Registration No. 2-84199
811-3762
SECURITIES AND EXCHANGE COMMISSION Washington D.C.
20549 Form N 1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X Pre Effective Amendment No.
Post-Effective Amendment No. 19
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X Amendment No. 20
X
SMITH BARNEY AGGRESSIVE GROWTH FUND INC. (Exact
name of Registrant as Specified in Charter)
388Greenwich Street, New York, New York 10013 (Address
of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (212)
7239218 Christina T. Sydor
Secretary
Smith Barney Aggressive Growth Fund Inc. 388
Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public
Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485(b)
__X___ on December 30, 1996 pursuant to Rule 485(b) _____
60 days after filing pursuant to Rule 485(a) on
January 1, 1994
pursuant to Rule 485(a)
______________________________________________________ __
__ __ __________________
______
The Registrant has previously filed a declaration of
indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940,
as amended. Registrant's Rule 24f-2 Notice for the fiscal
year ended
August 31, 1996 was filed on October 28, 1996. SMITH
BARNEY AGGRESSIVE GROWTH FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
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
Part A - Prospectus
Part B - Statement of Additional Information Part C -
Other Information
Signature Page
Exhibits
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
FORM N-1A CROSS REFERENCE SHEET Pursuant to Rule 495(a)
Part A Item No. and Caption
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus
Summary
3. Condensed Financial Information
Financial Highlights;
4. General Description of
Registrant Cover Page; Prospectus
Summary;
Investment Objective and
Policies; Distributor; Additional Information 5
Management of the Fund
Prospectus Summary; Management
of the;
Distributor; Additional
Information
5A Management's Discussion of
Management of the Fund
Performance
Fund
6. Capital Stock and Other Securities
Investment Objective and Policies;
Dividends,
Distributions and
Taxes; Additional
Information
7. Purchase of Securities Being Offered
Valuation of Shares; Purchase of
Shares; Exchange
Privilege;
Redemption of
Shares; Minimum
Account Size;
Distributor
8. Redemption or Repurchase of Shares
Purchase of Shares; Redemption of
Shares; Exchange
Privilege
9. Pending Legal Proceedings
Not
Applicable
Part B
Item No. and Caption
Statement
of Additional
Information Caption
10. Cover Page
Cover
page
11. Table of Contents
Contents
12. General Information and History Distributor;
Additional
Information 13. Investment Objectives and Policies
Investment Objectives and
Management Policies
14. Management of the Fund
Management
of the
Fund; Distributor
15. Control Persons and Principal Management of the
Fund Holders of
Securities
16 Investment Advisory and Other Services
Management of the
Fund; Distributor
17 Brokerage Allocation
Investment Objectives and
Management Policies; Distributor
18. Capital Stock and Other Securities
Investment
Objectives and
Management Policies; Purchase of
Shares; Redemption
of
Shares;
Taxes
19. Purchase, Redemption and Pricing
Purchase of Shares; Redemption of
Securities Being Offered Shares;
Valuation of Shares;
Distributor; Exchange Privilege
20. Tax Status
Taxes
21. Underwriters<PAGE>
P R O S P E C T U S
SMITH BARNEY
Aggressive
Growth
Fund Inc.
DECEMBER 30, 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO]Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
PROSPECTUS
DECEMBER 30, 1996
Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Aggressive Growth Fund Inc. (the "Fund") is a
diversified mutual
fund that seeks 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 "S&P 500"), a
weighted index which
measures the aggregate change in market value of 400
industrials, 60 transpor-
tation stocks and utility companies and 40 financial issues.
Companies whose
earnings grow at a rate more rapidly than those of S&P 500
companies are often
small- or medium-sized companies that stand to benefit from
new products or
services, technological developments or changes in
management. Consequently,
the Fund invests principally in the securities of small- or
medium-sized compa-
nies. Because of its objective and policies, the Fund may be
subject to greater
investment risks than those assumed by some other investment
companies.
This Prospectus sets forth concisely certain information
about the Fund,
including sales charges, distribution and service fees and
expenses, that pro-
spective investors will find helpful in making an investment
decision. Invest-
ors are encouraged to read this Prospectus carefully and
retain it for future
reference.
Additional information about the Fund is contained in a
Statement of Addi-
tional Information dated December 30, 1996, as amended or
supplemented from
time to time, that is available upon request and without
charge by calling or
writing the Fund at the telephone number or address set
forth above, or by con-
tacting a Smith Barney Financial Consultant. The Statement
of Additional Infor-
mation has been filed with the Securities and Exchange
Commission (the "SEC")
and is incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 9
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
- -------------------------------------------------
VALUATION OF SHARES 17
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 17
- -------------------------------------------------
PURCHASE OF SHARES 18
- -------------------------------------------------
EXCHANGE PRIVILEGE 28
- -------------------------------------------------
REDEMPTION OF SHARES 31
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 34
- -------------------------------------------------
PERFORMANCE 34
- -------------------------------------------------
MANAGEMENT OF THE FUND 34
- -------------------------------------------------
DISTRIBUTOR 35
- -------------------------------------------------
ADDITIONAL INFORMATION 36
- -------------------------------------------------
</TABLE>
- ------------------------------------------------------------
- --------------------
No person has been authorized to give any information or
to make any
representations in connection with this offering other than
those contained in
this Prospectus and, if given or made, such other
information and
representations must not be relied upon as having been
authorized by the Fund
or the Distributor. This Prospectus does not constitute an
offer by the Fund or
the Distributor to sell or a solicitation of an offer to buy
any of the
securities offered hereby in any jurisdiction to any person
to whom it is
unlawful to make such offer or solicitation in such
jurisdiction.
- ------------------------------------------------------------
- --------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
detailed information
appearing elsewhere in this Prospectus and in the Statement
of Additional
Information. Cross references in this summary are to
headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified
management invest-
ment company that seeks capital appreciation by investing
primarily in common
stock of companies believed to be experiencing, or having
the potential to
experience, growth in earnings that exceed the average
earnings growth rate of
companies whose securities are included in the S&P 500.
Although the Fund
invests primarily in common stocks, it may invest in
convertible securities,
preferred stocks and warrants. See "Investment Objective and
Management Poli-
cies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several
classes of shares
("Classes") to investors designed to provide them with the
flexibility of
selecting an investment best suited to their needs. The
general public is
offered three classes of shares: Class A shares, Class B
shares and Class C
shares, which differ principally in terms of sales charges
and rate of
expenses to which they are subject. A fourth Class of
shares, Class Y shares,
is offered only to investors meeting an initial investment
minimum of
$5,000,000. In addition, a fifth Class, Class Z shares,
which is offered pur-
suant to a separate prospectus, is offered exclusively to
(a) tax-exempt
employee benefit and retirement plans of Smith Barney Inc.
("Smith Barney")
and its affiliates and (b) unit investment trusts ("UITs")
sponsored by Smith
Barney and its affiliates. See "Purchase of Shares" and
"Redemption of
Shares."
Class A Shares. Class A shares are sold at net asset value
plus an initial
sales charge of up to 5.00% and are subject to an annual
service fee of 0.25%
of the average daily net assets of the Class. The initial
sales charge may be
reduced or waived for certain purchases. Purchases of Class
A shares, which
when combined with current holdings of Class A shares
offered with a sales
charge equal or exceed $500,000 in the aggregate, will be
made at net asset
value with no sales charge, but will be subject to a
contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made within 12
months of purchase. See
"Prospectus Summary--Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset
value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by
1.00% each year
after the date of purchase to zero. This CDSC may be waived
for certain
redemptions. Class B shares are subject to an annual service
fee of 0.25% and
an annual distribution fee of 0.75% of the average daily net
assets of the
Class. The Class B shares' distribution fee may cause that
Class to have
higher expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will
convert automatically
to Class A shares, based on relative net asset value, eight
years after the
date of the original purchase. Upon conversion, these shares
will no longer be
subject to an annual distribution fee. In addition, a
certain portion of Class
B shares that have
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
been acquired through the reinvestment of dividends and
distributions ("Class
B Dividend Shares") will be converted at that time. See
"Purchase of Shares--
Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value
with no initial
sales charge. They are subject to an annual service fee of
0.25% and an annual
distribution fee of 0.75% of the average daily net assets of
the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares
within 12 months
of purchase. The CDSC may be waived for certain redemptions.
The Class C
shares' distribution fee may cause that Class to have higher
expenses and pay
lower dividends than Class A shares. Purchases of Class C
shares, which when
combined with current holdings of Class C shares of the Fund
equal or exceed
$500,000 in the aggregate, should be made in Class A shares
at net asset value
with no sales charge, and will be subject to a CDSC of 1.00%
on redemptions
made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to
investors meeting an
initial investment minimum of $5,000,000. Class Y shares are
sold at net asset
value with no initial sales charge or CDSC. They are not
subject to any serv-
ice or distribution fees.
In deciding which Class of Fund shares to purchase,
investors should consider
the following factors, as well as any other relevant facts
and circumstances:
Intended Holding Period. The decision as to which Class of
shares is more
beneficial to an investor depends on the amount and intended
length of his or
her investment. Shareholders who are planning to establish a
program of regu-
lar investment may wish to consider Class A shares; as the
investment accumu-
lates shareholders may qualify for reduced sales charges and
the shares are
subject to lower ongoing expenses over the term of the
investment. As an
investment alternative, Class B and Class C shares are sold
without any ini-
tial sales charge so the entire purchase price is
immediately invested in the
Fund. Any investment return on these additional invested
amounts may partially
or wholly offset the higher annual expenses of these
Classes. Because the
Fund's future return cannot be predicted, however, there can
be no assurance
that this would be the case.
Finally, investors should consider the effect of the CDSC
period and any con-
version rights of the Classes in the context of their own
investment time
frame. For example, while Class C shares have a shorter CDSC
period than Class
B shares, they do not have a conversion feature, and
therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be
more attractive than
Class C shares to investors with longer term investment
outlooks.
Investors investing a minimum of $5,000,000 must purchase
Class Y shares,
which are not subject to an initial sales charge, CDSC or
service or distribu-
tion fee. The maximum purchase amount for Class A shares is
$4,999,999, Class
B shares is $249,999 and Class C shares is $499,999. There
is no maximum pur-
chase amount for Class Y shares.
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Reduced or No Initial Sales Charge. The initial sales
charge on Class A shares
may be waived for certain eligible purchasers, and the
entire purchase price
will be immediately invested in the Fund. In addition, Class
A share purchases,
which when combined with current holdings of Class A shares
offered with a
sales charge equal or exceed $500,000 in the aggregate, will
be made at net
asset value with no initial sales charge, but will be
subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The
$500,000 aggregate
investment may be met by adding the purchase to the net
asset value of all
Class A shares offered with a sales charge held in funds
sponsored by Smith
Barney listed under "Exchange Privilege." Class A share
purchases may also be
eligible for a reduced initial sales charge. See "Purchase
of Shares." Because
the ongoing expenses of Class A shares may be lower than
those for Class B and
Class C shares, purchasers eligible to purchase Class A
shares at net asset
value or at a reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different
compensation for
selling each Class of shares. Investors should understand
that the purpose of
the CDSC on the Class B and Class C shares is the same as
that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a
complete descrip-
tion of the sales charges and service and distribution fees
for each Class of
shares and "Valuation of Shares," "Dividends, Distributions
and Taxes" and "Ex-
change Privilege" for other differences between the Classes
of shares.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS Investors
may be eligible to
participate in the Smith Barney 401(k) Program, which is
generally designed to
assist plan sponsors in the creation and operation of
retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"),
as well as other types of participant directed, tax-
qualified employee benefit
plans. Other investors may be eligible to participate in the
Smith Barney
ExecChoice(TM) Program. Class A, Class B, Class C and Class
Y shares are avail-
able as investment alternatives for Participating Plans. See
"Purchase of
Shares-Smith Barney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through the
Fund's distributor,
Smith Barney, a broker that clears securities transactions
through Smith Barney
on a fully disclosed basis (an "Introducing Broker") or an
investment dealer in
the selling group. In addition, certain investors, including
qualified retire-
ment plans and certain other institutional investors may
purchase shares
directly from the Fund through the Fund's transfer agent,
First Data Investor
Services Group, Inc. ("FDISG") formerly known as The
Shareholder Services
Group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class
C shares may open
an account by making an initial investment of at least
$1,000 for each account,
or $250 for an individual retirement account ("IRA") or a
Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account
for an initial
investment of $5,000,000. Subsequent investments of at least
$50 may be made
for
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
all Classes. For participants in retirement plans qualified
under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial
investment
requirement for Class A, Class B and Class C shares and the
subsequent invest-
ment requirement for all Classes is $25. For minimum
investment requirements
for all Classes through the Systematic Investment Plan
described, see below.
There is no minimum investment requirement in Class A for
unitholders who
invest distributions from a UIT sponsored by Smith Barney.
See "Purchase of
Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a
Systematic Invest-
ment Plan under which they may authorize the automatic
placement of a purchase
order each month or quarter for Fund shares. The minimum
initial and subse-
quent investment for shareholders purchasing shares through
the Systematic
Investment Plan on a monthly basis is $25 and on a quarterly
basis is $50. See
"Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the
New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase
of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management
Inc. ("SBMFM")
serves as the Fund's investment adviser and administrator.
SBMFM provides
investment advisory and management services to investment
companies affiliated
with Smith Barney. SBMFM is a wholly owned subsidiary of
Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary of
Travelers Group
Inc. ("Travelers"), a diversified financial services holding
company engaged,
through its subsidiaries, principally in four business
segments: Investment
Services, Consumer Finance Services, Life Insurance Services
and Property &
Casualty Insurance Services. See "Management of the Trust
and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for
shares of the same
Class of certain other funds of the Smith Barney Mutual
Funds. See "Exchange
Privilege."
VALUATION OF SHARES Net asset value of the Fund for the
prior day generally is
quoted daily in the financial section of most newspapers and
is also available
from Smith Barney Financial Consultants. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment
income and distribu-
tions of net realized capital gains, if any, are declared
and paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid
on shares of a
Class will be reinvested automatically, unless otherwise
specified by an
investor, in additional shares of the same Class at current
net asset value.
Shares acquired by dividend and distribution reinvestments
will not be subject
to any sales charge or CDSC. Class B shares acquired through
dividend and dis-
tribution reinvestments will become eligible for conversion
to Class A shares
on a pro rata basis. See "Dividends, Distributions and
Taxes."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no
assurance that the
Fund's investment objective will be achieved. Securities of
the kinds of compa-
nies in which the Fund invests may be subject to significant
price fluctuation
and above-average risk. In addition, companies achieving an
earnings growth
rate higher than that of S&P 500 companies tend to reinvest
their earnings
rather than distribute them. As a result, the Fund is not
likely to receive
significant dividend income on its portfolio securities.
Accordingly, an
investment in the Fund should not be considered as a
complete investment pro-
gram and may not be appropriate for all investors. See
"Investment Objective
and Management Policies."
THE FUND'S EXPENSES The following expense table lists the
costs and expenses an
investor will incur either directly or indirectly as a
shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may
be incurred at the
time of purchase or redemption and the Fund's operating
expenses for its most
recent fiscal year:
<TABLE>
<CAPTION>
SMITH BARNEY
AGGRESSIVE GROWTH FUND CLASS A
CLASS B CLASS C CLASS Y
- ------------------------------------------------------------
- -------------------
<S> <C> <C>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00%
None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds whichever is
lower) None*
5.00% 1.00% None
- ------------------------------------------------------------
- -------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.80%
0.80% 0.80% 0.80%
12b-1 fees** 0.25%
1.00% 1.00% None
Other expenses 0.25%
0.27% 0.26% 0.04%
- ------------------------------------------------------------
- -------------------
TOTAL FUND OPERATING EXPENSES 1.30%
2.06% 2.07% 0.84%
- ------------------------------------------------------------
- -------------------
</TABLE>
* Purchases of Class A shares, which when combined with
current holdings of
Class A shares offered with a sales charge, equal or
exceed $500,000 in the
aggregate, will be made at net asset value with no sales
charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12
months.
** Upon conversion of Class B shares to Class A shares, such
shares will no
longer be subject to a distribution fee. Class C shares
do not have a
conversion feature and, therefore, are subject to an
ongoing distribution
fee. As a result, long-term shareholders of Class C
shares may pay more than
the economic equivalent of the maximum front-end sales
charge permitted by
the National Association of Securities Dealers, Inc.
