Registration
No. 33-2627
811-4551
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No 27 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 28 X
SMITH BARNEY SHEARSON EQUITY FUNDS
(Exact name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 720-9218
Francis J. McNamara, III, Esq.
Secretary
Smith Barney Shearson Equity Funds
One Boston Place
Boston, Massachusetts 02108
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on April 1, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Registrant's Rule 24f-2 Notice for the fiscal year ended January
31, 1994 was filed on March 31, 1994.
SMITH BARNEY SHEARSON EQUITY FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights;
The Funds' Performance
4. General Description of Registrant Cover Page; Prospectus
Summary;
Variable Pricing System; Investment
Objective and Management
Policies;
Additional Information
5. Management of the Fund Management the Trust
and the Fund; Distributor;
Additional Information; Annual
Report
6. Capital Stock and Other Securities Variable Pricing System;
Dividends ,Distributions and Taxes;
Additional Information
7. Purchase of Securities Being Offered Variable Pricing System;
Purchase of Shares;
Valuation of Shares; Redemption of
Shares; Exchange
Privilege; Distributor;
Additional Information
8. Redemption or Repurchase Variable Pricing System;
Purchase of
Shares; Redemption of Shares
9. Legal Proceedings Not Applicable
Part B
Item No. Statement of Additional Information
Caption
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Distributor
13. Investment Objectives and Policies Investment Objectives
and Management
Policies
14. Management of the Fund Management of the Trust and
the Funds;
Distributor
15. Control Persons and Principal Holders of Management of the Trust
and the Funds
Securities
16. Investment Advisory and Other Services Management of the Trust
and the Funds;
Distributor
17. Brokerage Allocation Investment Objectives and
Management Policies
18. Capital Stock and Other Securities Purchase of Shares;
Redemption of Shares;
Taxes
19. Purchase, Redemption and Pricing of Purchase of Shares; Redemption
of Shares;
Securities Being Offered Distributor;
Valuation of Shares;
Exchange Privilege
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data Performance Data
23. Financial Statements Financial Statements
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April 1, 1994
SMITH BARNEY SHEARSON
Sector
Analysis
Fund
Prospectus begins
on page one.
SMITH BARNEY SHEARSON
---------------------
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
PROSPECTUS April 1,
1994
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- --
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Sector Analysis Fund (the "Fund") seeks capital
appreciation by investing broadly in equity securities of companies within
sectors, or industry groups, of the U.S. economy.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Shearson Equity Funds (the
"Trust"). The Trust is an open-end management investment company commonly
referred to as a "mutual fund."
This Prospectus sets forth concisely certain information about the Fund and
the Trust, including sales charges, distribution and service fees and
expenses,
which prospective investors will find helpful in making an investment
decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference. Shares of the other funds offered by the Trust are described
in separate prospectuses that may be obtained by calling the Trust at the
telephone number set forth above or by contacting your Smith Barney Shearson
Financial Consultant.
Additional information about the Fund and the Trust is contained in a
Statement of Additional Information dated April 1, 1994, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Trust at the telephone number or address set
forth above or by contacting your Smith Barney Shearson Financial Consultant.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY SHEARSON INC. -- Distributor
SMITH BARNEY SHEARSON STRATEGY ADVISERS INC. --
Investment Adviser
PANAGORA ASSET MANAGEMENT, INC. -- Sub-Investment Adviser
LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC. -- Sub-Investment Adviser
THE BOSTON COMPANY ADVISORS, INC. -- Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
1
SMITH BARNEY SHEARSON
Sector Analysis Fund
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY 3
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FINANCIAL HIGHLIGHTS 9
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VARIABLE PRICING SYSTEM 11
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THE FUND'S PERFORMANCE 12
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MANAGEMENT OF THE TRUST AND THE FUND 14
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 15
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PURCHASE OF SHARES 30
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REDEMPTION OF SHARES 37
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VALUATION OF SHARES 41
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EXCHANGE PRIVILEGE 42
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DISTRIBUTOR 48
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DIVIDENDS, DISTRIBUTIONS AND TAXES 50
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ADDITIONAL INFORMATION 51
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APPENDIX 54
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2
SMITH BARNEY SHEARSON
Sector Analysis Fund
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PROSPECTUS SUMMARY
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- --
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the
Prospectus.
See "Table of Contents."
BENEFITS TO INVESTORS The Fund offers investors several important benefits:
- - Ownership of a professionally managed diversified portfolio of equity,
fixed
income and money market securities having the potential for capital
appreciation.
- - Investment liquidity through convenient purchase and redemption
procedures.
- - A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
- - Different methods for purchasing shares that allow investment flexibility
and a wider range of investment alternatives.
- - Automatic dividend reinvestment feature, plus exchange privilege within
the
same class of shares of most other funds in the Smith Barney Shearson
Group
of Funds.
INVESTMENT OBJECTIVE The Fund is a diversified fund that seeks capital
appreciation by investing broadly in equity securities of companies within
sectors, or industry groups of the U.S. economy. See "Investment Objective and
Management Policies."
VARIABLE PRICING SYSTEM The Fund offers several classes of shares ("Classes")
designed to provide investors with the flexibility of selecting an investment
best suited to their needs. The general public is offered two classes of
shares:
Class A shares and Class B shares, which differ principally in terms of the
sales charges and rates of expense to which they are subject. A third class --
Class D shares -- is offered only to plans participating in the Smith Barney
Shearson 401(k) Program (the "401(k) Program"). See "Variable Pricing System"
and "Purchase of Shares -- Smith Barney Shearson 401(k) Program."
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 5%. The Fund pays an annual service fee of
.25%
of the value of average daily net assets attributable to this Class. See
"Purchase of Shares."
3
SMITH BARNEY SHEARSON
Sector Analysis Fund
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PROSPECTUS SUMMARY (CONTINUED)
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CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 5% of redemption
proceeds, declining by 1% each year after the date of purchase to zero. The
Fund
pays an annual service fee of .25% and an annual distribution fee of .75% of
the
value of average daily net assets attributable to this Class. See "Purchase of
Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, eight years after the date of
original purchase. Upon conversion, these shares will no longer be subject to
an
annual distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
SMITH BARNEY SHEARSON 401(K) PROGRAM Investors may be eligible to participate
in the 401(k) Program, which is generally designed to assist employers or plan
sponsors in the creation or operation of retirement plans under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
other
types of participant directed, tax-qualified employee benefit plans
(collectively, "Participating Plans"). Class A, Class B and Class D shares may
be available as investment alternatives for Participating Plans. Class A and
Class B shares acquired through the 401(k) Program are subject to the same
service and/or distribution fees as, but different sales charge and CDSC
schedules than, the Class A and Class B shares acquired by other investors.
Class D shares acquired by Participating Plans are offered at net asset value
per share without any sales charge or CDSC. The Fund pays annual service and
distribution fees based on the value of the average daily net assets
attributable to this Class. See "Purchase of Shares--Smith Barney Shearson
401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Trust's distributor,
Smith Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that clears
securities transactions through Smith Barney Shearson on a fully disclosed
basis
(an "Introducing Broker"). Direct purchases by certain retirement plans may be
made through the Trust's transfer agent, The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation. Smith Barney Shearson
recommends that, in most cases, single investments of $250,000 or more should
be
made in Class A shares. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Em-
4
SMITH BARNEY SHEARSON
Sector Analysis Fund
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PROSPECTUS SUMMARY (CONTINUED)
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- --
ployed Retirement Plans, the minimum initial investment requirement is $250
and
the minimum subsequent investment requirement is $100, and for certain
qualified
retirement plans, the minimum initial and subsequent investment requirements
are
both $25. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic
Investment
Plan under which they may authorize the automatic placement of a purchase
order
each month or quarter for shares in an amount not less than $100. See
"Purchase
of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A shares are redeemable at
net asset value and Class B shares are redeemable at net asset value less any
applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Shearson Strategy Advisers Inc.
("Strategy
Advisers") serves as the Fund's investment adviser. Strategy Advisers is a
wholly owned subsidiary of Smith, Barney Advisers, Inc. Smith, Barney
Advisers,
Inc. is a wholly owned subsidiary of Smith Barney Shearson Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc.
(formerly Primerica Corporation) ("Travelers"). Travelers is a diversified
financial services holding company principally engaged in the businesses of
providing investment, consumer finance and insurance services.
PanAgora Asset Management, Inc. ("PanAgora Management") serves as
sub-investment adviser to the Fund. Fifty percent of the outstanding voting
stock of PanAgora Management is owned by Nippon Life Insurance Company and
fifty
percent is owned by Lehman Brothers Inc. Lehman Brothers Inc. is a wholly
owned
subsidiary of Lehman Brothers Holdings Inc. ("Lehman Holdings"). American
Express owns 100% of Lehman Holdings' issued and outstanding common stock,
which
represents approximately 92% of Lehman Holdings' issued and outstanding voting
stock. The remainder of Lehman Holdings' voting stock is owned by Nippon Life
Insurance Company.
Lehman Brothers Global Asset Management Inc. ("Lehman Brothers") serves as
sub-investment adviser to the Fund. Lehman Brothers is an indirect wholly
owned
subsidiary of Lehman Holdings.
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), which is in turn a wholly owned subsidiary of
5
SMITH BARNEY SHEARSON
Sector Analysis Fund
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PROSPECTUS SUMMARY (CONTINUED)
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Mellon Bank Corporation ("Mellon"). See "Management of the Trust and the
Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds in the Smith Barney Shearson Group of Funds.
Certain exchanges may be subject to a sales charge differential. See "Exchange
Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from your Smith
Barney Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are paid quarterly from net investment
income. Distributions of net realized capital gains are paid annually. See
"Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically, unless otherwise specified by an investor,
in
additional shares of the same Class at current net asset value. Shares
acquired
by reinvestments will not be subject to any sales charge or CDSC. Class B
shares
acquired through reinvestments will become eligible for conversion to Class A
shares on a pro-rata basis. See "Dividends, Distributions and Taxes" and
"Variable Pricing System."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund may not achieve its
investment
objective. The foreign securities in which the Fund may invest may be subject
to
certain risks in addition to those inherent in domestic investments. The Fund
may make certain investments and employ certain investment techniques that
involve other risks and special considerations. The techniques presenting the
Fund with risks or special considerations are investing in warrants, investing
in options on securities and stock indexes, entering into repurchase
agreements,
lending portfolio securities, entering into futures contracts and related
options as hedges and engaging in short sales of securities. See "Investment
Objective and Management Policies -- Risk Factors and Special Considerations."
6
SMITH BARNEY SHEARSON
Sector Analysis Fund
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PROSPECTUS SUMMARY (CONTINUED)
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THE FUND'S EXPENSES The following expense table lists the costs and expenses
an
investor will incur either directly or indirectly as a shareholder of the
Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's current operating expenses:
CLASS A CLASS B
CLASS D
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- -------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% --
- --
Maximum CDSC
(as a percentage of redemption proceeds) -- 5.00%
- --
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- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .80% .80%
.80%
12b-1 fees* .25 1.00
1.00
Other expenses** 1.11 0.36
0.36
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- -------
TOTAL FUND OPERATING EXPENSES 1.41% 2.16%
2.16%
==============================================================================
=======
* Upon conversion Class B shares will no longer be subject to a
distribution
fee. Class D shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee.
** All expenses are based on data for the Fund's fiscal year ended January
31,
1994.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares. Investors may pay
actual charges of less than 5% depending on the amount purchased and, in the
case of Class B shares, the length of time the shares are held and whether the
shares are held through the 401(k) Program. See "Purchase of Shares" and
"Redemption of Shares." Management fees payable by the Fund include investment
advisory fees paid to Strategy Advisers in an amount equal to .40% of the
value
of the Fund's average daily net assets (of which .15% of the value of the
Fund's
average daily net assets is paid to Lehman Brothers as sub-investment
adviser),
sub-investment advisory fees paid to PanAgora Management in an amount equal to
.20% of the value of the Fund's average daily net assets and administration
fees
paid to Boston Advisors in an amount equal to .20% of the value of the Fund's
average daily net assets. The nature of the services for which the Fund pays
management fees is descriy 31, 1994. A copy of the
Annual Report may be obtained
upon request and without charge from your Smith
arney
Sh
arson Financial Consultant or by writing o
al
in
the Fund at the
addr
ss or phone number li
te
on page one of this Prospectus.
ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One
Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. B
s
on Advisors provides investment
management, investment advisory and/or admini
trative services lso receives with respect to Class B and Class D shares an
annual 12b-1 fee of 1.00% of the value of average daily net assets of the
respective classes, consisting of a .75% distribution fee and a .25% service
fee. "Other expenses" in the above table include fees for shareholder
services,
custodial fees, legal and accounting fees, printing costs and registration
fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to
a hypothetical $1,000 investment in the Fund assuming a 5% total return. The
example assumes payment by the Fund of operating expenses at the levels set
forth in the above table. The example should not be considered a
representation
of past or future expenses and actual expenses may be greater or less than
those
shown. Moreover, while the example assumes a 5% annual return, the Fund's
actual
performance will vary and may result in an actual return greater or less than
5%.
1 YEAR 3 YEARS 5
YEARS 10 YEARS*
------------------------
- ----------------
Class A shares** $ 64 $92 $ 123
$211
Class B shares:
Assumes complete redemption at end of each time
period*** $ 72 $98 $ 126
$230
Assumes no redemption $ 22 $68 $ 116
$230
Class D shares $ 22 $68 $ 116
$249
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- ----------------
* Ten-year figures assume conversion of Class B shares to Class A shares
at
the end of the eighth year following the date of purchase.
** Assumes deduction at the time of purchase of the maximum 5% sales
charge.
*** Assumes deduction at the time of redemption of the maximum CDSC
applicable
for that time period.
8
SMITH BARNEY SHEARSON
Sector Analysis Fund
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FINANCIAL HIGHLIGHTS
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- --
The following information has been audited by Coopers & Lybrand, independent
accountants, whose report thereon appears in the Fund's Annual Report dated
January 31, 1994. The information set forth below should be read in
conjunction
with the financial statements and related notes that also appear in the Fund's
Annual Report, which is incorporated by reference into the Statement of
Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR
PERIOD
ENDED
ENDED
1/31/94#
1/31/93*
Net asset value, beginning of period $ 14.78 $
13.99
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- -------
Income from investment operations:
Net investment income 0.13
0.07
Net realized and unrealized gain on investments 1.21
0.79
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- -------
Total from investment operations 1.34
0.86
Less distributions:
Distributions from net investment income (0.08)
(0.06)
Distributions from capital (Note 1) --
(0.01)
Distributions in excess of realized gains (0.04) -
- -
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- -------
Total distributions (0.12)
(0.07)
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- -------
Net asset value, end of period $ 16.00 $
14.78
==============================================================================
=======
Total return++ 9.10%
6.12%
==============================================================================
=======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,573 $
1,004
Ratio of expenses to average net assets 1.41%**
1.39%+
Ratio of net investment income to average net assets 0.81%
1.02%+
Portfolio turnover rate 145%
155%
==============================================================================
=======
* The Fund commenced selling Class A shares on November 6, 1992.
** The operating expense ratio excludes interest expense. The ratio including
interest expense was 1.42% for the year ended January 31, 1994.
+ Annualized.
++ Total returns represent aggregate total returns for the periods indicated
and
do not reflect any applicable sales charges.
# The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year
since
use of the undistributed method did not accord with results of operations.
9
SMITH BARNEY SHEARSON
Sector Analysis Fund
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FINANCIAL HIGHLIGHTS (CONTINUED)
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FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
YEAR YEAR YEAR YEAR YEAR
YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
ENDED ENDED 1/31/94# 1/31/93 1/31/92 1/31/91 1/31/90
1/31/89 1/31/88*
Net asset value,
beginning of year $14.77 $13.93 $11.68 $10.99 $10.60
$11.80 $12.00
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- ------------------------
Income from investment
operations:
Net investment income 0.01 0.04 0.06 0.46 0.26
0.47 0.23
Net realized and
unrealized gain/(loss)
on investments 1.22 0.85 2.30 0.83 0.58
(1.26 ) --
- ------------------------------------------------------------------------------
- ------------------------
Total from investment
operations 1.23 0.89 2.36 1.09 0.84
(0.79 ) 0.23
Provisions for income
taxes -- -- -- -- --
- -- (0.07 )
Less distributions:
Distributions from net
investment income (0.01 ) (0.04 ) (0.11 ) (0.40 ) (0.32
) (0.41 ) (0.13 )
Distributions from
capital (Note 1) -- (0.01 ) -- -- (0.13
) -- --
Distributions from net
realized capital gains -- -- -- -- --
- -- (0.23 )
Distributions in excess
of realized gains (0.00 *** -- -- -- --
- -- --
- ------------------------------------------------------------------------------
- ------------------------
Total distributions (0.01 ) (0.05 ) (0.11 ) (0.40 ) (0.45
) (0.41 ) (0.43 )
==============================================================================
========================
Net asset value, end of
year $15.99 $14.77 $13.93 $11.68 $10.99
$10.60 $11.80
==============================================================================
========================
Total return++ 8.34% 6.40% 20.22% 10.33% 7.69%
(6.45 ) 1.30%
==============================================================================
========================
Ratios to average net
assets/supplemental
data:
Net assets, end of year
(in, 000's) $129,652 $185,517 $185,614 $164,609 $252,137
$403,149 $715,933
Ratio of expenses to
average net assets 2.16% ** 2.13% 2.16% 2.22% 2.17%
2.12% 2.03% +
Ratio of net investment
income to average net
assets 0.05% 0.28% 0.39% 3.30% 1.65%
3.21% 4.39% +
Portfolio turnover rate 145% 155% 196% 447% 259%
228% 498%
==============================================================================
========================
* The Fund commenced operations on August 28, 1987. Those shares in existence
prior to November 6, 1992 were designated as Class B shares.
** The operating expense ratio excludes interest expense. The ratio including
interest expense was 2.18% for the year ended January 31, 1994.
***Amount represent less than $0.01 per share.
+ Annualized.
++ Total returns represent aggregate total returns for the periods indicated
and
do not reflect any applicable sales charges.
# The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year since
use of the undistributed method did not accord with results of operations.
As of January 31, 1994, Class D shares had no comparable financial
information available.
10
SMITH BARNEY SHEARSON
Sector Analysis Fund
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VARIABLE PRICING SYSTEM
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- --
The Fund offers individual investors two methods of purchasing shares,
thus
enabling investors to choose the Class that best suits their needs, given the
amount of purchase and intended length of investment. A third class -- Class D
- -- is offered only to Participating Plans.
Class A Shares. Class A shares are sold at net asset value per share plus
a
maximum initial sales charge of 5% imposed at the time of purchase. The
initial
sales charge may be reduced or waived for certain purchases. Class A shares
are
subject to an annual service fee of .25% of the value of the Fund's average
daily net assets attributable to the Class. The annual service fee is used by
Smith Barney Shearson to compensate its Financial Consultants for ongoing
services provided to shareholders. The sales charge is used to compensate
Smith
Barney Shearson for expenses incurred in selling Class A shares. See "Purchase
of Shares."
Class B Shares. Class B shares are sold at net asset value per share
subject to a maximum 5% CDSC, which is assessed only if the shareholder
redeems
shares within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Fund. For each year of
investment within this five-year time frame, the applicable CDSC declines by
1%;
in year six, the CDSC is reduced to 0%. See "Purchase of Shares" and
"Redemption
of Shares."
Class B shares are subject to an annual service fee of .25% and an annual
distribution fee of .75% of the value of the Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearson's branch office overhead expenses
and marketing costs associated with Class B shares, such as preparation of
sales
literature, advertising and printing and distributing prospectuses, statements
of additional information and other materials to prospective investors in
Class
B shares. A Financial Consultant may receive different levels of compensation
for selling different Classes. Class B shares are subject to a distribution
fee
and higher transfer agency fees than Class A shares which, in turn, will cause
Class B shares to have a higher expense ratio and pay lower dividends than
Class
A shares.
11
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
VARIABLE PRICING SYSTEM (CONTINUED)
- ------------------------------------------------------------------------------
- --
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
shares of each Class, and will no longer be subject to a distribution fee. In
addition, a certain portion of Class B shares that have been acquired through
the reinvestment of dividends and distributions ("Class B Dividend Shares")
will
be converted at that time. That portion will be a percentage of the total
number
of outstanding Class B Dividend Shares owned by the shareholder equal to the
ratio of the total number of Class B shares owned by the shareholder
converting
at the time to the total number of outstanding Class B shares (other than
Class
B Dividend Shares) owned by the shareholder. The first of these conversions
will
commence on or about September 30, 1994. The conversion of Class B shares into
Class A shares is subject to the continuing availability of an opinion of
counsel to the effect that such conversions will not constitute taxable events
for Federal tax purposes.
Class D Shares. Class D shares of the Fund are sold to Participating
Plans
at net asset value per share and are not subject to an initial sales charge or
CDSC. This Class of shares is subject to an annual service fee of .25% and an
annual distribution fee of .75% of the value of the Fund's average daily net
assets attributable to Class D shares. The distribution fee is used by Smith
Barney Shearson for expenses incurred in selling Class D shares, and the
service
fee is used to compensate Smith Barney Shearson Financial Consultants for
ongoing services provided to Class D shareholders. Class D shares are subject
to
a distribution fee which will cause Class D shareholders to have a higher
expense ratio and pay lower dividends than Class A shares.
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THE FUND'S PERFORMANCE
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- --
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total
return"
over various periods of time for each Class. Total return figures show the
average percentage change in the value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the
period
were reinvested in shares of the same Class. Class A total return figures
include the maximum initial 5% sales charge and Class B total return figures
12
SMITH BARNEY SHEARSON
Sector Analysis Fund
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THE FUND'S PERFORMANCE (CONTINUED)
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- --
include any applicable CDSC. These figures also take into account the service
and distribution fees, if any, payable with respect to each Class.
Total return figures will be given for the recent one-, five-and ten-year
periods, or for the life of a Class to the extent it has not been in existence
for any such periods, and may be given for other periods as well, such as on a
year-by-year basis. When considering average annual total return figures for
periods longer than one year, it is important to note that the total return
for
any one year in the period might have been greater or less than the average
for
the entire period. "Aggregate total return" figures may be used for various
periods, representing the cumulative change in the value of an investment in a
Class for the specific period (again reflecting changes in share prices and
assuming reinvestment of dividends and distributions). Aggregate total return
may be calculated either with or without the effect of the maximum 5% sales
charge for the Class A shares or any applicable CDSC for Class B shares and
may
be shown by means of schedules, charts or graphs, and may indicate subtotals
of
the various components of total return (that is, changes in value of initial
investment, income dividends and capital gains distributions). Because of the
differences in sales charge and distribution fees, the performance of each
Class
will differ.
In reports or other communications to shareholders or in advertising
material, performance of the Classes may be compared with that of other mutual
funds or classes of shares of other funds as listed in rankings prepared by
Lipper Analytical Services, Inc. or similar independent services that monitor
the performance of mutual funds, or other industry or financial publications
such as Barron's, Business Week, CDA Investment Technologies, Inc., Forbes,
Fortune, Institutional Investor, Investors Daily, Kiplinger's Personal
Finance,
Money, Morningstar Mutual Fund Values, The New York Times, USA Today and The
Wall Street Journal. Performance figures are based on historical earnings and
are not intended to indicate future performance. To the extent any
advertisement
or sales literature of the Fund describes the expenses or performance of one
Class, it will also disclose such information for the other Classes. The
Statement of Additional Information contains a description of the methods used
to determine performance. Performance figures may be obtained from your Smith
Barney Shearson Financial Consultant.
