all of these sectors have
excellent potential for growth.
INFORMATION ABOUT THE CAPITAL APPRECIATION PORTFOLIO
Management's Discussion and Analysis of Market Conditions and
Portfolio Review.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment objectives,
policies and restrictions of the Aggressive Growth Fund and the
Capital Appreciation Portfolio is based upon and qualified in its
entirety by the respective investment objectives, policies and
restrictions sections of the Prospectuses of the Aggressive Growth
Fund and the Capital Appreciation Portfolio. For a full discussion
of the investment objectives, policies and restrictions of the
Aggressive Growth Fund, refer to the Aggressive Growth Fund's
Prospectus, which accompanies this Prospectus/Proxy Statement, under
the caption, "Investment Objective and Management Policies," and for
a discussion of these issues as they apply to the Capital
Appreciation Portfolio, refer to the Capital Appreciation Portfolio's
Prospectus under the caption, "Investment Objective and Management
Policies."
Investment Objective. The investment objective of the
Aggressive Growth Fund and the Capital Appreciation Portfolio is
capital appreciation. The Aggressive Growth Fund seeks to achieve
its objective by investing primarily in common stock of companies the
Manager believes are experiencing, or have the potentioal to
experience, growth in earnings that exceed the average earnings
growth rate of companies whose securities are included in the
Standard & Poor's Daily Price Index of 500 Common Stocks. The
Capital Appreciation Portfolio seeks to achieve its objective by
investing primarily in equity securities that the Fund's portfolio
manager believes have a good potential for capital appreciation.
Although the language used by each Fund to define its respective
investment objectives is slightly different, the investment
objectives of the Funds are essentially the same. There can be no
assurance that either Fund will achieve its investment objective.
Both the Aggressive Growth Fund's and the Capital Appreciation
Portfolio's investment objective is fundamental and, as such, may
be changed only by the "vote of a majority of the outstanding voting
securities", as defined in the 1940 Act. Each Fund's investment
policies are non-fundamental and, as such, may be changed by the
Board of Directors, provided such change is not prohibited by the
investment restrictions (which are set forth in the applicable
Statement of Additional Information) or applicable law, and any such
change will first be disclosed in the then current prospectus.
Primary Investments. The Aggressive Growth Fund invests
primarily in common stocks of companies that the Manager believes are
experiencing, or have the potential to experience, growth in earnings
that exceed the average earnings growth rate of companies having
securities included in the Standard & Poor's Daily Price Index of 500
Common Stocks (the "S&P 500"). An earnings growth rate exceeding
that of S&P 500 companies is often achieved by small-- or medium-
sized companies, generally referred to as "emerging growth
companies", that stand to benefit from new products or
services, technological developments or changes in management,
but it also may be achieved by seasoned, established companies.
The Manager focuses its stock selection for the Aggressive
Growth Fund on a diversified group of emerging growth companies that
have passed their "start-up" phase and show positive earnings and the
prospect of achieving significant profits gains in the two to
three years after the Aggressive Growth Fund acquires its stocks.
These companies generally may be expected to benefit from new
technologies, techniques, products or services or cost-reducing
measures, and may be affected by changes in management,
capitalization or asset development, government regulations or other
external circumstances.
The Capital Appreciation Portfolio invests primarily in
common stocks, or in convertible preferred stocks or convertible
bonds. Under normal market conditions, at least 65% of the
Capital Appreciation Portfolio's net assets will be invested
in such securities. In selecting issues for investment, the
Capital Appreciation Portfolio generally favors companies with
prospects of sustained earnings growth, but it also may purchase
securities of companies with a cyclical earnings record if it is felt
they offer attractive investment opportunities. The remainder of the
Capital Appreciation Portfolio assets may be invested in U.S.
government obligations, high quality certificates of deposit and
commercial paper, and repurchase agreements collateralized by U.S.
government securities with broker/dealers or other financial
institutions, including the Capital Appreciation Portfolio's
custodian. During times when the Capital Appreciation
Portfolio's portfolio manager believes a defensive posture in the
market is warranted, the Capital Appreciation Portfolio may
invest temporarily up to 100% of its assets in such securities. To
the extent the Capital Appreciation Portfolio's assets are
invested for temporary defensive purposes, such assets will not be
invested in a manner designed to achieve the Capital Appreciation
Portfolio investment objectives.
Investment Techniques. From time to time, each Fund may
lend its portfolio securities to unaffiliated brokers, dealers and
other financial organizations. These loans may not exceed one-third
of each Fund's total net assets. Loans of portfolio securities by
each Fund must be callable at any time and collateralized by cash or
obligations of the U.S. government and its agencies and
instrumentalities ("U.S. government securities") which are maintained
at all times in an amount equal to at least 100% of the current
market value of the loaned securities.
While both the Aggressive Growth Fund and the Capital
Appreciation Portfolio may invest in warrants up to 5% of each Fund's
total net assets (2% in the case of warrants that are not listed on
the New York Stock Exchange or American Stock Exchange), neither has
purchased any warrants during its last fiscal year. Both
Funds may borrow money. However, neither has done so during the last
fiscal year and neither intends to do so in the foreseeable future.
The Capital Appreciation Portfolio may purchase and write options on
securities and on foreign currency, and may invest in futures
contracts and options on futures contracts. The Aggressive Growth
Fund does not engage in futures, options or forward transactions.
Both the Capital Appreciation Portfolio and the Aggressive
Growth Fund may invest up to 15% of their respective assets in
restricted securities.
Both the Aggressive Growth Fund and the Capital
Appreciation Portfolio may enter into repurchase agreements which
involve the acquisition by the Fund of an underlying obligation for a
short period of time subject to an obligation of the seller to
repurchase the obligation at an agreed-upon price. Repurchase
agreements involve certain risks in the event of default or
insolvency of the other party to the agreement.
Both Funds may invest in foreign securities. The
Aggressive Growth Fund may invest up to 10% of its assets in
securities of foreign issuers while the Capital Appreciation
Portfolio may invest up to 25% of its assets in securities of foreign
issuers. Investments in foreign securities involve risks that are
different in some respects from investments in securities of U.S.
issuers, such as the risk of adverse political and economic
development or possible expropriations. In addition there is
generally less public information available about foreign issuers and
foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards.
Risk Factors. Both Funds seek long term capital
appreciation by investing primarily in securities of companies which
have the potential to achieve an earnings and growth rate higher than
the average growth rate of companies whose securities are included in
the Standard & Poor's Daily Price Index of 500 companies. Such
companies may, however, be subject to significant price fluctuations
and above-average risk.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
General. Smith Barney Funds and the Aggressive
Growth Fund are open-end, management investment companies registered
under the 1940 Act, which continuously offer to sell shares at their
current net asset value. Each is a Maryland Corporation and is
governed by its respective Articles of Incorporation, By-Laws and
Board of Directors. Each Fund is also governed by applicable state
and Federal law. The Aggressive Growth Fund has an authorized
capital of 100 million shares with a par value of $.01 per share. The
Capital Appreciation Portfolio is a separate series of Smith Barney
Funds. The Board of Directors of Smith Barney Funds
has authorized the issuance of eight series of shares, each
representing shares in one of eight separate portfolios, and may
authorize the issuance of additional series of shares in the future.
The assets of each portfolio are segregated and separately managed
and a shareholder's interest is in the assets of the portfolio in
which he or she holds shares. The Capital Appreciation Portfolio has
an authorized capital of 1,000,000,000 shares with a par value of
$.01 per share. In both the Capital Appreciation Portfolio and the
Aggressive Growth Fund, Class A shares, Class B shares, Class C
shares and Class Y shares represent interests in the assets of the
Fund and have identical voting, dividend, liquidation, and other
rights on the same terms and conditions except that expenses related
to the distribution of each class of shares are borne solely by each
class and each class of shares has exclusive voting rights with
respect to provisions of each Fund's Rule 12b-1 distribution plan
which pertains to a particular class.
Directors. The By-Laws of each of Smith Barney Funds
and the Aggressive Growth Fund provide that the term of office
of each Director shall be from the time of his election and
qualification until the next annual meeting of shareholders or until
his successor shall have been elected and shall have qualified. Any
Director may be removed by the shareholders by a majority of the
votes entitled to be cast for election of Directors. Vacancies on
the Boards of either Smith Barney Funds or the Aggressive
Growth Fund may be filled by the Directors remaining in office. A
meeting of shareholders will be required for the purpose of
electing additional Directors whenever fewer than a majority of the
Directors then in office were elected by shareholders.
Voting Rights. As permitted by Maryland law, there will
normally be no meetings 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. At that
time, the directors then in office will call a shareholders' meeting
for the election of directors. Shareholders may, at any meeting
called for the purpose, remove a director by the affirmative vote of
the holders of record of a majority of the votes entitled to be cast
for the election of directors.
Liquidation or Termination. In the event of the
liquidation or termination of the Aggressive Growth Fund or
the Capital Appreciation Portfolio, the shareholders of the Funds are
entitled to receive, when and as declared by the Directors, the
excess of the assets belonging to the Funds over the liabilities
belonging to the Funds. In either case, the assets so distributed to
shareholders of the Funds will be distributed among the shareholders
in proportion to the number of shares of each class of the
Funds held by them and recorded on the books of the Funds.
Liability of Directors. The Articles of Incorporation of
Smith Barney Funds and the By-Laws of the Aggressive Growth Fund
provide that each Fund will indemnify Directors and officers against
liabilities and expenses incurred in connection with litigation in
which they may be involved because of their positions with Fund.
However, nothing in the Articles of Incorporation of Smith Barney
Funds or in the By-Laws of the Aggressive Growth Fund, protects or
indemnifies a director or officer against any liability to which such
person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office.
Rights of Inspection. Maryland law permits any
shareholder of the Funds or any agent of such shareholder to inspect
and copy, during the Fund's usual business hours, the By-laws,
minutes of shareholder proceedings, annual statements of the Fund's
affairs and voting trust agreements which are on file at its
principal office.
The foregoing is only a summary of certain characteristics
of the operations of the Aggressive Growth Fund and the Capital
Appreciation Portfolio. The foregoing is not a complete description
of the documents cited. Shareholders should refer to the provisions
of the corporate documents and state laws governing each Fund for a
more thorough description.
ADDITIONAL INFORMATION ABOUT
THE AGGRESSIVE GROWTH FUND
AND THE CAPITAL APPRECIATION PORTFOLIO
The Capital Appreciation Portfolio. Information about the
Capital Appreciation Portfolio is incorporated herein by reference
from its current Prospectus dated November 7, 1994 and in the
Statement of Additional Information of the Smith Barney Funds
dated November 7, 1994, which has been filed with the SEC. A
copy of the Prospectus and Statement of Additional Information is
available upon request and without charge by writing Smith Barney
Funds, Inc.- Capital Appreciation Portfolio at 388 Greenwich Street,
New York, New York 10013 or by calling (800) 224-7523.
The Aggressive Growth Fund. Information concerning the
operation and management of the Aggressive Growth Fund is
incorporated herein by reference from its current Prospectus dated
November 7, 1994, a copy of which is included herein, and in the
Statement of Additional Information dated November 7, 1994, which has
been filed with the SEC. A copy of such Statement of Additional
Information is available upon request and without charge by writing
Smith Barney Aggressive Growth Fund Inc. at 388 Greenwich Street, New
York, New York 10013 or by calling (800) 224-7523.
Both the Aggressive Growth Fund and the Capital
Appreciation Portfolio are subject to the informational requirements
of the Exchange Act and in accordance therewith file reports and
other information including proxy material, reports and charter
documents with the SEC. These reports can be inspected and copies
obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the New York
Regional Office of the SEC, 75 Park Place, New York, New York 10007.
Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information
Services, SEC, Washington, D.C. 20549 at prescribed rates.
OTHER BUSINESS
The Directors of Smith Barney Funds do not intend
to present any other business at the Meeting. If, however, any other
matters are properly brought before the Meeting, the persons named in
the accompanying form of proxy will vote thereon in accordance with
their judgment.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection
with a solicitation of proxies by the Board of Directors of Smith
Barney Funds to be used at the Special Meeting of Shareholders to be
held at 1:00 p.m. on May 11, 1995, at 388 Greenwich
Street, New York, New York 10013 and at any adjournments thereof.
This Prospectus/Proxy Statement, along with a Notice of the Meeting
and a proxy card, is first being mailed to shareholders of the
Capital Appreciation Portfolio on or about March 6, 1995. Only
shareholders of record as of the close of business on the Record Date
will be entitled to notice of, and to vote at, the Meeting or any
adjournment thereof. The holders of a majority of the shares of the
Capital Appreciation Portfolio outstanding at the close of business
on the Record Date present in person or represented by proxy will
constitute a quorum for the Meeting. For purposes of determining a
quorum for transacting business at the Meeting, abstentions and
broker "non-votes"(that is proxies from brokers or nominees
indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares on a
particular matter with respect to which the broker or nominee does
not have discretionary power) will be treated as shares that are
present but which have not been voted. For this reason, abstentions
and broker non-votes will have the effect of a "No" vote for purpose
of obtaining the requisite approval of the Plan. If the enclosed
form of proxy is properly executed and returned in time to be voted
at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR the proposed
Reorganization and FOR any other matters deemed appropriate. A proxy
may be revoked at any time on or before May 11, 1995 by written
notice to Smith Barney Funds, Inc. - Capital Appreciation
Portfolio, 388 Greenwich Street, New York, New York 10013, 22nd
Floor, c/o the Corporate Secretary. Unless revoked, all valid
proxies will be voted in accordance with the specifications thereon
or, in the absence of such specifications, FOR approval of the Plan
and the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of
a majority of the outstanding shares of the Capital Appreciation
Portfolio. Shareholders of the Capital Appreciation Portfolio shall
vote together as a single class. Shareholders of the Capital
Appreciation Portfolio are entitled to one vote for each share.
Proxies are solicited by mail. Additional solicitations
may be made by telephone, telegraph or personal contact by officers
or employees of Smith Barney and its affiliates and/or The
Shareholders Services Group, Inc., a subsidiary of First Data
Corporation, (the Funds' transfer agent). Expenses of the
Reorganization including the costs of proxy solicitation, the
preparation of this Prospectus/Proxy Statement and enclosure attached
hereto and reimbursement of expenses for forwarding solicitation
material to beneficial owners of shares of the Capital Appreciation
Portfolio will be borne by Smith Barney.
In the event that sufficient votes to approve the
Reorganization are not received by May 11, 1995, the persons
named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies. In determining whether to
adjourn the Meeting, the following factors may be considered: the
percentage of votes actually cast, the percentage of negative votes
actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the
reasons for the solicitation. Any such adjournment will require an
affirmative vote by the holders of a majority of the shares present
in person or by proxy and entitled to vote at the Meeting. The
persons named as proxies will vote upon such adjournment after
consideration of the best interests of all shareholders.
The votes of the shareholders of the Aggressive Growth
Fund are not being solicited by this Prospectus/Proxy Statement.
FINANCIAL STATEMENTS AND EXPERTS
The audited statements of assets and liabilities of the Capital
Appreciation Portfolio and the Aggressive Growth Fund as of December
31, 199 4 and August 31, 1994, respectively, and the related
statements of operations and financial highlights for the
years then ended and changes in net assets for each of the years
in the two-year period then ended and selected per share data and
ratios, have been incorporated by reference into the Statement of
Additional Information relating to this Prospectus/Proxy Statement in
reliance on the reports of KPMG Peat Marwick LLP and Coopers &
Lybrand L.L.P., independent auditors for the Capital Appreciation
Portfolio and the Aggressive Growth Fund, respectively, given on the
authority of such firms as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the
Aggressive Growth Fund will be passed upon by Willkie Farr &
Gallagher, One Citicorp Center, New York, NY 10022.
THE BOARD OF DIRECTORS OF SMITH BARNEY FUNDS, INCLUDING THE
"NON-INTERESTED" DIRECTORS UNANIMOUSLY RECOMMEND APPROVAL OF
THE PLAN, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE
CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of this day of , 1995, by and between Smith Barney
Aggressive Growth Fund Inc. (the "Acquiring Fund"), a Maryland
corporation with its principal place of business at 388 Greenwich
Street, New York, New York 10013, and Smith Barney Funds, Inc.
("Smith Barney Funds, Inc."), a Maryland corporation with its
principal place of business at 388 Greenwich Street, New York, New
York 10013, on behalf of its Capital Appreciation Portfolio (the
"Acquired Fund"), an investment portfolio of the Smith Barney Funds,
Inc.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a)(1)(C) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all or substantially all of the assets of
the Acquired Fund in exchange for Class A, Class B, Class C and Class
Y shares of common stock of the Acquiring Fund (the "Acquiring Fund
Shares and each, an "Acquiring Fund Share"), the assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund,
the distribution, after the Closing Date herein referred to, of
Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund, and the dissolution and termination
of the Acquired Fund, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Acquiring Fund and the Acquired Fund are registered
investment companies of the management type and the Acquired Fund
owns securities that generally are assets of the character in which
the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquiring Fund and the Acquired Fund are
authorized to issue shares of common stock;
WHEREAS, the Board of Directors of the Acquired Fund has
determined that the exchange of all or substantially all of the
assets and certain of the liabilities of the Acquired Fund for
Acquiring Fund Shares and the assumption of such liabilities by the
Acquiring Fund is in the best interests of the Acquired Fund's
shareholders and that the interests of the existing shareholders of
the Acquired Fund would not be diluted as a result of this
transaction; and
WHEREAS, the Board of Directors of the Acquiring Fund has
determined that the exchange of all or substantially all of the
assets of the Acquired Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund's shareholders and that the interests
of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties hereto
covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND ASSUMPTION OF THE ACQUIRED FUND'S SCHEDULED
LIABILITIES AND LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein,
the Acquired Fund agrees to transfer the Acquired Fund's assets as
set forth in paragraph 1.2 to the Acquiring Fund, and the Acquiring
Fund agrees in exchange therefor: (i) to deliver to the Acquired
Fund the number of Acquiring Fund Shares, including fractional Class
A Acquiring Fund Shares, determined by dividing the value of the
Acquired Fund's net assets attributable to its Class A shares,
computed in the manner and as of the time and date set forth in
paragraph 2.1, by the net asset value of one Class A Acquiring Fund
Share, computed in the manner and as of the time and date set forth
in paragraph 2.2; (ii) to deliver to the Acquired Fund the number of
Class B Acquiring Fund Shares, including fractional Class B Acquiring
Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class B shares, computed in the manner
and as of the time and date set forth in paragraph 2.1, by the net
asset value of one Class B Acquiring Fund Share, computed in the
manner and as of the time and date set forth in paragraph 2.2; (iii)
to deliver to the Acquired Fund the number of Class C Acquiring Fund
Shares, including fractional Class C Acquiring Fund Shares,
determined by dividing the value of the Acquired Fund's net assets
attributable to its Class C Shares computed in the manner and as of
the time and date set forth in paragraph 2.1, by the net asset value
of one Class C Acquiring Fund Share, computed in the manner and as of
the time and date set forth in paragraph 2.2; (iv) to deliver to the
Acquired Fund the number of Class Y Acquiring Fund Shares, including
fractional Class Y Acquiring Fund Shares, determined by dividing the
value of the Acquired Fund's net assets attributable to its Class Y
shares, computed in the manner and as of the time and date set forth
in paragraph 2.1, by the net asset value of one Class Y Acquiring
Fund Share, computed in the manner and as of the time and date set
forth in paragraph 2.2; and (v) to assume certain scheduled
liabilities of the Acquired Fund, as set forth in paragraph 1.3.