Class A shares of the Fund purchased through the Smith
Barney AssetOne Pro-
gram will be subject to an annual asset-based fee, payable
quarterly, in lieu
of the initial sales charge. The fee will vary to a maximum
of 1.50%, depending
on the amount of assets held through the Program. For more
information, please
call your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above table are
the maximum charges
imposed on purchases or redemptions of Fund shares and
investors may actually
pay
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
lower or no charges, depending on the amount purchased and,
in the case of
Class B, Class C and certain Class A shares, the length of
time the shares are
held and whether the shares are held through the Smith
Barney 401(k) or
ExecChoice(TM) Programs. See "Purchase of Shares" and
"Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25%
of the value of
average daily net assets of Class A shares. Smith Barney
also receives, with
respect to Class B shares, an annual 12b-1 fee of 1.00% of
the value of average
daily net assets of that Class, consisting of a 0.75%
distribution fee and a
0.25% service fee. For Class C shares, Smith Barney receives
an annual 12b-1
fee of 1.00% of the value of average daily net assets of
this Class, consisting
of a 0.75% distribution fee and a 0.25% service fee. "Other
expenses" in the
above table include fees for shareholder services, custodial
fees, legal and
accounting fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in
understanding the
various costs that an investor in the Fund will bear
directly or indirectly.
The example assumes payment by the Fund of operating
expenses at the levels set
forth in the table above. See "Purchase of Shares,"
"Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
SMITH BARNEY
AGGRESSIVE GROWTH FUND 1 YEAR 3 YEARS
5 YEARS 10 YEARS*
- ------------------------------------------------------------
- ------------------
<S> <C> <C>
<C> <C>
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption
at the end of each time period:
Class A.................................. 63 89
118 199
Class B.................................. 71 95
121 220
Class C.................................. 31 65
111 240
Class Y.................................. 9 27
47 104
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A.................................. 63 89
118 199
Class B.................................. 21 65
111 220
Class C.................................. 21 65
111 240
Class Y.................................. 9 27
47 104
- ------------------------------------------------------------
- ------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares to
Class A shares at the
end of the eighth year following the date of purchase.
The example also provides a means for the investor to
compare expense levels
of funds with different fee structures over varying
investment periods. To
facilitate such comparison, all funds are required to
utilize a 5.00% annual
return assumption. However, the Fund's actual return will
vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN
THOSE SHOWN.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the two-year period ended
August 31, 1996 has
been audited by KPMG Peat Marwick LLP, independent auditors,
whose report
thereon appears in the Fund's Annual Report dated August 31,
1996. The follow-
ing information for the period ended August 31, 1987 and
each of the years
in the seven years ended August 31,1994 has been audited by
other independent
auditors. The information set out
below should be read in conjunction with the financial
statements and related
notes that also appear in the Fund's Annual Report, which is
incorporated by
reference into the Statement of Additional Information.
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY
AGGRESSIVE GROWTH FUND
CLASS A SHARES 1996 1995 1994
1993(1) 1992(1) 1991(1) 1990(1)
- ------------------------------------------------------------
- --------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $33.53 $26.76 $23.59
$18.94 $20.12 $16.16 $19.25
- ------------------------------------------------------------
- --------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment loss (0.31) (0.34) (0.32)
(0.21) (0.07) (0.05) (0.02)
Net realized and
unrealized gain (loss)
on investments (2.09) 8.48 3.49
4.86 (0.35) 4.95 (1.02)
- ------------------------------------------------------------
- --------------------------------------
Total Income (Loss) From
Operations (2.40) 8.14 3.17
4.65 (0.42) 4.90 (1.04)
- ------------------------------------------------------------
- --------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- --
- -- -- -- (0.02)
Net realized gains (2.37) (1.37) --
- -- (0.76) (0.94) (2.03)
- ------------------------------------------------------------
- --------------------------------------
Total Distributions (2.37) (1.37) --
- -- (0.76) (0.94) (2.05)
- ------------------------------------------------------------
- --------------------------------------
NET ASSET VALUE, END OF
YEAR $28.76 $33.53 $26.76
$23.59 $18.94 $20.12 $16.16
- ------------------------------------------------------------
- --------------------------------------
TOTAL RETURN (7.44)% 31.95% 13.44%
24.55% (2.42)% 31.97% (6.38)%
- ------------------------------------------------------------
- --------------------------------------
NET ASSETS, END OF YEAR
(000S) $252,531 $292,402 $180,917
$150,471 $181,459 $144,587 $86,169
- ------------------------------------------------------------
- --------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.30% 1.37% 1.42%*
1.34% 1.05% 1.17% 1.13%
Net investment loss (0.97) (1.05) (1.23)
(1.01) (0.31) (0.24) (0.11)%
- ------------------------------------------------------------
- --------------------------------------
PORTFOLIO TURNOVER RATE 13% 44% 11%
13% 3% 23% 14%
- ------------------------------------------------------------
- --------------------------------------
AVERAGE COMMISSIONS PER
SHARE PAID
ON EQUITY
COMMISSIONS(2) $0.06 -- --
- -- -- -- --
- ------------------------------------------------------------
- --------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average shares
method, which more appropriately presents the per share
data for this
period, since use of the undistributed net investment
income method does
not accord with results of operations for all classes
of shares.
(2) As of September 1995, the SEC instituted new guidelines
requiring the
disclosure of average commissions per share.
* The operating expense ratio excludes interest expense.
The operating
expense ratio including interest expense would have been
1.43%.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH YEAR.
<TABLE>
<CAPTION>
SMITH BARNEY
AGGRESSIVE GROWTH FUND 1989(1) 1988(1)
1987(1)
- ------------------------------------------------------------
- -------------
<S> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $13.68 $21.63
$16.43
- ------------------------------------------------------------
- -------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) 0.02
(0.12) (0.11)
Net realized and unrealized gain (loss) on
investments 5.98
(5.36) 6.15
- ------------------------------------------------------------
- -------------
Total Income (Loss) From Operations 6.00
(5.48) 6.04
- ------------------------------------------------------------
- -------------
LESS DISTRIBUTIONS FROM:
Net investment income -- --
- --
Net realized gains (0.43)
(2.47) (0.84)
- ------------------------------------------------------------
- -------------
Total Distributions (0.43)
(2.47) (0.84)
- ------------------------------------------------------------
- -------------
NET ASSET VALUE, END OF YEAR $19.25 $13.68
$21.63
- ------------------------------------------------------------
- -------------
TOTAL RETURN 44.97%
(24.40)% 39.36%
- ------------------------------------------------------------
- -------------
NET ASSETS, END OF YEAR (000S) $94,228 $81,287
$143,572
- ------------------------------------------------------------
- -------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.25%
1.10% 1.10%
Net investment income (loss) 0.15%
(0.60)% (0.60)%
- ------------------------------------------------------------
- -------------
PORTFOLIO TURNOVER RATE 8%
10% 25%
- ------------------------------------------------------------
- -------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS -- --
- --
- ------------------------------------------------------------
- -------------
</TABLE>
(1) Per share amounts have been calculated using the
monthly average
shares method, which more appropriately presents the per
share data
for this period, since use of the undistributed net
investment income
method does not accord with results of operations for all
classes of
shares
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY
AGGRESSIVE GROWTH FUND
CLASS B SHARES 1996 1995
1994 1993(1)(2)
- ------------------------------------------------------------
- ------------------
<S> <C> <C> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR $32.82 $26.42
$23.46 $20.52
- ------------------------------------------------------------
- ------------------
INCOME FROM OPERATIONS:
Net investment loss (0.53) (0.33)
(0.29) (0.30)
Net realized and unrealized gain on
investments (2.04) 8.10
3.25 3.24
- ------------------------------------------------------------
- ------------------
Total Income From Operations (2.57) 7.77
2.96 2.94
- ------------------------------------------------------------
- ------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- --
- -- --
Net realized gains (2.37) (1.37)
- -- --
- ------------------------------------------------------------
- ------------------
Total Distributions (2.37) (1.37)
- -- --
- ------------------------------------------------------------
- ------------------
NET ASSET VALUE, END OF YEAR $27.88 $32.82
$26.42 $23.46
- ------------------------------------------------------------
- ------------------
TOTAL RETURN (8.16)% 30.93%
12.62% 14.33%++
- ------------------------------------------------------------
- ------------------
NET ASSETS, END OF YEAR (000S) $136,322 $97,438
$49,741 $18,139
- ------------------------------------------------------------
- ------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.07% 2.12%
2.22%* 2.18%+
Net investment loss (1.75) (1.80)
(2.04) (1.86)+
- ------------------------------------------------------------
- ------------------
PORTFOLIO TURNOVER RATE 13% 44%
11% 13%
- ------------------------------------------------------------
- ------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS(3) $0.06 -- --
- --
- ------------------------------------------------------------
- ------------------
</TABLE>
(1) For the period from November 6, 1992 (inception date)
to August 31, 1993.
(2) Per share amounts have been calculated using the
monthly average shares
method, which more appropriately presents the per share
data for this
period, since use of the undistributed net investment
income method does
not accord with results of operations for all classes
of shares.
(3) As of September 1995, the SEC instituted new guidelines
requiring the
disclosures of average commissions per share.
* The operating expense ratio excludes interest expense.
The operating
expense ratio including interest expense would have been
2.23%.
++Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH YEAR:
<TABLE>
<CAPTION>
CLASS C SHARES 1996 1995(1)
1994 1993(2)(3)
- ------------------------------------------------------------
- ------------------
<S> <C> <C>
<C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $32.84 $26.42
$23.47 $21.14
- ------------------------------------------------------------
- ------------------
INCOME FROM OPERATIONS:
Net investment loss (0.53) (0.40)
(0.17) (0.13)
Net realized and unrealized gain on
investments (2.03) 8.19
3.12 2.46
- ------------------------------------------------------------
- ------------------
Total Income From Operations (2.56) 7.79
2.95 2.33
- ------------------------------------------------------------
- ------------------
LESS DISTRIBUTIONS FROM:
Net realized gains (2.37) (1.37)
- -- --
- ------------------------------------------------------------
- ------------------
Total Distributions (2.37) (1.37)
- -- --
- ------------------------------------------------------------
- ------------------
NET ASSET VALUE, END OF YEAR $27.91 $32.84
$26.42 $23.47
- ------------------------------------------------------------
- ------------------
TOTAL RETURN (8.12)% 31.01%
12.57% 11.02%++
- ------------------------------------------------------------
- ------------------
NET ASSETS, END OF YEAR (000S) $63,786 $72,324
$367 $24
- ------------------------------------------------------------
- ------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.06% 2.12%
2.08%* 2.11%+
Net investment loss (1.75) (1.80)
(1.90) (1.76)+
- ------------------------------------------------------------
- ------------------
PORTFOLIO TURNOVER RATE 13% 44%
11% 13%
- ------------------------------------------------------------
- ------------------
AVERAGE COMMISSIONS PER SHARE PAID ON
EQUITY TRANSACTIONS(4) $ 0.06 --
- -- --
- ------------------------------------------------------------
- ------------------
</TABLE>
(1) On November 7, 1994, the former Class D shares were
renamed Class C
shares.
(2) For the period from May 13, 1993 (inception date) to
August 31, 1993.
(3) Per share amounts have been calculated using the
monthly average shares
method, which more appropriately presents the per share
data for this
period, since use of the undistributed net investment
income method does
not accord with results of operations for all classes
of shares.
(4) As of September 1995, the SEC instituted new guidelines
requiring the
disclosure of average commissions per share.
* The operating expense ratio excludes interest expense.
The operating
expense ratio including interest expense would have been
2.09%.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS Y SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH YEAR:
<TABLE>
<CAPTION>
CLASS Y SHARES
1996(1)
- ------------------------------------------------------------
- ----------
<S>
<C>
NET ASSET VALUE, BEGINNING OF YEAR
$31.86
- ------------------------------------------------------------
- ----------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss
(0.12)
Net realized and unrealized loss
(0.53)
- ------------------------------------------------------------
- ----------
Total Loss From Operations
(0.65)
- ------------------------------------------------------------
- ----------
LESS DISTRIBUTIONS FROM:
- ------------------------------------------------------------
- ----------
Net realized gains
(2.37)
- ------------------------------------------------------------
- ----------
Total Distributions
(2.37)
- ------------------------------------------------------------
- ----------
NET ASSET VALUE, END OF YEAR
$28.84
- ------------------------------------------------------------
- ----------
TOTAL RETURN++
(2.32)%
- ------------------------------------------------------------
- ----------
NET ASSETS, END OF YEAR (000S)
$58,641
- ------------------------------------------------------------
- ----------
RATIOS TO AVERAGE NET ASSETS+:
Expenses
0.84%
Net investment loss
(0.49)
- ------------------------------------------------------------
- ----------
PORTFOLIO TURNOVER RATE
13%
- ------------------------------------------------------------
- ----------
AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY TRANSACTIONS(2)
$0.06
- ------------------------------------------------------------
- ----------
</TABLE>
(1) For the period from October 12, 1995 (inception date)
to August 31, 1996.
(2) As of September 1995, the SEC instituted new guidelines
requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
13
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The investment objective of the Fund is capital
appreciation. Although the
Fund may receive current income from dividends, interest and
other sources,
income is only an incidental consideration of the Fund. The
Fund's investment
objective may not be changed without the approval of the
holders of a majority
of the Fund's outstanding shares. There can be no assurance
that the Fund will
achieve its investment objective.
The Fund attempts to achieve its investment objective by
investing primarily
in common stocks of companies that SBMFM believes are
experiencing, or have
the potential to experience, growth in earnings that exceed
the average earn-
ings growth rate of companies having securities included in
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 sea-
soned, established companies. As a result, SBMFM anticipates
that the Fund
will invest principally in the securities of small or medium-
sized companies
and to a lesser degree in the securities of large, well-
known companies.
SBMFM focuses its stock selection for the 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
profit gains in
the two to three years after the Fund acquires their stocks.
These companies
generally may be expected to benefit from new technologies,
techniques, prod-
ucts or services or cost-reducing measures, and may be
affected by changes in
management, capitalization or asset deployment, government
regulations or
other external circumstances.
Although SBMFM anticipates that the assets of the Fund
ordinarily will be
invested primarily in common stocks of U.S. companies, the
Fund may invest in
convertible securities, preferred stocks, securities of
foreign issuers, war-
rants and restricted securities. In addition, when SBMFM
believes that market
conditions warrant, the Fund may invest for temporary
defensive purposes in
corporate and U.S. government bonds and notes and money
market instruments.
The Fund also is authorized to borrow in an amount of up to
5% of its total
assets for extraordinary or emergency purposes, and may
borrow up to 33 1/3%
of its total assets less liabilities, for leveraging
purposes. See "Investment
Policies and Strategies--Leveraging."
Further information about the Fund's investment policies,
including a list of
those restrictions on its investment activities that cannot
be changed without
shareholder approval, appears in the Statement of Additional
Information.
INVESTMENT POLICIES AND STRATEGIES
Restricted Securities. Restricted securities are those that
may not be sold
publicly without first being registered under the Securities
Act of 1933, as
amended. For that reason, the Fund may not be able to
dispose of restricted
securities at a
14
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
time when, or at a price at which, it desires to do so and
may have to bear
expenses associated with registering the securities. At any
one time, the
Fund's aggregate holdings of restricted securities,
repurchase agreements hav-
ing a duration of more than five business days, and
securities lacking readily
available market quotations will not exceed 15% of the
Fund's total assets.
Foreign Securities. The Fund may invest up to 10% of its
net assets in the
securities of foreign issuers. There are certain risks
involved in investing
in foreign securities, including those resulting from
fluctuations in currency
exchange rates, revaluation of currencies, future political
or economic devel-
opments and the possible imposition of currency exchange
blockages or other
foreign governmental laws or restrictions, reduced
availability of public
information concerning issuers, and the fact that foreign
companies are not
generally subject to uniform accounting, auditing and
financial reporting
standards or to other regulatory practices and requirements
comparable to
those applicable to domestic companies. Moreover, securities
of many foreign
companies may be less liquid and their prices more volatile
than securities of
comparable domestic companies. In addition, with respect to
certain foreign
countries, there is the possibility of expropriation,
confiscatory taxation
and limitations on the use or removal of funds or other
assets of the Fund,
including the withholding of dividends.
