As filed with the Securities and Exchange Commission on
November 25, 1998
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
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 21
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 22
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(800) 451-2010
(Registrant's Telephone Number, including Area Code)
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)
Continuous
(Approximate Date of Proposed Offering)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to
Rule 485(b)
[X] on November 30, 1998 pursuant to Rule
485(b)
[ ] 60 days after filing pursuant to paragraph
(a)(1) of Rule 485(a)
[ ] On (date) pursuant to paragraph (a)(1)of
Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
of Rule 485
[ ] On (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box
[ ] This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Title of Securities being Registered: Common Stock
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
Fund; Distributor; Additional
Information
5A. Management's Discussion of Management of the
Fund
Performance
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 Statement of Additional
Item No. and Caption 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 Holders of
Securities
of the Fund
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
PART A
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Aggressive
Growth
Fund Inc.
NOVEMBER 30, 1998
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
PROSPECTUS NOVEMBER 30, 1998
Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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 and utility companies and 40 financial issues. Companies whose earnings
grow at a rate more rapid 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 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 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
Additional Information dated November 30, 1998, 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 Salomon 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.
CFBDS, INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 10
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 15
- -------------------------------------------------
VALUATION OF SHARES 18
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 19
- -------------------------------------------------
PURCHASE OF SHARES 20
- -------------------------------------------------
EXCHANGE PRIVILEGE 27
- -------------------------------------------------
REDEMPTION OF SHARES 30
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 33
- -------------------------------------------------
PERFORMANCE 33
- -------------------------------------------------
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 also invest in convertible securi-
ties, preferred stocks and warrants. See "Investment Objective and Management
Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class L
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
$15,000,000. 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 Salomon Smith Barney Inc. ("Salomon
Smith Barney") and its affiliates and (b) unit investment trusts ("UITs")
sponsored by Salomon 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 of
$500,000 or more will be made at net asset value with no initial 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 L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00% of the purchase price. 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 L shares within 12 months of purchase. The CDSC may be waived for
certain redemptions. Until June 22, 2001, purchases of Class L shares by
investors who were holders of Class C shares on the Fund on June 12, 1998 will
not be subject to the 1% front-end sales charge. The Class L shares' distribu-
tion fee may cause that Class to have higher expenses and pay lower dividends
than Class A shares. Purchases of Class L shares, which when combined with
current holdings of Class L 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 $15,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to any
service or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended duration of his
or her investment. Shareholders who are planning to establish a program of
regular investment may wish to consider Class A shares; as the investment
accumulates shareholders may qualify for reduced sales charges and the shares
are subject to lower ongoing expenses over the term of the investment. As an
investment alternative, Class B shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of this Class. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case. Finally, Class L Shares which have a lower upfront sales charge
but are subject to higher distribution fees than Class A Shares, are suitable
for investors who are investing or intending to invest an amount which would
receive a substantial sales charge discount and who have a short-term or unde-
termined time frame.
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 L 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 L shares to investors with longer-term investment outlooks.
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
of $500,000 or more 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 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 other Smith Barney Mutual Funds 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 L shares, purchasers eligible to pur-
chase Class A shares at net asset value or at a reduced sales charge should
consider doing so.
Salomon Smith Barney Financial Consultants may receive different compensation
for selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class L shares is the same as that of
the initial sales charge.
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. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class L shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
DISTRIBUTOR The Fund has entered into an agreement with CFBDS, Inc. ("CFBDS")
to distribute the Fund's shares.
PURCHASE OF SHARES Investors may purchase shares from a Salomon Smith Barney
Financial Consultant, an investment dealer in the selling group or a broker
that clears securities through Salomon Smith Barney. (An investment dealer in
the selling group and a broker that clears securities through Salomon Smith
Barney are collectively referred to as "Dealer Representatives.") In addition,
certain investors, including qualified retirement plans and investors purchas-
ing through certain Dealer Representatives, may purchase shares directly from
the Fund through the Fund's transfer agent, First Data Investors Services
Group. ("First Data"). See "Purchase of Shares."
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L 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 $15,000,000. 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 L shares and the minimum subsequent
investment requirement for all Classes is $25. There is no minimum investment
requirement in Class A for unitholders who invest distributions from a UIT
sponsored by Salomon Smith Barney. The minimum investment requirements for pur-
chases of Fund shares through the Systematic Investment Plan are described
below. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares. The minimum initial investment require-
ment for Class A, Class B and Class L shares and the minimum subsequent invest-
ment requirement for all Classes 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. (the "NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC") (formerly known as Smith
Barney Mutual Funds Management Inc.), serves as the Fund's investment adviser
and administrator. MMC provides investment advisory and management services to
investment companies affiliated with Salomon Smith Barney. MMC is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of Citigroup Inc. ("Citigroup"). Citigroup busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment banking and trading--and use diverse channels to make them available to
consumer and corporate customers around the world. Among these businesses are
Citibank, Commercial Credit, Primerica Financial Services, Salomon Smith Bar-
ney, SSBC Asset Management, Travelers Life & Annuity, and Travelers Property
Casualty. 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 at the respective
net asset value next determined. 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 Salomon Smith Barney Financial Consultants. See "Valuation of Shares."
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are paid
monthly. Distributions of net realized capital gains, if any, are paid annual-
ly. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
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."
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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>
AGGRESSIVE GROWTH FUND CLASS A CLASS B CLASS L* 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 1.00% 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 0.16% 0.22% 0.17% 0.05%
- ------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.21% 2.02% 1.97% 0.85%
- ------------------------------------------------------------------------------
</TABLE>
* Class L shares were previously named Class C shares. For Shareholders who
owned Class C shares of the Fund, Class L shares may be purchased without
including the initial sales charge until June 22, 2001.
** Purchases of Class A shares of $500,000 or more 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 of purchase.
*** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class L shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class L 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 Salomon Smith Barney
AssetOne Program will be subject to an annual asset-based fee, payable quarter-
ly, 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 this program. For more
information, please call your Salomon 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 lower or no charges, depending on the amount purchased and, in the case of
Class B, Class L 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."
Salomon Smith Barney receives an annual 12b-1 service fee of 0.25% of the value
of average daily net assets of Class A shares. Salomon 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% distri-
bution fee and a 0.25% service fee. For Class L shares, Salomon Smith Barney
receives an annual 12b-1 fee of 1.00%
8
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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>
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.................................. $62 $86 $113 $189
Class B.................................. 71 93 119 214
Class L.................................. 40 71 115 237
Class Y.................................. 9 27 47 105
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A.................................. $62 $86 $113 $189
Class B.................................. 21 63 109 214
Class L.................................. 30 71 115 237
Class Y.................................. 9 27 47 105
- ------------------------------------------------------------------------------
</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.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for each year in the six-year period ended August
31, 1998 has been audited by KPMG Peat Marwick LLP, independent auditors,
whose report thereon appears in the Fund's Annual Report dated August 31,
1998. The following information for each of the years in the seven-year period
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 1998 Annual
Report, which is incorporated by reference into the Statement of Additional
Information.
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY AGGRESSIVE
GROWTH FUND 1998 1997 1996 1995 1994 1993(1) 1992(1) 1991(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $41.80 $28.76 $33.53 $26.76 $23.59 $18.94 $20.12 $16.16
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment loss (0.42) (0.33) (0.31) (0.34) (0.32) (0.21) (0.07) (0.05)
Net realized and
unrealized gain (loss) (5.64) 14.18 (2.09) 8.48 3.49 4.86 (0.35) 4.95
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations (6.06) 13.85 (2.40) 8.14 3.17 4.65 (0.42) 4.90
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains (1.96) (0.81) (2.37) (1.37) -- -- (0.76) (0.94)
- -------------------------------------------------------------------------------------------------------------
Total Distributions (1.96) (0.81) (2.37) (1.37) -- -- (0.76) (0.94)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $33.78 $41.80 $28.76 $33.53 $26.76 $23.59 $18.94 $20.12
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN++ (15.16)% 49.11% (7.44)% 31.95% 13.44% 24.55% (2.42)% 31.97%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $296,376 $333,877 $252,531 $292,402 $180,917 $150,471 $181,459 $144,587
- -------------------------------------------------------------------------------------------------------------
RATIOS TO
AVERAGE
NET ASSETS:
Expenses 1.21% 1.21% 1.30% 1.37% 1.42%* 1.34% 1.05% 1.17%
Net investment loss (0.97) (0.93) (0.97) (1.05) (1.23) (1.01) (0.31) (0.24)
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO
TURNOVER
RATE 7% 6% 13% 44% 11% 13% 3% 23%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
* The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense would have been 1.43%.
++ Total return indicated does not reflect any applicable sales charge.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY AGGRESSIVE GROWTH FUND 1990(1) 1989(1)
- -----------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $19.25 $13.68
- -----------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (0.02) 0.02
Net realized and unrealized gain (loss) (1.02) 5.98
- -----------------------------------------------------------
Total Income (Loss) From Operations (1.04) 6.00
- -----------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.02) --
Net realized gains (2.03) (0.43)
- -----------------------------------------------------------
Total Distributions (2.05) (0.43)
- -----------------------------------------------------------
NET ASSET VALUE, END OF YEAR $16.16 $19.25
- -----------------------------------------------------------
TOTAL RETURN++ (6.38)% 44.97%
- -----------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $86,169 $94,228
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.13% 1.25%
Net investment income (loss) (0.11)% 0.15%
- -----------------------------------------------------------
PORTFOLIO TURNOVER RATE 14% 8%
- -----------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
++ Total return indicated does not reflect any applicable sales charge.
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY
AGGRESSIVE GROWTH FUND 1998 1997 1996 1995 1994 1993(1)(2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $40.17 $27.88 $32.82 $26.42 $23.46 $20.52
- ---------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.66) (0.56) (0.53) (0.33) (0.29) (0.30)
Net realized and
unrealized gain (loss) (5.43) 13.66 (2.04) 8.10 3.25 3.24
- ---------------------------------------------------------------------------------------
Total Income (Loss) From
Operations (6.09) 13.10 (2.57) 7.77 2.96 2.94
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains (1.96) (0.81) (2.37) (1.37) -- --
- ---------------------------------------------------------------------------------------
Total Distributions (1.96) (0.81) (2.37) (1.37) -- --
- ---------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR $32.12 $40.17 $27.88 $32.82 $26.42 $23.46
- ---------------------------------------------------------------------------------------
TOTAL RETURN+++ (15.90)% 47.94% (8.16)% 30.93% 12.62% 14.33%++
- ---------------------------------------------------------------------------------------
NET ASSETS,
END OF YEAR (000S) $185,808 $197,559 $136,322 $97,438 $49,741 $18,139
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2.02% 2.01% 2.07% 2.12% 2.22%* 2.18%+
Net investment loss (1.78) (1.73) (1.75) (1.80) (2.04) (1.86)+
- ---------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 7% 6% 13% 44% 11% 13%
- ---------------------------------------------------------------------------------------
</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 rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
* The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense would have been 2.23%.
+++Total return indicated does not reflect any applicable sales charge.