13
SMITH BARNEY SHEARSON
Sector Analysis Fund
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MANAGEMENT OF THE TRUST AND THE FUND
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BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Fund rests with the Trust's Board of Trustees. The Trustees approve all
significant agreements between the Trust and the companies that furnish
services
to the Fund, including agreements with the Trust's distributor, custodian and
transfer agent and the Fund's investment adviser, sub-investment advisers and
administrator. The day-to-day operations of the Fund are delegated to the
Fund's
investment adviser, sub-investment advisers and administrator. The Statement
of
Additional Information contains background information regarding each Trustee
of
the Trust and the executive officers of the Trust.
INVESTMENT ADVISER--STRATEGY ADVISERS
Strategy Advisers, located at Two World Trade Center, New York, New York
10048, serves as the Fund's investment adviser. Strategy Advisors (through its
predecessors) has been in the investment counselling business since 1986 and
renders investment advice to a wide variety of individual, institutional and
investment company clients which had aggregate assets under management as of
February 28, 1994, in excess of $2.91 billion.
Subject to the supervision and direction of the Trust's Board of Trustees,
Strategy Advisers determines the sectors in which the Fund will invest, the
extent to which the Fund's assets will be invested in a particular sector and,
together with PanAgora Management, the particular companies included in a
particular sector.
SUB-INVESTMENT ADVISER--LEHMAN BROTHERS
As sub-investment adviser to the Fund, Lehman Brothers provides investment
advisory assistance and portfolio management advice to Strategy Advisers.
Lehman
Brothers is located at American Express Tower, World Financial Center, New
York,
New York 10285. Lehman Brothers renders investment advice to institutional
clients and investment companies with aggregate assets under management as of
February 28, 1994, in excess of 16.7 billion.
SUB-INVESTMENT ADVISER--PANAGORA MANAGEMENT
As sub-investment adviser to the Fund, PanAgora Management provides
investment advisory assistance and portfolio management advice to Strategy
Advisers. PanAgora Management is located at 260 Franklin Street, Boston,
14
SMITH BARNEY SHEARSON
Sector Analysis Fund
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MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
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Massachusetts 02110, and provides a full range of investment advisory services
to individuals, institutional and investment company clients with total assets
under management as of February 28, 1994, in excess of $15.4 billion.
PORTFOLIO MANAGEMENT
Elaine Garzarelli, Managing Director of Lehman Brothers, has served as
Vice
President and Investment Officer of the Fund since it commenced operations and
manages the day-to-day operations of the Fund, including making all investment
decisions.
Ms. Garzarelli's management discussion and analysis, and additional
performance information regarding the Fund during the fiscal year ended
January
31, 1994 is included in the Annual Report dated January 31, 1994. A copy of
the
Annual Report may be obtained upon request and without charge from your Smith
Barney Shearson Financial Consultant or by writing or calling the Fund at the
address or phone number listed on page one of this Prospectus.
ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to investment
companies which had aggregate assets under management as of February 28, 1994
in
excess of $92.5 billion. Boston Advisors calculates the net asset value of the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation.
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
- ------------------------------------------------------------------------------
- --
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation by
investing broadly in equity securities of companies within sectors of the U.S.
economy (that is, industry groups) selected by Lehman Brothers. Although the
Fund may receive current income from dividends, interest and other sources,
income is only an incidental consideration of the Fund. The Fund's investment
objective may be changed only with the approval of a majority of the Fund's
15
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
outstanding voting securities. There can be no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES
The Fund's management believes that certain sectors within the U.S.
economy
it designates as attractive will outperform other sectors on average both in
earnings growth and in price/earnings valuation, and that the common stocks of
companies within these high-performing, generally undervalued sectors will
outperform other common stocks. The Fund offers investors an attractive
alternative to sector mutual funds that limit their investments to one
particular sector. Investors in those funds are encouraged to research and
follow a number of sectors before investing in a particular sector fund or
before exchanging shares of one fund in a family of sector funds for shares of
another. The Fund, on the other hand, offers investors the benefits of sector
investment without requiring individual investors to engage in sector
analysis.
The Fund's sector analysis is performed under the direction of Elaine M.
Garzarelli, Managing Director of the Lehman Brothers and Lehman Brothers'
chief
sector analyst.
In seeking capital appreciation, the Fund follows a sector strategy
developed by Lehman Brothers. The sector strategy initially involves Lehman
Brothers dividing the U.S. equity market into the 90 sectors that are listed
in
the Appendix to this Prospectus. The sectors are then assigned one of three
designations by Lehman Brothers: "attractive," "neutral" or "unattractive."
Designations generally are assigned on the basis of Lehman Brothers'
evaluation
of a sector's price/earnings ratio and earnings prospects. To be categorized
as
"attractive," a sector must be determined by Lehman Brothers to be undervalued
and to have potential earnings per share growth equal to, or better than, the
Standard & Poor's Daily Price Index of 500 Common Stocks (the "S&P 500"). For
a
sector to be classified as "neutral," its value and earnings per share growth
must be determined to be in line with the S&P 500. A sector is categorized as
"unattractive" when Lehman Brothers determines that it is overvalued and that
its earnings per share growth potential is below the S&P 500. In making these
determinations, Lehman Brothers uses econometric models linking various
industries to the general economic outlook. Those models are reviewed and
revised regularly on the basis of, among other things, meetings held between
Ms.
Garzarelli and her staff and economists and analysts who follow particular
industries. Lehman Brothers will assign designations to particular sectors and
re-evaluate those designations on an ongoing basis at least monthly.
16
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
Under normal circumstances, except as described below under "Investment
Strategies and Techniques" and under "Additional Investments," the Fund's
assets
will be invested in equity securities issued by companies in sectors
designated
"attractive" by Lehman Brothers. Should a sector in which the Fund has
invested
be determined by Lehman Brothers to be no longer attractive, the Fund will
seek
to sell all of its holdings of companies in that sector as soon as practicable
after Lehman Brothers has made its determination, regardless of whether these
sales will result in realized gains or realized losses. The Fund may not
follow
this policy, however, in cases in which the sale of the Fund's securities
might
affect adversely the Fund's ability to qualify as a regulated investment
company. See "Dividends, Distributions and Taxes." In addition, to the extent
the Fund follows this policy, the Fund may not participate in the continued
appreciation of the securities of a particular company in the sector.
Lehman Brothers will determine the extent to which the Fund's assets are
invested in a particular sector in a manner consistent with the Fund's policy
on
industry concentration that is set out below under "Investment Restrictions."
Lehman Brothers, together with PanAgora Management, will select the companies
coming within the various sectors. PanAgora Management will be responsible for
implementing the investments for the Fund consistent with Lehman Brothers'
sector determinations and for selecting the brokers and dealers that execute
the
Fund's securities transactions. In implementing the Fund's sector strategy,
PanAgora Management will seek to invest in a broad cross-section of those
companies coming within the sector that reflect the sector's performance as a
whole. As a result of the use of a sector strategy, the Fund generally will
have
a high portfolio turnover rate.
In seeking its investment objective, the Fund will invest primarily in
common stocks. The Fund also may purchase, in seeking capital appreciation,
convertible bonds, convertible preferred stock and long-term U.S. Treasury
bonds.
The equity securities in which the Fund will invest will be limited to
those
of U.S. issuers. In investing in these issuers, the Fund is not limited as to
the types of issuers (by operating history, capitalization, size or otherwise)
so long as the issuers come within the sectors listed in the Appendix to this
Prospectus and their equity securities are listed on securities exchanges or
are
unlisted securities that are quoted as National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") National Market System
Securities.
Under normal
17
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
circumstances, the Fund's investments in equity securities will represent no
less than 65% of its assets.
Each month, Lehman Brothers, under the direction of Ms. Garzarelli,
prepares
and publishes a report entitled "Sector Analysis (Quantitative Industry
Analysis): Monthly Monitor" (the "Report"). The Report, among other things,
delineates various sectors in the U.S. equity markets, designates those
sectors
as "attractive," "neutral" or "unattractive" and makes various recommendations
as to investing in particular sectors. The sector analysis used by Lehman
Brothers in publishing the Report is generally similar to that used in
advising
the Fund. Because shares of the Fund are purchased and sold by shareholders on
an ongoing basis, and because the Fund is subject to various limitations on
its
operations, including, for example, those imposed under the Code the Fund may
not invest in all sectors designated as "attractive" in the Report. See
"Dividends, Distributions and Taxes."
INVESTMENT STRATEGIES AND TECHNIQUES
In attempting to achieve its investment objective, the Fund may employ,
among others, one or more of the strategies or techniques set forth below. The
Fund is under no obligation to use any of the strategies or techniques at any
given time or under any particular economic condition. More detailed
information
concerning these strategies and their related risks is contained in the
Statement of Additional Information.
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 seven days) 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 will be monitored on an ongoing basis by Strategy Advisers,
PanAgora
Management or Boston Advisors to ensure that the value is at least equal at
all
times to the total amount of the repurchase obligation, including interest.
Strategy Advisers, PanAgora Management or Boston Advisors, acting under the
18
SMITH BARNEY SHEARSON
Sector Analysis Fund
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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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.
Lending of Portfolio Securities. The Fund has the ability to lend
portfolio
securities to brokers, dealers and other financial organizations. Loans, if
and
when made, may not exceed 20% of the Fund's assets taken at value. Loans of
portfolio securities by the Fund will be collateralized by cash, letters of
credit or instruments issued by the United States government or its agencies
or
instrumentalities ("U.S. government securities") that are maintained at all
times in a segregated account in an amount at least equal to the current
market
value of the loaned securities.
Purchasing Put Options on Securities. The Fund will purchase put options
only on securities that are not held by the Fund and that are issued by
companies in sectors designated as "unattractive" by Lehman Brothers. In
addition, the Fund will only purchase put options listed on national
securities
exchanges and will not purchase put options traded over the counter. In
purchasing put options on securities, the Fund is subject to the limitation
set
forth below under "Stock Index Options."
By buying a put option, the Fund seeks to limit its risk of loss from a
decline in the market value of the security until the put expires. Any
appreciation in the value of and yield otherwise available from the underlying
security, however, will be reduced by the amount of the premium paid for the
put
option and any related transaction costs. Prior to their expirations, put
options may be sold in closing sale transactions (that is, sales by the Fund,
prior to the exercise of options it has purchased, of options of the same
series), and profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the option plus the related
transaction costs.
In purchasing a put option, the Fund will seek to benefit from a decline
in
the market price of the underlying security. If the put option is not sold or
exercised when it has remaining value, or if the market price of the
underlying
security remains equal to or greater than the exercise price during the life
of
the put option, the Fund will lose its investment in the put. For the purchase
of a put option to be profitable, the market price of the underlying security
must decline sufficiently below the exercise price to cover the premium and
transaction costs.
19
SMITH BARNEY SHEARSON
Sector Analysis Fund
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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Because option premiums paid by the Fund are small in relation to the
market
value of the investments underlying the options, buying put options can result
in large amounts of leverage. The leverage offered by trading in options could
cause the Fund's net asset value to be subject to more frequent and wider
fluctuation than would be the case if the Fund did not invest in options.
Stock Index Options. The Fund may purchase put and call options on stock
indexes listed on national securities exchanges. A stock index measures the
movement of a certain group of stocks by assigning relative values to the
common
stocks included in the index. Options on stock indexes are similar to options
on
securities. However, because options on stock indexes do not involve the
delivery of any underlying security, the option represents the holder's right
to
obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of
a
call) the closing value of the underlying index on the exercise date.
In purchasing put options on a stock index, the Fund will seek to benefit
from a decline in value of the stocks underlying the index or will seek to
hedge
against the risk of loss on securities it holds. In purchasing call options on
a
stock index, the Fund will seek to participate in an advancing market in
anticipation of becoming more fully invested in equity securities.
The advisability of using stock index options to hedge against the risk of
market-wide movements will depend on the extent of diversification of the
stock
investments of the Fund and the sensitivity of its stock investments to
factors
influencing the underlying index. The effectiveness of purchasing or writing
stock index options as a hedging technique will depend upon the extent to
which
price movements in the Fund's securities investments correlate with price
movements in the stock index selected.
The Fund may invest only up to 2% of its assets, represented by premiums
paid, in the purchase of put options on securities and put and call options on
stock indexes.
Selling Call Options on Securities and Stock Indexes. The Fund may sell
call options on securities and on stock indexes. In selling call options on
securities or on a stock index, the Fund will seek to benefit from the receipt
of premiums during periods when a decline in the value of the underlying
securities or index is expected. The Fund will sell call options only on
securities that are not held by the Fund and are issued by companies in
sectors
designated
20
SMITH BARNEY SHEARSON
Sector Analysis Fund
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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- --
as "unattractive" by Lehman Brothers. In addition, the Fund will sell only
call
options that are listed on national securities exchanges and will not sell
call
options that are traded over the counter.
The Fund will write call options only if (a) the Fund holds a call option
at
the same or a lower exercise price for the same exercise period on the same
securities or index as the call written or (b) the Fund establishes with the
Trust's custodian at the time the call is written, and maintains for the term
of
the option, a segregated account that will consist of cash, U.S. government
securities or other high-grade debt securities in an amount equal to the
fluctuating market value of the optioned securities. The segregated account
will
be adjusted at least daily to reflect changes in the market value of the
optioned securities. In the case of a call option written on a stock index,
the
segregated account will be maintained in an amount equal to the amount the
Fund
would have to pay if the option were exercised on any given day prior to its
expiration. Prior to the expiration of a call option which it has written, the
Fund may enter into a "closing purchase transaction" to terminate its
obligations with respect to the option by buying an option of the same series
and exercise price as the option previously written.
The value of the securities underlying call options on securities written
by
the Fund and the aggregate amount of the Fund's obligations with respect to
call
options on stock indexes written by the Fund may not exceed 25% of the Fund's
net assets.
Short Sales. The Fund may engage in short sales of securities, which are
transactions in which the Fund sells securities it does not own in
anticipation
of a decline in the market price of the securities. The Fund will engage in
short sales only of securities of companies in sectors designated as
"unattractive" by Strategy Advisers.
To complete a short sale, the Fund must arrange through a broker to borrow
the securities to be delivered to the buyer. The proceeds received by the Fund
from the short sale are retained by the broker until the Fund replaces the
borrowed securities. In borrowing the securities to be delivered to the buyer,
the Fund becomes obligated to replace the securities borrowed at their market
price at the time of replacement, whatever that price may be. The Fund may
have
to pay a premium to borrow the securities and must pay any dividends or
interest
payable on the securities until they are replaced.
21
SMITH BARNEY SHEARSON
Sector Analysis Fund
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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- --
The Fund's obligation to replace the securities borrowed in connection
with
a short sale will be secured by collateral deposited with the broker that
consists of cash or U.S. government securities. In addition, the Fund will
place
in a segregated account with the Trust's custodian an amount of cash or U.S.
government securities equal to the difference, if any, between (a) the market
value of the securities sold at the time they were sold short and (b) any cash
or U.S. government securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Fund will maintain the
segregated
account daily at a level so the amount deposited in the account plus the
amount
deposited with the broker (not including the proceeds from the short sale) (a)
will equal the current market value of the securities sold short and (b) will
not be less than the market value of the securities at the time they were sold
short.
The Fund will not enter into a short sale of securities if, as a result of
the sale, the total market value of all securities sold short by the Fund
would
exceed 25% of the value of the Fund's assets. In addition, the Fund may not
(a)
sell short the securities of any single issuer listed on a national securities
exchange to the extent of more than 2% of the value of the Fund's net assets
and
(b) sell short the securities of any class of an issuer to the extent of more
than 2% of the outstanding securities of the class at the time of the
transaction. The extent to which the Fund may engage in short sales may be
further limited by the Fund's meeting the requirements for qualification as a
regulated investment company imposed under the Code. See "Dividends,
Distributions and Taxes."
Warrants. The Fund may invest in warrants, which are securities
permitting,
but not obligating, their holder to subscribe for other securities. The Fund's
investment in warrants, valued at the lower of cost or market, may not exceed
5%
of the Fund's net assets. Under no circumstances may the Fund invest more than
2% of its net assets in warrants that are not listed on the NYSE or American
Stock Exchange.
Futures Contracts and Options on Futures Contracts. The Fund may enter
into
stock index futures contracts and interest rate futures contracts and purchase
and write options on interest rate futures contracts solely for the purpose of
hedging against fluctuations in the value of the securities it holds due to
anticipated changes in interest rates or market conditions. The Fund will not
enter into futures and options contracts for which aggregate initial margin
22
SMITH BARNEY SHEARSON
Sector Analysis Fund
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
deposits and premiums exceed 5% of the fair market value of the Fund's assets
after taking into account unrealized profits and unrealized losses on futures
contracts into which it has entered.
In entering into transactions involving futures contracts and options on
futures contracts, the Fund will comply with applicable requirements of the
Commodity Futures Trading Commission. When the Fund enters into a long
position
in a futures contract or an option on a futures contract, an amount of cash,
U.S. government securities or other high-grade debt securities, equal to the
market value of the underlying contract, will be deposited in a segregated
account with the Trust's custodian to collateralize the position, thereby
insuring that the use of the contract is unleveraged. The Fund will not enter
into futures contracts for speculation and will only enter into futures
contracts that are traded on national futures exchanges. Entering into a
contract to buy a stock index or a debt security is commonly referred to as
buying or purchasing a contract or holding a "long" position in the index or
security. Entering into a contract to sell an index or security is commonly
referred to as selling a contract or holding a "short" position. All of the
Fund's transactions involving futures contracts will be undertaken under the
direction of PanAgora Management.
Stock Index Futures Contracts. A stock index futures contract is a
contract
to buy or sell units of a stock index at a specified future date at a price
agreed upon when the contract is made. The value of a unit is the current
value
of the stock index.
During a period of anticipated market decline, the Fund may limit its
exposure to the decline by entering into short stock index futures contracts.
If
the market is expected to advance, the Fund may hedge a price rise in stocks
it
intends to purchase by entering into long stock index futures contracts. At
any
time prior to the expiration of a futures contract, the Fund may elect to
close
the position by taking an opposite position, which will operate to terminate
the
Fund's existing position in the contract.
Interest Rate Futures Contracts and Related Options. An interest rate
futures contract provides for the future sale by one party and the purchase by
the other party of a certain amount of a specified debt security at a
specified
price, date, time and place. The Fund may enter into interest rate futures
contracts to sell debt securities when PanAgora Management believes the value
of
U.S. Treasury bonds will decrease. The Fund may enter into interest rate
futures
contracts to purchase debt securities when PanAgora Management anticipates
23
SMITH BARNEY SHEARSON
Sector Analysis Fund
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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- --
purchasing U.S. Treasury bonds and believes prices will rise before the
purchases will be made.
An option on an interest rate futures contract, as contrasted with the
direct investment in a futures contract, gives the purchaser the right, in
return for the premium paid, to assume a position in an interest rate futures
contract at a specified exercise price at any time prior to the expiration
date
of the option. A call option gives the purchaser of the option the right to
buy
and obligates the writer to sell the underlying futures contract. A put option
gives the purchaser the right to sell and obliges the writer to buy the
underlying contract.
The Fund may purchase put options on interest rate futures contracts to
hedge its U.S. Treasury bonds against the risk of rising interest rates, and
may
purchase call options on interest rate futures contracts to hedge against a
decline in interest rates. The Fund will write put or call options on interest
rate futures contracts as part of closing purchase transactions to terminate
its
option positions, although no assurance can be given that such closing
transactions can be effected. The Fund may write put and call options on
interest rate futures contracts, other than as part of closing sale
transactions, in order to increase its ability to hedge against changes in
interest rates. The Fund will write put and call options only on interest rate
futures contracts which are traded on a domestic exchange or board of trade.
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may hold, at any time, up to 20% of
the
value of its assets in cash and short-term instruments. In addition, when
Strategy Advisers believes that market conditions warrant the adoption of a
temporary defensive posture, the Fund may invest in cash and short-term
instruments without limitation. To the extent the Fund holds cash or invests
in
short-term instruments, it will not achieve its investment objective. Short-
term
instruments in which the Fund may invest include: U.S. government securities;
bank obligations (including certificates of deposit, time deposits and
bankers'
acceptances of domestic or foreign banks, domestic savings and loan
associations
and other banking institutions having total assets in excess of $500 million);
commercial paper rated no lower than A-2 by Standard & Poor's Corporation
("S&P") or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or the
equivalent from another nationally recognized statistical rating service or,
if
unrated, of an issuer having an outstanding, unsecured debt
24
SMITH BARNEY SHEARSON
Sector Analysis Fund
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
issue then rated within the three highest rating categories; and repurchase
agreements with respect to the investments that may be held by the Fund. A
description of the commercial paper rating categories of Moody's and S&P is
contained in the Appendix to the Statement of Additional Information. At no
time
will the Fund's investments in bank obligations, including time deposits,
exceed
25% of its assets.
U.S. Government Securities. The U.S. government securities in which the
Fund may invest include: direct obligations of the United States Treasury and
obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including instruments supported by the full faith and
credit
of the United States; securities supported by the right of the issuer to
borrow
from the United States Treasury; and securities supported solely by the credit
of the instrumentality.
Long-Term Treasury Bonds. The Fund may invest up to 35% of its assets in
U.S. Treasury Bonds, which generally have maturities of greater than 10 years
and may have maturities of up to 30 years at the time of issuance. Consistent
with the Fund's investment objective, the Fund may purchase U.S. Treasury
bonds
only for the purpose of seeking capital appreciation. The market value of
fixed-income obligations may vary inversely in response to changes in
prevailing
interest rates, and these variations may be greater for long-term, fixed-
income
obligations such as U.S. Treasury Bonds than for shorter term fixed-income
obligations.
CERTAIN INVESTMENT GUIDELINES
Up to 10% of the assets of the Fund may be invested in securities with
contractual or other restrictions on resale ("restricted securities") and
other
instruments that are not readily marketable ("illiquid securities"), including
in the aggregate (a) repurchase agreements with maturities greater than seven
days, (b) futures contracts and options thereon for which a liquid secondary
market does not exist and (c) time deposits maturing in more than seven
calendar
days. In addition, the Fund may invest up to 5% of its assets in the
securities
of issuers that have been in continuous operation for less than three years.
25
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with
respect to the Fund that may not be changed without approval of a majority of
the Fund's outstanding voting securities, as defined in the 1940 Act. Included
among those fundamental restrictions are the following that prohibit the Fund
from:
1. Purchasing the securities of any issuer (other than U.S. government
securities) if as a result more than 5% of the value of the Fund's total
assets would be invested in the securities of the issuer, except that up
to
25% of the value of the Fund's total assets may be invested without regard
to this 5% limitation.
2. Purchasing more than 10% of the voting securities of any one issuer,
or
more than 10% of the securities of any class of any one issuer; provided
that this limitation will not apply to investments in U.S. government
securities.
3. Borrowing money, except that the Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of
securities, in any amount not to exceed 10% of the value of the Fund's
total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of the
Fund,
the Fund will not make any additional investments.
4. Making loans to others, except through the purchase of qualified debt
obligations, loans of portfolio securities and the entry into repurchase
agreements.
5. Purchasing any securities (other than U.S. government securities) that
would cause more than 25% of the value of the Fund's total assets at the
time of purchase to be invested in the securities of issuers conducting
their principal business activities in the same industry.