Such transactions shall take place at the closing provided for in
paragraph 3.1 (the "Closing"). The Acquiring Fund and the Acquired
Fund agree to file, if necessary, effective at the Closing, Articles
of Transfer with the State of Maryland Department of Assessments and
Taxation.
1.2. (a) The assets of the Acquired Fund to be acquired by the
Acquiring Fund shall consist of all or substantially all of its
property, including, without limitation, all cash, securities and
dividends or interest receivables which are owned by the Acquired
Fund and any deferred or prepaid expenses shown as an asset on the
books of the Acquired Fund on the closing date provided in paragraph
3.1 (the "Closing Date").
(b) The Acquired Fund has provided the Acquiring Fund
with a list of all of the Acquired Fund's assets as of the date of
execution of this Agreement. The Acquired Fund reserves the right to
sell any of these assets but will not, without the prior approval of
the Acquiring Fund, acquire any additional securities other than
securities of the type in which the Acquiring Fund is permitted to
invest. The Acquiring Fund will, within a reasonable time prior to
the Closing Date, furnish the Acquired Fund with a statement of the
Acquiring Fund's investment objectives, policies and restrictions and
a list of the securities, if any, on the Acquired Fund's list
referred to in the first sentence of this paragraph which do not
conform to the Acquiring Fund's investment objectives, policies and
restrictions. In the event that the Acquired Fund holds any
investments which the Acquiring Fund may not hold, the Acquired Fund
will dispose of such securities prior to the Closing Date. In
addition, if it is determined that the portfolios of the Acquired
Fund and the Acquiring Fund, when aggregated, would contain
investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Acquired Fund,
if requested by the Acquiring Fund, will dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid
violating such limitations as of the Closing Date.
1.3. The Acquired Fund will endeavor to discharge all the
Acquired Fund's known liabilities and obligations prior to the
Closing Date. The Acquiring Fund shall assume all liabilities,
expenses, costs, charges and reserves reflected on an unaudited
Statement of Assets and Liabilities of the Acquired Fund prepared by
The Boston Company Advisors, Inc. ("Boston Advisors"), as sub-
administrator of the Acquired Fund, as of the Valuation Date (as
defined in paragraph 2.1), in accordance with generally accepted
accounting principles consistently applied from the prior audited
period. The Acquiring Fund shall assume only those liabilities of
the Acquired Fund reflected in that unaudited Statement of Assets and
Liabilities and shall not assume any other liabilities, whether
absolute or contingent, not reflected thereon.
1.4. As provided in paragraph 3.4, as soon after the Closing
Date as is conveniently practicable (the "Liquidation Date"), the
Acquired Fund will liquidate and distribute pro rata to the Acquired
Fund's shareholders of record determined as of the close of business
on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring
Fund Shares it receives pursuant to paragraph 1.1. Shareholders of
Class A, Class B, Class C and Class Y shares of the Acquired Fund
shall receive Class A, Class B, Class C and Class Y shares of the
Acquiring Fund, respectively. Such liquidation and distribution will
be accomplished by the transfer of the Acquiring Fund Shares then
credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share records of the Acquiring
Fund in the name of the Acquired Fund's shareholders and representing
the respective pro rata number of the Acquiring Fund Shares due such
shareholders. All issued and outstanding shares of the Acquired Fund
will simultaneously be cancelled on the books of the Acquired Fund,
although share certificates representing interests in the Acquired
Fund will represent a number of Acquiring Fund Shares after the
Closing Date as determined in accordance with paragraph 1.1. The
Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Acquiring Fund Shares
will be issued in the manner described in the Acquiring Fund's
current Prospectus and Statement of Additional Information.
1.6. Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the
Acquired Fund shares on the books of the Acquired Fund as of that
time shall, as a condition of such issuance and transfer, be paid by
the person to whom such Acquiring Fund Shares are to be issued and
transferred.
1.7. Any reporting responsibility of the Acquired Fund is and
shall remain the responsibility of the Acquired Fund up to and
including the Closing Date and such later dates on which the Acquired
Fund is dissolved and deregistered.
1.8. The Acquired Fund shall, following the Closing Date and
the making of all distributions pursuant to paragraph 1.4, be
terminated under the laws of the State of Maryland and in accordance
with its governing documents.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by
the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of regular trading on the New York Stock
Exchange, Inc. (the "NYSE") on the Closing Date (such time and date
being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in the Acquiring Fund's then current Prospectus
or Statement of Additional Information.
2.2. The net asset value of Acquiring Fund Shares shall be the
net asset value per share computed as of the close of regular trading
on the NYSE on the Valuation Date, using the valuation procedures set
forth in the Acquiring Fund's then current Prospectus or Statement of
Additional Information.
2.3. All computations of value shall be made by Boston Advisors
and Smith Barney Mutual Management Inc. in accordance with its
regular practice as pricing agent for the Acquired Fund and the
Acquiring Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be __________, 1995, or such later
date as the parties may agree to in writing. All acts taking place
at the Closing shall be deemed to take place simultaneously as of the
close of business on the Closing Date unless otherwise provided. The
Closing shall be held as of 5:00 p.m. at the offices of Smith Barney
Inc., 388 Greenwich Street, New York, New York 10013, or at such
other time and/or place as the parties may agree.
3.2. In the event that on the Valuation Date (a) the NYSE or
another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or
trading thereon shall be restricted or (b) trading or the reporting
of trading on the NYSE or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring
Fund or the Acquired Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3. The Acquired Fund shall deliver at the Closing a list of
the names and addresses of the Acquired Fund's shareholders and the
number and percentage ownership of outstanding shares owned by each
such shareholder immediately prior to the Closing, certified on
behalf of the Acquired Fund by its President. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Acquiring Fund
Shares to be credited to the Acquired Fund's account on the Closing
Date to the Secretary of the Acquired Fund, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if
any, receipts or other documents as such other party or its counsel
may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Fund represents and warrants to and the
Acquiring Fund as follows:
(a) The Acquired Fund is a Maryland corporation, duly
organized, validly existing and in good standing under the laws of
the State of Maryland;
(b) The Acquired Fund is a registered investment company
classified as a management company of the open-end type, and its
registration with the Securities and Exchange Commission (the
"Commission") as an investment company under the Investment Company
Act of 1940, as amended (the "1940 Act") is in full force and effect;
(c) The Acquired Fund is not, and the execution, delivery
and performance of this Agreement will not result, in a material
violation of its Articles of Incorporation or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or by which it is
bound;
(d) The Acquired Fund has no material contracts or other
commitments (other than this Agreement) which will be terminated with
liability to the Acquired Fund prior to the Closing Date;
(e) [Except as otherwise disclosed in writing to and
accepted by the Acquiring Fund,] no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or to its knowledge threatened against the
Acquired Fund or any of the Acquired Fund's properties or assets
(other than that previously disclosed to the other party to the
Agreement) [which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its
business.] The Acquired Fund knows of no facts which might form the
basis for the institution of such proceedings and is not party to or
subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated;
(f) The Statements of Assets and Liabilities of the
Acquired Fund as of December 31, 1992 through December 31, 1994
have been audited by KPMG Peat Marwick LLP, independent certified
public accountants are in accordance with generally accepted
accounting principles consistently applied, and such statements
(copies of which have been furnished to the Acquiring Fund) fairly
reflect the financial condition of the Acquired Fund as of such
dates, and there are no known contingent liabilities of the Acquired
Fund as of such dates not disclosed therein;
(g) The Acquired Fund will file its final federal and
other tax returns for the period ending on the closing date in
accordance with the Code. At the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law then to
have been filed prior to the Closing Date shall have been filed, and
all federal and other taxes shown as due on such returns shall have
been paid so far as due, or provision shall have been made for the
payment thereof and, to the best of the Acquired Fund's knowledge, no
such return is currently under audit and no assessment has been
asserted with respect to such returns;
(h) For the most recent fiscal year of its operation, the
Acquired Fund has met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company;
(i) All issued and outstanding shares of the Acquired
Fund are, and at the Closing Date will be, duly and validly issued
and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Acquired Fund will, at the time of
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.4. The
Acquired Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any shares of the Acquired
Fund, nor is there outstanding any security convertible into any
shares of the Acquired Fund;
(j) At the Closing Date, the Acquired Fund will have good
and marketable title to its assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power and authority to
sell, assign, transfer and deliver such assets hereunder and, upon
delivery and payment for such assets, the Acquiring Fund will acquire
good and marketable title thereto, subject to no restrictions on the
full transfer thereof, including such restrictions as might arise
under the Securities Act of 1933, as amended (the "1933 Act"), other
than as disclosed to the Acquiring Fund;
(k) The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the
part of the Acquired Fund's Board of Directors, and subject to the
approval of the Acquired Fund's shareholders, this Agreement,
assuming due authorization, execution and delivery by the Acquiring
Fund, will constitute a valid and binding obligation of the Acquired
Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to
general equity principles;
(l) The information to be furnished by the Acquired Fund
for use in no-action letters, applications for exemptive orders,
registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and
other laws and regulations thereunder applicable thereto; and
(m) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement referred to
in paragraph 5.7 (other than information therein that relates to the
Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which such statements were made, not
materially misleading.
4.2. The Acquiring Fund represents and warrants to Smith
Barney Funds and the Acquired Fund as follows:
(a) The Acquiring Fund is a corporation, duly organized,
validly existing and in good standing under the laws of the State of
Maryland;
(b) The Acquiring Fund is a registered investment company
classified as a management company of the open-end type and its
registration with the Commission as an investment company under the
1940 Act is in full force and effect;
(c) The current Prospectus of and Statement of Additional
Information of the Acquiring Fund conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder and do not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not materially misleading;
(d) At the Closing Date, the Acquiring Fund will have
good and marketable title to the Acquiring Fund's assets;
(e) The Acquiring Fund is not, and the execution,
delivery and performance of this Agreement on behalf of the Acquiring
Fund will not result, in a material violation of its Articles of
Incorporation or By-laws or of any agreement, indenture, instrument,
contract, lease or other undertaking with respect to the Acquiring
Fund to which the Acquiring Fund is a party or by which it is bound;
(f) No material litigation or administrative proceeding
or investigation of or before any court or governmental body is
presently pending or threatened against the Acquiring Fund or any of
the Acquiring Fund's properties or assets, except as previously
disclosed in writing to the Acquired Fund. The Acquiring Fund knows
of no facts which might form the basis for the institution of such
proceedings and the Acquiring Fund is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the
Acquiring Fund's business or the Acquiring Fund's ability to
consummate the transactions contemplated herein;
(g) The Statements of Assets and Liabilities of the
Acquiring Fund as of August 31, 1985 through August 31,
1994, have been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants, and are in accordance
with generally accepted accounting principles consistently applied,
and such statements (copies of which have been furnished to the
Acquired Fund) fairly reflect the financial condition of the
Acquiring Fund as of such dates, and there are no known contingent
liabilities of the Acquiring Fund as of such dates not disclosed
therein;
(h) At the Closing Date, all federal and other tax
returns and reports of the Acquiring Fund required by law then to
have been filed by such dates shall have been filed, and all federal
and other taxes shown as due on said returns and reports shall have
been paid so far as due, or provision shall have been made for the
payment thereof and, to the best of the Acquiring Fund's knowledge,
no such return is currently under audit and no assessment has been
asserted with respect to such returns;
(i) For the most recent fiscal year of its operation, the
Acquiring Fund has met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company and
the Acquiring Fund intends to do so in the future;
(j) At the date hereof, all issued and outstanding shares
of the Acquiring Fund are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable, with
no personal liability attaching to the ownership thereof. The
Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any shares of the Acquiring
Fund, nor is there outstanding any security convertible into shares
of the Acquiring Fund;
(k) The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action, if any,
on the part of the Acquiring Fund's Board of Directors, and assuming
due authorization, execution and delivery by Smith Barney Funds, Inc.
on behalf of the Acquired Fund, this Agreement constitutes a valid
and binding obligation of the Acquiring Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered
to the Acquired Fund, for the account of the Acquired Fund
Shareholders, pursuant to the terms of this Agreement, will at the
Closing Date have been duly authorized and, when so issued and
delivered, will be duly and validly issued Acquiring Fund Shares, and
will be fully paid and non-assessable with no personal liability
attaching to the ownership thereof;
(m) The information to be furnished by the Acquiring Fund
for use in no-action letters, applications for exemptive orders,
registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and
other laws and regulations applicable thereto;
(n) The Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring
Fund ) will, on the effective date of the Registration Statement and
on the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially
misleading; and
(o) The Acquiring Fund agrees to use all reasonable
efforts to obtain the approvals and authorizations required by the
1933 Act, the 1940 Act and such of the state Blue Sky or securities
laws as it may deem appropriate in order to continue the Acquiring
Fund's operations after the Closing Date.
5. COVENANTS OF SMITH BARNEY FUNDS, INC., THE ACQUIRED FUND
AND THE ACQUIRING FUND
5.1. The Acquiring Fund and the Acquired Fund each will operate
its business in the ordinary course between the date hereof and the
Closing Date. It is understood that such ordinary course of business
will include the declaration and payment of customary dividends and
distributions and any other dividends and distributions deemed
advisable, in each case payable either in cash or in additional
shares.
5.2. Smith Barney Funds Inc., on behalf of the Acquired Fund
will call a meeting of its shareholders to consider and act upon
this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3. Smith Barney Funds Inc., on behalf of the Acquired
Fund covenants that the Acquiring Fund Shares to be issued hereunder
are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Acquired Fund's shares.
5.5. Subject to the provisions of this Agreement, Smith
Barney Funds Inc. on behalf of the Acquired Fund and the
Acquiring Fund, each will take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.6. As promptly as practicable, but in any case within sixty
days after the Closing Date, the Acquired Fund shall furnish the
Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the
Acquired Fund for federal income tax purposes which will be carried
over to the Acquiring Fund as a result of Section 381 of the Code,
and which will be certified by the President and Treasurer of the
Acquired Fund.
