Registration No. 2-86519
811-3763
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 16
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 17
X
SMITH BARNEY SHEARSON TELECOMMUNICATIONS TRUST
(Exact name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York, 10048
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 720-9218
Francis J. McNamara, III, Esq.
Secretary
Smith Barney Shearson Telecommunications Trust
One Boston Place
Boston, Massachusetts 02108
(Name and Address of Agent of Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485(b)
X on March 1, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on __________ pursuant to Rule 485(a)
______________________________________________________________________________
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment Company
Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the fiscal year
ended December 31, 1992 was on February 28, 1994.
SMITH BARNEY SHEARSON TELECOMMUNICATIONS TRUST
FORM N-IA
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Financial Highlights
Financial Highlights
The Growth Fund's Performance*
4. General Description of
Registrant
Cover Page; Prospectus; Summary;
Variable Pricing System*;
Investment Objective and
Management Policies; ;
Additional Information
5. Management of the Fund
Management of the (Growth
Fund and the) Trust; Distributor,
Additional Information; Annual
Report
6. Capital Stock and Other
Securities
Variable Pricing System*; Purchase
of Shares*; Redemption of Shares;
Exchange Privilege;
Valuation of Shares
7. Purchase of Securities Being
Offered
Distributor; Variable Pricing
System*; Redemption of Shares*;
Redemption of Shares; Exchange
Privilege; Valuation of Shares;
Additional Information
8. Redemption or Repurchase
Variable Pricing System*;
Redemption of Shares, Valuation of
Shares; Purchase of Shares;
Exchange Privilege
9. Pending Legal Proceedings
Not Applicable
*Information contained in the Growth Fund's Prospectus only.
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover Page
11. Table of Contents
Contents
12. General Information and
History
Organization and Description of
Trust Shares
13. Investment Objectives and
Policies
Investment Objective and
Management Policies
14. Management of the Fund
Management of the (Growth Fund and
the) Trust; Distributor*
15. Control Persons and Principal
Holders of Securities
Management of the (Growth Fund and
the) Trust
16. Investment Advisory and Other
Services
Management of the (Growth Fund and
the) Trust; Distributor;
17. Brokerage Allocation and
Other Services
Investment Objective and
Management Policies
18. Capital Stock and Other
Securities
Purchase of Shares;
Organization and Description of
Trust Shares; Redemption of Shares
19. Purchase, Redemption and
Pricing of
Securities Being Offered
Redemption of Shares; Valuation
of Shares; Purchase of Shares*;
Exchange Privilege;
Distributor
20. Tax Status
Taxes
21. Underwriters
Distributor*
22. Calculation of Performance
Performance Data*
23. Financial Statements
Financial Statements
* Information contained in the Growth Fund's Statement of Additional
Information only.
<PAGE>
MARCH 1, 1994
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS
GROWTH FUND
PROSPECTUS BEGINS
ON PAGE ONE.
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- ---------------------------------------------------------------------------
PROSPECTUS March 1, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Telecommunications Growth Fund (the "Growth Fund") of
Smith Barney Shearson Telecommunications Trust (the "Trust") is a mutual fund
which seeks capital appreciation, with income as a secondary consideration.
The
Growth Fund seeks to achieve this objective primarily by investing in common
stocks and other securities of companies in the telecommunications industry.
The
Trust is a non-diversified, open-end management investment company consisting
of
two portfolios, the Growth Fund and Smith Barney Shearson Telecommunications
Income Fund (the "Income Fund").
This Prospectus sets forth concisely certain information about the Growth
Fund
and the Trust, including sales charges, distribution and service fees and
expenses which prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and
retain
it for future reference.
Additional information about the Trust and the Growth Fund is contained in a
Statement of Additional Information dated March 1, 1994, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Growth Fund at the telephone number or
address
set forth above, or by contacting your Smith Barney Shearson Financial
Consultant. The Statement of Additional Information has been filed with the
Securities and Exchange Commission (the "SEC") and is incorporated by
reference
into this Prospectus in its entirety.
SMITH BARNEY SHEARSON INC.
Distributor
THE BOSTON COMPANY ADVISORS, INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
-------------------------------------------------------------
FINANCIAL HIGHLIGHTS 10
-------------------------------------------------------------
VARIABLE PRICING SYSTEM 13
-------------------------------------------------------------
THE GROWTH FUND'S PERFORMANCE 14
-------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE GROWTH FUND 18
-------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 20
-------------------------------------------------------------
PURCHASE OF SHARES 25
-------------------------------------------------------------
REDEMPTION OF SHARES 31
-------------------------------------------------------------
VALUATION OF SHARES 36
-------------------------------------------------------------
EXCHANGE PRIVILEGE 37
-------------------------------------------------------------
DISTRIBUTOR 43
-------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 44
-------------------------------------------------------------
ADDITIONAL INFORMATION 46
-------------------------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- ---------------------------------------------------------------------------
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
PROSPECTUS.
SEE "TABLE OF CONTENTS."
BENEFITS TO INVESTORS THE GROWTH FUND OFFERS INVESTORS SEVERAL IMPORTANT
BENEFITS:
- - A professionally managed portfolio of common stocks and other securities of
companies in the telecommunications industry.
- - Investment liquidity through convenient purchase and redemption procedures.
- - A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
- - Different methods for purchasing shares that allow investment flexibility
and
a wider range of investment alternatives.
- - Automatic dividend reinvestment feature, plus exchange privilege within the
same class of shares of most other funds in the Smith Barney Shearson Group
of Funds.
INVESTMENT OBJECTIVE The Growth Fund is one of two portfolios of the Trust, a
non-diversified open-end management investment company that was created in
response to the reorganization of American Telephone and Telegraph Company
("AT&T") and provided stockholders of AT&T with the opportunity to exchange
their shares of AT&T for shares of the Trust (the "Exchange"). The Exchange
took
place and the Trust commenced operations on January 1, 1984. For information
about the Income Fund, which currently is not selling additional shares,
please
contact your Smith Barney Shearson Financial Consultant. The Growth Fund seeks
capital appreciation, with income as a secondary consideration, primarily by
investing in common stocks and other securities of companies in the
telecommunications industry. See "Investment Objective and Management
Policies."
VARIABLE PRICING SYSTEM The Growth Fund offers classes of shares ("Classes")
designed to provide investors with the flexibility of selecting an investment
best suited to their needs. The general public is offered two
3
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
classes of shares: Class A shares and Class B shares, which differ principally
in terms of the sales charges and rate of expenses to which they are subject.
See "Variable Pricing System."
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 5%. The Growth Fund pays an annual service fee
of .25% of the value of average daily net assets of this Class. See "Purchase
of
Shares."
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 5% of redemption
proceeds, declining by 1% each year after the date of purchase to zero. The
Growth Fund pays an annual service fee of .25% and an annual distribution fee
of
.75% of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, eight years after the date of
original purchase. Upon conversion, these shares will no longer be subject to
an
annual distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System -- Class B Shares."
SMITH BARNEY SHEARSON 401(K) PROGRAM Investors may be eligible to participate
in
the Smith Barney Shearson 401(k) Program (the "401(k) Program"), which is
generally designed to assist employers or 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"). Either Class A or Class B shares may be
available as investment alternatives for plans participating in the 401(k)
Program ("Participation Plans"). Class A and Class B shares acquired through
the
401(k) Program are subject to the same service and/or distribution fees as,
but
different sales charge and CDSC schedules than, the Class A and Class B shares
acquired by other investors. See "Purchase of Shares -- Smith Barney Shearson
401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Growth Fund's
distributor, Smith Barney Shearson Inc. ("Smith Barney Shearson"), or a broker
that clears securities transactions through Smith Barney Shearson on a fully
disclosed basis (an "Introducing Broker"). Direct purchases by certain
retirement plans may be made through the Fund's
4
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
transfer agent, The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation. Smith Barney Shearson recommends that, in most cases,
single investments of $250,000 or more should be made in Class A shares. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Employed
Retirement Plans, the minimum initial investment requirement is $250 and the
minimum subsequent investment requirement is $100 and for certain qualified
retirement plans, the minimum initial and subsequent investment requirement is
$25. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Growth 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 in an amount not less
than
$100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A shares are redeemable at
net asset value and Class B shares are redeemable at net asset value less any
applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND The Boston Company Advisors, Inc. ("Boston Advisors")
serves as the Growth Fund's investment adviser and administrator. Boston
Advisors is a wholly owned subsidiary of The Boston Company, Inc. ("TBC"), a
financial services holding company which in turn is a wholly owned subsidiary
of
Mellon Bank Corporation ("Mellon"). Mellon is a publicly owned holding company
registered under the Federal Banking Holding Company Act of 1956 and through
its
subsidiaries, Mellon provides a comprehensive range of financial products and
services in domestic and selected international markets.
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds in the Smith Barney Shearson Group of Funds.
Certain exchanges may be subject to a sales charge differential. See "Exchange
Privilege."
5
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from your Smith
Barney Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are paid annually from net investment
income. Distributions of net realized capital gains are also paid annually.
See
"Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically, unless otherwise specified by an investor,
in
additional shares of the same Class at current net asset value. Shares
acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a
pro-rata basis. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
RISK FACTORS AND SPECIAL CONSIDERATIONS No assurance can be given that the
Growth Fund will achieve its investment objective. The Growth Fund seeks to
achieve its investment objective primarily through investments in common
stocks
and other securities of companies engaged in the telecommunications industry.
As
a result, the Growth Fund will be subject to market and economic developments
affecting that industry to a greater degree than if its investments were not
concentrated in that industry. Therefore, the Growth Fund should not be
considered a complete investment program. The Trust is classified as a
non-diversified investment company under the Investment Company Act of 1940,
as
amended (the "1940 Act"), which means that the Growth Fund is not limited by
the
1940 Act in the proportion of its assets that it may invest in the obligations
of a single issuer. The Growth Fund's assumption of large positions in the
securities of a small number of issuers may cause its share price to fluctuate
to a greater extent than that of a diversified investment company as a result
of
changes in the financial condition or in the market's assessment of the
issuers.
See "Investment Objective and Management Policies."
THE GROWTH FUND'S EXPENSES The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a
6
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
shareholder of the Growth Fund, based on the maximum sales charge or maximum
CDSC that may be incurred at the time of purchase or redemption and the Growth
Fund's current operating expenses.
<TABLE>
<CAPTION>
CLASS A
CLASS B
<S> <C>
<C>
-----------------------------------------------------------------------------
- --------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00%
- --
Maximum CDSC (as a percentage of redemption proceeds) --
5.00%
-----------------------------------------------------------------------------
- --------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .75%
.75%
12b-1 fees* .25
1.00
Other expenses** .34
.43
-----------------------------------------------------------------------------
- --------
TOTAL FUND OPERATING EXPENSES 1.34%
2.18%
-----------------------------------------------------------------------------
- --------
<FN>
*Upon conversion, Class B shares will no longer be subject to a distribution
fee.
**All expenses are based on data for the Growth Fund's fiscal year ended
December 31,
1993.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges
imposed on purchases or redemptions of Growth Fund shares and investors may
pay
actual charges of less than 5% depending on the amount purchased, and in the
case of Class B shares, the length of time the shares are held and whether the
shares are held through the 401(k) Program. See "Purchase of Shares" and
"Redemption of Shares." Management fees paid by the Growth Fund consist of
investment advisory fees paid to Boston Advisors in an amount equal to .75% of
the value of the Growth Fund's average daily net assets. This fee is higher
than
that paid by some other investment companies. The nature of the services for
which the Growth Fund pays management fees is described under "Management of
the
Trust and the Growth Fund." Smith Barney Shearson receives an annual 12b-1
service fee of .25% of the value of average daily net assets of Class A
shares.
Smith Barney Shearson receives with respect to Class B shares an annual 12b-1
fee of 1.00% of the value of average daily net assets of Class B shares,
consisting of a .75% distribution fee and a .25% service fee. "Other expenses"
in the above table includes fees for shareholder services, custodial fees,
legal
and accounting fees, printing costs and registration fees.
7
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to
a hypothetical $1,000 investment in the Growth Fund assuming a 5% total
return.
THE EXAMPLE ASSUMES PAYMENT BY THE GROWTH FUND OF OPERATING EXPENSES AT THE
LEVELS SET FORTH IN THE ABOVE TABLE. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR
LESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN,
THE GROWTH FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
10 YEARS*
<S> <C> <C> <C>
<C>
-----------------------------------------------------------------------------
- ---
Class A shares** $63 $90 $120
$203
Class B shares:
Assumes complete redemption at end of each
time period*** $72 $98 $127
$230
Assumes no redemption $22 $68 $117
$230
-----------------------------------------------------------------------------
- ---
<FN>
*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.
**Assumes deduction at the time of purchase of the maximum 5% sales charge.
***Assumes deduction at the time of redemption of the maximum CDSC applicable
for that
time period.
</TABLE>
8
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS & LYBRAND, INDEPENDENT
ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE GROWTH FUND'S ANNUAL REPORT
DATED DECEMBER 31, 1993. THE TABLE SET OUT BELOW SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR IN THE GROWTH
FUND'S ANNUAL REPORT, WHICH IS INCORPORATED BY REFERENCE INTO THE STATEMENT OF
ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR
YEAR YEAR
ENDED
ENDED ENDED
12/31/93#
12/31/92** 12/31/91
<S> <C> <C>
<C>
Net Asset Value, beginning of year $ 9.63 $
8.68 $ 7.36
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income/(loss) (0.04)
0.05 0.06
Net realized and unrealized gain/(loss) on
investments 3.44
1.63 1.47
- ------------------------------------------------------------------------------
- -------
Total from investment operations 3.40
1.68 1.53
- ------------------------------------------------------------------------------
- -------
Less distributions:
Distributions to shareholders from:
Dividends from net investment income --
(0.02) (0.06)
Distributions from net realized capital gain (0.17)
(0.71) (0.14)
Distributions from capital (Note 1) -- --
(0.01)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.17)
(0.73) (0.21)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of year $ 12.86 $
9.63 $ 8.68
- ------------------------------------------------------------------------------
- -------
Total return++ 35.27%
19.41% 20.94%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $77,564
$36,947 $34,643
Ratio of operating expenses to average net assets 1.34%
1.31% 1.19%
Ratio of net investment income/(loss) to average net
assets (0.32)%
0.55% 0.67%
Portfolio turnover rate 25%
64% 111%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced operations on January 1, 1984.
**On November 6, 1992 the Fund commenced selling Class B shares. Those shares
in existence
prior to November 6, 1992 were designated Class A shares.
#The average monthly shares method was used to calculate per share data as
the undistributed
net investment income method does not accord with results of operations for
this year.
+Per share data and the number of shares outstanding reflect a 7-for-1 stock
dividend issued
on August 7, 1989, to shareholders of record at the close of business on
August 4, 1989.
++Total return represents aggregate total return for the year indicated and
does not reflect
any applicable sales charge.
</TABLE>
10
<PAGE>
- ---------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
ENDED ENDED
12/31/90 12/31/89+ 12/31/88+ 12/31/87+ 12/31/86+
12/31/85+ 12/31/84+*
<S> <C> <C> <C> <C>
<C> <C>
$ 8.78 $ 7.08 $ 6.10 $ 11.05 $ 12.64 $
10.20 $ 8.75
-------------------------------------------------------------------------
- ------------
0.14 0.17 0.12 0.31 0.26
0.33 0.54
(1.32) 2.51 0.96 (0.61) 1.86
2.75 0.91
-------------------------------------------------------------------------
- ------------
(1.18) 2.68 1.08 (0.30) 2.12
3.08 1.45
-------------------------------------------------------------------------
- ------------
(0.14) (0.16) (0.10) (0.69) (0.32)
(0.45) --
(0.10) (0.82) -- (3.96) (3.39)
(0.19) --
-- -- -- -- --
- -- --
-------------------------------------------------------------------------
- ------------
(0.24) (0.98) (0.10) (4.65) (3.71)
(0.64) --
-------------------------------------------------------------------------
- ------------
$ 7.36 $ 8.78 $ 7.08 $ 6.10 $ 11.05 $
12.64 $ 10.20
-------------------------------------------------------------------------
- ------------
(13.46)% 37.85% 17.69% (3.53)% 18.84%
31.68% 16.62%
-------------------------------------------------------------------------
- ------------
$33,130 $40,595 $30,253 $30,160 $38,840
$38,516 $32,915
1.20% 1.17% 1.21% 1.06% 1.08%
1.32% 1.29%
1.77% 1.93% 1.72% 2.63% 2.14%
2.95% 5.66%
107% 94% 49% 115% 71%
108% 67%
-------------------------------------------------------------------------
- ------------
</TABLE>
11
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT THE YEAR:
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
12/31/93#
12/31/92*
<S> <C>
<C>
Net Asset Value, beginning of period $ 9.63
$ 9.33
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment loss (0.14)
(0.00)**
Net realized and unrealized gain on investments 3.45
1.02
- ------------------------------------------------------------------------------
- -------
Total from investment operations 3.31
1.02
- ------------------------------------------------------------------------------
- -------
Less distributions:
Distributions to shareholders from:
Dividends from net investment income --
(0.01)
Distributions from net realized capital gains (0.17)
(0.71)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.17)
(0.72)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 12.77
$ 9.63
- ------------------------------------------------------------------------------
- -------
Total return+++ 34.34%
10.98%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $156,781
$ 586
Ratio of operating expenses to average net assets 2.18%
2.21%++
Ratio of net investment loss to average net assets
(1.16)% (0.38)%++
Portfolio turnover rate 25%
64%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class B shares on November 6, 1992.
**Amount represents less than $0.01 per share.
#The average monthly shares method was used to calculate per share data as
the undistributed
net investment income method does not accord with results of operations for
this period.
++Annualized.
+++Total return represents aggregate total return for the period indicated and
does not reflect
any applicable sales charge.
</TABLE>
12
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------
VARIABLE PRICING SYSTEM
The Fund offers individual investors two methods of purchasing shares, thus
enabling investors to choose the Class that best suits their needs, given the
amount of purchase and intended length of investment.
CLASS A SHARES. Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 5% imposed at the time of purchase. The
initial
sales charge may be reduced or waived for certain purchases. Class A shares
are
subject to an annual service fee of .25% of the value of the Growth Fund's
average daily net assets attributable to the Class. The annual service fee is
used by Smith Barney Shearson to compensate its Financial Consultants for
ongoing services provided to shareholders. The sales charge is used to
compensate Smith Barney Shearson for expenses incurred in selling Class A
shares. See "Purchase of Shares."
CLASS B SHARES. Class B shares are sold at net asset value per share subject
to a maximum 5% CDSC, which is assessed only if the shareholder redeems shares
within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Growth Fund. For each
year
of investment within this five-year time frame, the applicable CDSC declines
by
1%; in year six, the applicable CDSC is reduced to 0%. See "Purchase of
Shares"
and "Redemption of Shares."
Class B shares are subject to an annual service fee of .25% and an annual
distribution fee of .75% of the value of the Growth Fund's average daily net
assets attributable to the Class. Like the service fee applicable to Class A
shares, the service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearson's branch office overhead expenses,
and marketing costs associated with Class B shares such as preparation of
sales
literature, advertising and printing and distributing prospectuses, statements
of additional information and other materials to prospective investors in
Class
B shares. A Financial Consultant may receive different levels of compensation
for selling different Classes of shares. Class B shares are subject to a
distribution fee and higher transfer agency fees than Class A shares, which,
in
turn, will cause Class B shares to have a higher expense ratio and pay lower
dividends than Class A shares.
13
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
VARIABLE PRICING SYSTEM (CONTINUED)
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
shares of each Class, and will no longer be subject to a distribution fee. In
addition, a certain portion of Class B shares that have been acquired through
the reinvestment of dividends and distributions ("Class B Dividend Shares")
will
be converted at that time. That portion will be a percentage of the total
number
of outstanding Class B Dividend Shares owned by the shareholder equal to the
ratio of the total number of Class B shares converting at the time to the
total
number of Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Class B shares will first be convertible into Class A shares on
or
about September 30, 1994. The conversion of Class B shares into Class A shares
is subject to the continuing availability of an opinion of counsel to the
effect
that such conversions will not constitute taxable events for Federal tax
purposes.
- --------------------------------------------------------------------
THE GROWTH FUND'S PERFORMANCE
TOTAL RETURN
From time to time, the Growth Fund advertises the "average annual total
return" over various periods of time for each Class of shares. Total return
figures show the average percentage change in value of an investment in the
Class from the beginning date of the measuring period to the end of the
measuring period. These figures reflect changes in the price of the Growth
Fund's shares and assume that any income dividends and/or capital gains
distributions made by the Growth Fund during the period were reinvested in
shares of the same Class. Class A average annual total return figures include
the maximum initial 5% sales charge and Class B average annual total return
figures include any applicable CDSC. These figures also take into account the
service and distribution fees, if any, payable with respect to the Classes.
Total return figures will be given for recent one-, five-and ten-year
periods
or for the life of a Class to the extent it has not been in existence for any
such periods, and may be given for other periods as well (such as from
commencement of the Growth Fund's operations, or on a year-by-year basis).
When
considering average annual total return figures for periods
14
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
THE GROWTH FUND'S PERFORMANCE (CONTINUED)
longer than one year, it is important to note that the Growth Fund's average
annual total return for any one year in the period might have been greater or
less than the average for the entire period. "Aggregate total return" figures
may be used for various periods, representing the cumulative change in value
of
an investment in a Class for the specific period (again reflecting changes in
Growth Fund share prices and assuming reinvestment of dividends and
distributions). Aggregate total returns may be calculated either with or
without
the effect of the maximum 5% sales charge for the Class A shares or any
applicable CDSC for Class B shares and may be shown by means of schedules,
charts or graphs, and may indicate subtotals of the various components of
total
return (that is, change in value of initial investment, income dividends and
capital gains distributions). Because of the differences in sales charges and
distribution fees, the performance for each of the Classes will differ.
In reports or other communications to shareholders or in advertising
material,
performance of the Classes may be compared with that of other mutual funds or
classes of shares of other funds, as the case may be, as listed in the
rankings
prepared by Lipper Analytical Services, Inc. or similar independent services
that monitor the performance of mutual funds, or other industry or financial
publications such as BARRON'S, BUSINESS WEEK, CDA INVESTMENT TECHNOLOGIES,
INC.,
FORBES, FORTUNE, INSTITUTIONAL INVESTOR, INVESTORS DAILY, KIPLINGER'S PERSONAL
FINANCE, MORNINGSTAR MUTUAL FUND VALUES, MONEY, THE NEW YORK TIMES, USA TODAY
and THE WALL STREET JOURNAL. It is important to note that total return
performance figures are based on historical earnings and are not intended to
indicate future performance. To the extent any advertisement or sales
literature
of the Growth Fund describes the expenses or performance of a Class, it will
also disclose such information for the other Class. The Statement of
Additional
Information contains a description of the methods used to determine
performance.
Performance figures may be obtained from your Smith Barney Shearson Financial
Consultant.
From commencement of operations on January 1, 1984 through December 31,
1993,
an investment in the Growth Fund (now designated as Class A shares) of $10,000
(after deducting the current maximum sales charge of 5%) grew to $45,875 when
all dividends and capital gains distributions were reinvested. Previous and
current conditions affecting the prices of the securities held by the Growth
Fund may be different from
15
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
THE GROWTH FUND'S PERFORMANCE (CONTINUED)
conditions affecting the prices of the Growth Fund's securities in the future
and, therefore, the results shown should not necessarily be considered
representative of the return that may be realized by an investment in Class A
shares today.
<TABLE>
<CAPTION>
GROWTH FUND (CLASS A SHARES)(1)
OTHER INDICES
VALUE OF
VALUE OF REINVESTED
INITIAL DIVIDENDS AND
$10,000 CAPITAL GAINS TOTAL ANNUAL
S&P ANNUAL COST OF ANNUAL
YEAR ENDED INVESTMENT DISTRIBUTIONS(4) VALUE CHANGE(%)
500* CHANGE(%) LIVING** CHANGE(%)
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
----------------------------------------------------------------------------
- ---------------------
January 1, 1984(2) $ 9,500(3) -- $ 9,500 --
$10,000 -- $10,000 --
December 31, 1984 11,079 -- 11,079 17%
10,629 6% 10,395 4%
December 31, 1985 13,725 $ 864 14,589 32%
14,004 32% 10,787 4%
December 31, 1986 11,999 5,339 17,338 19%
16,618 19% 10,909 1%
December 31, 1987 6,620 10,106 16,726 (4)%
17,491 5% 11,390 4%
December 31, 1988 7,687 11,997 19,684 18%
20,385 17% 11,894 4%
December 31, 1989 9,533 17,603 27,136 38%
26,832 32% 12,446 5%
December 31, 1990 7,991 15,492 23,483 (13)%
25,998 (3)% 13,206 6%
December 31, 1991 9,424 18,977 28,401 21%
33,902 30% 13,611 3%
December 31, 1992 10,455 23,458 33,913 19%
36,481 8% 14,006 3%
December 31, 1993 13,962 31,913 45,875 35%
40,173 10% 14,391 3%
----------------------------------------------------------------------------
- ---------
<FN>
Explanatory Notes:
(1) Does not reflect the Class A service fee of .25% of average daily net
assets of the Class.