A complete list of investment restrictions the Trust has adopted with
respect to the Fund, identifying additional restrictions that cannot be
changed
without the approval of the majority of the Fund's outstanding shares, is
contained in the Statement of Additional Information.
26
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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- --
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves special considerations, such as those
described below:
General. Lehman Brothers will manage the Fund aggressively in following
the
sector strategy and, as a result, the Fund should not be considered to be a
complete investment program. Investment in the Fund may involve above-average
risk of loss because of, among other things, the Fund's use of strategies and
techniques that may be considered to be speculative. The sector strategy
followed by the Fund and certain of the strategies and techniques used by the
Fund depend on forecasts made by Lehman Brothers that may or may not prove to
be
correct. The selection by PanAgora Management of securities of companies
within
a particular sector may not achieve the maximum performance available from
investing in the sector. In addition, to the extent there is appreciation in a
sector not included among the 90 sectors listed in the Appendix to this
Prospectus, the Fund will not participate in its appreciation.
Warrants. Because a warrant does not carry with it the right to dividends
or voting rights with respect to the securities that the warrant holder is
entitled to purchase, and because a warrant does not represent any rights to
the
assets of the issuer, a warrant may be considered more speculative than
certain
other types of investments. Also, the value of a warrant does not necessarily
change with the value of the underlying security and a warrant ceases to have
value if it is not exercised prior to its expiration date.
Options. Option writing for the Fund may be limited by position and
exercise limits established by national securities exchanges and the National
Association of Securities Dealers, Inc., and by requirements in the Code for
qualification as a regulated investment company. See "Dividends, Distributions
and Taxes." In addition to writing covered put and call options to generate
current income, the Fund may enter into options transactions as hedges to
reduce
investment risk, generally by making an investment expected to move in the
opposite direction of a portfolio position. A hedge is designed to offset a
loss
on a portfolio position with a gain on the hedge position; at the same time,
however, a properly correlated hedge will result in a gain on the portfolio
position being offset by a loss on the hedge position. The Fund bears the risk
that the prices of the securities being hedged will not move in the same
amount
as the hedge. The Fund will engage in hedging transactions only when deemed
advisable by Strategy Advisers. Successful use by the Fund of options will be
27
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
subject to Strategy Advisers' ability to predict correctly movements in the
direction of the stock or index underlying the option used as a hedge. Losses
incurred in hedging transactions and the costs of these transactions will
affect
the Fund's performance.
The ability of the Fund to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While the Fund
generally will purchase or write stock options and options on stock indexes
only
if a liquid secondary market appears to exist for the options purchased or
sold,
for some options no such secondary market may exist or the market may cease to
exist. If the Fund cannot enter into a closing sale transaction with respect
to
a put or call option purchased by it, the Fund will continue to be subject to
the risk that the option it has purchased will decline in value or become
worthless as a result of any increase or decrease, respectively, in the value
of
the underlying security. If the Fund cannot enter into a closing purchase
transaction with respect to a call option written by it, the Fund will
continue
to be subject to the risk that its potential loss upon exercise of the option
will increase as a result of any increase in the value of the underlying
security. The Fund could also face higher transaction costs, including
brokerage
commissions, as a result of its options transactions.
Short Sales. Possible losses from short sales differ from losses that
could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases can equal only the total amount
invested.
Futures Contracts and Options on Futures Contracts. The use of futures
contracts and related options as a hedging device involves several risks. No
assurance can be given that a correlation will exist between price movements
in
the stock index or debt securities underlying the futures contract or option
thereon, on the one hand, and price movements in the securities that are the
subject of the hedge, on the other hand. The risk of imperfect correlation
increases as the composition of the securities held by the Fund diverges from
the securities included in the applicable stock index or underlying the
applicable interest rate futures contract or option thereon. Positions in
futures contracts may be closed out only on the exchange on which they were
entered into (or through a linked exchange) and no secondary market exists for
those contracts. In addition, although the Fund intends to enter into futures
contracts only if an active market exists for the contracts, no assurance
28
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
can be given that an active market will exist for the contracts at any
particular time. Certain exchanges do not permit trading in particular
contracts
at prices that represent a fluctuation in price during a single day's trading
beyond a certain set limit. If prices fluctuate during a single day's trading
beyond those limits, the Fund could be prevented from promptly liquidating
unfavorable positions and thus be subjected to losses. The potential loss
related to the purchase of an option on an interest rate futures contract is
limited to the price paid for the option. The ability of the Fund to establish
and close out positions on such options will be subject to the maintenance of
a
liquid market and there can be no assurance that such a market will be
maintained or that closing transactions will be effected. Losses incurred in
hedging transactions and the costs of these transactions will affect the
Fund's
performance. Successful use of futures contracts and options on futures
contracts by the Fund for hedging purposes is subject to the ability of
PanAgora
Management to predict correctly movements in the direction of the stock
market.
Repurchase Agreements. The Fund bears a risk of loss in the event that
the
other party to a repurchase agreement defaults on its obligations and the Fund
is delayed or prevented from exercising its rights to dispose of the
underlying
securities, including 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 a part of the income from the agreement.
PORTFOLIO TRANSACTIONS AND TURNOVER
All orders for transactions in securities or options on behalf of the Fund
are placed by Strategy Advisers, Lehman Brothers or PanAgora Management with
broker-dealers that those advisers select, including Smith Barney Shearson and
other affiliated brokers. The Fund may utilize Smith Barney Shearson or a
broker
that is affiliated with Smith Barney Shearson in connection with a purchase or
sale of securities when Strategy Advisers, Lehman Brothers or PanAgora
Management believes that the broker's charge for the transaction does not
exceed
usual and customary levels. The Fund also may use Smith Barney Shearson as a
commodities broker in connection with entering into futures contracts and
commodity options. Smith Barney Shearson has agreed to charge the Fund
commodity
commissions at rates comparable to those charged by
29
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- ------------------------------------------------------------------------------
- --
Smith Barney Shearson to its most favored clients for comparable trades in
comparable accounts.
While securities are purchased for the Fund on the basis of potential for
capital growth and not for short-term trading, the Fund's sector strategy and
investment techniques may result in frequent shifts among the Fund's
investments
and in its experiencing turnover and transaction costs significantly higher
than
those of more conventional equity mutual funds. Short-term gains realized from
portfolio transactions are taxable to shareholders as ordinary income. In
addition, higher portfolio turnover rates can result in corresponding
increases
in brokerage commissions. The Fund will not consider portfolio turnover rate a
limiting factor in making investment decisions consistent with its objective
and
policies.
- ------------------------------------------------------------------------------
- --
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
- --
Purchases of shares must be made through a brokerage account maintained
with
Smith Barney Shearson or with an Introducing Broker, except that investors
purchasing shares of the Fund through a qualified retirement plan may do so
directly through the Trust's transfer agent. When purchasing shares of the
Fund,
investors must specify whether the purchase is for Class A shares, Class B
shares or, in the case of Participating Plans in the 401(k) Program, Class D
shares. No maintenance fee will be charged in connection with a brokerage
account through which an investor purchases or holds shares. Purchases are
effected at the public offering price next determined after a purchase order
is
received by Smith Barney Shearson or an Introducing Broker (the "trade date").
Payment is generally due to Smith Barney Shearson or an Introducing Broker on
the fifth business day (the settlement date") after the trade date. Investors
who make payment prior to the settlement date may permit the payment to be
held
in their brokerage accounts or may designate a temporary investment (such as a
money market fund in the Smith Barney Shearson Group of Funds) for the payment
until the settlement date. The Trust reserves the right to reject any purchase
order and to suspend the offering of shares of the Fund for a period of time.
Purchase orders received by Smith Barney Shearson or an Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York
time, on any day on which the Fund's net asset value is calculated, are priced
according to the net asset value determined on that day. Purchase orders
30
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
PURCHASE OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
received after the close of regular trading on the NYSE are priced as of the
time the net asset value per share is next determined. See "Valuation of
Shares."
Systematic Investment Plan. The Fund offers shareholders a Systematic
Investment Plan under which shareholders may authorize Smith Barney Shearson
or
an Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid
automatically
from cash held in the shareholder's Smith Barney Shearson brokerage account or
through the automatic redemption of the shareholder's shares of a Smith Barney
Shearson money market fund. For further information regarding the Systematic
Investment Plan, shareholders should contact their Smith Barney Shearson
Financial Consultants.
Minimum Investments. The minimum initial investment in the Fund is $1,000
and the minimum subsequent investment is $200, except that for purchases
through
(a) IRAs and Self-Employed Retirement Plans, the minimum initial and
subsequent
investment is $250 and $100, respectively, (b) retirement plans qualified
under
Section 403(b)(7) or Section 401(a) of the Code, the minimum initial and
subsequent investments are both $25 and (c) the Fund's Systematic Investment
Plan, the minimum initial and subsequent investments are $100. There are no
minimum investment requirements for Travelers and its subsidiaries, including
Smith Barney Shearson. The Fund reserves the right at any time to vary the
initial and subsequent investment minimums. Certificates for Fund shares are
issued upon request to the Trust's transfer agent.
31
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
PURCHASE OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value of that Class plus a sales charge, which is imposed in accordance with
the
following schedule:
SALES CHARGE AS %
SALES CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF
NET ASSET VALUE
- ------------------------------------------------------------------------------
- --------------
Less than $25,000 5.00%
5.26%
$25,000 but under $100,000 4.00%
4.17%
$100,000 but under $250,000 3.25%
3.36%
$250,000 but under $500,000 2.50%
2.56%
$500,000 but under $1,000,000 2.00%
2.04%
$1,000,000 or more** .00%
.00%
- ------------------------------------------------------------------------------
- --------------
* Smith Barney Shearson has adopted guidelines directing its financial
consultants and Introducing Brokers that single investments of $250,000
or
more should be made in Class A shares.
** No sales charge is imposed on purchases of $1 million; however, a CDSC of
.75% is imposed for the first year after purchase. The CDSC on Class A
shares is payable to Smith Barney Shearson which, with Boston Advisors,
compensates Smith Barney Shearson Financial Consultants upon the sale of
these shares. The CDSC is waived in the same circumstances in which the
CDSC applicable to Class B shares is waived. See "Redemption of
Shares--Contingent Deferred Sales Charge--Class B Shares--Waivers of
CDSC."
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to
combine
their purchases of Class A shares to receive volume discounts. Investors
eligible to receive volume discounts include individuals and their immediate
families, tax-qualified employee benefit plans and trustees or other
professional fiduciaries (including a bank, or an investment adviser
registered
with the SEC under the Investment Advisers Act of 1940) purchasing shares for
one or more trust estates or fiduciary accounts even though more than one
beneficiary is involved. The initial sales charge is also reduced to 1% for
Smith Barney Shearson Personal Living Trust program participants for whom
Smith
Barney Shearson acts as trustee. Reduced sales charges on Class A shares are
also available under a combined right of accumulation, under which an investor
may combine the value of Class A shares already held in the Fund and in any of
the funds in the Smith Barney Shearson Group of Funds listed below (except
those
sold without a sales charge), along with the value of the Fund's Class A
shares
being purchased, to qualify for a reduced sales charge. For example, if an
investor
32
SMITH BARNEY SHEARSON
Sector Analysis Fund
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PURCHASE OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
owns Class A shares of the Fund and other funds in the Smith Barney Shearson
Group of Funds that have an aggregate value of $22,000, and makes an
additional
investment in Class A shares of the Fund of $4,000, the sales charge
applicable
to the additional investment would be 4%, rather than the 5% normally charged
on
a $4,000 purchase. Investors interested in further information regarding
reduced
sales charges should contact their Smith Barney Shearson Financial
Consultants.
Class A shares of the Fund may be offered without any applicable sales
charges to: (a) employees of Travelers and its subsidiaries, including Smith
Barney Shearson, employee benefit plans for such employees and their immediate
families when orders on their behalf are placed by such employees; (b)
accounts
managed by registered investment advisory subsidiaries of Travelers; (c)
directors, trustees or general partners of any investment company for which
Smith Barney Shearson serves as distributor; (d) any other investment company
in
connection with the combination of such company with the Fund by merger,
acquisition of assets or otherwise; (e) shareholders who have redeemed Class A
shares in the Fund (or Class A shares of another fund in the Smith Barney
Shearson Group of Funds that are sold with a maximum 5% sales charge) and who
wish to reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 30 days of the redemption; and (f) any client of a
newly employed Smith Barney Shearson Financial Consultant (for a period up to
90
days from the commencement of the Financial Consultant's employment with Smith
Barney Shearson), on the condition that the purchase is made with the proceeds
of the redemption of shares of a mutual fund that (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to a client by the
Financial Consultant, and (iii) when purchased, such shares were sold with a
sales charge.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value of that Class. No initial sales charge is imposed at the time of
purchase.
A CDSC is imposed, however, on certain redemptions of Class B shares. See
"Redemption of Shares," which describes the CDSC in greater detail.
Smith Barney Shearson has adopted guidelines, in view of the relative
sales
charges and distribution fees applicable to the Classes, directing Financial
Consultants and Introducing Brokers that all purchases of shares of $250,000
or
33
SMITH BARNEY SHEARSON
Sector Analysis Fund
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PURCHASE OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
more should be for Class A shares. Smith Barney Shearson reserves the right to
vary these guidelines at any time.
SMITH BARNEY SHEARSON 401(K) PROGRAM
Investors may be eligible to participate in the Smith Barney Shearson
401(k)
Program, which is generally designed to assist employers or plan sponsors in
the
creation and operation of retirement plans under Section 401(a) of the Code.
To
the extent applicable, the same terms and conditions are offered to all
Participating Plans in the 401(k) Program, which includes both 401(k) plans
and
other types of participant directed, tax-qualified employee benefit plans.
The Fund offers to Participating Plans three classes of shares, Class A,
Class B and Class D shares, as investment alternatives under the 401(k)
Program.
Class A shares are available to all Participating Plans and are the only
investment alternative for Participating Plans that are eligible to purchase
Class A shares at net asset value without a sales charge. In addition, Class B
shares are offered only to Participating Plans satisfying certain criteria
with
respect to the amount of the initial investment and the number of employees
eligible to participate in the Plan at that time. Alternatively, Class D
shares
are offered only to Participating Plans that meet other criteria relating to
the
amount of initial investment and number of employees eligible to participate
in
the Plan at that time, as described below.
The Class A and Class B shares acquired through the 401(k) Program are
subject to the same service and/or distribution fees as, but different sales
charge and CDSC schedules than, the Class A and Class B shares acquired by
other
investors. Class D shares acquired by Participating Plans are offered at net
asset value per share without any sales charge or CDSC. The Fund pays annual
service and distribution fees based on the value of the average daily net
assets
attributable to this Class.
Once a Participating Plan has made an initial investment in the Fund, all
of
its subsequent investments in the Fund must be in the same Class of shares,
except as otherwise described below.
34
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
PURCHASE OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
Class A Shares. The sales charges for Class A shares acquired by
Participating Plans are as follows:
SALES CHARGE AS % SALES
CHARGE AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF NET
ASSET VALUE
- ------------------------------------------------------------------------------
- ----------
Less than $25,000 5.00%
5.26%
$25,000 up to $100,000 4.00%
4.17%
$100,000 up to $250,000 3.25%
3.36%
$250,000 up to $500,000 2.50%
2.56%
$500,000 up to $750,000 2.00%
2.04%
$750,000 and over .00%
.00%
- ------------------------------------------------------------------------------
- ----------
A Participating Plan will have a combined right of accumulation under
which,
to qualify for a reduced sales charge, it may combine the value of Class A
shares being purchased with the value of Class A shares already held in the
Fund
and in any of the funds listed below under "Exchange Privilege" that are sold
with a sales charge.
Class A shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of Class A shares of
one
or more funds in the Smith Barney Shearson Group of Funds under the combined
right of accumulation described above; (b) has 250 or more employees eligible
to
participate in the Participating Plan at the time of initial investment in the
Fund; or (c) currently holds Class A shares in the Fund that were received as
a
result of an exchange of Class B or Class D shares of the Fund as described
below.
Class A shares acquired through the 401(k) Program will not be subject to
a
CDSC.
Class B Shares. Under the 401(k) Program, Class B shares are offered to
Participating Plans that: (a) purchase less than $250,000 of Class B shares of
one or more funds in the Smith Barney Shearson Group of Funds that are sold
subject to a CDSC; and (b) that have less than 100 employees eligible to
participate in the Participating Plan at the time of initial investment in the
Fund. Class B shares acquired by such Plans will be subject to a CDSC of 3% of
redemption proceeds, if redeemed within eight years of the date the
Participating Plan first purchases Class B shares. No CDSC is imposed to the
extent that the net asset value of Class B shares redeemed does not exceed (a)
the current net asset value of the Class B shares purchased through
reinvestment
of dividends or capital gains distributions, plus (b) the current net asset
value of Class B shares
35
SMITH BARNEY SHEARSON
Sector Analysis Fund
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- --
PURCHASE OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
purchased more than eight years prior to the redemption, plus (c) increases in
the net asset value of the shareholder's Class B shares above the purchase
payments made during the preceding eight years. The CDSC applicable to a
Participating Plan depends on the number of years since the Participating Plan
first became a holder of Class B shares, unlike the CDSC applicable to other
Class B shareholders, which depends on the number of years since those
shareholders made the purchase payment from which the amount is being
redeemed.
The CDSC will be waived on redemptions of Class B shares in connection
with
lump-sum or other distributions made by a Participating Plan as a result of:
(a)
the retirement of an employee in the Participating Plan; (b) the termination
of
employment of an employee in the Participating Plan; (c) the death or
disability
of an employee in the Participating Plan; (d) the attainment of age 59 1/2 by
an
employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code;
or
(f) redemptions of Class B shares in connection with a loan made by the
Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class B
share, it will be offered the opportunity to exchange all of its Class B
shares
for Class A shares of the Fund. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of the
purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the eighth anniversary date. Once the exchange
has occurred, a Participating Plan will not be eligible to acquire additional
Class B shares of the Fund but instead may acquire Class A shares of the Fund.
If the Participating Plan elects not to exchange all of its Class B shares at
that time, each Class B share held by the Participating Plan will have the
same
conversion feature as Class B shares held by other investors. See "Variable
Pricing System--Class B Shares."
Class D Shares. Class D shares are offered to Participating Plans that:
(a)
purchase less than $750,000 but more than $250,000 of Class D shares of one or
more funds in the Smith Barney Shearson Group of Funds that offer one or more
Classes of shares subject to a sales charge and/or CDSC; or (b) have at least
100 but no more than 250 employees eligible to participate in the
Participating
Plan at the time of initial investment in the Fund.
Class D shares acquired by Participating Plans are offered at net asset
value per share without any sales charge or CDSC. The Fund pays annual service
and
36
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
PURCHASE OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
distribution fees based on the value of the average daily net assets
attributable to the Class. Class D shares are not subject to an automatic
conversion feature as are the Class B shares. However, Participating Plans
which
hold Class D shares valued at $750,000 or more in any fund or funds in the
Smith
Barney Shearson Group of Funds that offer one or more Classes of shares
subject
to a sales charge and/or CDSC will be offered the opportunity to exchange all
of
their Class D shares for Class A shares. Such Plans will be notified of the
exchange offer in writing within 30 days after the last business day of the
calendar year, and unless the exchange offer has been rejected in writing, the
exchange will occur on or about the last business day of March in the
following
calendar year. Once the exchange has occurred, a Participating Plan will not
be
eligible to acquire Class D shares of the Fund but instead may acquire Class A
shares of the Fund. Any Class D shares not converted will continue to be
subject
to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the
401(k)
Program must purchase such shares directly from the Trust's transfer agent.
For
further information regarding the 401(k) Program, investors should contact
their
Smith Barney Shearson Financial Consultants.
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
- --
Shareholders may redeem their shares on any day on which the Fund's net
asset value is calculated. See "Valuation of Shares." Redemption requests
received in proper form prior to the close of regular trading on the NYSE are
priced at the net asset value per share determined on that day. Redemption
requests received after the close of regular trading on the NYSE are priced at
the net asset value next determined. If a shareholder holds shares in more
than
one Class, any request for redemption must specify the Class being redeemed.
In
the event of a failure to specify which Class, or if the investor owns fewer
shares of the Class than specified, the redemption request will be delayed
until
the Trust's transfer agent receives further instructions from Smith Barney
Shearson, or if the shareholder's account is not with Smith Barney Shearson,
from the shareholder directly.
The Fund normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney Shearson or the Introducing Broker at no
37
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
holder's benefit without specific instruction and Smith Barney Shearson will
benefit from the use of temporarily uninvested funds. A shareholder who pays
for
Fund shares by personal check will be credited with the proceeds of a
redemption
of those shares only after the purchase check has been collected, which may
take
up to 10 days or more. A shareholder who anticipates the need for more
immediate
access to his or her investment should purchase shares with Federal funds, by
bank wire or by a certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less
may be subject to redemption by the Trust, but only after the shareholder has
been given at least 30 days in which to increase the account balance to more
than $500.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A shareholder desiring to redeem shares represented by
certificates must also present the certificates to Smith Barney Shearson or
the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
the certificates are received by the Trust's transfer agent in proper form.
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submitting a written request to your Smith Barney Shearson Financial
Consultant.
All other shares may be redeemed by submitting a written request for
redemption
to:
Smith Barney Shearson Sector Analysis Fund
Class A, B or D (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to TSSG or your Smith Barney Shearson
Financial
Consultant must (a) state the Class and number or dollar amount of shares to
be
redeemed, (b) identify the shareholder's account number and
38
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
(c) be signed by each registered owner exactly as the shares are registered.
If
the shares to be redeemed were issued in certificate form, the certificates
must
be endorsed for transfer (or be accompanied by an endorsed stock power) and
must
be submitted to TSSG together with the redemption request. Any signature
appearing on a redemption request, share certificate or stock power must be
guaranteed by a domestic bank, savings and loan institution, domestic credit
union, member bank of the Federal Reserve System, or member firm of a national
securities exchange. TSSG may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until
TSSG
receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly. Retirement plan
accounts
are eligible for automatic cash withdrawal plans only where the shareholder is
eligible to receive qualified distributions and has an account value of at
least
$5,000. Any applicable CDSC will not be waived on amounts withdrawn by a
shareholder that exceed 2% per month of the value of the shareholder's shares
subject to the CDSC at the time the withdrawal plan commences. For further
information regarding the automatic cash withdrawal plan, shareholders should
contact their Smith Barney Shearson Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class B shares, however effected, that causes the current value of a
shareholder's account to fall below the dollar amount of all payments by the
shareholder for the purchase of Class B shares ("purchase payments") during
the
preceding five years, except in the case of purchases by Participating Plans
as
described above. See "Purchase of Shares--Smith Barney Shearson 401(k)
Program."
No charge is imposed to the extent the net asset value of the Class B shares
redeemed does not exceed (a) the current net asset value of Class B shares
purchased through reinvestment of dividends or capital gains distributions,
plus
(b) the current net asset value of Class B shares purchased more than five
years
prior to the redemption, plus (c) increases in the net asset value of the
shareholder's Class B shares above the purchase payments made during the
preceding five years.
