SMITH BARNEY
TELECOMMUNICATIONS TRUST
388 Greenwich Street, New York, New York 10013 - 800-451-2010
PROSPECTUS April 30, 1998
The investment objective of Smith Barney Telecommunications Fund (the
"Fund") of Smith Barney Telecommunications Trust (the "Trust") is current
income, with growth of capital as a secondary consideration. The Fund seeks
to achieve this objective primarily by investing in income-producing equity
and debt securities of companies in the telecommunications industry. The Fund
is a portfolio of the Trust, a non-diversified, open-end management
investment company.
Shares of the 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 Fund is contained in a
Statement of Additional Information (the SAI) dated April 30, 1998, as
amended or supplemented from time to time, which is available upon request
and without charge by calling or writing the Fund at the telephone number or
address set forth above or by contacting a Smith Barney Financial Consultant.
The SAI has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY STRATEGY ADVISERS INC.
Investment Adviser
MUTUAL MANAGEMENT CORP.
Administrator
THE BOSTON COMPANY ASSET MANAGEMENT, INC.
Sub-Investment Adviser
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.
TABLE OF CONTENTS
Introduction.............................................................
.........................................................................
............
2
The Fund's
Expenses.................................................................
....................................................................
3
Financial
Highlights...............................................................
.......................................................................
4
Management of the Fund and the
Trust....................................................................
.....................................
6
Investment Objective and Management
Policies.................................................................
..........................
7
Redemption of
Shares...................................................................
.................................................................
1
0
Telephone Redemption and Exchange Program...............................
1
0
Minimum Account
Size.....................................................................
............................................................
1
1
Valuation of
Shares...................................................................
....................................................................
1
1
Exchange
Privilege................................................................
.........................................................................
1
2
Dividends, Distributions and
Taxes....................................................................
............................................
1
4
Additional
Information..............................................................
.....................................................................
1
5
INTRODUCTION
The Fund is a portfolio 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. The Fund's investments are primarily concentrated in the
securities of issuers engaged in the telecommunications industry. The Fund
does not currently offer its shares for sale to new investors.
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 Smith Barney Inc. ("Smith Barney") as its distributor, Smith Barney
Strategy Advisers Inc. ("SBSA") as its investment adviser, Mutual Management
Corp. ("MMC") (formerly known as Smith Barney Mutual Funds Management Inc.)
as its administrator, The Boston Company Asset Management, Inc. ("TBCAM") as
its sub-investment adviser , PNC Bank, National Association ("PNC") as its
custodian and First Data Investor Shareholder Services Group, Inc. ("First
Data"), 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 SAI.
THE 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 Fund, based
upon the Fund's expenses for its most recent fiscal year:
Annual Fund Operating Expenses (as a percentage of average daily net assets)
Management fees 0.75%
Other expenses 0.17%
Total Fund Operating Expenses 0.92%
Management fees paid by the Fund include investment advisory fees paid
monthly to SBSA at the annual rate of 0.55% and administration fees paid
monthly to MMC at the annual rate of 0.20%, both of which are based on the
value of the Fund's average daily net assets. The nature of the services for
which the Fund pays management fees is described under "Management of the
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 Fund. These amounts are based
upon (a) payment by the 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 $29 $51 $113
a $1,000 investment,
assuming (1) 5.00% annual
return and (2) redemption
at the end of each time period:
______________________
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be greater
or less than those shown.
FINANCIAL HIGHLIGHTS
The following information for the three year period ended December 31, 1997
has been audited by KPMG Peat Marwick LLP, independent auditors, whose report
thereon appears in the Fund's Annual Report dated December 31, 1997. The
following information for the fiscal years ended December 31, 1988 through
December 31, 1994 has been audited by other independent auditors. The
information set out below should be read in conjunction with the financial
statements and related notes that also appear in the Fund's Annual Report,
which is incorporated by reference into the Statement of Additional
Information.
For a share of beneficial interest outstanding throughout each year:
1997
1996
1995
1994
1993
1992
Net Asset Value, Beginning
of Year
$104.62
$119.69
$95.62
$107.62
$102.67
$110.75
Income (Loss) From
Operations:
Net investment income
2.83
3.12
3.58
4.02
3.94
4.91
Net realized and
unrealized gain/(loss)
43.05
(5.35)
35.57
(5.91)
12.30
6.79
Total Income (Loss) From
Operations
45.88
(2.23)
39.15
(1.89)
16.24
11.70
Less Distributions From:
Net investment income
(2.83)
(3.12)
(3.58)
(4.05)
(4.42)
(4.55)
Net realized gains
(13.61)
(9.72)
(11.50)
(6.06)
(6.87)
(15.23)
Total Distributions
(16.44)
(12.84)
(15.08)
(10.11)
(11.29)
(19.78)
Net Asset Value, End of
Year
$134.06
$104.62
$119.69
$95.62
$107.62
$102.67
Total Return
45.11%
(1.45)%
42.93%
(1.83)%
16.00%
10.89%
Net Assets, End of Year
(millions)
$73
$63
$75
$61
$72
$71
Ratios to Average Net
Assets:
Expenses
0.92%
0.90%
0.95%
0.95%
0.93%
0.92%
Net investment income
2.35
2.80
3.23
3.80
3.47
4.41
Portfolio Turnover Rate
0%
0%
0%
0%
0%
2%
Average commissions paid
per share on equity
transactions (1)
$0.05
$0.05
$0.06
- --
- --
- --
(1) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
For a share of beneficial interest outstanding throughout each year:
1991
1990
1989
1988
Net Asset Value, Beginning of
Year
$129.06
$140.93
$99.10
$90.28
Income (Loss) From
Operations:
5.74
Net investment income
(2.20)
6.10
5.18
5.55
Net realized and unrealized
gain/loss
3.54
(8.98)
45.31
9.66
Total Income (Loss) From
Operations
(2.88)
50.49
15.21
Less Distributions From:
Net investment income
(6.05)
(5.79)
(5.85)
(5.40)
Net realized gains
(14.62)
(3.20)
(2.81)
(0.99)
Total Distributions
(21.85)
(8.99)
(8.66)
(6.39)
Net Asset Value, End of Year
$110.75
$129.06
$140.93
$99.10
Total Return*
3.30%
(1.80)%
52.11%
17.12%
Net Assets, End of Year
(millions)
$79
$95
$110
$83
Ratios to Average Net Assets:
Expenses
0.90%
0.92%
0.89%
0.95%
Net investment income
4.57%
4.81%
4.32%
5.70%
Portfolio Turnover Rate
18%
3%
5%
3%
MANAGEMENT OF THE FUND AND THE TRUST
Board of Trustees
Overall responsibility for management and supervision of the Fund rests with
the Trusts Board of Trustees. The Trustees approve all significant agreements
between the Fund and the companies that furnish services to the Fund,
including agreements with its distributor, investment adviser, sub-investment
adviser, administrator, custodian and transfer agent. The day-to-day
operations of the Fund are delegated to the Fund's investment adviser, sub-
investment adviser and administrator. The Statement of Additional Information
contains background information regarding the Trust's Trustees and the
executive officers of the Fund.