(2) Commencement of operations.
(3) Net amount invested after deduction of 5% sales charge.
(4) No adjustment has been made for shareholders' tax liabilities on
dividends or capital gains.
*Not adjusted for brokerage commissions; dividends reinvested quarterly.
**Measured by Consumer Price Index.
</TABLE>
16
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
THE GROWTH FUND'S PERFORMANCE (CONTINUED)
CLASS A SHARES
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 with Income Dividends and
Capital Gains Distributions Reinvested From January 1, 1984 through December
31,
1993.
Mountain Chart Figures will be filed March 1, 1994.
- ------------------------------------------------------------------------------
- --
(a)Based on maximum sale charge of 5% of the offering price.
This period was one in which common stock prices fluctuated and the results
should not be considered as a representation of the dividend income or capital
gain or loss which may be realized from an investment in the Fund today. No
adjustment has been made for shareholder tax liability on dividends or capital
gains.
17
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
THE GROWTH FUND'S PERFORMANCE (CONTINUED)
The following total return figures assume that the maximum 5% sales charge
has
been deducted from the investment at the time of purchase.
The Fund's average annual total return for its Class A shares was as follows
for
the periods indicated:
28.51% for the one-year period from January 1, 1993 through December 31,
1993;
17.23% per annum during the five-year period from January 1, 1989
through
December 31, 1993; and
16.46% per annum during the period from the Growth Fund's commencement
of
operations on January 1, 1984 through December 31, 1993.
The following aggregate total return figures do not assume that the maximum 5%
sales charge has been deducted from the investment at the time of purchase.
The Fund's aggregate total return for its Class A shares was as follows for
the
periods indicated:
35.27% for the one-year period from January 1, 1993 through December 31,
1993;
133.05% for the five-year period from January 1, 1989 through December 31,
1993;
and
382.89% for the period from the Growth Fund's commencement of operations
on
January 1, 1984 through December 31, 1993.
If the maximum sales charge had been deducted at the time of purchase, the
aggregate total return for Class A shares for those same periods would have
been
28.51%, 121.40%, and 358.75%, respectively.
- --------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE GROWTH FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Growth Fund
rests
with the Trust's Board of Trustees. The Trustees approve all significant
agreements between the Growth Fund and the companies that furnish services to
the Growth Fund, including agreements with its distributor, investment
adviser,
custodian and transfer agent. The day-to-day
18
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE GROWTH FUND (CONTINUED)
operations of the Growth Fund are delegated to Boston Advisors. The Statement
of
Additional Information contains background information regarding the Trust's
Trustees and the executive officers of the Growth Fund.
INVESTMENT ADVISER AND ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Growth Fund's investment adviser and administrator. Boston
Advisors is a wholly owned subsidiary of TBC, which is in turn a wholly owned
subsidiary of Mellon. Boston Advisors provides investment management,
investment
advisory and/or administrative services to investment companies which had
aggregate assets under management as of January 31, 1994, in excess of $
billion.
Subject to the supervision and direction of the Trust's Board of Trustees,
Boston Advisors manages the Growth Fund's portfolio in accordance with the
Growth Fund's investment objective and policies, makes investment decisions
for
the Growth Fund, places orders to purchase and sell securities and employs
professional portfolio managers, and securities analysts who provide research
services to the Growth Fund.
Boston Advisors also calculates the net asset value of the Growth Fund's
shares and generally assists in all aspects of the Growth Fund's
administration
and operation.
PORTFOLIO MANAGEMENT
Guy Scott, Vice President of Boston Advisors has served as an Investment
Administrator to the Fund since October 1991 and manages the day-to-day
operations of the Fund, including making all investment decisions.
Mr. Scott's management discussion and analysis, and additional performance
information regarding the Growth Fund during the fiscal year ended December
31,
1993 is included in the Annual Report dated December 31, 1993. A copy of the
Annual Report may be obtained upon request without charge from your Smith
Barney
Shearson Financial Consultant or by writing or calling the Growth Fund at the
address or phone number listed on page one of this Prospectus.
19
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Growth Fund is capital appreciation, with
income as a secondary consideration. This investment objective may not be
changed without the approval of the holders of a majority of the Growth Fund's
outstanding shares. There is no assurance the Growth Fund's investment
objective
will be achieved.
The Growth Fund seeks to achieve its investment objective primarily through
investments in common stocks and other securities of companies engaged in the
telecommunications industry. The Growth Fund defines the telecommunications
industry as including companies engaged in the communication, display,
reproduction, storage and retrieval of information, generally in one or more
of
the following forms: voice, data or print facsimile. Under normal market
conditions, at least 65% of the value of the total assets of the Growth Fund
will be invested in securities of issuers engaged in the telecommunications
industry. When Boston Advisors believes that market conditions warrant
adoption
of a defensive investment posture, the Growth Fund temporarily may have less
than 65% of the value of its total assets invested in that industry. Examples
of
companies in the telecommunications industry in which the Growth Fund may
invest
include issuers engaged in providing the following products and services:
COMMUNICATIONS EQUIPMENT AND SERVICES, including equipment and services for
both data and voice transmission.
ELECTRONIC COMPONENTS AND EQUIPMENT, including semiconductors and other
electronic components used in the manufacture of communications equipment, as
well as electronic testing instruments, and companies providing component
parts
and services to companies engaged in these activities.
BROADCASTING, including television and radio broadcasting and cable
television.
COMPUTER EQUIPMENT, including mainframe computers, minicomputers,
microcomputers, peripheral devices and software.
MOBILE COMMUNICATIONS AND CELLULAR RADIO/PAGING.
ELECTRONIC MAIL.
LOCAL NETWORKING AND LINKAGE OF WORD AND DATA PROCESSING SYSTEMS.
20
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
PUBLISHING AND INFORMATION SYSTEMS, including news production and
dissemination and data base information services.
VIDEOTEXT AND TELETEXT.
This list is illustrative only as the telecommunications industry is
changing
rapidly due to technological and other developments.
Securities for the Growth Fund are selected primarily on the basis of their
potential for capital appreciation and, as a result, the Growth Fund invests
principally in common stocks. The Growth Fund also may invest in other types
of
securities, including convertible bonds, convertible preferred stocks,
warrants,
preferred stocks and debt securities, when Boston Advisors determines that
their
purchase would further the Growth Fund's investment objective.
The Trust is classified as a non-diversified investment company under the
1940
Act, which means that the Growth Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. The Growth Fund intends to conduct its operations, however, so as to
qualify as a "regulated investment company" for purposes of the Code, which
will
relieve the Growth Fund of any liability for Federal income tax to the extent
its earnings are distributed to shareholders. To so qualify, among other
requirements, the Growth Fund will limit its investments so that, at the close
of each quarter of the taxable year, (a) not more than 25% of the market value
of the Growth Fund's total assets will be invested in the securities of a
single
issuer and (b) with respect to 50% of the market value of its total assets,
not
more than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Growth Fund will not own more than 10%
of
the outstanding voting securities of a single issuer. These 25% and 5% limits
will not be deemed to be exceeded to the extent that any excess results from
fluctuations in market value or sales of other securities, as opposed to
purchases of securities. The Growth Fund's assumption of large positions in
the
securities of a small number of issuers may cause its share price to fluctuate
to a greater extent than that of a diversified investment company as a result
of
changes in the financial condition or in the market's assessment of the
issuers.
21
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Further information about the Growth Fund's investment policies, including a
list of those restrictions on the Growth Fund's investment activities that
cannot be changed without shareholder approval, appears in the Statement of
Additional Information.
INVESTMENT POLICIES AND STRATEGIES
FOREIGN SECURITIES. The Growth 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 and 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 securities of
comparable domestic companies. In addition, with respect to certain foreign
countries, there is the possibility of expropriation, confiscatory taxation
and
limitations on the use or removal of funds or other assets of the Growth Fund,
including the withholding of dividends.
LENDING OF PORTFOLIO SECURITIES. From time to time, the Growth Fund may lend
its portfolio securities to brokers, dealers and other financial
organizations.
Such loans will not exceed 33 1/3% of the Growth Fund's total assets, taken at
value. Loans of portfolio securities by the Growth Fund will be collateralized
by cash, letters of credit or obligations of the United States government, its
agencies and instrumentalities ("U.S. government securities") which are
maintained at all times in a segregated account with the Growth Fund's
custodian
in an amount at least equal to the current market value of the loaned
securities. By lending its portfolio securities, the Growth Fund will seek to
generate income by continuing to receive interest on the 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
22
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
possible loss of rights in the collateral should the borrower fail
financially.
Loans will be made to firms deemed by Boston Advisors to be of good standing
and
will not be made unless, in the judgment of Boston Advisors, the consideration
to be earned from such loans would justify the risk.
BORROWING. The Growth Fund is authorized to borrow money in an amount up to
10% of its total assets (including the amount borrowed) valued at the market
less liabilities (not including the amount borrowed) for extraordinary or
emergency purposes (such as meeting unanticipated redemptions). Whenever
borrowings exceed 5% of the value of the Growth Fund's total assets, the
Growth
Fund will not purchase securities for investment.
SHORT-TERM INVESTMENTS. The Growth Fund may hold a limited amount of money
market instruments (no more than 35% of the value of its assets) under normal
market conditions but, when market conditions dictate a defensive investment
strategy, the Growth Fund may invest without limitation (except for applicable
Investment Restrictions as described in the Statement of Additional
Information), 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 Growth Fund may 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
Growth
Fund would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Growth Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Growth Fund's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Growth Fund's holding period. The value of
the
underlying securities at all times will be at least equal to the total amount
of
the repurchase
23
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- ---------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
obligation, including interest. Repurchase agreements could involve certain
risks in the event of default or insolvency of the other party, including
possible delays or restrictions upon the Growth 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 Growth 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. Boston Advisors, acting under the supervision of the Trust's Board
of
Trustees, reviews on an ongoing basis the value of the collateral and the
creditworthiness of those banks and dealers with which the Growth Fund enters
into repurchase agreements to evaluate potential risks.
COVERED CALL OPTIONS. In order to earn additional income, and as a means of
seeking to partially protect its assets against market declines, the Growth
Fund
may, to a limited extent, write covered call option contracts on certain
securities and purchase call option contracts for the purpose of terminating
its
outstanding obligations with respect to securities upon which call option
contracts have been written ("closing purchase transactions"). Only call
option
contracts that are traded on a domestic exchange will be written. The Growth
Fund's ability to engage in closing purchase transactions depends on the
existence of a liquid secondary market; for some options no such secondary
market may exist or the market may cease to exist.
The Growth Fund may write option contracts on its securities up to an amount
not in excess of 20% of the value of its net assets at the time that such
options are written. The Growth Fund may not sell (uncover) the securities
against which an option contract has been written until after the option
period
has expired, the option contract has been exercised or a closing purchase has
been executed. Successful use of options by the Growth Fund will depend on the
ability of Boston Advisors to correctly predict movements in the prices of the
securities underlying the options.
PORTFOLIO TRANSACTIONS. Portfolio securities transactions on behalf of the
Growth Fund will be executed by a number of brokers and dealers, including
Smith
Barney Shearson and certain of its affiliated brokers, that are selected by
Boston Advisors. The Growth Fund may use Smith Barney Shearson or a broker
affiliated with Smith Barney Shearson in connection
24
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
with a purchase or sale of securities when Boston Advisors believes that such
broker's charge for the transaction does not exceed usual and customary
levels.
CERTAIN RISK CONSIDERATIONS
Shareholders should be aware that the Growth Fund concentrates its assets in
the telecommunications industry and, as a result, the Growth Fund should not
be
considered as a complete investment program. Moreover, the investment
flexibility of the Growth Fund may be restricted by the necessity of
satisfying
certain diversification requirements in order to maintain the qualification of
the Growth Fund as a regulated investment company within the meaning of the
Code. See "Dividends, Distributions and Taxes." The Growth Fund's assumption
of
large positions in the securities of a small number of issuers may cause its
share price to fluctuate to a greater extent than that of a diversified
investment company as a result of changes in the financial condition or in the
market's assessment of the issuers.
- --------------------------------------------------------------------
PURCHASE OF SHARES
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney Shearson or with an Introducing Broker, except that
investors
purchasing shares of the Growth Fund through a qualified retirement plan may
do
so directly through TSSG. When purchasing shares of the Growth Fund, investors
must specify whether the purchase is for Class A or Class B shares. No
maintenance fee will be charged in connection with a brokerage account through
which an investor purchases or holds shares. Purchases are effected at the
public offering price next determined after a purchase order is received by
Smith Barney Shearson or the Introducing Broker (the "trade date"). Payment
generally is due to Smith Barney Shearson or to the Introducing Broker on the
fifth business day (the "settlement date") after the trade date. Investors who
make payment prior to the settlement date may permit the payment to be held in
their brokerage accounts or may designate a temporary investment (such as a
money market fund in the Smith Barney Shearson Group of Funds) for the payment
until the settlement date. The Growth Fund reserves the right to reject any
purchase order and to suspend the offering of shares for a period of time.
25
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Purchase orders received by Smith Barney Shearson or the Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York
time, on any business day the Growth Fund calculates its net asset value, are
priced according to the net asset value determined on that day. Purchase
orders
received after the close of regular trading on the NYSE are priced as of the
time the net asset value is next determined. See "Valuation of Shares."
SYSTEMATIC INVESTMENT PLAN. The Growth Fund offers shareholders a Systematic
Investment Plan under which shareholders may authorize Smith Barney Shearson
or
an Introducing Broker to place a purchase order each month or quarter for
Growth
Fund shares in an amount not less than $100. The purchase price is paid
automatically from cash held in the shareholder's Smith Barney Shearson
brokerage account or through the automatic redemption of the shareholder's
shares of a Smith Barney Shearson money market fund. For further information
regarding the Systematic Investment Plan, shareholders should contact their
Smith Barney Shearson Financial Consultants.
MINIMUM INVESTMENTS. The minimum initial investment in the Growth Fund is
$1,000 and the minimum subsequent investment is $200, except for (a) IRAs and
Self-Employed Retirement Plans, the minimum initial and subsequent investment
is
$250 and $100, respectively, (b) retirement plans qualified under section
403(b)(7) of the Code, the minimum initial and subsequent investment in the
Growth Fund is $25 and (c) the Fund's Systematic Investment Plan, the minimum
initial and subsequent investment is $100. No minimum investment requirements
are imposed on employees of The Travelers Inc. ("Travelers") and its
subsidiaries, including Smith Barney Shearson. The Growth Fund reserves the
right at any time to vary the initial and subsequent investment minimums.
Certificates for Growth Fund shares are issued upon request to TSSG.
26
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class plus a sales charge, which is imposed in accordance with the
following schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES
CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET
ASSET VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- ---------------
Less than $25,000 5.00%
5.26%
$25,000 but under $100,000 4.00%
4.17%
$100,000 but under $250,000 3.25%
3.36%
$250,000 but under $500,000 2.50%
2.56%
$500,000 but under $1,000,000 2.00%
2.04%
$1,000,000 or more** .00%
.00%
- ------------------------------------------------------------------------------
- -------
<FN>
*Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and
Introducing Brokers that single investments of $250,000 or more should be
made in Class A
Shares.
**No sales charge is imposed on purchases of Class A shares of $1 million or
more; however, a
CDSC of .75% is imposed for the first year after purchase. The CDSC on Class
A shares is
payable to Smith Barney Shearson which, with Boston Advisors, will
compensate Smith Barney
Shearson Financial Consultants upon the sale of these shares. The CDSC on
Class A shares is
waived in the same circumstances in which the CDSC applicable to Class B
shares is waived.
See "Redemption of Shares -- Contingent Deferred Sales Charge -- Class B
Shares -- Waivers
of CDSC."
</TABLE>
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Class A shares to receive volume discounts. Investors
eligible to receive volume discounts include individuals and their immediate
families, tax-qualified employee benefit plans and trustees or other
professional fiduciaries (including a bank, or an investment adviser
registered
with the SEC under the Investment Advisers Act of 1940, as amended) purchasing
shares for one or more trust estates or fiduciary accounts even though more
than
one beneficiary is involved. The initial sales charge is also reduced to 1%
for
Smith Barney Shearson Personal Living Trust program participants for whom
Smith
Barney Shearson acts as trustee. Reduced sales charges on Class A shares are
also available under a combined right of accumulation, under which an investor
may combine the value of Class A shares already held in the Growth Fund and in
any of the funds in the Smith Barney Shearson Group of Funds listed below
(except those sold without a sales charge), along with the value of the Class
A
27
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
shares being purchased, to qualify for a reduced sales charge. For example, if
a
shareholder owns Class A shares of the Growth Fund and other funds in the
Smith
Barney Shearson Group of Funds that have an aggregate value of $22,000, and
makes an additional investment in Class A shares of the Growth Fund of $4,000,
the sales charge applicable to the additional investment would be 4%, rather
than the 5% normally charged on a $4,000 purchase. Shareholders interested in
further information regarding reduced sales charges should contact their Smith
Barney Shearson Financial Consultants.
Class A shares of the Growth Fund may be offered without any applicable
sales
charges to: (a) employees of Travelers and its subsidiaries, including Smith
Barney Shearson, employee benefit plans for such employees and their immediate
families when orders on their behalf are placed by such employees; (b)
accounts
managed by registered investment advisory subsidiaries of Travelers; (c)
directors, trustees or general partners of any investment company for which
Smith Barney Shearson serves as distributor; (d) any other investment company
in
connection with the combination of such company with the Growth Fund by
merger,
acquisition of assets or otherwise; (e) shareholders who have redeemed Class A
shares in the Growth Fund (or Class A shares of another fund in the Smith
Barney
Shearson Group of Funds that are sold with a maximum 5% sales charge) and who
wish to reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 30 days of the redemption; and (f) any client of a
newly-employed Smith Barney Shearson Financial Consultant (for a period up to
90
days from the commencement of the Financial Consultant's employment with Smith
Barney Shearson), on the condition that the purchase is made with the proceeds
of the redemption of shares of a mutual fund that (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to a client by the
Financial Consultant, and (iii) when purchased, such shares were sold with a
sales charge or are subject to a charge upon redemption.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of
28
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
purchase. A CDSC is imposed, however, on certain redemptions of Class B
shares.
See "Redemption of Shares" which describes the CDSC in greater detail.
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Smith
Barney
Shearson Financial Consultants and Introducing Brokers that all purchases of
shares of $250,000 or more should be for Class A shares. Smith Barney Shearson
reserves the right to vary these guidelines at any time.
SMITH BARNEY SHEARSON 401(K) PROGRAM
Shareholders investing in the Growth Fund may be eligible to participate in
the 401(k) Program which is generally designed to assist employers or plan
sponsors in the creation and operation of retirement plans qualified under
Section 401(a) of the Code. To the extent applicable the same terms and
conditions are offered to all Participating Plans in the 401(k) Program which
include both 401(k) plans and to other types of participant directed,
tax-qualified employee benefit plans.
Under the 401(k) Program, a Participating Plan may invest in Class A or
Class
B shares depending on the amount of its initial investment and number of
employees eligible to participate in the Participating Plan at that time. Once
a
Participating Plan has made an initial investment in the Growth Fund, all of
its
subsequent investments in the Growth Fund must be in the same Class of shares,
except as otherwise described below.
CLASS A SHARES. The sales charges for Class A shares acquired by
Participating
Plans are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES
CHARGE AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF NET
ASSET VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- ---------------
Less than $25,000 5.00%
5.26%
$25,000 up to $100,000 4.00%
4.17%
$100,000 up to $250,000 3.25%
3.36%
$250,000 up to $500,000 2.50%
2.56%
$500,000 up to $750,000 2.00%
2.04%
$750,000 and over .00%
.00%
- ------------------------------------------------------------------------------
- -------
</TABLE>
29
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
A Participating Plan will have a combined right of accumulation under which,
to qualify for a reduced sales charge, it may combine the value of Class A
shares being purchased with the value of Class A shares already held in the
Growth Fund and in any of the funds listed below under "Exchange Privilege"
that
are sold with a sales charge.
Class A shares of the Growth Fund may be offered without any sales charge to
any Participating Plan that: (a) initially intends to purchase $750,000 or
more
Class A shares of one or more funds in the Smith Barney Shearson Group of
Funds
under the combined right of accumulation described above; (b) has 250 or more
employees eligible to participate in the Participating Plan; or (c) currently
holds Class A shares in the Growth Fund that were received as a result of an
exchange of Class B shares of the Growth Fund.
Class A shares acquired through the 401(k) Program will not be subject to a
CDSC.
CLASS B SHARES. Under the 401(k) Program, Class B shares are offered to
Participating Plans that: (a) initially intend to purchase less than $250,000
Class B shares of one or more funds in the Smith Barney Shearson Group of
Funds
that are sold with a CDSC; and (b) that have less than 100 employees eligible
to
participate in the Participating Plan at the time of initial investment. Class
B
shares acquired by such Plans will be subject to a CDSC of 3% of redemption
proceeds, if redeemed within eight years of the date the Participating Plan
first purchases Class B shares. No charge is imposed to the extent that the
net
asset value of the Class B shares redeemed does not exceed (a) the current net
asset value of Class B shares purchased through reinvestment of dividends or
capital gains distributions, plus (b) the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus (c)
increases in the net asset value of the shareholder's Class B shares above the
purchase payments made during the preceding eight years. The CDSC applicable
to
a Participating Plan depends on the number of years since the Participating
Plan
first became a holder of Class B shares, unlike the CDSC applicable to other
Class B shareholders, which depends on the number of years since those
shareholders made the purchase payment from which the amount is being
redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a
30
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
result of: (a) the retirement of an employee in the Participating Plan; (b)
the
termination of employment of an employee in the Participating Plan; (c) the
death or disability of an employee in the Participating Plan; (d) the
attainment
of age 59 1/2 by an employee in the Participating Plan; (e) hardship of an
employee in the Participating Plan to the extent permitted under Section
401(k)
of the Code; or (f) redemptions of Class B shares in connection with a loan
made
by the Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class B
share, it will be offered the opportunity to exchange all of its Class B
shares
for Class A shares of the Growth Fund. Such Plans will be notified of the
pending exchange in writing approximately 90 days before the eighth
anniversary
of the purchase date and, unless the exchange has been rejected in writing,
the
exchange will occur on or about the eighth anniversary date. If the
Participating Plan elects not to exchange all of its Class B shares at that
time, each Class B share held by the Participating Plan will have the same
conversion feature as Class B shares held by other investors. See "Variable
Pricing System--Class B Shares."
For further information regarding the 401(k) Program, investors should
contact
their Smith Barney Shearson Financial Consultants.
- --------------------------------------------------------------------
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day on which the Growth Fund
calculates net asset value. See "Valuation of Shares." Redemption requests
received in proper form prior to the close of regular trading on the NYSE are
priced at the net asset value per share determined on that day. Redemption
requests received after the close of regular trading on the NYSE are priced at
the net asset value next determined. If a shareholder holds shares in more
than
one Class, any request for redemption must specify the Class being redeemed.
In
the event of a failure to specify which Class, or if the investor owns fewer
shares of the Class than specified, the redemption request will be delayed
until
TSSG receives further instructions from Smith Barney Shearson, or if the
shareholder's account is not with Smith Barney Shearson, from the shareholder
directly.
31
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
The Growth Fund normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney Shearson or the Introducing Broker at no
charge (other than any applicable CDSC) within seven days after receipt of a
redemption request. Generally, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney Shearson
will benefit from the use of temporarily uninvested funds. A shareholder who
pays for Growth Fund shares by personal check will be credited with the
proceeds
of a redemption of those shares only after the purchase check has been
collected, which may take up to 10 days or more. A shareholder who anticipates
the need for more immediate access to his or her investment should purchase
shares with Federal funds, by bank wire or a certified or cashier's check.
A Growth Fund account that is reduced by a shareholder to a value of $500 or
less may be subject to redemption by the Growth Fund, but only after the
shareholder has been given at least 30 days in which to increase the account
balance to more than $500.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A shareholder desiring to redeem shares represented by
certificates must also present the certificates to Smith Barney Shearson or
the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
the certificates are received by TSSG in proper form.
32
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submitting a written request to your Smith Barney Shearson Financial
Consultant.
All other shares may be redeemed by submitting a written request for
redemption
to:
Smith Barney Shearson Telecommunications Trust--
Smith Barney Shearson Telecommunications Growth Fund
Class A or B (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to TSSG or your Smith Barney Shearson Financial
Consultant 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 registered. If the shares to
be
redeemed were issued in certificate form, the certificates must be endorsed
for
transfer (or be accompanied by an endorsed stock power) and must be submitted
to
TSSG together with the redemption request. Any signature appearing on a
redemption request, share certificate or stock power must be guaranteed by 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.