++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 L SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY
AGGRESSIVE GROWTH FUND 1998(1) 1997 1996 1995(2) 1994 1993(3)(4)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 40.22 $27.91 $32.84 $26.42 $23.47 $21.14
- ------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.68) (0.59) (0.53) (0.40) (0.17) (0.13)
Net realized and
unrealized gain (loss) (5.39) 13.71 (2.03) 8.19 3.12 2.46
- ------------------------------------------------------------------------------------
Total Income (Loss) From
Operations (6.07) 13.12 (2.56) 7.79 2.95 2.33
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains (1.96) (0.81) (2.37) (1.37) -- --
- ------------------------------------------------------------------------------------
Total Distributions (1.96) (0.81) (2.37) (1.37) -- --
- ------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR $ 32.19 $40.22 $27.91 $32.84 $26.42 $23.47
- ------------------------------------------------------------------------------------
TOTAL RETURN+++ (15.80)% 47.97% (8.12)% 31.01% 12.57% 11.02%++
- ------------------------------------------------------------------------------------
NET ASSETS,
END OF YEAR (000S) $65,312 $77,297 $63,786 $72,324 $367 $24
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.97% 1.97% 2.06% 2.12% 2.08%* 2.11%+
Net investment loss (1.73) (1.68) (1.75) (1.80) (1.90) (1.76)+
- ------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 7% 6% 13% 44% 11% 13%
- ------------------------------------------------------------------------------------
</TABLE>
(1) On June 12, 1998 Class C shares were renamed Class L shares.
(2) On November 7, 1994, the former Class D shares were renamed Class C
shares.
(3) For the period from May 13, 1993 (inception date) to August 31, 1993.
(4) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
* The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense would have been 2.09%.
+++Total return indicated does not reflect any applicable sales charge.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
13
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS Y SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SMITH BARNEY AGGRESSIVE GROWTH FUND 1998 1997 1996(1)
- -------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $42.07 $28.84 $31.86
- -------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.25) (0.16) (0.12)
Net realized and unrealized gain (loss) (5.73) 14.20 (0.53)
- -------------------------------------------------------------------------
Total Income (Loss) From Operations (5.98) 14.04 (0.65)
- -------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains (1.96) (0.81) (2.37)
- -------------------------------------------------------------------------
Total Distributions (1.96) (0.81) (2.37)
- -------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $34.13 $42.07 $28.84
- -------------------------------------------------------------------------
TOTAL RETURN (14.86)% 49.64% (10.13)%*++
- -------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $89,675 $158,146 $58,641
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.85% 0.84% 0.84%+
Net investment loss (0.62) (0.56) (0.49)+
- -------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 7% 6% 13%
- -------------------------------------------------------------------------
</TABLE>
(1) For the period from October 12, 1995 (inception date) to August 31, 1996.
* Performance for Class Y shares is for the period from January 31, 1996 to
August 31, 1996 since all Class Y shares were redeemed during November
1995 and new shares in Class Y were not purchased until January 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
14
<PAGE>
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 MMC 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, MMC 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.
MMC focuses its stock selection for the Fund on a diversified group of emerg-
ing 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, capi-
talization or asset deployment, government regulations or other external cir-
cumstances.
Although MMC 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 MMC 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 Poli-
cies 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 (the "1933 Act"). For that reason, the Fund may not be able to dispose
of
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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, repur-
chase agreements having a duration of more than five business days, and securi-
ties 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 stan-
dards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. Moreover, securities of many foreign compa-
nies may be less liquid and their prices more volatile than securities of com-
parable domestic companies. In addition, with respect to certain foreign coun-
tries, there is the possibility of expropriation, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund, includ-
ing 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 in a
manner consistent with applicable regulatory requirements. 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 instrumentali-
ties ("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 securi-
ties. 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 Salomon Smith Barney short-term instruments or by obtaining
yield in the form of interest paid by the borrower when U.S. government securi-
ties 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 firms deemed by MMC to be of good standing and will not be made unless,
in the judgment of MMC, 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 capital
gain but at the same time increases exposure to capital risk, as any gain in
the value of securi-
16
<PAGE>
INVESTMENT OBJECTIVE 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. MMC, 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.
Year 2000. The investment management services provided to the Fund by MMC and
the services provided to shareholders by Salomon Smith Barney depend
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
on the smooth functioning of their computer systems. Many computer software
systems in use today cannot recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were encoded and calculated. That
failure could have a negative impact on the Fund's operations, including the
handling of securities trades, pricing and accounting services. MMC and Salomon
Smith Barney have advised the Fund that they have been reviewing all of their
computer systems and actively working on necessary changes to their systems to
prepare for the year 2000 and expect that their systems will be compliant
before that date. In addition, MMC has been advised that the Fund's custodian,
transfer agent and accounting service agent that they are also in the process
of modifying their systems with the same goal. There can, however, be no assur-
ance that MMC, Salomon Smith Barney or any other service provider will be suc-
cessful, or that interaction with other non-complying computer systems will not
impair Fund services at that time.
In addition, the ability of issuers to make timely payments of interest and
principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as wide-
spread or as affecting trading markets.
Portfolio Transactions. Portfolio securities transactions on behalf of the
Fund are placed by MMC with a number of brokers and dealers, including Salomon
Smith Barney. Salomon Smith Barney has advised the Fund that in transactions
with the Fund, Salomon Smith Barney charges a commission rate at least as
favorable as the rate Salomon 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.
18
<PAGE>
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 L 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 L
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 L and Class Y shares.
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
19
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 advisers about the status of the Fund's dividends and distributions
for state and local tax liabilities.
PURCHASE OF SHARES
SALES CHARGE ALTERNATIVES
The following Classes of shares are available for purchase through this
Prospectus. See "Prospectus Summary--Alternative Purchase Arrangements" for a
discussion of factors to consider in selecting which Class of shares to pur-
chase.
Class A Shares. Class A shares are sold to investors at the public offering
price, which is the net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER'S
AS A % OF AS A % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT TRANSACTION 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 of $500,000 or more 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 Salomon Smith Barney, which compensates Salomon 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 L shares is waived. See "Deferred
Sales Charge Provisions" 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 1933 Act. 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 indi-
vidual and his or her immediate family, or a trustee or other fiduciary of a
single trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales charge but
are subject to a CDSC payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge of 1.00%
(which is equal to 1.01% of the amount invested) and are subject to a CDSC
payable upon certain redemptions. See "Deferred Sales Charge Provisions"
below. Until June 22, 2001 purchases of Class L shares by investors who were
holders of Class C shares of the Fund on June 12, 1998 will not be subject to
the 1% initial sales charge.
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Class Y Shares. Class Y shares are sold without an initial sales charge or
CDSC and are available only to investors investing a minimum of $15,000,000
(except purchases of Class Y shares by Smith Barney Concert Allocation
Series Inc., for which there is no minimum purchase amount).
GENERAL
Investors may purchase shares from a Salomon Smith Barney Financial Consul-
tant or a Dealer Representative. In addition, certain investors, including
qualified retirement plans purchasing through certain Dealer Representatives,
may purchase shares directly from the Fund. When purchasing shares of the
Fund, investors must specify whether the purchase is for Class A, Class B,
Class L or Class Y shares. Salomon Smith Barney and Dealer Representatives may
charge their customers an annual account maintenance fee in connection with a
brokerage account through which an investor purchases or holds shares.
Accounts held directly at First Data are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in the
Fund 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
$15,000,000. Subsequent investments of at least $50 may be made for all Clas-
ses. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(c) of the
Code, the minimum initial investment requirement for Class A, Class B and
Class L 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 L shares and 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 required for Class A, Class B and Class L shares and the
subsequent investment requirement for all Classes is $50. There are no minimum
investment requirements for Class A shares for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney, unitholders who invest distribu-
tions from a UIT sponsored by Salomon Smith Barney, and Directors/Trustees of
any of the Smith Barney Mutual Funds and their spouses and children. The Fund
reserves the right to waive or change minimums, to decline any order to pur-
chase its shares and to suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's account by First Data.
Share certificates are issued only upon a shareholder's written request to
First Data.
Purchase orders received by the Fund or a Salomon Smith Barney Financial Con-
sultant prior to the close of regular trading on the NYSE, on any day the Fund
calculates its net asset value, are priced according to the net asset value
determined on that day (the "trade date"). Orders received by a Dealer Repre-
sentative prior to
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
the close of regular trading on the NYSE on any day the Fund calculates its net
asset value, are priced according to the net asset value determined on that
day, provided the order is received by the Fund or the Fund's agent prior to
its close of business. For shares purchased through Salomon Smith Barney or a
Dealer Representative purchasing through Salomon 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.
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, Salomon Smith Barney or First Data is authorized
through preauthorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the shareholder's account held with a bank
or other financial institution on a monthly or quarterly basis as indicated by
the shareholder to provide for systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Salomon Smith Barney or First Data. The Sys-
tematic Investment Plan also authorizes Salomon Smith Barney to apply cash held
in the shareholder's Salomon Smith Barney brokerage account or redeem the
shareholder's shares of a Salomon
Smith Barney money market fund to make additions to the account. Additional
information is available from the Fund or a Salomon Smith Barney Financial Con-
sultant.
SALES CHARGE WAIVERS AND REDUCTIONS
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 to (i) Board Members and
employees of Citigroup and its subsidiaries and any Citigroup affiliated funds
including 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 resold except through
redemption or repurchase, (b) offers of Class A shares to any other investment
company to effect 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 Salomon Smith Barney Financial Consultant (for a
period up to 90 days from the commencement of the Financial Consultant's
employment with Salomon Smith Barney), on the condition the purchase of Class A
shares is made with the proceeds
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
of the redemption of shares of a mutual fund which (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to the client by the
Financial Consultant and (iii) was subject to a sales charge; (d) purchases by
shareholders who have redeemed Class A shares in the Fund (or Class A shares
of another Smith Barney Mutual Fund that is offered with a sales charge) and
who wish to reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 60 calendar days of the redemption; (e) purchases
by accounts managed by registered investment advisory subsidiaries of
Citigroup (f) direct rollovers by plan participants of distributions from a
401(k) plan offered to employees of Citigroup or its subsidiaries or a 401(k)
plan enrolled in the Salomon Smith Barney 401(k) Program (Note: subsequent
investments will be subject to the applicable sales charge); (g) purchases by
a separate account used to fund certain unregistered variable annuity
contracts; (h) investments of distributions from a UIT sponsored by Salomon
Smith Barney; and (i) purchases by investors participating in a Salomon Smith
Barney fee-based arrangement. In order to obtain such discounts, the purchaser
must provide sufficient information at the time of purchase to permit
verification that the purchase would qualify for the elimination of the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A
shares of the Fund and of other Smith Barney Mutual Funds which are offered
with a sales charge as currently 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 informa-
tion at the time of purchase to permit verification that the purchase quali-
fies for the reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares pur-
chased thereafter.
LETTER OF INTENT
Class A Shares. A Letter of Intent for an amount 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 (i)
all Class A shares of the Fund and other Smith Barney Mutual Funds offered
with a sales charge acquired during the term of the Letter plus (ii) the value
of all Class A shares previously purchased and still owned. 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 appli-
cable to the purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed. The term of the
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Letter will commence upon the date the Letter is signed, or at the option of
the investor, up to 90 days before such date. Please contact a Salomon Smith
Barney Financial Consultant or First Data to obtain a Letter of Intent applica-
tion.
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 (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount). Such investors must make an initial minimum
purchase of $5,000,000 in Class Y shares of the Fund and agree to purchase a
total of $15,000,000 of Class Y shares of the Fund within 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made within the
13 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 Fund's Class A shares, which may
include a CDSC of 1.00%. Please contact a Salomon Smith Barney Financial Con-
sultant or First Data for further information.