5.7. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will include the Proxy Statement, referred
to in paragraph 4.1(m), all to be included in a Registration
Statement on Form N-14 of the Acquiring Fund (the "Registration
Statement"), in compliance with the 1933 Act, the Securities Exchange
Act of 1934 (the "1934 Act") and the 1940 Act in connection with the
meeting of the Acquired Fund's shareholders to consider approval of
this Agreement and the transactions contemplated herein.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of Smith Barney Funds, Inc. and the
Acquired Fund to consummate the transactions provided for herein
shall be subject, at their election, to the performance by the
Acquiring Fund of all of the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following further conditions:
6.1. All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing
Date with the same force and effect as if made on and as of the
Closing Date;
6.2. The Acquiring Fund shall have delivered to Smith Barney
Funds, Inc. a certificate executed in its name by its President
or Vice President and its Treasurer or Assistant Treasurer, in a form
reasonably satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties
of the Acquiring Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement; and
6.3. The Acquired Fund shall have received on the Closing Date
a favorable opinion from Willkie Farr & Gallagher, counsel to
the Acquiring Fund, dated as of the Closing Date, in a form
reasonably satisfactory to Christina T. Sydor, Esq., Secretary of the
Acquired Fund, covering the following points:
That (a) the Acquiring Fund is duly organized and validly
existing under the laws of the State of Maryland; (b) the Acquiring
Fund is an open-end management investment company registered under
the 1940 Act; (c) this Agreement, the Reorganization provided for
thereunder and the execution of this Agreement have been duly
authorized and approved by all requisite action of the Acquiring
Fund, and this Agreement has been duly executed and delivered by the
Acquiring Fund and is a valid and binding obligation of the Acquiring
Fund enforceable in accordance with its terms against the assets of
the Acquiring Fund; and (d) the Class A, Class B, Class C, and Class
Y Acquiring Fund Shares to be issued to the Acquired Fund for
distribution to its shareholders pursuant to this Agreement have
been, to the extent of the number of Acquiring Fund Shares authorized
to be issued by the Acquiring Fund in the Articles of Incorporation
of the Acquiring Fund and then unissued, duly authorized and, subject
to the receipt by the Acquiring Fund of consideration equal to the
net asset value thereof (but in no event less than the par value
thereof), such Class A, Class B, Class C and Class Y Acquiring Fund
Shares, when issued in accordance with this Agreement, will be
validly issued and fully paid and non-assessable. Such opinion may
state that it is solely for the benefit of Smith Barney Funds,
Inc., its directors and its officers. Such counsel may rely, as
to matters governed by the laws of the State of Maryland, on an
opinion of Maryland counsel.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND
The obligations of the Acquiring Fund to complete the
transactions provided for herein shall be subject, at its election,
to the performance by the Acquired Fund of all the obligations to be
performed by it hereunder on or before the Closing Date and, in
addition thereto, the following conditions:
7.1. All representations and warranties of Smith Barney
Funds, Inc. and the Acquired Fund contained in this Agreement
shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date;
7.2. The Acquired Fund shall have delivered to the Acquiring
Fund a statement of the Acquired Fund's assets and liabilities,
together with a list of the Acquired Fund's portfolio securities
showing the tax costs of such securities by lot and the holding
periods of such securities, as of the Closing Date, certified by the
Treasurer or Assistant Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by its
President or Vice President and its Treasurer or Assistant Treasurer,
in form and substance satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and
warranties of Smith Barney Funds, Inc. and the Acquired Fund
made in this Agreement are true and correct at and as of the Closing
Date, except as they may be affected by the transactions contemplated
by this Agreement; and
7.4. The Acquiring Fund shall have received on the Closing Date
a favorable opinion of Sullivan & Cromwell, counsel to the
Acquired Fund, in a form satisfactory to Christina T. Sydor, Esq.,
Secretary of the Acquiring Fund, covering the following points:
That (a) Smith Barney Funds, Inc. is duly organized and
validly existing under the laws of the State of Maryland;
(b) Smith Barney Funds, Inc. is an open-end management
investment company registered under the 1940 Act; and (c) this
Agreement, the Reorganization provided for thereunder and the
execution of this Agreement have been duly authorized and approved by
all requisite action of Smith Barney Funds, Inc. and this
Agreement has been duly executed and delivered by Smith Barney
Funds, Inc. and is a valid and binding obligation of Smith
Barney Funds, Inc. enforceable in accordance with its terms
against the assets of the Acquired Fund. Such opinion may state that
it is solely for the benefit of the Acquiring Fund, its directors and
its officers. Such counsel may rely, as to matters governed by the
laws of the State of Maryland, on an opinion of Maryland counsel.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF SMITH BARNEY
FUNDS, INC., THE ACQUIRED FUND AND THE ACQUIRING FUND
If any of the conditions set forth below do not exist on or
before the Closing Date with respect to the Acquiring Fund or Smith
Barney Funds, Inc. on behalf of the Acquired Fund, the other party to
this Agreement shall, at its option, not be required to consummate
the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein
shall have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the
provisions of the Smith Barney Funds, Inc's Articles of
Incorporation and By-laws and certified copies of the votes
evidencing such approval shall have been delivered to the Acquiring
Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor Smith Barney Funds, Inc. on behalf of the
Acquired Fund may waive the conditions set forth in this paragraph
8.1;
8.2. On the Closing Date, no action, suit or other proceeding
shall be pending before any court or governmental agency in which it
is sought to restrain or prohibit, or obtain damages or other relief
in connection with, this Agreement or the transactions contemplated
herein;
8.3. All consents of other parties and all other consents,
orders and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky and
securities authorities, including "no-action" positions of and
exemptive orders from such federal and state authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party
hereto may for itself waive any of such conditions;
8.4. The Registration Statement shall have become effective
under the 1933 Act and no stop orders suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under
the 1933 Act;
8.5. The Acquired Fund shall have declared and paid a dividend
or dividends on the outstanding shares of the Acquired Fund, which,
together with all previous such dividends, shall have the effect of
distributing to the shareholders of the Acquired Fund all of the
investment company taxable income and exempt-interest income of the
Acquired Fund for all taxable years ending on or prior to the Closing
Date. The dividend declared and paid by the Acquired Fund shall also
include all of such fund's net capital gain realized in all taxable
years ending on or prior to the Closing Date (after reduction for any
capital loss carry forwards);
8.6. The parties shall have received a favorable opinion of
Willkie Farr & Gallagher, addressed to the Acquiring Fund and Smith
Barney Funds, Inc. in respect of the Acquired Fund and satisfactory
to Christina T. Sydor, Esq., as Secretary of each of the Funds,
substantially to the effect that for federal income tax purposes:
(a) the transfer of all or substantially all of the Acquired
Fund's assets in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of certain scheduled liabilities of
the Acquired Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code, and the Acquiring Fund
and the Acquired Fund are each a "party to a reorganization" within
the meaning of Section 368(b) of the Code; (b) no gain or loss will
be recognized by the Acquiring Fund upon the receipt of the assets of
the Acquired Fund in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of certain scheduled liabilities of
the Acquired Fund; (c) no gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund's assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of certain scheduled liabilities of
the Acquired Fund or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to the Acquired Fund's
shareholders; (d) no gain or loss will be recognized by shareholders
of the Acquired Fund upon the exchange of their Acquired Fund shares
for the Acquiring Fund Shares and the assumption by the Acquiring
Fund of certain scheduled liabilities of the Acquired Fund; (e) the
aggregate tax basis for the Acquiring Fund Shares received by each of
the Acquired Fund's shareholders pursuant to the Reorganization will
be the same as the aggregate tax basis of the Acquired Fund shares
held by such shareholder immediately prior to the Reorganization, and
the holding period of the Acquiring Fund Shares to be received by
each Acquired Fund shareholder will include the period during which
the Acquired Fund shares exchanged therefor were held by such
shareholder (provided that the Acquired Fund shares were held as
capital assets on the date of the Reorganization); and (f) the tax
basis of the Acquired Fund's assets acquired by the Acquiring Fund
will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization, and the holding period of
the assets of the Acquired Fund in the hands of the Acquiring Fund
will include the period during which those assets were held by the
Acquired Fund.
Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set
forth in this paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1. The Acquiring Fund hereby represents and warrants to
Smith Barney Funds, Inc. on behalf of the Acquired Fund, and the
Acquired Fund hereby represents and warrants to the Acquiring Fund,
that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2. (a) Except as may be otherwise provided herein, the
Acquiring Fund and the Acquired Fund shall each be liable, in
proportion to their assets, for the expenses incurred in connection
with entering into and carrying out the provisions of this Agreement,
including the expenses of: (i) counsel and independent accountants
associated with the Reorganization; (ii) printing and mailing the
Prospectus/Proxy Statement and soliciting proxies in connection with
the meeting of shareholders of the Acquired Fund referred to in
paragraph 5.2 hereof; (iii) any special pricing fees associated with
the valuation of the Acquired Fund's or the Acquiring Fund's
portfolio on the Closing Date; (iv) expenses associated with
preparing this Agreement and preparing and filing the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be
issued in the Reorganization; (v) registration or qualification fees
and expenses of preparing and filing such forms, if any, necessary
under applicable state securities laws to qualify the Acquiring Fund
Shares to be issued in connection with the Reorganization. The
Acquired Fund shall be liable for: (i) all fees and expenses related
to the liquidation and termination of the Acquired Fund; and (ii)
fees and expenses of the Acquired Fund's custodian and transfer agent
incurred in connection with the Reorganization. The Acquiring Fund
shall be liable for any fees and expenses of the Acquiring Fund's
custodian and transfer agent incurred in connection with the
Reorganization.
(b) Consistent with the provisions of paragraph 1.3, the
Acquired Fund, prior to the Closing, shall pay for or include in the
unaudited Statement of Assets and Liabilities prepared pursuant to
paragraph 1.3 all of its known and reasonably estimated expenses
associated with the transactions contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained
in this Agreement or in any document delivered pursuant hereto or in
connection herewith shall survive the consummation of the
transactions contemplated hereunder.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the
Closing Date by: (1) the mutual agreement of Smith Barney Funds,
Inc. on behalf of the Acquired Fund and the Acquiring Fund; (2) Smith
Barney Funds, Inc. on behalf of the Acquired Fund in the event that
the Acquiring Fund shall, or the Acquiring Fund in the event that
Smith Barney Funds, Inc. in respect of the Acquired Fund shall,
materially breach any representation, warranty or agreement contained
herein to be performed at or prior to the Closing Date; or (3) either
party if a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
11.2. In the event of any such termination, there shall be no
liability for damages on the part of either Smith Barney Funds, Inc.
on behalf of the Acquired Fund or the Acquiring Fund or their
respective directors or officers to the other party, but each shall
bear the expenses incurred by it incidental to the preparation and
carrying out of this Agreement as provided in paragraph 9.
12. AMENDMENTS
12.1 This Agreement may be amended, modified or supplemented in
such manner as may be mutually agreed upon in writing by the
authorized officers of Smith Barney Funds, Inc. and the
Acquiring Fund; provided, however, that following the meeting of the
Acquired Fund shareholders called by the Acquired Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the
Acquiring Fund Shares to be issued to the Acquired Fund's
shareholders under this Agreement to the detriment of such
shareholders without their further approval.
12.2 At any time prior to the Closing Date, either party hereto
may by written instrument signed by it (i) waive any inaccuracies in
the representations and warranties made to it contained herein and
(ii) waive compliance with any of the covenants or conditions made
for its benefit contained herein.
13. NOTICES
Any notice, report, statement or demand required or permitted by
any provisions of this Agreement shall be in writing and shall be
given by prepaid telegraph, telecopy or certified mail addressed to
Smith Barney Funds, Inc., 388 Greenwich Street, New York, New York
10013, Attention: Heath B. McLendon; or to the Acquiring Fund, 388
Greenwich, New York, New York 10013, Attention: Stephen J. Treadway.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1 The article and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
14.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of
the other party. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, firm,
corporation or other entity, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed by its Chairman of the Board, President
or Vice President and attested by its Secretary or Assistant
Secretary.
Attest: SMITH BARNEY
AGGRESSIVE
GROWTH FUND INC.
By:
Name: Name:
Title: Title:
Attest: SMITH BARNEY FUNDS,
INC.
on behalf of the CAPITAL
APPRECIATION PORTFOLIO
By:
Name: Name:
Title: Title:
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH , 1995
Acquisition of the Assets of
SMITH BARNEY FUNDS, INC. -- CAPITAL APPRECIATION PORTFOLIO
388 Greenwich St.
New York, New York 10013
(800) 224-7523
By and in Exchange For Shares of
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 224-7523
This Statement of Additional Information, relating
specifically to the proposed transfer of all or substantially all of
the assets of Smith Barney Funds, Inc. -- Capital Appreciation
Portfolio (the "Capital Appreciation Portfolio") to Smith Barney
Aggressive Growth Fund Inc. (the "Aggressive Growth Fund") in
exchange for shares of the Aggressive Growth Fund and the assumption
by the Aggressive Growth Fund of certain scheduled liabilities of the
Capital Appreciation Portfolio consists of this cover page and the
following described documents, each of which is incorporated herein
by reference.
1. Statement of Additional Information of the Aggressive
Growth Fund, dated November 7, 1994.
2. Annual Report of the Aggressive Growth Fund for the
year ended August 31, 1994.
3. Statement of Additional Information of the Smith
Barney Funds, Inc. dated November 7, 1994.
4. Annual Report of the Capital Appreciation Portfolio
for the year ended December 31, 199 4.
5. Pro-Forma Financial Statements. (Accompanies this
Statement of Additional Information).
This Statement of Additional Information is not a
prospectus. It should be read in conjunction with the
Prospectus/Proxy Statement, dated March , 1995, relating to
the above referenced matter, which may be obtained without charge by
calling or writing either the Aggressive Growth Fund or the Capital
Appreciation Portfolio at the telephone numbers or addresses set
forth above, by contacting any Smith Barney Financial Consultant, or
by calling toll-free 1-800- 224-7523.
The date of this Statement of Additional Information is
March , 1995.
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
- ------
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]
1994
ANNUAL
REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a personal computer, a touchtone
receiver, a DNA module, and a glass container used for measuring
scientific fluids.
Smith Barney
AGGRESSIVE
GROWTH FUND
INC.
AUGUST 31, 1994
SMITH BARNEY
AGGRESSIVE GROWTH FUND INC.
DEAR SHAREHOLDER:
We are pleased to provide you with the Annual Report, which includes the
portfolio of investments for Smith Barney Aggressive Growth Fund Inc. for
the fiscal year ended August 31, 1994. The Fund enjoyed strong relative
performance in its most recent fiscal year. The aggregate total returns
without the deduction of the applicable sales charges for Class A, Class
B, Class C and Class D shares of the Fund were 13.44%, 12.62%, 13.81% and
12.57%, respectively. This compared with a gain of 5.5% for the Standard &
Poor's Daily Price Index of 500 Common Stocks ("S&P 500") and 2.4% for the
Value Line Index, which we believe represents a better measure of perfor-
mance for the kinds of securities held in the Fund. Both of these unman-
aged indices track the movement of common stock prices. The net asset
value of Class A, Class B, Class C and Class D shares of the Fund in-
creased 13.44%, 12.62%, 13.81% and 12.57%, respectively, in the twelve-
month period ended August 31, 1994.
AN OVERVIEW OF THE MARKET AND ECONOMIC ENVIRONMENT
During the last six-months, the equity market as defined by the S&P 500,
suffered its first 10% correction in three years. The catalyst for the de-
cline, which had an even greater impact on growth stocks, was the dramatic
increase in long-term interest rates. From the low point reached in 1993,
the yield on the 30-year Treasury Bond increased to a recent level of
7.78%. Several factors contributed to this rise in interest rates: (a)
several rounds of monetary tightening by the Federal Reserve Board, (b)
fears that the strengthening economy would lead to a pickup in the rate of
inflation, (c) the liquidation of leveraged bond positions which were put
on with the expectation that interest rates would continue falling, (d)
concern over a weak U.S. dollar and its potential inflationary impact, and
(e) reaction to increases in certain commodity prices.
INVESTMENT STRATEGY
During the last six months, the Fund sold its position in McCaw Cellular
Communications which recently merged into ATT, in addition to taking par-
tial profits in Infinity Broadcasting Corporation and Cirrus Logic, Inc.
Among purchases in the same six-month period, we added to positions in
C-COR Electronics, Inc., Cablevision Systems Development Corporation, Arch
Communications Group, Inc., Telular Corporation and Univax Biologics,
Inc., while establishing an initial position in Indigo N.V.
In prior reports to you, we outlined our reasons for maintaining sizable
weightings in emerging health care stocks, including top tier biotechnol-
ogy companies and leading managed care providers. A year ago many ques-
tioned the logic of owning stocks in an industry which was being criti-
cized in Washington, D.C. as well as in the financial press. We were of
the opinion that companies able to offer innovative, cost-effective treat-
ments would succeed in any health care environment. Fortunately, this has
not gone unnoticed by health care companies, as evidenced by the consoli-
dation underway in the pharmaceutical industry as well as among managed
care providers. In May 1994, United Health Care, one of our largest hold-
ings, sold its prescription benefits management ("PBM") subsidiary to
SmithKline Beecham for $2.4 billion which after taxes generated over $10
per share of cash for the company. The shares of Value Health, one of the
few remaining independent PBMs, have risen following other takeovers in
the industry. As top line growth has become harder to achieve for many
drug companies, they have sought to augment their product lines through
strategic acquisitions. Consolidation is likely to remain an important
theme in the health care industry where companies look to leverage their
existing sales forces with new products. Several top tier biotechnology
companies possess exciting products generating significant earnings while
offering large product pipelines besides. We think they represent logical
consolidation candidates. Outright acquisitions of such young dynamic com-
panies would surprise us. We expect any possible activity to be modeled
after the highly successful Roche/Genentech deal five years ago, which al-
lowed the biotechnology company to remain autonomous, yet provided signif-
icant upside potential for shareholders.
In the face of a recovery in the market in which a portion of the early
spring decline has been retraced, there remains a healthy degree of skep-
ticism regarding a further rally in stocks. The opinion expressed in Octo-
ber of this year by investment advisors as compiled weekly by Investors
Intelligence, a New York based service, is decidedly negative with over
70% of market letter writers defined as either outright bearish or looking
for a correction. Option speculators are also pessimistic, as evidenced by
the high ratio of put options being bought to call options. Traditionally,
when these two sentiment indicators display such pessimism, it has been
indicative of a stock market with only limited downside risk. While the
aforementioned sentiment indicators are constructive, the monetary back-
drop is far from friendly following the considerable back-up in long term
interest rates. A further decline in bond prices (prompted by a rise in
interest rates) would likely keep the stock market confined to its 1994
trading range rather than move out to new highs. In addition to cash in-
flows into equity mutual funds (down in recent months, but still high by
historic standards), an increase in stock buy-back activity and large
strategic acquisitions have acted as important incremental sources of de-
mand for stock with the latter two activities showing little sign of a
slowdown.
We believe that the year-long increase in interest rates combined with the
effects of the Clinton tax hike, may act to slow the pace of the economic
expansion before reaching overheated proportions. We think that the econo-
my's momentum is strong enough though to prevent a relapse into recession
with negative ramifications for corporate profits. In the Fund, we own
companies whose sales and earnings depend more on innovation and leader-
ship positions in emerging industries rather than on movements of the
economy. A moderation in the growth rate of the economy, therefore should
not have a deleterious effect on the earnings of most companies in the
Fund. In fact, the relative earnings momentum of companies in the Fund
compared to companies in the S&P 500 would accelerate in a slowing econ-
omy. Under such a scenario, growth stocks may receive an increased weight-
ing in an institutional equity portfolio, which would have positive impli-
cations for the Fund.
In mid-November of this year, the way Smith Barney mutual funds are listed
in the newspaper will change to reflect our consolidated mutual fund fam-
ily. Before the consolidation, the various Classes of Smith Barney and
Smith Barney Shearson mutual funds were listed in the press under separate
headings. Now, all funds will appear under the heading "Smith Barney."
Your Smith Barney Financial Consultant will be able to help you locate
funds in your newspaper.
The past twelve months were a difficult investment environment, but we be-
lieve we have been successful in meeting our stated investment goals. Dur-
ing the next six months we will endeavor to do the same and look forward
to reporting to you in the Fund's Semi-Annual Report.
Sincerely,
Heath B. McLendon Richard A. Freeman
Heath B. McLendon Richard A. Freeman
Chairman of the Board Vice President and
and Investment Officer Investment Officer
October 17, 1994
HISTORICAL PERFORMANCE -- CLASS A SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Gains Dividends
Total
August 31 Beginning Ending Paid Paid
Return*
<S> <C> <C> <C> <C>
<C>
1985 $10.62 $11.45 $0.05 $0.08
9.22%
1986 $11.45 $16.43 -- --
43.49%
1987 $16.43 $21.63 $0.84 --
39.36%
1988 $21.63 $13.68 $2.47 --
(24.40)%
1989 $13.68 $19.25 $0.43 --
44.97%
1990 $19.25 $16.16 $2.03 $0.02
(6.38)%
1991 $16.16 $20.12 $0.94 --
31.97%
1992 $20.12 $18.94 $0.76 --
(2.42)%
1993 $18.94 $23.59 -- --
24.55%
1994 $23.59 $26.76 -- --
13.44%
Total $7.52 $0.10
Cumulative Total Return -- (10/24/83 through 8/31/94)
279.91%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the front-end
sales charge (maximum 5%).
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS
AND CAPITAL GAINS, IF ANY, ANNUALLY.
AVERAGE ANNUAL TOTAL RETURN** -- CLASS A SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Without Sales Charge With Sales
Charge***
<S> <C> <C>
Year Ended 8/31/94 13.44% 7.77%
Five Years Ended 8/31/94 11.24% 10.11%
Inception 10/24/83 through 8/31/94 13.09% 12.55%
<FN>
** All average annual total return figures shown reflect reinvestment
of dividends and capital gains at net asset value.
*** Average annual total return figures assume the deduction of the max-
imum 5% sales charge.
</TABLE>
NOTE: On November 6, 1992, existing shares of the Fund were desig-
nated Class A shares. Class A shares are subject to a maximum 5%
front-end sales charge and a service fee of 0.25% of the value of
the average daily net assets attributable to that Class. The Fund's
annual rates of return would have been lower had service fees been
in effect prior to November 6, 1992.
GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.+
VS. VALUE LINE COMPOSITE INDEX
October 24, 1983 -- August 31, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SHEARSON COVERS (CLASS A)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Ag-
gressive Growth Fund's Class A shares on October 24, 1983 through August
31, 1994 as compared with the growth of a $10,000 investment in the Value
Line Composite Index. The plot points used to draw the line graph were as
follows:
<TABLE>
<CAPTION>
GROWTH OF
$10,000
GROWTH OF $10,000 INVESTMENT
IN THE
MONTH INVESTED IN CLASS A VALUE
LINE
ENDED SHARES OF THE FUND COMPOSITE
INDEX
<S> <C> <C>
10/24/83 $10,000 --
10/83 $ 9,947 $10,000
11/83 $10,430 $10,451
12/83 $10,035 $10,225
03/84 $ 8,623 $ 9,573
06/84 $ 8,684 $ 9,018
09/84 $ 8,851 $ 9,522
12/84 $ 8,806 $ 9,108
03/85 $10,068 $ 9,927
06/85 $10,415 $10,160
09/85 $ 9,464 $ 9,632
12/85 $11,224 $10,913
03/86 $13,516 $12,308
06/86 $15,329 $12,331
09/86 $13,112 $11,067
12/86 $14,111 $11,265
03/87 $19,040 $13,348
06/87 $18,551 $13,544
09/87 $19,934 $13,995
12/87 $14,878 $ 9,995
03/88 $16,227 $11,265
06/88 $17,296 $11,728
09/88 $15,991 $11,483
12/88 $16,278 $11,343
03/89 $18,317 $11,989
06/89 $10,402 $12,680
09/89 $23,032 $13,325
12/89 $23,013 $12,281
03/90 $22,754 $11,717
06/90 $25,468 $11,658
09/90 $18,981 $ 8,777
12/90 $21,639 $ 8,991
03/91 $26,748 $11,138
06/91 $24,940 $11,048
09/91 $28,528 $11,203
12/91 $30,793 $11,539
03/92 $29,813 $11,974
06/92 $27,130 $11,337
09/92 $26,988 $11,285
12/92 $31,418 $12,216
03/93 $29,231 $12,768
06/93 $31,304 $12,653
09/93 $35,819 $13,080
12/93 $38,048 $13,486
03/94 $36,159 $13,008
06/94 $33,760 $12,612
08/94 $37,991 $13,494
</TABLE>
+ Illustration of $10,000 invested in Class A shares on October 24, 1983
assuming reinvestment of dividends and capital gains at net asset value
through August 31, 1994.
VALUE LINE COMPOSITE INDEX -- The Value Line Composite Index (Geomet-
ric), composed of approximately 1,700 stocks, is a geometric average of
the daily price percentage change in each stock covering both large and
small capitalized companies.
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Class has been used.
NOTE: All figures cited here and on the following pages represent past
performance of Class A shares and do not guarantee future results.
HISTORICAL PERFORMANCE -- CLASS B SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Gains Dividends
Total
August 31 Beginning Ending Paid Paid
Return*
<S> <C> <C> <C> <C>
<C>
11/6/92-8/31/93 $20.52 $23.46 -- --
14.33%
1994 $23.46 $26.42 -- --
12.62%
Total $0.00 $0.00
Cumulative Total Return -- (11/6/92 through 8/31/94)
28.75%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the contin-
gent deferred sales charge ("CDSC").
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS B SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Without CDSC With
CDSC***
<S> <C> <C>
Year Ended 8/31/94 12.62%
7.62%
Inception 11/6/92 through 8/31/94 14.92%
12.94%
<FN>
** All average annual total return figures shown reflect reinvestment
of dividends and capital gains at net asset value.
*** Average annual total return figures assume the deduction of the max-
imum applicable CDSC which is described in the prospectus.
</TABLE>
NOTE: On November 6, 1992, the Fund began offering Class B shares.
Class B shares are subject to a 5% CDSC and service and distribution
fees of 0.25% and 0.75%, respectively, of the value of the average
daily net assets attributable to that Class.
GROWTH OF $10,000 INVESTED IN CLASS B SHARES OF
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.+
VS. VALUE LINE COMPOSITE INDEX
November 6, 1992 -- August 31, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SHEARSON COVERS (CLASS B)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Ag-
gressive Growth Fund's Class B shares on November 6, 1992 through August
31, 1994 as compared with the growth of a $10,000 investment in the Value
Line Composite Index. The plot points used to draw the line graph were as
follows:
<TABLE>
<CAPTION>
GROWTH OF
$10,000
GROWTH OF $10,000 INVESTMENT
IN THE
MONTH INVESTED IN CLASS B VALUE
LINE
ENDED SHARES OF THE FUND COMPOSITE
INDEX
<S> <C> <C>
11/6/92 $10,000 --
11/92 $10,712 $10,410
12/92 $10,780 $10,664
3/93 $10,010 $11,146
6/93 $10,697 $11,045
9/93 $12,222 $11,418
12/93 $12,958 $11,773
3/94 $12,290 $11,355
6/94 $11,452 $11,009
8/94 $12,875 $11,779
</TABLE>
+ Illustration of $10,000 invested in Class B shares on November 6, 1992
assuming deduction of the maximum CDSC at the time of redemption and
reinvestment of dividends and capital gains at net asset value through
August 31, 1994.
++ Value does not assume deduction of applicable CDSC.
+++ Value assumes deduction of applicable CDSC (assuming redemption on Au-
gust 31, 1994).
VALUE LINE COMPOSITE INDEX -- The Value Line Composite Index (Geomet-
ric), composed of approximately 1,700 stocks, is a geometric average
of the daily price percentage change in each stock covering both large
and small capitalized companies.
Index information is available at month-end only; therefore, the clos-
est month-end to inception date of the Class has been used.
NOTE: All figures cited here and on the following pages represent
past performance of Class B shares and do not guarantee future re-
sults.
HISTORICAL PERFORMANCE -- CLASS C SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Gains Dividends
Total
August 31 Beginning Ending Paid Paid
Return*
<S> <C> <C> <C> <C>
<C>
11/6/92-8/31/93 $20.52 $23.67 -- --
15.35%
1994 $23.67 $26.94 -- --
13.81%
Total $0.00 $0.00
Cumulative Total Return -- (11/6/92 through 8/31/94)
31.29%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS C SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Actual
<S> <C>
Year Ended 8/31/94
13.81%
Inception 11/6/92 through 8/31/94
16.17%
</TABLE>
** All average annual total return figures shown reflect reinvestment
of dividends and capital gains at net asset value.
NOTE: On November 6, 1992, the Fund began offering Class C shares.
Class C shares are not subject to a sales charge or a service fee
and are available only to tax-exempt employees and retirement plans
and certain UITs of Smith Barney and its affiliates.
GROWTH OF $10,000 INVESTED IN CLASS C SHARES OF
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.+
VS. VALUE LINE COMPOSITE INDEX
November 6, 1992 -- August 31, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SHEARSON COVERS (CLASS C)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Ag-
gressive Growth Fund's Class C shares on November 6, 1992 through August
31, 1994 as compared with the growth of a $10,000 investment in the Value
Line Composite Index. The plot points used to draw the line graph were as
follows:
<TABLE>
<CAPTION>
GROWTH OF
$10,000
GROWTH OF $10,000 INVESTMENT
IN THE
MONTH INVESTED IN CLASS C VALUE
LINE
ENDED SHARES OF THE FUND COMPOSITE
INDEX
<S> <C> <C>
11/6/92 $10,000 --
11/92 $10,712 $10,410
12/92 $10,789 $10,664
3/93 $10,044 $11,146
6/93 $10,760 $11,045
9/93 $12,329 $11,418
12/93 $13,109 $11,773
3/94 $12,471 $11,355
6/94 $11,657 $11,009
8/94 $13,129 $11,779
</TABLE>
+ Illustration of $10,000 invested in Class C shares on November 6, 1992
assuming reinvestment of dividends and capital gains at net asset value
through August 31, 1994.
VALUE LINE COMPOSITE INDEX -- The Value Line Composite Index (Geomet-
ric), composed of approximately 1,700 stocks, is a geometric average of
the daily price percentage change in each stock covering both large and
small capitalized companies.
Index information is available at month-end only; therefore, the clos-
est month-end to inception date of the Class has been used.
NOTE: All figures cited here and on the following pages represent past
performance of Class C shares and do not guarantee future results.
HISTORICAL PERFORMANCE -- CLASS D SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Gains Dividends
Total
August 31 Beginning Ending Paid Paid
Return*
<S> <C> <C> <C> <C>
<C>
5/13/93-8/31/93 $21.14 $23.47 -- --
11.02%
1994 $23.47 $26.42 -- --
12.57%
Total $0.00 $0.00
Cumulative Total Return -- (5/13/93 through 8/31/94)
24.98%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS D SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Actual
<S> <C>
Year Ended 8/31/94
12.57%
Inception 5/13/93 through 8/31/94
18.69%
</TABLE>
** All average annual total return figures shown reflect reinvestment
of dividends and capital gains at net asset value.
NOTE: The Fund began offering Class D shares on May 13, 1993. Class
D shares are subject to service and distribution fees of 0.25% and
0.75%, respectively, of the value of the average daily net assets
attributable to that Class.
GROWTH OF $10,000 INVESTED IN CLASS D SHARES OF
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.+
VS. VALUE LINE COMPOSITE INDEX
May 13, 1993 -- August 31, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SHEARSON COVERS (CLASS D)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Ag-
gressive Growth Fund's Class D shares on May 13, 1993, through August 31,
1994 as compared with the growth of a $10,000 investment in the Value Line
Composite Index. The plot points used to draw the line graph were as fol-
lows:
<TABLE>
<CAPTION>
GROWTH OF
$10,000
GROWTH OF $10,000 INVESTMENT
IN THE
MONTH INVESTED IN CLASS C VALUE
LINE
ENDED SHARES OF THE FUND COMPOSITE
INDEX
<S> <C> <C>
5/12/93 $10,000 $10,000
5/93 $10,350 $10,390
6/93 $10,383 $10,237
9/93 $11,864 $10,583
12/93 $12,578 $10,912
3/94 $11,930 $10,525
6/94 $11,116 $10,204
8/94 $12,498 $10,918
</TABLE>
+ Illustration of $10,000 invested in Class D shares on May 13, 1993 as-
suming reinvestment of dividends and capital gains at net asset value
through August 31, 1994.
VALUE LINE COMPOSITE INDEX -- The Value Line Composite Index (Geomet-
ric), composed of approximately 1,700 stocks, is a geometric average of
the daily price percentage change in each stock covering both large and
small capitalized companies.
Index information is available at month-end only; therefore, the clos-
est month-end to inception date of the Class has been used.
NOTE: All figures cited here and on the following pages represent past
performance of Class D shares and do not guarantee future results.
PORTFOLIO HIGHLIGHTS (UNAUDITED) AUGUST 31, 1994
NDUSTRY BREAKDOWN
DESCRIPTION OF PIE CHARTS IN SHAREHOLDER REPORT
Pie chart depicting the allocation of the Aggressive Growth Fund's invest-
ment securities held at August 31, 1994 by industry classification. The
pie is broken in pieces representing industries in the following percent-
ages:
<TABLE>
<CAPTION>
INDUSTRY
PERCENTAGE
<S>
<C>
WIRELESS COMMUNICATIONS
8.6%
BROADCASTING CABLE
11.5%
BIOTECHNOLOGY
17.5%
CONVERTIBLE PREFERRED STOCK
4.2%
COMMERCIAL PAPER, AND NET OTHER ASSETS AND LIABILITIES
3.2%
OTHER COMMON STOCKS AND UNITS
6.0%
COMPUTER SOFTWARE
6.8%
COMPUTER HARDWARE
4.4%
PHARMACEUTICALS
7.4%
DIVERSIFIED TECHNOLOGY
8.2%
MANAGED HEALTH CARE PROVIDERS
13.8%
SEMICONDUCTOR
8.4%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net
Assets
<S> <C>
GENENTECH, INC. 6.4%
CHIRON CORPORATION 6.4
INTEL CORPORATION 5.9
UNITED HEALTHCARE INC. 5.5
FOREST LABS, INC. CLASS A 5.5
INFINITY BROADCASTING CORPORATION CLASS A 5.1
VALUE HEALTH, INC. 4.8
LOTUS DEVELOPMENT CORPORATION 4.0
WELLMAN INC. 4.0
TYCO LABORATORIES INC. 3.6
</TABLE>
PORTFOLIO OF INVESTMENTS AUGUST 31, 1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE
1)
<S> <C> <C>
COMMON STOCKS -- 92.6%
BIOTECHNOLOGY -- 17.5%
115,000 Alkermes, Inc.+ $
431,250
235,000 Chiron Corporation+
16,391,250
180,000 Cor Therapeutics, Inc.+
2,655,000
320,000 Genentech, Inc.+
16,440,000
200,000 Genzyme Corporation+
6,800,000
185,500 Glycomed, Inc.+
579,688
260,000 Univax Biologics, Inc. +
1,495,000
44,792,188
MANAGED HEALTHCARE PROVIDERS -- 13.8%
270,000 United Healthcare Corporation
14,107,500
205,000 U.S. Healthcare, Inc.
8,866,250
250,000 Value Health, Inc.+
12,312,500
35,286,250
BROADCASTING/CABLE -- 11.5%
100,000 Cablevision Systems Development Corpo-
ration, Class A+
5,750,000
100,000 Comcast Corporation, Class A
1,600,000
293,750 Comcast Corporation, Class A, Special
4,700,000
410,000 Infinity Broadcasting Corporation,
Class A+
12,915,000
200,000 Tele-Communications, Inc., Class A+
4,512,500
29,477,500
WIRELESS COMMUNICATIONS -- 8.6%
270,000 Arch Communications Group, Inc.+
5,062,500
335,000 California Microwave, Inc.+
7,956,250
250,000 Telular Corporation+
2,265,625
50,000 LIN Broadcasting Corporation+
6,700,000
21,984,375
SEMICONDUCTOR -- 8.4%
150,000 Cirrus Logic, Inc.+
4,143,750
400,000 GenRad, Inc.+
2,100,000
230,000 Intel Corporation
15,122,500
21,366,250
DIVERSIFIED TECHNOLOGY -- 8.2%
215,000 C-COR Electronics, Inc.+ $
7,310,000
151,000 Drexler Technology Corporation +
698,375
376,000 Excel Technology, Inc.+
2,256,000
80,000 Indigo N.V.
1,410,000
210,000 Tyco Laboratories, Inc.
9,240,000
20,914,375
PHARMACEUTICALS -- 7.4%
300,000 Forest Laboratories, Inc., Class A+
14,100,000
250,000 Gensia Pharmaceuticals, Inc.+
2,812,500
240,000 IDEC Pharmaceuticals Corporation+
660,000
100,000 Vertex Pharmaceuticals, Inc.+
1,437,500
19,010,000
COMPUTER SOFTWARE -- 6.8%
250,000 Lotus Development Corporation+
10,218,750
170,000 Oracle Systems Corporation+
7,256,875
17,475,625
COMPUTER HARDWARE -- 4.4%
246,000 NetFRAME Systems, Inc.+
2,337,000
556,143 Quantum Corporation+
8,689,734
11,026,734
ENVIRONMENTAL -- 4.0%
320,000 Wellman, Inc.
10,160,000
DRUG DELIVERY/TESTING -- 2.0%
499,500 Advanced Polymer Systems, Inc.+
2,997,000
170,000 Cygnus Therapeutic Systems+
1,338,750
70,000 Cytotherapeutics, Inc.+
568,750
400,000 TSI Corporation +
237,520
5,142,020
TOTAL COMMON STOCKS (Cost $130,287,805)
236,635,317
CONVERTIBLE PREFERRED STOCK -- 4.2% (Cost $2,721,625)
200,000 Cellular Communications, Inc.+
10,650,000
<CAPTION>
FACE
VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER -- 1.3% (Cost $3,424,000)
$3,424,000 General Electric, 4.750% due 9/1/94 $
3,424,000
TOTAL INVESTMENTS (Cost $136,433,430*) 98.1%
250,709,317
OTHER ASSETS AND LIABILITIES (NET) 1.9
4,783,276
NET ASSETS 100.0%
$255,492,593
<FN>
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $136,433,430) (Note 1)
See accompanying schedule
$250,709,317
Cash
145
Receivable for investment securities sold
2,772,411
Receivable for Fund shares sold
2,692,247
Dividends and interest receivable
35,782
Due from Advisor
56,890
TOTAL ASSETS
256,266,792
LIABILITIES:
Payable for Fund shares redeemed $411,473
Investment advisory fee payable (Note 2) 122,811
Service fee payable (Note 3) 46,488
Payable for investment securities purchased 43,750
Administration fee payable (Note 2) 40,937
Distribution fee payable (Note 3) 30,372
Transfer agent fees payable (Note 2) 27,521
Custodian fees payable (Note 2) 10,400
Accrued expenses and other payables 40,447
TOTAL LIABILITIES
774,199
NET ASSETS
$255,492,593
NET ASSETS CONSIST OF:
Accumulated net investment loss $
(3,162,240)
Accumulated net realized gain on investments sold
13,523,887
Unrealized appreciation of investments
114,275,887
Par value
95,659
Paid-in capital in excess of par value
130,759,400
TOTAL NET ASSETS
$255,492,593
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES (continued) AUGUST 31, 1994
<TABLE>
<S>
<C>
NET ASSET VALUE:
CLASS A SHARES:
Net Asset Value and redemption price per share
($180,917,275 / 6,761,035 shares of common stock outstanding)
$26.76
Maximum offering price per share ($26.76 / 0.95) (based on
sales charge of 5% of the offering price on August 31, 1994)
$28.17
CLASS B SHARES:
Net Asset Value and offering price per share+
($49,740,559 / 1,882,602 shares of common stock outstanding)
$26.42
CLASS C SHARES:
Net Asset Value, offering and redemption price per share
($24,467,433 / 908,359 shares of common stock outstanding)
$26.94
CLASS D SHARES:
Net Asset Value offering and redemption price per share
($367,326 / 13,901 shares of common stock outstanding)
$26.42
<FN>
+ Redemption price per share is equal to Net Asset Value less any applica-
ble contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1994
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME:
Dividends
$ 351,630
Interest
125,957
TOTAL INVESTMENT INCOME
477,587
EXPENSES:
Investment advisory fee (Note 2) $1,494,432
Service fee (Note 3) 516,749
Administration fee (Note 2) 498,144
Transfer agent fees (Notes 2 and 4) 339,893
Distribution fee (Note 3) 242,673
Legal and audit fees 110,849
Custodian fees (Note 2) 49,747
Directors' fees and expenses (Note 2) 45,370
Interest expense (Note 7) 25,591
Other 316,379
TOTAL EXPENSES
3,639,827
NET INVESTMENT LOSS
(3,162,240)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTES 1 AND 4):
Net realized gain on investments sold during the year
14,492,212
Net unrealized appreciation of investments during the year
26,593,555
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
41,085,767
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$37,923,527
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR
YEAR
ENDED
ENDED
8/31/94
8/31/93
<S> <C>
<C>
Net investment loss $ (3,162,240)
$ (2,038,685)
Net realized gain on investments sold during the year 14,492,212
1,895,930
Net unrealized appreciation on investments during the year 26,593,555
44,190,147
Net increase in net assets resulting from operations 37,923,527
44,047,392
Net increase/(decrease) in net assets from Fund share
transactions (Note 6):
Class A 1,315,120
(68,499,166)
Class B 28,399,638
16,824,989
Class C (34,713,767)
48,377,699
Class D 335,105
22,852
Net increase in net assets 33,259,623
40,773,766
NET ASSETS:
Beginning of year 222,232,970
181,459,204
End of year (including accumulated net investment loss of
$3,162,240 at August 31, 1994) $255,492,593
$222,232,970
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR
YEAR YEAR
ENDED
ENDED ENDED
8/31/94
8/31/93+ 8/31/92*+
<S> <C> <C>
<C>
Net Asset Value, beginning of year $ 23.59 $
18.94 $ 20.12
Income from investment operations:
Net investment income/(loss) (0.32)
(0.21) (0.07)
Net realized and unrealized gain/(loss) on
investments 3.49
4.86 (0.35)
Total from investment operations 3.17
4.65 (0.42)
Less distributions:
Distributions from net investment income --
- -- --
Distributions from net realized gains --
- -- (0.76)
Total distributions --
- -- (0.76)
Net Asset Value, end of year $ 26.76 $
23.59 $ 18.94
Total return++ 13.44%
24.55% (2.42)%
Ratios/supplemental data:
Net assets, end of year (in 000's) $180,917
$150,471 $181,459
Ratio of operating expenses to average net
assets 1.42%+++
1.34% 1.05%
Ratio of net investment income/(loss) to av-
erage net assets (1.23)%
(1.01)% (0.31)%
Portfolio turnover rate 11%
13% 3%
<FN>
* On November 6, 1992 the Fund commenced selling Class B and C shares.