TSSG 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 TSSG receives all required
documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Growth 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 periodic cash payments of at least $50 monthly. Retirement plan
accounts
are eligible for automatic cash withdrawal plans only where the shareholder is
eligible to receive qualified distributions and has an account value of at
least
$5,000. Any applicable CDSC will not be waived on amounts withdrawn by a
shareholder that exceed 2% per month of the value of the shareholder's Class B
shares subject to the CDSC at the
33
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
time the withdrawal plan commences. For further information regarding the
automatic cash withdrawal plan, shareholders should contact their Smith Barney
Shearson Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years, except in the case of purchases by Participating Plans as described
above. See "Purchase of Shares -- Smith Barney Shearson 401(k) Program." No
charge is imposed to the extent that the net asset value of the Class B shares
redeemed does not exceed (a) the current net asset value of Class B shares
purchased through reinvestment of dividends or capital gains distributions,
plus
(b) the current net asset value of Class B shares purchased more than five
years
prior to the redemption, plus (c) increases in the net asset value of the
shareholder's Class B shares above the purchase payments made during the
preceding five years.
In circumstances in which the CDSC is imposed, 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, except in the case of purchases
through
Participating Plans, which are subject to a different CDSC. See "Purchase of
Shares -- Smith Barney Shearson 401(k) Program." Solely for purposes of
determining the number of years since a purchase payment, all purchase
payments
during a month will be aggregated and deemed to have been made on the last day
of the preceding Smith Barney Shearson statement month. The following table
sets
forth the rates of the charge for redemptions of Class B shares by investors
other than Participating Plans:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
<S> <C>
- ------------------------------------------------------------------------------
- ----
First
5.00%
Second
4.00%
Third
3.00%
Fourth
2.00%
</TABLE>
34
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
- ------------------------------------------------------------------------------
- ----
<S> <C>
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
- ------------------------------------------------------------------------------
- ----
</TABLE>
Class B shares will automatically convert to Class A shares eight years
after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System -- Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not
already been effected. In the case of redemptions of Class B shares of other
funds in the Smith Barney Shearson Group of Funds issued in exchange for Class
B
shares of the Growth Fund, the term "purchase payments" refers to the purchase
payments for the shares given in exchange. In the event of an exchange of
Class
B shares of funds with differing CDSC schedules, the shares will be, in all
cases, subject to the higher CDSC schedule. See "Exchange Privilege."
WAIVERS OF CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) automatic cash withdrawals in amounts equal to or less than
2%
per month of the value of the shareholder's shares at the time the withdrawal
plan commences (see above); (c) redemptions of shares in connection with
certain
post-retirement distributions and withdrawals from retirement plans or IRAs;
(d)
redemptions following the death or disability of a shareholder; (e)
involuntary
redemptions; (f) redemption proceeds from other funds in the Smith Barney
Shearson Group of Funds that are reinvested within 30 days of the redemption;
(g) redemptions of shares in connection with a combination of any investment
company with the Growth Fund by merger, acquisition of assets or otherwise;
and
(h) certain redemptions of shares of the Growth Fund in connection with lump-
sum
or other distributions made by a Participating Plan in the 401(k) Program. See
"Purchase of Shares -- Smith Barney Shearson 401(k) Program."
35
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of a Class is determined as of the close of
regular trading on the NYSE and is computed by dividing the value of the
Growth
Fund's net assets attributable to that Class by the total number of shares of
that Class outstanding. Generally, the Growth Fund's investments are valued at
market value, or in the absence thereof with respect to any securities, at
fair
value as determined by Boston Advisors after consultation with or under the
direction of an independent pricing service approved by the Trust's Board of
Trustees. Short-term investments that mature in 60 days or less are valued at
amortized cost whenever the Trust's Board of Trustees determines that
amortized
cost reflects fair value for those investments. Amortized cost involves
valuing
an instrument at its original cost to the Growth Fund and thereafter assuming
a
constant amortization to maturity of any discount or premium, regardless of
the
impact of fluctuating interest rates on the market value of the instrument.
Further information regarding the Growth Fund's valuation policies is
contained
in the Statement of Additional Information.
36
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same class of shares
in the following funds in the Smith Barney Shearson Group of Funds, to the
extent shares are offered for sale in the shareholder's state of residence:
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
-----------------------------------------------------------------------------
- --
MUNICIPAL BOND FUNDS
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in
investment
grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate-
and long-term municipal bond fund investing in medium- and
lower-rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
Arizona investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors investing in investment
grade obligations.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Massachusetts investors.
</TABLE>
37
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term bond fund designed for
New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New York investors.
INCOME FUNDS
A, B SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME
FUND,
seeks high current income while limiting the degree of
fluctuation in net asset value resulting from movement in
interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests
in
a portfolio of high quality debt securities that may be
denominated in U.S. dollars or selected foreign currencies
and
that have remaining maturities of not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests
in
high quality, short-term debt securities denominated in U.S.
dollars as well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests
exclusively in securities issued by the United States
Treasury
and other U.S. government securities.
A, B SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND,
seeks
high current income primarily by allocating and reallocating
its assets among various types of fixed-income securities.
</TABLE>
38
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC., invests
in obligations issued or guaranteed by the United States
government and its agencies and instrumentalities with
emphasis on mortgage-backed government securities.
A, B SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a
high
current return by investing in U.S. government securities.
A, B SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks
maximum current income consistent with prudent investment
management and preservation of capital by investing in
corporate bonds.
A, B SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income by investing in high-yielding corporate bonds,
debentures and notes.
A, B SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current income
and capital appreciation by investing in bonds, debentures
and
notes of foreign and domestic issuers.
GROWTH AND INCOME FUNDS
A, B SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income
and capital appreciation by investing in convertible
securities.
A, B SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing in equity and debt securities of utilities
companies.
A, B SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high
total return consisting of current income and capital
appreciation by investing in a combination of equity, fixed-
income and money market securities.
</TABLE>
39
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by investing in dividend-paying common stocks.
A, B SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks income
and
long-term capital growth by investing in income-producing
equity securities.
GROWTH FUNDS
A, B SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-
term
appreciation of capital.
A, B SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks
long-term capital growth with current income as a secondary
objective.
A, B SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
A, B SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A, B SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-term
capital appreciation by investing in equity securities
primarily of emerging growth companies.
A, B SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks
long-term capital growth by investing principally in the
common stocks of foreign and domestic issuers.
A, B SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in European countries.
</TABLE>
40
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND
INC.,
seeks long-term capital appreciation by investing primarily
in
precious metal- and mineral-related companies and gold
bullion.
MONEY MARKET FUNDS
* SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of high quality money market
instruments.
** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND INC., invests in a
diversified portfolio of high quality money market
instruments.
** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND INC.,
invests in short-term U.S. government and agency securities.
** SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND INC.,
invests in short-term high quality municipal obligations.
** SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND,
invests in short-term, high quality California municipal
obligations.
** SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND,
invests in short-term, high quality New York municipal
obligations.
---------------------------------------------------------------------------
<FN>
*Shares of this money market fund may be exchanged for Class B shares of the
Growth Fund.
**Shares of this money market fund may be exchanged for Class A shares of the
Growth Fund.
</TABLE>
TAX EFFECT. The exchange of shares of one fund for shares of another fund is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
CLASS A EXCHANGES. Class A shareholders of the Growth Fund or shareholders
holding Class A shares of any of the funds in the Smith Barney
41
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 5% will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A shares of any of
such funds sold with a higher sales charge. The "sales charge differential" is
limited to a percentage rate no greater than the excess of the sales charge
rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends, as described below, are treated as having paid the
same sales charges applicable to the shares on which the dividends were paid.
However, except in the case of the 401(k) Program, if no sales charge was
imposed upon the initial purchase of the shares, any shares obtained through
automatic reinvestment will be subject to a sales charge differential upon
exchange.
CLASS B EXCHANGES. Class B shareholders of the Growth Fund who wish to
exchange all or a portion of their Class B shares for Class B shares of any of
the funds identified above may do so without imposition of an exchange fee. In
the event a Class B shareholder wishes to exchange all or a portion of his or
her shares for shares in any of these funds imposing a CDSC higher than that
imposed by the Growth 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 Growth
Fund
which have been exchanged.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Although the
exchange
privilege is an important benefit, excessive exchange transactions can be
detrimental to the Fund's performance and its shareholders. Greenwich Street
Advisors 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,
Greenwich Street Advisors will notify Smith Barney Shearson, and Smith Barney
Shearson may, at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination, Smith Barney Shearson
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 Smith Barney Shearson
funds
42
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
ordinarily available, which position the shareholder would expect to maintain
for a significant period of time. All relevant factors will be considered in
determining what constitutes an abusive pattern of exchanges.
Shareholders exercising the exchange privilege with any of the other funds
in
the Smith Barney Shearson Group of Funds should review the prospectus of that
fund carefully prior to making an exchange. Smith Barney Shearson reserves the
right to reject any exchange request. The exchange privilege may be modified
or
terminated at any time after written notice to shareholders. For further
information regarding the exchange privilege or to obtain the current
prospectuses for members of the Smith Barney Shearson Group of Funds,
investors
should contact their Smith Barney Shearson Financial Consultants.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013 and serves as distributor of the Growth Fund's shares. It is a wholly
owned subsidiary of Smith Barney Shearson Holdings Inc., which is in turn a
wholly owned subsidiary of Travelers, a diversified financial services holding
company, engaged in the businesses of providing investment, consumer finance
and
insurance services. Smith Barney Shearson is paid an annual service fee with
respect to Class A and Class B shares of the Growth Fund at the rate of .25%
of
the value of the average daily net assets of the respective Class. Smith
Barney
Shearson is also paid an annual distribution fee with respect to Class B
shares
at the rate of .75% of the value of the average daily net assets attributable
to
that Class. The fees are authorized pursuant to a services and distribution
plan
(the "Plan") adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act and
are used by Smith Barney Shearson to pay its Financial Consultants for
servicing
shareholder accounts and to cover expenses primarily intended to result in the
sale of those shares of the Fund. These expenses include: costs of printing
and
distributing the Growth Fund's Prospectus, Statement of Additional Information
and sales literature to prospective investors; an allocation of overhead and
other Smith Barney Shearson branch office distribution-related expenses;
payments to and expenses of Smith Barney Shearson Financial Consultants and
other persons who provide support services in connection with the
43
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
distribution of the shares; and accruals for interest on the amount of the
foregoing expenses that exceed distribution fees and the CDSC received by
Smith
Barney Shearson. The payments to Smith Barney Shearson Financial Consultants
for
selling shares of a Class include a commission paid at the time of sale and a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. The service fee is credited at the rate of
.25%
of the value of the average daily net assets of the Class that remain invested
in the Growth Fund. Smith Barney Shearson Financial Consultants may receive
different levels of compensation for selling one Class over another.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson, and
the
payments may exceed distribution expenses actually incurred. The Trust's Board
of Trustees will evaluate the appropriateness of the Plan and its payment
terms
on a continuing basis and in so doing will consider all relevant factors,
including expenses borne by Smith Barney Shearson and the amount received
under
the Plan and proceeds of the CDSC.
- --------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
It is the Growth Fund's policy to distribute its net 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 the shareholder instructs
that dividends and capital gains distributions on shares of any Class be paid
in
cash and credited to the shareholder's account at Smith Barney Shearson,
dividends and capital gains distributions will be reinvested automatically in
additional shares of the Growth Fund at net asset value, subject to no sales
charge or CDSC. In addition, in order to avoid the application of a 4%
nondeductible excise tax on certain undistributed amounts of ordinary income
and
capital gains, the Growth Fund may make an additional distribution shortly
before December 31 in each year of any undistributed ordinary income or
capital
gains and expects to make any other distributions necessary to avoid the
application of this tax.
44
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Dividends paid from investment income and distributions of net realized
short-term capital gains are taxable to shareholders as ordinary income
regardless of how long shareholders have held their Growth Fund shares and
whether such dividends and distributions are received in cash or reinvested in
additional Growth Fund shares. Distributions of net realized long-term capital
gains will be taxable to shareholders as long-term capital gains, regardless
of
how long shareholders have held Growth Fund shares and whether such
distributions are received in cash or are reinvested in additional Growth Fund
shares. Furthermore, as a general rule, a shareholder's gain or loss on a sale
or redemption of Growth Fund shares will be a long-term capital gain or loss
if
the shareholder has held the shares for more than one year and will be a
short-term capital gain or loss if the shareholder has held the shares for one
year or less. The per share dividends and distributions on Class A shares will
be higher than those on Class B shares as a result of lower distribution and
transfer agency fees applicable to the Class A shares.
Generally, dividends of investment income (but not capital gain) from the
Growth Fund will qualify for the Federal dividends-received deduction for
corporate shareholders. Each shareholder will receive a statement annually
from
the Growth Fund, which will set forth separately the aggregate dollar amount
of
dividends and capital gains distributed to the shareholder by the Growth Fund
with respect to the prior calendar year and the amount of the distributions
that
qualify for the dividends-received deduction.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder also will receive, if
appropriate, various written notices after the close of the Growth Fund's
prior
taxable year as to the Federal income tax status of his or her dividends and
distributions which were received from the Growth Fund during the Growth
Fund's
prior taxable year.
Shareholders should consult their tax advisors about the status of dividends
and distributions from the Growth Fund in their own states and localities and
with respect to their own tax situations.
45
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------
ADDITIONAL INFORMATION
The Trust was organized on June 2, 1983, under the laws of the Commonwealth
of
Massachusetts and is a business entity commonly known as a "Massachusetts
business trust." On October 4, 1989, the Trust and the Growth Fund changed
their
names from American Telecommunications Trust and Growth Portfolio Shares to
SLH
Telecommunications Trust and SLH Telecommunications Growth Fund, respectively.
On August 27, 1990, the Trust and the Growth Fund changed their names to
Shearson Lehman Brothers Telecommunications Trust and Telecommunications
Growth
Fund, respectively. On July 30, 1993 the Trust and the Growth Fund changed
their
names to Smith Barney Shearson Telecommunications Trust and Smith Barney
Shearson Telecommunications Growth Fund, respectively. The Trust is registered
with the SEC as an open-end, non-diversified management investment company.
The Trustees have authority to create an unlimited number of shares of
beneficial interest of the Trust, with a par value of $.001 per share. To
date,
two sub-trusts have been authorized, which constitute the Growth Fund and the
Income Fund. The Trustees have authority to create additional sub-trusts at
any
time in the future without shareholder approval. The Trustees from time to
time
may consider whether to offer a new sub-trust to the general public.
Each Class of shares represents identical interests in the Growth Fund's
investment portfolio. As such, they 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 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 Trust's Board of
Trustees does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes of shares of the Growth
Fund.
The Trustees, on an ongoing basis, will consider whether any such conflict
exists and, if so, take appropriate action.
When matters are submitted for shareholder vote, shareholders of each
sub-trust 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 Trust vote by individual sub-trust on all matters except (a) matters
46
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
affecting only the interests of one or more of the sub-trusts, in which case
only shares of the affected sub-trust or sub-trusts would be entitled to vote,
or (b) when the 1940 Act requires that shares of the sub-trusts be voted in
the
aggregate. There normally will be no meetings of shareholders for the purpose
of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. Shareholders of
record of no less than two-thirds of the outstanding shares of the Trust may
remove a Trustee through a declaration in writing or by vote cast in person or
by proxy at a meeting called for that purpose. A meeting will be called for
the
purpose of voting on the removal of a Trustee at the written request of the
holders of 10% of the Trust's outstanding shares.
Boston Safe Deposit and Trust Company, a wholly owned subsidiary of TBC, is
located at One Boston Place, Boston, Massachusetts 02108, and serves as
custodian of the Trust's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as
the Growth Fund's transfer agent.
The Growth Fund sends shareholders a semi-annual report and an audited
annual
report, which include listings of investment securities held by it at the end
of
the period covered. Shareholders may make inquiries regarding the Growth Fund
to
their Smith Barney Shearson Financial Consultants. In an effort to reduce the
Growth Fund's printing and mailing costs, the Growth Fund plans to consolidate
the mailing of its semi-annual and annual reports by household. This
consolidation means that a household having multiple accounts with the
identical
address of record will receive a single copy of each report. In addition, the
Growth Fund also plans to consolidate the mailing of its Prospectus so that a
shareholder having multiple accounts (that is, individual, IRA and/or
Self-Employed Retirement Plan accounts) will receive a single Prospectus
annually. Any shareholder who does not want this consolidation to apply to his
or her account should contact his or her Smith Barney Shearson Financial
Consultant or TSSG.
Shareholders may seek information regarding the Growth Fund from their Smith
Barney Shearson Financial Consultants.
47
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN THE
STATEMENT
OF ADDITIONAL INFORMATION AND/OR IN THE GROWTH FUND'S OFFICIAL SALES
LITERATURE
IN CONNECTION WITH THE OFFERING OF THE GROWTH FUND'S SHARES, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE GROWTH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
48
<PAGE>
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS
GROWTH
FUND
Two World Trade Center
New York, New York 10048
Fund 12
FD0207 B4
Smith Barney Shearson
TELECOMMUNICATIONS GROWTH FUND
Two World Trade Center
New York, New York 10048
(212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Shearson
Telecommunications Growth Fund (the "Growth Fund") of Smith Barney Shear-
son Telecommunications Trust (the "Trust") dated May 1, 1994, as amended
or supplemented from time to time, and should be read in conjunction with
Growth Fund's Prospectus. The Growth Fund is one of two portfolios of the
Trust; the other portfolio is the Smith Barney Shearson Telecommunications
Income Fund (the "Income Fund"). The Growth Fund's Prospectus may be ob-
tained from your Smith Barney Shearson Financial Consultant or by writing
or calling the Growth Fund at the address or phone number set forth above.
This Statement of Additional Information, although not in itself a pro-
spectus, 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 Pro-
spectus and this Statement of Additional Information, except where shown
below.
<TABLE>
<S>
<C>
Management of the Growth Fund and the Trust
1
Investment Objective and Management Policies
4
Purchase of Shares
13
Redemption of Shares
14
Distributor
15
Valuation of Shares
16
Exchange Privilege
16
Performance Data (See in the Prospectus "The Growth Fund's Performance")
17
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")
18
Custodian and Transfer Agent (See in the Prospectus "Additional Information")
21
Organization and Description of Trust Shares (See in the Prospectus
"Additional
Information")
21
Financial Statements
22
Appendix
23
</TABLE>
MANAGEMENT OF THE GROWTH FUND AND THE TRUST
The executive officers of the Trust are employees of certain of the orga-
nizations that provide services to the Trust. These organizations are as
follows:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
The Boston Company Advisors, Inc.
("Boston Advisors") Investment Adviser and
Administrator
Smith Barney Shearson Inc.
("Smith Barney Shearson") Distributor
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation Transfer Agent
</TABLE>
These organizations and the functions they perform for the Trust are dis-
cussed in the Prospectus and in this Statement of Additional Information.
TRUSTEES OF THE TRUST AND EXECUTIVE OFFICERS OF THE GROWTH FUND
The Trustees of the Trust and executive officers of the Growth Fund, to-
gether with information as to their principal business occupations during
the past five years, are set forth below. Each Trustee who is an "inter-
ested person" of the Trust, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), is indicated by an asterisk.
Paul R. Ades, Trustee. Partner in the law firm of Murov & Ades. His ad-
dress is 272 South Wellwood Avenue, Lindenhurst, New York 11757.
Herbert Barg, Trustee. Private investor. His address is 273 Montgomery Av-
enue, Bala Cynwyd, Pennsylvania 19004.
Allan R. Johnson, Trustee. Retired; former Chairman, Retail Division of
BATUS, Inc. and Chairman and Chief Executive Officer of Saks Fifth Avenue,
Inc. His address is 2 Sutton Place South, New York, New York 10022.
*Heath B. McLendon, Chairman of the Board and Investment Officer. Execu-
tive Vice President of Smith Barney Shearson and Chairman of Smith Barney
Shearson Advisers Inc.; prior to July 1993, Senior Executive Vice Presi-
dent of Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"); Vice
Chairman of Shearson Asset Management; a Director of PanAgora Asset Man-
agement, Inc. and PanAgora Asset Management Limited. His address is Two
World Trade Center, New York, New York 10048.
Ken Miller, Trustee. President of Young Stuff Apparel Group, Inc. His ad-
dress is 1407 Broadway, 6th Floor, New York, New York 10018.
John F. White, Trustee. President Emeritus of The Cooper Union for the Ad-
vancement of Science and Art. Special Assistant to the President of the
Aspen Institute. His address is 97 Sunset Drive, Apartment A402, Sarasota,
FL 34236.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney Shearson; Director and President of Mutual Management Corp.,
Smith, Barney Advisers, Inc.; and Trustee of Corporate Income Realty Trust
I. His address is 1345 Avenue of the Americas, New York, New York 10105.
Richard P. Roelofs, Executive Vice President, Secretary and Treasurer.
Managing Director of Smith Barney Shearson; President of Smith Barney
Shearson Strategy Advisers Inc.; prior to July 1993, Senior Vice President
of Shearson Lehman Brothers; Vice President of Shearson Lehman Investment
Strategy Advisors Inc. His address is Two World Trade Center, New York,
New York 10048.
Guy R. Scott, Investment Administrator. Vice President of Boston Advisors;
Senior Vice President of The Boston Company Institutional Investors, Inc.;
prior to December 1990, Vice President of the Boston Company Institutional
Investors, Inc. and a Portfolio Manager from October 1988. His address is
One Boston Place, Boston, Massachusetts 02108.
Vincent Nave, Financial Administrator. Senior Vice President of Boston Ad-
visors and Boston Safe. His address is Exchange Place, Boston, Massachu-
setts 02109.
Francis J. McNamara, III, Legal Administrator. Senior Vice President and
General Counsel of Boston Advisors; prior to June 1989, Vice President and
Associate Counsel of Boston Advisors. His address is Exchange Place, Bos-
ton, Massachusetts 02109.
Each Trustee also serves as a director, trustee or general partner of cer-
tain other mutual funds for which Smith Barney Shearson serves as distrib-
utor. The Trustees and officers of the Trust, as a group, owned less than
1% of the outstanding shares of beneficial interest of the Growth Fund as
of February 15, 1994.
No officer, director or employee of Smith Barney Shearson or Boston Advi-
sors or any of their affiliates, receives any compensation from the Trust
for serving as an officer or Trustee of the Trust. The Trust pays each
Trustee who is not a director, officer or employee of Smith Barney Shear-
son or Boston Advisors or any of their affiliates, a fee of $4,500 per
annum plus $250 per meeting attended and reimburses them for travel and
out-of-pocket expenses. For the fiscal year ended December 31, 1993, such
fees and expenses totalled $15,962.
INVESTMENT ADVISER -- BOSTON ADVISORS
Boston Advisors serves as investment adviser to the Growth Fund pursuant
to a written agreement dated May 21, 1993 (the "Advisory Agreement"),
which was most recently approved by shareholders of the Growth Fund on
July 15, 1993. The services provided by Boston Advisors under the Advisory
Agreement are described in the Prospectus. Boston Advisors is a wholly
owned subsidiary of Mellon Bank Corporation ("Mellon").
In addition to those services, Boston Advisors pays the salaries of all
officers and employees who are employed by both it and the Growth Fund,
maintains office facilities for the Growth Fund, furnishes the Growth Fund
with statistical and research data, clerical help and accounting, data
processing, bookkeeping, internal auditing and legal services and certain
other services required by the Growth Fund, prepares reports to the Growth
Fund's shareholders and prepares tax returns, reports to and filings with
the Securities and Exchange Commission (the "SEC") and state blue sky au-
thorities. Boston Advisors bears all expenses in connection with perfor-
mance of its services.
As compensation for Boston Advisors' services to the Growth Fund, the
Growth Fund pays a fee, computed daily and paid monthly, at the annual
rate of .75% of the value of the Growth Fund's average daily net assets.
This fee is not subject to reduction as the value of the Growth Fund's net
assets increase, and is higher than the advisory fees paid by many other
investment companies. For the fiscal years ended December 31, 1993, 1992
and 1991, the Growth Fund paid Boston Advisors $735,588, $256,558 and
$255,136, respectively, in investment advisory fees.
The Growth Fund bears expenses incurred in its operation, including taxes,
interest, brokerage fees and commissions, if any; fees of Trustees who are
not officers, directors, shareholders or employees of Smith Barney Shear-
son or Boston Advisors; SEC fees and state blue sky qualification fees;
charges of custodians; transfer and dividend disbursing agents' fees; cer-
tain insurance premiums; outside auditing and legal expenses; investor
services (including allocated telephone and personnel expenses); and costs
of preparation and printing of prospectuses for regulatory purposes and
for distribution to shareholders, shareholders' reports and corporate
meetings.