DEFERRED SALES CHARGE PROVISIONS
"CDSC Shares" are: (a) Class B shares; (b) Class L shares; and (c) Class A
shares that were purchased without an initial sales charge but are subject to a
CDSC. A CDSC may be imposed on certain redemptions of these shares.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the time
of redemption. CDSC Shares that are redeemed will not be subject to a CDSC to
the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class L shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Salomon 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 Class B shares held under the Smith Barney 401(k) Program, as described
below. See "Purchase of Shares--Smith Barney 401(k) and ExecChoice(TM)
Programs."
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
<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 and thereafter 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 will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholders 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. See "Prospectus Summary--Alternative Purchase
Arrangements--Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
For Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any CDSC will be paid to Salomon 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 appre-
ciation ($200) and the value of the reinvested dividend shares ($60). There-
fore, $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
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
shareholder's shares will be permitted for withdrawal plans that were estab-
lished prior to November 7, 1994); (c) redemptions of shares within 12 months
following the death or disability of the shareholder; (d) redemptions 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 to effect a combination of the Fund with any invest-
ment company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other 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 Salomon Smith Barney
in the case of shareholders who are also Salomon Smith Barney clients or by
First Data 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 and conditions, which are outlined below, are offered to all plans
participating ("Participating Plans") in these programs.
The Fund offers to Participating Plans Class A and Class L shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class L shares acquired through the Participating Plans are sub-
ject to the same service and/or distribution fees as the Class A and Class L
shares acquired by other investors; however, they are not subject to any ini-
tial 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 L Shares. Class L 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 L 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 L 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 L shares for Class A shares of
the Fund. For Participating Plans that were originally established through a
Smith Barney retail
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 anni-
versary 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 L 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 L 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.
Any Participating Plan in the Smith Barney 401(k) or ExecChoice(TM) Programs,
whether opened before or after June 21, 1996, that has not previously qualified
for an exchange into Class A shares will be offered the opportunity to exchange
all of its Class L shares for Class A shares of the Fund, regardless of asset
size, at the end of the eighth year after the date the Participating 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 L shares of the Fund but instead may acquire Class A shares of
the Fund. Any Class L shares not converted will continue to be subject 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 First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the Smith Barney Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of Class A, Class B and
Class L shares are subject to minimum investment requirements and all shares
are subject to the other requirements of the fund into which exchanges are
made.
27
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
FUND NAME
- --------------------------------------------------------------------------------
Growth Funds
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
*Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+Smith Barney Funds, Inc.--Short-Term High Grade Bond Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
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 Municipal High Income Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
**Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
28
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
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 Allocation Series Inc.
Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Global Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation Series Inc.--Income Portfolio
Money Market Funds
++Smith Barney Exchange Reserve Fund
+++Smith Barney Money Funds, Inc.--Cash Portfolio
+++Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
+Smith Barney Municipal Money Market Fund, Inc.
+Smith Barney Muni Funds--California Money Market Portfolio
+Smith Barney Muni Funds--New York Money Market Portfolio
- -------------------------------------------------------------------------------
* Available for exchange with Class A and Class B shares of the Fund.
** Available for exchange with Class A, Class L and Class Y shares of the
Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class A and Class Y shares of the Fund.
++ Available for exchange with Class B and Class L shares of the Fund.
+++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, Participating Plans opened prior to June 21, 1996 and investing
in Class L shares may exchange Fund shares for Class L shares of this
fund.
Class B Exchanges. In the event a Class B shareholder 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 L Exchanges. Upon an exchange, the new Class L shares will be deemed to
have been purchased on the same date as the Class L shares of the Fund that
have been exchanged.
29
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 respec-
tive Class in any of the funds identified above may do so without imposition of
any charge.
Additional Information Regarding the Exchange Privilege. Although the exchange
privilege is an important benefit, excessive exchange transactions can be det-
rimental to the Fund's performance and its shareholders. MMC 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, MMC will notify Salomon Smith
Barney and Salomon Smith Barney may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by a shareholder. Upon such a determination,
Salomon Smith Barney will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the exchange privilege and
during the 15-day period the shareholder will be required to (a) redeem his or
her shares in the Fund or (b) remain invested in the Fund or exchange into any
of the funds of the Smith Barney Mutual Funds 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 "Redemp-
tion of Shares--Telephone Redemption and Exchange Program." Exchanges will be
processed at the net asset value next determined. Redemption procedures dis-
cussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the reg-
istration 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 redemp-
30
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
tion request will be delayed until the Fund's transfer agent receives further
instructions from Salomon Smith Barney, or if the shareholder's account is not
with Salomon Smith Barney, from the shareholder directly. The redemption pro-
ceeds will be remitted on or before the third business day following receipt
of proper tender, except on any days on which the NYSE is closed or as permit-
ted under the Investment Company Act of 1940, as amended ("1940 Act"), in
extraordinary circumstances. Generally, if the redemption proceeds are remit-
ted to a Salomon Smith Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific instruction and Salo-
mon Smith Barney will benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other than a certified or
official bank check, will be remitted upon clearance of the check, which may
take up to ten days or more. Shares held by Salomon Smith Barney as custodian
must be redeemed by submitting a written request to a Salomon Smith Barney
Financial Consultant.
Shares other than those held by Salomon Smith Barney as custodian may be
redeemed through an investor's Financial Consultant, Dealer Representative or
by submitting a written request for redemption to:
Smith Barney Aggressive Growth Fund, Inc.
Class A, B, L or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
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 First Data together with the redemption
request. Any signature appearing on a share certificate, stock power or writ-
ten redemption request in excess of $10,000 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 $10,000
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.
First Data may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A redemption
request will not be deemed properly received until First Data receives all
required documents in proper form.
31
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 share-
holder 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 Salomon Smith Barney Financial Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Salomon Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should con-
tact First Data at 1-800-451-2010. Once eligibility is confirmed, the share-
holder must complete and return a Telephone/Wire Authorization Form, along with
a signature guarantee that will be provided by First Data upon request. Alter-
natively, an investor may authorize telephone redemptions on the new account
application with the applicant's signature guarantee when making his or her
initial investment 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 First Data 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 or 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 relationship 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 com-
plete 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.
32
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (Eastern 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 days' prior notice to shareholders.
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 involuntary liquidation.
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 L and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum
sales charge, if any, from the initial amount invested and reinvestment of all
income dividends and capital gain distributions on the reinvestment dates at
prices calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC, is derived from this total return,
33
<PAGE>
PERFORMANCE (CONTINUED)
which provides the ending redeemable value. Such standard total return infor-
mation 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 distri-
bution 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 dif-
ferences in the methods used in calculating current dividend return should be
considered when comparing a Class' current return to yields published for
other investment companies and other investment vehicles. The Fund may also
include comparative performance information in advertising or marketing its
shares. Such performance information may include data from Lipper Analytical
Services, Inc. and other financial publications.
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 agree-
ments between the Fund and the companies that furnish services to the Fund,
including agreements with the Fund's distributor, investment adviser, adminis-
trator, custodian and transfer agent. The day-to-day operations of the Fund
are delegated to the Fund's investment adviser and administrator. The State-
ment of Additional Information contains background information regarding each
Director and executive officer of the Fund.
INVESTMENT ADVISER--MMC
MMC, located at 388 Greenwich Street, New York, New York 10013, serves as the
Fund's investment adviser. MMC (through predecessor entities) has been in the
investment counselling business since 1968. MMC renders investment advice to a
wide variety of investment company clients which had aggregate assets under
management as of September 30, 1998, in excess of $108 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
MMC 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
MMC a fee at the annual rate of 0.60% of the value of the Fund's average daily
net assets.
34
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
PORTFOLIO MANAGEMENT
Richard Freeman, a Managing Director of Salomon 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, 1998, is included in
the Annual Report dated August 31, 1998. A copy of the Annual Report may be
obtained upon request and without charge from a Salomon 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
MMC 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 MMC a fee at the annual rate of 0.20% of the value of the Fund's
average daily net assets.
On October 8, 1998, Travelers Group Inc. and Citicorp consummated their merg-
er, thereby creating a new entity called Citigroup. Citigroup is a bank holding
company subject to regulation under the Bank Holding Company Act of 1956 (the
"BHCA"), the requirements of the Glass-Steagall Act and certain other laws and
regulations. MMC does not believe that its compliance with the applicable law
will have a material adverse effect on its ability to continue to provide the
Fund with the same level of investment advisory services that it currently
receives.
DISTRIBUTOR
CFBDS, located at 21 Milk Street, Boston MA. 02109-5408, distributes shares of
the Fund as principal underwriter and as such conducts a continuous offering
pursuant to a "best efforts" arrangement requiring CFBDS to take and pay for
only such securities as may be sold to the public. Pursuant to a plan of dis-
tribution adopted by the Fund under Rule 12b-1 under the 1940 Act (the "Plan"),
Salomon Smith Barney is paid an annual service fee with respect to Class A,
Class B and Class L shares of the Fund at the annual rate of 0.25% of the aver-
age daily net assets of the respective Class. Salomon Smith Barney is also paid
an annual distribution fee with respect to Class B and Class L 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 distri-
bution fees. The fees are used by Salomon Smith Barney to pay
35
<PAGE>
DISTRIBUTOR (CONTINUED)
its Financial Consultants for servicing shareholder accounts and, in the case
of Class B and Class L 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 Salomon Smith Barney Financial Consultants and other persons
who provide support services in connection with the distribution of shares;
interest and/or carrying charges; and indirect and overhead costs of Salomon
Smith Barney associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
The payments to Salomon Smith Barney Financial Consultants for selling shares
of a Class include a commission or fee paid by the investor to Salomon Smith
Barney at the time of sale and, with respect to Class A, Class B and Class L
shares, a continuing fee for servicing shareholder accounts for as long as a
shareholder remains a holder of that Class. Salomon Smith Barney Financial Con-
sultants 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 Salomon Smith Barney and the
payments may exceed distribution expenses actually incurred. The Fund's Board
of Directors will evaluate the appropriateness of the Plan and its payment
terms on a continuing basis and in so doing will consider all relevant factors,
including expenses borne by Salomon 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, L, 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 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 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
36
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
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.
First Data 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. Shareholders who do not want this consolidation to apply
to their accounts should contact their Salomon Smith Barney Financial Consul-
tants or the Fund's transfer agent.
37
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<PAGE>
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<PAGE>
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<PAGE>
SALOMON SMITH BARNEY
---------------------
A member of CITIGROUP[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
SMITH BARNEY
AGGRESSIVE
GROWTH
FUND INC.
388 Greenwich Street
New York, New York 10013
FD 01060 11/98
PROSPECTUS
SMITH BARNEY
Aggressive
Growth
Fund Inc.
Class Z Shares Only
NOVEMBER 30, 1998
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(Registered)
<PAGE>
- --------------------------------------------------------------------------------
Prospectus November 30, 1998
- --------------------------------------------------------------------------------
Smith Barney Aggressive Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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 which 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 and utility companies and 40 financial
issues. Companies whose earnings grow at a rate more rapid 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 companies. Because of its objective and policies, the Fund may be
subject to greater investment risks than those assumed by 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 Salomon Smith Barney Inc. ("Salomon
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 November 30, 1998, 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 Salomon 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.