Investment Adviser -- SBSA
SBSA, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser pursuant to an investment advisory agreement
dated June 16, 1994. SBSA (through its predecessors) has been in the
investment counseling business since 1968 and is a registered investment
adviser. SBSA renders investment advice to investment companies which had
aggregate assets under management as of March 31, 1998 of approximately
$100.5 billion.
Subject to the supervision and direction of the Trust's Board of Trustees,
SBSA manages the Fund's portfolio in accordance with the Fund's stated
objective and policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and employs professional portfolio
managers and securities analysts who provide research services to the Fund.
For investment advisory services rendered, the Fund pays SBSA a monthly fee
at the annual rate of 0.55% of the value of its average daily net assets.
Portfolio Management
Valerie Sill, Senior Vice President of TBCAM, has served as portfolio manager
of the Fund since April 1997 and manages the day-to-day operations of the
Fund, including making all investment decisions.
Management's discussion and analysis, and additional performance information
regarding the Fund during the fiscal year ended December 31, 1997, is
included in the Annual Report dated December 31, 1997. A copy of the Annual
Report may be obtained upon request without charge from a Smith Barney
Financial Consultant or by writing or calling the Trust at the address or
phone number listed on page one of this Prospectus.
Administrator-- MMC
MMC, located at 388 Greenwich Street, New York, New York 10013, serves as the
Fund's administrator and oversees all aspects of the Fund's administration.
For administration services rendered, the Fund pays MMC a monthly fee at the
annual rate of 0.20% of the value of the Fund's average daily net assets.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also
subject to approval by the stockholders of each of Travelers Group and
Citicorp. Upon consummation of the merger, the surviving corporation would
be a bank holding company subject to regulation under the Bank Holding
Company Act of 1956 (the BHCA), the requirements of the Glass-Steagall Act
and certain other laws and regulations. Although the effects of the merger
of Travelers and Citicorp and compliance with the requirements of the BHCA
and the Glass-Steagall Act are still under review, Smith Barney Strategy
Advisers, Inc. does not believe that its compliance with applicable law
following the merger of Travelers and Citicorp will have a material adverse
effect on its ability to continue to provide the Fund with the same level of
investment advisory services that it currently receives.
Sub-Investment Adviser -- TBCAM
TBCAM, located at One Boston Place, Boston, Massachusetts 02108, serves as
the Fund's sub-investment adviser . TBCAM is a wholly owned subsidiary of
The Boston Company, Inc. ("TBC"), which in turn is a wholly owned subsidiary
of Mellon Bank Corporation ("Mellon"). TBCAM serves as the Fund's sub-
investment adviser pursuant to a sub-investment advisory agreement dated June
16, 1994. For sub-investment advisory services rendered, TBCAM receives a
fee from SBSA paid monthly at the annual rate of 0.275% of the value of the
Fund's average daily net assets.
Subject to the supervision and direction of the Trust's Board of Trustees and
SBSA, TBCAM manages the Fund's portfolio in accordance with the Fund's
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research services to
the Fund.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the 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 Fund's
outstanding shares. There is no guarantee the Fund's investment objective
will be achieved.
The 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 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 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 Fund may
temporarily have less than 65% of the value of its total assets invested in
that industry.
Securities for the Fund are selected principally on the basis of their
ability to produce current income and, as a result, the Fund invests
principally in income-producing common stocks, preferred stocks and debt
securities, including securities convertible into common and preferred
stocks. The Fund also may invest in short-term fixed-income obligations, such
as commercial paper. Debt securities purchased by the Fund will be rated
within the three highest ratings by a nationally recognized statistical
rating organization (NRSRO) (such as Standard & Poor's Ratings Group ("S&P")
or Moody's Investors Service, Inc. ("Moody's")) or, if not so rated, of
comparable quality in the opinion of SBSA and/or TBCAM. Commercial paper
purchased by the Fund will be rated in the top two ratings categories for
short-term debt securities by an NRSRO (such as 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 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 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 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 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 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 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 Fund's assumption of
large positions in the obligations of a small number of issuers may cause the
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 Fund's investment policies, including a list of
those restrictions on the 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. Consistent with applicable regulatory
requirements, the Fund is authorized to lend securities that it holds to
brokers, dealers and other financial organizations. The 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 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
SBSA and/or TBCAM to be of good standing and will not be made unless, in the
judgment of SBSA and/or TBCAM, the consideration to be earned from such loans
would justify the risk.
Borrowing. The 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 Fund's total
assets, the Fund will not purchase securities for investment.
Short-Term Investments. The Fund may invest in short-term money market
instruments, such as U.S. government securities; certificates of deposit,
time deposits, and bankers' acceptances issued by domestic banks (including
their branches located outside 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 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
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 Fund to resell, the obligation at an agreed-
upon price and time, thereby determining the yield during the Fund's holding
period. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Fund's holding period. 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 Fund's
ability to dispose of the underlying securities, the risk of a possible
decline in the value of the underlying securities during the period in which
the Fund seeks to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all or part of
the income from the agreement. SBSA and/or TBCAM, 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 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 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
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 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 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 Fund will depend on the
ability of SBSA and/or TBCAM to correctly predict movements in the prices of
the securities underlying the option.
Portfolio Transactions. Portfolio securities transactions on behalf of the
Fund will be executed by a number of brokers and dealers, including Smith
Barney and certain of its affiliated brokers, that are selected by SBSA
and/or TBCAM. The Fund may use Smith Barney or a broker affiliated with Smith
Barney in connection with a purchase or sale of securities when SBSA and/or
TBCAM believes that such brokers charge for the transaction does not exceed
the usual and customary levels.
Year 2000. The investment management services provided to the Fund by MMC
and the services provided to shareholders by Smith Barney, the Funds
Distributor, depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year 2000,
but revert to 1900 or some other date, due to the manner in which dates were
encoded and calculated. That failure could have a negative impact on the
Funds operations, including the handling of securities trades, pricing and
account services. MMC and Smith Barney have advised the Fund that they have
been reviewing all of their computer systems and actively working on
necessary changes to their systems to prepare for the year 2000 and expect
that their systems will be compliant before that date. In addition, MMC has
been advised by the Funds custodian, transfer agent and accounting service
agent that they are also in the process of modifying their systems with the
same goal. There can, however, be no assurance that MMC, Smith Barney or any
other service provider will be successful, or that interaction with other
non-complying computer systems will not impair Trust services at that time.