39
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
In circumstances in which the CDSC is imposed, the amount of the charge
will
depend on the number of years since the shareholder made the purchase payment
from which the amount is being redeemed, except in the case of purchases
through
Participating Plans which are subject to a different CDSC. See "Purchase of
Shares--Smith Barney Shearson 401(k) Program." Solely for purposes of
determining the number of years since a purchase payment, all purchase
payments
during a month will be aggregated and deemed to have been made on the last day
of the preceding Smith Barney Shearson statement month. The following table
sets
forth the rates of the charge for redemptions of Class B shares:
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
- ------------------------------------------------------------------------------
- -----
First
5.00%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
- ------------------------------------------------------------------------------
- -----
Class B shares will automatically convert to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fee. The first of the conversions will commence on
or about September 30, 1994. See "Variable Pricing System--Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not
already been effected. In the case of redemptions of Class B shares of other
funds in the Smith Barney Shearson Group of Funds issued in exchange for Class
B
shares of the Fund, the term "purchase payments" refers to the purchase
payments
for the shares given in exchange. In the event of an exchange of Class B
shares
of funds with differing CDSC schedules, the shares will be, in all cases,
subject to the higher CDSC schedule. See "Exchange Privilege."
Waivers of CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) automatic cash withdrawals in amounts equal to or less than
2%
per month of the value of the shareholder's shares at the time the withdrawal
plan commences (see above); (c) redemptions of shares in connec-
40
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
tion with certain post-retirement distributions and withdrawals from
retirement
plans or IRAs or following the death or disability of the shareholder; (d)
involuntary redemptions; (e) redemption proceeds from other funds in the Smith
Barney Shearson Group of Funds that are reinvested within 30 days of the
redemption; (f) redemptions of shares in connection with a combination of any
investment company with the Fund by merger, acquisition of assets or
otherwise;
and (h) certain redemption of shares of the Fund in connection with lump-sum
or
other distributions made by a Participating Plan. See "Purchase of Shares--
Smith
Barney Shearson 401(k) Program."
- ------------------------------------------------------------------------------
- --
VALUATION OF SHARES
- ------------------------------------------------------------------------------
- --
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of a Class is determined as of the close of
regular trading on the NYSE and is computed by dividing the value of the
Fund's
net assets attributable to that Class by the total number of shares of that
Class outstanding. In general, the Fund's investments will be valued at market
value or, in the absence of a market value, at fair value as determined by or
under the direction of the Trust's Board of Trustees. A security that is
primarily traded on a domestic stock exchange is valued at the last sale price
on that exchange or, if there were no sales during the day, at the current
quoted bid price. Debt securities (other than U.S. government securities and
short-term obligations) are valued by Boston Advisors after consultation with
independent pricing services approved by the Trustees. Investment in U.S.
government securities (other than short-term securities) are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost (which involves valuing an investment instrument at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating interest rates on the market
value of the instrument) whenever the Board of Trustees determines that
amortized cost reflects fair value of those investments.
41
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
VALUATION OF SHARES (CONTINUED)
- ------------------------------------------------------------------------------
- --
An option written by the Fund is generally valued at the last sale price or,
in
the absence of the last sale price, the last offer price. An option purchased
by
the Fund is generally valued at the last sale price or, in the absence of the
last sale price, the last bid price. Short sales of securities, which are not
traded on a national securities exchange, are valued at the last asked price.
Alternatively, long positions are valued at the last bid price. The value of a
futures contract equals the unrealized gain or loss on the contract that is
determined by marking the contract to the current settlement price for a like
contract on the valuation date of the futures contract. A settlement price may
not be used if the market makes a limit move with respect to a particular
futures contract or if the securities underlying the futures contract
experience
significant price fluctuations after the determination of the settlement
price.
When a settlement price cannot be used, futures contracts will be valued at
their fair market value as determined by or under the direction of the Board
of
Trustees. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
- --
Shares of each Class may be exchanged for shares of the same class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence.
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- -----------------------------------------------------------------------
Municipal Bond Funds
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND,
an intermediate-term municipal bond fund investing in
investment grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate-and long-term municipal bond fund investing
in medium and lower-rated securities.
42
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
- ------------------------------------------------------------------------------
- --
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ----------------------------------------------------------------------
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for Arizona investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an
intermediate-and long-term municipal bond fund designed
for Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate-and long-term municipal bond fund designed
for Massachusetts investors.
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for New Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for New York investors.
Income Funds
A, B, D* SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME
FUND, seeks high current income while limiting the degree
of fluctuation in net asset value resulting from movement
in interest rates.
43
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ----------------------------------------------------------------------
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND,
invests in a portfolio of high quality debt securities
that may be denominated in U.S. dollars or selected
foreign currencies and that have remaining maturities of
not more than 18 months.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND,
invests in high quality, short-term debt securities
denominated in U.S. dollars as well as a range of foreign
currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests exclusively in securities issued by the United
States Treasury and other U.S. government securities.
A, B, D* SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND,
seeks high current income primarily by allocating and
reallocating its assets among various types of
fixed-income securities.
A, B, D* SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC.,
invests in obligations issued or guaranteed by the United
States government and its agencies and instrumentalities
with emphasis on mortgage-backed government securities.
A, B, D* SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a
high current return by investing in U.S. government
securities.
A, B, D* SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks
maximum current income consistent with prudent investment
management and preservation of capital by investing in
corporate bonds.
A, B, D* SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high
current income by investing in high-yielding corporate
bonds, debentures and notes.
A, B, D* SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current
income and capital appreciation by investing in bonds,
debentures and notes of foreign and domestic issuers.
44
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ----------------------------------------------------------------------
Growth and Income Funds
A, B, D* SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current
income and capital appreciation by investing in
convertible securities.
A, B, D* SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return
by investing in equity and debt securities of utilities
companies.
A, B, D* SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks
high total return consisting of current income and
capital appreciation by investing in a combination of
equity, fixed-income and money market securities.
A, B, D* SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks
total return by investing in dividend-paying common
stocks.
A, B, D* SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks
income and long-term capital growth by investing in
income producing equity securities.
Growth Funds
A, B, D* SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-
term appreciation of capital.
A, B, D* SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks
long-term capital growth with current income as a
secondary objective.
A, B SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND,
seeks capital appreciation, with income as a secondary
consideration.
A, B, D* SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A, B, D* SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-
term capital appreciation by investing in equity
securities primarily of emerging growth companies.
45
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ----------------------------------------------------------------------
A, B, D* SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks
long-term capital growth by investing principally in the
common stocks of foreign and domestic issuers.
A, B, D* SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term
capital appreciation by investing primarily in securities
of issuers based in European countries.
A, B, D* SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND
INC., seeks long-term capital appreciation by investing
primarily in precious metal-and mineral-related companies
and gold bullion.
Money Market Funds
** SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of high quality money market
instruments.
*** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND INC., invests
in a diversified portfolio of high quality money market
instruments.
*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND INC.,
invests in short-term U.S. government and agency
securities.
+ SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND INC.,
invests in short-term, high quality municipal
obligations.
+ SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND, invests in short-term, high quality California
municipal obligations.
+ SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET
FUND, invests in short-term, high quality New York
municipal obligations.
- ---------------
* Class D shares of this fund may be acquired only by Participating Plans in
the Smith Barney Shearson 401(k) Program.
** Shares of this money market fund may be exchanged for Class B shares of
the
Fund.
*** Shares of this money market fund may be exchanged for Class A and Class D
shares of the Fund.
+ Shares of this money market fund may be exchanged for Class A shares of
the
Fund.
46
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
- ------------------------------------------------------------------------------
- --
Tax Effect. The exchange of shares of one fund for shares of another fund
is treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
Class A Exchanges. Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 5% will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A shares of the Fund
or other funds sold with a higher sales charge. The "sales charge
differential"
is limited to a percentage rate no greater than the excess of the sales charge
rate applicable to purchases of shares of the mutual fund being acquired in
the
exchange over the sales charge rates actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends, as described below, are treated as having paid the
same sales charges applicable to the shares on which the dividends were paid.
However, except in the case of the 401(k) Program, if no sales charge was
imposed upon the initial purchase of the shares, any shares obtained through
automatic reinvestment will be subject to a sales charge differential upon
exchange.
Class B Exchanges. Shareholders of the Fund who wish to exchange all or a
portion of their Class B shares for Class B shares of any of the funds
identified above may do so without imposition of an exchange fee. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Fund that have been exchanged. In the
event Class B shareholders wish to exchange all or a portion of their shares
for
shares of the Fund, the exchanged Class B shares will be subject to the higher
applicable CDSC.
Class D Exchanges. Participating Plans may exchange Class D shares of the
Fund for Class D shares in any of the funds listed above without charge. Class
D
shares may be acquired only by Participating Plans.
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. Strategy
Advisers
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, Strategy
Advisers will notify Smith Barney Shearson, and Smith Barney Shearson
47
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
- ------------------------------------------------------------------------------
- --
may, at its discretion, decide to limit additional purchases and/or exchanges
by
the shareholder. Upon such a determination, Smith Barney Shearson will provide
notice in writing or by telephone to the shareholder at least 15 days prior to
suspending the exchange privilege and during the 15-day period the shareholder
will be required to (a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds in the Smith Barney
Shearson Group of Funds ordinarily available, which position the shareholder
would expect to maintain for a significant period of time. All relevant
factors
will be considered in determining what constitutes an abusive pattern of
exchanges.
Shareholders exercising the exchange privilege with any of the other funds
in the Smith Barney Shearson Group of Funds should review the prospectus of
that
fund carefully prior to making an exchange. Shearson Lehman Brothers reserves
the right to reject any exchange request. The exchange privilege may be
modified
or terminated at any time after notice to shareholders. For further
information
regarding the exchange privilege or to obtain the current prospectuses for
members of the Smith Barney Shearson Group of Funds, investors should contact
their Smith Barney Shearson Financial Consultants.
- ------------------------------------------------------------------------------
- --
DISTRIBUTOR
- ------------------------------------------------------------------------------
- --
Smith Barney Shearson is located at 388 Greenwich Street, New York, New
York
10013 and serves as distributor of the Fund's shares. Smith Barney Shearson is
paid an annual service fee with respect to Class A, Class B and Class D shares
of the Fund at the rate of .25% of the value of the average daily net assets
of
the respective Class. Smith Barney Shearson is also paid an annual
distribution
fee with respect to Class B and Class D shares at the rate of .75% of the
value
of the average daily net assets attributable to those shares. The fees are
authorized pursuant to a services and distribution plan (the "Plan") adopted
by
the Trust pursuant to Rule 12b-1 under the 1940 Act, and are used by Smith
Barney Shearson to pay its Financial Consultants for servicing shareholder
accounts and, in the case of the Class B and Class D shares, also to cover
expenses primarily intended to result in the sale of those shares. These
expenses include: costs of printing and distributing the Fund's Prospectus,
Statement of Additional Information and sales literature to prospective
investors; an allocation of overhead and other Smith Barney Shearson's branch
office distribution-related expenses; payments to and expenses of Smith Barney
Shearson Financial
48
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
DISTRIBUTOR (CONTINUED)
- ------------------------------------------------------------------------------
- --
Consultants and other persons who provide support services in connection with
the distribution of the shares; and accruals for interest on the amount of the
foregoing expenses that exceed distribution fees and, in the case of Class B
shares, the CDSC received by Smith Barney Shearson. The payments to Smith
Barney
Shearson Financial Consultants for selling shares of a Class include a
commission paid at the time of sale and a continuing fee for servicing
shareholder accounts for as long as a shareholder remains a holder of that
Class. The service fee is credited at the rate of .25% of the value of the
average daily net assets of the Class that remain invested in the Fund. Smith
Barney Shearson Financial Consultants may receive different levels of
compensation for selling one Class of shares over the other.
Although it is anticipated that some promotional activities will be
conducted on a Trust-wide basis, payments made by a fund of the Trust under
the
Plan generally will be used to finance the distribution of shares of that
fund.
Expenses incurred in connection with Trust-wide activities may be allocated on
a
pro-rata basis among all funds of the Trust on the basis of their relative net
assets.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson and
the
payments may exceed distribution expenses actually incurred. The Trust's Board
of Trustees will evaluate the appropriateness of the Plan and its payment
terms
on a continuing basis and in so doing will consider all relevant factors,
including expenses borne by Smith Barney Shearson, amounts received under the
Plan and proceeds of the CDSC.
The Trust anticipates that, for the foreseeable future, distribution
expenses incurred by Smith Barney Shearson will be greater than amounts
payable
by the Trust's funds under the Plan. During the period from March 3, 1986 (the
Trust's commencement of operations) through the fiscal year ended January 31,
1994, Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"), the Trust's
distributor prior to Smith Barney Shearson incurred, with respect to the Class
B
shares of the Trust's existing funds, total distribution expenses of
approximately $67,446,000 while receiving approximately $45,277,771 pursuant
to
the Plan and approximately $22,168,000 from the CDSC. The excess of such
distribution expenses incurred by Shearson Lehman Brothers and/or Smith Barney
Shearson over such distribution fees and CDSC, or approximately $28,650,000,
was
equivalent to approximately 4.56% of the Trust's net assets on January 31,
1994.
The Trust's Board of Trustees will evaluate the appropriateness of the Plan
and
its payment terms on a continuing basis and in so doing
49
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
DISTRIBUTOR (CONTINUED)
- ------------------------------------------------------------------------------
- --
will consider all relevant factors, including expenses borne by Smith Barney
Shearson and the amount received under the Plan.
- ------------------------------------------------------------------------------
- --
DIVIDENDS, DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
- --
DIVIDENDS AND DISTRIBUTIONS
The Fund will be treated separately from the Trust's other funds in
determining the amount of dividends from investment income and distributions
of
capital gains payable to shareholders of the Fund. Dividends from net
investment
income (that is, income other than net realized capital gains) of the Fund
will
be declared and distributed quarterly. Distributions of the Fund's net
realized
capital gains, if any, will be declared and distributed annually, normally at
the end of the calendar year in which earned or at the beginning of the
subsequent year. Unless a shareholder instructs that dividends and capital
gains
distributions on shares of any Class be paid in cash and credited to the
shareholders' account at Smith Barney Shearson, dividends and capital gains
distributions will automatically be reinvested in additional shares of the
Class
at net asset value subject to no sales charge or CDSC. The Fund is subject to
a
4% nondeductible excise tax on certain undistributed amounts of ordinary
income
and capital gains. The Fund expects to make any additional distributions as
may
be necessary to avoid the application of this tax.
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
Federal income tax purposes, the amount of its net investment income and
capital
gains earned will be determined without regard to the earnings or
distributions
of the other funds of the Trust. The Trust intends for the Fund to qualify
each
year as a regulated investment company under the Code. Dividends paid from the
Fund's net investment income and distributions of the Fund's net realized
short-term capital gains are taxable to shareholders (other than IRAs,
Self-Employed Retirement Plans and other tax-exempt investors) as ordinary
income, regardless of how long shareholders have held Fund shares and whether
the dividends or distributions are received in cash or reinvested in
additional
Fund shares. Distributions of the Fund's net realized long-term capital gains
will be taxable to shareholders as long-term capital gains, regardless of how
long shareholders have held Fund shares and whether the distributions are
50
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
- ------------------------------------------------------------------------------
- --
received in cash or reinvested in additional Fund shares. In addition, as a
general rule, a shareholder's gain or loss on a sale or redemption of shares
of
the Fund will be a long-term capital gain or loss if the shareholder has held
the shares for more than one year and will be a short-term capital gain or
loss
if the shareholder has held the shares for one year or less. Some of the
Fund's
dividends declared from net investment income may qualify for the Federal
dividends-received deduction for corporations. The per share dividends on
Class
A shares will be higher than those on Class B and Class D shares as a result
of
lower distribution and transfer agency fees applicable to the Class A shares.
Statements as to the tax status of the dividends and distributions
received
by shareholders of the Fund are mailed annually. Each shareholder also will
receive, if applicable, various written notices after the close of the Fund's
prior taxable year with respect to certain dividends and distributions that
were
received from the Fund during the Fund's prior taxable year.
Shareholders are urged to consult their tax advisers regarding the
application of Federal, state and local tax laws to their specific situation
before investing in the Fund.
- ------------------------------------------------------------------------------
- --
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
- --
The Trust was organized on January 8, 1986 under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." The Trust commenced operations on March 3,
1986,
under the name Shearson Lehman Special Equity Portfolios. The Fund changed its
name from Sector Analysis Portfolio to Sector Analysis Fund on November 5,
1992
and on July 30, 1993 to its current name, Smith Barney Shearson Sector
Analysis
Fund. The Trust offers shares of beneficial interest of separate funds with a
par value of $.001 per share. The Fund offers shares of beneficial interest
currently classified into three Classes -- A, B and D.
Each Class represents an identical interest in the Fund's investment
portfolio. As a result, the Classes have the same rights, privileges and
preferences, except with respect to: (a) the designation of each Class; (b)
the
effect of the respective sales charges, if any, for each Class; (c) the
distribution and/or service fees borne by each Class; (d) the expenses
allocable
exclusively to each Class; (e) voting rights on matters exclusively affecting
a
single Class; (f) the exchange privilege of each Class; and (g) the conversion
feature of the Class B
51
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
ADDITIONAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------
- --
shares. The Trust's Board of Trustees does not anticipate that there will be
any
conflicts among the interests of the holders of the different Classes. The
Trustees, on an ongoing basis, will consider whether any such conflict exists
and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will
be
no meeting of shareholders for the purpose of electing Trustees unless and
until
such time as less than a majority of the Trustees holding office have been
elected by shareholders. The Trustees will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Trust's
outstanding
shares. Shareholders of record owning no less than two-thirds of the
outstanding
shares of the Trust may remove a Trustee through a declaration in writing or
by
vote cast in person or by proxy at a meeting called for that purpose. When
matters are submitted for shareholder vote, shareholders of each Class will
have
one vote for each full share owned and a proportionate, fractional vote for
any
fractional share held of that Class. Generally, shares of the Trust vote by
individual fund on all matters except (a) matters affecting only the interests
of one or more of the funds, in which case only shares of the affected fund or
funds would be entitled to vote or (b) when the 1940 Act requires that shares
of
the funds be voted in the aggregate. Similarly, shares of the Fund will be
voted
generally on a Fund-wide basis except with respect to matters affecting the
interests of one Class of shares.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as custodian of the Fund's
investments.
TSSG, a subsidiary of First Data Corporation, which is in turn a partially
owned subsidiary of American Express, is located at Exchange Place, Boston,
Massachusetts 02109, and serves as the Trust's transfer agent.
The Trust sends shareholders of the Fund a semi-annual report and an
audited
annual report, which include listings of the investment securities held by the
Fund at the end of the reporting period. In an effort to reduce the Fund's
printing and mailing costs, the Trust plans to consolidate the mailing of the
Fund's 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 Trust also plans
to
consolidate the mailing of the Fund's Prospectus so that a shareholder having
multiple accounts (that is, individual, IRA and/or Self-Employed Retirement
52
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
ADDITIONAL INFORMATION (CONTINUED)
- ------------------------------------------------------------------------------
- --
Plan accounts) will receive a single Prospectus annually. Any shareholder of
the
Fund who does not want this consolidation to apply to his or her account
should
contact his or her Financial Consultant or the Trust's transfer agent.
Shareholders may seek information regarding the Fund from their Smith
Barney
Shearson Financial Consultants.
------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement
of
Additional Information and/or the official sales literature in connection with
the offering of the Fund's shares, and, if given or made, such other
information
or representations must not be relied upon as having been authorized by the
Trust. This Prospectus does not constitute an offer in any state in which, or
to
any person to whom, such offer may not lawfully be made.
53
SMITH BARNEY SHEARSON
Sector Analysis Fund
- ------------------------------------------------------------------------------
- --
APPENDIX
Lehman Brothers has divided the U.S. equity market into the following
sectors:
Aerospace/Defense
Airlines
Aluminum
Automobiles
Auto Parts -- After Market
Basic Industries
Beverages -- Alcoholic
Beverages -- Soft Drinks
Broadcast Media
Building Materials
Capital Goods
Chemicals
Coal
Commercial Services
Communication Equipment
Computer Software and Service
Computer Systems Conglomerates
Consumer Durables
Consumer Non-Durables
Consumer Services
Containers -- Metal and Glass
Containers -- Paper
Cosmetics
Data Processing
Distribution -- Commercial Products
Drugs
Electrical Utilities
Electrical Equipment
Electronic -- Defense
Electronic -- Instrumentation
Electronic -- Semiconductors
Energy
Entertainment
Financial -- Miscellaneous
Foods
Food Wholesalers
Gold
Hardware and Tools
Health Care -- Diversified
Health Care -- Miscellaneous
Heavy Duty Trucks and Parts
Homebuilding
Hospital Management
Hotel/Motel
Household Furnishings/Appliances
Household Products
Insurance
Insurance Brokers
Leisure Time
Life Insurance
Machine Tools
Machinery -- Diversified
Major Regional Banks
Manufactured Housing
Manufacturing -- Diversified
Medical Products
Metals -- Miscellaneous
Miscellaneous
Money Center Banks
Multiline Insurance
Natural Gas
Office Equipment and Supplies
Oil and Gas
Oil -- Domestic Integrated
Oil -- International Integrated
Oil Well Equipment and Services
Other Major Banks
Paper and Forest Products
Personal Loans
Plastics
Pollution Control
Property -- Casualty Insurance
Publishing -- Newspaper
Railroads
Restaurants
Retail -- Department Stores
Retail -- Drug Stores
Retail -- Food Chains
Retail -- General Merchandise
Retail -- Specialty
Savings and Loans
Shoes
Steel
Technology
Telephone
Textile -- Apparel Manufacturing
Tobacco
Toys
Transportation -- Miscellaneous
Truckers
54
SMITH BARNEY SHEARSON
Sector Analysis Fund
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
Chairman of the Board and
Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Elaine M. Garzarelli
Vice President and
Investment Officer
Vincent Nave
Treasurer
Francis J. McNamara, III
Secretary
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Smith Barney Shearson Strategy
Advisers, Inc.
Two World Trade Center
New York, New York 10048
SUB-INVESTMENT ADVISER
Lehman Brothers Global Asset
Management Inc.
American Express Tower
World Financial Center
New York, New York 10285
SUB-INVESTMENT ADVISER
PanAgora Asset Management, Inc.
260 Franklin Street
Boston, Massachusetts 02110
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
- ------------------------------------------------------------------------------
- --
- ------------------------------------------------------------------------------
- --
SMITH BARNEY SHEARSON
Sector
Analysis
Fund
Two World Trade Center
New York, New York 10048
Fund 55
FD2200 C4
- ------------------------------------------------------------------------------
- -
April 1, 1994
SMITH BARNEY SHEARSON
Growth and Income Fund
Prospectus beginson page one.
[LOGO OF SMITH BARNEY SHEARSON APPEARS HERE]
SMITH BARNEY SHEARSON
Growth and Income Fund
PROSPECTUS April 1, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Growth and Income Fund (the "Fund") seeks long-term
capital growth and income by investing in income producing equity securities,
including dividend-paying common stocks, securities that are convertible into
common stocks and warrants.
The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up Smith Barney Shearson Equity Funds (the
"Trust").
The Trust is an open-end management investment company commonly referred to as
a "mutual fund."
This Prospectus sets forth concisely certain information about the Fund and
the Trust, including sales charges, distribution and service fees and
expenses,
which prospective investors will find helpful in making an investment
decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference. Shares of the other funds offered by the Trust are described
in separate prospectuses that may be obtained by calling the Trust at the
tele-
phone number set forth above or by contacting your Smith Barney Shearson
Finan-
cial Consultant.