CFBDS, INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
1
<PAGE>
- --------------------------------------------------------------------------------
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 9
- --------------------------------------------------------------------------------
Purchase, Exchange and Redemption of Shares 10
- --------------------------------------------------------------------------------
Performance 11
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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.
Smith Barney As a % of Average
Aggressive Growth Fund -- Class Z Shares Net Assets
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
Management fees 0.80%
Other expenses 0.05%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.85%
- --------------------------------------------------------------------------------
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, Exchange 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 $27 $47 $105
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The following information for each year in the four-year period ended August 31,
1998 has been audited by KPMG Peat Marwick LLP, independent auditors, whose
report thereon appears in the Fund's Annual Report dated August 31, 1998. 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 1998 Annual Report, which is incorporated
by reference into the Statement of Additional Information.
For a Class Z share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Smith Barney Aggressive Growth Fund --
Class Z Shares 1998 1997 1996 1995(1) 1994 1993(2)(3)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 42.60 $ 29.20 $ 33.88 $ 26.94 $ 23.67 $ 20.52
- ------------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment loss (0.28) (0.20) (0.20) (0.34) (0.31) (0.12)
Net realized and unrealized gain
(loss) on investments (5.78) 14.41 (2.11) 8.65 3.58 3.27
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (6.06) 14.21 (2.31) 8.31 3.27 3.15
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (1.96) (0.81) (2.37) (1.37) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.96) (0.81) (2.37) (1.37) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 34.58 $ 42.60 $ 29.20 $ 33.88 $ 26.94 $ 23.67
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (14.86)% 49.61% (7.07)% 32.38% 13.81% 15.35%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 42,155 $ 43,553 $ 30,837 $ 27,209 $ 24,467 $ 53,599
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.85% 0.85% 0.93% 1.12% 1.01%* 0.99%+
Net investment loss (0.62) (0.57) (0.61) (0.80) (0.83) (0.67)+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 7% 6% 13% 44% 11% 13%
====================================================================================================================================
</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 rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
* 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>
- --------------------------------------------------------------------------------
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 Mutual Management Corp. ("MMC")
(formerly known as Smith Barney Mutual Funds Management Inc.) 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, MMC 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.
MMC 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 MMC 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 MMC believes that market
conditions warrant, the Fund may invest for temporary defensive purposes in
corporate and U.S. government bonds and notes, and in money market instruments.
The Fund also is authorized to borrow an amount of up to 5% of its total assets
for extraordinary or emergency purposes, and may borrow up to 331/3% 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.
5
<PAGE>
- --------------------------------------------------------------------------------
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 those 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 in a
manner consistent with applicable regulatory requirements. 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 firms
deemed by MMC to be of good standing and will not be made unless, in the
judgment of MMC, 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
6
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
from banks and in an amount not to exceed 331/3% 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. MMC, 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
appropriate for all investors.
7
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
Year 2000. The investment management services provided to the Fund by MMC
and the services provided to shareholders by Salomon Smith Barney depend on the
smooth functioning of their computer systems. Many computer software systems in
use today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That failure could
have a negative impact on the Fund's operations, including the handling of
securities trades, pricing and account services. MMC and Salomon Smith Barney
have advised the Fund that they have been reviewing all of their computer
systems and actively working on necessary changes to their systems to prepare
for the year 2000 and expect that their systems will be compliant before that
date. In addition, MMC has been advised by the Fund's custodian, transfer agent
and accounting service agent that they are also in the process of modifying
their systems with the same goal. There can, however, be no assurance that MMC,
Salomon Smith Barney or any other service provider will be successful, or that
interaction with other non-complying computer systems will not impair Fund
services at that time.
In addition, the ability of issuers to make timely payments of interest
and principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as widespread
or as affecting trading markets.
Portfolio Transactions. Portfolio securities transactions on behalf of the
Fund are placed by MMC with a number of brokers and dealers, including Salomon
Smith Barney. Salomon Smith Barney has advised the Fund that in transactions
with the Fund, Salomon Smith Barney charges a commission rate at least as
favorable as the rate Salomon 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
8
<PAGE>
- --------------------------------------------------------------------------------
Valuation of Shares (continued)
- --------------------------------------------------------------------------------
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.
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 pay any other dividends and
distributions necessary to avoid the application of this tax.
TAXES
The following is a summary of the material federal tax considerations
affecting the Fund and Fund shareholders. Qualified plan participants should
consult their plan document or tax advisors about the tax consequences of
participating in a Qualified Plan. Please refer to the SAI for further
discussion. In addition to the considerations described below and in the SAI,
there may be other federal, state, local, and/or foreign tax applications to
consider.
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
(the "Code"). In each taxable year that the Fund so qualifies
and meets certain distribution requirements, the Fund will not be subject to
Federal income tax on its net investment income and net capital gains that it
distributes to its shareholders. The Fund expects to distribute all of such
income and gains each year.
Provided that a Qualified Plan has not borrowed to finance its investment
in the Fund, it will not be taxable on the receipt of dividends and
distributions from the Fund.
9
<PAGE>
- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
Dividends and interest received by the Fund from investing in foreign
securities may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. The Fund's foreign tax payments will reduce the
amount of its dividends and distributions.
The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for
shareholders who do not provide the Fund with a correct taxpayer identification
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for
shareholders who otherwise are subject to backup withholding. Any tax withheld
as a result of backup withholding does not constitute an additional tax, and may
be claimed as a credit on the shareholders' federal income tax return.
Shareholders should consult their plan document or tax advisers about the
tax consequences associated with participating in a Qualified Plan or Smith
Barney UIT.
- --------------------------------------------------------------------------------
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 made at the net
asset value next determined after a purchase order is received by Salomon Smith
Barney (the "trade date"). Payment is due to Salomon 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 Salomon 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
10
<PAGE>
- --------------------------------------------------------------------------------
Purchase, Exchange and Redemption of Shares (continued)
- --------------------------------------------------------------------------------
regular trading on the NYSE are priced at the net asset value next determined.
Shareholders acquiring Class Z shares through a 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 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
11
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
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
MMC, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser. SBMFM is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary
of Citigroup Inc. ("Citigroup"). Citigroup businesses produce a broad range of
financial services -- asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading -- and use
diverse channels to make them available to consumer and corporate customers
around the world. Among these businesses are Citibank, Commercial Credit,
Primerica Financial Services, Salomon Smith Barney, SSBC Asset Management,
Travelers Life & Annuity, and Travelers Property Casualty. MMC was incorporated
on March 12, 1968 under the laws of Delaware 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, 1998, in excess of
$108 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
MMC 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 MMC 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,
including making all investment decisions.
Management's discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended August 31, 1998, is
included in the Annual Report dated August 31, 1998. A copy of the Annual Report
may be obtained upon request and without charge from a Salomon Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
12
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
ADMINISTRATOR
MMC 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 MMC a fee at the annual rate of 0.20% of the value of the Fund's
average daily net assets.
On October 8, 1998, Travelers Group Inc. ("Travelers") and Citicorp
consummated their merger, creating a new entity called Citigroup. By approving
the merger, the Federal Reserve Board approved Travelers, as the surviving
entity, becoming a bank holding company subject to regulation under the Bank
Holding Company Act of 1956 (the "BHCA"), the requirements of the Glass-Steagall
Act and certain other laws and regulations. MMC does not believe that its
compliance with the applicable laws will have a material adverse effect on its
ability to continue to provide the Fund with the same level of investment
advisory services that it currently receives.
DISTRIBUTOR
CFBDS, Inc. is located at 21 Milk Street, Boston, MA 02109-5408, and
serves as the Fund's distributor.
- --------------------------------------------------------------------------------
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, L, 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
a plan adopted by the Fund pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"); (d) the expenses allocable to each
Class; (e) voting rights on matters exclusively affecting a single Class; (f)
the exchange privileges of each Class; and (g) the conversion feature of shares
of Class B. 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 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
13
<PAGE>
- --------------------------------------------------------------------------------
Additional Information (continued)
- --------------------------------------------------------------------------------
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, National Association is located at 17th and Chestnut Streets,
Philadelphia, PA 19103, and serves as custodian of the Fund's investments.
First Data Investor 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 Salomon
Smith Barney Financial Consultants.
14
<PAGE>
SALOMON SMITH BARNEY
A member of citigroup [LOGO]
Smith Barney
Aggressive
Growth
Fund Inc.
388 Greenwich Street
New York, New York 10013
FD 01061 11/98
PART B
Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Statement of Additional
Information
November 30, 1998
This Statement of Additional Information
expands upon and supplements the information
contained in the current Prospectus of Smith Barney
Aggressive Growth Fund Inc. (the "Fund"), dated
November 30, 1998, 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 Salomon 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 12
Redemption of Shares 12
Distributor 13
Valuation of Shares 15
Exchange Privilege 15
Performance Data (See in the Prospectus
"Performance'') 16
Taxes (See in the Prospectus "Dividends,
Distributions and Taxes'') 18
Additional Information 20
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
Servi
ce
CFBDS, Inc. ("CFBDS'')
Distr
ibuto
r
Mutual Management Corp. ("MMC") (formerly
Smith Barney Mutual Funds Management Inc.)
Inves
tment
Advis
er
and
Admin
istra
tor
PNC Bank, National Association ("PNC")
Custo
dian
First Data Investor Services Group, Inc. ("First
Data"
)
Trans
fer
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 58). 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 75). Private
investor. His address is 273 Montgomery Avenue, Bala
Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Director (Age 60). 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 60). President
of Avatar International; Former 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,
President and Chief Executive Officer (Age 65).
Managing Director of Salomon Smith Barney (previously
known as Smith Barney), Chairman of the Board of
Smith Barney Strategy Advisors Inc (Smith Barney
Strategy Advisors Inc. transferred authority to MMC
pursuant to Board of Director approval on October 23,
1998) and President of MMC and Travelers Investment
Adviser, Inc. ("TIA"). Mr. McLendon is Chairman or
Co-Chairman of the Board and Director of 58
investment companies associated with Salomon Smith
Barney Holdings Inc. His address is 388 Greenwich
Street, New York, New York 10013.
Jerome Miller, Director (Age 61). Retired,
Former President, Asset Management Group of Shearson
Lehman Brothers. His address is 27 Hemlock Road,
Manhasset, New York, NY 11030.
Ken Miller, Director (Age 56). President of
Young Stuff Apparel Group, Inc. His address is 1407
Broadway, 6th Floor, New York, New York 10018.
John R. White, Director (Age 80). 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.
Richard A. Freeman (Age 44). Managing Director
of Salomon Smith Barney; His address is 388
Greenwich Street, New York, New York 10013.
Lewis E. Daidone (Age 41). Senior Vice
President and Treasurer. Managing Director of Salomon
Smith Barney; Director and Senior Vice President of
MMC. His address is 388 Greenwich Street, New York,
New York 10013.
Christina T. Sydor (Age 47). Secretary.
Managing Director of Salomon Smith Barney; General
Counsel and Secretary of MMC. Her address is 388
Greenwich Street, New York, New York 10013.
As of November 16, 1998, the Directors and
officers of the Funds, as a group, owned less than 1%
of the outstanding shares of beneficial interest of
the Fund.