Shares issued prior to November 6,1992 were designated as Class A
shares. On May 13, 1993 the Fund commenced selling Class D shares.
+ Per share amounts have been calculated using the monthly average
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 for all Classes of shares.
++ Total return represents aggregate total return for each period indi-
cated and does not reflect any applicable sales charge.
+++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 1.43% for the year ended
August 31, 1994.
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
ENDED
8/31/91+ 8/31/90+ 8/31/89+ 8/31/88 8/31/87 8/31/86
8/31/85
<S> <C> <C> <C> <C> <C> <C>
$ 16.16 $ 19.25 $ 13.68 $ 21.63 $ 16.43 $ 11.45 $
10.62
(0.05) (0.02) 0.02 (0.12) (0.11) (0.09)
(0.04)
4.95 (1.02) 5.98 (5.36) 6.15 5.07
1.00
4.90 (1.04) 6.00 (5.48) 6.04 4.98
0.96
-- (0.02) -- -- -- --
(0.08)
(0.94) (2.03) (0.43) (2.47) (0.84) --
(0.05)
(0.94) (2.05) (0.43) (2.47) (0.84) --
(0.13)
$ 20.12 $ 16.16 $ 19.25 $ 13.68 $ 21.63 $ 16.43 $
11.45
31.97% (6.38)% 44.97% (24.40)% 39.36% 43.49%
9.22%
$144,587 $86,169 $94,228 $81,287 $143,572 $115,212
$100,140
1.17% 1.13% 1.25% 1.10% 1.10% 1.20%
1.20%
(0.24)% (0.11)% 0.15% (0.60)% (0.60%) (0.60%)
(0.30%)
23% 14% 8% 10% 25% 24%
33%
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
8/31/94
8/31/93*+
<S> <C> <C>
Net Asset Value, beginning of period $ 23.46 $
20.52
Income from investment operations:
Net investment loss (0.29)
(0.30)
Net realized and unrealized gain on investments 3.25
3.24
Total from investment operations 2.96
2.94
Net Asset Value, end of period $ 26.42 $
23.46
Total return++ 12.62%
14.33%
Ratios/supplemental data:
Net assets, end of period (in 000's) $49,741
$18,139
Ratio of operating expenses to average net assets 2.22%+++
2.18%**
Ratio of net investment loss to average net assets (2.04)%
(1.86)%**
Portfolio turnover rate 11%
13%
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
+ Per share amounts have been calculated using the monthly average
method, which more appropriately presents the per share data for this
period, since use of the undistributed method does not accord with re-
sults of operations for all Classes of shares.
++ Total return represents aggregate total return for each period indi-
cated and does not reflect any
applicable sales charge.
+++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 2.23% for the year ended
August 31, 1994.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
8/31/94
8/31/93*+
<S> <C> <C>
Net Asset Value, beginning of period $ 23.67 $
20.52
Income from investment operations:
Net investment loss (0.31)
(0.12)
Net realized and unrealized gain on investments 3.58
3.27
Total from investment operations 3.27
3.15
Net Asset Value, end of period $ 26.94 $
23.67
Total return++ 13.81%
15.35%
Ratios/supplemental data:
Net assets, end of period (in 000's) $24,467
$53,599
Ratio of operating expenses to average net assets 1.01%+++
0.99%**
Ratio of net investment loss to average net assets (0.83)%
(0.67)%**
Portfolio turnover rate 11%
13%
<FN>
* The Fund commenced selling Class C shares on November 6, 1992.
** Annualized.
+ Per share amounts have been calculated using the monthly average
method, which more appropriately presents the per share data for this
period, since use of the undistributed method does not accord with re-
sults of operations for all Classes of shares.
++ Total return represents aggregate total return for each period indi-
cated.
+++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 1.02% for the year ended
August 31, 1994.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
8/31/94
8/31/93*+
<S> <C> <C>
Net Asset Value, beginning of period $23.47
$21.14
Income from investment operations:
Net investment loss (0.17)
(0.13)
Net realized and unrealized gain on investments 3.12
2.46
Total from investment operations 2.95
2.33
Net Asset Value, end of period $26.42
$23.47
Total return++ 12.57%
11.02%
Ratios/supplemental data:
Net assets, end of period (in 000's) $ 367 $
24
Ratio of operating expenses to average net assets 2.08%+++
2.11%**
Ratio of net investment loss to average net assets (1.90)%
(1.76)%**
Portfolio turnover rate 11%
13%
<FN>
* The Fund commenced selling Class D shares on May 13, 1993.
** Annualized.
+ Per share amounts have been calculated using the monthly average
method, which more appropriately presents the per share data for this
period, since use of the undistributed method does not accord with re-
sults of operations for all Classes of shares.
++ Total return represents aggregate total return for each period indi-
cated.
+++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 2.09% for the year ended
August 31, 1994.
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Aggressive Growth Fund Inc. (the "Fund"), formerly known as
Smith Barney Shearson Aggressive Growth Fund Inc., was incorporated under
the laws of the State of Maryland on May 12, 1983. The Fund is registered
as a diversified, open-end management investment company with the Securi-
ties and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"). As of November 6, 1992, the Fund offered three
classes of shares: Class A, Class B and Class C. On January 29, 1993 the
Fund offered a fourth class of shares, Class D shares, to investors eligi-
ble to participate in the Smith Barney 401(k) Program. The Fund began
selling Class D shares on May 13, 1993. Class A and Class B shares are of-
fered to the general public. Class A shares are sold with a front-end
sales charge. Class B shares may be subject to a contingent deferred sales
charge ("CDSC") upon redemption. Class B shares will convert automatically
to Class A shares approximately eight years after the date of purchase.
Class C shares are offered exclusively to tax-exempt employee benefit and
retirement plans of Smith Barney Inc. ("Smith Barney") and its affiliates
and unit investment trusts sponsored by Smith Barney. Class C and Class D
shares are offered without a front-end sales load or CDSC. All Classes of
shares have identical rights and privileges except with respect to the ef-
fect of the respective sales charges of each Class, if any, the distribu-
tion and/or service fees borne by each Class, expenses allocable exclu-
sively to each Class, voting rights on matters affecting a single Class,
the exchange privilege of each Class and the conversion feature of Class B
shares. The following is a summary of significant accounting policies con-
sistently followed by the Fund in the preparation of its financial state-
ments.
Portfolio valuation: Listed securities traded on a national securities
exchange are valued at the last reported sales price; securities traded in
the over-the-counter market and listed securities for which no sale was
reported are valued at the bid price or, in the absence of a recent bid
price, at the bid equivalent as obtained from one or more of the major
market makers in the securities. Investments in securities for which mar-
ket quotations are not available are valued at fair value as determined in
good faith by the Board of Directors. Short-term investments that mature
in 60 days or less are valued at amortized cost.
Repurchase agreements: The Fund engages in repurchase agreement transac-
tions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation 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 pe-
riod. The value of the collateral is at least equal at all times to the
total amount of the repurchase obligations including interest. In the
event of counterparty default, the Fund has the right to use the collat-
eral to offset losses incurred. There is potential loss to the Fund in the
event the Fund is delayed or prevented from exercising its rights to dis-
pose of the collateral securities, including the risk of a possible de-
cline in the value of the underlying securities during the period while
the Fund seeks to assert its rights. The Fund's investment adviser, admin-
istrator or sub-administrator acting under the supervision of the Board of
Directors, reviews the value of the collateral and the creditworthiness of
those banks and dealers with which the Fund enters into repurchase agree-
ments to evaluate potential risks.
Securities transactions and investment income: Securities transactions
are recorded as of the trade date. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on an accrual basis. Realized
gains and losses from securities transactions are recorded on the identi-
fied cost basis. Investment income and realized and unrealized gains and
losses are allocated based upon the relative net assets of each Class of
shares.
Dividends and distributions to shareholders: Distributions from net in-
vestment income, if any, are determined on a Class level and will be de-
clared and paid at least annually. Distributions from net realized capital
gains, if any, after utilization of capital loss carryforwards, are deter-
mined on a Fund level and will be distributed at least annually. Addi-
tional distributions may be made at the discretion of the Board of Direc-
tors in order to avoid the application of a 4% nondeductible excise tax on
certain amounts of undistributed ordinary income and capital gains. Income
distributions and capital gain distributions on a Fund level are deter-
mined in accordance with income tax regulations which may differ from gen-
erally accepted accounting principles. These differences are primarily due
to differing treatments of income and gains on various investment securi-
ties held by the Fund, timing differences and differing characterization
of distributions made by the Fund as a whole.
Federal income taxes: It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code of 1986, as amended, applicable to reg-
ulated investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax pro-
vision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE
AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Smith Barney Asset Management, a division of Smith, Bar-
ney Advisers, Inc. ("SBA"), which is a wholly owned subsidiary of Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary
of The Travelers Inc. Under the Advisory Agreement, the Fund pays a
monthly fee at the annual rate of 0.60% of the value of its average daily
net assets.
Prior to April 21, 1994, the Fund was party to an administration agreement
(the "Administration Agreement") with The Boston Company Advisors, Inc.
("Boston Advisors"), an indirect wholly-owned subsidiary of Mellon Bank
Corporation ("Mellon"). Under the Administration Agreement, the Fund paid
a monthly fee at the annual rate of .20% of the value of its average daily
net assets.
As of the close of business on April 21, 1994, SBA succeeded Boston
Advisors as the Fund's administrator. The new administration agreement
contains substantially the same terms and conditions, including the level
of fees, as the predecessor agreement.
As of the close of business on April 21, 1994, the Fund and SBA entered
into a sub-administration agreement (the "Sub-Administration Agreement")
with Boston Advisors. Under the Sub-Administration Agreement, SBA pays
Boston Advisors a portion of its fee at a rate agreed upon from time to
time between SBA and Boston Advisors.
For the year ended August 31, 1994, the Fund incurred total brokerage com-
missions of $34,996, of which $3,800 was paid to Smith Barney.
For the year ended August 31, 1994, Smith Barney received from investors
$255,719 representing commissions (sales charges) on sales of Class A
shares.
A CDSC is generally payable by a shareholder in connection with the re-
demption of Class B shares within five years (eight years in the case of
purchases by certain 401(k) plans) after the date of purchase. In circum-
stances in which the CDSC is imposed, the amount of the charge ranges be-
tween 5% and 1% of net asset value depending on the number of years since
the date of purchase (except in the case of purchases by certain 401(k)
plans in which case a 3% CDSC is imposed for the eight year period after
the date of the purchase). For the year ended August 31, 1994, Smith Bar-
ney received $101,447 from shareholders in CDSCs on the redemption of
Class B shares.
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation from the Fund for serving as a Director or of-
ficer of the Fund. The Fund pays each Director who is not an officer, di-
rector or employee of Smith Barney or any of its affiliates $3,000 per
annum plus $500 per meeting attended and reimburses each such Director for
travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Fund's custodian. The Shareholder Services Group,
Inc., a subsidiary of First Data Corporation, serves as the Fund's trans-
fer agent.
3. DISTRIBUTION PLAN
Smith Barney acts as distributor of the Fund's shares pursuant to a dis-
tribution agreement with the Fund and sells shares of the Fund through
Smith Barney or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a services
and distribution plan (the "Plan"). Under this Plan, the Fund compensates
Smith Barney for servicing shareholder accounts for Class A, Class B and
Class D shareholders, and covers expenses incurred in distributing Class B
and Class D shares. Smith Barney is paid an annual service fee with re-
spect to Class A, Class B and Class D shares of the Fund at the rate of
0.25% of the value of the average daily net assets of each respective
Class of shares. Smith Barney is also paid an annual distribution fee with
respect to Class B and Class D shares at the rate of 0.75% of the value of
the average daily net assets of each respective Class of shares. For the
year ended August 31, 1994, the Fund incurred a service fee of $435,857,
$80,526 and $366 for Class A, Class B and Class D shares, respectively.
For the year ended August 31, 1994, the Fund incurred distribution fees of
$241,578 and $1,095 for Class B and Class D shares.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operation of any
Class of shares are prorated among the Classes based upon the relative net
assets of each Class. Operating expenses directly attributable to a Class
of shares are charged to that Class' operations. In addition to the above
service and distribution fees, Class specific operating expense include
transfer agent fees. For the year ended August 31, 1994, transfer agent
fees for Class A, Class B, Class C and Class D shares were $270,751,
$68,908, $131 and $103, respectively.
5. SECURITIES TRANSACTIONS
Costs of purchases and proceeds from sales of securities, excluding short-
term investments and long-term U.S. government securities, for the year
ended August 31, 1994, were $27,820,759 and $52,103,016, respectively.
At August 31, 1994, aggregate gross unrealized appreciation for all secu-
rities in which there was an excess of value over tax cost was
$130,825,100, and aggregate gross unrealized depreciation for all securi-
ties in which there was an excess of tax cost over value was $16,549,213.
6. COMMON STOCK
At August 31, 1994, the Fund had authorized 100 million shares of $.01 par
value common stock divided into four Classes: Class A, Class B, Class C,
and Class D.
Changes in common stock outstanding were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR
ENDED
8/31/94
8/31/93
CLASS A SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
Sold 3,336,796 $ 75,925,637 3,043,908 $
63,507,753
Issued in exchange for
shares of Smith Barney
Shearson 1990's Fund (Note
8) 997,919 26,604,524 --
- --
Redeemed (3,951,101) (101,215,041) (6,245,040)
(132,006,919)
Net increase/(decrease) 383,614 $ 1,315,120 (3,201,132) $
(68,499,166)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
ENDED
8/31/94 8/31/93*
CLASS B SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C> <C>
Sold 3,421,611 $ 87,244,483 1,450,574 $
31,569,205
Issued in exchange for
shares of Smith Barney
Shearson 1990's Fund (Note
8) 18,212 482,442 --
- --
Redeemed (2,330,261) (59,327,287) (677,534)
(14,744,216)
Net increase 1,109,562 $ 28,399,638 773,040 $
16,824,989
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
ENDED
8/31/94 8/31/93*
CLASS C SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C> <C>
Sold 281,446 $ 7,536,528 2,588,331
$55,409,780
Redeemed (1,637,144) (42,250,295) (324,274)
(7,032,081)
Net increase/(decrease) (1,355,698) $(34,713,767) 2,264,057
$48,377,699
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
ENDED
8/31/94 8/31/93*
CLASS D SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
Sold 13,833 $358,452 1,042 $
22,852
Redeemed (974) (23,347) --
- --
Net increase 12,859 $335,105 1,042 $
22,852
<FN>
* The Fund commenced selling Class B and Class C shares on November 6,
1992. Any shares outstanding prior to November 6, 1992 were designated
Class A shares. The Fund commenced selling Class D shares on May 13,
1993.
</TABLE>
7. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Continental Bank N.A. under an Amended and Restated
Line of Credit Agreement (the "Agreement") dated April 30, 1992 and re-
newed effective May 31, 1994, primarily for temporary or emergency pur-
poses, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Under this Agreement, the
Fund may borrow up to the lesser of $25 million or 20% of its net assets.
Interest is payable either at the bank's Money Market Rate or the London
Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. Under
the terms of the Agreement, as amended, the Fund and the other affiliated
entities are charged an aggregate commitment fee of $100,000 which is al-
located equally among each of the participants. The Agreement requires,
among other provisions, each participating fund to maintain a ratio of net
assets (not including funds borrowed pursuant to the Agreement) to aggre-
gate amount of indebtedness pursuant to the Agreement of no less than 5 to
1. During the year ended August 31, 1994, the Fund had an average out-
standing daily balance of $456,712 with interest rates ranging from
3.3125% to 4.8750%. Interest expense for the year ended August 31, 1994,
totalled $25,591. At August 31, 1994, the Fund had no outstanding borrow-
ings under this Agreement.