Certain Risk Considerations
Shareholders should be aware that the Fund concentrates its assets in the
telecommunications industry and, as a result, the Fund should not be
considered as a complete investment program. Moreover, the investment
flexibility of the Fund may be restricted by the necessity of satisfying
certain diversification requirements in order to maintain the qualification
of the Fund as a regulated investment company within the meaning of the Code.
See "Dividends, Distributions and Taxes."
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per
share next determined after receipt of a written request in proper form at no
charge. Redemption requests received after the close of regular trading on
the New York Stock Exchange (NYSE) are priced at the net asset value as next
determined.
The redemption proceeds will be remitted on or before the third business day
following receipt of proper tender, except on any days on which the NYSE is
closed or as permitted under the 1940 Act in extraordinary circumstances.
Generally, if the redemption proceeds are remitted to a Smith Barney
brokerage account, these funds will not be invested for the shareholders
benefit without specific instruction, and Smith Barney will benefit from the
use of temporarily uninvested funds.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than
those held by Smith Barney as custodian may be redeemed through an investors
Financial Consultant, a broker that clears securities transactions through
Smith Barney on a fully disclosed basis or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Telecommunications Income Fund
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the number of shares or dollar
amount 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 First Data together with a redemption request. Any
signature appearing on a redemption request in excess of $10,000, share
certificate or stock power must be guaranteed by an eligible guarantor
institution such as 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. Written redemption requests of $10,000 or less
do not require a signature guarantee unless more than one such redemption
request is made in any 10-day period or the redemption proceeds are sent to
an address other than the address of record. Unless otherwise directed,
redemption proceeds will be mailed to an investor's address of record. First
Data may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A redemption
request will not be deemed to be properly received until First Data receives
all required documents in proper form.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program he or she should
contact First Data at 1-800-451-2010. Once eligibility is confirmed, the
shareholder must complete and return a Telephone/Wire Authorization Form,
along with a signature guarantee that will be provided by First Data upon
request.
Redemptions. Redemption requests of up to $10,000 of the Fund's shares
may be made by eligible shareholders by calling First Data at 1-800-451-2010.
Such requests may be made between 9:00 a.m. and 4:00 p.m. (Eastern Standard
Time) on any day the NYSE is open. Redemption requests received after the
close of regular trading on the NYSE are priced at the net asset value next
determined. Redemptions of shares (i) by retirement plans or (ii) for which
certificates have been issued are not permitted under this program.
A shareholder will have the option of having the redemption proceeds
mailed to his/her address of record or wired to a bank account predesignated
by the shareholder. Generally, redemption proceeds will be mailed or wired,
as the case may be, on the next business day following the redemption
request. In order to use the wire procedures, the bank receiving the
proceeds must be a member of the Federal Reserve System or have a
correspondent relationship with a member bank. The Fund reserves the right
to charge shareholders a nominal fee for each wire redemption. Such charges,
if any, will be assessed against the shareholder's account from which shares
were redeemed. In order to change the bank account designated to receive
redemption proceeds, a shareholder must complete a new Telephone/Wire
Authorization Form and, for the protection of the shareholder's assets, will
be required to provide a signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if
the account registration of the shares of the fund being acquired is
identical to the registration of the shares of the fund exchanged. Such
exchange requests may be made by calling First Data at 1-800-451-2010 between
9:00 a.m. and 4:00 p.m. (Eastern Standard Time) on any day on which the NYSE
is open. Exchange requests received after the close of regular trading on
the NYSE are processed at the net asset value next determined.
Additional Information Regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following
instructions communicated that are reasonably believed to be genuine. The
Fund and its agents will employ procedures designed to verify the identity of
the caller and legitimacy of instructions (for example, a shareholder's name
and account number will be required and phone calls may be recorded). The
Fund reserves the right to suspend, modify or discontinue the telephone
redemption and exchange program or to impose a charge for this service at any
time following at least seven (7) days' prior notice to shareholders.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in
the account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net
asset value. Before the Fund exercises such right, shareholders will receive
written notice and will be permitted 60 days to bring accounts up to the
minimum to avoid involuntary liquidation.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value
of the Fund's net assets by the total number of shares outstanding.
Securities listed on an exchange are valued on the basis of the last sale
prior to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used.
Quotations are taken from the exchange where the security is primarily
traded. Portfolio securities which are primarily traded on foreign exchanges
may be valued at the preceding closing values of such securities on their
respective exchange, except that when an occurrence subsequent to the time a
foreign security is valued is likely to have changed such value, then the
fair value of those securities will be determined by consideration of other
factors by or under the direction of the Board of Trustees. Over-the-counter
securities are valued on the basis of the bid price at the close of business
on each day. Unlisted foreign securities are valued at the mean between the
last available bid and offer price prior to the time of valuation. Any assets
or liabilities initially expressed in terms of foreign currencies will be
converted into U.S. dollars as last quoted by any recognized dealer.
Securities for which market quotations are not readily available are valued
at fair value. Notwithstanding the above, bonds and other fixed-income
securities are valued by using market quotations and may be valued on the
basis of prices provided by a pricing service approved by the Board of
Trustees.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of the Fund may be exchanged at the
net asset value next determined for Class A shares in the following funds of
the Smith Barney Mutual Funds, to the extent shares are offered for sale in
the shareholder's state of residence. Exchanges of Fund shares are subject to
minimum investment requirements and to the other requirements of the fund
into which exchanges are made.
Fund Name
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Large Cap Value Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Funds
Smith Barney Adjustable Rate Government Fund
Smith Barney Diversified Strategic Fund
Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Fund
Smith Barney Funds, Inc. -- U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney Municipal High Income Fund
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds Inc. -- Emerging Markets Portfolio
Smith Barney World Funds Inc. -- European Portfolio
Smith Barney World Funds Inc. -- Global Government Bond Portfolio
Smith Barney World Funds Inc. -- International Balanced Portfolio
Smith Barney World Funds Inc. -- International Equity Portfolio
Smith Barney World Funds Inc. -- Pacific Portfolio
Smith Barney Concert Allocation Series, Inc.