To the best knowledge of the Directors, as of
November 16, 1998, the following shareholders or
"groups" (as such term is defined in Section 13(d)
of the Securities Exchange Act of 1934, as amended)
owned beneficially or of record more than 5% of the
shares of the following classes:
Class Y Percentage
Smith Barney Concert Series, Inc. 55.3398
High Growth Port. PNC Bank NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester PA 19113-1522
Smith Barney Concert Series, Inc. 35.4387
Growth Portfolio. PNC Bank NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester PA 19113-1522
Class Z Percentage
Citibank NA TTEE 99.9857
Travelers Group Master Trust
Smith Barney 401K Saving Plan
Attn: Nancy Kronenberg
111 Wall Street FISD/20th Fl.
New York, NY 10043
No officer, director or employee of Salomon 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
Salomon Smith Barney or any of its affiliates a fee
of $3,000 per annum plus $500 per meeting attended
and reimburses travel and out-of-pocket expenses.
For the fiscal year ended August 31, 1998, such
expenses totaled $10,096:
Name of Person
Aggregate Compensation from Fund
Total Pension or Retirement Benefits Accrued as part
of Fund Expenses
Compensation from Fund and Fund Complex Paid to
Directors
Number of Funds for Which Director Serves Within Fund
Complex
Paul R. Ades
$5,800
$0
$49,000
5
Herbert Barg
5,800
0
101,600
16
Dwight B. Crane
5,700
0
133,850
22
Frank G. Hubbard
5,800
0
52,000
5
Heath B. McLendon
- ---
- ---
- ---
58
Jerome Miller
3,200
0
12,400
5
Ken Miller
5,700
0
52,000
5
John White*+
16,793
0
52,000
5
* Upon attainment of age 80 Directors are required
to change to emeritus status. Directors Emeritus are
entitled to serve in emeritus status for a maximum of
10 years during which time they are paid 50% of the
annual retainer fee and meeting fees otherwise
applicable to the Fund Directors together with
reasonable out-of-pocket expenses for each meeting
attended. During the Fund's last fiscal year
aggregate compensation paid by the Fund to Directors
Emeritus totaled $20,794. Effective March 9, 1998
Mr. White became a Director Emeritus.
+ Mr. White received a lump sum of his deferred
directors fees from the Smith Barney Fund Complex of
$113,688 of which $16,793 was paid by the Fund.
Investment Adviser and Administrator-MMC
MMC 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 MMC, on July 23, 1998. The services provided
by MMC under the Advisory Agreement are described in
the Prospectus under "Management of the Fund." MMC
pays the salary of any officer and employee who is
employed by both it and the Fund. MMC bears all
expenses in connection with the performance of its
services. MMC is a wholly owned subsidiary of
Salomon Smith Barney Holdings Inc. ("Holdings"),
which is in turn a wholly owned subsidiary of
Citigroup Inc. ("Citigroup").
As compensation for investment advisory
services, the Fund pays MMC 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,
1997 and 1998 fiscal years, the Fund paid $3,229,363,
$3,956,238 and $5,176,481, respectively, in
investment advisory fees.
MMC 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 MMC, on July 23,
1998. The services provided by MMC under the
Administration Agreement are described in the
Prospectus under "Management of the Fund." MMC 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, MMC receives a fee at the
annual rate of 0.20% of the value of the Fund's
average daily net assets. For the 1996, 1997 and 1998
fiscal years, the Fund paid MMC $1,076,455,
$1,318,746 and $1,725,494 respectively, 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
Salomon Smith Barney, or MMC, 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.
MMC 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, MMC 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
MMC 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, 1997 and 1998 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 LLP 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, 1999.
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 be consistent with
applicable regulatory requirements. The Fund may not
lend its portfolio securities to Salomon 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 Salomon 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 MMC to be of
good standing and will not be made unless, in the
judgment of MMC 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, MMC 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 nonconvertible
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 7 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. Invest in a manner that would cause it to
fail to be a "diversified company" under the
1940 Act and the rules, regulations and orders
thereunder.
2. Issue "senior securities" as defined in the
1940 Act and the rules, regulations and orders
thereunder, except as permitted under the 1940
Act and the rules, regulations and orders
thereunder.
3. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
principal business activities in the same
industry. For purposes of this limitation,
securities of the U.S. government (including
its agencies and instrumentalities) 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, to the fullest extent
permitted under the 1940 Act.
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, commodities or commodity contracts,
but this restriction shall not prevent the Fund
from: (a) investing in securities of issuers
engaged in the real estate business or the
business of investing in real estate (including
interests in limited partnerships owning or
otherwise engaging in the real estate business
or the business of investing in real estate)
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 held; (c) trading in
futures contracts and options on futures
contracts (including options on currencies to
the extent consistent with the Funds investment
objective and policies); or (d) investing in
real estate investment trust securities.
7. Borrow money except that (a) the Fund may
borrow from banks for temporary or emergency
(not leveraging) purposes, including the
meeting of redemption requests which might
otherwise require the untimely disposition of
securities, and (b) the Fund may, to the extent
consistent with its investment policies, enter
into reverse repurchase agreements, forward
roll transactions and similar investment
strategies and techniques. To the extent that
it engages in transactions described in (a) and
(b), the Fund will be limited so that no more
than 33-1/3% of the value of its total assets
(including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the
time the borrowing is made, is derived from
such transactions.
8. 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 underlying securities and other
assets in escrow and collateral agreements with
respect to initial or maintenance margin in
connection with futures contracts and related
options and options on securities, indexes or
similar items is not considered to be the
purchase of a security on margin.
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 companies for the purpose of
exercising management or control.
14. 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.
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, MMC 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, 1997
and 1998 fiscal years, the Fund's portfolio turnover
rates were 13%, 6% and 7%, respectively.
Portfolio Transactions
Decisions to buy and sell securities for the
Fund are made by MMC, 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 MMC.
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, 1997 and 1998 fiscal years, the Fund paid
$147,324, $101,369 and $0, 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 MMC provides
that, in assessing the best overall terms available
for any transaction, MMC 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 MMC, 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 MMC 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.
MMC's fee under the Advisory Agreement is not reduced
by reason of MMC'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 Salomon Smith Barney if, in MMC's
judgment, the use of Salomon 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, Salomon Smith Barney charges
the Fund a commission rate consistent with that
charged by Salomon Smith Barney to comparable
unaffiliated customers in similar transactions. In
addition, under SEC rules, Salomon 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 Salomon Smith Barney to effect such
transactions and (b) Salomon Smith Barney annually
advises the Fund of the aggregate compensation it
earned on such transactions. Salomon 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, 1997 and 1998 fiscal years, the Fund paid
$3,000, $0 and $0, respectively, in brokerage
commissions to Smith Barney. For the 1998 fiscal
year, Salomon Smith Barney received 0% of the
brokerage commissions paid by the Fund and effected
0% 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 MMC, 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 MMC
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 MMC 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 Salomon 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
Salomon 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 L share (and Class A share purchases,
including applicable rights of accumulation, equaling
or exceeding $500,000), is equal to the net asset
value per share plus for Class L shares an initial
sales charge of 1% at the time of purchase. A
contingent deferred sales charge ("CDSC"), however,
is imposed on certain redemptions of Class B and
Class L shares, and on Class A shares when purchased
in amounts equaling 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 Salomon Smith Barney Financial Consultant.
DISTRIBUTOR
CFBDS serves as the Fund's distributor on a
best efforts basis pursuant to a written agreement
(the "Distribution Agreement"), which was approved by
the Fund's Board of Directors on July 13, 1998 and
became effective on October 8, 1998. For the 1996,
1997 and 1998 fiscal years, Salomon Smith Barney
served as distributor and received $834,000, $346,000
and $759,000, respectively, in sales charges for the
sale of Class A shares, and did not reallow any
portion thereof to dealers. For the 1998 fiscal
year, Salomon Smith Barney received $25,000 in sales
charges for the sale of Class L shares, and did not
reallow any portion thereof to dealers.
For the 1996, 1997 and 1998 fiscal years,
Salomon Smith Barney received from shareholders $10,
000, $5,000 and $1,000, respectively, in CDSC on the
redemption of Class A shares. For the 1996, 1997 and
1998 fiscal years, Salomon Smith Barney received from
shareholders $237,000, $497,000 and $341,000,
respectively, in CDSC on the redemption of Class B
shares. For the 1996, 1997 and 1998 fiscal year,
Salomon Smith Barney received from shareholders
$4,000, $7,000 and $9,000, respectively, in CDSC on
the redemption of Class L 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
Salomon 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
Salomon 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 Salomon
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 Salomon Smith Barney
resulting from these settlement procedures and will
take such benefits into consideration when reviewing
the Advisory and Administration Agreements for
continuance.
For the fiscal year ended August 31, 1998,
Salomon Smith Barney incurred distribution expenses
totaling approximately $3,338,000, consisting of
approximately $142,500 for advertising, $17,000 for
printing and mailing prospectuses, $1,163,000 for
support services and overhead expenses, $1,952,000 to
Salomon Smith Barney to compensate financial
consultants and $63,000 for accruals for interest on
the excess of Salomon Smith Barney expenses incurred
in distribution of the Fund's shares over the sum of
the distribution fees and CDSC received by Salomon
Smith Barney.
Services and Distribution Plan
To compensate Salomon Smith Barney for the
services it provides and for the expense it bears,
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 Salomon 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 L shares. In
addition, the Fund pays Salomon Smith Barney a
distribution fee with respect to Class B and Class L
shares primarily intended to compensate Salomon Smith
Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares.
The Class B and Class L 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 years ended August 31, 1998,
1997 and 1996 the Fund incurred $927,437, $717,814
and $716,789 for class A shares, $2,247,276,
$1,601,273 and $1,307,058 in Class B shares and
$809,577, $677,779 and $726,239 in Class L shares,
respectively, in distribution plan 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,
Salomon 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, Martin
Luther King, Jr. 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.
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 Salomon 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. Salomon 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 L
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:
- -12.40% for the one-year period beginning on
September 1, 1997 through August 31,
1998;
10.74% per annum during the five-year period
beginning on September 1, 1993 through
August 31, 1998; and
13.74% per annum during the ten-year period
beginning on September 1, 1988 through
August 31, 1998.
Class B's average annual total return was as follows
for the periods indicated:
- -19.90% for the one-year period beginning on
September 1, 1997 through August 31,
1998;
10.87% per annum during the five-year period
beginning on September 1, 1993 through
August 31, 1998; and
11.93% per annum from November 6, 1992 through
August 31, 1998.
Class L's average annual total return was as follows
for the periods indicated:
- -17.44% for the one-year period beginning on
September 1, 1997 through August 31,
1998;
10.82% per annum during the five-year period
beginning on September 1, 1993 through
August 31, 1998: and
12.36% per annum from May 13, 1993 through
August 31, 1998.
Class Y's average annual total return was as follows
for the periods indicated:
- -14.86% for the one-year period beginning on
September 1, 1997 through August 31,
1998; and
5.38% per annum for the period from January 31,
1996 through August 31, 1998.
Class Z's average annual total return was as follows
for the periods indicated:
- -14.86% for the one-year period beginning on
September 1, 1997 through August 31,
1998;
12.27% per annum during the five-year period
beginning on September 1, 1993 through
August 31, 1998; and
13.20% per annum from November 6, 1992 through
August 31, 1998.
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
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:
- -15.16% for the one-year period from September 1,
1997 through August 31, 1998
75.28% for the five-year period from September
1, 1993 through August 31, 1998; and
281.59% for the ten-year period from September 1,
1988 through August 31, 1998.
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 -19.90%,
66.53% and 262.51%, respectively.