Lending of Portfolio Securities. From time to time, the
Fund may lend its
portfolio securities to brokers, dealers and other financial
organizations.
These loans may not exceed 33 1/3% of the Fund's total
assets taken at value.
Loans of portfolio securities by the Fund will be
collateralized by cash, let-
ters of credit or obligations of the United States
government or 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. By lending its portfolio securities,
the Fund will seek
to generate income by continuing to receive interest on
loaned securities, by
investing the cash collateral in Smith Barney short-term
instruments or by
obtaining yield in the form of interest paid by the borrower
when U.S. govern-
ment securities are used as collateral. The risks in lending
portfolio securi-
ties, as with other extensions of secured credit, consist of
possible delays
in receiving additional collateral or in the recovery of the
securities or
possible loss of rights in the collateral should the
borrower fail financial-
ly. 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.
Leveraging. The Fund may from time to time leverage its
investments by pur-
chasing 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. Borrowed money creates an opportunity
for greater capi-
tal gain but at the same time increases exposure to capital
risk, as any gain
in the value of securi-
15
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
ties purchased with borrowed money that exceeds the interest
paid on the amount
borrowed would cause the Fund's net asset value to increase
more rapidly than
otherwise, while any decline in the value of securities
purchased would cause
the Fund's net asset value to decrease more rapidly than
otherwise.
Money Market Instruments. As noted above, in certain
circumstances the Fund
may invest in short-term money market instruments, such as
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 such
instruments.
Repurchase Agreements. The Fund will enter into repurchase
agreements with
banks which are the issuers of instruments acceptable for
purchase by the Fund
and with certain dealers on the Federal Reserve Bank of New
York's list of
reporting dealers. Under the terms of a typical repurchase
agreement, the Fund
would acquire an underlying obligation for a relatively
short period (usually
not more than one week) subject to an obligation of the
seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon
price and time,
thereby determining the yield during the Fund's holding
period. This arrange-
ment results in a fixed rate of return that is not subject
to market fluctua-
tions during the Fund's holding period. Under each
repurchase agreement, the
selling institution will be required to maintain the value
of the securities
subject to the repurchase agreement at not less than their
repurchase price.
Repurchase agreements could involve certain risks in the
event of default or
insolvency of the other party, including possible delays or
restrictions upon
the Fund's ability to dispose of the underlying securities,
the risk of a pos-
sible decline in the value of the underlying securities
during the period in
which the Fund seeks to assert its rights to them, the risk
of incurring
expenses associated with asserting those rights and the risk
of losing all or
part of the income from the agreement. SBMFM, acting under
the supervision of
the Board of Directors, reviews on an ongoing basis to
evaluate potential risks
the value of the collateral and the creditworthiness of
those banks and dealers
with which the Fund enters into repurchase agreements.
Certain Risk Considerations. Securities of the kinds of
companies in which the
Fund invests may be subject to significant price fluctuation
and above-average
risk. In addition, companies achieving an earnings growth
rate higher than that
of S&P 500 companies tend to reinvest their earnings rather
than distribute
them. As a result, the Fund is not likely to receive
significant dividend
income on its portfolio securities. Accordingly, an
investment in the Fund
should not be considered as a complete investment program
and may not be appro-
priate for all investors.
Portfolio Transactions. Portfolio securities transactions
on behalf of the
Fund are placed by SBMFM with a number of brokers and
dealers, including Smith
16
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
Barney. Smith Barney has advised the Fund that in
transactions with the Fund,
Smith Barney charges a commission rate at least as favorable
as the rate Smith
Barney charges its comparable unaffiliated customers in
similar transactions.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of
the close of regular
trading on the NYSE on each day that the NYSE is open, by
dividing the value of
the Fund's net assets attributable to each Class by the
total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at market
value or, in the
absence of a market value with respect to any securities, at
fair value as
determined by or under the direction of the Fund's Board of
Directors. Short-
term investments that mature in 60 days or less are valued
at amortized cost
whenever the Directors determine that amortized cost
reflects fair value of
those investments. Further information regarding the Fund's
valuation policies
is contained in the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute its investment income
(that is, its income
other than its net realized capital gains) and net realized
capital gains, if
any, once a year, normally at the end of the year in which
earned or at the
beginning of the next year.
If a shareholder does not otherwise instruct, dividends and
capital gain dis-
tributions will be reinvested automatically in additional
shares of the same
Class at net asset value, subject to no sales charge or
CDSC. In order to avoid
the application of a 4% nondeductible excise tax on certain
undistributed
amounts of ordinary income and capital gains, the Fund may
make an additional
distribution shortly before December 31 in each year of any
undistributed ordi-
nary income or capital gains and expects to pay any other
dividends and distri-
butions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of
the Fund may be lower
than the per share dividends on Class A and Class Y shares
principally as a
result of the distribution fee applicable with respect to
Class B and Class C
shares. The per share dividends on Class A shares of the
Fund may be lower than
the per share dividends on Class Y shares principally as a
result of the serv-
ice fee applicable to Class A shares. Distributions of
capital gains, if any,
will be in the same amount for Class A, Class B, Class C and
Class Y shares.
17
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The Fund has qualified and intends to continue to qualify
each year as a "reg-
ulated investment company" under Subchapter M of the
Internal Revenue Code of
1986, as amended. Dividends from net investment income and
distributions of
realized short-term capital gains are taxable to
shareholders as ordinary
income, regardless of how long shareholders have held their
Fund shares and
whether such dividends and distributions are received in
cash or reinvested in
additional Fund shares. Distributions of net realized long-
term capital gains
are taxable to shareholders as long-term capital gains,
regardless of how long
shareholders have held Fund shares and whether such
distributions are received
in cash or are reinvested in additional Fund shares.
Furthermore, as a general
rule, a shareholder's gain or loss on a sale or redemption
of Fund shares will
be a long-term capital gain or loss if the shareholder has
held the shares for
more than one year and will be a short-term capital gain or
loss if the share-
holder has held the shares for one year or less. Some of the
Fund's dividends
declared from net investment income may qualify for the
Federal dividends-
received deduction for corporations.
Statements as to the tax status of each shareholder's
dividends and distribu-
tions are mailed annually. Each shareholder will also
receive, if appropriate,
various written notices after the close of the Fund's prior
taxable year as to
the Federal income tax status of his or her dividends and
distributions which
were received from the Fund during the Fund's prior taxable
year. Shareholders
should consult their tax advisors about the status of the
Fund's dividends and
distributions for state and local tax liabilities.
PURCHASE OF SHARES
GENERAL
The Fund offers five Classes of shares. Class A shares are
sold to investors
with an initial sales charge and Class B and Class C shares
are sold without an
initial sales charge but are subject to a CDSC payable upon
certain redemp-
tions. Class Y shares are sold without an initial sales
charge or a CDSC and
are available only to investors investing a minimum of
$5,000,000 (except for
purchases of Class Y shares by Smith Barney Concert Series
Inc., for which
there is no minimum purchase amount). Class Z shares are
offered without a
sales charge, CDSC or service or distribution fee,
exclusively to: (a) tax-
exempt employee benefit and retirement plans of Smith Barney
and its affiliates
and (b) certain UITs sponsored by Smith Barney and its
affiliates. Investors
meeting either of these criteria who are interested in
acquiring Class Z shares
should contact a Smith Barney Financial Consultant for a
Class Z Prospectus.
See "Prospectus Summary--Alternative Purchase Arrangements"
for a discussion of
factors to consider in selecting which Class of shares to
purchase.
18
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Purchases of Fund shares must be made through a brokerage
account maintained
with Smith Barney, an Introducing Broker or an investment
dealer in the selling
group, except for investors purchasing shares of the Fund
through a qualified
retirement plan who may do so directly through FDISG. When
purchasing shares of
the Fund, investors must specify whether the purchase is for
Class A, Class B,
Class C or Class Y shares. No maintenance fee will be
charged by the Fund in
connection with a brokerage account through which an
investor purchases or
holds shares.
Investors in Class A, Class B and Class C shares may open
an account by making
an initial investment of at least $1,000 for each account,
or $250 for an IRA
or a Self-Employed Retirement Plan in the Fund. Investors in
Class Y shares may
open an account by making an initial investment of
$5,000,000. Subsequent
investments of at least $50 may be made for all Classes. For
participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(a) of the
Code, the minimum initial investment requirement for Class
A, Class B and Class
C shares and the subsequent investment requirement for all
Classes in the Fund
is $25. For shareholders purchasing shares of the Fund
through the Systematic
Investment Plan on a monthly basis, the minimum initial
investment requirement
for Class A, Class B and Class C shares and the minimum
subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of the
Fund through the Systematic Investment Plan on a quarterly
basis, the minimum
initial investment requirement for Class A, Class B and
Class C shares and the
subsequent investment requirement for all Classes is $50.
There are no minimum
investment requirements for Class A shares for employees of
Travelers and its
subsidiaries, including Smith Barney, Directors of the Fund
and their spouses
and children and unitholders who invest distributions from a
UIT sponsored by
Smith Barney. The Fund reserves the right to waive or change
minimums, to
decline any order to purchase its shares and to suspend the
offering of shares
from time to time. Shares purchased will be held in the
shareholder's account
by FDISG. Share certificates are issued only upon a
shareholder's written
request to FDISG.
Purchase orders received by the Fund or Smith Barney prior
to the close of
regular trading on the NYSE, on any day the Fund calculates
its net asset val-
ue, are priced according to the net asset value determined
on that day. Orders
received by dealers or Introducing Brokers prior to the
close of regular trad-
ing on the NYSE on any day the Fund calculates its net asset
value, are priced
according to the net asset value determined on that day,
provided the order is
received by the Fund or Smith Barney prior to Smith Barney's
close of business
(the "trade date"). For shares purchased through Smith
Barney or Introducing
Brokers, purchasing through Smith Barney, payment for Fund
shares is due on the
third business day after the trade date. In all other cases,
payment must be
made with the purchase order.
19
<PAGE>
PURCHASE OF SHARES (CONTINUED)
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any
time by purchasing
shares through a service known as the Systematic Investment
Plan. Under the
Systematic Investment Plan, Smith Barney or FDISG is
authorized through preau-
thorized transfers of $25 and $50 or more to charge the
regular bank account
or other financial institution indicated by the shareholder
on a monthly or
quarterly basis, respectively, to provide systematic
additions to the share-
holder's Fund account. A shareholder who has insufficient
funds to complete
the transfer will be charged a fee of up to $25 by Smith
Barney or FDISG. The
Systematic Investment Plan also authorizes Smith Barney to
apply cash held in
the shareholder's Smith Barney brokerage account or redeem
the shareholder's
shares of a Smith Barney money market fund to make additions
to the account.
Additional information is available from the Fund or a Smith
Barney Financial
Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares
of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------
DEALERS
% OF % OF
REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED
OFFERING PRICE
- ------------------------------------------------------------
- ---------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26%
4.50%
$ 25,000 - 49,999 4.00% 4.17%
3.60%
50,000 - 99,999 3.50% 3.63%
3.15%
100,000 - 249,999 3.00% 3.09%
2.70%
250,000 - 499,999 2.00% 2.04%
1.80%
500,000 and over * *
*
- ------------------------------------------------------------
- ---------------
</TABLE>
* Purchases of Class A shares, which when combined with
current holdings of
Class A shares offered with a sales charge equal or exceed
$500,000 in the
aggregate, will be made at net asset value without any
initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made
within 12 months
of purchase. The CDSC on Class A shares is payable to
Smith Barney, which
compensates Smith Barney Financial Consultants and other
dealers whose
clients make purchases of $500,000 or more. The CDSC is
waived in the same
circumstances in which the CDSC applicable to Class B and
Class C shares is
waived. See "Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive up to 90% of the
sales charge and
may be deemed to be underwriters of the Fund as defined in
the Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to the
aggregate of purchases of
Class A shares of the Fund made at one time by "any person,"
which includes an
individual, his or her spouse and children, or a trustee or
other fiduciary of
a single trust estate or single fiduciary account. The
reduced sales charge
minimums may also be met by aggregating the purchase with
the net asset value
of all Class A shares held in funds sponsored by Smith
Barney that are offered
with a sales charge listed under "Exchange Privilege."
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value
without a sales
charge in the following circumstances: (a) sales of Class A
shares to (i)
Board Members and employees of Travelers and its
subsidiaries and of the
Smith Barney Mutual Funds (including retired Board Members
and employees);
the immediate families of such persons (including
the surviving spouse of a deceased Board Member or employee;
and to a
pension, profit-sharing or other benefit
plan for such persons and (ii) employees of members of the
National Association
of Securities Dealers, Inc., provided such sales are made
upon the assurance of
the purchaser that the purchase is made for investment
purposes and that the
securities will not be re-sold except through redemption or
repurchase; (b)
offers of Class A shares to any other investment company in
connection with the
combination of such company with the Fund by merger,
acquisition of assets or
otherwise; (c) purchases of Class A shares by any client of
a newly employed
Smith Barney Financial Consultant (for a period up to 90
days from the com-
mencement of the Financial Consultant's employment with
Smith Barney), on the
condition the purchase of Class A shares is made with the
proceeds of the
redemption of shares of a mutual fund which (i) was
sponsored by the Financial
Consultant's prior employer, (ii) was sold to the client by
the Financial Con-
sultant and (iii) was subject to a sales charge; (d)
shareholders who have
redeemed Class A shares in the Fund (or Class A shares of
another fund of the
Smith Barney Mutual Funds that are offered with a sales
charge equal to or
greater than the maximum sales charge of the Fund) and who
wish to reinvest
their redemption proceeds in the Fund, provided the
reinvestment is made within
60 calendar days of the redemption; (e) accounts managed by
registered invest-
ment advisory subsidiaries of Travelers; (f) investments of
distributions from
a UIT sponsored by Smith Barney and (g) purchases by Section
403(b) or Section
401(a) or (k) accounts associated with Copeland Retirement
Programs. In order
to obtain such discounts, the purchaser must provide
sufficient information at
the time of purchase to permit verification that the
purchase would qualify for
the elimination of the sales charge.
Purchases of Class A shares also may be made at net asset
value without a
sales charge in the following circumstances: (1) direct
rollovers by plan par-
ticipants of distributions from a 401(k) plan enrolled in
the Smith Barney
401(k) Program (Note: Subsequent investments will be subject
to the applicable
sales charge); (2) purchases by separate accounts used to
fund certain unregis-
tered variable annuity contracts; and (3) purchases by
investors participating
in a Smith Barney fee based arrangement.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person"
(as defined above)
at a reduced sales charge or at net asset value determined
by aggregating the
dollar amount of the new purchase and the total net asset
value of all Class A
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shares of the Fund and of funds sponsored by Smith Barney,
which are offered
with a sales charge listed under "Exchange Privilege" then
held by such person
and applying the sales charge applicable to such aggregate.
In order to obtain
such discount, the purchaser must provide sufficient
information at the time of
purchase to permit verification that the purchase qualifies
for the reduced
sales charge. The right of accumulation is subject to
modification or discon-
tinuance at any time with respect to all shares purchased
thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced
sales charge or pur-
chase at net asset value will also be available to employees
(and partners) of
the same employer purchasing as a group, provided each
participant makes the
minimum initial investment required. The sales charge
applicable to purchases
by each member of such a group will be determined by the
table set forth above
under "Initial Sales Charge Alternative--Class A Shares,"
and will be based
upon the aggregate sales of Class A shares of Smith Barney
Mutual Funds offered
with a sales charge to, and share holdings of, all members
of the group. To be
eligible for such reduced sales charges or to purchase at
net asset value, all
purchases must be pursuant to an employer- or partnership-
sanctioned plan meet-
ing certain requirements. One such requirement is that the
plan must be open to
specified partners or employees of the employer and its
subsidiaries, if any.