8. REORGANIZATION
On October 15, 1993, the Fund (the "Acquiring Fund") acquired the
assets and certain liabilities of Smith Barney Shearson 1990's Fund (the
"Acquired Fund"), in a tax-free exchange for shares of the Acquiring Fund,
pursuant to a plan of reorganization approved by the Acquired Fund's
shareholders on October 12, 1993. Total shares issued by the Acquiring
Fund, the total net assets of the Acquired Fund and the Acquiring Fund are
as follows:
<TABLE>
<CAPTION>
SHARES TOTAL NET
TOTAL NET
ISSUED BY ASSETS OF
ASSETS OF
ACQUIRING ACQUIRED ACQUIRING ACQUIRED
ACQUIRING
FUND FUND FUND FUND*
FUND
<S> <C> <C> <C>
<C>
The Fund Smith Barney Shearson 1990s Fund 1,016,131 $27,086,966
$247,422,920
</TABLE>
The total net assets of the Acquired Fund before acquisition included un-
realized appreciation of $9,088,361. The total net assets of the Acquiring
Fund immediately after the acquisition were $274,509,886.
9. LENDING OF PORTFOLIO SECURITIES
The Fund has the ability to lend its securities to brokers, dealers and
other financial organizations. Loans of securities by the Fund are collat-
eralized by cash, letters of credit or U.S. government securities that are
maintained at all times in an amount at least equal to the current market
value of the loaned securities. At August 31, 1994, the Fund had no secu-
rities on loan.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.:
We have audited the accompanying statement of assets and liabilities of
Smith Barney Aggressive Growth Fund Inc., formerly known as Smith Barney
Shearson Aggressive Growth Fund Inc., including the schedule of portfolio
investments, as of August 31, 1994, and the related statement of opera-
tions for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial high-
lights for each of the ten years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and fi-
nancial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 1994 by correspondance with the custo-
dian and brokers. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evalu-
ating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Smith Barney Aggressive Growth Fund Inc., formerly known as Smith Bar-
ney Shearson Aggressive Growth Fund Inc., as of August 31, 1994, the re-
sults of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the finan-
cial highlights for each of the ten years in the period then ended in con-
formity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 7, 1994
TAX INFORMATION (unaudited)
FISCAL YEAR ENDED AUGUST 31, 1994
The following information represents fiscal year end disclosures of vari-
ous tax benefits passed through to shareholders at calendar year end.
Of the distributions made by the Fund, 100% represents the amount of each
distribution which will qualify for the dividends received deduction
available to corporate shareholders.
The above figures may differ from those cited elsewhere in this report due
to differences in the calculations of income and capital gains for Securi-
ties and Exchange Commission (book) purposes and Internal Revenue Service
(tax) purposes.
PARTICIPANTS
DISTRIBUTOR
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Smith Barney Asset Management
388 Greenwich Street
New York, New York 10013
ADMINISTRATOR
Smith, Barney Advisers, Inc.
388 Greenwich Street
New York, New York 10013
SUB-ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services
Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit
and Trust Company
One Boston Place
Boston, Massachusetts 02108
GLOSSARY OF COMMONLY USED MUTUAL FUND TERMS
CAPITAL GAIN (OR LOSS) This is the increase (or decrease) in the market
value (price) of a security in your portfolio. If a stock or bond appreci-
ates in price, there is a capital gain; if it depreciates, there is a cap-
ital loss. A capital gain or loss is "realized" upon the sale of a
security; if net capital gains exceed net capital losses, there may be a
capital gain distribution to shareholders.
CONTINGENT DEFERRED SALES CHARGE (CDSC) One kind of back-end load, a CDSC
may be imposed if shares are redeemed during the first few years of owner-
ship. The CDSC may be expressed as a percentage of either the original
purchase price or the redemption proceeds. Most CDSCs decline over time,
and some will not be charged if shares are redeemed after a certain period
of time.
DIVIDEND This is income generated by securities in a portfolio and dis-
tributed after expenses to shareholders.
FRONT-END SALES CHARGE This is the sales charge applied to an investment
at the time of initial purchase.
NET ASSET VALUE (NAV) Net asset value is the total market of all securi-
ties held by a fund, minus any liabilities, divided by the number of
shares outstanding. It is the value of a single share of a mutual fund on
a given day. The total value of your investment would be the NAV multi-
plied by the number of shares you own.
TOTAL RETURN Total return measures a fund's performance, taking into ac-
count the combination of dividends paid and the gain or loss in the value
of the securities held in the portfolio. It may be expressed on an average
annual basis or cumulative basis (total change over a given period). In
addition, total return may be expressed with or without the effects of
sales charges or the reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the
average annual total return according to the standardized calculation de-
veloped by the SEC. The SEC average annual total return calculation in-
cludes the effects of all fees and sales charges and assumes the reinvest-
ment of all dividends and capital gains.
AGGRESSIVE
GROWTH
FUND INC.
DIRECTORS
Paul R. Ades
Herbert Barg
Alger B. Chapman
Dwight B. Crane
Frank Hubbard
Allan R. Johnson
Heath B. McLendon
Ken Miller
John F. White
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Richard A. Freeman
Vice President and
Investment Officer
Lewis E. Daidone
Treasurer
Christina T. Sydor
Secretary
Recycled
Recyclable
This report is submitted for
the general information of the
shareholders of Smith Barney
Aggressive Growth Fund Inc. It is
not authorized for distribution to
prospective investors unless
accompanied or preceded by an
effective Prospectus for the Fund,
which contains information
concerning the Fund's investment
policies, fees and expenses as well
as other pertinent information.
SMITH BARNEY
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
Fund 9, 188, 189, 214
FD0433 J4
<PAGE>
Annual Report
1994
1994
1994
1994
1994
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
December 31,1994
[LOGO APPEARS HERE]
Smith Barney Mutual Funds
Investing for your future.
Everyday.
<PAGE>
- --------------------------------------------------------------------------------
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Dear Shareholder:
The Smith Barney Funds, Inc.: Capital Appreciation Portfolio encountered a
difficult market in 1994. Although the Standard & Poor's 500 Index managed a
gain of 1.3%, according to Lipper Analytical Services, the average stock
mutual fund was down 1.7%, and bonds had one of their worst years on record.
For the year ended December 31, 1994, the Portfolio produced a total return
of negative 7.79% for Class A shares.
Much of the damage was done during the first six months. In early February,
the Federal Reserve Board, fearing that a stronger economy might lead to
inflation, raised the federal funds rate--the rate banks charge each other
for overnight loans--from 3.00% to 3.25%. That rate hike, and another in
March, caused heavy selling in both the stock and bond markets. In total, the
Fed raised its rate six times during the year and by December it had reached
5.5%. By the second half of the year, however, the stock market settled down.
The rise in rates during 1994 seemed to accentuate a continuing paradox of
market behavior which has appeared over the last few years. While the popular
averages have gained moderately, many stocks and industry groups have
experienced substantial downward pressure. A recent study cited in Barron's
(January 2, 1995) indicated that roughly two-thirds of the stocks tracked by
the Russell 3000, an index of the 3,000 largest U.S. companies, were down
from their February 1994 price levels, and almost one-half were off by at
least 10% to 30%, despite gains in both the S&P 500 and the Dow Jones
Industrial Average.
Portfolio Strategy
This volatility was certainly evident during the first half of 1994 and
affected overall portfolio performance. There were also some fundamental
disappointments, including Lotus Development, the software designer and
manufacturer. Lotus announced weaker-than-expected earnings, and its shares
declined sharply. Also, shares of Newbridge Networks dropped due to the
perception that its networking products were facing increased competition.
Second-half performance was helped by strong results from Citicorp,
credit-card processor First Financial Management, and Pfizer, where earnings
and unit volumes are growing, and there are a number of new pharmaceutical
products in the pipeline. Compaq Computer also contributed to performance
during the last six months of 1994.
1
<PAGE>
Outlook
Going forward, we believe the prospects for equities are mixed. If 1994 was
any indication, the market could continue to vacillate between enthusiasm for
stocks during reporting periods and fear of inflation and higher rates in
between. Higher interest rates do profoundly affect earnings multiples and
valuation models. Inflation, however, has proved to be only a perceived
threat to date. Furthermore, we see good values in an increasing number of
large growth stocks. In some cases, prices are close to where they were two
years ago while earnings have grown substantially. Earnings prospects for
companies like Motorola are also excellent. Motorola recently increased the
projected growth rate for its semiconductor business from 15% to 20% for the
year and expects the personal computer market to grow by 30% in 1995.
The Portfolio is now focused most heavily in the technology and
telecommunications sectors, with special emphasis on the client server and
personal computer areas, and on cellular telecommunications services and
equipment. We also continue to hold a number of financial service companies,
such as Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association. These companies are experiencing solid earnings increases and
sell at low P/E multiples. In the retail area we like Home Depot, and among
the health care group, the emphasis is on pharmaceutical companies and HMOs.
We believe these stocks will fare well in a market where careful stock
selection and excellent earnings will be rewarded.
Respectfully yours,
/s/ Stephen Treadway
Stephen Treadway
Chairman and Chief Executive Officer
January 31, 1995
2
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Historical Performance - Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
----------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Return/(1)/
=====================================================================================
<S> <C> <C> <C> <C> <C>
12/31/94 $14.50 $13.37 $0.00 $0.00 (7.79)%
- -------------------------------------------------------------------------------------
12/31/93 13.16 14.50 0.00 0.00 10.18
- -------------------------------------------------------------------------------------
11/30/92*-12/31/92 12.50 13.16 0.00 0.00 5.28
=====================================================================================
Total $0.00 $0.00
=====================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
- --------------------------------------------------------------------------------
Average Annual Total Return - Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without With
Sales Charge/(1)/ Sales Charge/(2)/
================================================================================
<S> <C> <C>
Year Ended 12/31/94 (7.79)% (12.39)%
- --------------------------------------------------------------------------------
11/30/92* through 12/31/94 3.28 0.76
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance - Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Return/(1)/
========================================================================================
<S> <C> <C> <C> <C>
11/7/94*-12/31/94 $13.88 $13.36 $0.00 $0.00 (3.75)%
========================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Average Annual Total Return - Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without With
Sales Charge/(1)/ Sales Charge/(2)/
================================================================================
<S> <C> <C>
11/7/94* through 12/31/94 (3.75)% (8.56)%
- --------------------------------------------------------------------------------
</TABLE>
* Inception.
3
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Historical Performance - Class C Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Return/(1)/
===================================================================================
<S> <C> <C> <C> <C> <C>
12/31/94 $14.39 $13.17 $0.00 $0.00 (8.48)%
- -----------------------------------------------------------------------------------
12/31/93 13.16 14.39 0.00 0.00 9.35
- -----------------------------------------------------------------------------------
11/30/92*-12/31/92 12.50 13.16 0.00 0.00 5.28
===================================================================================
Total $0.00 $0.00
===================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Average Annual Total Return - Class C Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without With
Sales Charge/(1)/ Sales Charge/(2)/
================================================================================
<S> <C> <C>
Year Ended 12/31/94 (8.48)% (9.39)%
- --------------------------------------------------------------------------------
11/30/92* through 12/31/94 2.54 2.54
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge/(1)/
================================================================================
<S> <C>
Class A (11/30/92* through 12/31/94) 6.96%
- --------------------------------------------------------------------------------
Class B (11/7/94* through 12/31/94) (3.75)
- --------------------------------------------------------------------------------
Class C (11/30/93* through 12/31/94) 5.36
- --------------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions at net
asset value and does not reflect deduction of the applicable sales charge
with respect to Class A shares or the applicable contingent deferred sales
charges ("CDSC") with respect to Class B and Class C shares.
(2) Assumes reinvestment of all dividends and capital gains distributions at
net asset value. In addition, Class A shares reflect the deduction of the
maximum initial sales charge of 5.00%, Class B shares reflect the deduction
of a 5.00% CDSC, which applies if shares are redeemed less than one year
from initial purchase and declines by 1.00% per year until no CDSC is
incurred and Class C shares reflect the deduction of a 1.00% CDSC if shares
are redeemed within the first year of purchase.
* Inception.
4
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
Capital Appreciation Portfolio vs. S&P 500+
(unaudited)
- --------------------------------------------------------------------------------
November 1992 - December 1994
[GRAPH APPEARS HERE]
+ Hypothetical illustration of $10,000 invested in Class A shares at inception
on November 30, 1992, assuming deduction of the maximum 4.50% sales charge at
the time of investment and reinvestment of dividends and capital gains, if
any, at net asset value through December 31, 1994. The S&P 500 is an index of
widely held common stocks listed on the New York and American Stock Exchanges
and the over the counter markets. Figures for the S&P 500 include
reinvestment of dividends. The Index is unmanaged and is not subject to the
same management and trading expenses of a mutual fund. The performance of the
Portfolio's other classes may be greater or less than the Class A shares
performance indicated on this chart, depending on whether greater or lesser
sales charges and fees were incurred by shareholders investing in the other
classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
5
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<S> <C>
COMMON STOCKS -- 64.3%
Automotive -- 3.5%
88,480 Chrysler Corp. $4,335,520
- --------------------------------------------------------------------------------
Banking -- 3.4%
86,600 Citicorp 3,583,075
16,200 First Bank Systems Inc. 538,650
- --------------------------------------------------------------------------------
4,121,725
- --------------------------------------------------------------------------------
Computer Systems -- 11.7%
8,900 Ceridian Corp.** 239,188
29,700 Compaq Computer Corp.** 1,173,150
59,675 Dell Computer Corp.** 2,446,675
95,450 Digital Equipment Corp.** 3,173,712
23,125 General Motors Corp. Class E 890,313
66,875 Microsoft Corp.** 4,087,734
52,700 Oracle Systems Corp.** 2,325,388
- --------------------------------------------------------------------------------
14,336,160
- --------------------------------------------------------------------------------
Consumer Products & Services -- 4.7%
142,425 Aldila Inc.** 1,637,888
96,000 Duracell International Inc. 4,164,000
- --------------------------------------------------------------------------------
5,801,888
- --------------------------------------------------------------------------------
Diversified Manufacturing -- 4.4%
53,450 General Instruments Corp.** 1,603,500
131,100 Philips Electronics N.V. ADR 3,851,063
- --------------------------------------------------------------------------------
5,454,563
- --------------------------------------------------------------------------------
Financial Services -- 7.8%
50,500 Federal National Mortgage Corp. 3,680,188
65,225 Federal Home Loan Mortgage Corp. 3,293,862
72,200 Merrill Lynch & Company Inc. 2,581,150
- --------------------------------------------------------------------------------
9,555,200
- --------------------------------------------------------------------------------
Food & Beverage -- 4.8%
115,350 Coca Cola Co. 5,940,525
- --------------------------------------------------------------------------------
</TABLE>
See Note to Financial Statements.
6
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- -------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
===============================================================================
<S> <C>
Healthcare -- 9.3%
112,125 Columbia/HCA Healthcare Corp. $ 4,092,563
31,675 Pfizer Inc. 2,446,894
72,750 United Healthcare Corp. 3,282,843
37,510 US Healthcare Inc. 1,547,288
- -------------------------------------------------------------------------------
11,369,588
- -------------------------------------------------------------------------------
Pharmaceuticals -- 2.1%
43,450 Amgen Inc.** 2,563,550
- -------------------------------------------------------------------------------
Railroad -- 1.5%
36,225 Conrail Inc. 1,829,363
- -------------------------------------------------------------------------------
Retail Products -- 2.7%
73,333 Home Depot Inc. 3,373,318
- -------------------------------------------------------------------------------
Technology -- 1.3%
21,175 Texas Instruments Inc. 1,585,478
- -------------------------------------------------------------------------------
Telecommunications -- 7.1%
103,575 AirTouch Communications Inc.** 3,016,621
1,050 LIN Broadcasting Corp.** 140,175
89,275 Motorola Inc. 5,166,791
132,450 Vodafone Group PLC 439,358
- -------------------------------------------------------------------------------
8,762,945
- -------------------------------------------------------------------------------
Television -- 0.0%
525 LIN Television Corp.** 11,944
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost--$74,921,760) 79,041,767
===============================================================================
PREFERRED STOCKS -- 8.0%
Telecommunications -- 8.0%
47,500 Nokia Corp. AB Preferred 6,995,610
37,200 Nokia Corp. ADR Preferred 2,790,000
- -------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (Cost--$7,617,438) 9,785,610
===============================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
===============================================================================
<S> <C>
REPURCHASE AGREEMENT -- 27.7%
$33,961,000 Chemical Securities Inc., 5.75% due 1/3/95; proceeds
at maturity -- $33,982,683 (Fully collateralized by
U.S. Treasury Notes 6.50% due 9/30/96; Market
value -- $34,642,401) (Cost--$33,961,000) 33,961,000
===============================================================================
TOTAL INVESTMENTS -- 100% (Cost--$116,500,198*) $122,788,377
===============================================================================
</TABLE>
** Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $116,500,198) $ 122,788,377
Cash 39
Receivable for Fund shares sold 128,133
Dividends and interest receivable 56,672
- --------------------------------------------------------------------------------
Total Assets 122,973,221
================================================================================
LIABILITIES:
Payable for Fund shares purchased 48,380
Management fees payable 291,099
Distribution costs payable 182,266
Accrued expenses and other liabilities 19,688
- --------------------------------------------------------------------------------
Total Liabilities 541,433
================================================================================
Total Net Assets $ 122,431,788
================================================================================
NET ASSETS:
Par value of capital shares $ 92,345
Capital paid in excess of par value 116,706,654
Accumulated net realized capital loss (655,390)
Net unrealized appreciation of investments 6,288,179
- --------------------------------------------------------------------------------
Total Net Assets $ 122,431,788
================================================================================
Shares Outstanding:
Class A 4,039,452
- --------------------------------------------------------------------------------
Class B 15,223
- --------------------------------------------------------------------------------
Class C 5,179,866
- --------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $13.37
- --------------------------------------------------------------------------------
Class B* $13.36
- --------------------------------------------------------------------------------
Class C** $13.17
- --------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value) $14.07
================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by 5.00% if shares are
redeemed less than one year from initial purchase and declines by 1.00% per
year until no CDSC is incurred.
** Redemption price is NAV of Class C shares reduced by 1.00% if shares are
redeemed within the first year of purchase.
See Notes to Financial Statements.
