Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Statement of Additional
Information
December 29, 1997
As amended June 29, 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
December 29, 1997, as amended or supplemented from time to time,
and should be read in conjunction with the Fund's Prospectus. The
Fund's Prospectus may be obtained from any Smith Barney Financial
Consultant, or by writing or calling the Fund at the address or
telephone number set forth above. This Statement of Additional
Information, although not in itself a prospectus, is incorporated
by reference into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings are used
in both the Prospectus and this Statement of Additional
Information, except where shown below:
Management of the Fund 1
Investment Objective and Management Policies 5
Purchase of Shares 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 Service
Smith Barney Inc. ("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc. ("SBMFM") Investment
Adviser and
Administrator
PNC Bank, National Association ("PNC") Custodian
First Data Investor Services Group, Inc. ("First Data")
Transfer Agent
These organizations and the functions they perform for the
Fund are discussed in the Prospectus and in this Statement of
Additional Information.
Directors and Executive Officers of the Fund
The Directors and executive officers of the Fund, together
with information as to their principal business occupations
during the past five years, are shown below. Each Director who is
an "interested person" of the Fund, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), is indicated by
an asterisk.
Paul R. Ades, Director (Age 57). 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 74). Private investor. His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004.
Dwight B. Crane, Director (Age 59). 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 59). 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 and Investment
Officer (Age 64). Managing Director of Smith Barney, Chairman of
the Board of Smith Barney Strategy Advisers Inc. and President of
SBMFM; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc.; Vice Chairman of Shearson Asset
Management; a Director of PanAgora Asset Management, Inc. and
PanAgora Asset Management Limited. His address is 388 Greenwich
Street, New York, New York 10013.
Ken Miller, Director (Age 55). President of Young Stuff
Apparel Group, Inc. His address is 1407 Broadway, 6th Floor, New
York, New York 10018.
John R. White, Director (Age 79). 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 43). Managing Director of Smith
Barney; prior to July 1993, Executive Vice President of Shearson
Asset Management. His address is 388 Greenwich Street, New York,
New York 10013.
Lewis E. Daidone (40). Senior Vice President and Treasurer.
Managing Director of Smith Barney; Director and Senior Vice
President of SBMFM. His address is 388 Greenwich Street, New
York, New York 10013.
Christina T. Sydor (46). Secretary. Managing Director of
Smith Barney; General Counsel and Secretary of SBMFM. Her address
is 388 Greenwich Street, New York, New York 10013.
As of December 10, 1997, the Trustees 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 December 10,
1997, 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
Smith Barney Concert Allocation Series, Inc.
High Growth Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
owned 1,832,184.270 (52.0679%) shares
Smith Barney Concert Allocation Series, Inc.
Growth Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive Suite 440
Lester, PA 19113-1522
owned 1,526,717.906 (43.6012%) shares
Class Z
Citibank NA, Custodian
Smith Barney Shearson 401(k) Savings Plan
Smith Barney Account
Attn: Nancy Kronenberg
111 Wall Street FISD/20th Floor
New York, NY 10043
owned 1,103,245.636 (99.9848%) shares
No officer, director or employee of Smith Barney or any
parent or subsidiary receives any compensation from the Fund for
serving as an officer or Director of the Fund. The Fund pays each
Director who is not an officer, director or employee of Smith
Barney or any of its affiliates a fee of $3,000 per annum plus
$500 per meeting attended and reimburses them for travel and out-
of-pocket expenses. For the Fund's fiscal year ended August 31,
1997, such fees and expenses totaled $40,157.
For the fiscal year ended August 31, 1997 and the calendar
year ended December 31, 1996, the Directors of the Fund were paid
the following compensation:
Aggregate Pension or Total
Compensation Retirement Compensation
from the Fund Benefits Accrued from the Fund
as Part of and the Fund
Director (*) Fund Expenses Complex
Paul R. Ades (5) $5,100 $0 $ 52,475
Herbert Barg (18) 5,600 0 105,175
Dwight B. Crane (30) 5,100 0 140,375
Frank G. Hubbard (5) 5,600 0 52,475
Allan R. Johnson (5)+ 3,444 0 33,125
Heath B. McLendon (42) 0 0 0
Ken Miller (5)++ 5,600 0 49,475
John White (5)@ 5,500 0 52,375
_____________________
* Total Number of directorships/trusteeships held with other
mutual funds in the Smith Barney Mutual Funds family.