Additional information about the Fund and the Trust is contained in a State-
ment of Additional Information dated April 1, 1994, as amended or supplemented
from time to time, that is available upon request and without charge by
calling
or writing the Trust at the telephone number or address set forth above or by
contacting your Smith Barney Shearson Financial Consultant. The Statement of
Additional Information has been filed with the Securities and Exchange Commis-
sion (the "SEC") and is incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY SHEARSON INC.
Distributor
GREENWICH STREET ADVISORS
Investment Adviser
THE BOSTON COMPANY ADVISORS, INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
SMITH BARNEY SHEARSON
Growth and Income Fund
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
--------------------------------------------------
FINANCIAL HIGHLIGHTS 9
--------------------------------------------------
VARIABLE PRICING SYSTEM 11
--------------------------------------------------
THE FUND'S PERFORMANCE 12
--------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND 14
--------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 15
--------------------------------------------------
PURCHASE OF SHARES 26
--------------------------------------------------
REDEMPTION OF SHARES 33
--------------------------------------------------
VALUATION OF SHARES 37
--------------------------------------------------
EXCHANGE PRIVILEGE 39
--------------------------------------------------
DISTRIBUTOR 44
--------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 46
--------------------------------------------------
ADDITIONAL INFORMATION 48
--------------------------------------------------
</TABLE>
2
SMITH BARNEY SHEARSON
Growth and Income Fund
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
BENEFITS TO INVESTORSThe Fund offers investors several important benefits:
. Ownership of a professionally managed diversified portfolio of equity
securities having the potential for income and long-term capital growth.
. Investment liquidity through convenient purchase and redemption proce-
dures.
. A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
. Different methods for purchasing shares that allow investment flexibility
and a wider range of investment alternatives.
. Automatic dividend reinvestment feature, plus exchange privilege within
the same class of shares of most other funds in the Smith Barney Shearson
Group of Funds.
INVESTMENT OBJECTIVEThe Fund is an open-end, diversified, management
investment
company that seeks long-term capital growth and income by investing in income
producing equity securities, including dividend-paying common stocks, securi-
ties that are convertible into common stocks and warrants. See "Investment
Objective and Management Policies."
VARIABLE PRICING SYSTEMThe Fund offers several classes of shares ("Classes")
designed to provide investors with the flexibility of selecting an investment
best suited to their needs. The general public is offered two Classes of
shares: Class A shares and Class B shares, which differ principally in terms
of
the sales charges and rates of expense to which they are subject. A third
class--Class D shares-- is offered only to plans participating in the Smith
Barney Shearsons 401(k) Program (the "401(k) Program"). See "Variable Pricing
System" and "Purchase of Shares--Smith Barney Shearson 401(k) Program."
CLASS A SHARESThese shares are offered at net asset value per share plus a
max-
imum initial sales charge of 5%. The Fund pays an annual service fee of
3
SMITH BARNEY SHEARSON
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
.25% of the value of average daily net assets attributable to this Class. See
"Purchase of Shares."
CLASS B SHARESThese shares are offered at net asset value per share subject to
a maximum contingent deferred sales charge ("CDSC") of 5% of redemption pro-
ceeds, declining by 1% each year after the date of purchase to zero. The Fund
pays an annual service fee of .25% and an annual distribution fee of .50% of
the value of average daily net assets attributable to this Class. See
"Purchase
of Shares."
CLASS B CONVERSION FEATUREClass B shares will convert automatically to Class A
shares, based on relative net asset value, eight years after the date of
origi-
nal purchase. Upon conversion, these shares will no longer be subject to an
annual distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
SMITH BARNEY SHEARSON 401(K) PROGRAMInvestors may be eligible to participate
in
the 401(k) Program, which is generally designed to assist employers or plan
sponsors in the creation or operation of retirement plans under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
other
types of participant directed, tax-qualified employee benefit plans (collec-
tively, "Participating Plans"). Class A, Class B and Class D shares may be
available as investment alternatives for Participating Plans. Class A and
Class
B shares acquired through the 401(k) Program are subject to the same service
and/or distribution fees as, but different sales charge and CDSC schedules
than, the Class A and Class B shares acquired by other investors. Class D
shares acquired by Participating Plans are offered at net asset value per
share
without any sales charge or CDSC. The Fund pays annual service and
distribution
fees based on the value of the average daily net assets attributable to this
Class. See "Purchase of Shares--Smith Barney Shearson 401(k) Program."
PURCHASE OF SHARESShares may be purchased through the Fund's distributor,
Smith
Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that clears
securi-
ties transactions through Smith Barney Shearson on a fully disclosed basis (an
"Introducing Broker"). Direct purchases by certain retirement plans may be
made
through the Trust's transfer agent, The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation. Smith Barney Shearson recom-
mends that, in most cases, single investments of $250,000 or more should be in
Class A. See "Purchase of Shares."
4
SMITH BARNEY SHEARSON
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMSInvestors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Employed Retire-
ment Plans, the minimum initial investment requirement is $250 and the minimum
subsequent investment requirement is $100 and for certain qualified retirement
plans, the minimum initial and subsequent investment requirements are both
$25.
See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLANThe Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase
order
each month or quarter for Fund shares in an amount not less than $100. See
"Purchase of Shares."
REDEMPTION OF SHARESShares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A shares are redeemable at
net asset value and Class B shares are redeemable at net asset value less any
applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUNDGreenwich Street Advisors, a division of Mutual Manage-
ment Corp. ("Greenwich Street Advisors") serves as the Fund's investment
advis-
er. Mutual Management Corp. provides investment advisory and management serv-
ices to investment companies affiliated with Smith Barney Shearson. Smith Bar-
ney Shearson is a wholly owned subsidiary of Smith Barney Shearson Holdings
Inc., which is in turn a wholly owned subsidiary of The Travelers Inc. (for-
merly Primerica Corporation) ("Travelers"), a diversified financial services
holding company principally engaged in the businesses of providing investment,
consumer finance and insurance services.
The Boston Company Advisors, Inc. ("Boston Advisors"), serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston Com-
pany, Inc. ("TBC"), which is in turn a wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). See "Management of the Trust and the Fund."
EXCHANGE PRIVILEGEShares of a Class may be exchanged for shares of the same
class of certain other funds in the Smith Barney Shearson Group of Funds. Cer-
tain exchanges may be subject to a sales charge differential. See "Exchange
Privilege."
VALUATION OF SHARESNet asset value of each Class is quoted daily in the finan-
cial section of most newspapers and is also available from your Smith Barney
Shearson Financial Consultant. See "Valuation of Shares."
5
SMITH BARNEY SHEARSON
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
DIVIDENDS AND DISTRIBUTIONSDividends are paid quarterly from net investment
income and distributions are paid annually from net realized capital gains.
See
"Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDSDividends and distributions paid on shares of a Class
will be reinvested automatically unless otherwise specified by an investor in
additional shares of the same Class at current net asset value. Shares
acquired
by dividend reinvestments will not be subject to any sales charge or CDSC.
Class B shares acquired through dividend reinvestments will become eligible
for
conversion to Class A shares on a pro-rata basis. See "Dividends,
Distributions
and Taxes" and "Variable Pricing System."
RISK FACTORS AND SPECIAL CONSIDERATIONSThe Fund may not achieve its investment
objective. The market value of fixed income securities, which may constitute a
part of the investments of the Fund, varies inversely in response to changes
in
prevailing interest rates. The mortgage related securities in which the Fund
may invest are sensitive to changes in interest rates and to prepayment of
mortgages. The Fund may make certain investments and employ certain investment
techniques that involve other risks, including entering into repurchase agree-
ments, foreign securities, lending portfolio securities and entering into
futures contracts and related options as hedges. These risks and those associ-
ated with when-issued and delayed-delivery transactions and covered option
writing are described under "Investment Objective and Management Policies."
6
SMITH BARNEY SHEARSON
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the costs and expenses
an
investor will incur either directly or indirectly as a shareholder of the
Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's current operating expenses:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
- -------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% -- --
Maximum CDSC
(as a percentage of redemption proceeds) -- 5.00% --
- -------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .65% .65% .65%
12b-1 fees* .25 .75 .75
Other expenses** .64 .59 .59
- -------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.54% 1.99% 1.99%
- -------------------------------------------------------------------
</TABLE>
* Upon conversion, Class B shares will no longer be subject to a distribution
fee. Class D shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee.
** All expenses are based on data for the Fund's fiscal year ended January 31,
1994.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
pay actual charges of less than 5% depending on the amount purchased and, in
the case of Class B shares, the length of time the shares are held and whether
the shares are held through the 401(k) Program. See "Purchase of Shares" and
"Redemption of Shares." Management fees paid by the Fund include investment
advisory fees paid to Greenwich Street Advisors in an amount equal to .45% of
the value of the Fund's average daily net assets, and administration fees paid
to Boston Advisors in an amount equal to .20% of the value of the Fund's aver-
age daily net assets. The nature of the services for which the Fund pays man-
agement fees is described under "Management of the Trust and the Fund." Smith
Barney Shearson receives an annual 12b-1 service fee of .25% of the value of
average daily net assets of Class A shares. Smith Barney Shearson also
receives
with respect to Class B and Class D shares an annual 12b-1
7
SMITH BARNEY SHEARSON
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
fee of .75% of the value of average daily net assets of Class B and Class D
shares, consisting of a .50% distribution fee and a .25% service fee. "Other
expenses" in the above table include fees for shareholder services, custodial
fees, legal and accounting fees, printing costs and registration fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumu-
lative expenses that would be incurred over various periods with respect to a
hypothetical $1,000 investment in the Fund assuming a 5% total return. The
example assumes payment by the Fund of operating expenses at the levels set
forth in the above table. The example should not be considered a
representation
of past or future expenses and actual expenses may be greater or less than
those shown. Moreover, while the example assumes a 5% annual return, the
Fund's
actual performance will vary and may result in an actual return greater or
less
than 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares* $65 $96 $130 $225
Class B shares:
Assumes complete redemption at end of each
time period** $70 $92 $117 $232
Assumes no redemption $20 $62 $107 $232
Class D shares $20 $62 $107 $232
- ----------------------------------------------------------------------------
</TABLE>
* Assumes deduction at the time of purchase of the maximum 5% sales charge.
** Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
8
SMITH BARNEY SHEARSON
Growth and Income Fund
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand, independent
accountants, whose report thereon appears in the Fund's Annual Report dated
January 31, 1994. The information set forth 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 Addi-
tional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
1/31/94** 1/31/93*
<S> <C> <C>
Net Asset Value, beginning of period $ 9.58 $ 9.50
- --------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20 0.01
Net realized and unrealized gain on investments 0.81 0.07
- --------------------------------------------------------------------------
Total from investment operations 1.01 0.08
- --------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.23) --
- --------------------------------------------------------------------------
Total distributions (0.23) --
- --------------------------------------------------------------------------
Net Asset Value, end of period $10.36 $ 9.58
- --------------------------------------------------------------------------
Total return+ 10.70% 0.84%
- --------------------------------------------------------------------------
Ratios to average net assets/Supplemental Data:
Net assets, end of period (000's) $4,468 $3,520
Ratio of operating expenses to average net assets 1.54% 1.41%++
Ratio of net investment income to average net assets 2.00% 0.28%++
Portfolio turnover rate 79% 1%
- --------------------------------------------------------------------------
</TABLE>
* The Fund commenced selling Class A shares on November 6, 1992.
** The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year,
since use of the undistributed method did not accord with results of
operations.
+ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
++ Annualized.
9
SMITH BARNEY SHEARSON
Growth and Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
1/31/94** 1/31/93*
<S> <C> <C>
Net Asset Value, beginning of period $9.58 $9.50
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income/(loss) 0.15 (0.01)
Net realized and unrealized gain on investments 0.80 0.09
- ---------------------------------------------------------------------------
Total from investment operations 0.95 0.08
- ---------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.15) --
- ---------------------------------------------------------------------------
Total distributions (0.15) --
- ---------------------------------------------------------------------------
Net Asset Value, end of period $10.38 $9.58
- ---------------------------------------------------------------------------
Total return+ 10.01% 0.84%
- ---------------------------------------------------------------------------
Ratios to average net assets/Supplemental Data:
Net assets, end of period (000's) $68,144 $35,173
Ratio of operating expenses to average net assets 1.99% 1.91%++
Ratio of net investment income/(loss) to average net
assets 1.55% (0.22)%++
Portfolio turnover rate 79% 1%
- ---------------------------------------------------------------------------
</TABLE>
*The Fund commenced selling Class B shares on November 6, 1992.
** The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year,
since use of the undistributed method did not accord with results of
operations.
+ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
++Annualized.
As of January 31, 1994, Class D shares had no comparable financial informa-
tion available.
10
SMITH BARNEY SHEARSON
Growth and Income Fund
VARIABLE PRICING SYSTEM
The Fund offers individual investors two methods of purchasing shares, thus
enabling investors to choose the Class that best suits their needs, given the
amount of purchase and intended length of investment. A third class--Class D--
is offered only to Participating Plans.
Class A Shares.Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 5% imposed at the time of purchase. The
initial
sales charge may be reduced or waived for certain purchases. Class A shares
are
subject to an annual service fee of .25% of the value of the Fund's average
daily net assets attributable to the Class. The annual service fee is used by
Smith Barney Shearson to compensate its Financial Consultants for ongoing
serv-
ices provided to shareholders. The sales charge is used to compensate Smith
Barney Shearson for expenses incurred in selling Class A shares. See "Purchase
of Shares."
Class B Shares.Class B shares are sold at net asset value per share subject
to a maximum 5% CDSC, which is assessed only if the shareholder redeems shares
within the first five years of investment. This results in 100% of the invest-
or's assets being used to acquire shares of the Fund. For each year of invest-
ment within this five-year time frame, the applicable CDSC declines by 1%; in
year six, the applicable CDSC is reduced to 0%. See "Purchase of Shares" and
"Redemption of Shares."
Class B shares are subject to an annual service fee of .25% and an annual
distribution fee of .50% of the value of the Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearson's branch office overhead expenses
and marketing costs associated with Class B shares, such as preparation of
sales literature, advertising and printing and distributing prospectuses,
statements of additional information and other materials to prospective
invest-
ors in Class B shares. A Financial Consultant may receive different levels of
compensation for selling different Classes. Class B shares are subject to a
distribution fee and higher transfer agency fees than Class A shares which, in
turn, will cause Class B shares to have a higher expense ratio and pay lower
dividends than Class A shares.
11
SMITH BARNEY SHEARSON
Growth and Income Fund
VARIABLE PRICING SYSTEM (CONTINUED)
Eight years after the date of purchase, Class B shares will convert
automati-
cally to Class A shares, based on the relative net asset values of shares of
each Class, and will no longer be subject to a distribution fee. In addition,
a
certain portion of Class B shares that have been acquired through the
reinvest-
ment of dividends and distributions ("Class B Dividend Shares") will be con-
verted at that time. That portion will be a percentage of the total number of
outstanding Class B Dividend Shares owned by the shareholder equal to the
ratio
of the total number of Class B shares converting at the time to the total num-
ber of outstanding Class B shares (other than Class B Dividend Shares owned by
the Shareholder). The first of these conversions will commence on or about
Sep-
tember 30, 1994. The conversion of Class B shares into Class A shares is sub-
ject to the continuing availability of an opinion of counsel to the effect
that
such conversions will not constitute taxable events for Federal tax purposes.
Class D Shares.Class D shares of the Fund are sold to Participating Plans at
net asset value per share and are not subject to an initial sales charge or
CDSC. This Class of shares is subject to an annual service fee of .25% and an
annual distribution fee of .50% of the value of the Fund's average daily net
assets attributable to Class D shares. The distribution fee is used by Smith
Barney Shearson for expenses incurred in selling Class D shares, and the serv-
ice fee is used to compensate Smith Barney Shearson Financial Consultants for
ongoing services provided to Class D shareholders. Class D shares are subject
to a distribution fee which will cause Class D shareholders to have a higher
expense ratio and pay lower dividends than Class A shares.
THE FUND'S PERFORMANCE
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total return"
over various periods of time for each Class. Total return figures show the
average percentage change in the value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These figures reflect changes in the price of the shares and assume that any
income dividends and/or capital gains distributions made by the Fund during
the
period were reinvested in shares of the same Class. Class A total return fig-
ures include the maximum initial 5% sales charge and Class B total return fig-
ures include
12
SMITH BARNEY SHEARSON
Growth and Income Fund
THE FUND'S PERFORMANCE (CONTINUED)
any applicable CDSC. These figures also take into account the service and dis-
tribution fees, if any, payable with respect to the Classes.
Total return figures will be given for the recent one-, five- and ten-year
periods, or for the life of a Class to the extent it has not been in existence
for any such periods, and may be given for other periods as well, such as on a
year-by-year basis. When considering average annual total return figures for
periods longer than one year, it is important to note that the Class' total
return for any one year in the period might have been greater or less than the
average for the entire period. "Aggregate total return" figures may be used
for
various periods, representing the cumulative change in value of an investment
in a Class for the specific period (again reflecting changes in share prices
and assuming reinvestment of dividends and distributions). Aggregate total
return may be calculated either with or without the effect of the maximum 5%
sales charge for the Class A shares or any applicable CDSC for Class B shares
and may be shown by means of schedules, charts or graphs, and may indicate
sub-
totals of the various components of total return (that is, changes in value of
initial investment, income dividends and capital gains distributions). Because
of the differences in sales charges and distribution fees, the performance of
each of the Classes will differ.
In reports or other communications to shareholders or in advertising materi-
al, performance of the Classes may be compared with that of other mutual funds
or classes of shares of other funds as listed in the rankings prepared by
Lipper Analytical Services, Inc. or similar independent services that monitor
the performance of mutual funds, or other industry or financial publications
such as Barron's, Business Week, CDA Investment Technologies, Inc., Forbes,
Fortune, Institutional Investor, Investors Daily, Kiplinger's Personal
Finance,
Money, Morningstar Mutual Fund Values, Money, The New York Times, USA Today
and
The Wall Street Journal. Performance figures are based on historical earnings
and are not intended to indicate future performance. To the extent any adver-
tisement or sales literature of the Fund describes the expenses or performance
of a Class it will also disclose such information for the other Classes. The
Statement of Additional Information contains a description of the methods used
to determine performance. Performance figures may be obtained from your Smith
Barney Shearson Financial Consultant.
13
SMITH BARNEY SHEARSON
Growth and Income Fund
MANAGEMENT OF THE TRUST AND THE FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Fund rests with the Trust's Board of Trustees. The Trustees approve all
signif-
icant agreements between the Trust and the companies that furnish services to
the Fund, including agreements with the Trust's distributor, custodian and
transfer agent and the Fund's investment adviser and administrator. The day-
to-
day operations of the Fund are delegated to the Fund's investment adviser and
administrator. The Statement of Additional Information contains background
information regarding each Trustee of the Trust and the executive officers of
the Trust.
INVESTMENT ADVISER--GREENWICH STREET ADVISORS
Greenwich Street Advisors, located at Two World Trade Center, New York, New
York 10048, serves as the Fund's investment adviser. Greenwich Street Advisors
(through predecessor entities) has been in the investment counseling business
since 1934 and is a division of Mutual Management Corp. which was incorporated
in 1978. Greenwich Street Advisors renders investment advice to a wide variety
of individuals and institutional clients that had aggregate assets under man-
agement, as of March 1, 1994, in excess of $43.7 billion.
Subject to the supervision and direction of the Trust's Board of Trustees,
Greenwich Street Advisors manages the securities held by the Fund in
accordance
with the Fund's stated investment objective and policies, makes investment
decisions for the Fund, places orders to purchase and sell securities on
behalf
of the Fund and employs professional portfolio managers.
PORTFOLIO MANAGEMENT
R. Jay Gerken and George Novello, Managing Directors of Greenwich Street
Advi-
sors, have served as Investment Officers of the Fund since it commenced opera-
tions and manage the day-to-day operations of the Fund, including making all
investment decisions.
Mr. Gerken's and Mr. Novello's management discussion and analysis, and addi-
tional performance information regarding the Fund during the fiscal year ended
January 31, 1994 is included in the Annual Report dated January 31, 1994. A
copy of the Annual Report may be obtained upon request and without charge from
your Smith Barney Shearson Financial Consultant or by writing or
14
SMITH BARNEY SHEARSON
Growth and Income Fund
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
calling the Fund at the address or phone number listed on page one of this
Pro-
spectus.
ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. Boston Advisors calculates the net asset
value of the Fund's shares and generally assists in all aspects of the Fund's
administration and operation. Boston Advisors provides investment management,
investment advisory and/or administrative services to investment companies
which had aggregate assets under management as of March 1, 1994, in excess of
$92.5 billion.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek income and long-term capital
growth. The Fund's investment objective may be changed only with the approval
of a majority of the Fund's outstanding shares. There can be no assurance the
Fund's investment objective will be achieved.
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by investing in income
producing equity securities, including dividend-paying common stocks, securi-
ties that are convertible into common stocks and warrants. Greenwich Street
Advisors has developed quantitative investment criteria against which prospec-
tive investments will be evaluated and will make buy and sell decisions based
on those criteria. Those criteria establish parameters for suitable
investments
and deal with such matters as market capitalization, credit quality, dividend
growth, historic earnings, current yield and industry concentration. The
crite-
ria, which may be changed by Greenwich Street Advisors in light of its experi-
ence in managing the Fund or in response to changing market or economic condi-
tions, are designed to identify companies with consistent dividend paying his-
tories, relatively high levels of dividends, the capacity to raise dividends
in
the future and the potential for capital appreciation. Consistent with the
data
used in developing and maintaining the quantitative investment criteria, the
Fund expects to invest primarily in domestic companies of varying sizes,
gener-
ally
15
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
with capitalizations exceeding $250 million in a wide range of industries. The
Fund may also invest up to 20% in the securities of foreign issuers, including
American Depositary Receipts or European Depositary Receipts. Under normal
mar-
ket conditions, the Fund will invest substantially all--but not less than 65%-
- -
of its assets in equity securities. The Fund may invest the remainder of its
assets in high grade money market instruments in order to develop income, as
well as in corporate bonds and mortgage related securities that are rated
investment grade or are deemed by the Fund's investment adviser
to be of comparable quality and in United States government securities, in
fur-
therance of its objective of income and long-term capital growth. The Fund
also
may enter into repurchase agreements, lend portfolio securities, enter into
interest rate and stock index futures and related options, purchase or sell
securities on a when-issued or delayed-delivery basis and write covered
options.
INVESTMENT TECHNIQUES AND STRATEGIES
The Fund is authorized to engage in any one or more of the specialized
investment techniques and strategies described below:
Money Market Instruments.The Fund may, as a cash management tool, hold up to
20% of the value of its assets in cash and invest in short-term instruments
and, when Greenwich Street Advisors believes that market conditions warrant,
the Fund may adopt a temporary defensive posture and may hold cash and invest
in short-term instruments without limitation. Short-term instruments in which
the Fund may invest include securities issued or guaranteed by the United
States government, its agencies or instrumentalities ("U.S. government securi-
ties"); obligations of banks having at least $1 billion in assets (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loan associations and similar institu-
tions); commercial paper rated no lower than A-2 by Standard & Poor's Corpora-
tion ("S&P") or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or the
equivalent from another nationally recognized statistical rating organization
("NRSRO") or, if unrated, of an issuer having an outstanding, unsecured debt
issue then rated within the two highest rating categories; and repurchase
agreements with respect to any of the foregoing entered into with banks and
non-bank dealers approved by the Trust's Board of Trustees. The NRSROs cur-
rently designated as such by the SEC are S&P, Moody's, Fitch Investors
Service,
Inc., Duff & Phelps, Inc., IBCA Limited and its affiliate, IBCA, Inc. and
Thomson BankWatch. A more detailed discussion of the ratings of NRSROs is con-
tained in the Statement of Additional Information.