Smith Barney Concert Allocation Series, Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series, Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series, Inc. -- Global Portfolio
Smith Barney Concert Allocation Series, Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series, Inc. -- High Growth Portfolio
Smith Barney Concert Allocation Series, Inc. -- Income Portfolio
Money Market Funds
Smith Barney Money Funds, Inc. -- Cash Portfolio
Smith Barney Money Funds, Inc. -- Government Portfolio
Smith Barney Money Funds, Inc. -- Retirement Portfolio
Smith Barney Muni Funds -- California Money Market Portfolio
Smith Barney Muni Funds -- New York Money Market Portfolio
Smith Barney Municipal Money Market Fund, Inc.
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. SBSA 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, SBSA will
notify Smith Barney and the Fund may, at its discretion, decide to limit
additional purchases and/or exchanges by the shareholder. Upon such a
determination, the Fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the exchange privilege and
during the 15 day period the shareholder will be required to (a) redeem his
or her shares in the Fund or (b) remain invested in the Fund or exchange into
any of the funds of the Smith Barney Mutual Funds listed above, which
position the shareholder would be expected to maintain for a significant
period of time. All relevant factors will be considered in determining what
constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares - Telephone Redemption and Exchange Program."
Exchanges will be processed at the net asset value next determined.
Redemption procedures discussed below are also applicable for exchanging
shares, and exchanges will be made upon receipt of all supporting documents
in proper form. If the account registration of the shares of the fund being
acquired is identical to the registration of shares of the fund exchanged, no
signature guarantee is required. A taxable gain or loss for tax purposes will
be realized upon the exchange, depending upon the cost or other basis of
shares redeemed. Before exchanging shares, investors should read the current
prospectus describing the shares to be acquired. The Fund reserves the right
to modify or discontinue exchange privileges upon 60 days' prior notice to
shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds policy is to declare and pay quarterly dividends from its net
investment income. Dividends from net realized capital gains, if any, will
be distributed annually. The Fund may also pay additional dividends shortly
before December 31 from certain amounts of undistributed ordinary income and
capital gains realized, in order a Federal excise tax liability. If a
shareholder does not otherwise instruct, dividends and capital gain
distributions will be automatically reinvested in additional shares of the
Fund at net asset value, without a sales charge.
The following is a summary of the material federal tax considerations
affecting the Fund and Fund shareholders. Please refer to the SAI for further
discussion. In addition to the considerations described below and in the
SAI, there may be other federal, state, local, and/or foreign tax
applications to consider. Because taxes are a complex matter, prospective
shareholders are urged to consult their tax advisors for more detailed
information with respect to the tax consequences of any investment.
The Fund intends to qualify, as it has in prior years, under the Code for tax
treatment as a regulated investment company. In each taxable year that the
Fund qualifies, so long as such qualification is in the best interests of its
shareholders, the Fund will pay no federal income tax on its net investment
company taxable income and long-term capital gain that is distributed to
shareholders.
Dividends paid from net investment income and net realized short-term
securities gain, are subject to federal income tax as ordinary income.
Distributions, if any, from net realized long-term securities gains, derived
from the sale of securities held by the Fund for more than one year, are a
taxable as long-term capital gains, regardless of the length of time a
shareholder has owned Fund shares.
Shareholders are required to pay tax on all taxable distributions, even if
those distributions are automatically reinvested in additional Fund shares.
A portion of the dividends paid by the Fund may qualify for the corporate
dividends received deduction. Dividends consisting of interest from U.S.
government securities may be exempt from state and local income taxes. The
Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
A shareholders gain or loss on the disposition of Fund shares (whether by
redemption, sale or exchange), generally will be a long-term or short-term
gain or loss depending on the length of time the shares had been owned at
disposition. Losses realized by a shareholder on the disposition of Fund
shares owned for six months or less will be treated as a long-term capital
loss to the extent a capital gain dividend had been distributed on such
shares.
The Fund is required to withhold (backup withholding) 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for
shareholders who do not provide the Fund with a correct taxpayer
identification number (social security or employer identification number).
Withholding from taxable dividends and capital gain distributions also is
required for shareholders who otherwise are subject to backup withholding.
Any tax withheld as a result of backup withholding does not constitute an
additional tax, and may be claimed as a credit on the shareholders federal
income tax return.
No person has been authorized to give any information or to make
representations in connection with this offering other than those contained
in this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Fund
or the distributor. This Prospectus does not constitute an offer by the Fund
or the distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in such jurisdiction.
ADDITIONAL INFORMATION
The Trust, organized on June 2, 1983 under the laws of the Commonwealth of
Massachusetts, is a business entity commonly known as a "Massachusetts
business trust" and is registered with the SEC as a non-diversified, open-
end 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. 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.
The Trust does not hold annual shareholder meetings. There normally will be
no meetings of shareholders 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. The Trustees will call a meeting for any
purpose upon written request of shareholders holding at least 10% of the
Fund's outstanding shares and the Fund will assist shareholders in calling
such a meeting as required by the 1940 Act. When matters are submitted for
shareholder vote, shareholders of the Fund will have one vote for each full
share held and a proportionate, fractional vote for each fractional share
held.
PNC Bank, located at 17th and Chestnut Streets, PA 19103, serves as custodian
of the Trust's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Trust's transfer agent.
The Fund sends shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund
at the end of the period covered. In an effort to reduce the Fund's printing
and mailing costs, the Fund plans to consolidate the mailing of its semi-
annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. In addition, the Fund also plans to
consolidate the 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. Shareholders who do not
want this consolidation to apply to their accounts should contact their Smith
Barney Financial Consultants or First Data.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained
in this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Fund
or the distributor. This Prospectus does not constitute an offer by the Fund
or the distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer or solicitation in such jurisdiction.
FD 01120 4/98
9
16
SMITH BARNEY
TELECOMMUNICATIONS TRUST
388 Greenwich Street, New York, New York 10013 - 800-451-2010
STATEMENT OF ADDITIONAL INFORMATION April 30, 1998
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney
Telecommunications Income Fund (the Fund) of Smith Barney Telecommunications
Trust (the Trust), dated April 30, 1998, as amended or supplemented from time
to time, and should be read in conjunction with the Prospectus of the Fund.
The Funds Prospectus may be obtained from a Smith Barney Financial Consultant
or by writing or calling the Trust at the address or telephone number set
forth above. This Statement of Additional Information (the SAI), 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 Fund and the Trust
2
Investment Objective and Management Policies
5
Redemption of Shares
11
Valuation of Shares
11
Exchange Privilege
11
PerformanceData.................................................
12
Taxes (See in the Prospectus Dividends, Distributions
and Taxes)
13
Additional Information
15
Financial Statements
15
Appendix
16
MANAGEMENT OF THE 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
Smith Barney Inc.
(Smith Barney)
Distributor
Smith Barney Strategy Advisers Inc.
(SBSA)
Investment Adviser
Mutual Management Corp.