+ Director Emeritus
++ Director has elected to defer a portion of his compensation
for the fiscal year ended August 31, 1997. Amount deferred
totaled
$12,125.
@ Director has elected to defer 100% of his compensation for
the fiscal year ended August 31, 1997.
Upon attaining 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 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 achieving emeritus status totaled $3,444.
Investment Adviser and Administrator-SBMFM
SBMFM serves as investment adviser to the Fund pursuant to
a written agreement (the "Advisory Agreement"), which was most
recently approved by the Fund's Board of Directors, including a
majority of the Directors who are not "interested persons" of the
Fund or SBMFM, on July 24, 1997. The services provided by SBMFM
under the Advisory Agreement are described in the Prospectus
under "Management of the Fund." SBMFM pays the salary of any
officer and employee who is employed by both it and the Fund.
SBMFM bears all expenses in connection with the performance of
its services. SBMFM is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), which is in turn a wholly
owned subsidiary of Travelers Group Inc. ("Travelers").
As compensation for investment advisory services, the Fund
pays SBMFM a fee computed daily and paid monthly at the annual
rate of 0.60% of the value of the Fund's average daily net
assets. For the 1995, 1996 and 1997 fiscal years, the Fund paid
$1,829,883, $3,229,363 and $3,956,238, respectively, in
investment advisory fees.
SBMFM also serves as administrator to the Fund pursuant to
a written agreement dated April 20, 1994 (the "Administration
Agreement"), which was most recently approved by the Fund's Board
of Directors, including a majority of Directors who are not
"interested persons" of the Fund or SBMFM, on July 24, 1997. The
services provided by SBMFM under the Administration Agreement are
described in the Prospectus under "Management of the Fund." SBMFM
pays the salary of any officer and employee who is employed by
both it and the Fund and bears all expenses in connection with
the performance of its services.
As compensation for administration services rendered to the
Fund, SBMFM receives a fee at the annual rate of 0.20% of the
value of the Fund's average daily net assets. For the 1995, 1996
and 1997 fiscal years, the Fund paid SBMFM $1,829,833, $1,076,455
and $1,318,746, 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 Smith Barney, or SBMFM, Securities
and Exchange Commission (the "SEC") fees and state Blue Sky
qualification fees; charges of custodians; transfer and dividend
disbursing agent's fees; certain insurance premiums; outside
auditing and legal expenses; costs of maintenance of corporate
existence; investor services (including allocated telephone and
personnel expenses); and costs of preparation and printing of
prospectuses and statements of additional information for
regulatory purposes and for distribution to existing
shareholders, shareholders' reports and corporate meetings.
SBMFM has agreed that if in any fiscal year the aggregate
expenses of the Fund (including fees paid pursuant to the
Advisory and Administration Agreements, but excluding interest,
taxes, brokerage, fees paid pursuant to the Fund's services and
distribution plan, and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction
over the Fund, SBMFM will, to the extent required by state law,
reduce its management fee by such excess expense. Such a fee
reduction, if any, will be reconciled on a monthly basis. The
most restrictive state limitation applicable to the Fund would
require SBMFM to reduce its fees in any year that such excess
expenses exceed 2.50% of the first $30 million of average net
assets, 2.00% of the next $70 million of average net assets and
1.50% of the remaining average net assets. No fee reduction was
required for the 1995, 1996 and 1997 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, 1998.
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 Smith Barney or its
affiliates unless it has applied for and received specific
authority from the SEC. Loans of portfolio securities by the Fund
will be collateralized by cash, letters of credit or securities
issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. government securities")
which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities.
From time to time, the Fund may return a part of the interest
earned from the investment of collateral received for securities
loaned to the borrower and/or a third party, which is
unaffiliated with the Fund or with Smith Barney, and which is
acting as a "finder."