Boston Advisors has agreed that, if in any fiscal year, the aggregate ex-
penses of the Growth Fund (including fees pursuant to the Advisory Agree-
ment, but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary ex-
penses) exceed the expense limitation of any state having jurisdiction
over the Growth Fund, Boston Advisors will reduce its management fees by
the amount of such excess expense to the extent required by state law.
Such fee reduction, if any, will be estimated and reconciled on a monthly
basis. The most restrictive state expense limitation applicable to the
Growth Fund would require Boston Advisors to reduce its fees in any year
that such excess expenses exceed 2.5% of the first $30 million of average
daily net assets, 2.0% of the next $70 million of average daily net assets
and 1.5% of the remaining average daily net assets. No fee reduction was
required for the Growth Fund for the 1991, 1992 or 1993 fiscal years.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as counsel to the Trust. The Trustees who
are not "interested persons" of the Trust have selected Stroock & Stroock
& Lavan as their counsel.
Coopers & Lybrand, independent accountants, One Post Office Square, Bos-
ton, Massachusetts 02109, serve as auditors of the Trust and render an
opinion on the Trust's financial statements annually.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Growth Fund's investment objective and the
policies it employs to achieve that objective. The following discussion
supplements the description of the Growth Fund's investment objective and
policies in the Prospectus.
LENDING OF PORTFOLIO SECURITIES
The Growth Fund has the ability to lend its portfolio securities to bro-
kers, dealers and other financial organizations. These loans, if and when
made, may not exceed 33 1/3% of the Growth Fund's assets taken at value.
The Growth Fund may not lend its portfolio securities to Smith Barney
Shearson or its affiliates unless it has applied for and received specific
authority to do so from the SEC.
Requirements of the SEC, which may be subject to future modifications,
currently provide that the following conditions must be met whenever the
Growth Fund's securities are loaned: (a) the Growth Fund must receive at
least 100% cash collateral or equivalent securities or letters of credit
from the borrower; (b) the borrower must increase such collateral whenever
the market value of the securities rises above the level of such collat-
eral; (c) the Growth Fund must be able to terminate the loan at any time;
(d) the Growth 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 Growth
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,
provided, however, that if a material event adversely affecting the in-
vestment occurs, the Trust's Board of Trustees must terminate the loan and
regain the right to vote the securities. From time to time, the Growth
Fund may return a part of the interest earned from the investment of col-
lateral received for securities loaned to the borrower and/or a third
party which is unaffiliated with the Growth Fund or with Smith Barney
Shearson and which is acting as a "finder."
The limit of 33 1/3% of the Growth Fund's total assets to be committed to
securities lending is a fundamental policy of the Fund, which means that
it cannot be changed without approval of a majority of the Growth Fund's
outstanding shares. See "Investment Restrictions" below.
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 securi-
ties 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 stock and,
therefore, also will react to variations in the general market for equity
securities. A unique feature of convertible securities is that as the mar-
ket 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 se-
curities may default on their obligations. Convertible securities, how-
ever, generally offer lower interest or dividend yields than non- convert-
ible securities of similar quality because of the potential for capital
appreciation. A convertible security, in addition to providing fixed in-
come, offers the potential for capital appreciation through the conversion
feature, which enables the holder to benefit from increases in the market
price of the underlying common stock. There can be no assurance of capital
appreciation, however, because securities prices fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to common
stock, of the same issuer. Because of the subordination feature, however,
convertible securities typically have lower ratings than similar non-
convertible securities.
PREFERRED STOCK
Preferred stocks, like debt obligations, are generally fixed-income secu-
rities. Shareholders of preferred stocks normally have the right to re-
ceive dividends at a fixed rate when and as declared by the issuer's board
of directors, but do not participate in other amounts available for dis-
tribution by the issuing corporation. Dividends on the preferred stock may
be cumulative, and all cumulative dividends usually must be paid prior to
common shareholders receiving any dividends. Preferred stock dividends
must be paid before common stock dividends and, for that reason, preferred
stocks generally entail less risk than common stocks. Upon liquidation,
preferred stocks are entitled to a specified liquidation preference, which
is generally the same as the par or stated value, and are senior in right
of payment to common stock. Preferred stocks are, however, equity securi-
ties in the sense they do not represent a liability of the issuer and
therefore do not offer as great a degree of protection of capital or as-
surance of continued income as investments in corporate debt securities.
In addition, preferred stocks are subordinated in right of payment to all
debt obligations and creditors of the issuer, and convertible preferred
stocks may be subordinated to other preferred stock of the same issuer.
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. The in-
vestment in warrants, valued at the lower of cost or market, may not ex-
ceed 5.0% of the value of the Fund's net assets. Included within that
amount, but not to exceed 2.0% of the value of the Fund's net assets, may
be warrants which are not listed on the New York Stock Exchange, Inc.
("NYSE") or the American Stock Exchange. Warrants acquired by the Fund in
units or attached to securities may be deemed to be without value.
MONEY MARKET INSTRUMENTS
As stated in the Prospectus, the Growth Fund may invest without limit in
short-term money market instruments when Boston Advisors believes that a
"defensive" investment posture is advisable due to market or economic con-
ditions. Money market instruments in which the Growth Fund may invest in-
clude obligations issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. government securities"); certifi-
cates of deposit ("CDs"), time deposits ("TDs") 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 descrip-
tion of such money market instruments.
Bank Obligations. CDs are short-term negotiable obligations of commercial
banks; TDs are non-negotiable deposits maintained in banking institutions
for specified periods of time at stated interest rates; and bankers' ac-
ceptances 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 In-
surance 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 Growth Fund, depending upon the principal amount of CDs of
each bank held by the Growth 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, among other
things, generally are 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 gov-
ernmental 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 govern-
mental restrictions that may adversely affect payment of principal and in-
terest on the obligations, foreign exchange controls and foreign withhold-
ing 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 require-
ments. 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 obliga-
tions of the parent bank in addition to the issuing branch, or may be lim-
ited by the terms of a specific obligation and by Federal and state regu-
lation 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 cer-
tain 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 pay-
able 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 domes-
tic 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, Boston Advisors will carefully evaluate such investments
on a case-by-case basis.
Savings and loan associations, the CDs of which may be purchased by the
Growth 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.
Commercial Paper. Commercial paper is a short-term, unsecured negotiable
promissory note of a domestic or foreign company. When investing for de-
fensive purposes, the Growth Fund may invest in short-term debt obliga-
tions of issuers that at the time of purchase are rated A-2, A-1 or A-1+
by Standard & Poor's Corporation ("S&P") or Prime-2, Prime-1 by Moody's
Investors Service, Inc. ("Moody's") and other rating services or, if un-
rated, are issued by companies having an outstanding unsecured debt issue
currently rated within the two highest ratings of S&P or Moody's. A dis-
cussion of S&P, Moody's and other rating categories appears in the Appen-
dix to this Statement of Additional Information. The Growth Fund may in-
vest in variable rate master demand notes, which are unsecured demand
notes typically issued by large corporate borrowers providing for variable
amounts of principal indebtedness and periodic adjustments in the interest
rate according to the terms of the instrument. Demand notes are direct
lending arrangements between the Growth Fund and an issuer, and normally
are not traded in a secondary market. The Growth Fund, however, may demand
payment of principal and accrued interest at any time. In addition, while
demand notes generally are not rated, their issuers must satisfy the same
criteria as those set forth above for issuers of commercial paper. Boston
Advisors will consider the earning power, cash flow and other liquidity
ratios of issuers of demand notes and will continually monitor their fi-
nancial ability to meet payment on demand.
COVERED CALL OPTIONS
The Growth Fund, to a limited extent, may write covered call option con-
tracts on certain securities and purchase call options for the purpose of
terminating its outstanding obligations with respect to securities upon
which call option contracts have been written. The principal reason for
writing covered call options on securities is to attempt to realize,
through the receipt of premiums, a greater return than would be realized
on the securities alone. In return for a premium, the writer of a covered
call option forfeits the right to any appreciation in the value of the un-
derlying security above the strike price for the life of the option (or
until a closing purchase transaction can be effected). Nevertheless, the
call writer retains the risk of a decline in the price of the underlying
security. The size of the premiums that the Growth Fund may receive may be
adversely affected as new or existing institutions, including other in-
vestment companies, engage in or increase their option-writing activities.
Options written by the Growth Fund normally will have expiration dates be-
tween three and nine months from the date written. The exercise price of
the options may be below ("in-the-money"), equal to ("at-the-money") or
above ("out-of-the-money") the market values of the underlying securities
at the times the options are written. The Growth Fund may write (a) in-
the-money call options when Boston Advisors expects the price of the un-
derlying security will remain flat or decline moderately during the option
period, (b) at-the-money call options when Boston Advisors expects the
price of the underlying security will remain flat or advance moderately
during the option period and (c) out-of-the-money call options when Boston
Advisors expects the premiums received from writing the call option plus
the appreciation in market price of the underlying security up to the ex-
ercise price will be greater than the appreciation in the price of the un-
derlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly or in
part by the premium received.
So long as the obligation of the Growth Fund as the writer of an option
continues, the Growth Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Growth Fund
to deliver the underlying security against payment of the exercise price.
This obligation terminates when the option expires or the Growth Fund ef-
fects a closing purchase transaction. The Growth Fund can no longer effect
a closing purchase transaction with respect to an option once it has been
assigned an exercise notice. To secure its obligation to deliver the un-
derlying security when it writes a call option, the Growth Fund will be
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the "Clear-
ing Corporation") and of the national securities exchange on which the op-
tion is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized national securi-
ties exchange or in the over-the-counter market. The Growth Fund expects
to write options only on national securities exchanges.
The Growth Fund may realize profit or loss upon entering into a closing
purchase transaction. In cases where the Growth Fund has written an op-
tion, it will realize a profit if the cost of the closing purchase trans-
action is less than the premium received upon writing the original option
and will incur a loss if the cost of the closing purchase transaction ex-
ceeds the premium received upon writing the original option.
Although the Growth Fund generally will write only those options for which
Boston Advisors believes there is an active secondary market so as to fa-
cilitate closing transactions, there is no assurance that sufficient trad-
ing interest to create a liquid secondary market on a securities exchange
will exist for any particular option or at any particular time, and for
some options no such secondary market may exist. A liquid secondary market
in an option may cease to exist for a variety of reasons. In the past, for
example, higher than anticipated trading activity or order flow, or other
unforeseen events, have at times rendered certain of the facilities of the
Clearing Corporation and the national securities exchanges inadequate and
resulted in the institution of special procedures, such as trading rota-
tions, restrictions on certain types of orders or trading halts or suspen-
sions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution
of customers' orders, will not recur. In such event, it might not be pos-
sible to effect closing transactions in particular options. If as a cov-
ered call option writer the Growth Fund is unable to effect a closing pur-
chase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or writ-
ten, or exercised within certain time periods, by an investor or group of
investors acting in concert (regardless of whether the options are written
on the same or different national securities exchanges or are held, writ-
ten or exercised in one or more accounts or through one or more brokers).
It is possible that the Growth Fund and other clients of Boston Advisors
and certain of their affiliates may be considered to be such a group. A
national securities exchange or the National Association of Securities
Dealers, Inc. may order the liquidation of positions found to be in viola-
tion of these limits and it may impose certain other sanctions. At the
date of this Statement of Additional Information, the position and exer-
cise limits for common stocks generally were 3,000, 5,500 or 8,000 options
per stock (i.e., options representing 300,000, 550,000 or 800,000 shares),
depending on various factors relating to the underlying security and the
Growth Fund's combined stock and option position. These limits may re-
strict the number of options which the Growth Fund will be able to write
on a particular security.
Call options may be purchased by the Growth Fund but only to terminate an
obligation as a writer of a call option. This is accomplished by making a
"closing purchase transaction" (i.e., the purchase of a call option on the
same security with the same exercise price and expiration date as speci-
fied in the call option which had previously been written). A closing pur-
chase transaction with respect to calls traded on a national securities
exchange has the effect of extinguishing the obligation of a writer of an
option. Although the cost to the Growth Fund of such a transaction may be
greater than the net premium received by the Growth Fund upon writing the
original option, the Trust's Board of Trustees believes that it is appro-
priate for the Growth Fund to have the ability to make closing purchase
transactions in order to limit the risks involved in writing options. Bos-
ton Advisors also may permit the call option to be exercised.
INVESTMENT RESTRICTIONS
The Growth Fund has adopted the following investment restrictions for the
protection of shareholders. Restrictions 1 through 7 below cannot be
changed without approval by the holders of a majority of the outstanding
shares of the Growth Fund, defined as the lesser of (a) 67% or more of the
voting securities present or represented by proxy at a meeting of the
holders if more than 50% of the outstanding voting securities of the
Growth Fund are present or represented by proxy or (b) more than 50% of
the outstanding shares of the Growth Fund. The remaining restrictions may
be changed by vote of a majority of the Trustees at any time. If any per-
centage restriction described below is complied with at the time of an in-
vestment, a later increase or decrease in the percentage resulting from a
change in the values of assets will not constitute a violation of the re-
striction.
The Growth Fund may not:
1. Issue senior securities as defined in the 1940 Act and any rules
and orders thereunder, except insofar as the Growth Fund may be deemed
to have issued senior securities by reason of: (a) borrowing money or
purchasing securities on a when-issued or delayed-delivery basis; (b)
purchasing or selling futures contracts and options on futures con-
tracts and other similar instruments; and (c) issuing separate classes
of shares.
2. Invest more than 25% of its total assets in securities, the issu-
ers of which are in the same industry, other than in the telecommuni-
cations industry as determined by the Growth Fund's investment ad-
viser. For purposes of this limitation, U.S. government securities are
not considered to be issued by members of any industry.
3. Borrow money, except that the Growth Fund may borrow from banks
for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests which might otherwise require the un-
timely disposition of securities in an amount not exceeding 10% of the
value of the Growth Fund's total assets (including the amount bor-
rowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made. Whenever borrowings ex-
ceed 5% of the value of the Growth Fund's total assets, the Growth
Fund will not make additional investments.
4. Make loans. This restriction does not apply to: (a) the purchase
of debt obligations in which the Growth Fund may invest consistent
with its investment objective and policies; (b) repurchase agreements;
and (c) loans of its portfolio securities.
5. Engage in the business of underwriting securities issued by other
persons, except to the extent that the Growth Fund may technically be
deemed to be an underwriter under the Securities Act of 1933, as
amended (the "1933 Act"), in disposing of portfolio securities.
6. Purchase or sell real estate, real estate mortgages, real estate
investment trust securities, commodities or commodity contracts, but
this shall not prevent the Growth Fund from: (a) investing in securi-
ties of issuers engaged in the real estate business and securities
which are secured by real estate or interests therein; (b) holding or
selling real estate received in connection with securities it holds;
or (c) trading in futures contracts and options on futures contracts.
7. Purchase any securities on margin (except for such short-term cred-
its as are necessary for the clearance of purchases and sales of port-
folio securities) or sell any securities short (except against the
box). For purposes of this restriction, the deposit or payment by the
Growth Fund of initial or maintenance margin in connection with fu-
tures contracts and related options and options on securities is not
considered to be the purchase of a security on margin.
8. Purchase for any portfolio securities subject to restrictions on
disposition under the 1933 Act ("restricted securities") or securities
without readily available market quotations, if the purchase causes
more than 15% of its assets to be invested in restricted securities,
securities without readily available market quotations and repurchase
agreements maturing in more than seven days;
9. Purchase securities of companies for the purpose of exercising con-
trol;
10. Purchase or retain for any portfolio the securities of any issuer
if those Trustees and officers of the Trust or directors and officers
of Boston Advisors who beneficially own more than 1/2 of 1% of the
outstanding securities of the issuer together beneficially own more
than 5% of such outstanding securities;
11. Purchase securities of any other investment company except as part
of a plan of merger, consolidation or acquisition of assets;
12. Purchase securities of any issuers which together with predeces-
sors have a record of less than three years' continuous operation, if
as a result, more than 5% of the Growth Fund's net assets would then
be invested in such securities;
13. Invest in puts, calls, straddles, spreads, and any combination
thereof (except in connection with the writing of covered call op-
tions);
14. Invest in oil, gas or other mineral exploration or development
programs;
15. Purchase securities from or sell securities to any of its officers
or Trustees, except with respect to its own shares and as is permissi-
ble under applicable statutes, rules and regulations; or
16. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 10% of the value of its total assets to se-
cure borrowings for temporary or emergency purposes.
Certain restrictions listed above permit the Growth Fund without share-
holder approval to engage in investment practices that the Growth Fund
does not currently pursue. The Growth Fund has no present intention of al-
tering its current investment practices as otherwise described in the Pro-
spectus and this Statement of Additional Information and any future change
in those practices would require Board approval and appropriate disclosure
to investors.
PORTFOLIO TURNOVER
Generally, the Growth Fund will not trade in securities for short-term
profits but, when circumstances warrant, securities may be sold without
regard to the length of time that they have been held. Numerous factors,
including those relating to particular investments, tax considerations,
covered call option writing, market or economic conditions or redemptions
of shares, may affect the rate at which the Growth Fund buys or sells
portfolio securities from year to year. The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio secu-
rities for the year by the average monthly value of the Growth Fund's se-
curities. Securities with remaining maturities of one year or less at the
date of acquisition are excluded from the calculation. The Growth Fund has
no fixed policy with respect to portfolio turnover; however, it is antici-
pated that the annual turnover rate in the Growth Fund generally will not
exceed 100%. For the 1993 and 1992 fiscal years, the portfolio turnover
rates for the Growth Fund were 25% and 64%, respectively.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Growth Fund are made by Bos-
ton Advisors, subject to the overall supervision and review of the Trust's
Board of Trustees. Portfolio securities transactions for the Growth Fund
are effected by or under the supervision of Boston Advisors.
Transactions on stock exchanges involve the payment of negotiated broker-
age 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. 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 ob-
tained elsewhere. The cost of securities purchased from underwriters in-
cludes 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 fiscal years ended December 31, 1993, 1992 and
1991, the Growth Fund paid $162,253, $42,900 and $81,647, respectively, in
brokerage commissions.
In executing portfolio transactions and selecting brokers or dealers, it
is the Growth Fund's policy to seek the best overall terms available. The
Advisory Agreement between the Trust and Boston Advisors provides that, in
assessing the best overall terms available for any transaction, Boston Ad-
visors shall consider the factors that it deems relevant, including the
breadth of the market in the security, the price of the security, the fi-
nancial 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
Boston Advisors, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, to con-
sider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the
Growth Fund and/or other accounts over which Boston Advisors or an affili-
ate exercises investment discretion.
The Trust's Board of Trustees periodically will review the commissions
paid by the Growth Fund to determine if the commissions paid over repre-
sentative periods of time were reasonable in relation to the benefits in-
uring to the Growth Fund. It is possible that certain of the services re-
ceived will primarily benefit one or more other accounts for which invest-
ment discretion is exercised. Conversely, the Growth Fund may be the
primary beneficiary of services received as a result of portfolio transac-
tions effected for other accounts. Boston Advisors' fee under the Advisory
Agreement is not reduced by reason of Boston Advisors' receiving such bro-
kerage and research services. Further, Smith Barney Shearson will not par-
ticipate in commissions from brokerage given by the Fund to other brokers
or dealers and will not receive any reciprocal brokerage business result-
ing therefrom.
In accordance with Section 17(e) of the 1940 Act and Rule 17e-1 thereun-
der, the Trust's Board of Trustees has determined that any portfolio
transaction for the Growth Fund may be executed through Smith Barney
Shearson or an affiliate of Smith Barney Shearson if, in Boston Advisors'
judgment, the use of Smith Barney Shearson 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 Shearson charges the Growth Fund
a commission rate consistent with those charged by Smith Barney Shearson
to comparable unaffiliated customers in similar transactions. In addition,
under the rules recently adopted by the SEC, Smith Barney Shearson may di-
rectly execute such transactions for the Fund on the floor of any national
securities exchange, provided: (a) the Trust's Board of Trustees has ex-
pressly authorized Smith Barney Shearson to effect such transactions; and
(b) Smith Barney Shearson annually advises the Fund of the aggregate com-
pensation it earned on such transactions. For the 1993, 1992 and 1991 fis-
cal years the Growth Fund paid $63,935, $26,265 and $62,434, respectively,
in brokerage commissions to Shearson Lehman Brothers, the Trust's distrib-
utor prior to Smith Barney Shearson. For the 1993 fiscal year, Smith Bar-
ney Shearson received 39% of the total brokerage commissions paid by the
Growth Fund and effected 45% of the total dollar amount of transactions
involving the payment of brokerage commissions.
Even though investment decisions for the Growth Fund are made indepen-
dently from those of the other accounts managed by Boston Advisors, in-
vestments of the kind made by the Growth Fund also may be made by those
other accounts. When the Growth Fund and one or more accounts managed by
Boston Advisors 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 Boston Advisors to be equitable. In some
cases, this procedure may adversely affect the price paid or received by
the Growth Fund or the size of the position obtained for or disposed of by
the Growth Fund.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospec-
tus applies to purchases made by any "purchaser," which is defined to in-
clude the following: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 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; (f) any other orga-
nized group of persons, provided that the organization has been in exist-
ence for at least six months and was organized for a purpose other than
the purchase of investment company securities at a discount; or (g) a
trustee or other professional fiduciary (including a bank, or an invest-
ment adviser registered with the SEC under the Investment Advisers Act of
1940) purchasing shares of the Fund for one or more trust estates or fidu-
ciary accounts. Purchasers who wish to combine purchase orders to take ad-
vantage of volume discounts on Class A shares should contact their Smith
Barney Shearson Financial Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of shares of Class A shares if the aggregate invest-
ment in Class A shares of the Growth Fund and in Class A shares of other
funds in the Smith Barney Shearson Group of Funds that are sold 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
Growth Fund reserves the right to terminate or amend the combined rights
of accumulation at any time after notice to shareholders. For further in-
formation regarding the rights of accumulation, shareholders should con-
tact their Smith Barney Shearson Financial Consultants.
DETERMINATION OF PUBLIC OFFERING PRICE
The Growth Fund offers its shares to the public on a continuous basis. The
public offering price per Class A share of the Growth Fund is equal to the
net asset value per share at the time of purchase plus a sales charge
based on the aggregate amount of the investment. The public offering price
per Class B share (and Class A share purchases, including applicable
rights of accumulation, equalling or exceeding $1 million or, in the case
of investors purchasing through the Smith Barney Shearson 401(k) Program
(the "401(k) Program"), equalling or exceeding $250,000), 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 shares and
Class A shares when purchased in amounts equalling or exceeding $1 mil-
lion.
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 custom-
ary weekend or holiday closings), (b) when trading in the markets the
Growth Fund normally utilizes is restricted, or an emergency, as deter-
mined by the SEC, exists so that disposal of the Growth 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 Growth Fund's shareholders.
DISTRIBUTIONS IN KIND
If the Trust's Board of Trustees 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 Trust may pay, in accordance with
rules adopted by the SEC, any portion of a redemption in excess of the
lesser of $250,000 or 1% of the Fund's net assets by a distribution in
kind of portfolio securities in lieu of cash. Portfolio securities issued
in a distribution in kind will be readily marketable, although sharehold-
ers receiving distributions in kind may incur brokerage commissions when
subsequently disposing of those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares of the Growth Fund with a value of at least
$10,000 ($5,000 for retirement plan accounts) and who wish to receive spe-
cific amounts of cash periodically. Withdrawals of at least $50 monthly
may be made under the Withdrawal Plan by redeeming as many shares of the
Growth Fund as may be necessary to cover the stipulated withdrawal pay-
ment. Any applicable CDSC will not be waived on amounts withdrawn by
shareholders that exceed 2% per month of the value of a shareholder's
shares at the time the Withdrawal Plan commences. Withdrawals in an amount
exceeding dividends, distributions and appreciation of a shareholder's in-
vestment in the Growth Fund will result in a reduction in the value of the
shareholder's investment and continued withdrawal payments will further
reduce the shareholder's investment and may ultimately exhaust it. With-
drawal payments should not be considered as income from investment in the
Growth Fund. Furthermore, as it generally would not be advantageous to a
shareholder to make additional investments in the Growth Fund at the same
time the shareholder is participating in the Withdrawal Plan, purchases by
such shareholders in amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates
with TSSG as agent for Withdrawal Plan members. All dividends and distri-
butions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Growth Fund. All applications
for participation in the Withdrawal Plan must be received by TSSG as With-
drawal Plan agent no later than the eighth day of the month to be eligible
for participation beginning with that month's withdrawal. The Withdrawal
Plan will not be carried over on exchanges between funds or classes of the
Growth Fund (the "Classes"). A new Withdrawal Plan application is required
to establish the Withdrawal Plan in the new fund. For additional informa-
tion, shareholders should contact their Smith Barney Shearson Financial
Consultants.