Such plan may, but is not required to, provide for payroll
deductions, IRAs or
investments pursuant to retirement plans under Sections 401
or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net
asset value purchase
for aggregating related fiduciary accounts under such
conditions that Smith
Barney will realize economies of sales efforts and sales
related expenses. An
individual who is a member of a qualified group may also
purchase Class A
shares at the reduced sales charge applicable to the group
as a whole. The
sales charge is based upon the aggregate dollar value of
Class A shares offered
with a sales charge that have been previously purchased and
are still owned by
the group, plus the amount of the current purchase. A
"qualified group" is one
which (a) has been in existence for more than six months,
(b) has a purpose
other than acquiring Fund shares at a discount and (c)
satisfies uniform crite-
ria which enable Smith Barney to realize economies of scale
in its costs of
distributing shares. A qualified group must have more than
10 members, must be
available to arrange for group meetings between
representatives of the Fund and
the members, and must agree to include sales and other
materials related to the
Fund in its publications and mailings to members at no cost
to Smith Barney. In
order to obtain such reduced sales charge or to purchase at
net asset value,
the purchaser must provide sufficient information at the
time of purchase to
permit verification that the purchase qualifies for the
reduced sales charge.
Approval of group purchase reduced sales charge plans is
subject to the discre-
tion of Smith Barney.
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000
or more provides an
opportunity for an investor to obtain a reduced sales charge
by aggregating
investments over a 13 month period, provided that the
investor refers to such
Letter when placing orders. For purposes of a Letter of
Intent, the "Amount of
Investment" as referred to in the preceding sales charge
table includes pur-
chases of all Class A shares of the Fund and other funds of
the Smith Barney
Mutual Funds offered with a sales charge over the 13 month
period based on the
total amount of intended purchases plus the value of all
Class A shares previ-
ously purchased and still owned. An alternative is to
compute the 13 month
period starting up to 90 days before the date of execution
of a Letter of
Intent. Each investment made during the period receives the
reduced sales
charge applicable to the total amount of the investment
goal. If the goal is
not achieved within the period, the investor must pay the
difference between
the sales charges applicable to the purchases made and the
charges previously
paid, or an appropriate number of escrowed shares will be
redeemed. Please
contact a Smith Barney Financial Consultant or FDISG to
obtain a Letter of
Intent application.
Class Y Shares. A Letter of Intent may also be used as a
way for investors to
meet the minimum investment requirement for Class Y shares.
Such investors
must make an initial minimum purchase of $1,000,000 in Class
Y shares of the
Portfolio and agree to purchase a total of $5,000,000 of
Class Y shares of the
same Portfolio within six months from the date of the
Letter. If a total
investment of $5,000,000 is not made within the six-month
period, all Class Y
shares purchased to date will be transferred to Class A
shares, where they
will be subject to all fees (including a service fee of
0.25%) and expenses
applicable to the Portfolio's Class A shares, which may
include a CDSC of
1.00%. The Portfolio expects that such transfer will not be
subject to Federal
income taxes. Please contact a Smith Barney Financial
Consultant or FDISG for
further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined
without an initial
sales charge so that the full amount of an investor's
purchase payment may be
immediately invested in the Fund. A CDSC, however, may be
imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B
shares; (b) Class
C shares; and (c) Class A shares which when combined with
Class A shares
offered with a sales charge currently held by an investor
equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to
the lesser of the
cost of the shares being redeemed or their net asset value
at the time of
redemption. CDSC Shares that are redeemed will not be
subject to a CDSC to the
extent that the value of such shares represents: (a) capital
appreciation of
Fund assets; (b) reinvestment of dividends or capital gain
distributions; (c)
with respect to Class B
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shares, shares redeemed more than five years after their
purchase; or (d) with
respect to Class C shares and Class A shares that are CDSC
Shares, shares
redeemed more than 12 months after their purchase. Class C
shares and Class A
shares that are CDSC Shares are subject to a 1.00% CDSC if
redeemed within 12
months of purchase. In circumstances in which the CDSC is
imposed on Class B
shares, the amount of the charge will depend on the number
of years since the
shareholder made the purchase payment from which the amount
is being redeemed.
Solely for purposes of determining the number of years since
a purchase pay-
ment, all purchase payments made during a month will be
aggregated and deemed
to have been made on the last day of the preceding Smith
Barney statement
month. The following table sets forth the rates of the
charge for redemptions
of Class B shares by shareholders, except in the case of
purchases by Partici-
pating Plans, as described below. See "Purchase of Shares-
Smith Barney 401(k)
and ExecChoice(TM) Programs."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
- ---------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares
eight years after
the date on which they were purchased and thereafter will no
longer be subject
to any distribution fees. There also will be converted at
that time such pro-
portion of Class B Dividend Shares owned by the shareholder
as the total number
of his or her Class B shares converting at the time bears to
the total number
of outstanding Class B shares (other than Class B Dividend
Shares) owned by the
shareholder. In addition, a certain portion of Class B
Dividend Shares will be
converted at that time. Shareholders who held Class B shares
of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term World
Income Fund") on
July 15, 1994 and who subsequently exchanged those shares
for Class B shares of
the Fund will be offered the opportunity to exchange all
such Class B shares
for Class A shares of the Fund four years after the date on
which those shares
were deemed to have been purchased. Holders of such Class B
shares will be
notified of the pending exchange in writing approximately 30
days before the
fourth anniversary of the purchase date and, unless the
exchange has been
rejected in writing, the exchange will occur on or about the
fourth anniversary
date. See "Prospectus Summary--Alternative Purchase
Arrangements--Class B
Shares Conversion Feature."
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
The length of time that CDSC Shares acquired through an
exchange have been
held will be calculated from the date that the shares
exchanged were initially
acquired in one of the other applicable Smith Barney Mutual
Funds, and Fund
shares being redeemed will be considered to represent, as
applicable, capital
appreciation or dividend and capital gain distribution
reinvestments in such
other funds. For Federal income tax purposes, the amount of
the CDSC will
reduce the gain or increase the loss, as the case may be, on
the amount real-
ized on redemption. The amount of any CDSC will be paid to
Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor
acquired 5 addi-
tional shares through dividend reinvestment. During the
fifteenth month after
the purchase, the investor decided to redeem $500 of his or
her investment.
Assuming at the time of the redemption the net asset value
had appreciated to
$12 per share, the value of the investor's shares would be
$1,260 (105 shares
at $12 per share). The CDSC would not be applied to the
amount which represents
appreciation ($200) and the value of the reinvested dividend
shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be
charged at a rate of 4.00% (the applicable rate for Class B
shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) au-
tomatic cash withdrawals in amounts equal to or less than
1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however,
that automatic cash
withdrawals in amounts equal to or less than 2.00% per month
of the value of
the shareholder's shares will be permitted for withdrawal
plans that were
established prior to November 7, 1994); (c) redemptions of
shares within 12
months following the death or disability of the shareholder;
(d) redemption of
shares made in connection with qualified distributions from
retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary
redemptions; and (f)
redemptions of shares in connection with a combination of
the Fund with any
investment company by merger, acquisition of assets or
otherwise. In addition,
a shareholder who has redeemed shares from other funds of
the Smith Barney
Mutual Funds may, under certain circumstances, reinvest all
or part of the
redemption proceeds within 60 days and receive pro rata
credit for any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by
Smith Barney in the
case of shareholders who are also Smith Barney clients or by
FDISG in the case
of all other shareholders) of the shareholder's status or
holdings, as the case
may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAM
Investors may be eligible to participate in the Smith
Barney 401(k) Program or
the Smith Barney ExecChoice(TM) Program. To the extent
applicable, the same
terms
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
and conditions, which are outlined below, are offered to all
plans participat-
ing ("Participating Plans") in these programs.
The Fund offers to Participating Plans Class A and Class C
shares as invest-
ment alternatives under the Smith Barney 401(k) and
ExecChoice(TM) Programs.
Class A and Class C shares acquired through the
Participating Plans are subject
to the same service and/or distribution fees as the Class A
and Class C shares
acquired by other investors; however, they are not subject
to any initial sales
charge or CDSC. Once a Participating Plan has made an
initial investment in the
Fund, all of its subsequent investments in the Fund must be
in the same Class
of shares, except as otherwise described below.
Class A Shares. Class A shares of the Fund are offered
without any sales
charge or CDSC to any Participating Plan that purchases
$1,000,000 or more of
Class A shares of one or more funds of the Smith Barney
Mutual Funds.
Class C Shares. Class C shares of the Fund are offered
without any sales
charge or CDSC to any Participating Plan that purchases less
than $1,000,000 of
Class C shares of one or more funds of the Smith Barney
Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21,
1996. If at the
end of the fifth year after the date the Participating Plan
enrolled in the
Smith Barney 401(k) Program or the Smith Barney
ExecChoice(TM) Program, a Par-
ticipating Plan's total Class C holdings in all non-money
market Smith Barney
Mutual Funds equal at least $1,000,000, the Participating
Plan will be offered
the opportunity to exchange all of its Class C shares for
Class A shares of the
Fund. (For Participating Plans that were originally
established through a Smith
Barney retail brokerage account, the five year period will
be calculated from
the date the retail brokerage account was opened.) Such
Participating Plans
will be notified of the pending exchange in writing within
30 days after the
fifth anniversary of the enrollment date and, unless the
exchange offer has
been rejected in writing, the exchange will occur on or
about the 90th day
after the fifth anniversary date. If the Participating Plan
does not qualify
for the five year exchange to Class A shares, a review of
the Participating
Plan's holdings will be performed each quarter until either
the Participating
Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year
after the date a Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program,
if a Participating
Plan's total Class C holdings in all non-money market Smith
Barney Mutual Funds
equal at least $500,000 as of the calendar year-end, the
Participating Plan
will be offered the opportunity to exchange all of its Class
C shares for Class
A shares of the Fund. Such Plans will be notified in writing
within 30 days
after the last business day of the calendar year and, unless
the exchange offer
has been rejected in writing, the exchange will occur on or
about the last
business day of the following March.
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Any Participating Plan in the Smith Barney 401(k) Program
that has not previ-
ously qualified for an exchange into Class A shares will be
offered the oppor-
tunity to exchange all of its Class C shares for Class A
shares of the Fund,
regardless of asset size, at the end of the eighth year
after the date the Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program.
Such Plans will be
notified of the pending exchange in writing approximately 60
days before the
eighth anniversary of the enrollment date and, unless the
exchange has been
rejected in writing, the exchange will occur on or about the
eighth anniversary
date. Once an exchange has occurred, a Participating Plan
will not be eligible
to acquire additional Class C shares of the Fund but instead
may acquire Class
A shares of the Fund. Any Class C shares not converted will
continue to be sub-
ject to the distribution fee.
Participating Plans wishing to acquire shares of the Fund
through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM)
Program must purchase
such shares directly from FDISG. For further information
regarding these Pro-
grams, investors should contact a Smith Barney Financial
Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B
shares of the Smith
Barney Mutual Funds are not available for purchase by
Participating Plans
opened on or after June 21, 1996, but may continue to be
purchased by any Par-
ticipating Plan in the Smith Barney 410(k) Program opened
prior to such date
and originally investing in such Class. Class B shares
acquired are subject to
a CDSC of 3.00% of redemption proceeds, if the Participating
Plan terminates
within eight years of the date the Participating Plan first
enrolled in the
Smith Barney 401(k) Program.
At the end of the eighth year after the date the
Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating Plan
will be offered the
opportunity to exchange all of its Class B shares for Class
A shares of the
Fund. Such Participating Plan will be notified of the
pending exchange in writ-
ing approximately 60 days before the eighth anniversary of
the enrollment date
and, unless the exchange has been rejected in writing, the
exchange will occur
on or about the eighth anniversary date. Once the exchange
has occurred, a Par-
ticipating Plan will not be eligible to acquire additional
Class B shares of
the Fund but instead may acquire Class A shares of the Fund.
If the Participat-
ing Plan elects not to exchange all of its Class B shares at
that time, each
Class B share held by the Participating Plan will have the
same conversion fea-
ture as Class B shares held by other investors. See
"Purchase of Shares--
Deferred Sales Charge Alternatives".
No CDSC is imposed on redemptions of Class B shares to the
extent that the net
asset value of the shares redeemed does not exceed the
current net asset value
of the shares purchased through reinvestment of dividends or
capital gain dis-
tributions, plus the current net asset value of Class B
shares purchased more
than eight years prior to the redemption, plus increases in
the net asset value
of the shareholder's Class B shares above the purchase
payments made during the
preceding eight years. Whether or not the CDSC applies to
the redemption by a
Participating Plan
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
depends on the number of years since the Participating Plan
first became
enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the
CDSC to redemptions by other shareholders, which depends on
the number of years
since those shareholders made the purchase payment from
which the amount is
being redeemed.
The CDSC will be waived on redemptions of Class B shares in
connection with
lump-sum or other distributions made by a Participating Plan
as a result of:
(a) the retirement of an employee in the Participating Plan;
(b) the termina-
tion of employment of an employee in the Participating Plan;
(c) the death or
disability of an employee in the Participating Plan; (d) the
attainment of age
59 1/2 by an employee in the Participating Plan; (e)
hardship of an employee in
the Participating Plan to the extent permitted under Section
401(k) of the
Code; or (f) redemptions of shares in connection with a loan
made by the Par-
ticipating Plan to an employee.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may
be exchanged at the
net asset value next determined for shares of the same Class
in the following
funds of the Smith Barney Mutual Funds, to the extent shares
are offered for
sale in the shareholder's state of residence. Exchanges of
Class A, Class B and
Class C shares are subject to minimum investment
requirements and all shares
are subject to the other requirements of the fund into which
exchanges are
made.
FUND NAME
Growth Funds
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
28
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc.--Income Return Account
Portfolio
+++Smith Barney Funds, Inc.--Short-Term U.S. Treasury
Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities
Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals
Fund
*Smith Barney Intermediate Maturity New York Municipals
Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc.--Emerging Markets
Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond
Portfolio
Smith Barney World Funds, Inc.--International Balanced
Portfolio
Smith Barney World Funds, Inc.--International Equity
Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Concert Series Inc.
Smith Barney Concert Series Inc.--Balanced Portfolio
Smith Barney Concert Series Inc.--Conservative Portfolio
Smith Barney Concert Series Inc.--Growth Portfolio
Smith Barney Concert Series Inc.--High Growth Portfolio
Smith Barney Concert Series Inc.--Income Portfolio
29
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
+++Smith Barney Muni Funds--California Money Market
Portfolio
+++Smith Barney Muni Funds--New York Money Market
Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
- ------------------------------------------------------------
- -------------------
* Available for exchange with Class A, Class C and Class Y
shares of the
Fund.
** Available for exchange with Class A, Class B, and Class
Y shares of the
Fund. In addition, shareholders who own Class C shares
of the Fund through
the Smith Barney 401(k) Program may exchange those
shares for Class C
shares of this fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares
of the Fund.
++ Available for exchange with Class A and Class Y shares
of the Fund. In
addition, shareholders who own Class C shares of the
Fund through the
Smith Barney 401(k) Program may exchange those shares
for Class C shares
of this fund.
+++ Available for exchange with Class A and Class Y shares
of the Fund.
Class B Exchanges. In the event a Class B shareholder
(unless such share-
holder was a Class B shareholder of the Short-Term World
Income Fund on July
15, 1994) wishes to exchange all or a portion of his or her
shares into any of
the funds imposing a higher CDSC than that imposed by the
Fund, the exchanged
Class B shares will be subject to the higher applicable
CDSC. Upon an
exchange, the new Class B shares will be deemed to have been
purchased on the
same date as the Class B shares of the Fund that have been
exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares
will be deemed to
have been purchased on the same date as the Class C shares
of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the Fund
who wish to exchange all or a portion of their shares for
shares of the
respective Class in any of the funds identified above may do
so without impo-
sition of any charge.
Additional Information Regarding the Exchange Privilege.
Although the
exchange privilege is an important benefit, excessive
exchange transactions
can be detrimental to the Fund's performance and its
shareholders. SBMFM may
determine that a pattern of frequent exchanges is excessive
and contrary to
the best interests of the Fund's other shareholders. In this
event, SBMFM will
notify Smith Barney and Smith Barney may, at its discretion,
decide to limit
additional purchases and/or exchanges by a shareholder. Upon
such a determina-
tion, Smith Barney will provide notice in writing or by
telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and
during the 15 day period the
30
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
shareholder will be required to (a) redeem his or her shares
in the Fund or
(b) remain invested in the Fund or exchange into any of the
funds of the Smith
Barney Mutual Funds listed above, which position the
shareholder would be
expected to maintain for a significant period of time. All
relevant factors
will be considered in determining what constitutes an
abusive pattern of
exchanges.