(MMC) (formerly known as Smith Barney Mutual
Fund Management, Inc.)
Administrator
The Boston Company Asset Management, Inc.
(TBCAM)
Sub-Investment
Adviser
PNC Bank, National Association
(PNC)
Custodian
First Data Investor Services Group, Inc.
(First
Data),...............................................
....................................
Transfer Agent
These organizations and the functions they perform for the Trust are
discussed in the Prospectus and in this Statement of Additional Information.
Trustees of the Trust and Executive Officers of the Fund
The Trustees of the Trust and executive officers of the 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 (Age 58). Partner in the law firm of Murov & Ades. His
address is 272 South Wellwood Avenue, Lindenhurst, New York 11757.
Herbert Barg, Trustee (Age 75). Private investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
Dwight B. Crane, Trustee (Age 60). Professor, Graduate School of Business
Administration, Harvard University; Business Consultant. His address is
Graduate School of Business Administration, Harvard University, Boston,
Massachusetts 02163.
Frank G. Hubbard, Trustee (Age 60). Vice President, S & S Industries; Former
Corporate Vice President, Materials Management and Marketing Services of Huls
America, Inc. His address is 80 Centennial Drive P.O. Box 456, Piscataway,
New Jersey 08855-0456.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age 64).
Managing Director of Smith Barney, Chairman of Smith Barney Strategy Advisers
Inc. and President of MMC; prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers Inc. (Shearson Lehman Brothers); Vice
Chairman of Shearson Asset Management. Mr. McLendon is Chairman of the
Board of 42 Smith Barney Mutual Funds. His address is 388 Greenwich Street,
New York, New York 10013.
Ken Miller, Trustee (Age 56). President of Young Stuff Apparel Group, Inc.
His address is 1407 Broadway, 6th Floor, New York, New York 10018.
Jerome Miller, Trustee (Age 60). Retired, Former President, Asset Management
Group of Shearson Lehman Brothers. His address is 27 Hemlock Road,
Manhasset, New York, NY 11030.
Jack White, (Trustee Emeritus) (age 80). President Emeritus of the Cooper
Union for the Advancement of Science and Art; Special Assistant to the
President of the Aspen Institute. His address is 97 Sunset Drive, Apt. 402,
Sarasota, Florida 34236.
Lewis E. Daidone, Senior Vice President and Treasurer (age 40). Managing
Director of Smith Barney; Director and Senior Vice President of MMC. Mr.
Daidone also serves as Senior Vice President and Treasurer of 42 of the Smith
Barney Mutual Funds. His address is 388 Greenwich Street, New York, New York
10013.
Christina T. Sydor, Secretary (age 47). Managing Director of Smith Barney,
General Counsel and Secretary of MMC. Ms. Sydor also serves as Secretary of
42 of the Smith Barney Mutual Funds. Her address is 388 Greenwich Street, New
York, New York 10013.
Each Trustee also serves as a director, trustee and/or individual general
partner of certain other mutual funds for which Smith Barney serves as
distributor. The Trustees and officers of the Trust, as a group, owned less
than 1.00% of the Funds outstanding shares as of April 8, 1998.
No officer, director or employee of Smith Barney or any parent or subsidiary,
receives any compensation from the Trust for serving as an officer or Trustee
of the Trust. The Trust pays each Trustee who is not an officer, director or
employee of Smith Barney or any of its 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, 1997, such fees and
expenses totaled $10,097.
For the calendar year ended December 31, 1997, the Trustees of the Trust were
paid the following compensation:
Trustee(#)
Aggregate Compensation
from the Trust
Aggregate Compensation
from the Smith Barney
Mutual Funds
Paul R. Ades (5)
5,200
$ 49,000
Herbert Barg (20)
5,200
101,600
Alger B. Chapman (9)*
3,725
53,925
Dwight B. Crane (26)
5,100
133,850
Frank G. Hubbard (5)
5,200
52,000
Heath B. McLendon (42)
N/A
N/A
Jerome Miller (5)...............................
0
12,400
Ken Miller (5)
5,200
52,000
John F. White (5)**
5,200
52,000
________________________
(#) Number of director/trusteeships held with mutual funds in the Smith Barney
Mutual Funds family.
*Mr. Chapmans resigned from the Board of Trustees effective June 20, 1997.
**Mr. White has deferred $5,200 of aggregate compensation from the Trust and
$52,000 of compensation from the fund complex.
Upon attainment of age 80 Trustees are required to change to emeritus status.
Trustees Emeritus are entitled to serve in emeritus status for a maximum of
10 years during which time they are paid 50% of the annual retainer fee and
meeting fees otherwise applicable to the Fund Trustees, together with
reasonable out-of-pocket expenses for each meeting attended. During the
Trusts last fiscal year aggregate compensation paid by the Trust to Trustees
emeritus totaled $390. Effective February 6, 1998, Mr. White became a
Director Emeritus.
Investment Adviser -- SBSA
SBSA serves as investment adviser to the Fund pursuant to a written agreement
dated June 16, 1994 (the Advisory Agreement), which was first approved by the
Trusts Board of Trustees, including a majority of the Trustees who are not
interested persons of the Trust or SBSA, on April 21, 1994 and by
shareholders on June 15, 1994. SBSA pays the salary of any officer and
employee who is employed by both it and the Fund. The services provided by
SBSA under the Advisory Agreement are described in the Prospectus under
Management of the Trust and the Fund. SBSA bears all expenses in connection
with the performance of its services. SBSA is a wholly owned subsidiary of
Salomon Smith Barney Holdings Inc. (Holdings). Holdings is a wholly owned
subsidiary of Travelers Group Inc. (Travelers).
As compensation for investment advisory services rendered, the Fund pays SBSA
a fee computed daily and paid monthly at the annual rate of 0.55% of the
Funds average daily net assets. For the fiscal years ended December 31,
1995, December 31, 1996 and December 31, 1997, the Fund paid SBSA $373,600,
$369,448, and $367,532 respectively, in investment advisory fees.
Sub-Investment Adviser -- TBCAM
TBCAM serves as sub-investment adviser to the Fund pursuant to a written
agreement dated June 16, 1994 (the Sub-Advisory Agreement), which was first
approved by the Trusts Board of Trustees, including a majority of the
Trustees who are not interested persons of the Fund or TBCAM, on April 21,
1994 and by shareholders on June 15, 1994. TBCAM is a wholly owned subsidiary
of Mellon Bank.