DISTRIBUTOR
Smith Barney Shearson serves as the Growth Fund's distributor on a best
efforts basis pursuant to a Distribution Agreement dated July 30, 1993
(the "Distribution Agreement") which was first approved by the Trust's
Board of Trustees on April 7, 1993. For the fiscal years ended December
31, 1993, 1992 and 1991, Shearson Lehman Brothers and Smith Barney Shear-
son received $593,003, $39,333 and $38,731, respectively, in sales charges
from the sale of Growth Fund's Class A shares and did not reallow any por-
tion thereof to dealers.
Smith Barney Shearson forwards investors' funds for the purchase of Growth
Fund shares five business days after the placement of purchase orders
(i.e., the "settlement date"). 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 Shearson will 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 in the Smith Barney
Shearson Group of Funds. If the investor instructs Smith Barney Shearson
to invest the funds in a Smith Barney Shearson money market fund, the
amount of the investment will be included as part of the average daily net
assets of both the Growth Fund and the Smith Barney Shearson money market
fund, and affiliates of Smith Barney Shearson which serve the funds in an
investment advisory or administrative capacity will benefit from the fact
that they are receiving fees from both such investment companies for man-
aging these assets computed on the basis of their average daily net as-
sets. The Trust's Board of Trustees has been advised of the benefits to
Smith Barney Shearson resulting from five-day settlement procedures and
will take such benefits into consideration when reviewing the Advisory and
Distribution Agreements for continuance.
DISTRIBUTION ARRANGEMENTS
Shares of the Growth Fund are distributed on a best efforts basis by Smith
Barney Shearson as exclusive sales agent of the Growth Fund pursuant to
the Distribution Agreement. To compensate Smith Barney Shearson for the
services it provides and for the expense it bears under the Distribution
Agreement, the Growth Fund has adopted a shareholder services and distri-
bution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under
the Plan, the Growth Fund pays Smith Barney Shearson a service fee, ac-
crued daily and paid monthly, calculated at the annual rate of .25% of the
value of the Growth Fund's average daily net assets attributable to the
Class A and Class B shares. In addition, the Growth Fund pays with respect
to Class B shares a distribution fee primarily intended to compensate
Smith Barney Shearson for its initial expense of paying financial consult-
ants a commission upon sales of the respective shares. The Class B distri-
bution fee is calculated at the annual rate of .75% of the value of the
Growth Fund's average net assets attributable to the shares of that Class.
For the period from November 6, 1992 through December 31, 1992, the Fund's
Class A and Class B shares paid $13,307 and $131, respectively, in service
fees. For the same period, the Fund's Class B shares paid $393 in distri-
bution fees. For the fiscal year ended December 31, 1993, the Fund's Class
A and Class B shares paid $133,200 and $112,633, respectively, in service
fees. For the same period, the Fund's Class B shares paid $337,900 in dis-
tribution fees.
Under its terms, the Plan continues from year to year, provided such con-
tinuance is approved annually by vote of the Trust's Board of Trustees,
including a majority of the Trustees who are not interested persons of the
Growth Fund and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent Trustees"). The Plan may not be
amended to increase the amount to be spent for the services provided by
Smith Barney Shearson without shareholder approval, and all amendments of
the Plan also must be approved by the Trustees in the manner described
above. The Plan may be terminated with respect to a Class at any time,
without penalty, by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act) on not more than 30 days' written notice to any
other party to the Plan. Pursuant to the Plan, Smith Barney Shearson will
provide the Trust's Board of Trustees with periodic reports of amounts ex-
pended under the Plan and the purpose for which such expenditures were
made.
VALUATION OF SHARES
The Prospectus discusses the time at which the net asset value of shares
of each Class is determined for purposes of sales and redemptions. Because
of the differences in distribution fees and Class-specific expenses, the
per share net asset value of each Class will differ. The following is a
description of the procedures used by the Growth Fund for valuing its as-
sets.
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 Trust's Board of Trustees. Short-term obligations
with maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Trust's Board of Trustees. Am-
ortized cost involves valuing an instrument at its original cost to the
Growth Fund and thereafter assuming a constant amortization to maturity of
any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. All other securities and
other assets of the Growth Fund will be valued at their fair value as de-
termined in good faith by the Trust's Board of Trustees.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund in the Smith Barney Shear-
son Group of Funds may exchange all or part of their shares for shares of
the same class of other funds in the Smith Barney Shearson Group of Funds,
to the extent such shares are offered for sale in the shareholder's state
of residence, on the basis of relative net asset value per share at the
time of exchange as follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds and the sales
charge differential, if any, will be applied. Class A shares of any
fund may be exchanged without a sales charge for shares of the funds
that are offered without a sales charge. Class A shares of any fund
purchased without a sales charge may be exchanged for shares sold with
a sales charge, and the appropriate sales charge differential will be
applied.
B. Class A shares of any fund acquired by a previous exchange of
shares purchased with a sales charge may be exchanged for Class A
shares of any of the other funds, and the sales charge differential,
if any, will be applied.
C. Class B shares of any fund may be exchanged without a sales
charge. Class B shares of the Growth 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 purchased.
Dealers other than Smith Barney Shearson must notify TSSG of the inves-
tor's prior ownership of Class A shares of Smith Barney Shearson High In-
come Fund and the account number in order to accomplish an exchange of
shares of the High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. This
privilege is available to shareholders resident 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 to be made. Prospectuses may be ob-
tained from your Smith Barney Shearson Financial Consultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current net
asset value, subject to any applicable CDSC, and the proceeds are immedi-
ately invested, at a price as described above, in shares of the fund being
acquired. Smith Barney Shearson 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 Growth Fund may quote its total return in adver-
tisements or in reports and other communications to shareholders. To the
extent any advertisement or sales literature of the Growth Fund describes
the expenses of any Class, it will also disclose such information for the
other Class.
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 (or fractional portion thereof) at
the end of the 1-, 5- or 10-year period (or frac-
tional portion thereof), assuming reinvestment of
all dividends and distributions.
The average annual total return for Class B shares was as follows for the
period indicated:
29.34% for the one-year period beginning January 1, 1993, through December
31, 1993.
38.21% per annum during the period the Fund commenced selling Class B
shares (November 6, 1992) through December 31, 1993.
Average annual total return figures assume that the maximum sales charge
or maximum applicable CDSC has been deducted from the hypothetical invest-
ment. If the CDSC had not been deducted at the time of redemption, Class
B's average annual total return for the same periods would have been
34.34% and 41.52%, respectively.
AGGREGATE TOTAL RETURN
Aggregate total return figures represent the cumulative change in the
value of an investment in the Class of the Growth Fund for the specified
period and are computed by the following formula:
AGGREGATE TOTAL RETURN = ERV-P / 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 a 1-, 5- or
10-year period (or fractional portion thereof) at
the end of the 1-, 5- or 10-year period (or frac-
tional portion thereof), assuming reinvestment of
all dividends and distributions.
The Growth Fund's aggregate total returns for Class B shares was as fol-
lows for the periods indicated:
29.34% for the one-year period beginning January 1, 1993, through December
31, 1993.
45.09% for the period from November 6, 1992 through December 31, 1993;
Performance will vary from time to time depending on market conditions,
the composition of the Growth Fund's portfolio and operating expenses and
the expenses exclusively attributable to each Class. Consequently, any
given performance quotation should not be considered representative of the
Class' performance for any specified period in the future. In addition,
because performance will fluctuate, it may not provide a basis for compar-
ing an investment in the Growth Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing the Growth Fund's performance with that of other mutual funds
should give consideration to the quality and maturity of the respective
investment companies' portfolio securities.
Aggregate total return figures assume that the maximum sales charge or
maximum applicable CDSC has been deducted from the investment. If the max-
imum applicable CDSC had not been deducted at the time of redemption,
Class B's aggregate total return for the same periods would have been
34.34% and 49.09%, respectively.
TAXES
The following is a summary of selected Federal income tax considerations
that may affect the Growth Fund and its shareholders. The summary is not
intended as a substitute for individual tax planning, and investors are
urged to consult their own tax advisors as to the tax consequences of an
investment in the Growth Fund.
TAXATION OF THE GROWTH FUND
The Growth Fund has qualified and intends to continue to qualify each year
as a regulated investment company under the Code. As a regulated invest-
ment company, the Growth Fund will not be subject to Federal income tax on
its net investment income and net capital gains, if any, that it distrib-
utes to its shareholders, provided that at least 90% of its net investment
income for the taxable year is distributed. All net investment income and
net capital gains earned by the Growth Fund will be reinvested automati-
cally in additional shares of the same Class of the Growth Fund at net
asset value, unless the shareholder elects to receive dividends and dis-
tributions in cash.
To qualify as a regulated investment company, the Growth Fund must meet
certain requirements set forth in the Code. The Growth Fund is required to
earn at least 90% of its gross income from (a) interest, (b) dividends,
(c) payments with respect to securities loans, (d) gains from the sale or
other disposition of stock or securities and (e) other income derived with
respect to its business of investing in stock or securities (the "90%
Test"). The Growth Fund also must earn less than 30% of its gross income
from the sale or other disposition of stock or securities held for less
than three months (the "30% Test").
Generally, the Growth Fund's return on its investment will be considered
to be qualified income under the 90% Test. The 30% Test may limit the ex-
tent to which the Growth Fund may sell securities held less than three
months or covered call options.
TAX STATUS OF THE GROWTH FUND'S INVESTMENTS
Gain or loss on the sale of a security by the Growth Fund generally will
be long-term capital gain or loss if the Growth Fund has held the security
for more than one year. Gain or loss on the sale of a security held for
one year or less generally will be short-term capital gain or loss. Gener-
ally, if the Growth Fund acquires a debt security at a discount, any gain
on the sale or redemption of the security will be taxable as ordinary in-
come to the extent that such gain reflects accrued market discount.
The tax consequences of the Growth Fund's covered call option transactions
will depend on the nature of the underlying security. In the case of a
call option on an equity or convertible debt security, the Growth Fund
will receive a premium that will be treated for tax purposes as follows:
no income is recognized upon the receipt of an option premium; if the op-
tion expires unexercised or if the Growth Fund enters into a closing pur-
chase transaction, it will realize a gain (or a loss, if the cost of the
closing transaction exceeds the amount of the premium) without regard to
the unrealized gain or loss in the underlying security. Any such gain or
loss will be short-term, except that a loss will be long-term if the op-
tion exercise price is below market and the underlying stock has been held
for more than a year. If a call option is exercised, the Growth Fund will
recognize a capital gain or loss from the underlying security, and the op-
tion premium will constitute additional sales proceeds.
The Growth Fund will not recognize income on the receipt of an option pre-
mium on a debt security. Listed options on debt securities, however, are
subject to a special "mark-to-market" system governing the taxation of
"section 1256 contracts," which include listed options on debt securities
(including U.S. government securities), options on certain stock indexes
and certain foreign currencies. In general, gain or loss on section 1256
contracts will be taken into account for tax purposes when actually real-
ized. In addition, any section 1256 contracts held at the end of a taxable
year (and, for purposes of the 4% excise tax, on October 31 of each year)
will be treated as sold at fair market value (that is, marked-to-market),
and the resulting gain or loss will be recognized for tax purposes. Both
the realized and unrealized taxable year-end gain or loss positions will
be treated as 60% long-term and 40% short-term capital gain or loss, re-
gardless of the period of time that a particular position is actually held
by the Growth Fund.
TAXATION OF SHAREHOLDERS
Dividends of investment income and distributions of short-term capital
gain will be taxable to shareholders as ordinary income for Federal income
tax purposes, whether received in cash or reinvested in additional shares.
Distributions of long-term capital gain will be taxable to shareholders as
long-term capital gain, whether paid in cash or reinvested in additional
shares, and regardless of the length of time that the shareholder has held
his or her shares of the Growth Fund.
Dividends of investment income (but not distributions of capital gain)
from the Growth Fund generally will qualify for the Federal dividends-
received deduction for corporate shareholders to the extent that the divi-
dends do not exceed the aggregate amount of dividends received by the
Growth Fund from domestic corporations. If securities held by the Growth
Fund are considered to be "debt-financed" (generally, acquired with bor-
rowed funds) or are held by the Growth Fund for less than 46 days (91 days
in the case of certain preferred stock), the portion of the dividends paid
by the Growth Fund that corresponds to the dividends paid with respect to
the securities will not be eligible for the corporate dividends-received
deduction.
If the Growth Fund is the holder of record of any stock on the record date
for any dividends payable with respect to such stock, such dividends must
be included in the Growth Fund's gross income as of the later of (a) the
date that such stock became ex-dividend with respect to such dividends
(i.e., the date on which a buyer of the stock would not be entitled to re-
ceive the declared, but unpaid, dividends) or (b) the date that the Growth
Fund acquired such stock. Accordingly, in order to satisfy its income dis-
tribution requirements, the Growth Fund may be required to pay dividends
based on anticipated earnings, and shareholders may receive dividends in
an earlier year than would otherwise be the case.
If a shareholder (a) incurs a sales charge in acquiring or redeeming
shares of the Growth 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 disallowed
charge 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 dispo-
sition of the newly acquired shares made within 90 days of the second ac-
quisition. This provision prevents a shareholder from immediately deduct-
ing the sales charge by shifting his or her investment in a family of mu-
tual funds.
Investors considering buying shares of the Growth Fund 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 Growth Fund shares to
be purchased reflects the amount of the forthcoming dividend or distribu-
tion payment, any such payment will be a taxable dividend or distribution
payment.
Capital Gains Distribution. In general, a shareholder who redeems or ex-
changes his or her shares will recognize long-term capital gain or loss if
the shares have been held for more than one year, and will recognize
short-term capital gain or loss if the shares have been held for one year
or less. If a shareholder receives a distribution taxable as long-term
capital gain with respect to shares of the Growth Fund and redeems or ex-
changes the shares before he or she has held them for more than six
months, however, 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.
BACKUP WITHHOLDING
If a shareholder fails to furnish a correct taxpayer identification num-
ber, fails fully to report dividend or interest income, or fails to cer-
tify that he or she has provided a correct taxpayer identification number
and that he or she is not subject to such "backup withholding," then the
shareholder may be subject to a 31% backup withholding tax with respect to
(a) dividends and distributions and (b) the proceeds of any redemption of
Growth Fund shares. An individual's taxpayer identification number is his
or her social security number. The backup withholding tax is not an addi-
tional tax and may be credited against a shareholder's regular Federal in-
come tax liability.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of The Boston Company, is located
at One Boston Place, Boston, Massachusetts 02108, and serves as the custo-
dian of the Trust pursuant to a custody agreement. Under the custody
agreement, Boston Safe holds the Trust's portfolio securities and keeps
all necessary accounts and records. For its services, Boston Safe receives
a monthly fee based upon the month-end market value of securities held in
custody and also receives securities transaction charges, including out-
of-pocket expenses. Boston Safe is authorized to establish separate ac-
counts for foreign securities owned by the Trust to be held with foreign
branches of other United States banks as well as with certain foreign
banks and securities depositories. The assets of the Trust are held under
bank custodianship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02019, and serves
as the Trust's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records for the Trust, handles certain
communications between shareholders and the Trust and distributes divi-
dends and distributions payable by the Trust and produces statements with
respect to account activity for the Trust and its shareholders. For these
services, TSSG receives a monthly fee computed on the basis of the number
of shareholder accounts that it maintains for the Trust during the month
and is reimbursed for out-of-pocket expenses.
ORGANIZATION AND DESCRIPTION OF TRUST SHARES
The Trust was organized as an unincorporated business trust under the laws
of the Commonwealth of Massachusetts pursuant to an Agreement and Declara-
tion of Trust dated June 2, 1983. On June 27, 1985, the Fund filed with
the Commonwealth of Massachusetts an Amended and Restated Master Trust
Agreement. On November 5, 1992, the Fund filed with the Commonwealth of
Massachusetts a Second Amended and Restated Master Trust Agreement (the
"Trust Agreement"). Under the Trust Agreement, the Trust's Trustees have
authority to create an unlimited number of shares of beneficial interest
of the Trust with a par value of $.001 per share.
In the interests of economy and convenience, certificates representing
shares in the Growth Fund are not physically issued except upon specific
request made by a shareholder to TSSG. TSSG maintains a record of each
shareholder's ownership of Growth Fund shares. Shares do not have cumula-
tive voting rights, which means that holders of more than 50% of the
shares voting for the election of Trustees can elect all of the Trustees.
Shares are transferable, but have no preemptive, conversion or subscrip-
tion rights.
No meetings of shareholders will be held for the purpose of electing
Trustees unless and until such time as less than a majority of the Trust-
ees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders of record of no less than two-thirds of the out-
standing shares of the Trust may remove a Trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. Under the Trust Agreement, the Trustees are required to call a
meeting of shareholders for the purpose of voting upon the question of re-
moval of a Trustee when requested in writing to do so by the shareholders
of record of not less than 10% of the Trust's outstanding shares.
Massachusetts law provides that shareholders could, under certain circum-
stances, be held personally liable for the obligations of the Trust. The
Trust Agreement disclaims shareholder liability for acts or obligations of
the Trust, however, and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Trust Agreement provides for indemnification
from Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote.
Upon payment of any liability incurred by the Trust, a shareholder paying
the liability will be entitled to reimbursement from the general assets of
the Trust. The Trustees intend to conduct the operations of the Trust in
such a way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trust.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal year ended December 31, 1993 ac-
companies this Statement of Additional Information and is incorporated
herein by reference in its entirety.
APPENDIX
The following is a description of the two highest ratings categories of
NRSROs for commercial paper.
The rating A-1 is the highest commercial paper rating assigned by Standard
& Poor's Corporation ("S&P"). Paper rated A-1 must have either the direct
credit support of an issuer or guarantor that possesses excellent long-
term operating and financial strength combined with strong liquidity char-
acteristics (typically, such issuers or guarantors would display credit
quality characteristics which would warrant a senior bond rating of AA- or
higher), or the direct credit support of an issuer or guarantor that pos-
sesses above-average long-term fundamental operating and financing capa-
bilities combined with ongoing excellent liquidity characteristics. Paper
rated A-1 must have the following characteristics: liquidity ratios are
adequate to meet cash requirements; long-term senior debt is rated A or
better; the issuer has access to at least two additional channels of bor-
rowing; basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances; typically, the issuer's industry is well
established and the issuer has a strong position within the industry; and
the reliability and quality of management are unquestioned.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Among the factors considered
by Moody's in assigning ratings are the following: (a) evaluation of the
management of the issuer; (b) economic evaluation of the issuer's industry
or industries and an appraisal of speculative-type risks which may be in-
herent in certain areas; (c) evaluation of the issuer's products in rela-
tion to competition and customer acceptance; (d) liquidity; (e) amount and
quality of long-term debt; (f) trend of earnings over a period of ten
years; (g) financial strength of a parent company and the relationships
which exist with the issuer; and (h) recognition by the management of ob-
ligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Short-term obligations including commercial paper, rated A-1+ by IBCA Lim-
ited or its affiliate IBCA Inc., are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong
capacity for timely repayment. Obligations rated A-2 have a strong capac-
ity for timely repayment, although such capacity may be susceptible to ad-
verse changes in business, economic or financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues
regarded as having the strongest degree of assurance for timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less
in degree than issues rated F-1+, while the rating F-2 indicates a satis-
factory degree of assurance for timely payment, although the margin of
safety is not as great as indicated by the F-1+ and F-1 categories.
Duff & Phelps Inc. employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. Duff 1+ indicates the
highest certainty of timely payments: short-term liquidity is clearly out-
standing, and safety is just below risk-free U.S. Treasury short-term ob-
ligations. Duff 1 - indicates high certainty of timely payment. Duff 2 in-
dicates good certainty of timely payment: liquidity factors and company
fundamentals are sound.
The Thomson BankWatch ("TBW") Short-Term Ratings apply to commercial
paper, other senior short-term obligations and deposit obligations of the
entities to which the rating has been assigned, and apply only to unse-
cured instruments that have a maturity of one year or less.
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS GROWTH FUND
Two World Trade Center
New York, New York 10048
Smith Barney Shearson
TELECOMMUNICATIONS
GROWTH FUND
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1994
SMITH BARNEY SHEARSON
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS INCOME FUND
Two World Trade Center, New York, New York 10048 - (212) 720-9218
PROSPECTUS March 1, 1994
The investment objective of Smith Barney Shearson Telecommunications Income
Fund ("Income Fund") of Smith Barney Shearson Telecommunications Trust (the
"Trust") is current income, with growth of capital as a secondary
consideration. The Income Fund seeks to achieve this objective primarily by
investing in income-producing equity and debt securities of companies in the
telecommunications industry. The Trust is a non-diversified, open-end
management investment company consisting of two portfolios, the Income Fund
and Smith Barney Shearson Telecommunications Growth Fund ("Growth Fund").
Shares of the Income Fund are not currently being offered for sale to new
investors. Current shareholders are encouraged to read this Prospectus
carefully and retain it for future reference.
Additional information about the Trust and the Income Fund is contained in a
Statement of Additional Information dated March 1, 1994, as amended or
supplemented from time to time, which is available upon request and without
charge by calling or writing the Income Fund at the telephone number or
address set forth above or by contacting your Smith Barney Shearson 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.
THE BOSTON COMPANY ADVISORS, INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
March 1, 1994
FD 0265 0B4
INTRODUCTION
The Income Fund is one of two portfolios of the Trust, a non-
diversified, open-end management investment company created in response to the
reorganization of American Telephone & Telegraph Company ("AT&T") to provide
stockholders of AT&T with the opportunity to exchange their shares of AT&T for
shares of the Trust. This exchange of shares took place and the Trust
commenced operations on January 1, 1984. Each portfolio's investments are
primarily concentrated in the securities of issuers engaged in the
telecommunications industry.
The Income Fund does not currently offer its shares for sale to new
investors. Shares of the Growth Fund, however, are offered for sale through a
separate Prospectus that is available by calling or writing the Trust or by
contacting your Smith Barney Shearson Financial Consultant.
As with most mutual funds, the Trust employs various organizations to
perform necessary functions and to provide services to its shareholders.
These organizations are carefully selected by the Trust's Board of Trustees
which regularly reviews the quality and scope of their performance. The Trust
employs The Boston Company Advisors, Inc, ("Boston Advisors") as its
investment adviser, Boston Safe Deposit and Trust Company ("Boston Safe") as
its custodian and The Shareholder Services Group, Inc. ("TSSG"), a subsidiary
of First Data Corporation, as its transfer agent.
More detailed information regarding these organizations and the
functions they perform is provided in this Prospectus as well as in the
Statement of Additional Information.
TABLE OF CONTENTS
Introduction Page 2
The Income Fund's Expenses Page 3
Financial Highlights Page 4
Management of the Income Fund and the Trust Page 6
Portfolio Management Page 6
Investment Objective and Management Policies Page 6
Redemption of Shares Page 9
Valuation of Shares Page 10
Exchange Privilege Page 11
Dividends, Distributions and Taxes Page 15
Additional Information Page 16
THE INCOME FUND'S EXPENSES
The following expense table lists the costs and expenses that an
investor will incur either directly or indirectly as a shareholder in the
Income Fund, based upon the Income Fund's expenses for its most recent fiscal
year:
Annual Income Fund Operating Expenses (as a percentage of average daily net
assets)
Management fees .75%
Other expenses .18%
Total Income Fund Operating Expenses .93%
Management fees paid by the Income Fund include investment advisory fees
paid monthly to Boston Advisors at the annual rate of .75% of the value of the
Income Fund's average daily net assets. This fee is higher than the
investment advisory fee paid by other investment companies. The nature of the
services for which the Income Fund pays management fees is described under
"Management of the Income Fund and the Trust." "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 demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in the Income Fund. These amounts are based upon
(a) payment by the Income Fund of operating expenses at the levels set forth
in the table above and (b) the following assumptions:
1 year 3 years 5 years 10 years
A shareholder would pay
the following expenses on $9 $30 $51 $114
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemption
at the end of each period:
*This example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
Moreover, while the table assumes a 5% annual return, the Income Fund's actual
performance will vary and may result in an actual return greater or less than
5%.