In lending its portfolio securities, the Fund can increase
its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest
paid by the borrower when government securities are used as
collateral. Requirements of the SEC, which may be subject to
future modifications, currently provide that the following
conditions must be met whenever portfolio securities are loaned:
(a) the Fund must receive at least 100% cash collateral or
equivalent securities from the borrower; (b) the borrower must
increase such collateral whenever the market value of the
securities rises above the level of such collateral; (c) the Fund
must be able to terminate the loan at any time; (d) the Fund must
receive reasonable interest on the loan, as well as an amount
equal to any dividends, interest or other distributions on the
loaned securities, and any increase in market value; (e) the Fund
may pay only reasonable custodian fees in connection with the
loan; and (f) voting rights on the loaned securities may pass to
the borrower; however, if a material event adversely affecting
the investment occurs, the Fund's Board of Directors must
terminate the loan and regain the right to vote the securities.
The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to firms deemed
by SBMFM to be of good standing and will not be made unless, in
the judgment of SBMFM the consideration to be earned from such
loans would justify the risk.
Money Market Instruments
As stated in the Prospectus, the Fund may invest for
defensive purposes in corporate and government bonds and notes
and money market instruments. Money market instruments in which
the Fund may invest include: U.S. government securities;
certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located
outside the United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan associations
and similar institutions; high grade commercial paper; and
repurchase agreements with respect to the foregoing types of
instruments. The following is a more detailed description of such
money market instruments.
Bank Obligations. Certificates of deposits ("CDs") are
short-term, negotiable obligations of commercial banks. Time
deposits ("TDs") are non-negotiable deposits maintained in
banking institutions for specified periods of time at stated
interest rates. Bankers' acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with
international transactions.
Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency and
are required to be members of the Federal Reserve System and to
be insured by the Federal Deposit Insurance Corporation (the
"FDIC"). Domestic banks organized under state law are supervised
and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. Most state
banks are insured by the FDIC (although such insurance may not be
of material benefit to the Fund, depending upon the principal
amount of CDs of each bank held by the Fund) and are subject to
Federal examination and to a substantial body of Federal law and
regulation. As a result of governmental regulations, domestic
branches of domestic banks are, among other things, generally
required to maintain specified levels of reserves, and are
subject to other supervision and regulation designed to promote
financial soundness.
Obligations of foreign branches of domestic banks, such as
CDs and TDs, may be general obligations of the parent bank in
addition to the issuing branch, or may be limited by the terms of
a specific obligation and governmental regulation. Such
obligations are subject to different risks than are those of
domestic banks or domestic branches of foreign banks. These risks
include foreign economic and political developments, foreign
governmental restrictions that may adversely affect payment of
principal and interest on the obligations, foreign exchange
controls and foreign withholding and other taxes on interest
income. Foreign branches of domestic banks are not necessarily
subject to the same or similar regulatory requirements that apply
to domestic banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial recordkeeping
requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank than about a
domestic bank. CDs issued by wholly owned Canadian subsidiaries
of domestic banks are guaranteed as to repayment of principal and
interest (but not as to sovereign risk) by the domestic parent
bank.
Obligations of domestic branches of foreign banks may be
general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation
and by governmental regulation as well as governmental action in
the country in which the foreign bank has its head office. A
domestic branch of a foreign bank with assets in excess of $1
billion may or may not be subject to reserve requirements imposed
by the Federal Reserve System or by the state in which the branch
is located if the branch is licensed in that state. In addition,
branches licensed by the Comptroller of the Currency and branches
licensed by certain states ("State Branches") may or may not be
required to: (a) pledge to the regulator by depositing assets
with a designated bank within the state, an amount of its assets
equal to 5% of its total liabilities; and (b) maintain assets
within the state in an amount equal to a specified percentage of
the aggregate amount of liabilities of the foreign bank payable
at or through all of its agencies or branches within the state.
The deposits of State Branches may not necessarily be insured by
the FDIC. In addition, there may be less publicly available
information about a domestic branch of a foreign bank than about
a domestic bank.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of domestic
banks or by domestic branches of foreign banks, SBMFM will
carefully evaluate such investments on a case-by-case basis.
Savings and loans associations whose CDs may be purchased
by the Fund are supervised by the Office of Thrift Supervision
and are insured by the Savings Association Insurance Fund which
is administered by the FDIC and is backed by the full faith and
credit of the United States government. As a result, such savings
and loan associations are subject to regulation and examination.