8
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Statement of Operations For the year ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,361,902
Interest 330,335
- --------------------------------------------------------------------------------
Total Income 1,692,237
================================================================================
EXPENSES:
Management fees (Note 2) 1,479,311
Distribution costs (Note 2) 1,004,767
Shareholder servicing fees 79,119
Registration fees 60,002
Shareholder communication fees 52,002
Custodian fees 23,999
Audit and legal fees 20,002
Directors' fees 3,927
Other 13,100
- --------------------------------------------------------------------------------
Total Expenses 2,736,229
- --------------------------------------------------------------------------------
Net Investment Loss (1,043,992)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 235,779,211
Cost of securities sold 233,938,041
- --------------------------------------------------------------------------------
Net Realized Gain 1,841,170
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 20,592,683
End of year 6,288,179
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (14,304,504)
- --------------------------------------------------------------------------------
Net Loss on Investments (12,463,334)
================================================================================
Decrease in Net Assets Resulting From Operations $(13,507,326)
================================================================================
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
1994 1993
================================================================================
<S> <C> <C>
OPERATIONS:
Net investment loss $ (1,043,992) $ (535,126)
Net realized gain (loss) 1,841,170 (2,392,884)
Increase (decrease) in net
unrealized appreciation (14,304,504) 17,132,058
- --------------------------------------------------------------------------------
Increase (Decrease) In Net Assets Resulting
From Operations (13,507,326) 14,204,048
================================================================================
FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares 32,832,929 120,015,859
Net asset value of shares issued for
reinvestment of dividends -- --
Cost of shares reacquired (72,710,859) (25,533,429)
- --------------------------------------------------------------------------------
Increase (Decrease) In Net Assets From Fund
Share Transactions (39,877,930) 94,482,430
================================================================================
Increase (Decrease) In Net Assets (53,385,256) 108,686,478
NET ASSETS:
Beginning of year 175,817,044 67,130,566
- --------------------------------------------------------------------------------
End of year $122,431,788 $175,817,044
================================================================================
Accumulated net investment loss: -- $(535,126)
================================================================================
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Capital Appreciation Portfolio ("Portfolio") is a separate investment
portfolio of the Smith Barney Funds, Inc. ("Fund"). The Fund is a Maryland
corporation, registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company and consists of this
Portfolio and six other separate investment portfolios: Income and Growth, U.S.
Government Securities, Income Return Account, Monthly Payment Government, Short-
Term U.S. Treasury Securities and Utility Portfolios. The financial statements
and financial highlights for the other portfolios are presented in separate
annual reports.
The significant accounting policies consistently followed by the Portfolio
are: (a) securities transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets; securities for which no sales price was reported and U.S. Government
and Government Agency obligations are valued at the mean between the bid and
asked prices; short-term investments that have a maturity of more than 60 days
are valued at prices based on market quotations for securities of similar type,
yield and maturity; short-term investments that have a maturity of 60 days or
less are valued at cost plus accreted discount, or minus amortized premium, as
applicable; (c) dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis; (d) gains or losses on the sale of
securities are calculated by using the specific identification method; (e)
direct expenses are charged to each portfolio and each class; management fees
and general fund expenses are allocated on the basis of relative net assets; (f)
dividends and distributions to shareholders are recorded by the Portfolio on the
ex-dividend date; (g) the accounting records of the Portfolio are maintained in
U.S. dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank; (h) the Portfolio intends to comply with
the requirements of the Internal Revenue Code pertaining to regulated investment
companies and to make the required distributions to shareholders; therefore, no
provision for Federal income taxes has been made; and (i) during 1993, the Fund
adopted
11
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Statement of Position 93-2 Determination, Disclosure, and Financial Statement
- -----------------------------------------------------------------------------
Presentation of Income, Capital Gain, and Return of Capital Distributions by
- ----------------------------------------------------------------------------
Investment Companies. Accordingly, the net investment loss of $1,043,992 and
- --------------------
$535,126 at December 31, 1994 and December 31, 1993, respectively, have been
reclassified to paid-in capital. Net investment income, net realized gains, and
net assets were not affected by this change.
In addition, the Portfolio may enter into forward exchange contracts in
order to hedge against foreign currency risk. These contracts are marked to
market daily, by recognizing the difference between the contract exchange rate
and the current market rate as an unrealized gain or loss. Realized gains or
losses are recognized when contracts are settled.
2. Management Agreement and Transactions with Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"), formerly known as
Smith Barney Advisers, Inc., a subsidiary of Smith Barney Holdings Inc. ("SBH"),
acts as investment manager of the Fund. The Capital Appreciation Portfolio pays
SBMFM a management fee calculated at the annual rate of 0.90% on the average
daily net assets. The Portfolio also has a subadvisory agreement with Janus
Capital Corporation. For its services, Janus receives a fee from SBMFM
calculated at the annual rate of 0.50% of the average daily net assets. All fees
are calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
year ended December 31, 1994, SB received brokerage commissions of $18,203 and
was paid sales charges on Class A share purchases of approximately $517,000.
Effective November 7, 1994, the Fund adopted a new class structure,
renaming the existing Class B shares as Class C shares and exchanging the old
Class C shares into Class A shares. A contingent deferred sales charge ("CDSC")
was imposed on new Class B shares which begins at 5.00% if redemption occurs
less than one year from initial purchase and declines by 1.00% per year until no
CDSC is incurred. A CDSC of 1.00% was imposed on Class C shares if redemption
occurs within the first year from the date such investment was made. Any CDSC
imposed on redemptions is paid SB.
12
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
For the year ended December 31, 1994, there were approximately $105,000 in such
charges.
Pursuant to a Distribution Plan the Portfolio pays a service fee with
respect to its Class A, B and C shares calculated at the annual rate of 0.25%
of the average daily net assets of each respective class' shares.
The Portfolio also pays a distribution fee with respect to Class B and C
shares calculated at the annual rate of 0.75% of the average daily net assets
for that class. All officers and two directors of the Fund are employees of
SB.
3. Investments
During the year ended December 31, 1994, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) was $171,984,312 and $235,779,211, respectively.
At December 31, 1994, the net unrealized appreciation of investments for
Federal income tax purposes consisted of the following:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Gross unrealized appreciation $ 8,726,613
Gross unrealized depreciation (2,438,434)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 6,288,179
================================================================================
</TABLE>
Also, at December 31, 1994, the Portfolio had a capital loss carryover of
$655,390 which expires on December 31, 2001.
4. Repurchase Agreements
The Portfolio purchases (and its custodian takes possession of) U.S.
Government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolio requires
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
13
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
5. Capital Shares
At December 31, 1994, the Fund had two billion shares of $0.01 par value
capital stock authorized. The Portfolio has the ability to issue multiple
classes of shares. Each share of a class represents an identical interest and
has the same rights, except that each class bears certain expenses, including
those specifically related to the distribution of its shares. At December 31,
1994, paid-in capital amounted to the following for each class:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Total Paid-in Capital $50,990,657 $209,561 $65,598,781
================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
----------------------------- -----------------------------
Shares Amount Shares Amount
===============================================================================================
<S> <C> <C> <C> <C>
Class A++
Shares sold 1,359,477 $ 18,681,280 3,646,449 $ 49,126,349
Shares redeemed (3,024,012) (41,590,563) (888,213) (12,374,257)
- -----------------------------------------------------------------------------------------------
Net Increase (Decrease) (1,664,535) $(22,909,283) 2,758,236 $ 36,752,092
===============================================================================================
Class B*
Shares sold 15,223 $ 209,718 4,600,378 $ 61,879,515
Shares redeemed -- -- (793,804) (10,997,868)
- -----------------------------------------------------------------------------------------------
Net Increase 15,223 $ 209,718 3,806,574 $ 50,881,647
===============================================================================================
Class C+
Shares sold 997,520 $ 13,941,931 666,956 $ 9,009,995
Shares redeemed (2,286,927) (31,120,296) (157,481) (2,161,304)
- -----------------------------------------------------------------------------------------------
Net Increase (Decrease) (1,289,407) $(17,178,365) 509,475 $ 6,848,691
===============================================================================================
</TABLE>
++ On October 10, 1994 the old Class C shares were exchanged into Class A
shares and therefore Class C share activity is included with the Class A
share activity prior to this date.
* Sales of Class B shares commenced November 7, 1994.
+ On November 7, 1994 the old Class B shares were renamed Class C shares.
14
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Shares 1994 1993 1992(1)
=======================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $14.50 $13.16 $12.50
- ---------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net investment income (loss) (0.04) -- 0.01
Net realized and unrealized gain (loss)
on investments (1.09) 1.34 0.65
- ---------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations (1.13) 1.34 0.66
- ---------------------------------------------------------------------------------------
Less Distributions -- -- --
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.37 $14.50 $13.16
- ---------------------------------------------------------------------------------------
Total Return (7.79)% 10.18% 5.28%++
- ---------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $54,027 $68,541 $25,885
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.62% 1.35% 1.20%+
Net investment income (loss) (0.32) 0.03 0.37+
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 119.26% 136.98% 8.63%
=======================================================================================
<CAPTION>
Class B Shares (2) Class C Shares (4)(5)
------------------ ------------------------------------------
1994(3) 1994 1993 1992(6)
===================================================================================================================
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $13.88 $14.39 $13.16 $12.50
- -------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment Operations:
Net investment loss (0.02) (0.15) (0.08) --
Net realized and unrealized loss
on investments (0.50) (1.07) 1.31 0.66
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment Operations (0.52) (1.22) 1.23 0.66
- -------------------------------------------------------------------------------------------------------------------
Less Distributions -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $13.36 $13.17 $14.39 $13.16
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (3.75)%++ (8.48)% 9.35% 5.28%++
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $203 $68,201 $93,079 $35,063
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.19%+ 2.13% 2.11% 1.91%+
Net investment loss (0.77)+ (1.02) (0.74) (0.35)+
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 119.26% 119.26% 136.98% 8.63%
===================================================================================================================
</TABLE>
(1) For the period from November 30, 1992 (inception date) to December 31, 1992.
(2) On November 7, 1994 the old Class B shares were renamed Class C shares.
(3) For the period from November 7, 1994 (inception date) to December 31, 1994.
(4) On October 10, 1994 the old Class C shares were exchanged in Class A shares
and therefore Class C share activity is included in Class A share activity
prior to this date.
(5) On November 7, 1994 the old Class B shares were renamed Class C shares.
(6) For the period from November 30, 1992 (inception date) to December 31, 1992.
++ Not annualized as it may not be representative of the total return for the
year.
+ Annualized.
15
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Smith Barney Funds, Inc.:
We have audited the accompanying statement of assets and liabilities
including the schedule of investments of the Capital Appreciation Portfolio of
Smith Barney Funds, Inc. as of December 31, 1994, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended and the financial highlights
for each of the years in the two-year period then ended and the period from
November 30, 1992 (commencement of operations) to December 31, 1992. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Capital Appreciation Portfolio of Smith Barney Funds, Inc. as of December 31,
1994, and the results of its operations for the year then ended, the changes in
its net assets for each of the years in the two-year period then ended and the
financial highlights for each of the years in the two-year period then ended and
the period from November 30, 1992 (commencement of operations) to December 31,
1992, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
February 17, 1995
16
<PAGE>
Smith Barney Funds, Inc.
Directors
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Stephen Treadway, Chairman
C. Richard Youngdahl
Officers
Stephen Treadway
Chief Executive Officer
Heath B. McLendon
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Smith Barney
- ------------
A Member of Travelers Group [LOGO APPEARS HERE]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134 Boston, MA 02205-9134
This report is submitted for the general information of the shareholders of
Smith Barney Funds, Inc. Capital Appreciation Portfolio. It is not authorized
for distribution to prospective investors unless accompanied or preceded by a
current Prospectus for the Portfolio, which contains information concerning
the Portfolio's investment policies and expenses as well as other pertinent
information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD0851 B5
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT AUGUST 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Aggressive Capital Pro Forma November 7, 1994 Pro Forma
Growth Appreciation Adjustments Adjustments (g) Combined
----------- ------------ ----------- --------------- ------------
(Historical) (Historical)
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value $250,709,317 $153,064,198 $403,773,515
Cash 145 - 47,392 (f) 47,537
Dividends and interest receivable 35,782 73,722 109,504
Receivable for Fund shares sold 2,692,247 237,677 2,929,924
Receivable for securities sold 2,772,411 3,509,519 6,281,930
Due from Advisor 56,890 56,890
------------- -------------- ------------- -------------
Total Assets $256,266,792 $156,885,116 47,392 $413,199,300
------------- -------------- ------------- -------------
LIABILITIES:
Payable for investment securities purchased 43,750 3,945,108 3,988,858
Payable for Fund shares redeemed 411,473 1,437,780 1,849,253
Management fee payable 122,811 210,473 (88,048)(a) 245,236
Distribution costs payable 76,860 118,273 195,133
Accrued expenses and other liabilities 119,305 676,813 13,087 (c),(d) 809,205
------------- -------------- ------------- -------------
Total Liabilities $774,199 $6,388,447 (74,961) $7,087,685
------------- -------------- ------------- -------------
Net Assets $255,492,593 $150,496,669 $122,353 $406,111,615
============= ============== ============= =============
NET ASSETS:
Par value of capital shares 95,659 108,672 (52,040)(e) 152,291
Capital paid in excess of par value 130,759,400 140,607,833 52,040 (e) 271,419,273
Accumulated Net Investment Loss (3,162,240) (1,251,878) 122,353 (4,291,765)
Undistributed net realized gain/(loss) 13,523,887 (7,290,145) 6,233,742
Net unrealized appreciation of investment 114,275,887 18,322,187 132,598,074
------------- -------------- ------------- -------------
Net Assets $255,492,593 $150,496,669 $122,353 $406,111,615
============= ============== ============= =============
Outstanding Shares:
CLASS A 6,761,035 4,102,798 (1,962,474)(e) 459,426 9,360,785
============= ============== ============= =============== =============
CLASS B 1,882,602 5,883,770 (2,817,172)(e) (3,066,598) 1,882,602
============== ============== ============= =============== =============
CLASS C 908,359 880,676 (424,320)(e) 2,564,683 3,929,398
============= ============== ============= =============== =============
CLASS D 13,901 (13,901) -
============= =============== =============
Net Asset Value
CLASS A(and redemption price) $26.76 $13.95 0.01 $26.76
============= ============== ============= =============
CLASS B 26.42 13.76 0.01 26.42
============= ============== ============= =============
CLASS C 26.94 13.95 0.01 26.94
============= ============== ============= =============
CLASS D 26.42 26.42
============= =============
MAXIMUM OFFERING PRICE $28.17 $14.61 $28.17
============= ============== =============
See accompanying notes to pro forma financial statements.
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS For the year ended August 31, 1994 (unaudited)
Pro Forma November 7,1994 Pro Forma
Aggressive Growth Capital Appreciation Adjustments Adjustments Combined
----------------- -------------------- ----------- --------------- ---------
(Historical) (Historical)
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $351,630 $1,598,455 $1,950,085
Interest 125,957 324,504 450,461
----------- ----------- -----------
Total Income 477,587 1,922,959 2,400,546
----------- ----------- -----------
EXPENSES:
Management fees 1,494,432 1,584,859 (528,286)(a) 2,551,005
Administration fee 498,144 352,191 (b) 850,335
Distribution costs 759,422 1,072,698 1,832,120
Shareholder servicing agent 339,893 95,941 78,522 (c) 514,356
Custodian fees 49,747 20,003 69,750
Shareholder communications 98,556 61,564 160,120
Registration fees 85,775 104,845 190,620
Legal and auditing fees 110,849 21,307 (21,307)(d) 110,849
Directors' fees 45,370 3,473 (3,473)(d) 45,370
Interest expense 25,591 25,591
Other 132,048 22,366 154,414
----------- ----------- -------- -----------
Total Expenses 3,639,827 2,987,056 (122,353) 6,504,530
----------- ----------- -------- -----------
NET INVESTMENT INCOME ($3,162,240) ($1,064,097) $122,353 ($4,103,984)
============ =========== ======== ===========
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized Gain from Security Transactions
(excluding short-term securities):
Proceeds from sales 52,103,016 216,138,069 268,241,085
Cost of securities sold 37,610,804 219,729,994 257,340,798
----------- ----------- -----------
Net Realized Gain (Loss) 14,492,212 (3,591,925) 10,900,287
----------- ----------- -----------
Change in Appreciation of Investments
Beginning of period 87,682,332 18,515,105 106,197,437
End of period 114,275,887 18,322,187 132,598,074
----------- ----------- -----------
Change in Unrealized Appreciation 26,593,555 (192,918) 26,400,637
----------- ----------- -----------
Net Gain (Loss) on Investments 41,085,767 (3,784,843) 37,300,924
----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $37,923,527 ($4,848,940) $122,353 $33,196,940
=========== =========== ======== ===========
</TABLE>
See accompanying notes to pro forma financial statements.
(a) reflects new management fee agreement
(b) reflects Capital Appreciation expense under administration agreement
(c) increase in expense due to agreement in place with Aggressive Growth
(d) decrease due to duplicative services
(e) reflects new shares issued by Aggressive Growth
(f) cash savings due to reduction in expenses
(g) reflects adoption of new class structure on November 7,1994
-2-
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN AGGRESSIVE GROWTH AND CAPITAL APPRECIATION
August 31, 1994 (unaudited)
1. GENERAL
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of Smith Barney Funds, Inc. Capital Appreciation
Portfolio by the Smith Barney Aggressive Fund Inc.(the "Fund"), as if such
acquisition had taken place as of September 1, 1993.
Under the terms of the Plan of Reorganization, the combination of the Capital
Appreciation Portfolio and the Fund will be taxed as a tax-free business
combination and accordingly will be accounted for by a method of accounting for
tax free mergers of investment companies (sometimes referred to as the pooling
with out restatement method). The acquisition would be accomplished by an
acquisition of the net assets of the Capital Appreciation Portfolio in exchange
for shares of the Fund at net asset value. The statements of assets and
liabilities and the related statements of operations of the Capital Appreciation
Portfolio and the Fund have been combined as of and for the period ended August
31,1994.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedules of investments of the Capital
Appreciation Portfolio and the Fund which are included in their respective
annual reports dated December 31, 1994 and August 31, 1994.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned acquisition of the Capital Appreciation Portfolio and the
Fund (collectively the "Funds") had taken place as of September 1, 1993.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund, formerly known as Smith Barney Shearson Aggressive Growth Fund Inc.,
was incorporated under the laws of the State of Maryland on May 12,1983. The
Fund is registered as a diversified, open-end management investment company with
the Securities and Exchange Commission under the Investment Company Act of 1940,
as amended (the "1940 Act"). As of August 31, 1994, the Fund offered four
classes of shares: Class A, Class B, Class C and Class D. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
Portfolio valuation: Listed securities traded on a national securities exchange
are valued at the last reported sales price; securities traded in the over-the-
counter market and listed securities for which no sale was reported are valued
at the bid price or, in the absence of a recent bid price, at the bid equivalent
as obtained from one or more of the major market makers in the securities.
Investments in securities for which market quotations are not available are
valued at fair value as determined in good faith by the Board of Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost.
Repurchase agreements: The Fund engages in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price. The
value of the collateral is at least equal at all times to the total amount of
the repurchase obligations including interest.