Class B's aggregate total return was as follows for
the periods indicated:
- -15.90% for one-year period from September 1,
1997 through August 31, 1998;
68.50% for the five-year period from September
1, 1993 through August 31, 1998; and
32.64% for the period from November 6, 1992
through August 31, 1998.
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 -19.90%, 66.53% and 262.51%,
respectively.
Class L's aggregate total return was as follows for
the periods indicated:
- -15.80% for the one-year period from September 1,
1997 through August 31, 1998;
68.83% for the five-year period from September
1, 1993 through August 31, 1998; and
87.43% for the period from May 13, 1993 through
August 31, 1998.
These aggregate total return figures do not
assume the maximum 1.00% 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 --17.44%,
67.12% and 85.59%, respectively.
Class Y's aggregate total return was as follows for
the periods indicated:
- -14.86% for the one-year period beginning on
September 1, 1997 through August 31,
1998; and
14.51% per annum for the period from January 31,
1996 through August 31, 1998.
Class Z's aggregate total return was as follows for
the periods indicated:
- -14.86% for the one-year period from September 1,
1997 through August 31, 1998;
78.35% for the five-year period from September
1, 1993 through August 31, 1998; and
105.72% for the period from November 6, 1992
through August 31, 1998.
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 advisers 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 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 advisers 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 and 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, 1998, 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
November 30, 1998
Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, NY 10013
SALOMONSMITHBARNEY
A Member of
Citigroup
21
37
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, 1998 and the report of Independent
Auditors dated October 15, 1998, are incorporated by
reference to the definitive 30b2-1 filed on November
3, 1998 as Accession # 0000091155-98-000651.
(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 Post-Effective Amendment No. 15 to the
Registration Statement 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 ("Post-Effective
Amendment No. 18).
(c) Articles of Amendment dated June 1, 1998 is filed herein.
(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) (a) Distribution Agreement between the Registrant and
Smith Barney Inc. is incorporated by reference to the
Post-Effective Amendment No. 15.
(b) Form of Distribution Agreement between the
Registrant and CFBDS, Inc. is filed herein.
(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.
is filed herewith.
(b) Transfer Agency Agreement dated August 2, 1993,
between the Registrant and First Data Investors
Services Group, Inc., is incorporated by reference to
Post-Effective 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 Brothers Inc. is incorporated by reference to
Pre-Effective Amendment No. 1.
(14) Not Applicable.
(15) (a)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).
(b) Form of Amended and Restated Shareholder Services
and Distribution Plan pursuant to Rule 12b-1 between
the Registrant is filed herein.
(16) Performance Data is incorporated by reference to Post-
Effective Amendment No. 9.
(17) Financial Data Schedule pursuant to Rule 483 of the
Securities Act of 1933 is filed herewith.
(18) Form of Plan pursuant to Rule 18f-3 is filed herein.
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 as of November 16, 1998
Common Stock
$.001 per share Class A 25,675
Class B 25,989
Class L 6,977
Class Y 5
Class Z 2
Item 27. Indemnification
Under the Registrant's 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 Registrant's corporate charter requires that
it indemnify its directors and officers 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 - - Mutual Management Corp. ("MMC")
(formerly known as Smith Barney Mutual Funds Management
Inc.)
MMC was incorporated in December 1968 under the laws
of the State of Delaware. MMC 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"). MMC 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 MMC
together with information as to any other business,
profession, vocation or employment of a substantial
nature engaged in by such officers and directors
during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by
MMC pursuant to the Advisers Act (SEC File No. 801-
8314
Item 29. Principal Underwriters
(a) CFBDS, Inc. the Registrant's Distributor, is also
the distributor for
CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Large Cap
Growth
Portfolio, CitiFundsSM Intermediate Income Portfolio,
CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Emerging Asian Markets Equity Portfolio,
CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves,
CitiFundsSM Premium Liquid Reserves, CitiFundsSM Institutional U.S.
Treasury Reserves, CitiFundsSM Institutional Liquid Reserves,
SM Institutional Cash Reserves, CitiFundsSM Tax Free Reserves,
CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves,
CitiFundsSM Connecticut Tax Free Reserves,
CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced Portfolio,
CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National
Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio,
CitiSelect VIP Folio 200, Citiselect VIP Folio 300,
CitiSelect (VIP Folio 400, CitiSelect (VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect (Folio 200,
CitiSelect (Folio 300, CitiSelect (Folio 400, and CitiSelect (Folio
500.
CFBDS is also the placement agent for Large Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, Emerging
Asian Markets Equity Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
CFBDS, Inc. is also the distributor for the following
Smith Barney Mutual Fund registrants:
Consulting Group Capital Markets Funds
Greenwich Street Series Fund
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Investment Trust
Smith Barney Investment Funds Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Travelers Series Fund Inc.
And various series of unit investment trusts.
CFBDS, Inc. is also the distributor for the following
Salomon Brothers funds:
Salomon Brothers Opportunity Fund Inc
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
Salomon Brothers Series Funds Inc
Salomon Brothers Institutional Series Funds Inc
Salomon Brothers Variable Series Funds Inc
The information required by this Item 29 with respect
to each director, officer and partner of CFBDS, Inc.
is incorporated by reference to Schedule A of Form BD
filed by CFBDS, Inc. pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-32417).
Item 30. Location of Accounts and Records.
(1) Smith Barney Aggressive Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) Mutual Management Corp.
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
(5) CFBDS Inc.
21 Milk Street, 5th floor
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 Director or Directors 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 25th day of
November, 1998.
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 11/25/98
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone* Senior Vice President
and Treasurer 11/30/98
Lewis E. Daidone (Chief Financial and Accounting Officer)
/s/ Paul R. Ades* Director 11/25/98
Paul R. Ades
/s/ Herbert Barg* Director 11/25/98
Herbert Barg
/s/ Dwight B. Crane* Director 11/25/98
Dwight B. Crane
/s/ Frank Hubbard* Director 11/25/98
Frank Hubbard
/s/ Ken Miller* Director 11/25/98
Ken Miller
/s/ Jerome Miller** Director 11/25/98
Jerome Miller
*Signed by Heath B. McLendon, their duly authorized attorney-in-
fact, pursuant to power of attorney dated September 8, 1994.
**Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant
to power of attorney dated April 15, 1998.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBITS
Exhibit No. Description of Exhibits
(1)(c) Amendment of Amendment to Articles of Incorporation
dated June 1, 1998 filed herein.
(6)(b) Distribution Agreement between the Registrant and
CFBDS, Inc. dated October 8, 1998, is filed herein.
(11) Consent of KPMG Peat Marwick LLP
(15)(b) Amended Services and Distribution Plan pursuant to Rule
12b-1 between the Registrant and Smith Barney Inc., is
filed herein.
(17) Financial Data Schedule
(18) Rule 18f-3(d) Multiple Class Plan
Cover Page
SMITH BARNEY AGGRESSIVE GROWTH FUND INC. PRIVATE
ARTICLES OF AMENDMENT
Smith Barney Aggressive Growth Fund Inc., a
Maryland corporation, having its principal office in
Baltimore City, Maryland (the "Corporation"), hereby
certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby
amended to provide that the name of all of the issued
and unissued Class C Common Stock of the Corporation is
hereby changed to Class L Common Stock.
SECOND: The foregoing amendment to the Charter
of the Corporation has been approved by a majority of
the entire Board of Directors and is limited to a
change expressly permitted by Section 2-605 of the
Maryland General Corporation Law to be made without
action of the stockholders.
THIRD: The Corporation is registered as an
open-end investment company under the Investment
Company Act of 1940.
FOURTH: The amendment to the Charter of the
Corporation effected hereby shall become effective at
9:00 a.m. on June 12, 1998.
IN WITNESS WHEREOF, Smith Barney Aggressive
Growth Fund Inc. has caused these presents to be signed
in its name and on its behalf by its President and
witnessed by its Assistant Secretary as of June 1,
1998.
WITNESS: SMITH BARNEY
AGGRESSIVE
GROWTH FUND INC.
By:
Robert M. Nelson Heath
B. McLendon
Assistant Secretary
President
THE UNDERSIGNED, President of Smith Barney Aggressive
Growth Fund Inc., who executed on behalf of the
Corporation Articles of Amendment of which this
Certificate is made a part, hereby acknowledges in the
name and on behalf of said Corporation the foregoing
Articles of Amendment to be the corporate act of said
Corporation and hereby certifies that the matters and
facts set forth herein with respect to the
authorization and approval thereof are true in all
material respects under the penalties of perjury.
Heath B.
McLendon
` President
U:legal\general\boards\genlmemo\art698ALT
SMITH BARNEY AGGRESSIVE GROWTH FUND INC.
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the
"Fund") has agreed that you shall be, for the period of this
Agreement, the non-exclusive principal underwriter and distributor
of shares of the Fund. For purposes of this Agreement, the term
"Shares" shall mean shares of the each Series, or one or more
Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of
Shares covered by, and in accordance with, the registration
statement, prospectus and statement of additional information then
in effect under the Securities Act of 1933, as amended (the "1933
Act"), and the Investment Company Act of 1940, as amended (the
"1940 Act"), and will transmit or cause to be transmitted promptly
any orders received by you or those with whom you have sales or
servicing agreements for purchase or redemption of Shares to the
Transfer and Dividend Disbursing Agent for the Fund of which the
Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit
orders for the sale of Shares. It is contemplated that you will
enter into sales or servicing agreements with registered securities
brokers and banks and into servicing agreements with financial
institutions and other industry professionals, such as investment
advisers, accountants and estate planning firms. In entering into
such agreements, you will act only on your own behalf as principal
underwriter and distributor. You will not be responsible for
making any distribution plan or service fee payments pursuant to
any plans the Fund may adopt or agreements it may enter into.
1.3 You shall act as the non-exclusive principal
underwriter and distributor of Shares in compliance with all
applicable laws, rules, and regulations, including, without
limitation, all rules and regulations made or adopted from time to
time by the Securities and Exchange Commission (the "SEC")
pursuant to the 1933 Act or the 1940 Act or by any securities
association registered under the Securities Exchange Act of 1934,
as amended.
1.4 Whenever in their judgment such action is
warranted for any reason, including, without limitation, market,
economic or political conditions, the Fund's officers may decline
to accept any orders for, or make any sales of, any Shares until
such time as those officers deem it advisable to accept such orders
and to make such sales and the Fund shall advise you promptly of
such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses
in connection with the registration of Shares under the 1933 Act,
and all expenses in connection with maintaining facilities for the
issue and transfer of Shares and for supplying information, prices
and other data to be furnished by the Fund hereunder, and all
expenses in connection with the preparation and printing of the
Fund's prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders; provided
however, that nothing contained herein shall be deemed to require
the Fund to pay any costs of advertising or marketing the sale of
Shares.
2.2 The Fund agrees to execute any and all
documents and to furnish any and all information and otherwise to
take any other actions that may be reasonably necessary in the
discretion of the Fund's officers in connection with the
qualification of Shares for sale in such states and other U.S.
jurisdictions as the Fund may approve and designate to you from
time to time, and the Fund agrees to pay all expenses that may be
incurred in connection with such qualification. You shall pay all
expenses connected with your own qualification as a securities
broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other
expenses incurred by you in connection with the sale of Shares as
contemplated in this Agreement.