As compensation for sub-investment advisory services rendered, SBSA pays
TBCAM a monthly fee at the annual rate of 0.275% of the value of the Funds
average daily net assets. For the fiscal years ended December 31, 1995
December 31, 1996 and December 31, 1997, TBCAM received $186,800, $184,724
and $183,766 respectively in sub-investment advisory fees. As compensation
for those services, the Fund paid TBCAM a fee, computed daily and paid
monthly, at the annual rate of 0.75% of the value of the Funds average daily
net assets.
Administrator-- MMC
MMC serves as administrator to the Fund pursuant to a written agreement dated
April 21, 1994 (the Administration Agreement), which was first approved by
the Trusts Board of Trustees, including a majority of the Trustees who are
not interested persons of the Fund or MMC, on April 21, 1994. The services
provided by MMC under the Administration Agreement are described in the
Prospectus under Management of the Trust and the Fund. MMC pays the salary
of any officer or employee who is employed by both it and the Fund and bears
all expenses in connection with the performance of its services.
As compensation for administrative services rendered to the Fund, MMC
receives a fee at the annual rate of 0.20% of the value of the Funds average
daily net assets. For the fiscal years ended December 31, 1995, December 31,
1996 and December 31, 1997, the Fund paid MMC $135,855, $134,345,and
$133,648, respectively, in administration fees.
The 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 or TBCAM; SEC
fees and state Blue Sky qualification fees; charges of custodians; transfer
and dividend disbursing agents fees; certain 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 existing
shareholders, shareholders reports and meetings.
MMC and TBCAM have agreed that if in any fiscal year the aggregate expenses
of the Fund (including fees paid pursuant to the Advisory, Sub-Advisory and
Administration Agreements, but excluding interest, taxes, brokerage fees paid
pursuant to the Funds services and distribution plan, and, with the prior
written consent of the necessary state securities commissions, extraordinary
expenses) exceed the expense limitation of any state having jurisdiction over
the Fund, MMC and TBCAM will, to the extent required by state law, reduce
their management fees by the amount of such excess expense, such amount to be
allocated between them in the proportion that their respective fees bear to
the aggregate of such fees paid by the Fund. Such fee reduction, if any, will
be estimated and reconciled on a monthly basis. The most restrictive state
expense limitation applicable to the Fund would require MMC and TBCAM to
reduce their fees in any year that such excess expenses exceed 2.50% of the
first $30 million of average daily net assets, 2.00% of the next $70 million
of average daily net assets and 1.50% of the remaining average daily net
assets.
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
LLP as their counsel.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as the Trusts independent auditor to examine and report on the
Trusts financial statements and highlights for the fiscal year ending
December 31, 1998.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Funds investment objective and the policies it
employs to achieve that objective. The following discussion supplements the
description of the Funds investment objective and policies in the Prospectus.
Lending of Portfolio Securities
Consistent with applicable regulatory requirements, the Fund has the ability
to lend its portfolio securities to brokers, dealers and other financial
organizations. The Fund may not lend portfolio securities to Smith Barney 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
Funds securities are loaned: (a) the Fund must receive at least 100% cash
collateral or equivalent securities from the borrower; (b) the borrower must
increase such collateral whenever the market value of the securities rises
above the level of such collateral; (c) the Fund must be able to terminate
the loan at any time; (d) the Fund must receive reasonable interest on the
loan, as well as an amount equal to any dividends, interest or other
distributions on the loaned securities and any increase in market value; (e)
the Fund may pay only reasonable custodian fees in connection with the loan;
and (f) voting rights on the loaned securities may pass to the borrower;
provided, however, that if a material event adversely affecting the
investment in the loaned securities occurs, the Trusts Board of Trustees must
terminate the loan and regain the right to vote the securities. From time to
time, the Fund may return a part of the interest earned from the investment
of collateral received for securities loaned to the borrower and/or a third
party, which is unaffiliated with the Fund or with Smith Barney, and which is
acting as a finder.
Money Market Instruments The Fund may invest without limit in short-term
money market instruments when SBSA and/or TBCAM believes that a defensive
investment posture is advisable due to market or economic conditions. Money
market instruments in which the 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 Fund, depending upon the principal amount of CDs of each bank held by
the Fund) and are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of governmental regulations, domestic
branches of domestic banks, 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, SBSA and/or TBCAM will carefully evaluate such investments on
a case-by-case basis.
Savings and loan associations, the CDs of which may be purchased by the Fund,
are supervised by the Office of Thrift Supervision and are insured by the
Savings Association Insurance Fund which is administered by the FDIC and is
backed by the full faith and credit of the United States government. As a
result, such savings and loan associations are subject to regulation and
examination.
Commercial Paper. Commercial paper is a short-term, unsecured negotiable
promissory note of a domestic or foreign company. When investing for
defensive purposes, the Fund may invest in short-term debt obligations of
issuers that at the time of purchase are rated in the top two ratings
categories for short-term debt securities by a nationally recognized
statistical rating organization (NRSRO) (such as A-2, A-1 or A-1+ by
Standard & Poors Ratings Group (S&P) or Prime-2 or Prime-l by Moodys
Investors Service, Inc, (Moodys)) or, if unrated, are issued by companies
having an outstanding unsecured debt issue currently rated within the two
highest ratings of by an NRSRO (such as S&P or Moodys). A discussion of S&P
and Moodys rating categories appears in the Appendix to this Statement of
Additional Information. The 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 Fund and an issuer,
and are not normally traded in a secondary market. The 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. SBSA
and/or TBCAM 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
issuers 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 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 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 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 Fund may write (a) in-the-money
call options when SBSA and/or TBCAM 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 SBSA and/or TBCAM 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 SBSA and/or TBCAM
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 Fund as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through
which the option was sold, requiring the Fund to deliver the underlying
security against payment of the exercise price. This obligation terminates
when the option expires or the Fund effects a closing purchase transaction.
The 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 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 Fund expects to write options
only on national securities exchanges.
The Fund may realize a profit or loss upon entering into a closing
transaction. In cases where the 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 Fund generally will write only those options for which SBSA
and/or TBCAM 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 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 Fund and other clients of SBSA and/or TBCAM 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. These limits may restrict the number of
options which the Fund will be able to write on a particular security.
Call options may be purchased by the 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 Fund of such a transaction may be greater than the net premium
received by the Fund upon writing the original option, the Trusts Board of
Trustees believes that it is appropriate for the Fund to have the ability to
make closing purchase transactions in order to limit the risks involved in
writing options. SBSA and/or TBCAM also may permit the call option to be
exercised.
Investment Restrictions
The Fund has adopted the following investment restrictions for the protection
of shareholders. Investment restrictions 1 through 6 below cannot be changed
without approval by the holders of a majority of the outstanding shares of
the Funds, 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 Fund are present or represented
by proxy or (b) more than 50% of the outstanding shares of the Fund.