16
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
U.S. Government Securities.The U.S. government securities in which the Fund
may invest include: direct obligations of the Uinted States Treasury (such as
Treasury Bills, Treasury Notes and Treasury Bonds), and U.S. government
securi-
ties, including securities that are supported by the full faith and credit of
the United States (such as certificates issued by the Government National
Mort-
gage Association); securities that are supported by the right of the issuer to
borrow from the United States Treasury (such as securities of Federal Home
Loan
Banks); and securities that are supported only by the credit of the instrumen-
tality (such as bonds issued by Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation). Treasury Bills have maturities of
less
than one year, Treasury Notes have maturities of one to ten years and Treasury
Bonds generally have maturities of greater than ten years at the date of issu-
ance.
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 and therefore are deemed to be equity securities for
purposes of the Fund's investment objective and techniques. Convertible
securi-
ties have general characteristics similar to both fixed-income and equity
secu-
rities. Although to a lesser extent than with fixed-income securities general-
ly, 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 under-
lying common stocks and, therefore, also will react to variations in the gen-
eral market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convert-
ible 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 stocks of the same issuer.
As fixed-income securities, convertible securities provide for a stable
stream of income with generally higher yields than common stocks. Of course,
like all fixed-income securities, convertible securities offer no assurance of
current income because the issuers of the securities may default on their
obli-
gations. Convertible securities, however, generally offer lower interest or
dividend yields than non-convertible securities of similar quality because of
the potential for cap-
17
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ital 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 apprecia-
tion, 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 cor-
porate 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
securi-
ties typically have lower ratings than similar non-convertible securities.
Repurchase Agreements.The Fund may enter into repurchase agreements on port-
folio securities 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 rela-
tively 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 will be monitored by Greenwich Street Advisors to
ensure that it at least equals at all times the total amount of the repurchase
obligation, including interest. The Fund bears a risk of loss in the event
that
the other party to a repurchase agreement defaults on its obligations and the
Fund is delayed or prevented from exercising its rights to dispose of the col-
lateral securities, including the risk of a possible decline in the value of
the underlying securities during the period in which the Fund seeks to assert
these rights. Greenwich Street Advisors or Boston Advisors, acting under the
supervision of the Trust's Board of Trustees, reviews on an ongoing basis the
value of the collateral and the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements to evaluate potential
risks.
Lending of Securities.The Fund may lend its portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, the Fund
can increase its income by continuing to receive interest on the loaned
securi-
ties as well as by either investing the cash collateral in short-term instru-
ments or obtaining yield in the form of interest paid by the borrower when
U.S.
govern-
18
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ment securities are used as collateral. Loans of portfolio securities, if and
when made, by the Fund may not exceed 33 1/3% of the Fund's total assets,
taken
at value. Loans of portfolio securities will be collateralized by cash,
letters
of credit or U.S. government securities, which are maintained at all times in
an amount equal to the current market value of the loaned securities. Any gain
or loss in the market price of the securities loaned that might occur during
the term of the loan would be for the account of the Fund. The risks in
lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will be made to firms deemed by Greenwich Street Advi-
sors to be of good standing and will not be made unless, in the judgment of
Greenwich Street Advisors the consideration to be earned from such loans would
justify the risk.
Futures and Options on Futures.When deemed advisable by Greenwich Street
Advisors, the Fund may enter into interest rate futures contracts, stock index
futures contracts and related options that are traded on a domestic exchange
or
board of trade. These transactions will be made solely for the purpose of
hedg-
ing against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates, market conditions and currency values,
as the case may be. All futures and options contracts will be entered into
only
when the transactions are economically appropriate to the reduction of risks
inherent in the management of the Fund.
An interest rate futures contract provides for the future sale by one party
and the purchase by the other party of a specified amount of a particular
financial instrument (debt security) at a specified price, date, time and
place. Similarly, a foreign currency futures contract provides for the future
sale by one party and the purchase by another party of a certain amount of a
particular currency at a specified price, date, time and place. Stock index
futures contracts are based on indexes that reflect the market value of common
stock of the firms included in the indexes. An index futures contract is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally entered into. An option on an interest rate, stock
index or currency futures contract gives the purchaser the right, in return
for
the premium paid, to assume a position in a futures contract (a long position
if the option is a call and a short
19
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
position if the option is a put) at a specified exercise price at any time
prior to the expiration date of the option.
The use of futures contracts and options on futures contracts as a hedging
device involves several risks. There can be no assurance that there will be a
correlation between price movements in the underlying securities, index or
cur-
rency, on the one hand, and price movements in the securities that are the
sub-
ject of the hedge, on the other hand. Positions in futures contracts and
options on futures contracts may be closed out only on the exchange or board
of
trade on which they were entered into, and there can be no assurance that an
active market will exist for a particular contract or option at any particular
time.
The Fund may not enter into futures and options contracts for which
aggregate
initial margin deposits and premiums paid for unexpired options exceed 5% of
the fair market value of the Fund's assets, after taking into account
unrealized profits and unrealized losses on futures contracts into which it
has
entered. With respect to long positions in futures or options on futures, the
Fund will set aside cash, short-term U.S. debt obligations or other U.S.
dollar
denominated high quality short-term money market instruments in an amount
equal
to the underlying commodity value of those positions.
When-Issued Securities and Delayed-Delivery Transactions.The Fund may pur-
chase and sell securities on a when-issued basis, which calls for the purchase
(or sale) of securities at an agreed-upon price on a specified future date.
The
Fund will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage. In such
transactions,
delivery of the securities occurs beyond the normal settlement periods, but no
payment or delivery is made by, and no interest accrues to, the Fund prior to
the actual delivery or payment by the other party to the transaction. Due to
fluctuations in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the returns obtained on such securities may be higher
or lower than the returns available in the market on the dates when the
invest-
ments are actually delivered to the buyers. The Fund will establish a segre-
gated account consisting of cash, U.S. government securities or other high-
grade debt obligations in an amount equal to the amount of its when-issued and
delayed-delivery commitments. Placing securities rather than cash in the
segre-
gated account may have a leveraging effect on the Fund's net assets. The Fund
will not accrue income with respect to a when-issued security prior to its
stated delivery date.
20
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Covered Option Writing.The Fund may write put and call options on
securities.
The Fund realizes fees (referred to as "premiums") for granting the rights
evi-
denced by the options. A put option embodies the right of its purchaser to
com-
pel the writer of the option to purchase from the option holder an underlying
security at a specified price at any time during the option period. In con-
trast, a call option embodies the right of its purchaser to compel the writer
of the option to sell to the option holder an underlying security at a speci-
fied price at any time during the option period. Thus, the purchaser of a put
option written by the Fund has the right to compel the Fund to purchase from
it
the underlying security at the agreed-upon price for a specified time period,
while the purchaser of a call option written by the Fund has the right to pur-
chase from the Fund the underlying security owned by the Fund at the agreed-
upon price for a specified time period.
Upon the exercise of a put option written by the Fund, the Fund may suffer a
loss equal to the difference between the price at which the Fund is required
to
purchase the underlying security plus the premium received for writing the
option and its market value at the time of the option exercise. Upon the exer-
cise of a call option written by the Fund, the Fund may suffer a loss equal to
the difference between the security's market value at the time of the option
exercise less the premium received for writing the option and the Fund's
acqui-
sition cost of the security.
The Fund will write only covered options. Accordingly, whenever the Fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option. To support its obligation to purchase the underlying
security if a put option is exercised, the Fund will either (a) deposit with
Boston Safe Deposit and Trust Company ("Boston Safe"), the Trust's custodian,
in a segregated account cash, U.S. government securities or other high grade
debt obligations having a value at least equal to the exercise price of the
underlying securities or (b) continue to own an equivalent number of puts of
the same "series" (that is, puts on the same underlying security having the
same exercise prices and expiration dates as those written by the Fund) or an
equivalent number of puts of the same "class" (that is, puts on the same
under-
lying security) with exercise prices greater than those that it has written
(or, if the exercise prices of the puts that it holds are less than the exer-
cise prices of those that it has written, it will deposit the difference with
Boston Safe in a segregated account).
21
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Fund may engage in a closing purchase transaction to realize a profit,
to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale
or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Fund would purchase
prior to the holder's exercise of an option that the Fund has written, an
option of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written
would be terminated by a closing purchase transaction, but the Fund would not
be deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions
at
a time when it wishes to do so. To facilitate closing purchase transactions,
however, the Fund ordinarily will write options only if a secondary market for
the options exists on a domestic securities exchange or in the over-the-
counter
market.
The staff of the SEC considers most over-the-counter options to be illiquid.
The ability to terminate option positions established in the over-the-counter
market may be more limited than in the case of exchange-traded options and may
also involve the risk that securities dealers participating in such transac-
tions would fail to meet their obligations to the Fund.
Reverse Repurchase Agreements.In order to generate additional income, the
Fund may engage in reverse repurchase agreement transactions with banks, bro-
ker-dealers and other financial intermediaries. Reverse repurchase agreements
are the same as repurchase agreements except that, in this instance, the Fund
would assume the role of seller/borrower in the transaction. The Fund will
maintain segregated accounts with Boston Safe consisting of U.S. government
securities, cash or money market instruments that at all time are in an amount
equal to their obligations under reverse repurchase agreements. The Fund will
invest the proceeds in other money market instruments or repurchase agreements
maturing not later than the expiration of the reverse repurchase agreement.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the repurchase price of the
secu-
rities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves special considerations, such as those
described below:
22
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Foreign Securities.There are certain risks involved in investing in securi-
ties of companies and governments of foreign nations which are in addition to
the usual risks inherent in domestic investments. These risks include those
resulting from revaluation of currencies, future adverse political and
economi-
cal developments and the possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions, reduced availability of
public
information concerning issuers and the lack of uniform accounting, auditing
and
financial reporting standards or of other regulatory practices and
requirements
comparable to those applicable to domestic companies. The yield of the Fund
may
be adversely affected by fluctuations in value of one or more foreign curren-
cies relative to the U.S. dollar. Moreover, securities of many foreign compa-
nies and their markets may be less liquid and their prices more volatile than
those of securities of comparable domestic companies. In addition, with
respect
to certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal
of
funds or other assets of the Fund, including the withholding of dividends.
For-
eign securities may be subject to foreign government taxes that could reduce
the yield on such securities. Because the Fund may invest in securities
denomi-
nated or quoted in currencies other than the U.S. dollar, changes in foreign
currency exchange rates may adversely affect the value of portfolio securities
and the appreciation or depreciation of investments. Investment in foreign
securities also may result in higher expenses due to the cost of converting
foreign currency to U.S. dollars, the payment of fixed brokerage commissions
on
foreign exchanges, which generally are higher than commissions on domestic
exchanges, and the expense of maintaining securities with foreign custodians,
and the imposition of transfer taxes or transaction charges associated with
foreign exchanges.
Fixed-Income Securities.The market value of the Fund's fixed-income obliga-
tions can be expected to vary inversely in relation to changes in prevailing
interest rates and also may be affected by other market and credit factors.
Investors also should recognize that in periods of declining interest rates
the
yield of an income-oriented fund such as the Fund may be somewhat higher than
prevailing market rates, and in periods of rising interest rates the Fund's
yield may be somewhat lower. In addition, when interest rates are falling, the
inflow of net new money to the Fund from the continuous sale of their shares
probably will be invested in instruments producing lower yields than the bal-
ance of its holdings, thereby reducing the Fund's current yield. In periods of
rising interest rates the opposite can be expected to occur. In addition,
fixed-income securities in which the Fund may invest may not yield as high a
level of current income as
23
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
might be achieved by investing in securities with less liquidity and safety
and
longer maturities.
To the extent the Fund purchases mortgage related securities at a premium,
mortgage foreclosures and prepayments of principal by mortgagors (which may be
made at any time without penalty) may result in some loss of the Fund's
princi-
pal investment to the extent of the premium paid. The yield of a fund that
invests in mortgage related securities may be affected by reinvestment of pre-
payments at higher or lower rates than the original investment. In addition,
like those of other debt securities, the values of mortgage related
securities,
including government and government-related mortgage pools, generally will
fluctuate in relation to interest rates.
CERTAIN INVESTMENT GUIDELINES
Up to 15% of the assets of the Fund may be invested in securities and other
instruments that are illiquid ("illiquid securities"), although the Fund has
no
present intention to invest more than 10% of its assets in the aggregate in
illiquid securities, including (a) repurchase agreements with maturities
greater than seven days, (b) futures contracts and options thereon for which a
liquid secondary market does not exist, (c) time deposits maturing in more
than
seven calendar days and (d) securities of new and early stage companies whose
securities are not publicly traded. In addition, the Fund may invest up to 5%
of its assets in the securities of issuers that have been in continuous opera-
tion for less than three years.
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with
respect to the Fund that may not be changed without approval of a majority of
the Fund's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended, ("1940 Act"). Included among those fundamental
restrictions are the following that prohibit the Fund from:
1. With respect to 75% of the value of its total assets, investing more than
5% of its total assets in securities of any one issuer, except securities
issued or guaranteed by the United States government, or purchase more
than 10% of the outstanding voting securities of such issuer.
2. Borrowing money, except that (a) the Fund may borrow from banks for tem-
porary or emergency (not leveraging) purposes, including the meeting
24
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
of redemption requests that might otherwise require the untimely disposi-
tion of securities, in an amount not exceeding 10% of the value of the
Fund's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
is made and (b) the Fund may enter into reverse repurchase agreements.
Whenever borrowings, including reverse repurchase agreements, exceed 5%
of the value of the total assets of the Fund, the Fund will not make any
additional investments.
3. Making loans of its funds or securities. This restriction does not apply
to: (a) the purchase of debt obligations in which the Fund may invest
consistent with its investment objective, (b) the entering into repur-
chase agreements, and (c) the making of loans of its portfolio securi-
ties.
4. Investing more than 25% of its total assets in securities, the issuers of
which are in the same industry. For purposes of this limitation, U.S.
government securities and securities of state or municipal governments
and their political subdivisions are not considered members of any indus-
try.
A complete list of investment restrictions that the Trust has adopted with
respect to the Fund identifying additional restrictions that cannot be changed
without the approval of the majority of the Fund's outstanding shares is con-
tained in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND TURNOVER
Securities held by the Fund ordinarily are purchased from and sold to
parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the
best
price or execution will be obtained. Usually no brokerage commissions, as
such,
are paid by the Fund for purchases and sales undertaken through principal
transactions, although the price paid usually includes an undisclosed
compensa-
tion to the dealer acting as principal. The prices paid to underwriters of
new-
ly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers ordinarily
are executed at a price between the bid and asked price.
Transactions on behalf of the Fund are allocated to various brokers and
deal-
ers by Greenwich Street Advisors in its best judgment. The primary considera-
tion is prompt and effective execution of orders at the most favorable price.
25
SMITH BARNEY SHEARSON
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Subject to that primary consideration, brokers and dealers may be selected for
research, statistical or other services to enable Greenwich Street Advisors to
supplement its own research and analysis with the views and information of
other securities firms. The Fund may, from time to time, in accordance with an
exemptive order granted by the SEC, enter into principal transactions
involving
certain money market instruments with Smith Barney Shearson and certain Smith
Barney Shearson-affiliated dealers.
The Fund cannot accurately predict its portfolio turnover rate, but antici-
pates that its annual turnover will not exceed 50%. An annual turnover rate of
50% would occur if half of the securities held by the Fund are replaced once
during a period of one year. Smith Barney Advisors will not consider turnover
rate a limiting factor in making investment decisions consistent with the
Fund's investment objective and policies.
PURCHASE OF SHARES
Purchases of shares must be made through a brokerage account maintained with
Smith Barney Shearson or with an Introducing Broker, except that investors
pur-
chasing shares of the Fund through qualified retirement plans may do so
directly through the Trust's transfer agent. When purchasing shares of the
Fund, investors must specify whether the purchase is for Class A, Class B or,
in the case of Participating Plans in the 401(k) Program, Class D shares. No
maintenance fee will be charged in connection with a brokerage account through
which an investor purchases or holds shares. Purchases are effected at the
pub-
lic offering price next determined after a purchase order is received by Smith
Barney Shearson or an Introducing Broker (the "trade date"). Payment is gener-
ally due to Smith Barney Shearson or an Introducing Broker on the fifth busi-
ness day (the "settlement date") after the trade date. Investors who make pay-
ment prior to the settlement date may permit the payment to be held in their
brokerage accounts or may designate a temporary investment (such as a money
market fund in the Smith Barney Shearson Group of Funds) for such payment
until
the settlement date. The Fund reserves the right to reject any purchase order
and to suspend the offering of shares for a period of time.
Purchase orders received by Smith Barney Shearson or an Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York time, on any day on which the Fund's net asset value is calculated, are
26
SMITH BARNEY SHEARSON
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
priced according to the net asset value determined on that day. Purchase
orders
received after the close of regular trading on the NYSE are priced as of the
time the net asset value per share is next determined. See "Valuation of
Shares."
Systematic Investment Plan.The Fund offers shareholders a Systematic Invest-
ment Plan under which shareholders may authorize Smith Barney Shearson or an
Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid automati-
cally from cash held in the shareholder's Smith Barney Shearson brokerage
account or through the automatic redemption of the shareholder's shares of a
Smith Barney Shearson money market fund. For further information regarding the
Systematic Investment Plan, shareholders should contact their Smith Barney
Shearson Financial Consultants.
Minimum Investments.The minimum initial investment in the Fund is $1,000 and
the minimum subsequent investment is $200, except that for purchases through
(a) IRAs and Self-Employed Retirement Plans, the minimum initial and
subsequent
investments are $250 and $100, respectively, (b) retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum and subse-
quent investments are both $25 and (c) the Fund's Systematic Investment Plan,
the minimum initial and subsequent investments are both $100. There are no
min-
imum investment requirements for employees of Travelers and its subsidiaries,
including Smith Barney Shearson. The Trust reserves the right at any time to
vary the initial and subsequent investment minimums. Certificates for Fund
shares are issued upon request to the Trust's transfer agent.
27
SMITH BARNEY SHEARSON
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class plus a sales charge, which is imposed in accordance with the
fol-
lowing schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET VALUE
- ---------------------------------------------------------------------
<S> <C> <C>
Less than $25,000 5.00% 5.26%
$25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.25% 3.36%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 2.00% 2.04%
$1,000,000 or more** 0.00% .00%
- ---------------------------------------------------------------------
</TABLE>
* Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and Introducing Brokers that single investments of $250,000 or
more should be made in Class A shares.
** No sales charge is imposed on purchases of Class A shares of $1 million;
however, a CDSC of .75% is imposed for the first year after purchase. The
CDSC on Class A shares is payable to Smith Barney Shearson which, with
Boston Advisors, will compensate Smith Barney Shearson Financial
Consultants
upon the sale of these shares. The CDSC is waived in the same circumstances
in which the CDSC applicable to Class B shares is waived. See "Redemption
of
Shares--Contingent Deferred Sales Charge--Class B Shares--Waivers of CDSC."
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Class A shares to receive volume discounts. Investors
eligi-
ble to receive volume discounts include individuals and their immediate fami-
lies, tax-qualified employee benefit plans and trustees or other professional
fiduciaries (including a bank, or an investment adviser registered with the
SEC
under the Investment Advisers Act of 1940, as amended) purchasing shares for
one or more trust estates or fiduciary accounts even though more than one
bene-
ficiary is involved. The initial sales charge is also reduced to 1% for Smith
Barney Shearson Personal Living Trust program participants for whom Smith Bar-
ney Shearson acts as trustee. Reduced sales charges on Class A shares are also
available under a combined right of accumulation, under which an investor may
combine the value of Class A shares already held in the Fund and in any of the
funds in the Smith Barney Shearson Group of Funds listed below (except those
sold without a sales charge), along with the value of the Fund's Class A
shares
being purchased, to qualify for a reduced sales charge. For example, if an
investor owns Class A shares of the Fund and other funds in the Smith Barney
28
SMITH BARNEY SHEARSON
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
Shearson Group of Funds that have an aggregate value of $22,000, and makes an
additional investment in Class A shares of the Fund of $4,000, the sales
charge
applicable to the additional investment would be 4%, rather than the 5% nor-
mally charged on a $4,000 purchase. Investors interested in further
information
regarding reduced sales charges should contact their Smith Barney Shearson
Financial Consultants.
Class A shares of the Fund may be offered without any applicable sales
charges to: (a) employees of Travelers and its subsidiaries, including Smith
Barney Shearson, employee benefit plans for such employees and their immediate
families when orders on their behalf are placed by such employees; (b)
accounts
managed by registered investment advisory subsidiaries of Travelers; (c)
direc-
tors, trustees or general partners of any investment company for which Smith
Barney Shearson serves as distributor; (d) any other investment company in
con-
nection with the combination of such company with the Fund by merger, acquisi-
tion of assets or otherwise; (e) shareholders who have redeemed Class A shares
in the Fund (or Class A shares of another fund in the Smith Barney Shearson
Group of Funds that are sold with a maximum 5% sales charge) and who wish to
reinvest their redemption proceeds in the Fund, provided the reinvestment is
made within 30 days of the redemption; and (f) any client of a newly-employed
Smith Barney Shearson Financial Consultant (for a period up to 90 days from
the
commencement of the Financial Consultant's employment with Smith Barney
Shearson), on the condition that the purchase is made with the proceeds of the
redemption of shares of a mutual fund which (i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to a client by the Financial
Consul-
tant, and (iii) when purchased, such shares were sold with a sales charge or
are subject to a charge upon redemption.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of purchase. A
CDSC is imposed, however, on certain redemptions of Class B shares. See "Re-
demption of Shares" which describes the CDSC in greater detail.
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Financial
Consultants and Introducing Brokers that all purchases of shares of $250,000
or
more should be in Class A. Smith Barney Shearson reserves the right to vary
these guidelines at any time.
29
SMITH BARNEY SHEARSON
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
SMITH BARNEY SHEARSON 401(K) PROGRAM
Investors may be eligible to participate in the 401(k) Program, which is
gen-
erally designed to assist employers or plan sponsors in the creation and
opera-
tion of retirement plans under Section 401(a) of the Code. To the extent
appli-
cable, the same terms and conditions are offered to all Participating Plans in
the 401(k) Program, which include both 401(k) plans and other types of
partici-
pant directed, tax-qualified employee benefit plans.
The Fund offers to Participating Plans three classes of shares, Class A,
Class B and Class D shares, as investment alternatives under the 401(k) Pro-
gram. Class A shares are available to all Participating Plans and are the only
investment alternative for Participating Plans that are eligible to purchase
Class A shares at net asset value without a sales charge. In addition, Class B
shares are offered only to Participating Plans satisfying certain criteria
with
respect to the amount of the initial investment and number of employees eligi-
ble to participate in the Plan at that time. Alternatively, Class D shares are
offered only to Participating Plans that meet other criteria relating to the
amount of initial investment and number of employees eligible to participate
in
the Plan at that time, as described below. See "Prospectus Summary--Smith Bar-
ney Shearson 401(k) Program."