Convertible Securities
Convertible securities are fixed-income securities that may
be converted at either a stated price or stated rate into
underlying shares of common stock. Convertible securities have
general characteristics similar to both fixed income and equity
securities. Although to a lesser extent than with fixed income
securities generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In addition, because
of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of
the underlying common stocks and therefore also will react to
variations in the general market for equity securities. A unique
feature of convertible securities is that as the market price of
the underlying common stock declines, convertible securities tend
to trade increasingly on a yield basis, and so may not experience
market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise
as a reflection of the value of the underlying common stock.
While no securities investments are without risk, investments in
convertible securities generally entail less risk than
investments in common stock of the same issuer.
As fixed-income securities, convertible securities are
investments that provide for a stable stream of income with
generally higher yields than common stocks. Of course, like all
fixed-income securities, there can be no assurance of current
income because the issuers of the convertible securities may
default on their obligations. Convertible securities, however,
generally offer lower interest or dividend yields than non-
convertible securities of similar quality because of the
potential for capital appreciation. A convertible security, in
addition to providing fixed income, offers the potential for
capital appreciation through the conversion feature, which
enables the holder to benefit from increases in the market price
of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices
fluctuate.
Convertible securities generally are subordinated to other
similar but 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, SBMFM expects that the Fund's annual portfolio turnover
rate may exceed 100%, but will not exceed 200%. A 100% portfolio
turnover rate would occur, for instance, if all securities in the
Fund's portfolio were replaced once during a period of one year.
A high rate of portfolio turnover in any year will increase
brokerage commissions paid and could result in high amounts of
realized investment gain subject to the payment of taxes by
shareholders. Any realized short-term investment gain will be
taxed to shareholders as ordinary income. For the 1995, 1996 and
1997 fiscal years, the Fund's portfolio turnover rates were 44%,
13% and 6%, respectively.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are made
by SBMFM, subject to the overall supervision and review of the
Fund's Board of Directors. Portfolio securities transactions for
the Fund are effected by or under the supervision of SBMFM.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no stated
commission in the case of securities traded in the over-the-
counter markets, but the price of those securities includes an
undisclosed commission or mark-up. The cost of securities
purchased from underwriters includes an underwriting commission
or concession, and the prices at which securities are purchased
from and sold to dealers include a dealer's mark-up or mark-down.
For the 1995, 1996 and 1997 fiscal years, the Fund paid $210,164,
$147,324 and $101,369, respectively, in brokerage commissions.
In executing portfolio transactions and selecting brokers
or dealers, it is the Fund's policy to seek the best overall
terms available. The Advisory Agreement between the Fund and
SBMFM provides that, in assessing the best overall terms
available for any transaction, SBMFM shall consider the factors
it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In addition, the Advisory
Agreement authorizes SBMFM, in selecting brokers or dealers to
execute a particular transaction and in evaluating the best
overall terms available, to consider the brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund and/or
other accounts over which SBMFM or an affiliate exercises
investment discretion.
The Fund's Board of Directors will periodically review the
commissions paid by the Fund to determine if the commissions paid
over representative periods of time were reasonable in relation
to the benefits inuring to the Fund. It is possible that certain
of the services received will primarily benefit one or more other
accounts for which investment discretion is exercised.
Conversely, the Fund may be the primary beneficiary of services
received as a result of portfolio transactions effected for other
accounts. SBMFM's fee under the Advisory Agreement is not reduced
by reason of SBMFM's receiving such brokerage and research
services.