Certain shareholders may be able to exchange shares by
telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange
Program." Exchanges will
be processed at the net asset value next determined, plus
any applicable sales
charge differential. Redemption procedures discussed below
are also applicable
for exchanging shares, and exchanges will be made upon
receipt of all support-
ing documents in proper form. If the account registration of
the shares of the
fund being acquired is identical to the registration of the
shares of the fund
exchanged, no signature guarantee is required. A capital
gain or loss for tax
purposes will be realized upon the exchange, depending upon
the cost or other
basis of shares redeemed. Before exchanging shares,
investors should read the
current prospectus describing the shares to be acquired. The
Fund reserves the
right to modify or discontinue exchange privileges upon 60
days' prior notice
to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund
tendered to it, as
described below, at a redemption price equal to their net
asset value per
share next determined after receipt of a written request in
proper form at no
charge other than any applicable CDSC. Redemption requests
received after the
close of regular trading on the NYSE are priced at the net
asset value next
determined.
If a shareholder holds shares in more than one Class, any
request for redemp-
tion must specify the Class being redeemed. In the event of
a failure to spec-
ify which Class, or if the investor owns fewer shares of the
Class than speci-
fied, the redemption request will be delayed until the
Fund's transfer agent
receives further instructions from Smith Barney, or if the
shareholder's
account is not with Smith Barney, from the shareholder
directly. The redemp-
tion proceeds will be remitted on or before the third day
following receipt of
proper tender, except on any days on which the NYSE is
closed or as permitted
under the Investment Company Act of 1940, as amended ("1940
Act"), in extraor-
dinary circumstances. Generally, if the redemption proceeds
are remitted to a
Smith Barney brokerage account, these funds will not be
invested for the
shareholder's benefit without specific instruction and Smith
Barney will bene-
fit from the use of temporarily uninvested funds. Redemption
proceeds for
shares purchased by check, other than a certified or
official bank check, will
be remitted upon clearance of the check, which may take up
to ten days or
more. Shares held by Smith Barney as custodian must be
redeemed by submitting
a written request to a Smith Barney Financial Consultant.
31
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Shares other than those held by Smith Barney as custodian
may be redeemed
through an investor's Financial Consultant, Introducing
Broker or dealer in
the selling group or by submitting a written request for
redemption to:
Smith Barney Aggressive Growth Fund, Inc.
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and
number or dollar
amount of shares to be redeemed, (b) identify the
shareholder's account number
and (c) be signed by each registered owner exactly as the
shares are regis-
tered. If the shares to be redeemed were issued in
certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied
by an endorsed
stock power) and must be submitted to FDISG together with
the redemption
request. Any signature appearing on a written redemption
request in excess of
$2,000, share certificate or stock power must be guaranteed
by an eligible
guarantor institution such as a domestic bank, savings and
loan institution,
domestic credit union, member bank of the Federal Reserve
System or member
firm of a national securities exchange. Written redemption
requests of $2,000
or less do not require a signature guarantee unless more
than one such redemp-
tion request is made in any 10-day period or the redemption
proceeds are to be
sent to an address other than the address of record. Unless
otherwise direct-
ed, redemption proceeds will be mailed to an investor's
address of record.
FDISG may require additional supporting documents for
redemptions made by cor-
porations, executors, administrators, trustees or guardians.
A redemption
request will not be deemed properly received until FDISG
receives all required
documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal
plan, under which
shareholders who own shares with a value of at least $10,000
may elect to
receive cash payments of at least $50 monthly or quarterly.
Retirement plan
accounts are eligible for automatic cash withdrawal plans
only where the
shareholder is eligible to receive qualified distributions
and has an account
value of at least $5,000. The withdrawal plan will be
carried over on
exchanges between funds or Classes of the Fund. Any
applicable CDSC will not
be waived on amounts withdrawn by a shareholder that exceed
1.00% per month of
the value of the shareholder's shares subject to the CDSC at
the time the
withdrawal plan commences. For further information regarding
the automatic
cash withdrawal plan, shareholders should contact a Smith
Barney Financial
Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage
account may be eligible
to redeem and exchange Fund shares by telephone. To
determine if a share-
32
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
holder is entitled to participate in this program, he or she
should contact
FDISG at 1-800-451-2010. Once eligibility is confirmed, the
shareholder must
complete and return a Telephone/Wire Authorization Form,
along with a signa-
ture guarantee that will be provided by FDISG upon request.
(Alternatively, an
investor may authorize telephone redemptions on the new
account application
with the applicant's signature guarantee when making his/her
initial invest-
ment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any
class or classes of
the Fund's shares may be made by eligible shareholders by
calling FDISG at
1-800-451-2010. Such requests may be made between 9:00 a.m.
and 5:00 p.m. (New
York City time) on any day the NYSE is open. Redemption
requests received
after the close of regular trading on the NYSE are priced at
the net asset
value next determined. Redemptions of shares (i) by
retirement plans or (ii)
for which certificates have been issued are not permitted
under this program.
A shareholder will have the option of having the redemption
proceeds mailed
to his/her address of record or wired to a bank account
predesignated by the
shareholder. Generally, redemption proceeds will be mailed
or wired, as the
case may be, on the next business day following the
redemption request. In
order to use the wire procedures, the bank receiving the
proceeds must be a
member of the Federal Reserve System or have a correspondent
with a member
bank. The Fund reserves the right to charge shareholders a
nominal fee for
each wire redemption. Such charges, if any, will be assessed
against the
shareholder's account from which shares were redeemed. In
order to change the
bank account designated to receive redemption proceeds, a
shareholder must
complete a new Telephone/Wire Authorization Form and, for
the protection of
the shareholder's assets, will be required to provide a
signature guarantee
and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the
account registration of the shares of the fund being
acquired is identical to
the registration of the shares of the fund exchanged. Such
exchange requests
may be made by calling FDISG at 1-800-451-2010 between 9:00
a.m. and 5:00 p.m.
(New York City time) on any day on which the NYSE is open.
Exchange requests
received after the close of regular trading on the NYSE are
processed at the
net asset value next determined.
Additional Information regarding Telephone Redemption and
Exchange
Program. Neither the Fund nor its agents will be liable for
following instruc-
tions communicated by telephone that are reasonably believed
to be genuine.
The Fund and its agents will employ procedures designed to
verify the identity
of the caller and legitimacy of instructions (for example, a
shareholder's
name and account number will be required and phone calls may
be recorded). The
Fund reserves the right to suspend, modify or discontinue
the telephone
redemption and exchange program or to impose a charge for
this service at any
time following at least seven (7) days' prior notice to
shareholders.
33
<PAGE>
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any
shareholder's
account in the Fund if the aggregate net asset value of the
shares held in the
Fund account is less than $500. (If a shareholder has more
than one account in
the Fund, each account must satisfy the minimum account
size.) The Fund, howev-
er, will not redeem shares based solely on market reductions
in net asset val-
ue. Before the Fund exercises such right, shareholders will
receive written
notice and will be permitted 60 days to bring accounts up to
the minimum to
avoid automatic redemption.
PERFORMANCE
TOTAL RETURN
From time to time the Fund may include its total return,
average annual total
return and current dividend return in advertisements and/or
other types of
sales literature. These figures are computed separately for
Class A, Class B,
Class C and Class Y shares of the Fund. These figures are
based on historical
earnings and are not intended to indicate future
performance. Total return is
computed for a specified period of time assuming deduction
of the maximum sales
charge, if any, from the initial amount invested and
reinvestment of all income
dividends and capital gain distributions on the reinvestment
dates at prices
calculated as stated in this Prospectus, then dividing the
value of the invest-
ment at the end of the period so calculated by the initial
amount invested and
subtracting 100%. The standard average annual total return,
as prescribed by
the SEC, is derived from this total return, which provides
the ending redeem-
able value. Such standard total return information may also
be accompanied with
nonstandard total return information for differing periods
computed in the same
manner but without annualizing the total return or taking
sales charges into
account. The Fund calculates current dividend return for
each Class by
annualizing the most recent monthly distribution and
dividing by the net asset
value or the maximum public offering price (including sales
charge) on the last
day of the period for which current dividend return is
presented. The current
dividend return for each Class may vary from time to time
depending on market
conditions, the composition of its investment portfolio and
operating expenses.
These factors and possible differences in the methods used
in calculating cur-
rent dividend return should be considered when comparing a
Class' current
return to yields published for other investment companies
and other investment
vehicles. The Fund may also include comparative performance
information in
advertising or marketing its shares. Such performance
information may include
data from Lipper Analytical Services, Inc. and other
financial publications.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of
the Fund rests with
the Fund's Board of Directors. The Directors approve all
significant agreements
34
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
between the Fund and the companies that furnish services to
the Fund, including
agreements with the Fund's distributor, investment adviser,
administrator, cus-
todian and transfer agent. The day-to-day operations of the
Fund are delegated
to the Fund's investment adviser and administrator. The
Statement of Additional
Information contains background information regarding each
Director and execu-
tive officer of the Fund.
INVESTMENT ADVISER--SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York
10013 serves as the
Fund's investment adviser. SBMFM (through predecessor
entities) has been in the
investment counselling business since 1968. SBMFM renders
investment advice to
a wide variety of investment company clients which had
aggregate assets under
management as of September 30, 1996, in excess of $77
billion.
Subject to the supervision and direction of the Fund's
Board of Directors,
SBMFM manages the Fund's portfolio in accordance with the
Fund's stated invest-
ment objective and policies, makes investment decisions for
the Fund, places
orders to purchase and sell securities and employs
professional portfolio man-
agers. For investment advisory services rendered to the
Fund, the Fund pays
SBMFM a fee at the annual rate of 0.60% of the value of the
Fund's average
daily net assets.
PORTFOLIO MANAGEMENT
Richard Freeman, a Managing Director of Smith Barney, is
primarily responsible
for management of the Fund's assets. Mr. Freeman has served
in this capacity
since November 1983, and manages the day-to-day operations
of the Fund, includ-
ing making all investment decisions.
Management's discussion and analysis, and additional
performance information
regarding the Fund during the fiscal year ended August 31,
1996 is included in
the Annual Report dated August 31, 1996. A copy of the
Annual Report may be
obtained upon request and without charge from a Smith Barney
Financial Consul-
tant or by writing or calling the Fund at the address or
phone number listed on
page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees
all aspects of the
Fund's administration. For administration services rendered
to the Fund, the
Fund pays SBMFM a fee at the annual rate of 0.20% of the
value of the Fund's
average daily net assets.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York,
New York 10013.
Smith Barney distributes shares of the Fund as principal
underwriter and as
such conducts a continuous offering pursuant to a "best
efforts" arrangement
requiring
35
<PAGE>
DISTRIBUTOR (CONTINUED)
Smith Barney to take and pay for only such securities as may
be sold to the
public. Pursuant to a plan of distribution adopted by the
Fund under Rule 12b-1
under the 1940 Act (the "Plan"), Smith Barney is paid an
annual service fee
with respect to Class A, Class B and Class C shares of the
Fund at the annual
rate of 0.25% of the average daily net assets of the
respective Class. Smith
Barney is also paid an annual distribution fee with respect
to Class B and
Class C shares at the annual rate of 0.75% of the average
daily net assets
attributable to those Classes. Class B shares that
automatically convert to
Class A shares eight years after the date of original
purchase will no longer
be subject to distribution fees. The fees are used by Smith
Barney to pay its
Financial Consultants for servicing shareholder accounts
and, in the case of
Class B and Class C shares, to cover expenses primarily
intended to result in
the sale of those shares. These expenses include:
advertising expenses; the
cost of printing and mailing prospectuses to potential
investors; payments to
and expenses of Smith Barney Financial Consultants and other
persons who pro-
vide support services in connection with the distribution of
shares; interest
and/or carrying charges; and indirect and overhead costs of
Smith Barney asso-
ciated with the sale of Fund shares, including lease,
utility, communications
and sales promotion expenses.
The payments to Smith Barney Financial Consultants for
selling shares of a
Class include a commission or fee paid by the investor or
Smith Barney at the
time of sale and, with respect to Class A, Class B and Class
C shares, a con-
tinuing fee for servicing shareholder accounts for as long
as a shareholder
remains a holder of that Class. Smith Barney Financial
Consultants may receive
different levels of compensation for selling different
Classes of shares.
Payments under the Plan are not tied exclusively to the
distribution and
shareholder service expenses actually incurred by Smith
Barney and the payments
may exceed distribution expenses actually incurred. The
Fund's Board of Direc-
tors will evaluate the appropriateness of the Plan and its
payment terms on a
continuing basis and in so doing will consider all relevant
factors, including
expenses borne by Smith Barney, amounts received under the
Plan and proceeds of
the CDSC.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of
Maryland on May 12,
1983, and is registered with the SEC as a diversified, open-
end management
investment company. The Fund offers shares of common stock
currently classified
into five Classes, A, B, C, Y and Z. Each Class represents
an identical inter-
est in the Fund's investment portfolio. As a result, the
Classes have the same
rights, privileges and preferences, except with respect to:
(a) the designation
of each Class; (b) the effect of the respective sales
charges for each Class;
(c) the distribution and/or service fees borne by each Class
pursuant to the
Plan; (d) the expenses
36
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
allocable exclusively to each Class; (e) voting rights on
matters exclusively
affecting a single Class; (f) the exchange privilege of each
Class; and (g) the
conversion feature of the Class B shares. The Fund's Board
of Directors does
not anticipate that there will be any conflicts among the
interests of the
holders of the different Classes. The Directors, on an
ongoing basis, will con-
sider whether any such conflict exists and, if so, take
appropriate action.
The Fund does not hold annual shareholder meetings. There
normally will be no
meeting of shareholders for the purpose of electing
Directors unless and until
such time as less than a majority of the Directors holding
office have been
elected by shareholders. The Directors will call a meeting
for any purpose upon
written request of shareholders holding at least 10% of the
Fund's outstanding
shares and the Fund will assist stockholders in calling such
a meeting as
required by the 1940 Act. When matters are submitted for
shareholder vote,
shareholders of each Class will have one vote for each full
share owned and a
proportionate, fractional vote for any fractional share held
of that Class.
Generally, shares of the Fund will be voted on a Fund-wide
basis on all matters
except matters affecting only the interests of one or more
of the Classes.
PNC Bank, is located at 17th and Chestnut Streets,
Philadelphia, PA 19103, and
serves as custodian of the Fund's investments.
FDISG is located at Exchange Place, Boston, Massachusetts
02109, and serves as
the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an
audited annual
report, which include listings of the investment securities
held by the Fund at
the end of the reporting period. In an effort to reduce the
Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of
its semi-annual and
annual reports by household. This consolidation means that a
household having
multiple accounts with the identical address of record will
receive a single
copy of each report. In addition, the Fund also plans to
consolidate the mail-
ing of its Prospectus so that a shareholder having multiple
accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a
single Prospectus annually. Shareholders who do not want
this consolidation to
apply to their accounts should contact their Smith Barney
Financial Consultants
or the Fund's transfer agent.
37
<PAGE>
SMITH BARNEY
- ------------
A Member of
Travelers Group[ART]
SMITH
BARNEY
AGGRESSIVE
GROWTH
FUND
INC.
388
Greenwich Street
New York,
New York 10013
FD 01060 12/96
PROSPECTUS
SMITH BARNEY
Aggressive
Growth
Fund Inc.
Class Z Shares Only
DECEMBER 30, 1996
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Prospectus
December 30, 1996
- ------------------------------------------------------------
- --------------------
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Aggressive Growth Fund Inc. (the "Fund")
is a diversified
mutual fund that seeks capital appreciation by investing
primarily in common
stocks 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 "S&P
500"), a weighted
index which measures the aggregate change in market value of
400 industrials, 60
transportation stocks and utility companies and 40 financial
issues. Companies
whose earnings grow at a rate more rapid than those of S&P
companies are often
small- or medium-sized companies that stand to benefit from
new products or
services, technological developments or changes in
management. Consequently, the
Fund invests principally in the securities of small- or
medium-sized companies.
Because of its objective and policies, the Fund may be
subject to greater
investment risks than those assumed by some other investment
companies.
This Prospectus sets forth concisely certain
information about the Fund,
including expenses, that prospective investors will find
helpful in making an
investment decision. Investors are encouraged to read this
Prospectus carefully
and retain it for future reference.