3
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN AGGRESSIVE GROWTH AND CAPITAL APPRECIATION
August 31, 1994 (unaudited) (continued)
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on an accrual basis. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Investment income and realized and unrealized gains and losses are allocated
based upon the relative net assets of each Class of shares.
Federal income taxes: It is the Fund's policy to comply with the requirements
of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable income
to its shareholders. Therefore, no federal income tax provision is required.
3. PRO FORMA ADJUSTMENTS
The accompanying pro forma financial statements reflect changes in fund shares
and expenses as if the merger had taken place on September 1, 1993. For a
description of the adjustments see the Pro-Forma Financial Statements.
4. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Smith Barney Asset Management, a division of Smith Barney
Advisors, Inc. ("SBA"), which is a wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers Inc. Under the Advisory Agreement, the Fund pays a monthly fee at the
annual rate of 0.60% of the value of its average daily net assets.
Prior to April 21,1994, the Fund was party to an administration agreement (the
"Administration Agreement") with The Boston Company Advisors, Inc. ("Boston
Advisors"), an indirect wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). Under the Administration Agreement, the Fund paid a monthly fee at
the annual rate of 0.20% of the value of its average daily net assets.
As of the close of business on April 21,1994, SBA succeeded Boston Advisors as
the Fund's administrator. The new administration agreement contains
substantially the same terms and conditions, including the level of fees, as the
predecessor agreement.
As of the close of business on April 21,1994, the Fund and SBA entered into a
sub-administration agreement (the "Sub-Administration Agreement") with Boston
Advisors. Under the Sub-Administration Agreement, SBA pays Boston Advisors a
portion of its fee at a rate agreed upon from the time to time between SBA and
Boston Advisors.
For the year ended August 31,1994, the Fund incurred total brokerage commissions
of $420,025, of which $8,699 was paid to Smith Barney. For the year ended
August 31,1994, Smith Barney received from investors $1,633,719 representing
commissions (sales charges) on sales of Class A shares.
For the year ended August 31,1994, Smith Barney received $204,114 from
shareholders in CDSCs on the redemption of Class B shares.
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation from the Fund for serving as a Director or officer of
the Fund. The Fund pays each Director who is not an
4
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN AGGRESSIVE GROWTH AND CAPITAL APPRECIATION
August 31, 1994 (unaudited) (continued)
officer, director or employee of Smith Barney or any of its affiliates per annum
plus per meeting attended and reimburses each such Director for travel and out-
of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, serves as the Fund's transfer agent.
5. DISTRIBUTION PLAN
Smith Barney acts as distributor of the Fund's shares pursuant to a distribution
agreement with the Fund and sells shares of the Fund through Smith Barney or its
affiliates.
Pursuant to rule 12b-1 under the 1940 Act, the Fund has adopted a service and
distribution plan (the"Plan"). Under this plan, the Fund compensates Smith
Barney for servicing shareholder accounts for Class A, Class B and Class D
shareholders, and covers expenses incurred in distributing Class B and Class D
shares. Smith Barney is paid an annual service fee with respect to Class A ,
Class B and Class D shares of the Fund at the rate of 0.25% of the value of the
average daily net assets of each respective Class of shares. Smith Barney is
also paid an annual distribution fee with respect to Class B and Class
D shares at the rate of 0.75% of the value of the average daily net assets of
each respective Class of shares. For the year ended August 31,1994, the Fund
incurred a service fee of $595,028, $300,452 and $8,822 for Class A, Class B and
Class D shares, respectively. For the year ended August 31,1994, the Fund
incurred distributions fees of $901,355 and $26,464 for Class B and Class D
shares.
6. SECURITIES TRANSACTIONS
Costs of purchases and proceeds from sales of securities, excluding short-term
investments and long-term U.S. government securities, for the year ended August
31,1994, were $113,069,413 and $268,241,085, respectively.
At August 31,1994, aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost was $151,424,226, and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value was $18,826,152.
7. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by the Continental Bank N.A. under an Amended and Restated Line
of Credit Agreement (the "Agreement") dated April 30,1992 and renewed effective
May 31,1994, primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. Under this agreement, the Fund may borrow up to the
lesser of $25 million or 20% of its net assets. Interest is payable either at
the bank's Money Market Rate or the London Interbank Offered Rate (LIBOR) plus
0.375% on an annualized basis. Under the terms of the Agreement, the Fund and
the other affiliated entities are charged an aggregate commitment fee of
$100,000 which is allocated equally among each of the participants. The
Agreement requires among other provisions, each participating fund to maintain
a ratio of net assets (not including funds borrowed
5
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN AGGRESSIVE GROWTH AND CAPITAL APPRECIATION
August 31, 1994 (unaudited) (continued)
pursuant to the Agreement) to aggregate amount of indebtedness pursuant to the
Agreement of no less than five to one. During the year ended August 31,1994,
the Fund had an average out-standing daily balance of $456,712 with interest
rates ranging from 3.3125% to 4.8750%. Interest expense for the year ended
August 31,1994, totalled $25,591. At August 31, 1994, the Fund had no
outstanding borrowing under this Agreement.
8. LENDING OF PORTFOLIO SECURITIES
The Fund has the ability to lend its securities to brokers, dealers and other
financial organizations. Loans of securities by the Fund are collateralized by
cash, letters of credit or U.S. government securities that are maintained at all
times in an amount at least equal to the current market value of the loaned
securities. At August 31,1994, the Fund had no securities on loan.
6
Part C: OTHER INFORMATION
Item 15. Indemnification
The response to this item is incorporated by reference to
"Liability of Directors" under the caption "Comparative Information
and Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits
(1) Articles of Incorporation and all amendments*
(2) Bylaws*
(3) Not Applicable
(4) Agreement and Plan of Reorganization **
(5) Specimen Stock Certificates*
(6) Management Agreements*
(7) Distribution Agreement*
(8) Not applicable
(9) Custodian Agreement*
(10) Rule 12b-1 Plan*
(11) Opinion and consent of Willkie Farr &
Gallagher**
(12) Opinion and consent of Willkie Farr &
Gallagher**
(13) Not Applicable
(14) (a) Consent of KPMG Peat Marwick LLP**
(b) Consent of Coopers & Lybrand L.L.P**
(15) Not Applicable
(16) Not Applicable
(17) Form of Proxy Card **
* Incorporated herein by reference to Registration Statement of
Smith Barney Funds, Inc. on Form N-1A, file number 2-25890.
** Filed herewith
Item 17. Undertakings.
Not applicable.
EXHIBIT INDEX TO FORM N-14
SMITH BARNEY FUNDS, INC.
Exhibit Page
(4) Agreement and Plan of Reorganization
(see Exhibit A to Prospectus/Proxy
Statement that is included in this
Registration Statement)
As required by the Securities Act of 1933, this
Amendment has been signed on behalf of the Registrant, in the
City of New York, and State of New York on the day of March,
1995.
SMITH BARNEY AGGRESSIVE
GROWTH FUND INC.
BY:
Heath B. McLendon
Chief Executive Officer
As required by the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and
on the date indicated.
Signatures Title Date
Chairman of the Board
of March , 1995
Heath B. McLendon) Directors, Chief Executive
Officer and Director
Director
March , 1995
(Stephen J. Treadway)
Paul R. Ades* Director
March , 1995
(Paul R. Ades)
Herbert Barg* Director
March , 1995
(Herbert Barg)
Allan R. Johnson* Director
March , 1995
(Allan R. Johnson)
Ken Miller* Director
March , 1995
(Ken Miller)
John F. White* Director
March , 1995
(John F. White)
Lewis E. Daidone* Director
March , 1995
(Lewis E. Daidone)
Signatures Title Date
(Christina T. Sydor)*
By Power of Attorney
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
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SMITH BARNEY FUNDS, INC. - CAPITAL APPRECIATION PORTFOLIO
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Smith Barney Funds, Inc.-
Capital Appreciation Portfolio (the "Capital
Appreciation Portfolio"), hereby appoints Heath B. McLendon,
Lewis E. Daidone and Christina T. Sydor, attorneys and
proxies for the undersigned, with full powers of substitution
and revocation, to represent the undersigned and to vote on
behalf of the undersigned all shares of the Capital Appreciation
Portfolio that the undersigned is entitled to vote at the
Special Meeting of Shareholders of the Capital Appreciation
Portfolio to be held at the offices of the Capital Appreciation
Portfolio, 388 Greenwich Street, New York, New York on May
11, 1995 at 1:00 pm and any adjournment or
adjournments thereof. The undersigned hereby acknowledges
receipt of the Notice of Special Meeting and Prospectus /Proxy
Statement dated March , 1995 and hereby instructs said
attorneys and proxies to vote said shares as indicated herein.
In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Special
Meeting. A majority of the proxies present and acting at the
Special Meeting in person or by substitute (or, if only one
shall be so present, then that one) shall have and may exercise
all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Note: Please sign exactly as your name appears on
this Proxy. If joint owners, EITHER may sign this Proxy. When
signing as attorney, executor, administrator, trustee, guardian
or corporate officer, please give your full title.
Date:
Signature(s) (Title(s), if applicable)
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
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Please indicate your vote by an "X" in the appropriate box
below. This proxy, if properly executed, will be voted in the
manner directed by the undersigned shareholder. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
1. To approve the Agreement and Plan of Reorganization
FOR AGAINST ABSTAIN
dated as of [ ], 1995 providing for:(i) the acquisition
of all or substantially all of the assets of the Capital
Appreciation Portfolio by Smith Barney Aggressive Growth Fund
Inc. (the "Aggressive Growth Fund") in exchange for Class A,
Class B, Class C and Class Y shares of the Aggressive Growth
Fund and the assumption by the Aggressive Growth Fund of certain
scheduled liabilities of the Capital Appreciation Portfolio;
(ii) the distribution of such shares of the Aggressive Growth
Fund to shareholders of the Capital Appreciation Portfolio in
liquidation of the Capital Appreciation Portfolio; and (iii) the
subsequent termination of the Capital Appreciation
Portfolio.
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February 27, 1995
Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We have acted as counsel to Smith Barney Aggressive Growth Fund Inc., a
Maryland corporation (the "Company"), in connection with the proposed
acquisition by the Company of all or substantially all of the assets and
certain scheduled liabilities of Capital Appreciation Portfolio (the
"Portfolio"), a portfolio of Smith Barney Funds, Inc., a Maryland
corporation (the "Fund"), in exchange for shares of Class A, Class B, Class
C and Class Y Common Stock of the Company (the "Class A Shares," "Class B
Shares," "Class C Shares" and "Class Y Shares," respectively), pursuant to
an Agreement and Plan of Reorganization to be executed by the Company and
the Fund on behalf of the Portfolio (the "Agreement").
We have examined the Company's Registration Statement on Form N-14
substantially in the form in which it is to become effective (the
"Registration Statement"), the Company's Charter and Bylaws, and a draft of
the Agreement in the form attached to the Prospectus/Proxy Statement
included in the Registration Statement.
We have also examined and relied upon such corporate records of the Company
and other documents and certificates with respect to factual matters as we
have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
and the conformity with originals of all documents submitted to us as
copies. We have further assumed that the Agreement will be duly executed
and delivered in substantially the same form as the draft submitted to us
for review and upon such execution and delivery will constitute the legal,
valid and binding obligation of the Fund, enforceable against it in
accordance with its terms and further that the number of Class A Shares,
Class B Shares, Class C Shares and Class Y Shares to be issued by the
Company to the Fund on behalf of the Portfolio and then distributed to
shareholders of the Portfolio pursuant to the Agreement will not exceed the
respective number of then unissued Class A Shares, Class B Shares, Class C
Shares and Class Y Shares authorized in the Company's Charter. As to
matters of Maryland law, we have relied solely on the opinion of Venable,
Baetjer and Howard with respect to the matters addressed therein, which is
satisfactory to us in form and scope, a copy of which is annexed hereto.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Maryland.
2. The Class A Shares, Class B Shares, Class C Shares and
Class Y Shares to be issued as contemplated in the Agreement have been, to
the extent of the number of the shares of the respective class authorized
in the Charter of the Company and then unissued, duly authorized, and,
subject to the receipt by the Company of consideration equal to the net
asset value thereof (but in no event less than the par value thereof), when
issued in accordance with the Agreement, will be validly issued, fully paid
and non- assessable Class A Shares, Class B Shares, Class C Shares and
Class Y Shares of the Company under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to us in the Prospectus/Proxy
Statement included as part of the Registration Statement and to the filing
of this opinion as an exhibit to any application made by or on behalf of
the Company or any distributor or dealer in connection with the
registration or qualification of the Company or the Class A Shares, Class B
Shares, Class C Shares or Class Y Shares under the securities laws of any
state or other jurisdiction.
This opinion is furnished by us as counsel to the Company, is solely
for the benefit of the Company and its governing board in connection
with the above described transfer of assets and may not be relied upon
for any other purpose or by any other person.
Very truly yours,
WILLKIE FARR & GALLAGHER
Smith Barney
Aggressive Growth Fund Inc.
February 27, 1995
Page 2
Smith Barney
Aggressive Growth Fund Inc.
February 27, 1995
Page 3
86160253
Smith Barney
Aggressive Growth Fund Inc.
February 27, 1995
Page 3
86160253
February 27, 1995
Smith Barney Funds, Inc.,
on behalf of Capital
Appreciation Portfolio
388 Greenwich Street
New York, New York 10013
Smith Barney Aggressive
Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to (a) Capital Appreciation Portfolio (the "Acquired Fund"), a
separate investment series of Smith Barney Funds, Inc., (b) Smith Barney
Aggressive Growth Fund Inc. (the "Acquiring Fund") and (c) holders of
shares of beneficial interest in the Acquired Fund (the "Acquired Fund
Shareholders") when the holders of Class A shares in the Acquired Fund
receive Class A shares of the Acquiring Fund, holders of Class B and Class
C shares in the Acquired Fund receive Class B and Class C shares,
respectively, of the Acquiring Fund, and holders of Class Y shares in the
Acquired Fund receive Class Y shares of the Acquiring Fund (all such shares
of the Acquiring Fund referred to hereinafter as the "Acquiring Fund
Shares") in liquidation of their interests in the Acquired Fund pursuant to
an acquisition by the Acquiring Fund of all or substantially all of the
assets of the Acquired Fund in exchange for the Acquiring Fund Shares and
the assumption by the Acquiring Fund of certain scheduled liabilities of
the Acquired Fund and the subsequent liquidation of the Acquired Fund and
distribution in liquidation of the Acquiring Fund Shares to the Acquired
Fund Shareholders.
We have reviewed such documents and materials as we have considered
necessary for the purpose of rendering this opinion. In rendering this
opinion, we assume that such
documents as yet unexecuted will, when executed, conform in all material
respects to the proposed forms of such documents that we have examined. In
addition, we assume the genuineness of all signatures, the capacity of each
party executing a document so to execute that document, the authenticity of
all documents submitted to us as originals and the conformity to original
documents of all documents submitted to us as certified or photostatic
copies.
We have made inquiry as to the underlying facts which we considered to be
relevant to the conclusions set forth in this letter. The opinions
expressed in this letter are based upon certain factual statements relating
to the Acquired Fund and the Acquiring Fund set forth in the Registration
Statement on Form N-14 (the "Registration Statement") filed by the
Acquiring Fund with the Securities and Exchange Commission and
representations to be made in letters from the Acquired Fund and the
Acquiring Fund addressed to us for our use in rendering this opinion.
Based on information received from the Acquired Fund and the Acquiring
Fund, we have no reason to believe that we will not be able to render this
opinion as a final opinion at the Closing. We have no reason to believe
that these representations and facts will not be valid, but we have not
attempted and will not attempt to verify independently any of these
representations and facts, and this opinion is based upon the assumption
that each of them is accurate. Capitalized terms used herein and not
otherwise defined shall have the meaning given them in the Registration
Statement.
The conclusions expressed herein are based upon the Internal Revenue Code
of 1986 (the "Code"), Treasury regulations issued thereunder, published
rulings and procedures of the Internal Revenue Service and judicial
decisions, all as in effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code, and the Acquired Fund and the Acquiring Fund are each a "party to
a reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for Acquiring
Fund Shares and the assumption by the Acquiring Fund of certain scheduled
liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund's assets to the Acquiring Fund in
exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund
of certain scheduled liabilities of the Acquired Fund or upon the
distribution (whether actual or constructive) of Acquiring Fund Shares to
Acquired Fund Shareholders;
(4) no gain or loss will be recognized by Acquired Fund
Shareholders upon the exchange of their shares of the Acquired Fund for
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
scheduled liabilities of the Acquired Fund;
(5) the aggregate tax basis of Acquiring Fund Shares received by
each Acquired Fund Shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the shares of the Acquired Fund
surrendered in exchange therefor, and the holding period of the Acquiring
Fund Shares to be received by each Acquired Fund Shareholder will include
the period during which the shares of the Acquired Fund exchanged therefor
were held by such Acquired Fund Shareholder (provided the shares of the
Acquired Fund were held as capital assets on the date of the
Reorganization); and
(6) the tax basis of the Acquired Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization, and the holding
period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our
firm in the Registration Statement or in the Prospectus/Proxy Statement
constituting a part thereof.
Very truly yours,
Smith Barney Funds, Inc.
on behalf of Capital Appreciation Portfolio
Smith Barney Aggressive Growth Fund Inc.
February 27, 1995
Page 3
Independent Auditors' Consent
The Board of Directors
Smith Barney Funds, Inc.:
We consent to the use of our report dated February 17, 1995 with respect
to the
Capital Appreciation Portfolio incorporated herein by reference in the
Prospectus/
Proxy Statement and included in this Registration Statement on Form N-14
for Smith Barney Funds, Inc. and to the references to our firm under the
headings "Financial
Statements and Experts" and "Representations and Warranties" in the
Prospectus/
Proxy Statement and "Financial Highlights" in the Prospectus and
"Independent
Auditors" in the Statement of Additional Information incorporated herein
by reference.
KPMG Peat Marwick LLP
/s/ KPMG Peat marwick LLP
March 1, 1995
New York, New York
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney Aggressive Growth Fund Inc.:
We hereby consent to the following with respect to the
Registration Statement on Form N-14 under the Securities Act of
1933, as amended, of Smith Barney Aggressive Growth Fund Inc.:
1. The incorporation of our report dated October 7, 1994,
accompanying the financial statements of the Smith Barney
Aggressive Growth Fund Inc. as of August 31, 1994, which report
is to be included in Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A (File No. 2-84199) of the
Smith Barney Aggressive Growth Fund Inc.
2. The reference to our firm under the heading "Financial
Statements and Experts" in the Prospectus/Proxy Statement.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 1, 1995