The Class A and Class B shares acquired through the 401(k) Program are sub-
ject to the same service and/or distribution fees as, but different sales
charge and CDSC schedules than, the Class A and Class B shares acquired by
other investors. Class D shares acquired by Participating Plans are offered at
net asset value per share without any sales charges or CDSC. The Fund pays
annual service and distribution fees based on the value of the average daily
net assets attributable to this Class.
Once a Participating Plan has made an initial investment in the Fund, all of
its subsequent investments in the Fund must be in the same Class of shares,
except as otherwise described below.
30
SMITH BARNEY SHEARSON
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
Class A Shares.The sales charges for Class A shares acquired by
Participating
Plans are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF NET ASSET VALUE
- ---------------------------------------------------------------
<S> <C> <C>
Less than $25,000 5.00% 5.26%
$25,000 up to $100,000 4.00% 4.17%
$100,000 up to $250,000 3.25% 3.36%
$250,000 up to $500,000 2.50% 2.56%
$500,000 up to $750,000 2.00% 2.04%
$750,000 and over .00% .00%
- ---------------------------------------------------------------
</TABLE>
A Participating Plan will have a combined right of accumulation under which,
to qualify for a reduced sales charge, it may combine the value of Class A
shares being purchased with the value of Class A shares already held in the
Fund and in any of the funds listed below under "Exchange Privilege" that are
sold with a sales charge.
Class A shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of Class A shares of
one or more funds in the Smith Barney Shearson Group of Funds under the com-
bined right of accumulation described above; (b) has 250 or more employees
eli-
gible to participate in the Participating Plan at the time of initial invest-
ment in the Fund; or (c) currently holds Class A shares in the Fund that were
received as a result of an exchange of Class B or Class D shares of the Fund
as
described below.
Class A shares acquired through the 401(k) Program will not be subject to a
CDSC.
Class B Shares. Under the 401(k) Program, Class B shares are offered to Par-
ticipating Plans that: (a) purchase less than $250,000 of Class B shares of
one
or more funds in the Smith Barney Shearson Group of Funds that are sold
subject
to a CDSC; and (b) have less than 100 employees eligible to participate in the
Participating Plan at the time of initial investment in the Fund. Class B
shares acquired by such Plans will be subject to a CDSC of 3% of redemption
proceeds, if redeemed within eight years of the date the Participating Plan
first purchases Class B shares. No CDSC is imposed to the extent that the net
asset value of the Class B shares redeemed does not exceed (a) the current net
asset value of Class B shares purchased through reinvestment of dividends or
capital gains distributions, plus (b) the current net asset value of Class B
shares pur-
31
SMITH BARNEY SHEARSON
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
chased more than eight years prior to the redemption, plus (c) increases in
the
net asset value of the shareholder's Class B shares above the purchase
payments
made during the preceding eight years. The CDSC applicable to a Participating
Plan depends on the number of years since the Participating Plan first became
a
holder of Class B shares, unlike the CDSC applicable to other Class B share-
holders, which depends on the number of years since those shareholders made
the
purchase payment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee
in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of Class B shares in connection with a loan made by
the Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class B
share, it will be offered the opportunity to exchange all of its Class B
shares
for Class A shares of the Fund. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of the
purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the eighth anniversary date. Once the exchange
has occurred, a Participating Plan will not be eligible to acquire additional
Class B shares of the Fund but instead may acquire Class A shares of the Fund.
If the Participating Plan elects not to exchange all of its Class B shares at
that time, each Class B share held by the Participating Plan will have the
same
conversion feature as Class B shares held by other investors. See "Variable
Pricing System--Class B Shares."
Class D Shares. Class D shares are offered to Participating Plans that: (a)
purchase less than $750,000 but more than $250,000 of Class D shares of one or
more funds in the Smith Barney Shearson Group of Funds that offer one or more
classes of shares subject to a sales charge and/or CDSC; or (b) have at least
100 but no more than 250 employees eligible to participate in the
Participating
Plan at the time of initial investment in the Fund.
Class D shares acquired by Participating Plans are offered at net asset
value
per share without any sales charge or CDSC. The Fund pays annual service and
distribution fees based on the value of the average daily net assets attribut-
able
32
SMITH BARNEY SHEARSON
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
to this Class. Class D shares are not subject to an automatic conversion fea-
ture as are the Class B shares. Participating Plans which hold Class D shares
valued at $750,000 or more in any fund or funds in the Smith Barney Shearson
Group of Funds that offer one or more Classes of shares subject to a sales
charge and/or CDSC will be offered the opportunity to exchange all of their
Class D shares for Class A shares. Such Plans will be notified of the pending
exchange in writing within 30 days after the last business day of the calendar
year, and unless the exchange offer has been rejected in writing, the exchange
will occur on or about the last business day of March in the following
calendar
year. Once the exchange has occurred, a Participating Plan will not be
eligible
to acquire Class D shares of the Fund but instead may acquire Class A shares
of
the Fund. Any Class D shares not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the Fund through the 401(k)
Program must purchase such shares directly from the Trust's transfer agent.
For
further information regarding the 401(k) Program, investors should contact
their Smith Barney Shearson Financial Consultants.
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Fund calculates its
net asset value. See "Valuation of Shares." Redemption requests received in
proper form prior to the close of regular trading on the NYSE are priced at
the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value next determined. If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class being redeemed. In the event
of a failure to specify which Class or if the investor owns fewer shares of
the
Class than specified, the redemption request will be delayed until the Trust's
transfer agent receives further instructions from Smith Barney Shearson, or if
the shareholder's account is not with Smith Barney Shearson, from the share-
holder directly.
The Fund normally transmits redemption proceeds for credit to the sharehold-
er's account at Smith Barney Shearson or the Introducing Broker at no charge
(other than any applicable CDSC) within seven days after receipt of a redemp-
tion request. Generally, these funds will not be invested for the
shareholder's
benefit without specific instruction and Smith Barney Shearson will benefit
from
33
SMITH BARNEY SHEARSON
Growth and Income Fund
REDEMPTION OF SHARES (CONTINUED)
the use of temporarily uninvested funds. A shareholder who pays for Fund
shares
by personal check will be credited with the proceeds of a redemption of those
shares only after the purchase check has been collected, which may take up to
10 days or more. A shareholder who anticipates the need for more immediate
access to his or her investment should purchase shares with Federal funds, by
bank wire or by a certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less
may be subject to redemption by the Trust, but only after the shareholder has
been given at least 30 days in which to increase the account balance to more
than $500.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introduc-
ing Broker. A shareholder desiring to redeem shares represented by
certificates
must also present the certificates to Smith Barney Shearson or the Introducing
Broker endorsed for transfer (or accompanied by an endorsed stock power),
signed exactly as the shares are registered. Redemption requests involving
shares represented by certificates will not be deemed received until the cer-
tificates are received by the Trust's transfer agent in proper form.
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submit-
ting a written request to your Smith Barney Shearson Financial Consultant. All
other shares may be redeemed by submitting a written request for redemption
to:
Smith Barney Shearson Growth and Income Fund Class A, B or D (please
specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to The Shareholder Services Group, Inc. or your
Smith Barney Shearson Financial Consultant must (a) state the Class and number
or dollar amount of shares to be redeemed, (b) identify the shareholder's
account number and (c) be signed by each registered owner exactly as the
34
SMITH BARNEY SHEARSON
Growth and Income Fund
REDEMPTION OF SHARES (CONTINUED)
shares are registered. If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to TSSG together with the redemp-
tion request. Any signature appearing on a redemption request, share certifi-
cate or stock power must be guaranteed by a domestic bank, savings and loan
institution, domestic credit union, member bank of the Federal Reserve System
or member firm of a national securities exchange. TSSG may require additional
supporting documents for redemptions made by corporations, executors, adminis-
trators, trustees or guardians. A redemption request will not be deemed prop-
erly received until TSSG receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
share-
holder is eligible to receive qualified distributions and has an account value
of at least $5,000. Any applicable CDSC will be waived on amounts withdrawn by
a shareholder that do not exceed 2% per month of the value of the
shareholder's
shares subject to the CDSC at the time the withdrawal plan commences. For fur-
ther information regarding the automatic cash withdrawal plan, shareholders
should contact their Smith Barney Shearson Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years, except in the case of purchases by Participating Plans as described
above. See "Purchase of Shares--Smith Barney Shearson 401(k) Program." No
charge is imposed to the extent the net asset value of the Class B shares
redeemed does not exceed (a) the current net asset value of Class B shares
pur-
chased through reinvestment of dividends or capital gains distributions, plus
(b) the current net asset value of Class B shares purchased more than five
years prior to the redemption, plus (c) increases in the net asset value of
the
shareholder's Class B shares above the purchase payments made during the pre-
ceding five years.
35
SMITH BARNEY SHEARSON
Growth and Income Fund
REDEMPTION OF SHARES (CONTINUED)
In circumstances in which the CDSC is imposed, the amount of the charge will
depend on the number of years since the shareholder made the purchase payment
from which the amount is being redeemed, except in the case of purchases
through Participating Plans, which are subject to a different CDSC. See "Pur-
chase of Shares--Smith Barney Shearson 401(k) Program." Solely for purposes of
determining the number of years since a purchase payment, all purchase
payments
made during a month will be aggregated and deemed to have been made on the
last
day of the preceding Smith Barney Shearson statement month. The following
table
sets forth the rates of the charge for redemptions of Class B shares by share-
holders other than Participating Plans in the 401(k) Program:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- -------------------------------------------------------------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
- -------------------------------------------------------------------
</TABLE>
Class B shares will automatically convert to Class A shares eight years
after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fee. The first of the conversions will commence on or
about
September 30, 1994. See "Variable Pricing System--Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not already been effected. In the case of redemptions of Class B shares of
other funds in the Smith Barney Shearson Group of Funds issued in exchange for
Class B shares of the Fund, the term "purchase payments" refers to the
purchase
payments for the shares given in exchange. In the event of an exchange of
Class
B shares of funds with differing CDSC schedules, the shares will be, in all
cases, subject to the higher CDSC schedule. See "Exchange Privilege."
Waivers of CDSC.The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) automatic cash withdrawals in amounts equal to or less
36
SMITH BARNEY SHEARSON
Growth and Income Fund
REDEMPTION OF SHARES (CONTINUED)
than 2% per month of the value of the shareholder's shares at the time the
withdrawal plan commences (see above); (c) redemptions of shares in connection
with certain post-retirement distributions and withdrawals from retirement
plans or IRAs or following the death or disability of the shareholder; (d)
redemptions of shares following the death or disability of a shareholder; (e)
involuntary redemptions; (f) redemption proceeds from other funds in the Smith
Barney Shearson Group of Funds that are reinvested within 30 days of the
redemption; (g) redemptions of shares in connection with a combination of any
investment company with the Fund by merger, acquisition of assets or
otherwise;
and (h) certain redemptions of shares of the Fund in connection with lump-sum
or other distributions made by a Participating Plan. See "Purchase of Shares--
Smith Barney Shearson 401(k) Program."
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday, Memo-
rial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of a Class is determined as of the close of
regular trading on the NYSE and is computed by dividing the value of the
Fund's
net assets attributable to that Class by the total number of shares of that
Class outstanding. In general, the Fund's investments will be valued at market
value or, in the absence of a market value, at fair value as determined by or
under the direction of the Trust's Board of Trustees. Securities that are pri-
marily traded on foreign exchanges are generally valued at the preceding clos-
ing values of the securities on their respective exchanges, except that when
an
occurrence subsequent to the time a value was so established is likely to have
changed that value, then the fair value of those securities will be determined
by consideration of other factors by or under the direction of the Trustees or
its delegates. A security that is traded primarily on a domestic exchange is
valued at the last sale price on that exchange or, if there were no sales dur-
ing the day, at the current quoted bid price. Portfolio securities which are
traded primarily on foreign exchanges are generally valued at the preceding
closing values of such securities on their respective exchanges, except that
when an occurrence subsequent to the time a value was so established is likely
to have changed such value, then
37
SMITH BARNEY SHEARSON
Growth and Income Fund
VALUATION OF SHARES (CONTINUED)
the fair market value of those securities will be used in valuing the securi-
ties. Debt securities (other than U.S. government securities and short-term
obligations) are valued by Boston Advisors after consultation with independent
pricing services approved by the Trustees. Investments in U.S. government
secu-
rities (other than short-term securities) are valued at the average of the
quoted bid and asked prices in the over-the-counter market. Short-term invest-
ments that mature in 60 days or less are valued at amortized cost (which
involves valuing an investment instrument at its cost and, thereafter,
assuming
a constant amortization to maturity of any discount or premium, regardless of
the effect of fluctuating interest rates on the market value of the
instrument)
whenever the Trust's Board of Trustees determines that amortized cost reflects
fair value of those investments. An option written by the Fund is generally
valued at the last sale price or, in the absence of the last sale price, the
last offer price. An option purchased by the Fund is generally valued at the
last sale price or, in the absence of the last sale price, the last bid price.
Short sales of securities, which are not traded on a national securities
exchange, are valued at the last asked price. Alternatively, long positions
are
valued at the last bid price. The value of a futures contract equals the
unrealized gain or loss on the contract that is determined by marking the con-
tract to the current settlement price for a like contract on the valuation
date
of the futures contract. A settlement price may not be used if the market
makes
a limit move with respect to a particular futures contract or if the
securities
underlying the futures contract experience significant price fluctuations
after
the determination of the settlement price. When a settlement price cannot be
used, futures contracts will be valued at their fair market value as
determined
by or under the direction of the Trust's Board of Trustees. Further
information
regarding the Fund's valuation policies is contained in the Statement of Addi-
tional Information.
Shares of each Class may be exchanged for shares of the same class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence.
38
SMITH BARNEY SHEARSON
Growth and Income Fund
EXCHANGE PRIVILEGE
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
Municipal Bond Funds
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in investment-
grade
obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate-
and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an intermediate-
and
long-term municipal bond fund investing in medium- and lower
rated
securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate-
and long-term municipal bond fund designed for Arizona
investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS
FUND, an intermediate-term municipal bond fund designed for
California
investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an intermediate-
and
long-term municipal bond fund designed for Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate-
and long-term municipal bond fund designed for Massachusetts
investors.
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for New
Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK MUNICIPALS
FUND,
an intermediate-term municipal bond fund designed for New York
investors.
</TABLE>
39
SMITH BARNEY SHEARSON
Growth and Income Fund
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate-
and long-term municipal bond fund designed for New York
investors.
Income Funds
A, B, D* SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME FUND,
seeks
high current income while limiting the degree of fluctuation in
net
asset value resulting from movement in interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests in a
portfolio of high quality debt securities that may be
denominated in
U.S. dollars or selected foreign currencies and that have
remaining
maturities of not more than 18 months.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests in
high
quality, short-term debt securities denominated in U.S. dollars
as
well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND, invests
exclusively in securities issued by the United States Treasury
and
other United States government securities.
A, B, D* SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND, seeks
high
current income primarily by allocating and reallocating its
assets
among various types of fixed-income securities.
A, B, D* SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC., invests in
obligations issued or guaranteed by the United States government
and
its agencies and instrumentalities with emphasis on mortgage-
backed
government securities.
A, B, D* SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a high
current
return by investing in U.S. government securities.
A, B, D* SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks maximum
current income consistent with prudent investment management and
preservation of capital by investing in corporate bonds.
</TABLE>
40
SMITH BARNEY SHEARSON
Growth and Income Fund
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
A, B, D* SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income by
investing in high-yielding corporate bonds, debentures and
notes.
A, B, D* SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current income and
capital appreciation by investing in bonds, debentures and notes
of
foreign and domestic issuers.
Growth and Income Funds
A, B, D* SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income and
capital appreciation by investing in convertible securities.
A, B, D* SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing
in equity and debt securities of utilities companies.
A, B, D* SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high total
return consisting of current income and capital appreciation by
investing in a combination of equity, fixed-income and money
market
securities.
A, B, D* SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by
investing in dividend-paying common stocks.
Growth Funds
A, B, D* SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-term
appreciation of capital.
A, B, D* SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks long-
term
capital growth with current income as a secondary objective.
A, B, D* SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation
by following a sector strategy.
A, B SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND, seeks
capital
appreciation, with income as a secondary consideration.
A, B, D* SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks above-
average
capital growth.
</TABLE>
41
SMITH BARNEY SHEARSON
Growth and Income Fund
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
A, B, D* SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-term
capital
appreciation by investing in equity securities primarily of
emerging
growth companies.
A, B, D* SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks long-term
capital growth by investing principally in the common stocks of
foreign and domestic issuers.
A, B, D* SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in
European countries.
A, B, D* SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND INC.,
seeks
long-term capital appreciation by investing primarily in
precious
metal- and mineral-related companies and gold bullion.
Money Market Funds
** SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified
portfolio of high quality money market instruments.
*** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND INC., invests in a
diversified portfolio of high quality money market instruments.
*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND INC., invests
in
short-term U.S. government and agency securities.
+ SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND INC., invests
in
short-term, high quality municipal obligations.
+ SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET FUND,
invests
in short-term, high quality California municipal obligations.
+ SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND,
invests in
short-term, high quality New York municipal obligations.
- ------------------------------------------------------------------------------
- ------
</TABLE>
* Class D shares of this Fund may be acquired only by Participating Plans.
** Shares of this money market fund may be exchanged for Class B shares of
the Fund.
*** Shares of this money market fund may be exchanged for Class A and Class D
shares of the Fund.
+ Shares of this money market fund may be exchanged for Class A shares of
the Fund.
42
SMITH BARNEY SHEARSON
Growth and Income Fund
EXCHANGE PRIVILEGE (CONTINUED)
Tax Effect.The exchange of shares of one fund for shares of another fund is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
Class A Exchanges.Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 5% will be subject to the appropriate "sales charge
differ-
ential" upon the exchange of their shares for Class A shares of the Fund or
other funds sold with a higher sales charge. The "sales charge differential"
is
limited to a percentage rate no greater than the excess of the sales charge
rate applicable to purchases of shares of the mutual fund being acquired in
the
exchange over the sales charge rates actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic
reinvestment
of dividends, as described below, are treated as having paid the same sales
charges applicable to the shares on which the dividends were paid. However,
except in the case of the 401(k) Program, if no sales charge was imposed upon
the initial purchase of the shares, any shares obtained through automatic
rein-
vestment will be subject to a sales charge differential upon exchange.
Class B Exchanges.Shareholders of the Fund who wish to exchange all or a
por-
tion of their Class B shares for Class B shares of any of the funds identified
above may do so without imposition of an exchange fee. Upon an exchange, the
new Class B shares will be deemed to have been purchased on the same date as
the Class B shares of the Fund that have been exchanged. In the event Class B
shareholders wish to exchange all or a portion of their shares for shares in
any of these funds imposing a CDSC higher than that imposed by the Fund, the
exchanged Class B shares will be subject to the higher applicable CDSC.
Class D Exchanges. Participating Plans may exchange Class D shares of the
Fund for Class D shares in any of the funds listed above without charge.
Additional Information Regarding the Exchange Privilege.Although the
exchange
privilege is an important benefit, excessive exchange transactions can be det-
rimental to the Fund's performance and its shareholders. Greenwich Street
Advi-
sors determine that a pattern of frequent exchanges is excessive and contrary
to the best interests of the Fund's other shareholders. In this event, Green-
wich Street Advisors will notify Smith Barney Shearson, and Smith Barney
Shearson may, at its discretion, decide to limit additional purchases and/or
43
SMITH BARNEY SHEARSON
Growth and Income Fund
EXCHANGE PRIVILEGE (CONTINUED)
exchanges by the shareholder. Upon such a determination, Smith Barney Shearson
will provide notice in writing or by telephone to the shareholder at least 15
days prior to suspending the exchange privilege and during the 15-day period
the shareholder will be required to (a) redeem his or her shares in the Fund
or
(b) remain invested in the Fund or exchange into any of the funds in the Smith
Barney Shearson Group of Funds ordinarily available, which position the share-
holder would expect to maintain for a significant period of time. All relevant
factors will be considered in determining what constitutes an abusive pattern
of exchanges.
Shareholders exercising the exchange privilege with any of the other funds
in the Smith Barney Shearson Group of Funds should review the prospectus of
that fund carefully prior to making an exchange. Smith Barney Shearson
reserves
the right to reject any exchange request. The exchange privilege may be modi-
fied or terminated at any time after written notice to shareholders. For fur-
ther information regarding the exchange privilege or to obtain the current
pro-
spectuses for members of the Smith Barney Shearson Group of Funds, investors
should contact their Smith Barney Shearson Financial Consultants.
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013 and serves as distributor of the Fund's shares. Smith Barney Shearson is
paid an annual service fee with respect to Class A, Class B and Class D shares
of the Fund at the rate of .25% of the value of the average daily net assets
of
the respective Class. Smith Barney Shearson is also paid an annual
distribution
fee with respect to Class B and Class D shares at the rate of .50% of the
value
of the average daily net assets attributable to the Class. The fees are autho-
rized pursuant to a services and distribution plan (the "Plan") adopted by the
Trust pursuant to Rule 12b-1 under the 1940 Act and are used by Smith Barney
Shearson to pay its Financial Consultants for servicing shareholder accounts
and, in the case of the Class B and Class D shares, also to cover expenses
pri-
marily intended to result in the sale of those shares. These expenses include:
costs of printing and distributing the Fund's Prospectus, Statement of Addi-
tional Information and sales literature to prospective investors; an
allocation
of overhead and other Smith Barney Shearson's branch office distribution-
related expenses; payments to and expenses of Smith Barney Shearson Financial
Consultants and other persons who provide support services in connection with
the distribution of the shares; and accruals for interest on the amount of the
44
SMITH BARNEY SHEARSON
Growth and Income Fund
DISTRIBUTOR (CONTINUED)
foregoing expenses that exceed distribution fees and, in the case of Class B
shares, the CDSC received by Smith Barney Shearson. The payments to Smith Bar-
ney Shearson Financial Consultants for selling shares of a Class include a
com-
mission paid at the time of sale and a continuing fee for servicing
shareholder
accounts for as long as a shareholder remains a holder of that Class. The
serv-
ice fee is credited at the rate of .25% of the value of the average daily net
assets of the Class that remain invested in the Fund. Smith Barney Shearson
Financial Consultants may receive different levels of compensation for selling
one Class of shares over another.
Although it is anticipated that some promotional activities will be
conducted
on a Trust-wide basis, payments made by a fund of the Trust under the Plan
gen-
erally will be used to finance the distribution of shares of that fund.
Expenses incurred in connection with Trust-wide activities may be allocated on
a pro-rata basis among all funds of the Trust on the basis of their relative
net assets.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson, and
the payments may exceed distribution expenses actually incurred. The Trust's
Board of Trustees will evaluate the appropriateness of the Plan and its
payment
terms on a continuing basis and in so doing will consider all relevant
factors,
including expenses borne by Smith Barney Shearson, amounts received under the
Plan and proceeds of the CDSC.