The Class Z shares described in this Prospectus
(previously designated as
Class C shares) are currently offered exclusively for sale
to tax-exempt
employee benefit and retirement plans of Smith Barney Inc.
("Smith Barney") or
any of its affiliates ("Qualified Plans") and to certain
unit investment trusts
sponsored by Smith Barney or any of its affiliates ("Smith
Barney UITs").
Additional information about the Fund is contained in a
Statement of
Additional Information dated December 30, 1996, as amended
or supplemented from
time to time, that is available upon request and without
charge by calling or
writing the Fund at the telephone number or address set
forth above or by
contacting a Smith Barney Financial Consultant. The
Statement of Additional
Information has been filed with the Securities and Exchange
Commission (the
"SEC") and is incorporated by reference into this Prospectus
in its entirety.
Smith Barney Inc.
Distributor
Smith Barney Mutual Funds Management Inc.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Table of Contents
- ------------------------------------------------------------
- --------------------
The Fund's Expenses
3
- ------------------------------------------------------------
- --------------------
Financial Highlights
4
- ------------------------------------------------------------
- --------------------
Investment Objective and Management Policies
5
- ------------------------------------------------------------
- --------------------
Valuation of Shares
8
- ------------------------------------------------------------
- --------------------
Dividends, Distributions and Taxes
8
- ------------------------------------------------------------
- --------------------
Purchase, Exchange and Redemption of Shares
10
- ------------------------------------------------------------
- --------------------
Performance
10
- ------------------------------------------------------------
- --------------------
Management of the Fund
11
- ------------------------------------------------------------
- --------------------
Additional Information
13
- ------------------------------------------------------------
- --------------------
============================================================
====================
No person has been authorized to give any information
or to make any
representations in connection with this offering other than
those contained in
this Prospectus and, if given or made, such other
information and
representations must not be relied upon as having been
authorized by the Fund or
the Distributor. This Prospectus does not constitute an
offer by the Fund or the
Distributor to sell or a solicitation of an offer to buy any
of the securities
offered hereby in any jurisdiction to any person to whom it
is unlawful to make
such offer or solicitation in such jurisdiction.
============================================================
====================
2
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
The Fund's Expenses
- ------------------------------------------------------------
- --------------------
The following expense table lists the costs and expenses an
investor will incur
either directly or indirectly as a shareholder of Class Z
shares of the Fund,
based on the Fund's operating expenses for its most recent
fiscal year.
As a % of Average
Net Assets
============================================================
====================
Annual Fund Operating Expenses
Management fees
0.80%
Other expenses
0.13%
============================================================
====================
TOTAL FUND OPERATING EXPENSES
0.93%
============================================================
====================
The nature of the services for which the Fund pays
management fees is
described under "Management of the Fund." "Other expenses"
in the above table
include fees for shareholder services, custodial fees, legal
and accounting
fees, printing costs and registration fees.
Example The following example is intended to assist an
investor in
understanding the various costs that an investor in the Fund
will bear directly
or indirectly. The example assumes payment by the Fund of
operating expenses at
the levels set forth in the table above. See "Purchase and
Redemption of Shares"
and "Management of the Fund."
1 Year 3 Years
5 Years 10 Years
============================================================
====================
An investor would pay the following
expenses on a $1,000 investment in
Class Z shares of the Fund, assuming
(1) 5.00% annual return and (2)
redemption at the end of each time period: $9 $30
$51 $114
============================================================
====================
The example also provides a means for the investor to
compare expense
levels of funds with different fee structures over varying
investment periods.
To facilitate such comparison, all funds are required to
utilize a 5.00% annual
return assumption. However, the Fund's actual return will
vary and may be
greater or less than 5.00%. This example should not be
considered a
representation of past or future expenses and actual
expenses may be greater or
less than those shown.
3
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Financial Highlights
- ------------------------------------------------------------
- --------------------
The following information for the two-year period ended
August 31, 1996 has been
audited by KPMG Peat Marwick LLP, independent auditors,
whose report thereon
appears in the Fund's Annual Report dated August 31, 1996.
The following
information for the period ended August 31, 1993 and year
ended August 31, 1994
has been audited by other independent auditors. The
information set out below
should be read in conjunction with the financial statements
and related notes
that also appear in the Fund's Annual Report, which is
incorporated by reference
into the Statement of Additional Information.
For a Class Z share of capital stock outstanding throughout
each period:
<TABLE>
<CAPTION>
Class Z Shares 1996
1995(1) 1994 1993(2)(3)
============================================================
==================================
<S> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 33.88 $
26.94 $ 23.67 $ 20.52
- ------------------------------------------------------------
- ----------------------------------
Income From Operations:
Net investment loss (0.20)
(0.34) (0.31) (0.12)
Net realized and unrealized gain
on investments (2.11)
8.65 3.58 3.27
- ------------------------------------------------------------
- ----------------------------------
Total Income (Loss) From Operations (2.31)
8.31 3.27 3.15
- ------------------------------------------------------------
- ----------------------------------
Less Distributions From:
Net realized gains (2.37)
(1.37) -- --
- ------------------------------------------------------------
- ----------------------------------
Total Distributions (2.37)
(1.37) -- --
- ------------------------------------------------------------
- ----------------------------------
Net Asset Value, End of Period $ 29.20 $
33.88 $ 26.94 $ 23.67
- ------------------------------------------------------------
- ----------------------------------
Total Return (7.07)%
32.38% 13.81% 15.35%++
- ------------------------------------------------------------
- ----------------------------------
Net Assets, End of Period (000s) $ 30,837 $
27,209 $ 24,467 $ 53,599
- ------------------------------------------------------------
- ----------------------------------
Ratios to Average Net Assets:
Expenses 0.93%
1.12% 1.01%* 0.99%+
Net investment loss (0.61)
(0.80) (0.83) (0.67)+
- ------------------------------------------------------------
- ----------------------------------
Portfolio Turnover Rate 13%
44% 11% 13%
- ------------------------------------------------------------
- ----------------------------------
Average Commissions Per Share
Paid On Equity Transactions(4) $ 0.06 --
- -- --
============================================================
==================================
</TABLE>
(1) On November 7, 1994, the former Class C shares were
renamed Class Z shares.
(2) For the period from November 6, 1992 (inception date)
to August 31, 1993.
(3) Per share amounts have been calculated using the
monthly average shares
method, which more appropriately presents the per share
data for this
period, since use of the undistributed net investment
income method does
not accord with resuls of operations for all classes of
shares.
(4) As of September 1995, the SEC instituted new guidelines
requiring the
disclosure of average commissions per share.
* The operating expense ratio excludes interest expense.
The operating
expense ratio including interest expense would have
been 1.02%.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
4
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Investment Objective and Management Policies
- ------------------------------------------------------------
- --------------------
The investment objective of the Fund is capital
appreciation. Although the
Fund may receive current income from dividends, interest and
other sources,
income is only an incidental consideration of the Fund. The
Fund's investment
objective may not be changed without the approval of the
holders of a majority
of the Fund's outstanding shares. There can be no assurance
that the Fund will
achieve its investment objective.
The Fund attempts to achieve its investment objective
by investing
primarily in common stocks of companies that Smith Barney
Mutual Funds
Management Inc. ("SBMFM") 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 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. As a
result, SBMFM anticipates that the Fund will invest
principally in the
securities of small- or medium-sized companies and to a
lesser degree in the
securities of large, well-known companies.
SBMFM focuses its stock selection for the 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
profit gains in the
two to three years after the Fund acquires their 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 deployment, government
regulations or other
external circumstances.
Although SBMFM anticipates that the assets of the Fund
ordinarily will be
invested primarily in common stocks of domestic companies,
the Fund may invest
in convertible securities, preferred stocks, securities of
foreign issuers,
warrants and restricted securities. In addition, when SBMFM
believes that market
conditions warrant, the Fund may invest for temporary
defensive purposes in
corporate and U.S. government bonds and notes and money
market instruments. The
Fund also is authorized to borrow in an amount of up to 5%
of its total assets
for extraordinary or emergency purposes, and may borrow up
to 331 1/43% of its
total assets less liabilities, for leveraging purposes. See
"Investment Policies
and Strategies-Leveraging."
Further information about the Fund's investment
policies, including a list
of those restrictions on its investment activities that
cannot be changed
without shareholder approval, appears in the Statement of
Additional
Information.
5
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------
- --------------------
INVESTMENT POLICIES AND STRATEGIES
Restricted Securities. Restricted securities are those
that may not be sold
publicly without first being registered under the Securities
Act of 1933, as
amended. For that reason, the Fund may not be able to
dispose of restricted
securities at a time when, or at a price at which, it
desires to do so and may
have to bear expenses associated with registering the
securities. At any one
time, the Fund's aggregate holdings of restricted
securities, repurchase
agreements having a duration of more than five business
days, and securities
lacking readily available market quotations will not exceed
15% of the Fund's
total assets.
Foreign Securities. The Fund may invest up to 10% of
its net assets in the
securities of foreign issuers. There are certain risks
involved in investing in
foreign securities, including those resulting from
fluctuations in currency
exchange rates, revaluation of currencies, future political
or economic
developments and the possible imposition of currency
exchange blockages or other
foreign governmental laws or restrictions, reduced
availability of public
information concerning issuers, and the fact that foreign
companies are not
generally subject to uniform accounting, auditing and
financial reporting
standards or to other regulatory practices and requirements
comparable to those
applicable to domestic companies. Moreover, securities of
many foreign companies
may be less liquid and their prices more volatile than
securities of comparable
domestic companies. In addition, with respect to certain
foreign countries,
there is the possibility of expropriation, confiscatory
taxation and limitations
on the use or removal of funds or other assets of the Fund,
including the
withholding of dividends.
Lending of Portfolio Securities. From time to time, the
Fund may lend its
portfolio securities to brokers, dealers and other financial
organizations.
These loans may not exceed 331 1/43% of the Fund's total
assets taken at value.
Loans of portfolio securities by the Fund will be
collateralized by cash,
letters of credit or obligations of the United States
government or 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. By lending its portfolio securities, the
Fund will seek to
generate income by continuing to receive interest on loaned
securities, by
investing the cash collateral in short-term instruments or
by obtaining yield in
the form of interest paid by the borrower when U.S.
government securities are
used as collateral. The risks in lending portfolio
securities, as with other
extensions of secured credit, consist of possible delays 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
6
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------
- --------------------
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.
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 331 1/43% of the total
value of its assets
less its liabilities. Borrowed money creates an opportunity
for greater capital
gain but at the same time increases exposure to capital
risk, as any gain in the
value of securities purchased with borrowed money that
exceeds the interest paid
on the amount borrowed would cause the Fund's net asset
value to increase more
rapidly than otherwise, while any decline in the value of
securities purchased
would cause the Fund's net asset value to decrease more
rapidly than otherwise.
Money Market Instruments. As noted above, in certain
circumstances the Fund
may invest in short-term money market instruments, such as
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 such
instruments.
Repurchase Agreements. The Fund will enter into
repurchase agreements with
banks which are the issuers of instruments acceptable for
purchase by the Fund
and with certain dealers on the Federal Reserve Bank of New
York's list of
reporting dealers. Under the terms of a typical repurchase
agreement, the Fund
would acquire an underlying obligation for a relatively
short period (usually
not more than one week) subject to an obligation of the
seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon
price and time, thereby
determining the yield during the Fund's holding period. This
arrangement results
in a fixed rate of return that is not subject to market
fluctuations during the
Fund's holding period. Under each repurchase agreement, the
selling institution
will be required to maintain the value of the securities
subject to the
repurchase agreement at not less than their repurchase
price. Repurchase
agreements could involve certain risks in the event of
default or insolvency of
the other party, including possible delays or restrictions
upon the Fund's
ability to dispose of the underlying securities, the risk of
a possible decline
in the value of the underlying securities during the period
in which the Fund
seeks to assert its rights to them, the risk of incurring
expenses associated
with asserting those rights and the risk of losing all or
part of the income
from the agreement. SBMFM , acting under the supervision of
the Board of
Directors, reviews on an ongoing basis to evaluate potential
risks the value of
the
7
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------
- --------------------
collateral and the creditworthiness of those banks and
dealers with which the
Fund enters into repurchase agreements.
Certain Risk Considerations. Securities of the kinds of
companies in which
the Fund invests may be subject to significant price
fluctuation and
above-average risk. In addition, companies achieving an
earnings growth rate
higher than that of S&P 500 companies tend to reinvest their
earnings rather
than distribute them. As a result, the Fund is not likely to
receive significant
dividend income on its portfolio securities. Accordingly, an
investment in the
Fund should not be considered as a complete investment
program and may not be
appropriate for all investors.
Portfolio Transactions. Portfolio securities
transactions on behalf of the
Fund are placed by SBMFM with a number of brokers and
dealers, including Smith
Barney. Smith Barney has advised the Fund that in
transactions with the Fund,
Smith Barney charges a commission rate at least as favorable
as the rate Smith
Barney charges its comparable unaffiliated customers in
similar transactions.
- ------------------------------------------------------------
- --------------------
Valuation of Shares
- ------------------------------------------------------------
- --------------------
The net asset value per share of Class Z shares is
determined as of the
close of regular trading on the New York Stock Exchange,
Inc. (the "NYSE"), on
each day that the NYSE is open, by dividing the value of the
Fund's net assets
attributable to Class Z by the number of shares of the Class
outstanding. The
per share net asset value of the Class Z shares may be
higher than those of
other Classes because of the lower expenses attributable to
Class Z shares.
Generally, the Fund's investments are valued at market
value or, in the
absence of a market value with respect to any securities, at
fair value as
determined by or under the direction of the Board of
Directors. Short-term
investments that mature in 60 days or less are valued at
amortized cost whenever
the Directors determine that amortized cost reflects fair
value of those
investments. Further information regarding the Fund's
valuation policies is
contained in the Statement of Additional Information.
- ------------------------------------------------------------
- --------------------
Dividends, Distributions and Taxes
- ------------------------------------------------------------
- --------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute its investment
income (that is, its
income other than its net realized capital gains) and net
realized capital
gains, if any, once
8
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Dividends, Distributions and Taxes (continued)
- ------------------------------------------------------------
- --------------------
a year, normally at the end of the year in which earned or
at the beginning of
the next year.
Unless a shareholder is eligible for qualified
distributions and instructs
that dividends and capital gain distributions on shares be
paid in cash and
credited to the shareholder's account, dividends and capital
gains distributions
will be reinvested automatically in additional shares of the
Class at net asset
value, subject to no sales charge or CDSC. In addition, in
order to avoid the
application of a 4% non-deductible excise tax on certain
undistributed amounts
of ordinary income and capital gains, the Fund may make an
additional
distribution shortly before December 31 in each year of any
undistributed
ordinary income or capital gains and expects to make any
other dividends and
distributions necessary to avoid the application of this
tax.
TAXES
The Fund has qualified and intends to continue to
qualify each year as a
regulated investment company under Subchapter M of the
Internal Revenue Code of
1986, as amended.
Dividends from net investment income and distributions
of realized
short-term capital gains are taxable to shareholders as
ordinary income,
regardless of how long shareholders have held their Fund
shares and whether such
dividends and distributions are received in cash or
reinvested in additional
Fund shares. Distributions of net realized long-term capital
gains are taxable
to shareholders as long-term capital gains, regardless of
how long shareholders
have held Fund shares and whether such distributions are
received in cash or are
reinvested in additional Fund shares. Furthermore, as a
general rule, a
shareholder's gain or loss on a sale or redemption of Fund
shares will be a
long-term capital gain or loss if the shareholder has held
the shares for more
than one year and will be a short-term capital gain or loss
if the shareholder
has held the shares for one year or less. Some of the Fund's
dividends declared
from net investment income may qualify for the Federal
dividends-received
deduction for corporations.
Statements as to the tax status of each shareholder's
dividends and
distributions are mailed annually. Each shareholder will
also receive, if
appropriate, various written notices after the close of the
Fund's prior taxable
year as to the Federal income tax status of his or her
dividends and
distributions which were received from the Fund during the
Fund's prior taxable
year. Shareholders should consult their plan document or tax
advisors about the
tax consequences associated with participating in a
Qualified Plan or UIT.