Investment restrictions 7 through 13 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 Fund may not:
.
(1) Purchase or sell real estate, real estate mortgages, commodities
or commodity contracts, but this restriction shall not prevent
the Fund from (a) investing in securities of issuers engaged in
the real estate business or the business of investing in real
estate (including interests in limited partnerships owning or
otherwise engaging in the real estate business or the business of
investing in real estate) and securities which are secured by
real estate or interests therein; (b) holding or selling real
estate received in connection with securities it holds or held;
(c) trading in futures contracts and options on futures contracts
(including options on currencies to the extent consistent with
the Funds investment objective and policies); or (d) investing in
real estate investment trust securities.
(2) 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.
(3) Make loans. This restriction does not apply to: (a) the purchase
of debt obligations in which the Fund may invest consistent with
its investment objective and policies, (b) repurchase agreements;
and (c) loans of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
(4) Borrow money, except that (a) the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes including the
meeting of redemption requests which might otherwise require the
untimely disposition of securities, and (b) the Fund may, to the
extent consistent with its investment policies, enter into
reverse repurchase agreements, forward roll transactions and
similar investment strategies and techniques. To the extent that
it engages in transactions described in (a) and (b), the Fund
will be limited so that no more than 33 1/3% of the value of the
Funds total assets (including the amount borrowed) valued at the
lesser of cost or market, less liabilities (not including the
amount borrowed) valued at the time the borrowing is made, is
derived from such transactions.
(5) 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 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.
(6) Issue senior securities as defined in the 1940 Act and the rules,
regulations and orders thereunder, except as permitted under the
1940 Act and rules, regulations and orders thereunder.
(7) Purchase 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 its assets to be invested in restricted securities,
securities without readily available market quotations and
repurchase agreements maturing in more than seven days.
(8) Purchase securities of companies for the purpose of exercising
control.
(9) Purchase securities on margin (except short-term credits as are
necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the
box). For purposes of this restriction, the deposit or payment by
the Fund of initial or maintenance margin in connection with
futures contracts and related options and options on securities
is not considered to be the purchase of a security on margin.
(10) Purchase securities of any issuers which together with
predecessors have a record of less than three years continuous
operation, if, as a result, more than 5% of such portfolios 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.)
(11) Invest in puts, calls, straddles, spreads, and any combination
thereof (except in connection with the writing of covered call
options).
(12) Invest in oil, gas or other mineral exploration or development
programs.
(13) 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.
Portfolio Turnover
In seeking its objective, the 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 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 Funds
portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation. The Fund
has no fixed policy with respect to portfolio turnover; however, it is
anticipated that the annual portfolio turnover rate in the Fund generally
will not exceed 50%. For the 1997 and 1996 fiscal years, the portfolio
turnover rates for the Fund were 0%.
Portfolio Transactions
Decisions to buy and sell securities for the Fund are made by SBSA and/or
TBCAM, subject to the overall supervision and review of the Trusts Board of
Trustees. Portfolio securities transactions for the Fund are effected by or
under the supervision of SBSA and/or TBCAM.
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 dealers mark-up or mark-down.
For the 1997, 1996, and 1995 fiscal years, the Fund paid total brokerage
commissions of $11,603, $14,543 and $13,538, respectively.
In executing portfolio transactions and selecting brokers or dealers, it is
the Funds policy to seek the best overall terms available. In assessing the
best overall terms available for any transactions, SBSA and/or TBCAM 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 SBSA and/or TBCAM, in
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, to consider the brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund or other accounts over
which SBSA and/or TBCAM or an affiliate exercises investment discretion.
The Trusts Board of Trustees periodically will review the commissions paid by
the Fund to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the Fund. It is
possible that certain of the services received will primarily benefit one or
more other accounts for which investment discretion is exercised. Conversely,
the Fund may be the primary beneficiary of services received as a result of
portfolio transactions effected for other accounts. The fees of SBSA and/or
TBCAM under the Advisory Agreement are not reduced by reason of SBSA and/or
TBCAM receiving such brokerage and research services. Further, Smith Barney
will not participate in commissions from brokerage given by the Fund to other
brokers or dealers and will not receive any reciprocal brokerage business
resulting therefrom.
The Trustees of the Trust have determined that any portfolio transaction for
the Fund may be executed through Smith Barney or an affiliate of Smith
Barney, if, in the judgment of SBSA and/or TBCAM, the use of Smith Barney is
likely to result in price and execution at least as favorable as those of
other qualified brokers, and if, in the transaction, Smith Barney charges the
Fund a commission rate consistent with that charged by Smith Barney to
comparable unaffiliated customers in similar transactions. In addition, under
rules adopted by the SEC, Smith Barney may directly execute such transactions
for the Fund on the floor of any national securities exchange, provided: (a)
the Board of Trustees has expressly authorized Smith Barney to effect such
transactions; and (b) Smith Barney annually advises the Fund of the aggregate
compensation it earned on such transactions. For the 1997, 1996 and 1995
fiscal years, brokerage commissions of $4,190, $5,343 and $5,960,
respectively, were paid by the Fund to Smith Barney. The amount of brokerage
commissions paid to Smith Barney for the 1997 fiscal year represented 36% of
the total brokerage commissions paid by the Fund and Smith Barney effected
63% of the total dollar amount of transactions involving the payment of
brokerage commissions.
Even though investment decisions for the Fund are made independently from
those of the other accounts managed by SBSA and/or TBCAM, investments of the
kind made by the Fund also may be made by those other accounts. When the Fund
and one or more accounts managed by SBSA and/or TBCAM 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 SBSA and/or
TBCAM to be equitable. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained for
or disposed of by the Fund.
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 the markets the Fund normally utilizes is restricted, or an
emergency exists, as determined by the SEC, so that disposal of the Funds
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
protection of the Funds shareholders.
Distributions in Kind
If the Trusts 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 Fund may pay, in accordance with SEC
rules, any portion of a redemption in excess of the lesser of $250,000 or
1.00% of the Funds net assets by a distribution in kind of portfolio
securities in lieu of cash. Securities issued as a distribution in kind may
incur brokerage commissions when shareholders subsequently sell those
securities.
VALUATION OF SHARES
The Funds 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 Years Day, Martin Luther King Jr. Day,
Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively. The
following is a description of the procedures used by the Fund in valuing its
assets.
Securities listed on a national securities exchange will be valued on the
basis of the last sale on the date on which the valuation is made or, in the
absence of 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 Trusts 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 Trusts Board of
Trustees. Amortized cost involves valuing an instrument at its original cost
to the Fund and thereafter assuming a constant amortization to maturity of
any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. All other securities and other
assets of the Fund will be appraised at their fair value as determined in
good faith by the Trusts Board of Trustees.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney Mutual
Funds may exchange all or part of their shares for shares of the same class
of other funds of the Smith Barney Mutual Funds as listed in the Prospectus
on the basis of relative net asset value per share at the time of exchange.