FINANCIAL HIGHLIGHTS
The following table has been audited by Coopers & Lybrand, independent
accountants, whose report thereon appears in the Income Fund's Annual
Report dated December 31, 1993. This table should be read in
conjunction with the financial statements and related notes that
organizations. These loans, if any when made, may not exceed 33 1/3% of the
Income Fund's assets taken at value. The Income Fund's loans of securities
will be collateralized by cash, letters of credit or obligations of the United
States government and its agencies and instrumentalities ("U.S. Government
Securities") which are maintained at all times in a segregated account with
the Trust's custodian in an amount equal to at least 100% of the current
market value of the loaned securities. By lending its portfolio securities,
the Income Fund will seek to generate income by continuing to receive interest
on investments
12.30
6.79
(
2.20)
(
8.98)
45
.31
_____________________________________________________
________
Total from investment
operations
1
6.24
11.70
3
.54
(
2.88)
50
.49
Less distributions:
Distributions to
shareholders from:
Dividends from net
investment income
(
4.42)
(4.55)
(
6.05)
(
5.79)
(5
.85)
Distributions from net
realized gains
(
6.87)
(15.23
)
(
14.62)
(
3.20)
(2
.65)
Distributions from capital
--
--
(
1.18)
--
--
Distributions in excess of
net realized
gains
--
--
--
--
(0
.16)
_____________________________________________________
________
Total distributions
(
11.29)
(19.78
)
(
21.85)
(
8.99)
(8
.66)
__________________________________________
________
Net Asset Value, end of year
$
107.62
$102.6
7
$
110.75
$
129.06
$1
40.93
________________________________
________
Total return
1
6.00%
10.89%
3
.30%
(1.80%
)
52
.11%
_________________________________________________________
________
Ratios to average net
assets/ supplemental
data:
Net assets, end of year
(000's)
$71,57
0
$70,63
7
$79,41
9
$94,85
4
$109,97
0
Ratio of operating expenses
to average
net assets
0
.93%
0.92%
0
.90%
0
.92%
0.
89%
Ratio of net investment
income to average
net assets
3
.47%
4.41%
4
.57%
4
.81%
4.
32%
Portfolio turnover rate
0%
2%
18%
3%
5%
__________________________________________
_________
Total return represents aggregate total return for the year indicated
For an Income Fund share throughout each year:
Year
Ended
Year
Ended
Year
Ended
Year
Ended
Year
Ended
12/31/
88
12/31/
87
12/31/
86
12/31/
85
12/31/84
*
Net Asset Value, beginning
of year
$
90.28
$99.20
$
86.19
$
70.16
$6
1.25
______________________________________
__________
Income from investment
operations:
Net investment income/(loss)
5
.55
5.87
5
.54
5
.30
5.
36
Net realized and unrealized
gain/loss
on investments
9
.66
(4.67)
1
5.38
1
6.87
7.
71
__________________________________________________
___________
Total from investment
operations
1
5.21
1.20
2
0.92
2
2.17
13
.07
Less distributions:
Distributions to
shareholders from:
Dividends from net
investment income
(
5.40)
(7.20)
(
5.40)
(
5.34)
(4.16)
Distributions from net
realized gains
(
0.99)
(2.92)
(
2.51)
(
0.80)
--
Distributions from capital
--
--
--
--
--
Distributions in excess of
net realized
capital gains
--
--
--
--
--
________________________________
____________
Total distributions
(
6.39)
(10.12
)
(
7.91)
(
6.14)
(4
.16)
_______________________________________
____________
Net Asset Value, end of year
$
99.10
$90.28
$
99.20
$
86.19
$7
0.16
____________________________________________
____________
Total return
1
7.12%
0.91%
2
4.99%
3
3.30%
21
.66%
______________________________________
____________
Ratios to average net
assets/ supplemental
data:
Net assets, end of year
(000's)
$
82,546
$80,34
9
$95,43
9
$88,92
6
$76,825
Ratio of operating expenses
to average
net assets
0
.95%
0.97%
0
.96%
1
.07%
1.
05%
Ratio of net investment
income to average
net assets
5
.70%
5.84%
5
.68%
6
.91%
8.
14%
Portfolio turnover rate
3%
6%
15%
21%
53%
_________________________________
_____________
*The Fund commenced operations on January 1, 1984.
Total return represents aggregate total return for the year indicated
MANAGEMENT OF THE INCOME FUND AND THE TRUST
Board of Trustees
Overall responsibility for management and supervision of the Income Fund
rests with the Trust's Board of Trustees. The Trustees approve all significant
agreements between the Income Fund and the persons or companies that furnish
services to the Income Fund, including agreements with its investment adviser,
custodian and transfer agent. The day-to-day operations of the Income Fund
are delegated to Boston Advisors. The Statement of Additional Information
contains general background information regarding each of the Trust's Trustees
and the executive officers of the Income Fund.
Investment Adviser and Administrator -- Boston Advisors
Boston Advisors, located at One Boston Place, Boston, Massachusetts
02108, serves as the Income Fund's investment adviser and serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), which is in turn a wholly owned subsidiary of Mellon
Bank Corporation ("Mellon"). Mellon is a publicly owned holding company
registered under the Federal Banking Holding Company Act of 1956 and through
its subsidiaries, Mellon provides a comprehensive range of financial products
and services in domestic and selected international markets. Boston Advisors
provides investment management, investment advisory and/or administrative
services to investment companies which had aggregate assets under management
as of January 31, 1994 in excess of $93.8 billion.
PORTFOLIO MANAGEMENT
Guy Scott, Vice President of Boston Advisors has served as an Investment
Administrator to the Fund since October 1991 and manages the day to day
operations of the Fund, including making all investment decisions.
Mr. Scott's management discussion and analysis, and additional
performance information regarding the Fund during the fiscal year ended
December 31, 1993 is included in the Annual Report dated December 31, 1993. A
copy of the Annual Report may be obtained upon request without charge from
your Smith Barney Financial Consultant or by writing or calling the Trust at
the address or phone number listed on page one of this Prospectus.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Income Fund is current income, with
long-term growth of capital as a secondary objective. This investment
objective may not be changed without the approval of the holders of a majority
of the Income Fund's outstanding shares. There is no guarantee the Income
Fund's investment objective will be achieved.
The Income Fund seeks to achieve its investment objective primarily
through investment in income-producing equity and debt securities of companies
engaged in the telecommunications industry. The Income Fund defines the
telecommunications industry as companies engaged in the communication,
display, reproduction, storage and retrieval of information, generally in one
or more of the following forms: voice, data, or print facsimile. Under normal
market conditions, at least 65% of the total assets of the Income Fund will be
invested in securities of issuers engaged in the telecommunications industry.
During certain periods when economic conditions in that industry are adverse
or when market conditions suggest a defensive position, however, the Income
Fund temporarily may have less than 65% of the value of its total assets
invested in that industry.
Securities for the Income Fund are selected principally on the basis of
their ability to produce current income and, as a result, the Income Fund
invests principally in income-producing common stocks, preferred stocks and
debt securities, including securities convertible into common and preferred
stocks. The Income Fund also may invest in short-term fixed-income
obligations, such as commercial paper. Debt securities purchased by the
Income Fund will be rated within the three highest ratings by Standard &
Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's") or,
if not so rated, of comparable quality in the opinion of Boston Advisors.
Commercial paper purchased by the Income Fund will be rated Prime-2 or better
by Moody's or A-2 or better by S&P.
The Trust is classified as a non-diversified investment company under
the Investment Company Act of 1940, as amended ("the 1940 Act"), which means
that the Income Fund is not limited by the 1940 Act in the proportion of its
assets that it may invest in the obligations of a single issuer. The Income
Fund intends to conduct its operations, however, so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Income Fund of any
liability for Federal income tax to the extent that its earnings are
distributed to shareholders. To so qualify, among other requirements, the
Income Fund will limit its investments so that, at the close of each quarter
of the taxable year, (a) not more than 25% of the market value of the Income
Fund's total assets will be invested in the securities of a single issuer, and
(b) with respect to 50% of the market value of its total assets, not more than
5% of the market value of its total assets will be invested in the securities
of a single issuer and the Income Fund will not own more than 10% of the
outstanding voting securities of a single issuer. These 25% and 5% limits
will not be deemed exceeded to the extent that any excess results from
fluctuations in market value or sales of other securities, as opposed to
purchases of securities. The Income Fund's assumption of large positions in
the obligations of a small number of issuers may cause the Income Fund's yield
to fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
Further information about the Income Fund's investment policies,
including a list of those restrictions on the Income Fund's investment
activities that cannot be changed without shareholder approval, appears in the
Statement of Additional Information.
Investment Policies and Strategies
Lending of Portfolio Securities. The Income Fund is authorized to lend
securities that it holds to brokers, dealers and other financial
organizations. These loans, if any when made, may not exceed 33 1/3% of the
Income Fund's assets taken at value. The Income Fund's loans of securities
will be collateralized by cash, letters of credit or obligations of the United
States government and its agencies and instrumentalities ("U.S. Government
Securities") which are maintained at all times in a segregated account with
the Trust's custodian in an amount equal to at least 100% of the current
market value of the loaned securities. By lending its portfolio securities,
the Income Fund will seek to generate income by continuing to receive interest
on the 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 Boston Advisors to be
of good standing and will not be made unless, in the judgment of Boston
Advisors, the consideration to be earned from such loans would justify the
risk.
Borrowing. The Income Fund is authorized to borrow money in an amount
up to 10% of its total assets for extraordinary or emergency purposes (such as
meeting anticipated redemptions) and to pledge its assets in connection with
such borrowings. Whenever borrowings exceed 5% of the value of the Income
Fund's total assets, the Income Fund will not purchase securities for
investment.
Short-Term Investments. The Income 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 of 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 Income Fund may 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 Income Fund would acquire an underlying debt obligation for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Income Fund to resell, the
obligation at an agreed-upon price and time, thereby determining the yield
during the Income Fund's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Income
Fund's holding period. The value of the underlying securities at all times
will be at least equal to the total amount of the repurchase obligation,
including interest. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays
or restrictions upon the Income 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 Income 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.
Boston Advisors, acting under the supervision of the Trust's Board of
Trustees, reviews on an ongoing basis the value of the collateral and the
creditworthiness of those banks and dealers with which the Income Fund enters
into repurchase agreements to evaluate potential risks.
Covered Call Options. In order to earn additional income, and as a means
of seeking to partially protect its assets against market declines, the Income
Fund may, to a limited extent, write covered call option contracts on certain
securities and purchase call option contracts for the purpose of terminating
its outstanding obligations with respect to securities upon which call option
contracts have been written ("closing purchase transactions"). Only call
options which are traded on a United States exchange will be written. The
Income Fund's ability to engage in closing purchase transactions depends on
the existence of a liquid secondary market; for some options no such secondary
market may exist or the market may cease to exist.
The Income Fund may write option contracts on its securities up to an
amount not in excess of 20% of the value of its net assets at the time that
such options are written. The Income Fund may not sell (uncover) the
securities against which an option contract has been written until after the
option period has expired, the option contract has been exercised or a closing
purchase transaction has been executed. Successful use of options by the
Income Fund will depend on the ability of Boston Advisors to correctly predict
movements in the prices of the securities underlying the option.
Portfolio Transactions. Portfolio securities transactions on behalf of
the Income Fund will be executed by a number of brokers and dealers, including
Smith Barney Shearson and certain of its affiliated brokers, that are selected
by Boston Advisors. The Income Fund may use Smith Barney Shearson or a broker
affiliated with Smith Barney Shearson in connection with a purchase or sale of
securities when Boston Advisors believes that such broker's charge for the
transaction does not exceed the usual and customary levels.
Certain Risk Considerations
Shareholders should be aware that the Income Fund concentrates its
assets in the telecommunications industry and, as a result, the Income Fund
should not be considered as a complete investment program. Moreover, the
investment flexibility of the Income Fund may be restricted by the necessity
of satisfying certain diversification requirements in order to maintain the
qualification of the Income Fund as a regulated investment company within the
meaning of the Code. See "Dividends, Distributions and Taxes."
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Income 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
New York Stock Exchange, Inc. (the "NYSE"), currently 4:00 p.m., New York
time, are priced at the net asset value per share determined on that day.
Redemption requests received after the close of regular trading on the NYSE
are priced at the net asset value as next determined.
The Income Fund normally transmits redemption proceeds for credit to
the shareholder's account at Smith Barney Shearson or to a broker that clears
securities transactions through Smith Barney Shearson on a fully disclosed
basis at no charge within seven days after receipt of a redemption request.
Generally, these funds will not be invested for the shareholder's benefit
without specific instruction, and Smith Barney Shearson will benefit from the
use of temporarily uninvested funds.
An Income Fund account that is reduced by a shareholder to a value of
$500 or less is subject to redemption by the Income Fund, but only after the
shareholder has been given at least 30 days in which to increase the account
balance to $500 or more.
Shares may be redeemed in one of the following ways:
Redemption through Smith Barney Shearson
Redemption requests may be made through Smith Barney Shearson. A shareholder
desiring to redeem shares of the Income Fund represented by certificates also
must present such certificates to Smith Barney Shearson endorsed for transfer
(or accompanied by an endorsed stock power), signed exactly as the shares are
registered. Redemption requests involving shares represented by certificates
will not be deemed received until such certificates are received by TSSG in
proper form.
Redemption By Mail
Shares may be redeemed by submitting a written request for redemption
to:
Smith Barney Shearson Telecommunications Income Fund
c/o The Shareholders Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to TSSG must (a) state the number 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 registered. If the
shares to be redeemed were issued in certificate form, the certificates must
be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to TSSG together with a redemption request. Any signature
appearing on a redemption request must be guaranteed by a domestic bank,
savings and loan institution, a domestic credit union, member bank of the
Federal Reserve System or member firm of a national securities exchange. TSSG
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A redemption
request will not be deemed to be properly received until TSSG receives all
required documents in proper form.
VALUATION OF SHARES
The Income Fund's 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 expected to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively.
The Income Fund's net asset value per share is determined as of the
close of regular trading on the NYSE and is computed by dividing the value of
the Income Fund's net assets by the total number of shares outstanding.
Generally, the Income Fund's investments are valued at market value or, in the
absence thereof with respect to any portfolio securities, at fair value as
determined by Boston Advisors after consultation with an independent pricing
service approved by the Trust's Board of Trustees. Further information
regarding the Income Fund's valuation policies is contained in the Statement
of Additional Information.
EXCHANGE PRIVILEGE
Shareholders in the Income Fund may exchange their shares for the Class
A shares in the following funds in the Smith Barney Shearson Group of Funds,
to the extent such shares are offered for sale in the shareholder's state of
residence.
Municipal Bond Funds
*
Smith Barney Shearson Limited Maturity Municipals Fund, an
intermediate-term municipal bond fund investing in investment grade
obligations.
*
Smith Barney Shearson Managed Municipals Fund Inc., an intermediate-
and long-term municipal bond fund.
*
Smith Barney Shearson Tax-Exempt Income Fund, an intermediate- and
long-term municipal bond fund investing in medium-and lower-rated
securities.
*
Smith Barney Shearson Arizona Municipals Fund Inc., an intermediate-
and long-term municipal bond fund designed for Arizona investors.
*
Smith Barney Shearson Intermediate Maturity California Municipals Fund,
an intermediate-term municipal bond fund designed for California
investors.
*
Smith Barney Shearson California Municipals Fund Inc., an intermediate-
and long-term bond fund designed for California investors.
*
Smith Barney Shearson Florida Municipals Fund, an intermediate- and
long-term municipal bond fund designed for Florida investors.
*
Smith Barney Shearson Massachusetts Municipals Fund, an intermediate-
and long-term municipal bond fund designed for Massachusetts investors.
*
Smith Barney Shearson New Jersey Municipals Fund Inc., an intermediate-
and long-term municipal bond fund designed for New Jersey investors.
*
Smith Barney Shearson Intermediate Maturity New York Municipals Fund,
an intermediate-term bond fund designed for New York investors.
*
Smith Barney Shearson New York Municipals Fund Inc., an intermediate-
and long-term bond fund designed for New York investors.
Income Funds
*
Smith Barney Shearson Adjustable Rate Government Income Fund, seeks
high current income while limiting the degree of fluctuation in net
asset value resulting from movement in interest rates.
*
Smith Barney Shearson Worldwide Prime Assets Fund, invests in a
portfolio of high quality debt securities that may be denominated in
U.S. dollars or selected foreign currencies and that have remaining
maturities of not more than one year.
*
Smith Barney Shearson Short-Term World Income Fund, invests in high
quality, short-term debt securities denominated in U.S. dollars as well
as a range of foreign currencies.
*
Smith Barney Shearson Limited Maturity Treasury Fund, invests
exclusively in securities issued by the United States Treasury and
other U.S. government securities.
*
Smith Barney Shearson Diversified Strategic Income Fund, seeks high
current income primarily by allocating and reallocating its assets
among various types of fixed-income securities.
*
Smith Barney Shearson Managed Governments Fund Inc., invests in
obligations issued or guaranteed by the United States government and
its agencies and instrumentalities with emphasis on mortgage-backed
government securities.
*
Smith Barney Shearson Government Securities Fund, seeks a high current
return by investing in U.S. government securities.
*
Smith Barney Shearson Investment Grade Bond Fund, seeks a maximum
current income consistent with prudent investment management and
preservation of capital by investing in corporate bonds.
*
Smith Barney Shearson High Income Fund, seeks high current income by
investing in high yielding corporate bonds, debentures and notes.
*
Smith Barney Shearson Global Bond Fund, seeks current income and
capital appreciation by investing in bonds, debentures and notes of
foreign and domestic issuers.
Growth and Income Funds
*
Smith Barney Shearson Convertible Fund, seeks current income and
capital appreciation by investing in convertible securities.
*
Smith Barney Shearson Utilities Fund, seeks total return by investing
in equity and debt securities of utilities companies.
*
Smith Barney Shearson Strategic Investors Fund, seeks high total return
consisting of current income and capital appreciation by investing in a
combination of equity, fixed-income and money market securities.
*
Smith Barney Shearson Premium Total Return Fund, seeks total return by
investing in dividend-paying common stocks.
*
Smith Barney Shearson Growth and Income Fund, seeks income and long-
term capital growth by investing in income-producing equity securities.
Growth Funds
*
Smith Barney Shearson Appreciation Fund Inc., seeks long-term
appreciation of capital.
*
Smith Barney Shearson Fundamental Value Fund Inc., seeks long-term
capital growth with current income as a secondary objective.
*
Smith Barney Shearson Sector Analysis Fund, seeks capital appreciation by
following a sector strategy.
*
Smith Barney Shearson Telecommunications Growth Fund, seeks capital
appreciation, with income as a secondary consideration.
*
Smith Barney Shearson Aggressive Growth Fund Inc., seeks above-average
capital growth.
*
Smith Barney Shearson Special Equities Fund, seeks long-term capital
growth by investing primarily in the common stocks of foreign and
domestic
issuers.
*
Smith Barney Shearson Global Opportunities Fund, seeks long-term capital
growth by investing primarily in the common stocks of foreign and
domestic issuers.
*
Smith Barney Shearson European Fund, seeks long-term capital appreciation
by investing primarily in securities of issuers based in European
countries.
*
Smith Barney Shearson Precious Metals and Minerals Fund Inc., seeks long-
term capital appreciation by investing primarily in precious metal- and
mineral-related
companies and gold bullion.
Money Market Funds
*
Smith Barney Shearson Daily Dividend Fund Inc., invests in a diversified
portfolio of high quality money market instruments.
*
Smith Barney Shearson Government and Agencies Fund Inc., invests in
short-term U.S. government and agency securities.
*
Smith Barney Shearson Municipal Money Market Fund Inc., invests in
short-term high quality municipal obligations.
*
Smith Barney Shearson California Municipal Money Market Fund, invests
in short-term, high quality California municipal obligations.
*
Smith Barney Shearson New York Municipal Money Market Fund, invests in
short-term, high quality New York municipal obligations.
Tax Effect. The exchange of shares of one fund for shares of another
fund is treated for Federal income tax purposes as a sale of the shares given
in exchange by the shareholder. Therefore, an exchanging shareholder may
realize a taxable gain or loss in connection with the exchange. For purposes
of the exchange privilege, shares obtained through automatic reinvestment of
dividends are treated as having paid the same sales charges applicable to the
shares on which the dividends were paid.
Exchanges. Shareholders of the Fund or shareholders holding shares of
any of the funds in the Smith Barney Shearson Group of Funds sold without a
sales charge or with a maximum sales charge of less than 5% will be subject to
the appropriate "sales charge differential" upon the exchange of their shares
for any of the funds sold with a higher sales charge. The "sales charge
differential" is limited to a percentage rate no greater than the excess of
the sales charge rate applicable to purchases of shares of the mutual fund
being acquired in the exchange over the sales charge rate(s) actually paid on
the mutual fund shares relinquished in the exchange and on any predecessor of
those shares. For purposes of the exchange privilege, shares obtained through
automatic reinvestment of dividends are treated as having paid the same sales
charges applicable to the shares on which the dividends were paid. In
addition, Smith Barney Shearson receives an annual service fee ranging from
.15% to .25% of the value of average daily net assets attributable to the
shares of each fund, except the money market funds listed above.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions
can be detrimental to the Fund's performance and its shareholders. Greenwich
Street Advisors 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, Greenwich Street Advisors will notify Smith Barney Shearson,
and Smith Barney Shearson may, at its discretion, decide to limit additional
purchases and/or exchanges by the shareholder. Upon such a determination,
Smith Barney Shearson 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. 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 Smith Barney Shearson funds ordinarily available, which position the
shareholder would expect to maintain for a significant period of time. All
relevant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
Shareholders exercising the exchange privilege with any other fund in
the Smith Barney Shearson Group of Funds should review the prospectus of that
fund carefully prior to making an exchange. Smith Barney Shearson reserves
the right to reject any exchange request. The exchange privilege may be
modified or terminated at any time after written notice to shareholders. For
further information regarding the exchange privilege or to obtain the current
prospectuses for funds in the Smith Barney Shearson Group of Funds,
shareholders should contact their Smith Barney Shearson Financial Consultants.
Reduced Sales Charges
Reduced sales charges are available to investors purchasing shares of
other funds in the Smith Barney Shearson Group of Funds sold with a sales
charge under a combined right of accumulation, under which an investor may
combine the value of shares already held in the Income Fund and in other funds
in the Smith Barney Shearson Group of Funds that are sold with a sales charge,
along with the value of the shares of the fund being purchased, to qualify for
a reduced sales charge. For example, if an investor owns shares of the Income
Fund and other funds in the Smith Barney Shearson Group of Funds sold with a
sales charge that have an aggregate value of $22,000 and makes an additional
investment of $4,000 in another fund in the Smith Barney Shearson Group of
Funds sold with a maximum 5% sales charge, the sales charge applicable to the
additional investment would be 4% rather than the 5% normally charged on a
$4,000 purchase. Investors interested in further information regarding
reduced sales charges should contact their Smith Barney Shearson Financial
Consultants.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends from the Income Fund's net investment income (i.e., its income
other than its net long and short-term capital gains, if any) will be declared
as of the last Friday of each quarter and will be payable as of the first
Friday of the following quarter. Distributions of the Income Fund's net
short-and long-term capital gains, if any, will be declared and paid once a
year, normally at the end of the calendar year in which they were earned or at
the beginning of the next year. Short-term gains also may be attributed to
the regular quarterly distributions as necessary. Unless a shareholder
instructs the Income Fund to pay dividends and capital gains distributions in
cash and credit them to the shareholder's account at Smith Barney Shearson,
dividends and capital gains distributions will be reinvested automatically in
additional shares of the Income Fund at net asset value, without a sales
charge. The Income Fund is subject to a 4% non-deductible excise tax measured
with respect to certain undistributed amounts of income and capital gain. In
order to avoid the application of this tax, the Income Fund may make an
additional distribution shortly before December 31 in each year of any
undistributed ordinary income or capital gains and expects to make any other
distributions necessary to avoid the application of this tax.
Dividends paid by the Income Fund from investment income and
distributions of any net realized short-term capital gains are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares of the Income Fund. Distributions of net realized long-
term capital gains are taxable to shareholders as long-term capital gains
whether received in cash or reinvested in additional shares of the Income
Fund, regardless of the length of time that Income Fund shares have been held
by the shareholder.
Generally, dividends of investment income (but not capital gain) from
the Income Fund will qualify for the Federal dividends-received deduction for
corporate shareholders. Each shareholder will receive a statement annually
from the Income Fund, which will set forth separately the aggregate dollar
amount of dividends and capital gains distributed to the shareholder by the
Income Fund with respect to the prior calendar year and the amount of the
distributions that qualify for the dividends-received deduction.
Shareholders are urged to consult their tax advisors regarding the
application of Federal, state and local tax laws to their specific situations
before investing in the Income Fund.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder also will receive, if
appropriate, various written notices after the close of the Income Fund's
prior taxable year as to the Federal income tax status of his or her dividends
and distributions which were received from the Income Fund during it's prior
taxable year. Shareholders should consult their tax advisors about the status
of dividends and distributions from the Income Fund in their own states and
localities and with respect to their own tax situations.
ADDITIONAL INFORMATION
The Trust was organized as a Massachusetts business trust under the laws
of the Commonwealth of Massachusetts on June 2, 1983. On October 4, 1989, the
Trust and the Income Fund changed their names from American Telecommunications
Trust and Income Portfolio Shares to SLH Telecommunications Trust and SLH
Telecommunications Income Fund, respectively. On August 27, 1990, the Trust
and the Income Fund changed their names to Shearson Lehman Brothers
Telecommunications Trust and Telecommunications Income Fund, respectively. On
July 30, 1993 the Trust and the Income Fund changed their names to Smith
Barney Shearson Telecommunications Trust and Smith Barney Shearson
Telecommunications Income Fund, respectively.