9
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Purchase, Exchange and Redemption of Shares
- ------------------------------------------------------------
- --------------------
Purchases of the Fund's Class Z shares must be made in
accordance with the
terms of a Qualified Plan or Smith Barney UIT. Purchases are
effected at the net
asset value next determined after a purchase order is
received by Smith Barney
(the "trade date"). Payment is due to Smith Barney on the
third business day
(the "settlement date") after the trade date. Investors who
make payment prior
to the settlement date may designate a temporary investment
(such as a money
market fund of the Smith Barney Mutual Funds) for such
payment until settlement
date. The Fund reserves the right to reject any purchase
order and to suspend
the offering of shares for a period of time. There are no
minimum investment
requirements for Class Z shares; however, the Fund reserves
the right to vary
this policy at any time.
Purchase orders received by the Fund or Smith Barney
prior to the close of
regular trading on the NYSE, currently 4:00 p.m., New York
time, on any day that
the Fund calculates its net asset value, are priced
according to the net asset
value determined on that day. See "Valuation of Shares."
Certificates for Fund
shares are issued upon request to the Fund's transfer agent.
Qualified Plans may redeem their shares on any day the
Fund calculates its
net asset value. See "Valuation of Shares." Redemption
requests received in
proper form prior to the close of regular trading on the
NYSE are priced at the
net asset value per share determined on that day. Redemption
requests received
after the close of regular trading on the NYSE are priced at
the net asset value
as next determined. Shareholders acquiring Class Z shares
through a Smith Barney
Qualified Plan or a Smith Barney UIT should consult the
terms of their
respective plans for redemption provisions.
Holders of Class Z shares should consult their
Qualified Plans for
information about available exchange options.
- ------------------------------------------------------------
- --------------------
Performance
- ------------------------------------------------------------
- --------------------
TOTAL RETURN
From time to time the Fund may include its total
return, average annual
total return and current dividend return in advertisements
and/or other types of
sales literature. These figures are based on historical
earnings and are not
intended to indicate future performance. Total return is
computed for a
specified period of time assuming deduction of the maximum
sales charge, if any,
from the initial amount invested and reinvestment of all
income dividends and
capital gains distributions on the reinvestment dates at
prices calculated as
stated in this Prospectus, then dividing
10
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Performance (continued)
- ------------------------------------------------------------
- --------------------
the value of the investment at the end of the period so
calculated by the
initial amount invested and subtracting 100%. The standard
average annual total
return, as prescribed by the SEC, is derived from this total
return, which
provides the ending redeemable value. Such standard total
return information may
also be accompanied with nonstandard total return
information for differing
periods computed in the same manner but without annualizing
the total return or
taking sales charges into account. The Fund calculates
current dividend return
by annualizing the most recent monthly distribution and
dividing by the net
asset value on the last day of the period for which current
dividend return is
presented. The Fund's current dividend return may vary from
time to time
depending on market conditions, the composition of its
investment portfolio and
operating expenses. These factors and possible differences
in the methods used
in calculating current dividend return should be considered
when comparing the
Fund's current return to yields published for other
investment companies and
other investment vehicles. The Fund may also include
comparative performance
information in advertising or marketing its shares. Such
performance information
may include data from Lipper Analytical Services, Inc. and
other financial
publications.
- ------------------------------------------------------------
- --------------------
Management of the Fund
- ------------------------------------------------------------
- --------------------
BOARD OF DIRECTORS
Overall responsibility for management and supervision
of the Fund rests
with the Fund's Board of Directors. The Directors approve
all significant
agreements between the Fund and companies that furnish
services to the Fund,
including agreements with the Fund's distributor, investment
adviser,
administrator, custodian and transfer agent. The day-to-day
operations of the
Fund are delegated to the Fund's investment adviser and
administrator. The
Statement of Additional Information contains background
information regarding
each Director and executive officer of the Fund.
INVESTMENT ADVISER-SBMFM
SBMFM, located at 388 Greenwich Street, New York, New
York 10013, serves as
the Fund's investment adviser. SBMFM is a wholly owned
subsidiary of Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly
owned subsidiary of
Travelers Group Inc. ("Travelers"), a diversified financial
services holding
company engaged, through its subsidiaries, principally in
four business
segments: Investment Services, Consumer Finance Services,
Life Insurance
Services and
11
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Management of the Fund (continued)
- ------------------------------------------------------------
- --------------------
Property & Casualty Insurance Services. SBMFM (through
predecessor entities) has
been in the investment counseling business since 1940 and
renders investment
advice to a wide variety of individual, institutional and
investment company
clients that had aggregate assets under management as of
September 30, 1996, in
excess of $77 billion.
Subject to the supervision and direction of the Fund's
Board of Directors,
SBMFM manages the Fund's portfolio in accordance with the
Fund's stated
investment objective and policies, makes investment
decisions for the Fund,
places orders to purchase and sell securities and employs
professional portfolio
managers. For investment advisory services rendered the Fund
pays SBMFM a fee at
the annual rate of .60% of the value of the Fund's average
daily net assets.
PORTFOLIO MANAGEMENT
Richard Freeman, a Managing Director of Smith Barney,
is primarily
responsible for management of the Fund's assets. Mr. Freeman
has served in this
capacity since November 1983, and manages the day-to-day
operations of the Fund,
including making all investment decisions.
Management's discussion and analysis, and additional
performance
information regarding the Fund during the fiscal year ended
August 31, 1996 is
included in the Annual Report dated August 31, 1996. A copy
of the Annual Report
may be obtained upon request and without charge from a Smith
Barney Financial
Consultant or by writing or calling the Fund at the address
or phone number
listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and
oversees all aspects of
the Fund's administration. For administration services
rendered to the Fund, the
Fund pays SBMFM a fee at the annual rate of .20% of the
value of the Fund's
average daily net assets.
DISTRIBUTOR-SMITH BARNEY
Smith Barney is located at 388 Greenwich Street, New
York, New York 10013,
and serves as the Fund's distributor. Smith Barney is a
wholly owned subsidiary
of Travelers.
12
<PAGE>
Smith Barney
Aggressive Growth Fund Inc. -- Class Z Shares
- ------------------------------------------------------------
- --------------------
Additional Information
- ------------------------------------------------------------
- --------------------
The Fund was incorporated in the State of Maryland on
May 12, 1983 and is
registered with the SEC as a diversified, open-end
management investment
company.
The Fund offers shares of common stock currently
classified into five
Classes, A, B, C, Y and Z. Each Class represents an
identical pro rata interest
in the Fund's investment portfolio. As a result, the Classes
have the same
rights, privileges and preferences, except with respect to:
(a) the designation
of each Class; (b) the effect of the respective sales
charges, if any, for each
Class; (c) the distribution and/or service fees borne by
each Class pursuant to
plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act
of 1940, as amended; (d) the expenses allocable to each
Class; (e) voting rights
on matters exclusively affecting a single Class; (f) the
exchange privileges of
each Fund's Class; and (g) the conversion feature of shares
of Class B. The
Board of Directors does not anticipate that there will be
any conflicts among
the interests of the holders of the different Classes. The
Directors, on an
ongoing basis, will consider whether any such conflict
exists and, if so, take
appropriate action.
The Fund does not hold annual shareholder meetings.
There normally will be
no meeting of shareholders for the purpose of electing
Directors unless and
until such time as less than a majority of the Directors
holding office have
been elected by shareholders. The Directors will call a
meeting for any purpose
upon written request of shareholders holding at least 10% of
the Fund's
outstanding shares and the Fund will assist shareholders in
calling such a
meeting as required by the 1940 Act. When matters are
submitted for shareholder
vote, shareholders of each Class will have one vote for each
full share owned
and a proportionate, fractional vote for any fractional
share held of that
Class. Generally, shares of the Fund will be voted on a Fund-
wide basis on all
matters except matters affecting only the interests of one
or more of the
Classes.
The Fund sends its shareholders a semi-annual report
and an audited annual
report, which include listings of the investment securities
held by the Fund at
the end of the reporting period.
PNC Bank is located at 17th and Chestnut Streets,
Philadelphia, PA 19103,
and serves as custodian of the Fund's investments.
First Data, formerly known as The Shareholders Services
Group, Inc. is
located at Exchange Place, Boston, Massachusetts 02109, and
serves as the Fund's
transfer agent.
Shareholders may seek information regarding the Fund
from their Smith
Barney Financial Consultants.
13
<PAGE>
SMITH BARNEY
A Member of
TravelersGroup [LOGO]
Smith Barney
Aggressive
Growth
Fund Inc.
388 Greenwich Street
New
York, New York 10013
FD 01061 12/96
Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional
Information
December 30,
1996
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 December 30, 1996, as
amended or
supplemented from time to time, and should be read in
conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained
from any Smith Barney
Financial Consultant, or by writing or calling the Fund at
the address or
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.
TABLE OF CONTENTS
For ease of reference, the same section headings are used in
both the
Prospectus and this Statement of Additional Information,
except where shown
below:
Management of the
Fund........................................................
...............
......... 1
Investment Objective and Management
Policies..............................................
5
Purchase of
Shares......................................................
..................
................. 11
Redemption of
Shares......................................................
..................
............. 12
Distributor.................................................
...............
...................................... 13
Valuation of
Shares......................................................
..................
................ 14
Exchange
Privilege...................................................
..................
.................... 14
Performance Data (See in the Prospectus
"Performance'')................................ 15
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes'')................ 18
Additional
Information.................................................
...............
.................... 19
Financial
Statements..................................................
...............
...................... 20
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain
of the
organizations that provide services to the Fund. These
organizations are as
follows:
Name Service
Smith Barney Inc.
("Smith
Barney'')..................
...........................
.............. Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM'')..................................................
..............
.. Investment Adviser and
Administrator
PNC Bank, National Association ("PNC")......................
Custodian
First Data Investor Services Group, Inc. ("First
Data")........
Transfer Agent
These organizations and the functions they perform for
the Fund are
discussed in the Prospectus and in this Statement of
Additional Information.
Directors and Executive Officers of the Fund
The Directors and executive officers of the Fund,
together with information
as to their principal business occupations during the past
five years, are
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 (Age 56). 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 (Age 73). Private investor. His
address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Alger B. Chapman, Director (Age 65). 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 (Age 58). Professor, Graduate
School of Business
Administration, Harvard University. His address is Graduate
School of Business
Administration, Harvard University, Boston, Massachusetts
02163.
Frank G. Hubbard, Director (Age 61). Vice President of
S&S Industries;
Former 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.
*Heath B. McLendon, Chairman of the Board and
Investment Officer (Age 63).
Managing Director of Smith Barney, Chairman of the Board of
Smith Barney
Strategy Advisers Inc.and President of SBMFM; 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 (Age 54). President of Young Stuff
Apparel Group, Inc.
His address is 1407 Broadway, 6th Floor, New York, New York
10018.
John R. White, Director (Age 78). 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.
Jessica M. Bibliowicz, President (Age 36). Executive Vice
President of
Smith Barney; prior to 1994, Director of Sales and Marketing
for Prudential
Mutual Funds; prior to 1990, First Vice President, Asset
Management Division
of Shearson Lehman Brothers. Ms. Bibliowicz also serves as
President of 25
other mutual funds of the Smith Barney Mutual Funds. Her
address is 388
Greenwich Street, New York, New York 10013.
Richard A. Freeman, Managing Director of Smith Barney;
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, Senior Vice President and Treasurer.
Managing Director 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.
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 fiscal year ended August 31, 1996, the Directors of
the Fund were
paid the following compensation:
Aggregate
Compensation
Aggregate Compensation from
the Smith
Barney
Director (*) from the Fund**
Mutual Funds
Paul R. Ades (5).............................
$5,500..
$52,100
Herbert Barg (18).............................
$5,500
$106,225
Alger B. Chapman (6)....................
$5,000
$76,000
Dwight B. Crane (30).......................
$5,000
$142,425
Frank G. Hubbard (5)......................
$5,500
$52,100
+Allan R. Johnson (5).......................
$2,723
$26,875
Heath B. McLendon (42)
- -0-
-0-
Ken Miller (5) $5,000
$49,000
John White (5) $5,500
$52,000
_____________________
* Number of directorships/trusteeships held with other
mutual funds in the
Smith Barney Mutual Funds.
+Director Emeritus
Investment Adviser and Administrator-SBMFM
SBMFM 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 July 31, 1995.
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 Travelers Group 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 1996, 1995 and
1994 fiscal years,
the Fund paid $3,229,363, $1,829,883 and $1,494,432,
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
31, 1995. 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 who is employed by both
it and the Fund and
bears all expenses in connection with the performance of its
services.
As compensation 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 1996 fiscal period, the Fund paid
SBMFM $1,076,455
in administration fees.
The Fund bears expenses incurred in its operation,
including: taxes,
interest, brokerage fees and commissions, if any; fees of
Directors who are
not officers, directors, shareholders or employees of Smith
Barney, or SBMFM,
Securities and Exchange Commission (the "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 has agreed that if in any fiscal year the
aggregate expenses of the
Fund (including fees paid pursuant to the Advisory and
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
will, to the extent required by state law, reduce its
management fee 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 to reduce its fees in any year that such
excess expenses exceed
2.50% of the first $30 million of average net assets, 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 1996, 1995 and 1994
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 LLP, 345 Park Avenue, New
York, New York 10154, has been selected as the Fund's
independent auditor
to examine and report on the Fund's financial statements and
highlights
for the fiscal year ending August 31, 1997.
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 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.
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
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.
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 such
short-term
credits as are necessary for the clearance of purchases and
sales of
portfolio securities) or sell any securities short (except
against
the box). For purposes of this restriction, the deposit or
payment
by the Fund of initial or maintenance margin in connection
with
futures contracts and related options and options on
securities is
not considered to be the purchase of a security on margin.
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, and guarantors of underlying assets.)
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 1996, 1995 and 1994 fiscal years, the Fund's
portfolio
turnover rates were 13%, 44%, 11% 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 1996, 1995
and 1994 fiscal
years, the Fund paid $147,324, $210,164 and $34,996,
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 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 that charged
by Smith Barney to comparable unaffiliated customers in
similar transactions.
In addition, under SEC rules, 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 1996, 1995 and
1994 fiscal
years, the Fund paid $3,000, $23,768 and $3,800,
respectively, in brokerage
commissions to Smith Barney and/or Shearson Lehman Brothers.
For the 1996
fiscal year, Smith Barney received 2% of the brokerage
commissions paid by the
Fund and effected 1.09% 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 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 into
this Statement of
Additional Information.
Redemption of Shares
The right of redemption may be suspended or the date of
payment postponed
(a) for any period during which the NYSE is closed (other
than for customary
weekend or holiday closings), (b) when trading in markets
the Fund normally
utilizes is restricted, or an emergency 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
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
First Data as agent for Withdrawal Plan members. All
dividends and
distributions on shares in the Withdrawal Plan are
reinvested automatically at
net asset value in additional shares of the Fund. A
shareholder who purchases
shares directly through First Data may continue to do so and
applications for
participation in the Withdrawal Plan must be received by
First Data no later
than the eighth day of the month to be eligible for
participation beginning
with that month's withdrawal. For additional information,
shareholders should
contact a Smith Barney Financial Consultant.
Distributor
Smith Barney serves as the Fund's distributor on a best
efforts basis
pursuant to a written agreement (the "Distribution
Agreement"), which was most
recently approved by the Fund's Board of Directors on July
31, 1995. For the
1996, 1995 and 1994 fiscal years, Smith Barney or its
predecessor, Shearson
Lehman Brothers, received $834,000, $476,500 and $242,673,
respectively, in
sales charges for the sale of Class A shares, and did not
reallow any portion
thereof to dealers. For the fiscal years ended August 31,
1994, August 31,
1995 and August 31, 1996, Smith Barney or its predecessor
Shearson Lehman
Brothers received from shareholders $101,447, $154,700 and
$237,000,
respectively, in CDSC on the redemption of Class B shares.