2.3 The Fund shall furnish you from time to time,
for use in connection with the sale of Shares, such information
reports with respect to the Fund or any relevant Series and the
Shares as you may reasonably request, all of which shall be signed
by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such reports, when so
signed by the Fund's officers, shall be true and correct. The Fund
also shall furnish you upon request with (a) the reports of the
annual audits of the financial statements of the Fund for each
Series made by independent certified public accountants
retained by the Fund for such purpose; (b) semi-annual unaudited
financial statements pertaining to each Series; (c) quarterly
earnings statements prepared by the Fund for any Series; (d) a
monthly itemized list of the securities in each Series' portfolio;
(e) monthly balance sheets as soon as practicable after the end of
each month; (f) the current net asset value and offering price
per share for each Series on each day such net asset value is
computed and (g) from time to time such additional information
regarding the financial condition of each Series of the Fund as you
may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the
Fund with the SEC under the 1933 Act and the 1940 Act with respect
to the Shares have been prepared in conformity with the
requirements of said Acts and the rules and regulations of the SEC
thereunder. As used in this Agreement, the terms "registration
statement", "prospectus" and "statement of additional information"
shall mean any registration statement, prospectus and statement of
additional information filed by the Fund with the SEC and any
amendments and supplements thereto filed by the Fund with the SEC.
The Fund represents and warrants to you that any such registration
statement, prospectus and statement of additional information, when
such registration statement becomes effective and as such
prospectus and statement of additional information are amended and
supplemented, includes at the time of such effectiveness, amendment
or supplement all statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of material fact
contained in any registration statement, prospectus or statement of
additional information will be true and correct when such
registration statement becomes effective; and that neither any
registration statement nor any prospectus or statement of
additional information when such registration statement becomes
effective will include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a
purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or
amendments to any registration statement and such supplement or
supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the
opinion of the Fund, be necessary or advisable. If the Fund shall
not propose such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the Fund of a
written request from you to do so, you may, at your option,
terminate this Agreement or decline to make offers of the Fund's
Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any
prospectus or statement of additional information without giving
you reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the
Fund's right to file at any time such amendments to any
registration statement and/or supplements to any prospectus or
statement of additional information, of whatever character, as the
Fund may deem advisable, such right being in all respects absolute
and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus
or statement of additional information furnished by the Fund from
time to time, in connection with the sale of Shares. The Fund
agrees to indemnify, defend and hold you, your several officers and
directors, and any person who controls you within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or
liabilities and any such counsel fees incurred in connection
therewith) which you, your officers and directors, or any such
controlling person, may incur under the 1933 Act or under common
law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact
contained in any registration statement, any prospectus or any
statement of additional information or arising out of or based upon
any omission, or alleged omission, to state a material fact
required to be stated in any registration statement, any prospectus
or any statement of additional information or necessary to make the
statements in any of them not misleading; provided, however, that
the Fund's agreement to indemnify you, your officers or directors,
and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of any
statements or representations made by you or your representatives
or agents other than such statements and representations as are
contained in any prospectus or statement of additional information
and in such financial and other statements as are furnished to you
pursuant to paragraph 2.3 of this Agreement; and further provided
that the Fund's agreement to indemnify you and the Fund's
representations and warranties herein before set forth in paragraph
3 of this Agreement shall not be deemed to cover any liability to
the Fund or its shareholders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties, or by reason of your
reckless disregard of your obligations and duties under this
Agreement. The Fund's agreement to indemnify you, your officers
and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Fund's being notified of any action
brought against you, your officers or directors, or any such
controlling person, such notification to be given by letter or by
telegram addressed to the Fund at its principal office in New York,
New York and sent to the Fund by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify the
Fund of any such action shall not relieve the Fund from any
liability that the Fund may have to the person against whom such
action is brought by reason of any such untrue, or alleged untrue,
statement or omission, or alleged omission, otherwise than on
account of the Fund's indemnity agreement contained in this
paragraph 4.1. The Fund will be entitled to assume the defense of
any suit brought to enforce any such claim, demand or liability,
but, in such case, such defense shall be conducted by counsel of
good standing chosen by the Fund. In the event the Fund elects to
assume the defense of any such suit and retains counsel of good
standing, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of
them; but if the Fund does not elect to assume the defense of any
such suit, the Fund will reimburse you, your officers and
directors, or the controlling person or persons named as defendant
or defendants in such suit, for the reasonable fees and expenses of
any counsel retained by you or them. The Fund's indemnification
agreement contained in this paragraph 4.1 and the Fund's
representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of you, your officers and
directors, or any controlling person, and shall survive the
delivery of any of the Fund's Shares. This agreement of indemnity
will inure exclusively to your benefit, to the benefit of your
several officers and directors, and their respective estates, and
to the benefit of the controlling persons and their successors.
The Fund agrees to notify you promptly of the commencement of any
litigation or proceedings against the Fund or any of its officers
or Board members in connection with the issuance and sale of any of
the Fund's Shares.
4.2 You agree to indemnify, defend and hold the
Fund, its several officers and Board members, and any person who
controls the Fund within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or
defending such claims, demands or liabilities and any counsel fees
incurred in connection therewith) that the Fund, its officers or
Board members or any such controlling person may incur under the
1933 Act, or under common law or otherwise, but only to the extent
that such liability or expense incurred by the Fund, its officers
or Board members, or such controlling person resulting from such
claims or demands shall arise out of or be based upon any untrue,
or alleged untrue, statement of a material fact contained in
information furnished in writing by you to the Fund and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus or statement of
additional information, or shall arise out of or be based upon any
omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by you to the
Fund and required to be stated in such answers or necessary to make
such information not misleading. Your agreement to indemnify the
Fund, its officers or Board members, and any such controlling
person, as aforesaid, is expressly conditioned upon your being
notified of any action
brought against the Fund, its officers or Board members, or any
such controlling person, such notification to be given by letter or
telegram addressed to you at your principal office in Boston,
Massachusetts and sent to you by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. You shall have the right to
control the defense of such action, with counsel of your own
choosing, satisfactory to the Fund, if such action is based solely
upon such alleged misstatement or omission on your part or with the
Fund's consent, and in any event the Fund, its officers or Board
members or such controlling person shall each have the right to
participate in the defense or preparation of the defense of any
such action with counsel of its own choosing reasonably acceptable
to you but shall not have the right to settle any such action
without your consent, which will not be unreasonably withheld. The
failure to so notify you of any such action shall not relieve you
from any liability that you may have to the Fund, its officers or
Board members, or to such controlling person by reason of any such
untrue, or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity agreement
contained in this paragraph 4.2. You agree to notify the Fund
promptly of the commencement of any litigation or proceedings
against you or any of your officers or directors in connection with
the issuance and sale of any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under
any of the provisions of this Agreement and no orders for the
purchase or sale of such Shares under this Agreement shall be
accepted by the Fund if and so long as the effectiveness of the
registration statement then in effect or any necessary amendments
thereto shall be suspended under any of the provisions of the 1933
Act, or if and so long as a current prospectus as required by
Section 5(b) (2) of the 1933 Act is not on file with the SEC;
provided, however, that nothing contained in this paragraph 5 shall
in any way restrict or have any application to or bearing upon the
Fund's obligation to repurchase its Shares from any shareholder in
accordance with the provisions of the Fund's prospectus, statement
of additional information or charter documents, as amended from
time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for
sale by you shall be offered for sale at a price per share (the
"offering price") equal to (a) their net asset value (determined
in the manner set forth in the Fund's charter documents and the
then-current prospectus and statement of additional information)
plus (b) a sales charge, if applicable, which shall be the
percentage of the offering price of such Shares as set forth in the
Fund's then-current prospectus relating to such Series. In
addition to or in lieu of any sales charge applicable at the time
of sale, Shares of any class of any Series of the Fund offered for
sale by you may be subject to a contingent deferred sales charge as
set forth in the Fund's then-current prospectus and statement of
additional information. You shall be entitled to receive any sales
charge levied at the time of sale in respect of the Shares without
remitting any portion to the Fund. Any payments to a broker or
dealer through whom you sell Shares shall be governed by a separate
agreement between you and such broker or dealer and the Fund's
then-current prospectus and statement of additional information.
Any payments to any provider of services to you shall be governed
by a separate agreement between you and such service provider.
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the
SEC for amendments to the
registration statement,
prospectus or statement of
additional information then in
effect or for additional
information;
(b) in the event of the
issuance by the SEC of any stop
order suspending the
effectiveness of the registration
statement, prospectus or
statement of additional
information then in effect or the
initiation of any proceeding for
that purpose;
(c) of the happening of
any event that makes untrue any
statement of a material fact made
in the registration statement,
prospectus or statement of
additional information then in
effect or that requires the
making of a change in such
registration statement,
prospectus or statement of
additional information in order
to make the statements therein
not misleading; and
(d) of all actions of the
SEC with respect to any amendment
to the registration statement, or
any supplement to the prospectus
or statement of additional
information which may from time
to time be filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof,
shall have an initial term of one year from the date hereof, and
shall continue for successive annual periods thereafter so long as
such continuance is specifically approved at least annually by (a)
the Fund's Board or (b) by a vote of a majority (as defined in the
1940 Act) of the Fund's outstanding voting securities, provided
that in either event the continuance is also approved by a majority
of the Board members of the Fund who are not interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of voting on
such approval. This Agreement is terminable with or without cause,
without penalty, on 60 days' notice by the Fund's Board or by vote
of holders of a majority of the relevant Series outstanding voting
securities, or on 90 days' notice by you. This Agreement will also
terminate automatically, as to the relevant Series, in the event of
its assignment (as defined in the 1940 Act and the rules and
regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising
under this Agreement (collectively, a "Dispute") shall be settled
by arbitration administered under the rules of the American
Arbitration Association ("AAA") in New York, New York. Any
arbitration and award of the arbitrators, or a majority of them,
shall be final and the judgment upon the award rendered may be
entered in any state or federal court having jurisdiction. No
punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and
distributor of Shares, you shall not perform any services for any
entity other than investment companies advised or administered by
Citigroup Inc. or its subsidiaries. The Fund recognizes that the
persons employed by you to assist in the performance of your duties
under this Agreement may not devote their full time to such service
and nothing contained in this Agreement shall be deemed to limit or
restrict the persons employed by you or any of your affiliates
right to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature,
provided, however, that in conducting such business or rendering
such services your employees and affiliates would take reasonable
steps to assure that the other parties involved are put on notice
as to the legal entity with which they are dealing. This Agreement
and the terms and conditions set forth herein shall be governed by,
and construed in accordance with, the laws of the State of New York
without giving effect to its conflict of interest principles.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy, whereupon this Agreement will
become binding on you.
Very truly yours,
SMITH BARNEY AGGESSIVE GROWTH
FUND INC.
By:
_____________________
Authorized
Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
Page: 3
8
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, 1998, with respect to the Smith Barney
Aggressive Growth Fund Inc., incorporated herein by
reference and to the references to our Firm under
the headings "Financial Highlights" in the
Prospectus and "Counsel and Auditors" in the
Statement of Additional Information.
KPMG
Peat Marwick LLP
New York, New York
November 24, 1998
FORM OF
AMENDED AND RESTATED
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Amended and Restated Shareholder Services and Distribution
Plan (the "Plan") is adopted in accordance with Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the
"1940 Act"), by [Name of Fund], a [business trust organized under
the laws of the Commonwealth of Massachusetts (the "Trust") on
behalf of its sub-trust] / [a corporation organized under the laws
of the State of Maryland (the "Fund")], subject to the following
terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The [Trust/Fund] will pay
to Smith Barney Inc., a corporation organized under the
laws of the State of Delaware ("Smith Barney"), a service
fee under the Plan at an annual rate of [ %] of the
average daily net assets of the Fund attributable to the
Class A shares sold and not redeemed (the "Class A
Service Fee").