The Fund's Board of Directors has determined that any
portfolio transaction for the Fund may be executed through Smith
Barney if, in SBMFM's judgment, the use of Smith Barney is likely
to result in price and execution at least as favorable as those
of other qualified brokers, and if, in the transaction, Smith
Barney charges the Fund a commission rate consistent with that
charged by Smith Barney to comparable unaffiliated customers in
similar transactions. In addition, under SEC rules, Smith Barney
may directly execute such transactions for the Fund on the floor
of any national securities exchange, provided (a) the Board of
Directors has expressly authorized Smith Barney to effect such
transactions and (b) Smith Barney annually advises the Fund of
the aggregate compensation it earned on such transactions. Smith
Barney will not participate in commissions from brokerage given
by the Fund to other brokers or dealers and will not receive any
reciprocal brokerage business resulting therefrom. Over-the-
counter purchases and sales are transacted directly with
principal market makers except in those cases in which better
prices and executions may be obtained elsewhere. For the 1995,
1996 and 1997 fiscal years, the Fund paid $23,768, $3,000 and
$0, respectively, in brokerage commissions to Smith Barney. For
the 1997 fiscal year, 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 SBMFM,
investments of the kind made by the Fund also may be made by
those other accounts. When the Fund and one or more accounts
managed by SBMFM are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by SBMFM to be
equitable. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position
obtained for or disposed of by the Fund.
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares described
in the Prospectus applies to purchases made by any "purchaser,"
which is defined to include the following: (a) an individual; (b)
an individual's spouse and his or her children purchasing shares
for his or her own account; (c) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary
account; (d) a pension, profit-sharing or other employee benefit
plan qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and qualified employee benefit
plans of employers who are "affiliated persons" of each other
within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; and (f) a
trustee or other professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the Investment
Advisers Act of 1940, as amended) purchasing shares of the Fund
for one or more trust estates or fiduciary accounts. Purchasers
who wish to combine purchase orders to take advantage of volume
discounts should contact a Smith Barney Financial Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in the
Prospectus, apply to any purchase of Class A shares if the
aggregate investment in Class A shares of the Fund and in Class A
shares of other funds of the Smith Barney Mutual Funds that are
offered with a sales charge, including the purchase being made,
of any purchaser is $25,000 or more. The reduced sales charge is
subject to confirmation of the shareholder's holdings through a
check of appropriate records. The Fund reserves the right to
terminate or amend the combined rights of accumulation at any
time after written notice to shareholders. For further
information regarding the right of accumulation, shareholders
should contact a Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to the public on a continuous
basis. The public offering price for a Class A, Class Y and Class
Z share of the Fund is equal to the net asset value per share at
the time of purchase, plus for Class A shares an initial sales
charge based on the aggregate amount of the investment. The
public offering price for a Class B and Class C share (and Class
A share purchases, including applicable rights of accumulation,
equaling or exceeding $500,000), is equal to the net asset value
per share at the time of purchase and no sales charge is imposed
at the time of purchase. A contingent deferred sales charge
("CDSC"), however, is imposed on certain redemptions of Class B
and Class C shares, and of Class A shares when purchased in
amounts 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 Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best
efforts basis pursuant to a written agreement (the "Distribution
Agreement"), which was most recently approved by the Fund's Board
of Directors on July 24, 1997. For the 1995, 1996 and 1997 fiscal
years, Smith Barney received $476,500, $834,000 and $2,996,866,
respectively, in sales charges for the sale of Class A shares,
and did not reallow any portion thereof to dealers. For the 1995,
1996 and 1997 fiscal years, Smith Barney received from
shareholders $154,700, $237,000 and $497,000, respectively, in
CDSC on the redemption of Class B shares.
When payment is made by the investor before settlement
date, unless otherwise directed by the investor, the funds will
be held as a free credit balance in the investor's brokerage
account and Smith Barney may benefit from the temporary use of
the funds. The investor may designate another use for the funds
prior to settlement date, such as an investment in a money market
fund (other than Smith Barney Exchange Reserve Fund) of the Smith
Barney Mutual Funds. If the investor instructs Smith Barney to
invest the funds in a Smith Barney money market fund, the amount
of the investment will be included as part of the average daily
net assets of both the Fund and the Smith Barney money market
fund, and affiliates of Smith Barney that serve the funds in an
investment advisory capacity or administrative capacity will
benefit from the fact that they are receiving fees from both such
investment companies for managing these assets computed on the
basis of their average daily net assets. The Fund's Board of
Directors has been advised of the benefits to Smith Barney
resulting from these settlement procedures and will take such
benefits into consideration when reviewing the Advisory,
Administration and Distribution Agreements for continuance.