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 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 being made. Prospectuses may be obtained from a Smith
Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset
value and the proceeds are immediately invested, at a price as described
above, in shares of the fund being acquired with such shares being subject to
any applicable contingent deferred sales charge. Smith Barney reserves the
right to reject any exchange request. The exchange privilege may be modified
or terminated at any time after written notice to shareholders.
PERFORMANCE DATA
From time to time, a Fund may quote its yield or total return in
advertisements or in reports and other communications to shareholders. The
Fund may include comparative performance information in advertising or
marketing the Funds shares. Such performance information may include the
following industry and financial publications: Barrons, Business Week, CDA
Investment Technologies Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values, The New
York Times, USA Today and The Wall Street Journal. To the extent any
advertisement or sales literature of the Fund describes the expenses or
performance of a Class, it will also disclose such information for the other
Classes.
Yield
The Funds 30-day yield figure described below is calculated according to a
formula prescribed by the SEC. The formula can be expressed as follows:
YIELD = 2[(a-bcd + 1)6 - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of shares outstanding during
the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day of
the period.
For the purpose of determining the interest earned (variable a in the
formula) on debt obligations purchased by the Fund at a discount or premium,
the formula generally calls for amortization of the discount or premium, and
the amortization schedule will be adjusted monthly to reflect changes in the
market values of the debt obligations.
Investors should recognize that in periods of declining interest rates a
Funds yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the Funds yield will tend to be somewhat
lower. In addition, when interest rates are falling, the inflow of net new
money to the Fund from the continuous sales of its shares will likely be
invested in portfolio instruments producing lower yields than the balance of
the Funds investments, thereby reducing the current yield of the Fund. In
periods of rising interest rates, the opposite can be expected to occur.
Average Annual Total Return
Average annual total return figures, as described below, are computed
according to a formula prescribed by the SEC. The formula can be expressed
as follows:
P(1+T)n =ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending
Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-
year period at the end of the 1-5- or 10- year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions. A
Class total return figures calculated in accordance
with above formula assume that the maximum
applicable sales charge or maximum applicable CDSC,
as the case may be, has been deducted from the
hypothetical $1,000 initial investment at the time
of purchase or redemption, as applicable.
Period Ended 12/31/97
One Year Five Year Ten Year
45.11% 18.40% 16.65%
TAXES
The following is a summary of selected Federal income tax considerations that
may affect the Fund and its shareholders. The summary is not intended as a
substitute for individual tax advice and investors are urged to consult their
own tax advisors as to the tax consequences of an investment in the Fund.
Taxation of the Fund
The Fund has qualified and intends to qualify each year as a regulated
investment company under the Code. As a regulated investment company, the
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 Fund will be reinvested
automatically in additional shares of the Fund at net asset value, unless the
shareholder elects to receive dividends and distributions in cash.
To qualify as a regulated investment company, the Fund must meet certain
requirements set forth in the Code. One requirement is that the 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).
Generally, the Funds return on its investments will be considered to be
qualified income under the 90% Test.
Tax Status of the Funds Investments
Gain or loss on the sale of a security by the Fund generally will be long-
term capital gain or loss if the 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 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 Funds 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 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 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
Fund will recognize a capital gain or loss from the underlying security, and
the option premium will constitute additional sales proceeds.
The 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 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
Fund.
Dividends of investment income (but not distributions of capital gain) from
the 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 Fund from domestic
corporations. If securities held by the Fund are considered to be debt-
financed (generally, acquired with borrowed funds) or are held by the Fund
for less than 46 days (91 days in the case of certain preferred stock), the
portion of the dividends paid by the Fund that corresponds to the dividends
paid with respect to the securities will not be eligible for the corporate
dividends-received deduction.
If the 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 Funds 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 Fund acquired such stock. Accordingly, in
order to satisfy its income distribution requirements, the 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. For individuals, the maximum rate
for long-term capital gains is 28% (20% if the shares have been held for more
than 18 months). If a shareholder receives a distribution taxable as long-
term capital gain with respect to shares of the 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
Fund shares. An individuals 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 shareholders regular Federal income tax
liability.
ADDITIONAL INFORMATION
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 5, 1992. On October 4, 1989, the Trust and the Fund changed their
names from American Telecommunications Trust and Income Portfolio Shares to
SLH Telecommunications Trust and SLH Telecommunications Fund, respectively.
On August 27, 1990, July 30, 1993 and October 14, 1994, the Trust and the
Fund changed their names to Shearson Lehman Brothers Telecommunications Trust
and Telecommunications Fund, Smith Barney Shearson Telecommunications Trust
and Smith Barney Shearson Telecommunications Fund, and Smith Barney
Telecommunications Trust and Smith Barney Telecommunications Fund,
respectively.
PNC Bank National Association is located at 17th and Chestnut Streets,
Philadelphia, PA 19103 and serves as the custodian of the Trust investments
pursuant to a custody agreement. Under the custody agreement, PNC holds the
Trusts securities and keeps all necessary accounts and records. For its
services, PNC receives a monthly fee based upon the Trusts month-end market
value of securities held in custody and also receives securities transaction
charges including out-of-pocket expenses. PNC 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.
First Data is located at Exchange Place, Boston, Massachusetts 02109 and
serves as the Trusts transfer agent. Under the transfer agency agreement,
First Data maintains the shareholder account records for the Trust and
handles certain communications between shareholders and the Trust. For these
services, First Data 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.
FINANCIAL STATEMENTS
The Funds Annual Report for the fiscal year ended December 31, 1997 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-l is the highest commercial paper rating assigned by 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 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 earnings and cash flow have an
upward trend with allowance made for unusual circumstances; typically, the
issuers 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-l is the highest commercial paper rating assigned by Moodys.
Among the factors considered by Moodys in assigning ratings are the
following: (a) evaluation of the management of the issuer; (b) economic
evaluation of the issuers industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (c) evaluation
of the issuers 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.
Fitch IBCA, Inc. short term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes. The short-term rating places greater
emphasis than a long-term rating on the existence of liquidity necessary to
meet financial commitment in a timely manner. Fitchs short-term rates are as
follows: F1+ indicates issues regarded as having the strongest capacity for
timely payments of financial commitments. The + denotes an exceptionally
strong credit feature. The rating F1 reflects issues regarded as having the
strongest capacity for timely payment of financial commitments while the
rating F-2 indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
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.
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