The Trustees have authority to create an unlimited number of shares of
beneficial interest of the Trust, with a par value of $.001 per share. To
date, two sub-trusts of the Trust have been authorized, which constitute the
Income Fund and the Growth Fund. The Trustees have authority to create
additional sub-trusts at any time in the future without shareholder approval.
The Trustees from time to time may consider whether to offer a new sub-trust
to the general public.
When matters are submitted for shareholder vote, shareholders of each
sub-trust will have one vote for each full share owned and a proportionate,
fractional vote for any fractional share held. Generally, shares of the Trust
vote by individual sub-trust on all matters except
(a) matters affecting only the interests of one or more of the sub-trusts, in
which case only shares of the affected sub-trust or sub-trusts would be
entitled to vote, or (b) when the 1940 Act requires that shares of the sub-
trusts be voted in the aggregate. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees holding office have been elected by
shareholders. Shareholders of record of no less than two-thirds of the
outstanding shares of the Trust may remove a Trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. A meeting will be called for the purpose of voting on the removal of
a Trustee at the written request of holders of 10% of the Trust's outstanding
shares.
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc., is
located at One Boston Place, Boston, Massachusetts 02108, and serves as
custodian of the Trust's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves as the Trust's transfer agent.
The Income Fund sends shareholders a semi-annual report and an audited
annual report, which include listings of the investment securities held by the
Income Fund at the end of the period covered. Shareholders may make inquiries
regarding the Income Fund to their Smith Barney Shearson Financial
Consultants. In an effort to reduce the Income Fund's printing and mailing
costs, the Income Fund plans to consolidate the mailing of its semi-annual and
annual reports by household. This consolidation means that a household having
multiple accounts with the identical address of record will receive a single
copy of each report. In addition, the Income Fund also plans to consolidate
the mailing of its Prospectus so that a shareholder having multiple accounts
(i.e., individual, IRA and/or Self-Employed Retirement Plan accounts) will
receive a single Prospectus annually. Any shareholder who does not want this
consolidation to apply to his or her account should contact his or her Smith
Barney Shearson Financial Consultant or the Trust's transfer agent.
No person has been authorized to give any information or make any
representations other than those contained in this Prospectus, the Statement
of Additional Information and in the Income Fund's official sales literature
in connection with the offering of the Income Fund's shares, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Income Fund. This Prospectus does not constitute
an offer in any state in which, or to any person to whom, such offer may not
lawfully be made.
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS INCOME FUND
Two World Trade Center, New York, New York 10048 - (212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION March 1, 1994
This Statement of Additional Information expands upon and supplements
the information contained in the current Prospectus of Smith Barney Shearson
Telecommunications Income Fund (the "Income Fund") of Smith Barney Shearson
Telecommunications Trust (the "Trust"), dated March 1, 1994, as amended or
supplemented from time to time, and should be read in conjunction with the
Prospectus of the Income Fund, one of two portfolios of the Trust. The other
portfolio is the Smith Barney Shearson Telecommunications Growth Fund (the
"Growth Fund"). The Income Fund's Prospectus may be obtained from your Smith
Barney Shearson Financial Consultant or by writing or calling the Trust at the
address or telephone number set forth above. This Statement of Additional
Information, although not in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
CONTENTS
For ease of reference the same section headings are used in both the
Prospectus and the Statement of Additional Information, except where shown
below.
Management of the Income Fund and the Trust 2
Investment Objective and Management Policies 5
Redemption of Shares 14
Valuation of Shares 14
Exchange Privilege 15
Taxes (See in the Prospectus "Dividends, Distributions
and Taxes") 15
Custodian and Transfer Agent (See in the Prospectus
"Additional Information") 18
Organization and Description of Trust Shares
(See in the Prospectus "Additional Information") 18
Financial Statements 19
Appendix 19
MANAGEMENT OF THE INCOME FUND AND THE TRUST
The executive officers of the Trust are employees of certain of the
organizations that provide services to the Trust. These organizations are as
follows:
Name Service
The Boston Company Advisors, Inc. Investment Adviser
("Boston Advisors") and Administrator
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation Transfer Agent
These organizations and the functions they perform for the Trust are
discussed in the Prospectus and in this Statement of Additional Information.
Trustees of the Trust and Executive Officers of the Income Fund
The Trustees of the Trust and executive officers of the Income Fund,
together with information as to their principal business occupations during
the past five years, are set forth below. Each Trustee who is an "interested
person" of the Trust, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), is indicated by an asterisk.
Paul R. Ades, Trustee. Partner in the law firm of Murov & Ades. His
address is 272 South Wellwood Avenue, Lindenhurst, New York 11757.
Herbert Barg, Trustee. Private investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Allan R. Johnson, Trustee. Retired; former Chairman, Retail Division of
BATUS, Inc. and Chairman and Chief Executive Officer of Saks Fifth
Avenue, Inc. His address is 2 Sutton Place South, New York, New York 10022.
*Heath B. McLendon, Chairman of the Board and Investment Officer.
Executive Vice President of Smith Barney Shearson Inc. ("Smith Barney
Shearson") and Chairman of Smith Barney Shearson Strategy Advisers Inc.; prior
to July 1993, Senior Executive Vice President of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers"); Vice Chairman of Shearson Asset Management; a
Director of PanAgora Asset Management, Inc. and PanAgora Asset Management
Limited. His address is Two World Trade Center, New York, New York 10048.
Ken Miller, Trustee. President of Young Stuff Apparel Group, Inc. His
address is 1407 Broadway, 6th Floor, New York, New York 10018.
John F. White, Trustee. 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 97 Sunset Drive, Apartment A402, Sarasota, FL
34236.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney Shearson; Director and President of Mutual Management Corp.,
Smith, Barney Advisers, Inc.; and Trustee of Corporate Income Realty Trust I.
His address is 1345 Avenue of the Americas, New York, New York 10105
Richard P. Roelofs, Executive Vice President, Treasurer and Secretary.
Managing Director of Smith Barney Shearson; President of Smith Barney Shearson
Strategy Advisers Inc.; prior to July 1993, Senior Vice President of Shearson
Lehman Brothers; Vice President of Shearson Lehman Investment Strategy
Advisors Inc. His address is Two World Trade Center, New York, New York
10048.
Guy R. Scott, Investment Administrator. Vice President of Boston
Advisors; Senior Vice President of The Boston Company Institutional
Investors, Inc.; prior to December 1990, Vice President of the Boston Company
Institutional Investors, Inc. and Portfolio Manager since October 1988. His
address is One Boston Place, Boston, MA 02108.
Vincent Nave, Financial Administrator. Senior Vice President of Boston
Advisors and Boston Safe. His address is One Exchange Place, Boston,
Massachusetts 02109.
Francis J. McNamara, III, Legal Administrator. Senior Vice President
and General Counsel of Boston Advisors; prior to June 1989, Vice President and
Associate Counsel of Boston Advisors. His address is One Exchange Place,
Boston, Massachusetts 02109.
Each Trustee also serves as a director, trustee or general partner of
certain other mutual funds for which Smith Barney Shearson serves as
distributor. The Trustees and officers of the Trust, as a group, owned less
than 1% of the Income Fund's outstanding shares as of February 15, 1994.
No officer, director or employee of Smith Barney Shearson, Boston
Advisors or any of their affiliates, receives any compensation from the Trust
for serving as an officer or Trustee of the Trust. The Trust pays each
Trustee who is not a director, officer or employee of Smith Barney Shearson,
Boston Advisors or any of their affiliates, a fee of $4,500 per annum plus
$250 per meeting attended and reimburses them for travel and out-of-pocket
expenses. For the fiscal year ended December 31, 1993, such fees and expenses
totaled $15,962.
Investment Adviser -- Boston Advisors
Boston Advisors serves as investment adviser to the Income Fund pursuant
to a written agreement dated May 21, 1993 (the "Advisory Agreement"), which
was most recently approved by the Board of Trustees, including a majority of
the Trustees who are not "interested persons" of the Trust or Boston Advisors,
on July 15, 1993. Boston Advisors bears all expenses in connection with the
performance of its services. Boston Advisors is a wholly owned subsidiary of
The Boston Company, Inc., a financial services holding company, which is in
turn a wholly owned subsidiary of Mellon Bank Corporation ("Mellon").
Mellon is a publicly owned holding company registered under the Federal
Banking Holding Company Act of 1956 and, through its subsidiaries, Mellon
provides a comprehensive range of financial products and services in domestic
and selected international markets.
In addition to those services, Boston Advisors pays the salaries of all
officers and employees who are employed by both it and the Income Fund,
maintains office facilities for the Income Fund, furnishes the Income Fund
with statistical and research data, clerical help and accounting, data
processing, bookkeeping, internal auditing and legal services and certain
other services required by the Income Fund, prepares reports to the Income
Fund's shareholders and prepares tax returns and filings with the Securities
and Exchange Commission (the "SEC") and state blue sky authorities. Boston
Advisors bears all expenses in connection with the performance of its
services.
As compensation for Boston Advisors' services to the Income Fund, the
Income Fund pays a fee computed daily and paid monthly at the annual rate of
.75% of the value of its average daily net assets. This fee is not subject to
reduction as the value of the Income Fund's net assets increases, and is
higher than the advisory fee paid by other investment companies. For the
fiscal years ended December 31, 1993, 1992, and 1991, the Income Fund paid
Boston Advisors $560,089, $556,731 and $650,493, respectively, in advisory
fees.
The Income Fund bears expenses incurred in its operation, including
taxes, interest, brokerage fees and commissions, if any; fees of Trustees who
are not officers, directors, shareholders or employees of Smith Barney
Shearson or Boston Advisors; SEC fees and state blue sky qualification fees;
charges of custodian; transfer and dividend disbursing agent's fees; certain
insurance premiums; outside auditing and legal expenses; investor services
(including allocated telephone and personnel expenses); and costs of the
preparation and printing of prospectuses for regulatory purposes and for
distribution to shareholders, shareholders' reports and meetings.
Boston Advisors has agreed that if, in any fiscal year, the aggregate
expenses of the Income Fund (including fees pursuant to the Advisory
Agreement, but excluding interest, taxes, brokerage 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 Income Fund, Boston Advisors will reduce its management fee by the amount
of such excess expense to the extent required by law. Such fee reduction, if
any, will be reconciled on a monthly basis. The most restrictive state
expense limitation applicable to the Income Fund would require Boston Advisors
to reduce its fees in any year that such excess expenses exceed 2.5% of the
first $30 million of average daily net assets, 2.0% of the next $70 million of
average daily net assets and 1.5% of the remaining average net assets. No fee
reduction was required for the Income Fund for the 1993, 1992, and 1991 fiscal
years.
Counsel and Auditors
Willkie Farr & Gallagher serves as counsel to the Trust. The Trustees
who are not "interested persons" of the Trust have selected Stroock &
Stroock & Lavan as their counsel.
Coopers & Lybrand, independent accountants, One Post Office Square,
Boston, Massachusetts 02109, serve as auditors of the Trust and render an
opinion on the Trust's financial statements annually.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Income Fund's investment objective and the
policies it employs to achieve that objective. The following discussion
supplements the description of the Income Fund's investment objective and
policies in the Prospectus.
Lending of Portfolio Securities
The Income Fund has the ability to lend its portfolio securities to
brokers, dealers and other financial organizations. These loans may not
exceed 33 1/3% of the Income Fund's assets taken at value. The Income Fund
may not lend portfolio securities to Smith Barney Shearson or its affiliates
without specific authority to do so from the SEC.
Requirements of the SEC, which may be subject to future modifications,
currently provide that the following conditions must be met whenever the
Income Fund's securities are loaned: (a) the Income 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 Income Fund must
be able to terminate the loan at any time; (d) the Income 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 Income 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, provided, however, that if a material event adversely
affecting the investment in the loaned securities occurs, the Income Fund's
Board of Trustees must terminate the loan and regain the right to vote the
securities. From time to time, the Income 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
Income Fund or with Smith Barney Shearson, and which is acting as a "finder."
The limit of 10% of the Income Fund's total assets to be committed to
securities lending is a fundamental policy of the Income Fund, which means
that it cannot be changed without approval of a majority of the Income Fund's
outstanding shares. See "Investment Restrictions" below.
Money Market Instruments
The Income Fund may invest without limit in short-term money market
instruments when Boston Advisors believes that a "defensive" investment
posture is advisable due to market or economic conditions. Money market
instruments in which the Income Fund may invest include obligations issued or
guaranteed by the United States government, its agencies or instrumentalities
("U.S. government securities"); certificates of deposit ("CDs"), time deposits
("TDs") 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. CDs are short-term negotiable obligations of
commercial banks; TDs are non-negotiable deposits maintained in banking
institutions for specified periods of time at stated interest rates; and
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 Income Fund, depending upon the principal amount of CDs of each bank held
by the Income 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, among other things,
generally are 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 regulations. 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 Federal and state
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, Boston Advisors will carefully evaluate such investments on a
case-by-case basis.
Savings and loan associations, the CDs of which may be purchased by the
Income 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.
Commercial Paper. Commercial paper is a short-term, unsecured
negotiable promissory note of a domestic or foreign company. When investing
for defensive purposes, the Income Fund may invest in short-term debt
obligations of issuers that at the time of purchase are rated A-2, A-1 or A-1+
by Standard & Poor's Corporation ("S&P") or Prime-2 or Prime-l by Moody's
Investors Service, Inc, ("Moody's") or, if unrated, are issued by companies
having an outstanding unsecured debt issue currently rated within the two
highest ratings of S&P or Moody's. A discussion of S&P and Moody's rating
categories appears in the Appendix to this Statement of Additional
Information. The Income Fund also may invest in variable rate master demand
notes, which typically are issued by large corporate borrowers providing for
variable amounts of principal indebtedness and periodic adjustments in the
interest rate according to the terms of the instrument. Demand notes are
direct lending arrangements between the Income Fund and an issuer, and are not
normally traded in a secondary market. The Income Fund, however, may demand
payment of principal and accrued interest at any time. In addition, while
demand notes generally are not rated, their issuers must satisfy the same
criteria as those set forth above for issuers of commercial paper. Boston
Advisors will consider the earning power, cash flow and other liquidity ratios
of issuers of demand notes and continually will monitor their financial
ability to meet payment on demand.
Convertible Securities.
Convertible securities are fixed-income securities that may be converted
at either a stated price or stated rate into underlying shares of common
stock. Convertible securities have general characteristics similar to both
fixed-income and equity securities. Although to a lesser extent than with
fixed-income securities, generally the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion feature,
the market value of convertible securities tends to vary with fluctuations in
the market value of the underlying common stocks and, therefore, also will
react to variations in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of
the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all fixed-income securities, there can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. Convertible securities, however, generally
offer lower interest or dividend yields than non-convertible securities of
similar quality because of the potential for capital appreciation. A
convertible security, in addition to providing fixed income, offers the
potential for capital appreciation through the conversion feature, which
enables the holder to benefit from increases in the market price of the
underlying common stock. There can be no assurance of capital appreciation,
however, because securities prices fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible
securities.
Preferred Stock
Preferred stocks, like debt obligations, are generally fixed-income
securities. Shareholders of preferred stocks normally have the right to
receive dividends at a fixed rate when and as declared by the issuer's board
of directors, but do not participate in other amounts available for
distribution by the issuing corporation. Dividends on preferred stock may be
cumulative, and all cumulative dividends usually must be paid prior to common
shareholders receiving any dividends. Preferred stock dividends must be paid
before common stock dividends and for that reason, preferred stocks generally
entail less risk than common stocks. Upon liquidation, preferred stocks are
entitled to a specified liquidation preference, which is generally the same as
the par or stated value, and are senior in right of payment to common stock.
Preferred stocks are, however, equity securities in the sense that they do not
represent a liability of the issuer and therefore do not offer as great a
degree of protection of capital or assurance of continued income as
investments in corporate debt securities. In addition, preferred stocks are
subordinated in right of payment to all debt obligations and creditors of the
issuer, and convertible preferred stocks may be subordinated to other
preferred stock of the same issuer.
Covered Call Options
The Income Fund may, to a limited extent, write covered call option
contracts on certain securities and purchase call options for the purpose of
terminating their outstanding obligations with respect to securities upon
which call option contracts have been written.
The principal reason for writing covered call options on securities is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline in the price of
the underlying security. The size of the premiums that the Income Fund may
receive may be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-writing
activities.
Options written by the Income Fund normally will have expiration dates
between three and nine months from the date that they are written. The
exercise price of the options may be below, equal to or above the market
values of the underlying securities at the times the options are written. In
the case of call options, these exercise prices are referred to as "in-the-
money," "at-the-money" and "out-of-the-money," respectively. The Income Fund
may write (a) in-the-money call options when Boston Advisors expects that the
price of the underlying security will remain flat or decline moderately during
the option period, (b) at-the-money call options when Boston Advisors expects
that the price of the underlying security will remain flat or advance
moderately during the option period and (c) out-of-the-money call options when
Boston Advisors expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines, and the security is sold at this
lower price, the amount of any realized loss will be offset wholly or in part
by the premium received.
So long as the obligation of the Income Fund as the writer of an option
continues, the Income Fund may be assigned an exercise notice by the broker-
dealer through which the option was sold, requiring the Income Fund to deliver
the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Income Fund effects a
closing purchase transaction. The Income Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned an
exercise notice. To secure its obligation to deliver the underlying security
when it writes a call option, the Income Fund will be required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the Options Clearing Corporation (the "Clearing Corporation") and of the
national securities exchange on which the option is written.
An option position may be closed out only where there exists a secondary
market for an option for the same series on a recognized national securities
exchange or in the over-the-counter market. The Income Fund expects to write
options only on national securities exchanges.
The Income Fund may realize a profit or loss upon entering into a
closing transaction. In cases where the Income Fund has written an option, it
will realize a profit if the cost of the closing purchase transaction is less
than the premium received upon writing the original option and will incur a
loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option.
Although the Income Fund generally will write only those options for
which Boston Advisors believes there is an active secondary market so as to
facilitate closing transactions, there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities exchange will
exist for any particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the past, for example,
higher than anticipated trading activity or order flow, or other unforeseen
events, have at times rendered certain of the facilities of the Clearing
Corporation and the national securities exchanges inadequate and resulted in
the institution of special procedures, such as trading rotations, restrictions
on certain types of orders or trading halts or suspensions in one or more
options. There can be no assurance that similar events, or events that may
otherwise interfere with the timely execution of customers' orders, will not
recur. In such event, it might not be possible to effect closing transactions
in particular options. If as a covered call option writer the Income Fund is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or
written, or exercised within certain time periods, by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different national securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the Income Fund and other clients of Boston Advisors and certain
of their affiliates may be considered to be such a group. A national
securities exchange or the National Association of Securities Dealers, Inc.
may order the liquidation of positions found to be in violation of these
limits and it may impose certain other sanctions. At the date of this
Statement of Additional Information, the position and exercise limits for
common stocks generally were 3,000, 5,500 or 8,000 options per stock (i.e.,
options representing, 300,000, 550,000 or 800,000 shares), depending on
various factors relating to the underlying security and the Income Fund's
combined stock and option position. Dollar amount limits apply to U.S.
government securities. These limits may restrict the number of options which
the Income Fund will be able to write on a particular security.
Call options may be purchased by the Income Fund but only to terminate
an obligation as a writer of a call option. This is accomplished by making a
"closing purchase transaction," (i.e., the purchase of a call option on the
same security with the same exercise price and expiration date as specified in
the call option which had previously been written). A closing purchase
transaction with respect to calls traded on a national securities exchange has
the effect of extinguishing the obligation of a writer. Although the cost to
the Income Fund of such a transaction may be greater than the net premium
received by the Income Fund upon writing the original option, the Trust's
Board of Trustees believes that it is appropriate for the Income Fund to have
the ability to make closing purchase transactions in order to limit the risks
involved in writing options. Boston Advisors also may permit the call option
to be exercised.
Investment Restrictions
The Income Fund has adopted the following investment restrictions for
the protection of shareholders. Investment restrictions l through 7 below
cannot be changed without approval by the holders of a majority of the
outstanding shares of the Income Fund, defined as the lesser of (a) 67% or
more of the voting securities present or represented by proxy at a meeting if
the holders of more than 50% of the outstanding voting securities of the
Income Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Income Fund. Investment restrictions 8 through 17
may be changed by vote of a majority of the Trustees at any time. If any
percentage restriction described below is complied with at the time of an
investment, a later increase or decrease in the percentage resulting from a
change in the values of assets will not constitute a violation of the
restriction.
The Income Fund may not:
(1) Invest less than 65% of the value of its total assets in the
telecommunications industry under normal market conditions as determined by
Boston Advisors, as described under "Investment Objective and Management
Policies" in the Prospectus.
(2) Purchase or sell real estate, real estate mortgages, real estate
investment trust securities, commodities or commodity contracts, but this
shall not prevent the Fund from (a) investing in securities of issuers engaged
in the real estate business and securities which are secured by real estate or
interests therein; (b) holding or selling real estate received in connection
with securities it holds; or (c) trading in futures contracts and options on
futures contracts.
(3) 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, (the "1933 Act") in
disposing of portfolio securities.
(4) Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its investment
objective and policies, (b) repurchase agreements; and (c) loans of its
portfolio securities.
(5) Borrow money, except that the Income 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, in an amount not exceeding 10% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the borrowing is made. Whenever
borrowings exceed 5% of the value of the Fund's total assets, the Fund will
not make any additional investments.
(6) Purchase the securities of any issuer (except U.S. government
securities) if, as a result of such purchase, more than 10% of any class of
securities or of the outstanding voting securities of such issuer would be
held in the Income Fund; for this purpose, all securities of an issuer shall
be divided into three classes, namely, all debt securities, all preferred
stock and all common stock.
(7) Issue senior securities as defined in the 1940 Act and any rules and
orders thereunder, except insofar as the Fund may be deemed to have issued
Senior Securities by reason of (a) borrowing money or purchasing securities on
a when-issued or delayed-delivery basis, (b) purchasing or selling futures
contracts and options on futures contracts and other similar instruments and
(c) issuing separate classes of shares.
(8) Purchase for any portfolio securities subject to restrictions on
disposition under the 1933 Act ("restricted securities"), or securities
without readily available market quotations, if the purchase causes more than
10% of such portfolio's assets to be invested in restricted securities,
securities without readily available market quotations and repurchase
agreements maturing in more than seven days.
(9) Purchase securities of companies for the purpose of exercising
control.
(10) Purchase securities on margin (except short-term credits as are
necessary for the clearances of purchases and sales of portfolio securities)
or sell any securities short (except against the box). For purposes of this
restriction, the deposit or payment by the Fund of initial or maintenance
margin in connection with futures contracts and related options and options on
securities is not considered to be the purchases of a security on margin.
(11) Purchase or retain for any portfolio the securities of any issuer
if those Trustees and officers of the Trust or directors and officers of
Boston Advisors who beneficially own more than 1/2 of 1% of the outstanding
securities of the issuer together beneficially own more than 5% of such
outstanding securities.
(12) Purchase securities of any other investment company except as part
of a plan of merger, consolidation or acquisition of assets.
(13) Purchase securities of any portfolio issuers which together with
predecessors have a record of less than three years continuous operation, if,
as a result, more than 5% of such portfolio's net assets would then be
invested in such securities. (For purposes of this restriction, issuers
include predecessors, sponsors, controlling persons, general partners,
guarantors and originators of underlying assets which have less than three
years of continuous operations or relevant business experience.)
(14) Invest in puts, calls, straddles, spreads, and any combination
thereof (except in connection with the writing of covered call options).
(15) Invest in oil, gas or other mineral exploration or development
programs.
(16) Purchase securities from or sell securities to any of its officers
or Trustees, except with respect to its own shares and as is permissible under
applicable statutes, rules and regulations.
(17) Pledge, hypothecate, mortgage or otherwise encumber the assets of
any portfolio, except in an amount up to 10% of the value of such portfolio's
total assets to secure borrowings for temporary or emergency purposes.
Portfolio Turnover
In seeking its objective, the Income Fund does not generally engage in
short-term trading but may do so when circumstances warrant. Numerous
factors, including those relating to particular investments, tax
considerations, covered call option writing (see "Covered Call Options"),
market or economic conditions or redemptions of shares, may affect the rate at
which the Income Fund buys or sells portfolio securities from year to year.
The portfolio turnover rate is calculated by dividing the lesser of purchases
or sales of portfolio securities during the year by the average monthly value
of the Income Fund's portfolio securities. Securities with remaining
maturities of one year or less at the date of acquisition are excluded from
the calculation. The Income Fund has no fixed policy with respect to
portfolio turnover; however, it is anticipated that the annual portfolio
turnover rate in the Income Fund generally will not exceed 50%. For the 1993
and 1992 fiscal years, the portfolio turnover rates for the Income Fund were
0% and 2%, respectively. The difference is a result of the Income Fund's
diversification of its holdings in response to the slowing dividend growth.