For the fiscal year ended August 31, 1997, Smith Barney
incurred distribution expenses totaling approximately $4,771,657,
consisting of approximately $166,095 for advertising, $21,496 for
printing and mailing prospectuses, $1,255,230 for support
services and overhead expenses, $2,968,986 to Smith Barney to
compensate financial consultants and $359,850 for accruals for
interest on the excess of Smith Barney expenses incurred in
distribution of the Fund's shares over the sum of the
distribution fees and CDSC received by Smith Barney.
Distribution Arrangements
To compensate Smith Barney for the services it provides and
for the expense it bears under the Distribution Agreement, the
Fund has adopted a services and distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the
Fund pays Smith Barney a service fee, accrued daily and paid
monthly, calculated at the annual rate of 0.25% of the value of
the Fund's average daily net assets attributable to the Class A,
Class B and Class C shares. In addition, the Fund pays Smith
Barney a distribution fee with respect to Class B and Class C
shares primarily intended to compensate Smith Barney for its
initial expense of paying Financial Consultants a commission upon
sales of those shares. The Class B and Class C distribution fee
is calculated at the annual rate of 0.75% of the value of the
Fund's average net assets attributable to the shares of the
respective Class.
For the fiscal year ended August 31, 1997, the Fund
incurred $717,814 and $400,318 in service fees for Class A and
Class B shares, respectively. For the fiscal years ended August
31, 1995, 1996 and 1997, the Fund incurred $45,155, $181,560 and
$169,445, respectively, in service fees for its Class C shares.
For the fiscal years ended August 31, 1995, 1996 and 1997, the
Fund incurred $1,095, $453,832 and 1,601,273 for Class B shares
and $980,293, $544,679 and $677,779 for Class C shares,
respectively, in distribution fees.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of the
Board of Directors, including a majority of the Directors who are
not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in
the Distribution Agreement (the "Independent Directors"). The
Plan may not be amended to increase the amount of the service and
distribution fees without shareholder approval, and all material
amendments of the Plan also must be approved by the Directors and
Independent Directors in the manner described above. The Plan may
be terminated with respect to a Class of the Fund at any time,
without penalty, by vote of a majority of the Independent
Directors or by vote of a majority of the outstanding voting
securities of the Class (as defined in the 1940 Act). Pursuant to
the Plan, Smith Barney will provide the Fund's Board of Directors
with periodic reports of amounts expended under the Plan and the
purpose for which such expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each
day, Monday through Friday, except days on which the NYSE is
closed. The NYSE currently is scheduled to be closed on New
Year's Day, 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 Smith Barney
Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are redeemed
at the then-current net asset value and, subject to any
applicable CDSC, the proceeds are immediately invested, at a
price as described above, in shares of the fund being acquired.
Smith Barney reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time
after written notice to shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote total return of the
Classes in advertisements or in reports and other communications
to shareholders. The Fund may include comparative performance
information in advertising or marketing the Fund's shares. Such
performance information may include data from the following
industry and financial publications: Barron's, Business Week,
CDA Investment Technologies, Inc., Changing Times, Forbes,
Fortune, Institutional Investor, Investors Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA Today and
The Wall Street Journal. To the extent any advertisement or
sales literature of the Fund describes the expenses or
performance of Class A, Class B, Class C or Class Y, it will also
disclose such information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed
according to a formula prescribed by the SEC. The formula can be
expressed as follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning of a 1-
, 5-, or 10-year period at the end of the 1-,
5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
Class A's average annual total return was as follows for the
periods indicated:
41.67% for the one-year period beginning on September 1,
1996 through August 31, 1997;
19.57% per annum during the five-year period beginning on
September 1, 1992 through August 31, 1997; and
12.44% per annum during the ten-year period beginning on
September 1, 1987 through August 31, 1997.
Class B's average annual total return was as follows for
the periods indicated:
42.94% for the one-year period beginning on September 1,
1996 through August 31, 1997; and
18.66% per annum from November 6, 1992 through August 31,
1997.
Class C's average annual total return was as follows for
the periods indicated:
46.97% for the one-year period beginning on September 1,
1996 through August 31, 1997; and
20.43% per annum from May 13, 1993 through August 31, 1997.
Class Y's average annual total return was as follows for the
periods indicated:
49.64% for the one-year period beginning on September 1,
1996 through August 31, 1997; and
20.54% per annum for the period from January 31, 1996
through August 31, 1997.