(b) Service Fee for Class B shares. The [Trust/Fund] will pay
to Smith Barney a service fee under the Plan at the
annual rate of [ %] of the average daily net assets of
the Fund attributable to the Class B shares sold and not
redeemed (the "Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the
Class B Service Fee, the [Trust/Fund] will pay Smith
Barney a distribution fee under the Plan at the annual
rate of [ %] of the average daily net assets of the
Fund attributable to the Class B shares sold and not
redeemed (the "Class B Distribution Fee").
(d) Service Fee for Class L shares. The [Trust/Fund] will
pay to Smith Barney a service fee under the plan at the
annual rate of [ %] of the average daily net assets of
the Fund attributable to the Class L shares sold and not
redeemed (the "Class L Service Fee").
(e) Distribution Fee for Class L shares. In addition to the
Class L Service Fee, the [Trust/Fund] will pay Smith
Barney a distribution fee under the Plan at the annual
rate of [ %] of the average daily net assets of the
Fund attributable to the Class L shares sold and not
redeemed (the "Class L Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees
will be calculated daily and paid monthly by the
[Trust/Fund] with respect to the foregoing classes of the
Fund's shares (each a "Class" and together, the
"Classes") at the annual rates indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective
Service Fee and/or Distribution Fee may be used by Smith Barney
for: (a) costs of printing and distributing the [Trust's/Fund's]
prospectuses, statements of additional information and reports to
prospective investors in the [Trust/Fund]; (b) costs involved in
preparing, printing and distributing sales literature pertaining
to the [Trust/Fund]; (c) an allocation of overhead and other
branch office distribution-related expenses of Smith Barney; (d)
payments made to, and expenses of, Smith Barney's financial
consultants and other persons who provide support services to
[Trust/Fund] shareholders in connection with the distribution of
the [Trust's/Fund's] shares, including but not limited to, office
space and equipment, telephone facilities, answering routine
inquires regarding the [Trust/Fund] and its operation, processing
shareholder transactions, forwarding and collecting proxy
material, changing dividend payment elections and providing any
other shareholder services not otherwise provided by the
[Trust's/Fund's] transfer agent; and (e) accruals for interest on
the amount of the foregoing expenses that exceed the Distribution
Fee for that Class and, in the case of Class B and Class L shares,
any contingent deferred sales charges received by Smith Barney;
provided, however, that (i) the Distribution Fee for a particular
Class may be used by Smith Barney only to cover expenses primarily
intended to result in the sale of shares of that Class, including,
without limitation, payments to the financial consultants of Smith
Barney and other persons as compensation for the sale of the
shares, and (ii) the Service Fees are intended to be used by Smith
Barney primarily to pay its financial consultants for servicing
shareholder accounts, including a continuing fee to each such
financial consultant, which fee shall begin to accrue immediately
after the sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable
in accordance with Section 1 of
the Plan, with respect to a Class until the Plan has been approved
by a vote of at least a majority
of the outstanding voting securities of the Class. The Plan will
be deemed to have been approved
with respect to a Class so long as a majority of the outstanding
voting securities of the Class votes
for the approval of the Plan, notwithstanding that: (a) the Plan
has not been approved by a majority of the outstanding voting
securities of any other Class, or (b) the Plan has not been
approved by a majority of the outstanding voting securities of the
[Trust/Fund].
Section 4. Approval by [Trustees/Directors.]
Neither the Plan nor any related agreements will take effect
until approved by a majority vote of both (a) the Board of
[Trustees/Directors] and (b) those [Trustees/Directors] who are
not interested persons of the [Trust/Fund] and who have no direct
or indirect financial interest in the operation of the Plan or in
any agreements related to it (the "Qualified
[Trustees/Directors]"), cast in person at a meeting called for the
purpose of voting on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class
until [ , 1999] and thereafter for successive twelve-month
periods with respect to each Class; provided, however, that such
continuance is specifically approved at least annually by the
[Trustees/Directors] of the [Trust/Fund] and by a majority of the
Qualified [Trustees/Directors].
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class
(i) by the [Trust/Fund] without the payment of any penalty, by the
vote of a majority of the outstanding voting securities of such
Class or (ii) by a majority vote of the Qualified
[Trustees/Directors]. The Plan may remain in effect with respect
to a particular Class even if the Plan has been terminated in
accordance with this Section 6 with respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to
increase materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of holders of at
least a majority of the outstanding voting securities of that
Class. No material amendment to the Plan may be made unless
approved by the [Trust's/Fund's] Board of [Trustees/Directors] in
the manner described in Section 4 above.
Section 8. Selection of Certain [Trustees/Directors].
While the Plan is in effect, the selection and nomination of
the [Trust's/Fund's] [Trustees/Directors] who are not interested
persons of the [Trust/Fund] will be committed to the discretion of
the [Trustees/Directors] then in office who are not interested
persons of the [Trust/Fund].
Section 9. Written Reports
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or any related agreement
will prepare and furnish to the [Trust's/Fund's] Board of
[Trustees/Directors] and the Board will review, at least
quarterly, written reports complying with the requirements of the
Rule, which set out the amounts expended under the Plan and the
purposes for which those expenditures were made.
Section 10. Preservation of Materials.
The [Trust/Fund] will preserve copies of the Plan, any
agreement relating to the Plan and any report made pursuant to
Section 9 above, for a period of not less than six years (the
first two years in an easily accessible place) from the date of
the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to
have the same meaning that those terms have under the rules and
regulations under the 1940 Act, subject to any exemption that may
be granted to the [Trust/Fund] under the 1940 Act, by the
Securities and Exchange Commission.
Section 12. Limitation of Liability. (Massachusetts business
trusts only)
The obligations of the Trust under this Agreement shall not
be binding upon any of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present or future, of
the Trust, individually, but are binding only upon the assets and
property of the Trust, as provided in the Master Trust Agreement.
The execution of this Plan has been authorized by the Trustees and
signed by an authorized officer of the Trust, acting as such, and
neither such authorization by such Trustees nor such execution by
such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally,
but shall bind only the trust property of the Trust as provided in
its Master Trust Agreement.
IN WITNESS WHEREOF, the Fund has executed the Plan as of July
_____, 1998.
[NAME OF TRUST/FUND] On behalf of
By:
____________________________________
Heath B. McLendon
Chairman of the Board
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on Schedule
A (the "Funds" and each a "Fund") under the Funds' existing order of
exemption (Investment Company Act Release Nos. 20042 (January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure. In
addition, pursuant to Rule 12b-1 under the 1940 Act (the "Rule"),
the Funds have each adopted a plan (the "Services and Distribution
Plan") under which shares of the Classes are subject to the
services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under
the Services and Distribution Plan are subject to a service fee of
up to 0.25% of average daily net assets. In addition, the Funds
are permitted to assess a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant to
a complete waiver of front-end sales loads applicable to large
purchases, if the shares are redeemed within one year of the date
of purchase. This waiver applies to sales of Class A shares where
the amount of purchase is equal to or exceeds $500,000 although
this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
3. Class D Shares
Class D shares are offered without a front-end sales load, CDSC,
service fee or distribution fee.
4. Class L Shares
Class L shares are offered with a front-end load, are subject to a
one-year CDSC and under the Services and Distribution Plan are
subject to a service fee at an annual rate of up to 0.25% of
average daily net assets and a distribution fee at an annual rate
of up to 0.75% of average daily net assets. Unlike Class B
shares, Class L shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
5. Class I Shares
Class I shares are offered without a front-end sales load, but are
subject under the Services and Distribution Plan to a service fee
at an annual rate of up to 0.25% of average daily net assets.
6. Class O Shares
Class O shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and Distribution
Plan are subject to a service fee at an annual rate of up to 0.25%
of average daily net assets and a distribution fee at an annual
rate of up to 0.50% of average daily net assets. Unlike Class B
shares, Class O shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
Effective June 28, 1999, Class O shares will be offered with a
front-end load and will continue to be subject to a one year CDSC,
a service fee at an annual rate of up to 0.25% of average daily
net assets and a distribution fee at an annual rate of up to 0.50%
of average daily net assets.
7. Class Y Shares
Class Y shares are offered without imposition of either a sales
charge or a service or distribution fee for investments where the
amount of purchase is equal to or exceeds a specific amount as
specified in each Fund's prospectus.
8. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Salomon Smith Barney Inc.
("Salomon Smith Barney") and its affiliates, (ii) by certain unit
investment trusts sponsored by Salomon Smith Barney and its affiliates,
and (iii) although not currently authorized by the governing boards of the
Funds, when and if authorized, (x) by employees of Salomon Smith Barney and
its affiliates and (y) by directors, general partners or trustees of any
investment company listed on Schedule A and, for each of (x) and (y), their
spouses and minor children.
9. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund
are allocated among the various Classes of shares based on the net
assets of the Fund attributable to each Class, except that each
Class's net asset value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(i) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services
as required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be, in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except those
purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which the
issuance of the Class B shares occurred or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date
on which the issuance of the original Class B shares occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B
shares. However, for purposes of conversion to Class A, all Class
B shares in a shareholder's Fund account that were purchased
through the reinvestment of dividends and other distributions paid
in respect of Class B shares (and that have not converted to Class
A shares as provided in the following sentence) are considered to
be held in a separate sub-account. Each time any Class B shares
in the shareholder's Fund account (other than those in the sub-
account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under the
Code. The conversion of Class B shares to Class A shares may be
suspended if this opinion is no longer available, In the event
that conversion of Class B shares does not occur, Class B shares
would continue to be subject to the distribution fee and any
incrementally higher transfer agency costs attending the Class B
shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the Smith
Barney Mutual Funds as set forth in the prospectus for such Fund.
Funds only permit exchanges into shares of money market funds
having a plan under the Rule if, as permitted by paragraph (b) (5)
of Rule 11a-3 under the 1940 Act, either (i) the time period
during which the shares of the money market funds are held is
included in the calculations of the CDSC or (ii) the time period
is not included but the amount of the CDSC is reduced by the
amount of any payments made under a plan adopted pursuant to the
Rule by the money market funds with respects to those shares.
Currently, the Funds include the time period during which shares
of the money market fund are held in the CDSC period. The
exchange privileges applicable to all Classes of shares must
comply with Rule 11a-3 under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of October 31, 1998)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Concert Allocation Series Inc.
Conservative Portfolio
Balanced Portfolio
Global Portfolio
Growth Portfolio
Income Portfolio
High Growth Portfolio
Smith Barney Equity Funds -
Concert Social Awareness Fund
Smith Barney Large Cap Blend Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Large Cap Value Fund
Short-Term High Grade Bond Fund
U.S. Government Securities Fund
Smith Barney Income Funds -
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney High Income Fund
Smith Barney Municipal High Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Total Return Bond Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney S&P 500 Index Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Investment Funds Inc. -
Concert Peachtree Growth Fund
Smith Barney Contrarian Fund
Smith Barney Government Securities Fund
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Special Equities Fund
Smith Barney Institutional Cash Management Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
New York Money Market
Pennsylvania Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Emerging Markets Portfolio
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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