Portfolio Transactions
Decisions to buy and sell securities for the Income Fund are made by
Boston Advisors, subject to the overall supervision and review of the Trust's
Board of Trustees. Portfolio securities transactions for the Income Fund are
effected by or under the supervision of Boston Advisors.
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. 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. 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 1993, 1992 and 1991 fiscal years, the Income Fund paid total brokerage
commissions of $8,474, $16,790 and $66,675, respectively. This difference is
a result of the Income Fund's efforts to broaden its holdings which result in
higher brokerage commissions.
In executing portfolio transactions and selecting brokers or dealers, it
is the Income Fund's policy to seek the best overall terms available. In
assessing the best overall terms available for any transactions, Boston
Advisors shall consider the factors that 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 Boston
Advisors, 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 Income Fund or other accounts
over which Boston Advisors or an affiliate exercises investment discretion.
The Trust's Board of Trustees periodically will review the commissions
paid by the Income Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
inuring to the Income 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 Income Fund may be the
primary beneficiary of services received as a result of portfolio transactions
effected for other accounts. Boston Advisors' fee under the Advisory
Agreement is not reduced by reason of Boston Advisors' receiving such
brokerage and research services. Further, Smith Barney Shearson 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.
The Trustees of the Trust have determined that any portfolio transaction
for the Income Fund may be executed through Smith Barney Shearson or an
affiliate of Smith Barney Shearson, if, in Boston Advisors' judgment, the use
of Smith Barney Shearson 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 Shearson charges the Income Fund a commission rate consistent
with those charged by Smith Barney Shearson to comparable unaffiliated
customers in similar transactions. In addition, under rules recently adopted
by the SEC, Smith Banrey Shearson may directly execute such transactions for
the Fund on the floor of any national securities exchange, provided:(a) the
Board of Trustees has expressly authorized Smith Barney Shearson to effect
such transactions; and (b) Smith Barney Shearson annually advises the Fund of
the aggregate compensation it earned on such transactions. For the 1993, 1992
and 1991 fiscal years, brokerage commissions of $3,500, $6,050 and $31,025,
respectively, were paid by the Income Fund to Smith Barney Shearson. The
amount of brokerage commission paid to Smith Barney Shearson for the 1993
fiscal year represented 41% of the total brokerage commission paid by the
Income Fund and Smith Barney Shearson effected 48% of the total dollar amount
of transactions involving the payment of brokerage commissions.
Even though investment decisions for the Income Fund are made
independently from those of the other accounts managed by Boston Advisors,
investments of the kind made by the Income Fund also may be made by those
other accounts. When the Income Fund and one or more accounts managed by
Boston Advisors 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 Boston Advisors to be equitable. In some cases, this
procedure may adversely affect the price paid or received by the Income Fund
or the size of the position obtained for or disposed of by the Income Fund.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment
postponed (a) for any period during which the New York Stock Exchange, Inc.
(the "NYSE") is closed (other than for customary weekend or holiday closings),
(b) when trading in markets the Income Fund normally utilizes is restricted,
or an emergency, as determined by the SEC, exists so that disposal of the
Income Fund's investments or determination of its net asset value is not
reasonably practicable or (c) for such other periods as the SEC by order may
permit for protection of the Income Fund's shareholders.
VALUATION OF SHARES
The Prospectus discusses the time at which the net asset value of the
Income Fund is determined for purposes of redemption. The following is a
description of the procedures used by the Income 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 such sales, at the mean between the closing bid and asked
prices. Over-the-counter securities will be valued at the most recent bid
price at the close of regular trading on the NYSE on each day, or, if market
quotations for those securities are not readily available, at fair market
value, as determined in good faith by the Trust's Board of Trustees. Short-
term obligations with maturities of 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Trust's Board of
Trustees. Amortized cost involves valuing an instrument at its original cost
to the Income Fund and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. All other securities and other
assets of the Income Fund will be appraised at their fair value as determined
in good faith by the Trust's Board of Trustees.
EXCHANGE PRIVILEGE
Shareholders of the Income Fund may exchange their shares of the Income
Fund for shares of certain other fund's in the Smith Barney Shearson Group of
Funds, as indicated in the Prospectus, to the extent such shares are offered
for sale in the shareholder's state of residence, on the basis of relative net
asset value per share at the time of exchange as follows:
A. Shares of the Income Fund may be exchanged for Class A shares of
any of the other funds and the sales charge differential, if any, will be
applied. Shares of any fund may be exchanged without a sales charge for
shares of the funds that are offered without a sales charge. Shares of any
fund purchased without a sales charge may be exchanged for shares sold with a
sales charge, and the appropriate sales charge will be applied.
B. Shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for shares of any of the other
funds, and the sales charge differential, if any, will be applied.
Dealers other than Smith Barney Shearson must notify TSSG of the
investor's prior ownership of shares of Smith Barney Shearson High Income
Fund and the account number in order to accomplish an exchange of shares of
the Smith Barney Shearson High Income Fund under paragraph B above.
The exchange privilege of the same class enables shareholders to acquire
shares of the same class in a fund with different investment objectives when
they believe a shift between funds is an appropriate investment decision.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be legally sold. Prior to any exchange, the
investor should obtain and review a copy of the current prospectus of each
fund into which an exchange is to be made. Prospectuses may be obtained from
your Smith Barney Shearson Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at their then-current
net asset value and, subject to any
applicable contingent deferred sales charge, the proceeds are immediately
invested, at the price described above, in shares of the fund being acquired.
Smith Barney Shearson reserves the right to reject any exchange request. Upon
written notice, the exchange privilege may be modified or terminated at any
time.
TAXES
The following is a summary of selected Federal income tax considerations
that may affect the Income Fund and its shareholders. The summary is not
intended as a substitute for individual tax advice and investors are urged to
consult their own tax advisors as to the tax consequences of an investment in
the Income Fund.
Taxation of the Income Fund
The Income Fund has qualified and intends to qualify each year as a
"regulated investment company" under the Code. As a regulated investment
company, the Income Fund will not be subject to Federal income tax on its net
investment income and capital gain net income (capital gains net of capital
losses), if any, that it distributes to shareholders provided that at least
90% of its net investment income for the taxable year is distributed. All net
investment income and capital gain net income earned by the Income Fund will
be reinvested automatically in additional shares of the Income Fund at net
asset value, unless the shareholder elects to receive dividends and
distributions in cash.
To qualify as a regulated investment company, the Income Fund must meet
certain requirements set forth in the Code. One requirement is that the
Income Fund must earn at least 90% of its gross income from (a) interest, (b)
dividends, (c) payments with respect to securities loans, (d) gains from the
sale or other disposition of stock, securities or options and (e) other income
derived with respect to its business of investing in stock or securities (the
"90% Test"). The Income Fund must earn no more than 30% of its gross income
from the sale or other disposition of stock or securities or options held for
less than three months (the "30% Test").
Generally, the Income Fund's return on its investments will be
considered to be qualified income under the 90% Test. The 30% Test may limit
the extent to which the Income Fund may sell securities held for less than
three months or covered call options.
Tax Status of the Income Fund's Investments
Gain or loss on the sale of a security by the Income Fund generally will
be long-term capital gain or loss if the Income Fund has held the security for
more than one year. Gain or loss on the sale of a security held for one year
or less generally will be short-term capital gain or loss. Generally, if the
Income Fund acquires a debt security at a discount, any gain upon the sale or
redemption of the security will be taxable as ordinary income to the extent
that such gain reflects accrued market discount.
The tax consequences of the Income Fund's covered call option
transactions will depend on the nature of the underlying security. In the
case of a call option on an equity or convertible debt security, the Income
Fund will receive a premium that will be treated for tax purposes as follows:
no income is recognized upon the receipt of an option premium; if the option
expires unexercised or if the Income Fund enters into a closing purchase
transaction, it will realize a gain (or a loss, if the cost of the closing
transaction exceeds the amount of the premium) without regard to the
unrealized gain or loss in the underlying security. Any such gain or loss
will be short-term, except that a loss will be long-term if the option
exercise price is below market and the underlying stock has been held for more
than a year. If a call option is exercised, the Income Fund will recognize a
capital gain or loss from the underlying security, and the option premium will
constitute additional sales proceeds.
The Income Fund also will not recognize income on the receipt of an
option premium on a debt security. Listed options on debt securities,
however, are subject to a special "mark-to-market" system governing the
taxation of "section 1256 contracts," which include listed options on debt
securities (including U.S. government securities), options on certain stock
indexes and certain foreign currencies. In general, gain or loss on section
1256 contracts will be taken into account for tax purposes when actually
realized. In addition, any section 1256 contracts held at the end of a
taxable year (and, for purposes of the 4% excise tax, on October 31 of each
year) will be treated as sold at fair market value (that is, marked-to-
market), and the resulting gain or loss will be recognized for tax purposes.
Both the realized and the unrealized taxable year-end gain or loss positions
will be treated as 60% long-term and 40% short-term capital gain or loss,
regardless of the period of time that a particular position is actually held
by the Income Fund.
Taxation of Shareholders
Dividends of investment income and distributions of short-term gain will
be taxable to shareholders as ordinary income for Federal income tax purposes,
whether received in cash or reinvested in additional shares. Distributions of
long-term capital gain will be taxable to shareholders as long-term capital
gain, whether paid in cash or reinvested in additional shares, and regardless
of the length of time that the shareholder has held his/her shares of the
Income Fund.
Dividends of investment income (but not distributions of capital gain)
from the Income Fund generally will qualify for the Federal dividends-received
deduction for corporate shareholders to the extent that the dividends do not
exceed the aggregate amount of dividends received by the Income Fund from
domestic corporations. If securities held by the Income Fund are considered
to be "debt-financed" (generally, acquired with borrowed funds) or are held by
the Income Fund for less than 46 days (91 days in the case of certain
preferred stock), the portion of the dividends paid by the Income Fund that
corresponds to the dividends paid with respect to the securities will not be
eligible for the corporate dividends-received deduction.
If the Income Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends must
be included in the Income Fund's gross income as of the later of (a) the date
that such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date that the Income Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, the Income Fund may be required to pay dividends based on
anticipated earnings, and shareholders may receive dividends in an earlier
year than would otherwise be the case.
Capital Gains Distribution
In general, a shareholder who redeems or exchanges his or her shares
will recognize long-term capital gain or loss if the shares have been held for
more than one year, and will recognize short-term capital gain or loss if the
shares have been held for one year or less. If a shareholder receives a
distribution taxable as long-term capital gain with respect to shares of the
Income Fund and redeems or exchanges the shares before he or she has held them
for more than six months, however, 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.
Backup Withholding
If a shareholder fails to furnish a correct taxpayer identification
number, fails fully to report dividend and interest income, or fails to
certify that he or she has provided a correct taxpayer identification number
and that he or she is not subject to "backup withholding," then the
shareholder may be subject to a 31% Federal backup withholding tax with
respect to (a) dividends and distributions and (b) the proceeds of any
redemptions or exchanges of Income 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.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc., is
located at One Boston Place, Boston, Massachusetts 02108, and serves as the
custodian of the Trust pursuant to a custody agreement. Under the custody
agreement, Boston Safe holds the Trust's securities and keeps all necessary
accounts and records. For its services, Boston Safe receives a monthly fee
based upon the Trust's month-end market value of securities held in custody
and also receives securities transaction charges including out-of-pocket
expenses. Boston Safe is authorized to establish separate accounts for
foreign securities owned by the Trust to be held with foreign branches of
other United States banks as well as with certain foreign banks and securities
depositories. The assets of the Trust are held under bank custodianship in
compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves as the Trust's transfer agent. Under the transfer agency agreement,
TSSG maintains the shareholder account records for the Trust and handles
certain communications between shareholders and the Trust. For these
services, TSSG receives a monthly fee computed on the basis of the number of
shareholder accounts that it maintains for the Trust during the month and is
reimbursed for out-of-pocket expenses.
ORGANIZATION AND DESCRIPTION OF TRUST SHARES
The Trust is organized as an unincorporated business trust under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated June 2, 1983 (the "Trust Agreement") which was
amended and restated on November 6, 1992. Under the Trust Agreement, the
Trust's Trustees have authority to create an unlimited number of shares of
beneficial interest of the Trust with a par value of $.001 per share.
In the interest of economy and convenience, certificates representing
shares in the Income Fund are not physically issued except upon specific
request made by a shareholder to TSSG, the Trust's transfer agent. TSSG
maintains a record of each shareholder's ownership of Income Fund shares.
Shares do not have cumulative voting rights, which means that holders of more
than 50% of the shares voting for the election of Trustees can elect all of
the Trustees. Shares are transferable, but have no preemptive, conversion or
subscription rights.
No meetings of shareholders will be held for the purpose of electing
Trustees unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
Shareholders of record of no less than two-thirds of the outstanding shares of
the Trust may remove a Trustee through a declaration in writing or by vote
cast in person or by proxy at a meeting called for that purpose. Under the
Trust Agreement, the Trustees are required to call a meeting of shareholders
for the purpose of voting upon the question of removal of a Trustee when
requested in writing to do so by the shareholders of record of not less than
10% of the Trust's outstanding shares.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
The Trust Agreement disclaims shareholder liability for acts or obligations of
the Trust, however, and requires that notice of the disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Trust Agreement provides for indemnification from the
Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations, a possibility that the Trust's management believes is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying
the liability will be entitled to reimbursement from the general assets of the
Trust.
The Trustees intend to conduct the operations of the Trust in such a way
as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
FINANCIAL STATEMENTS
The Income Fund's Annual Report for the fiscal year ended December 31,
1993 accompanies this Statement of Additional Information and is incorporated
herein by reference in its entirety.
APPENDIX
The following is a description of the two highest ratings categories of NRSROs
for commercial paper:
The rating A-1 is the highest commercial paper rating assigned by
Standard & Poor's Corporation ("S&P"). Paper rated A-1 must have either the
direct credit support of an issuer or guarantor that possesses excellent long-
term operating and financial strength combined with strong liquidity
characteristics (typically, such issuers or guarantors would display credit
quality characteristics which would warrant a senior bond rating of AA- or
higher), or the direct credit support of an issuer or guarantor that possesses
above average long-term fundamental operating and financing capabilities
combined with ongoing above excellent liquidity characteristics. Paper rated
A-1 must have the following characteristics: liquidity ratios are adequate to
meet cash requirements; long-term senior debt is rated A or better; the issuer
has access to at least two additional channels of borrowing; basic earning and
cash flow have an upward trend with allowance made for unusual circumstances;
typically, the issuer's industry is well established and the issuer has a
strong position within the industry; and the reliability and quality of
management are unquestioned.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Among the factors considered by
Moody's in assigning ratings are the following: (a) evaluation of the
management of the issuer; (b) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (c) evaluation of the issuer's products in relation to
competition and customer acceptance; (d) liquidity; (e) amount and quality of
long-term debt; (f) trend of earnings over a period of ten years; (g)
financial strength of a parent company and the relationship which exists with
the issuer; and (h) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
Short-term obligations including commercial paper, rated A-1+ by IBCA
Limited or its affiliate IBC A Inc., are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong
capacity for timely repayment. Obligations rated A-2 have a strong capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economics or financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely
payment. The rating F-1 reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+, while rating F-2 indicates a
satisfactory degree of assurance for timely payment, although the margin of
safety is not as great as indicated by the F-1 + and F-1 categories.
Duff & Phelps Inc. employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. Duff 1+ indicates the
highest certainty of timely payments: short-term liquidity is clearly
outstanding, and safety is just below risk free U.S. Treasury short-term
obligations. Duff 1- indicates high certainty of timely payment. Duff 2
indicates good certainty of timely payment: liquidity factors and company
fundamentals are sound.
The Thomson BankWatch ("TBW") Short-Term Ratings apply to commercial
paper, other senior short-term obligations and deposit obligations of the
entities to which the rating has been assigned, and apply only to unsecured
instruments that have a maturity of one year or less.
TBW-1 The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TWB-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
The Annual Reports are being filed via rule N30b2-
SMITH BARNEY SHEARSON TELECOMMUNICATIONS TRUST
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Growth and Income Funds:
Financial Highlights
Included in Part B:
Growth and Income Funds:
Portfolio of Investments (are being filed rule N30b-1)
Statements of Assets and liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
Included in Part C:
Consent of Auditors
(b) Exhibits
Exhibit No. Description of Exhibit
All references are to the Registrant's registration statement on Form N-1A
(the "Registration Statement") as filed with the Securities and Exchange
Commission on September 14, 1983. (File Nos. 811-3736 and 2-86519)
(1)(a) Second Amended and Restated Agreement and Declaration of Trust is
incorporated by reference to Registrant's Post-Effective Amendment No. 14 as
filed on April 27, 1993 ("Post-Effective Amendment No. 15").
(b) Amendment No. 4 to the Amended and Restated Master Trust Agreement
is incorporated by reference to Registrant's Post-Effective Amendment No. 15
as filed on December 23, 1993 ("post-Effective Amendment No. 15").
(2) Registrant's By-Laws incorporated by reference to the Registration
Statement.
(3) Not Applicable
(4)(a) Specimen Share Certificate for the Income Fund is incorporated by
reference to the Registration Statement.
(b) Specimen Share Certificate for Class A and B shares of Growth Fund
is incorporated by reference to Registration's Post-Effective Amendment No. 12
as filed on October 20, 1992 ("Post-Effective Amendment No. 12").
(5) Investment Advisory Agreement between the Registrant and The Boston
Company Advisors Inc. as filed on May 22, 1993 incorporated by reference to
Post-Effective Amendment No. 15 to the Registration Statement.
(6) Distribution Agreement between the Registrant and Smith Barney Shearson
Inc. as filed on July 30, 1993 is incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement.
(7) Not Applicable.
(8) Custody Agreement between Registrant and Boston Safe Deposit and Trust
Company is incorporated by reference to Pre-Effective Amendment No. 1.
(9) Transfer Agency Agreement dated August 2, 1993 between Registrant and
The Shareholders Services Gruop, Inc. ("TSSG") is incorporated by reference to
Post-Effective Amendment No. 15 to the Registration Statement.
(10) Not Applicable.
(11) Consent of Independent Accountants is filed herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Services and Distribution Plan for Smith Barney Shearson
Telecommunications Growth Fund pursuant to Rule 12b-1 is incorporated by
reference to Post-Effective Amendment No. 15 to the Registrant Statement.
(16) Performance Data incorporated by reference to Post-Effective Amendment
No. 5 as filed on May 1, 1988 ("Post-Effective Amendment No. 5").
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
Title of Class as of February 11, 1994
Shares of beneficial
interest, $.001 par value, 2,214
Income Fund
Shares of beneficial
interest $.001 par value, Class A 6,757
Growth Fund Class B 22,112
Item 27. Indemnification
Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to its Registration Statement.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser -- The Boston Company Advisors, Inc.
The Boston Company Advisors, Inc. ("Boston Advisors") is a wholly owned
subsidiary of The Boston Company, Inc., which is in turn a wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). Mellon is a publicly owned
multibank holding company registered under the Federal Holding Company Act of
1956 and through its subsidiaries Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Boston Advisors is an investment adviser registered under the
Investment Advisers Act of 1940 (the "Advisers Act") and serves as investment
counsel for individuals with substantial capital, executors, trustees and
institutions. It also serves as investment adviser, sub-investment adviser,
administrator or sub-administrator to numerous investment companies.
The list required by this Item 28 of officers and directors of Boston
Advisors, 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 years, is incorporated by reference to Schedules
A and D of FORM ADV filed by Boston Advisors pursuant to the Advisers Act (SEC
File No. 801-14158).
8/23/93
Item 29. Principal Underwriters
Smith Barney Shearson Inc. ("Smith Barney Shearson") currently acts as
distributor for Smith Barney Shearson Managed Municipals Fund Inc., Smith
Barney Shearson New York Municipals Fund Inc., Smith Barney Shearson
California Municipals Fund Inc., Smith Barney Shearson Massachusetts
Municipals Fund, Smith Barney Shearson Global Opportunities Fund, Smith Barney
Shearson Aggressive Growth Fund Inc., Smith Barney Shearson Appreciation Fund
Inc., Smith Barney Shearson Small Capitalization Fund, Smith Barney Shearson
Worldwide Prime Assets Fund, Smith Barney Shearson Short-Term World Income
Fund, Smith Barney Shearson Principal Return Fund, Smith Barney Shearson
Municipal Money Market Fund Inc., Smith Barney Shearson Daily Dividend Fund
Inc., Smith Barney Shearson Government and Agencies Fund Inc., Smith Barney
Shearson Managed Governments Fund Inc., Smith Barney Shearson New York
Municipal Money Market Fund, Smith Barney Shearson California Municipal Money
Market Fund, Smith Barney Shearson Income Funds, Smith Barney Shearson Equity
Funds, Smith Barney Shearson Investment Funds Inc., Smith Barney Shearson
Precious Metals and Minerals Fund Inc., Smith Barney Shearson
Telecommunications Trust, Smith Barney Shearson Arizona Municipals Fund Inc.,
Smith Barney Shearson New Jersey Municipals Fund Inc., The USA High Yield Fund
N.V., Garzarelli Sector Analysis Portfolio N.V., The Advisors Fund L.P., Smith
Barney Shearson Fundamental Value Fund Inc., Smith Barney Shearson Series
Fund, The Trust for TRAK Investments, Smith Barney Shearson Income Trust,
Smith Barney Shearson FMA R Trust, Smith Barney Shearson Adjustable Rate
Government Income Fund, Smith Barney Shearson Florida Municipals Fund, Smith
Barney Funds, Inc., Smith Barney Equity Funds, Inc., Smith Barney Muni Funds,
Smith Barney World Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney
Tax Free Money Fund, Inc., Smith Barney Variable Account Funds, Smith Barney
U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), and various series of unit investment trusts.
Smith Barney Shearson is a wholly owned subsidiary of Smith Barney
Shearson Holdings Inc., which in turn is a wholly owned subsidiary of The
Travelers Inc. The information required by this Item 29 with respect to each
director, officer and partner of Smith Barney Shearson is incorporated by
reference to Schedule A of FORM BD filed by Smith Barney Shearson pursuant to
the Securities Exchange Act of 1934 (SEC File No. 812-8510).
8/24/93
Item 30. Location of Accountants and Record
(1) Smith Barney Shearson Telecommunications Trust
One Boston Place
Boston, Massachusetts 02108
(2) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(3) Boston Safe Deposit and Trust Company
One Cabot Road
Medford, Massachusetts 02155
(4) The Shareholders Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
None
Rule 485(b) Certification
The Registrant hereby certifies that it meets all of the requirements
for effectiveness pursuant to Rule 485(b) under the Securities Act of 1933, as
amended.
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 SHEARSON TELECOMMUNICATIONS TRUST, 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 Boston, Commonwealth of
Massachusetts on the th day of February, 1994.
SMITH BARNEY SHEARSON
TELECOMMUNICATIONS TRUST
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 Amendment to the Registration Statement and the above Power of Attorney
has been signed below by the following persons in the capacities and on the
dates indicated.*
Signature Title Date
/s/ Heath B. McLendon*
Heath B. McLendon Trustee and
Chairman of the Board 2/28/94
(Chief Executive Officer)
/s/ Vincent Nave*
Vincent Nave Treasurer (Chief Financial
and Accounting Officer) 2/28/94
/s/ Paul R. Ades*
Paul R. Ades Trustee 2/28/94
/s/ Herbert Barg*
Herbert Barg Trustee 2/28/94
/s/ Allan R. Johnson*
Allan R. Johnson Trustee 2/28/94
/s/ Ken Miller*
Ken Miller Trustee 2/28/94
Signature Title Date
/s/ John F. White*
John F. White Trustee 2/28/94
*Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact,
pursuant to power of attorney dated
October 20, 1993;
/s/Lee D. Augsburger
Lee D. Augsburger
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CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Shearson Telecommunications Trust (Telecommunications Growth
Fund):
We hereby consent to the following with respect to Post-Effective
Amendment
No. 16 to the Registration Statement on Form N-1A (File No. 2-86519) under the
Securities
Act of 1933, as amended, of Smith Barney Shearson Telecommunications Trust
(Telecommunications Growth Fund):
1. The incorporation by reference of our report dated February 10,
1994
accompanying the Annual Report for the fiscal year ended
December 31,
1993 of Smith Barney Shearson Telecommunications Trust
(Telecommunications Growth Fund), in the Statement of
Additional
Information.
2. The reference to our firm under the heading "Financial
Highlights" in the
Prospectus.
3. The reference to our firm under the heading "Counsel and
Auditors" in
the Statement of Additional Information.
COOPERS & LYBRAND
Boston, Massachusetts
February 22, 1994