Class Z's average annual total return was as follows for
the periods indicated:
49.61% for the one-year period beginning on September 1,
1996 through August 31, 1997; and
20.09% per annum from November 6, 1992 through August 31,
1997.
Average annual total return figures calculated in
accordance with the above formula assume that the maximum 5.00%
sales charge or maximum applicable CDSC, as the case may be, has
been deducted from the hypothetical investment.
Aggregate Total Return
"Aggregate total return" figures represent the cumulative
change in the value of an investment in the Class for the
specified period and are computed by the following formula:
ERV-P
AGGREGATE TOTAL RETURN = P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning of the
1-, 5-, or 10-year period at the end of the 1-,
5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all
dividends and distributions.
Class A's aggregate total return was as follows for the
periods indicated:
49.11% for the one-year period from September 1, 1996
through August 31, 1997.
157.31% for the five-year period from September 1, 1992
through August 31, 1997; and
240.03% for the ten-year period from September 1, 1987
through August 31, 1997.
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 41.67%, 144.41% and
223.01%, respectively.
Class B's aggregate total return was as follows for the
periods indicated:
47.94% for one-year period from September 1, 1996 through
August 31, 1997; and
129.06% for the period from November 6, 1992 through August
31, 1997.
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 42.94% and 128.06%, respectively.
Class C's aggregate total return was as follows for the
periods indicated:
47.97% for the one-year period from September 1, 1996
through August 31, 1997; and
122.61% for the period from May 13, 1993 through August 31,
1997.
Class Y's aggregate total return was as follows for the periods
indicated:
49.64% for the one-year period beginning on September 1,
1996 through August 31, 1997; and
34.49% per annum for the period from January 31, 1996
through August 31, 1997.
Class Z's aggregate total return was as follows for the
periods indicated:
49.61% for the one-year period from September 1, 1996
through August 31, 1997; and
141.63% for the period from November 6, 1992 through August
31, 1997.
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.
A portion of long-term capital gains may be designated as
eligible for the 20% maximum capital gains tax rate on gains
realized by individuals from capital assets held for more than 18
months.
If a shareholder (a) incurs a sales charge in acquiring or
redeeming shares of the Fund, (b) disposes of those shares within
90 days and (c) acquires shares in a mutual fund for which the
otherwise applicable sales charge is reduced by reason of a
reinvestment right (i.e., exchange privilege), the original sales
charge increases the shareholder's tax basis in the original
shares only to the extent the otherwise applicable sales charge
for the second acquisition is not reduced. The portion of the
original sales charge that does not increase the shareholder's
tax basis in the original shares would be treated as incurred
with respect to the second acquisition and, as a general rule,
would increase the shareholder's tax basis in the newly acquired
shares. Furthermore, the same rule also applies to a disposition
of the newly acquired or redeemed shares made within 90 days of
the second acquisition. This provision prevents a shareholder
from immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Investors considering buying shares of the Fund on or just
prior to a record date for a taxable dividend or capital gain
distribution should be aware that, regardless of whether the
price of the Fund shares to be purchased reflects the amount of
the forthcoming dividend or distribution payment, any such
payment will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report dividend and interest
income in full, or fails to certify that he or she has provided a
correct taxpayer identification number and that he or she is not
subject to such withholding, the shareholder may be subject to a
31% "backup withholding" tax with respect to (a) any taxable
dividends and distributions and (b) any proceeds of any
redemption of Fund shares. An individual's taxpayer
identification number is his or her social security number. The
backup withholding tax is not an additional tax and may be
credited against a shareholder's regular Federal income tax
liability.
The foregoing is only a summary of certain tax
considerations generally affecting the Fund and its shareholders
and is not intended as a substitute for careful tax planning.
Shareholders are urged to consult their tax 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, 1997, accompanies this Statement of Additional Information
and is incorporated herein by reference in its entirety.
Smith Barney
Aggressive
Growth Fund Inc.
Statement of
Additional
Information
December 29, 1997
as
amended June 29,
1998
Smith Barney
Aggressive Growth Fund Inc.
388 Greenwich Street
New York, NY 10013
SMITH BARNEY
A Member of Travelers Group
21
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