When payment is made by the investor before settlement
date, unless
otherwise directed by the investor, the funds will be held
as a free credit
balance in the investor's brokerage account and Smith Barney
may benefit from
the temporary use of the funds. The investor may designate
another use for the
funds prior to settlement date, such as an investment in a
money market fund
(other than Smith Barney Exchange Reserve Fund) of the Smith
Barney Mutual
Funds. If the investor instructs Smith Barney to invest the
funds in a Smith
Barney money market fund, the amount of the investment will
be included as
part of the average daily net assets of both the Fund and
the Smith Barney
money market fund, and affiliates of Smith Barney that serve
the funds in an
investment advisory 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, 1996, Smith Barney
incurred
distribution expenses totaling approximately $4,365,779,
consisting of
approximately $188,627 for advertising $15,474 for printing
and mailing
prospectuses, $1,370,314 for support services and overhead
expenses,
$2,702,135 to Smith Barney to compensate financial
consultants and $89,229 for
accruals for interest on the excess of Smith Barney expenses
incurred in
distribution of the Fund's shares over the sum of the
distribution fees and
CDSC received by Smith Barney.
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 fiscal year ended August 31, 1996, the Fund
incurred $716,789 and
$326,765 in service fees for Class A and Class B shares,
respectively. For
the fiscal years ended August 31, 1994, 1995 and 1996, the
Fund incurred $366,
$45,155 and $181,560, respectively in service fees for its
Class C shares.
For the fiscal years ended August 31, 1994, 1995 and 1996,
the Fund incurred
$241,578, $1,095 and $453,832 for Class B shares and
$135,465, $980,293 and
$544,679 for 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, 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
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, except that 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 First Data
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
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:
(12.05)% for the one-year period beginning on
September 1, 1995 through August 31, 1996;
9.85% per annum during the five-year period beginning on
September 1, 1991
through August 31, 1996; and
11.69% per annum during the ten-year period beginning on
September 1, 1986
through August 31, 1996.
Class B's average annual total return was as follows
for the periods
indicated:
(12.75)% for the one-year period beginning on September 1,
1995 through
August 31, 1996; and
11.75% per annum from November 6, 1992 through August 31,
1996.
Class C's average annual total return was as follows
for the periods
indicated:
(9.04)% for the one-year period beginning on September 1,
1995 through August
31, 1996; and
13.16% per annum from May 13, 1993 through August 31,
1996.
Class Z's average annual total return was as follows
for the periods
indicated:
5.21% for the one-year period beginning on September 1,
1995 through August
31, 1996;and
15.96% per annum from November 6, 1992 through August 31,
1996.
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.
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:
(7.44)% for the one-year period from September 1, 1995
through August 31,
1996.
68.39% for the five-year period from September 1, 1991
through August
31,1996; and
217.81% for the ten-year period from September 1, 1986
through August 31,
1996.
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 (12.05)%, 59.96%
and 202.01%, respectively.
Class B's aggregate total return was as follows for the
periods indicated:
(8.16)% for one-year period from September 1, 1995 through
August 31, 1996;
and
54.83% for the period from November 6, 1992 through
August 31, 1996.
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 (12.75)% and 52.83%,
respectively.
Class C's aggregate total return was as follows for the
periods indicated:
(8.12)% for the one-year period from September 1, 1995
through August 31,
1996; and
50.44% for the period from May 13, 1993 through August
31, 1996.
Class Z's aggregate total return was as follows for the
periods indicated:
5.21% for the one-year period from September 1, 1995
through August 31,
1996; and
82.66% for the period from November 6, 1992 through
August 31, 1996.
Performance will vary from time to time depending upon
market conditions,
the composition of the Fund's portfolio, operating expenses
and the expenses
exclusively attributable to the Class. Consequently, any
given performance
quotation should not be considered representative of the
Class' performance
for any specified period in the future. Because performance
will vary, it may
not provide a basis for comparing an investment in the Class
with certain bank
deposits or other investments that pay a fixed yield for a
stated period of
time. Investors comparing the Class' performance with that
of other mutual
funds should give consideration to the quality and maturity
of the respective
investment companies' portfolio securities.
It is important to note that the total return figures
set forth above are
based on historical earnings and are not intended to
indicate future
performance.
Taxes
The following is a summary of 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.
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 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.
PNC Bank is located at 17th Chestnut Street,
Philadelphia, PA 19103, and
serves as the custodian of the Fund. Under its agreement
with the Fund, PNC
Bank holds the Fund's portfolio securities and keeps all
necessary accounts
and records. For its services, PNC Bank receives a monthly
fee based upon the
month-end market value of securities held in custody and
also receives
securities transaction charges. PNC Bank 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.
First Data is located at Exchange Place, Boston,
Massachusetts 02109, and
serves as the Fund's transfer agent. Under the transfer
agency agreement,
First Data maintains the shareholder account records for the
Fund, handles
certain communications between shareholders and the Fund and
distributes
dividends and distributions payable by the Fund. For these
services, First
Data receives a monthly fee computed on the basis of the
number of shareholder
accounts it maintains for the Fund during the month and is
reimbursed for out-
of-pocket expenses.
Financial Statements
The Fund's Annual Report for the fiscal year ended
August 31, 1996,
accompanies this Statement of Additional Information and is
incorporated
herein by reference in its entirety.
Smith Barney
Aggressive
Growth Fund Inc.
Statement of
Additional
Information
December 28, 1995
Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, NY 10013
...................................Fund
........................
SMITH BARNEY
A Member of
Travelers Group
20
u:\joachim\AGG..SAID95
19
u:\joachim\AGG.SAID95
u:\joachim\AGG.SAID95
Distributor
22. Calculation of Performance Data Performance Data
23. Financial Statements
Financial Statements
PROSPECTUS
SMITH BARNEY AGGRESSIVE GROWTH FUND INC. PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Reports for the
fiscal
year ended August 31, 1996 and the report of Independent
Auditors dated October 15, 1996, are incorporated by
reference
to the definitive 30b2-1 filed on November 8, 1996 as
accession
# 91155 96-451
(b) Exhibits
All references are to the Registrant's
registration statement on Form N-1A (the "Registration
Statement") as filed with the Securities and Exchange
Commission (the "SEC") on June 5, 1983 (File Nos. 284199 and
811-3762).
(1) (a) Registrant's Articles of Incorporation dated May
12, 1983 and Articles of Amendment dated May 27, 1983,
October 3, 1983, May 20, 1988, November 5, 1992 and July 30,
1993, respectively, are incorporated by reference to
PostEffective Amendment No. 15 to the Registration Atatedment
filed on October 28, 1993 (Post-Effective Amendment No. 15
to the Registration Statement filed on October 28, 1993
(Post Effective Amendment No. 15).
(b) Articles of Amendment dated October 14, 1994,
Form of Articles Supplementary and Form of
Articles of Amendment filed December 28,1995 (PostEffective
Amendment No. 18).
(2) (a) Registrant's By-Laws are incorporated by reference
to the Registration Statement.
(b) Amendments dated January 27, 1987, October
22, 1987 and October 20, 1988 to By-Laws are incorporated by
reference to Post-Effective Amendment No. 9.
(3) Not Applicable.
(4) Registrant's form of stock certificates for Class A,
Class B, Class C and Class Y shares are incorporated by
reference to Post-Effective Amendment No. 14 to the
Registration Statement filed on October
23, 1992 (Post Effective Amendment No.14). to the
Registration Statement.
(5) Investment Advisory Agreement between the Registrant
and
Smith Barney Asset Management Division of Smith Barney
Advisers, Inc. is incorporated by reference to Post
Effective Amendment No. 15.
(6) Distribution Agreement between the Registrant and
Smith
Barney Inc. is incorporated by reference to the
PostEffective Amendment No. 15.
(7) Not Applicable.
(8) Custodian Agreement between the Registrant and PNC
Bank, National Association ("PNC Bank") is incorporated by
reference to Pre-Effective Amendment No. 1.
(9) (a) Administration Agreement dated April 21, 1994,
between the Registrant and Smith Barney Advisers, Inc. will
be filed by Amendment.
(b)
Sub-Administration Agreement dated April 24,
1994 between the Registrant and PNC Bank will be filed by
Amendment.<R/>
(c) Transfer Agency Agreement dated August 2, 1993,
between the Registrant and First Data Investors Services
Group, Inc., (formerly The Shareholder Services Group, Inc.),
is incorporated by reference to PostEffective Amendment
No.16,
filed on January 1, 1994 (Post-Effective Amendment
No.16).
(10) Opinion of Robert A. Vegliante Assistant
Secretary of the Fund filed with the Registrants Rule 24F-2
Notice is incorporated by reference.
(11) Consent of Independent Auditors is filed herein. (12)
Not Applicable.
(13) Purchase Agreement between the Registrant and Shearson
Lehman BrothersInc. is incorporated by reference to Pre
Effective
Amendment No. 1.
(14) Not Applicable.
(15) Amended Services and Distribution Plans pursuant
to Rule 12b- 1 between the Registrant and Smith Barney
Inc. (Smith Barney) filed on December 28, 1995 (Post
Effective Amendment No. 18).
(16) Performance Data is incorporated by reference to
PostEffective Amendments No. 9.
(17) Financial Data Schedule pursuant to Rule 483 of
the Securities Act of 1933 is filed herewith.
(18) Plan pursuant to Rule 18f-3 is filed on December 28,
1995 (Post-Effective Amendment No. 18) Item 25
Persons Controlled by or Under Common Control with
Registrant
None.
Item 26 Number of Holders of Securities
(1) (2)
Number of Record Holders by
Class Title of Class 48,227 as of December 13
1996
Common Stock
$.001 per share Class A [24,740] Class B [17,690]
Class C [5,789] Class Y [5] Class Z [3]
Item 27. Indemnification
Under the Registrants corporate charter and Maryland law,
directors and officers of the Registrant are not liable to
the Registrant or its stockholders except for receipt of an
improper personal benefit or active and deliberate
dishonesty. The Registrants corporate charter requires that
it indemnify its directors and offiers against liabilities
unless it is proved that a director or officer acted in bad
faith or with active and deliberate dishonesty or received
an improper personal benefit. These indemnification
provisions are subject to the limitation under the
Investment Company Act of 1940, as amended, that no director
or officer may be protected against liability for willful
misfeasance, bad faith, gross negligence or reckless
disregard for the duties of his office.
Item 28(a) Business and Other Connections of
Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management
Inc. ("SBMFM")
SBMFM, formerly known as Smith, Barney Advisers, Inc. SBMFM
was incorporated in December 1968 under the laws of the
State of Delaware. SBMFM is a wholly owned subsidiary of
Smith Barney Holdings Inc. ("Holdings") (formerly known as
Smith Barney Shearson Holdings Inc.), which in turn is
a wholly owned subsidiary of Travelers Group Inc. (formerly
known as Primerica Corporation) ("Travelers"). SBMFM is
registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act"). The
list required by this Item 28 of officers and directors of
SBMFM together with information as to any other business,
profession, vocation or employment of a substantial
nature engaged in by such officers and directors during
the past two
fiscal years, is incorporated by reference to Schedules A and
D of FORM ADV filed by SBMFM pursuant to the Advisers Act
(SEC File No. 801-8314). Prior to
the close of business on November 7, 1994, Greenwich Street
Advisors served as investment adviser. Greenwich Street
Advisors, through its predecessors, has been in the
investment counseling business since 1934 and is a
division of Mutual Management Corp. ("MMC"). MMC was
incorporated in 1978 and is a wholly owned subsidiary of
Holdings, which is in turn a wholly owned subsidiary of
Travelers.
Prior to the close of business on July 30, 1993 (the
"Closing"), Shearson Lehman Advisors, a member of the Asset
Management Group of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers"), served as the
Registrant's investment adviser. On the Closing,
Travelers and Smith Barney Inc. (formerly known as
Smith Barney Shearson Inc.) acquired the domestic
retail brokerage and asset management business of
Shearson Lehman Brothers, which included the
business of the Registrant's prior investment
adviser. Shearson Lehman Brothers was a wholly
owned subsidiary of Shearson Lehman Brothers
Holdings Inc. ("Shearson Holdings"). All of the
issued and outstanding common stock of Shearson
Holdings representing 92% of the voting stock) was
held by American Express Company. Item 29.
Principal Underwriters
Smith Barney Inc. currently acts as distributor for
(a) Smith Barney Managed Municipals Fund Inc.
Smith Barney California Municipals Fund
Inc. Smith Barney Massachusetts Municipals
Fund Smith Barney Global Opportunities
Fund Smith Barney Aggressive Growth
Fund Inc. Smith Barney Appreciation
Fund Inc. Smith Barney Principal
Return Fund Smith Barney Income Funds
Smith Barney Equity Funds
Smith Barney Investment Funds Inc.
Smith Barney Natural Resources Fund
Inc. Smith Barney Telecommunications
Trust Smith Barney Arizona Municipals
Fund Inc.
Smith Barney New Jersey Municipals Fund Inc. The
USA High Yield Fund N.V.
Garzarelli Sector Analysis Portfolio
N.V. Smith Barney Fundamental Value Fund
Inc. Smith Barney Series Fund
Consulting Group Capital Markets Funds
Smith Barney Investment Trust
Smith Barney Adjustable Rate Government
Income Fund Smith Barney Oregon Municipals
Fund Smith Barney Funds, Inc.
Smith Barney Muni Funds
Smith Barney World Funds, Inc. Smith Barney
Money Funds, Inc.
Smith Barney Municipal Money Market Fund, Inc. Smith
Barney Variable Account Funds
Smith Barney U.S. Dollar Reserve Fund
(Cayman) Worldwide Special Fund, N.V.
Worldwide Securities Limited (Bermuda)
Smith Barney International Fund (Luxembourg)
and various series of unit investment
trusts.
Item 29 with respect to each director, officer and partner of
Smith Barney is incorporated by reference to Schedule A of
FORM BD filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 812-8510).
Item 30 Location of Accounts and Records
(1) Smith Barney Aggressive Growth
Fund Inc.
388 Greenwich Street
New York, New York 10013 (2)
Smith Barney Mutual
Funds
Management Inc. 388 Greenwich Street New York,
New York 10013
(3) PNC Bank, National
Association 17th and Chestnut Streets
Philadelphia, PA, 19103 (4) First Data
Investor Services
Group,
Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31 Management Services
Not Applicable.
Item 32 Undertakings
(a) The Registrant hereby undertakes to
call
a meeting of its shareholders for the purpose of
voting
upon the question of removal of a trustee or
trustees
of Registrant when requested in to do so by the holders
of
at least 10% of Registrant's outstanding shares.
Registrant
undertakes further, in connection with the meeting, to
comply with the provisions of Section 16(c) of the 1940 Act
relating to communications
with the shareholders of certain common-law trusts.
(b) The Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company
Act of
1940, as amended, the Registrant, SMITH BARNEY
AGGRESSIVE
GROWTH
FUND INC., has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of
New York, State of New York on the 20th day of December ,
1996.
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
By: /s/ Heath B.McLendon*
Heath B. McLendon, Chairman of the
Board
Pursuant to the requirements of the Securities Act of
1933, as amended, this Post-Effective Amendment to
the Registration Statement has been signed below by the
following persons
in
the capacities and
on the dates
indicated.
Signature Title
Date
/s/ Heath B. McLendon* Chairman of
the
Board
12/20/96
Heath B. McLendon (Chief Executive
Officer)
/s/ Lewis E. Daidone* Senior Vice
President
and 12/20/96
Lewis E. Daidone Treasurer (Chief
Financial
and Accounting Officer) /s/ Paul R
Ades* Director
12/20/96
Paul R Ades
/s/ Herbert Barg* Director
12/20/96
Herbert Barg
/s/ Alger B. Chapman* Director
12/20/96
Alger B. Chapman
/s/ Dwight B. Crane* Director 12/20/96
Dwight B. Crane
/s/ Frank Hubbard* Director
12/20/96
Frank Hubbard
/s/ Ken Miller* Director
12/20/96
Ken Miller
/s/ John F. White* Director
12/20/96
John F. White
* Signed by Heath B. McLendon, their duly
authorized
attorney-in-fact, pursuant to power of attorney dated
September 8, 1994.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBITS
Exhibit No. Description of Exhibits
Consent of Independent Auditors Financial Data
Schedule
Cover Letter to SEC
Independent Auditors Consent
To the Shareholders and Board of Directors of
Smith Barney Aggressive Growth Fund Inc.
We consent to the use of our report dated October 15, 1996 incorporated herein
by reference
and to the references to our Firm under the headings Financial Highlights in
the Prospectuses
and Counsel and Auditors in the Statement of Additional Information.
KPMG PEAT MARWICK LLP
New York, New York
December 20, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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