The Trust anticipates that, for the foreseeable future, distribution
expenses
incurred by Smith Barney Shearson will be greater than amounts payable by the
Trust's funds under the Plan. During the period from March 3, 1986 (the
Trust's
commencement of operations) through the fiscal year ended January 31, 1994,
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"), the Trust's dis-
tributor prior to Smith Barney Shearson and/or Smith Barney Shearson incurred,
with respect to the Class B shares of the Trust's existing funds, total
distri-
bution expenses of approximately $67,446,000 while receiving approximately
$45,277,771 pursuant to the Plan and approximately $22,168,000 from the CDSC.
The excess of such distribution expenses incurred by Shearson Lehman Brothers
and/or Smith Barney Shearson over such distribution fees and CDSC, or approxi-
mately $28,650,000, was equivalent to approximately 4.56% of the Trust's net
assets on January 31, 1994.
45
SMITH BARNEY SHEARSON
Growth and Income Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund will be treated separately from the Trust's other funds in
determin-
ing the amount of dividends from net investment income and distributions of
capital gains payable to shareholders of the Fund. Dividends from net invest-
ment income (that is, income other than net realized capital gains) of the
Fund
will be declared and distributed quarterly. Distributions of the Fund's net
realized capital gains, if any, will be declared and distributed annually,
nor-
mally at the end of the calendar year in which earned or at the beginning of
the subsequent year. Unless a shareholder instructs that dividends and capital
gains distributions on shares of a Class be paid in cash and credited to the
shareholder's account at Smith Barney Shearson, dividends and capital gains
distributions will automatically be reinvested in additional shares of the
Class at net asset value subject to no sales charge or CDSC. The Fund is sub-
ject to a 4% nondeductible excise tax on certain undistributed amounts of
ordi-
nary income and capital gains. The Fund expects to make any additional distri-
butions necessary to avoid the application of this tax.
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
Federal income tax purposes, the amount of its net investment income and capi-
tal gains earned will be determined without regard to the earnings on
distribu-
tions of the other funds of the Trust. The Trust intends for the Fund to qual-
ify each year as a regulated investment company under the Code. Dividends paid
from the Fund's net investment income and distributions of the Fund's net
real-
ized short-term capital gains are taxable to shareholders (other than IRAs,
self-employed retirement plans and other tax-exempt investors) as ordinary
income, regardless of how long shareholders have held their Fund shares and
whether the dividends or distributions are received in cash or reinvested in
additional Fund shares. Distributions of the Fund's net realized long-term
cap-
ital gains will be taxable to shareholders as long-term capital gains, regard-
less of how long shareholders have held Fund shares and whether the distribu-
tions are received in cash or reinvested in additional Fund shares. In addi-
tion, as a general rule, a shareholder's gain or loss on a sale or redemption
of shares of the Fund will be a long-term capital gain or loss if the share-
holder has held the shares for more than one year and will be a short-term
cap-
ital gain or loss if the shareholder has held the shares for one year or less.
Some of the Fund's dividends declared from net investment income may qualify
for the Federal dividends-received deduction for corporations. The per share
dividends and distribu-
46
SMITH BARNEY SHEARSON
Growth and Income Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
tions on Class A shares will be higher than those on Class B and Class D
shares
as a result of lower distribution and transfer agency fees applicable to the
Class A shares.
Income received by the Fund from sources within foreign countries may be
sub-
ject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to the Fund's sharehold-
ers. If (a) the Fund qualifies as a regulated investment company, (b) certain
distribution requirements are satisfied and (c) more than 50% of the value of
the Fund's assets at the close of the taxable year consists of securities of
foreign corporations, the Trust may elect, for Federal income tax purposes, to
treat foreign income taxes paid by the Fund that can be treated as income
taxes
under Federal income tax principles as paid by the Fund's shareholders. The
Fund may qualify for, and the Trust may make, this election in some, but not
necessarily all, of the Fund's taxable years. If the Trust were to make an
election, an amount equal to the foreign income taxes paid by the Fund would
be
included in the income of its shareholders and the shareholders would be enti-
tled to credit their portions of this amount against their Federal tax
liabili-
ties, if any, or to deduct such portions from their Federal taxable income, if
any. Shortly after any year for which the Trust makes such an election, the
Trust will report to the Fund's shareholders, in writing, the amount per share
of such foreign tax that must be included in each shareholder's gross income
and the amount that will be available for deduction or credit. No deduction
for
foreign taxes may be claimed by a shareholder who does not itemize deductions.
Certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
Statements as to the tax status of the dividends and distributions received
by shareholders of the Fund are mailed annually. Each shareholder also will
receive, if applicable, various written notices after the close of the Fund's
prior taxable year with respect to certain dividends and distributions that
were received from the Fund during the Fund's prior taxable year.
Shareholders are urged to consult their tax advisors regarding the applica-
tion of Federal, state and local tax laws to their specific situation before
investing in the Fund.
47
SMITH BARNEY SHEARSON
Growth and Income Fund
ADDITIONAL INFORMATION
The Trust was organized on January 8, 1986 under the laws of The
Commonwealth
of Massachusetts and is a business entity commonly known as a "Massachusetts
business trust." The Trust commenced operations on March 3, 1986, under the
name Shearson Lehman Special Equity Portfolios. On July 30, 1993 the Fund
changed its name from Growth and Income Fund to Smith Barney Shearson Growth
and Income Fund. The Trust offers shares of beneficial interest of separate
funds with a par value of $.001 per share. The Fund offers shares of
beneficial
interest currently classified into three Classes--A, B and D.
Each Class represents an identical interest in the Fund's investment portfo-
lio. As a result, the Classes have the same rights, privileges and
preferences,
except with respect to: (a) the designation of each Class; (b) the effect of
the respective sales charges, if any, for each Class; (c) the distribution
and/or service fees borne by each Class; (d) the expenses allocable
exclusively
to each Class; (e) voting rights on matters exclusively affecting a single
Class; (f) the exchange privilege of each Class; and (g) the conversion
feature
of the Class B shares. The Trust's Board of Trustees does not anticipate that
there will be any conflicts among the interests of the holders of the
different
Classes. The Trustees, on an ongoing basis, will consider whether any such
con-
flict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have
been elected by shareholders. The Trustees will call a meeting for any purpose
upon written request of shareholders holding at least 10% of the Fund's out-
standing shares. Shareholders of record owning no less than two-thirds of the
outstanding shares of the Fund may remove a Trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
pur-
pose. When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate, frac-
tional vote for any fractional share held of that Class. Generally, shares of
the Trust vote by individual fund on all matters except (a) matters affecting
only the interests of one or more of the funds, in which case only shares of
the affected fund or funds would be entitled to vote or (b) when the 1940 Act
requires that shares of the funds be voted in the aggregate. Similarly, shares
of the Fund will be voted generally on a Fund-wide basis except matters
affect-
ing the interests of one Class of shares.
48
SMITH BARNEY SHEARSON
Growth and Income Fund
ADDITIONAL INFORMATION (CONTINUED)
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as custodian of the Fund's
investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as
the Trust's transfer agent.
The Trust sends shareholders of the Fund semi-annual report and an audited
annual report, which include listings of the investment securities held by the
Fund at the end of the reporting period. In an effort to reduce the Fund's
printing and mailing costs, the Trust 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 Trust also plans to
con-
solidate the mailing of the Fund's Prospectus so that a shareholder having
mul-
tiple accounts (that is, individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a single Prospectus annually. Any shareholder of the
Fund who does not want this consolidation to apply to his or her account
should
contact his or her Financial Consultant or the Trust's transfer agent.
Shareholders may seek information regarding the Fund from their Smith Barney
Shearson Financial Consultants.
-----------------------
No person has been authorized to give any information or to make any repre-
sentations other than those contained in this Prospectus, the Statement of
Additional Information and/or the official sales literature in connection with
the offering of the Fund's shares, and, if given or made, such other informa-
tion or representations must not be relied upon as having been authorized by
the Trust. This Prospectus does not constitute an offer in any state in which,
or to any person to whom, such offer may not lawfully be made.
49
- ------------------------------------------------------------------------------
- --
SMITH BARNEY SHEARSON
Growth and Income Fund
Two World Trade Center
New York, New York 10048
Fund 228, 229, 230
FD0250 C4
- ------------------------------------------------------------------------------
- --
April 1, 1994
SMITH BARNEY SHEARSON
STRATEGIC
INVESTORS
FUND
PROSPECTUS BEGINS
ON PAGE ONE.
SMITHBARNEYSHEARSON
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PROSPECTUS April 1, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Strategic Investors Fund (the "Fund") seeks high
total
return consisting of current income and capital appreciation by investing in a
combination of equity, fixed-income and money market instruments and "Gold
Securities."
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Shearson Equity Funds (the
"Trust"). The Trust is an open-end management investment company commonly
referred to as a "mutual fund."
This Prospectus sets forth concisely certain information about the Fund and
the Trust, including sales charges, distribution and service fees and
expenses,
which prospective investors will find helpful in making an investment
decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference. Shares of the other funds offered by the Trust are described
in separate prospectuses that may be obtained by calling the Trust at the
telephone number set forth above or by contacting your Smith Barney Shearson
Financial Consultant.
Additional information about the Fund and the Trust is contained in a
Statement of Additional Information dated April 1, 1994, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Trust at the telephone number or address set
forth above or by contacting your Smith Barney Shearson Financial Consultant.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY SHEARSON INC.
Distributor
THE BOSTON COMPANY ADVISORS, INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
1
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
TABLE OF CONTENTS
PROSPECTUS SUMMARY 3
---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 9
---------------------------------------------------------------------------
VARIABLE PRICING SYSTEM 12
---------------------------------------------------------------------------
THE FUND'S PERFORMANCE 13
---------------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND 15
---------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 16
---------------------------------------------------------------------------
PURCHASE OF SHARES 25
---------------------------------------------------------------------------
REDEMPTION OF SHARES 32
---------------------------------------------------------------------------
VALUATION OF SHARES 35
---------------------------------------------------------------------------
EXCHANGE PRIVILEGE 37
---------------------------------------------------------------------------
DISTRIBUTOR 43
---------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 44
---------------------------------------------------------------------------
ADDITIONAL INFORMATION 46
---------------------------------------------------------------------------
2
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the
Prospectus.
See "Table of Contents."
BENEFITS TO INVESTORS The Fund offers investors several important benefits:
- - Ownership in a professionally managed diversified portfolio of equity,
fixed
income and money market securities having the potential for current income
and capital appreciation.
- - Investment liquidity through convenient purchase and redemption
procedures.
- - A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
- - Different methods for purchasing shares that allow investment flexibility
and a wider range of investment alternatives.
- - Automatic dividend reinvestment feature, plus exchange privilege within
the
same class of shares of most other funds in the Smith Barney Shearson
Group
of Funds.
INVESTMENT OBJECTIVE The Fund is an open end, diversified management
investment
company that seeks high total return consisting of current income and capital
appreciation by investing in a combination of equity, fixed-income and money
market investments and "Gold Securities." See "Investment Objective and
Management Policies."
VARIABLE PRICING SYSTEM The Fund offers several classes of shares
("Classes") designed to provide investors with the flexibility of selecting an
investment best suited to their needs. The general public is offered two
classes
of shares: Class A shares and Class B shares which differ principally in terms
of the sales charges and rate of expenses to which they are subject. A third
class--Class D shares--is offered only to plans participating in the Smith
Barney Shearson 401(k) Program (the "401(k) Program"). See "Variable Pricing
System" and "Purchase of Shares--Smith Barney Shearson 401(k) Program."
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 5%. The Fund pays an annual service fee of
.25%
of the value of average daily net assets attributable to this Class. See
"Purchase of Shares."
3
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PROSPECTUS SUMMARY (CONTINUED)
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 5% of redemption
proceeds, declining by 1% each year after the date of purchase to zero. The
Fund
pays an annual service fee of .25% and an annual distribution fee of .75% of
the
value of average daily net assets attributable to this Class. See "Purchase of
Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, eight years after the date of
original purchase. Upon conversion, these shares will no longer be subject to
an
annual distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
SMITH BARNEY SHEARSON 401(K) PROGRAM Investors may be eligible to participate
in the 401(k) Program, which is generally designed to assist employers or plan
sponsors in the creation or operation of retirement plans under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
other
types of participant directed, tax-qualified employee benefit plans
(collectively, "Participating Plans"). Class A, Class B and Class D shares may
be available as investment alternatives for Participating Plans. Class A and
Class B shares acquired through the 401(k) Program are subject to the same
service and/or distribution fees as, but different sales charge and CDSC
schedules than, the Class A and Class B shares acquired by other investors.
Class D shares acquired by Participating Plans are offered at net asset value
per share without any sales charge or CDSC. The Fund pays annual service and
distribution fees based on the value of the average daily net assets
attributable to this Class. See "Purchase of Shares--Smith Barney Shearson
401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Trust's distributor,
Smith Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that clears
securities transactions through Smith Barney Shearson on a fully disclosed
basis
(an "Introducing Broker"). Direct purchases by certain retirement plans may be
made through the Trust's transfer agent, The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation. Smith Barney Shearson
recommends that, in most cases, single investments of $250,000 or more should
be
made in Class A shares. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Employed
Retirement Plans, the minimum initial investment requirement is $250
4
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PROSPECTUS SUMMARY (CONTINUED)
and the minimum subsequent investment requirement is $100, and for certain
qualified retirement plans, the minimum initial and subsequent investment
requirements are both $25. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Trust offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount not less
than
$100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A shares are redeemable at
net asset value and Class B shares are redeemable at net asset value less any
applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND The Boston Company Advisors, Inc. ("Boston Advisors")
serves as the Fund's investment adviser and administrator. Boston Advisors is
a
wholly owned subsidiary of The Boston Company, Inc. ("TBC"), which is an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Mellon
is a publicly-owned multibank holding company registered under the Federal
Bank
Holding Company Act of 1956 and through its subsidiaries Mellon provides a
comprehensive range of financial products and services in domestic and
selected
international markets. See "Management of the Trust and the Fund."
Smith Barney Shearson serves without compensation as asset allocation
consultant
to the Fund.
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds in the Smith Barney Shearson Group of Funds.
Certain exchanges may be subject to a sales charge differential. See "Exchange
Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from your Smith
Barney Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are paid quarterly from net investment
income. Distributions of net realized capital gains are paid annually. See
"Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically unless otherwise specified by an investor in
additional shares of the same Class at current net asset value. Shares
acquired
by dividend and distribution reinvestments will not be subject to any sales
5
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PROSPECTUS SUMMARY (CONTINUED)
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a
pro-rata basis. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund may not achieve its
investment
objective. The foreign securities in which the Fund may invest may be subject
to
certain risks in addition to those inherent in domestic investments. The Fund
may make certain investments and employ certain investment techniques that
involve other risks and special considerations. The techniques presenting the
Fund with risks or special considerations are investing in restricted
securities, warrants, convertible securities, securities of unseasoned
issuers,
options, Gold Securities and securities of developing countries, entering into
repurchase agreements and lending portfolio securities. These risks and those
associated with when-issued and delayed-delivery transactions and covered
option
writing are described under "Investment Objective and Management Policies--
Risk
Factors and Special Considerations."
THE FUND'S EXPENSES The following expense table lists the costs and expenses
an
investor will incur either directly or indirectly as a shareholder of the
Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's current operating expenses:
CLASS A CLASS B
CLASS D
- ------------------------------------------------------------------------------
- ----------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% --
- --
Maximum CDSC
(as a percentage of redemption proceeds) -- 5.00%
- --
- ------------------------------------------------------------------------------
- ----------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .75 .75
.75%
12b-1 fees* .25 1.00
1.00
Other expenses** .25 .23
.18
- ------------------------------------------------------------------------------
- ----------
TOTAL FUND OPERATING EXPENSES 1.25 1.98
1.93
- ------------------------------------------------------------------------------
- ----------
* Upon conversion, Class B shares will no longer be subject to a
distribution
fee. Class D shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee.
** All expenses are based on data for the Fund's fiscal year ended January
31,
1994.
6
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PROSPECTUS SUMMARY (CONTINUED)
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
pay
actual charges of less than 5% depending on the amount purchased and, in the
case of Class B shares, the length of time the shares are held and whether the
shares are held through the 401(k) Program. See "Purchase of Shares" and
"Redemption of Shares." Management fees paid by the Fund include investment
advisory fees paid to Boston Advisors in an amount equal to .55% of the value
of
the Fund's average daily net assets, and administration fees payable to Boston
Advisors in an amount equal to .20% of 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 Trust and the Fund." Smith Barney Shearson
receives an annual 12b-1 service fee of .25% of the value of average daily net
assets of Class A shares. Smith Barney Shearson also receives with respect to
Class B shares and Class D shares an annual 12b-1 fee of 1.00% of the value of
average daily net assets of Class B shares and Class D shares, consisting of a
.75% distribution fee and a .25% service fee. "Other expenses" in the above
table include fees for shareholder services, custodial fees, legal and
accounting fees, printing costs and registration fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to
a hypothetical $1,000 investment in the Fund assuming a 5% total return. The
example assumes payment by the Fund of operating expenses at the levels set
forth in the above table. The example should not be considered a
representation
of past or future expenses and actual expenses may be greater or less than
those
shown. Moreover, while the example assumes a 5% annual return, the Fund's
actual
performance will vary and may result in an actual return greater or less than
5%.
7
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PROSPECTUS SUMMARY (CONTINUED)
1 YEAR 3 YEARS 5 YEARS
10 YEARS*
- ------------------------------------------------------------------------------
- -----------
Class A shares**
Class B shares: $62 $88 $ 115
$194
Assumes complete redemption at end
of each time period*** 70 92 117
212
Assumes no redemption 20 62 107
212
Class D shares 20 61 104
225
- ------------------------------------------------------------------------------
- -----------
* Ten-year figures assume conversion of Class B shares to Class A shares
at
the end of the eighth year following the date of purchase.
** Assumes deduction at the time of purchase of the maximum 5% sales
charge.
*** Assumes deduction at the time of redemption of the maximum CDSC
applicable
for that time period.
8
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand, independent
accountants, whose report thereon appears in the Fund's Annual Report dated
January 31, 1994. The information set forth below should be read in
conjunction
with the financial statements and related notes that also appear in the Fund's
Annual Report which is incorporated by reference into the Statement of
Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR
PERIOD
ENDED
ENDED
1/31/94+
1/31/93*
Net Asset Value, beginning of period $ 16.85 $
16.80
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.52
0.13
Net realized and unrealized gain on investments 2.37
0.88
- ------------------------------------------------------------------------------
- -------
Total from investment operations 2.89
1.01
- ------------------------------------------------------------------------------
- -------
Less distributions:
Distributions from net investment income (0.56)
(0.11)
Distributions from net realized capital gains (1.46)
(0.85)
- ------------------------------------------------------------------------------
- -------
Total distributions (2.02)
(0.96)
- ------------------------------------------------------------------------------
- -------
Net asset value, end of period $ 17.72 $
16.85
- ------------------------------------------------------------------------------
- -------
Total return++ 17.80%
6.12%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/Supplemental Data:
Net assets, end of period (000's) $ 6,216
$693
Ratio of expenses to average net assets 1.25%
1.25%**
Ratio of net investment income to average net assets 2.85%
3.61%**
Portfolio turnover rate 131%
93%
- ------------------------------------------------------------------------------
- -------
* The Fund commenced selling Class A shares on November 6, 1992.
** Annualized.
+ The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year since
use of the undistributed net investment income method does not accord with
results of operations.
++Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
9
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
YEAR YEAR YEAR YEAR YEAR
YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
ENDED ENDED
1/31/94+ 1/31/93 1/31/92 1/31/91 1/31/90
1/31/89 1/31/88*
Net asset value,
beginning of year $16.84 $17.26 $15.61 $15.57 $15.03
$13.62 $14.00
- ------------------------------------------------------------------------------
- ---------------------------
Income from investment
operations:
Net investment income 0.38 0.51 0.52 0.54 0.53
0.52 0.36 ***
Net realized and
unrealized gain/(loss)
on investments 2.37 1.06 2.56 0.47 1.10
1.48 (0.44 )
- ------------------------------------------------------------------------------
- ---------------------------
Total from investment
operations 2.75 1.57 3.08 1.01 1.63
2.00 (0.08 )
- ------------------------------------------------------------------------------
- ---------------------------
Less distributions:
Distributions from net
investment income (0.34 ) (0.50 ) (0.55 ) (0.51 ) (0.69
) (0.48 ) (0.23 )
Distributions from net
realized capital gains (1.46 ) (1.49 ) (0.88 ) (0.46 ) (0.38
) (0.11 ) (0.07 )
Distributions from
capital (Note 1) -- -- -- -- (0.02
) -- --
- ------------------------------------------------------------------------------
- ---------------------------
Total distributions (1.80 ) (1.99 ) (1.43 ) (0.97 ) (1.09
) (0.59 ) (0.30 )
- ------------------------------------------------------------------------------
- ---------------------------
Net asset value, end of
year $17.79 $16.84 $17.26 $15.61 $15.57
$15.03 $13.62
- ------------------------------------------------------------------------------
- ---------------------------
Total return++ 16.88% 9.68% 19.96% 6.80% 10.76%
15.10% (0.57 )%
- ------------------------------------------------------------------------------
- ---------------------------
Ratios to average net
assets/
Supplemental Data:
Net assets, end of year
(000's) $334,408 $287,983 $234,321 $197,170 $206,385
$146,987 $151,223
Ratio of expenses to
average net assets 1.98% 2.02% 2.06% 2.09% 2.24%
2.29% 2.14% **+++
Ratio of net investment
income to average net
assets 2.11% 2.84% 3.02% 3.43% 3.46%
3.59% 2.83% +++
Portfolio turnover rate 131% 93% 76% 56% 61%
42% 56%
- ------------------------------------------------------------------------------
- ---------------------------
* The Fund commenced operations on February 2, 1987. On November 6, 1992, the
Fund commenced selling Class A shares. On January 29, 1993, the Fund
commenced selling Class D shares. Any shares outstanding prior to November
6,
1992 were designated as Class B shares.
** Annualized expense ratio before waiver by investment adviser for the period
ended January 31, 1988 was 2.18%.
***Net investment income before waiver by investment adviser was $0.37.
+ The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year
since
use of the undistributed net investment income method does not accord with
results of operations.
++ Total return represents aggregate total return for the periods indicated
and
does not reflect any applicable sales charge.
+++Annualized.
10
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE PERIOD:
PERIOD
ENDED
1/31/94*+
Net asset value, beginning of period $
17.54
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income
0.32
Net realized and unrealized gain on investments
1.67
- ------------------------------------------------------------------------------
- -------
Total from investment operations
1.99
- ------------------------------------------------------------------------------
- -------
Less distributions:
Distributions from net investment income
(0.28)
Distributions from net realized capital gains
(1.46)
- ------------------------------------------------------------------------------
- -------
Total distributions
(1.74)
- ------------------------------------------------------------------------------
- -------
Net asset value, end of period $
17.79
- ------------------------------------------------------------------------------
- -------
Total return++
11.83%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets (annualized)/Supplemental Data:
Net assets, end of period (000's)
$399
Ratio of operating expenses to average net assets
1.93%
Ratio of net investment income to average net assets
2.16%
Portfolio turnover rate
131%
- ------------------------------------------------------------------------------
- -------
* The Fund commenced selling Class D shares on January 29, 1993. These shares
commenced operations on May 5, 1993.
+ The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year since
use of the undistributed net investment income method does not accord with
results of operations.
++Total return represents aggregate total return for the period indicated.
11
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
VARIABLE PRICING SYSTEM
The Fund offers individual investors two methods of purchasing shares,
thus
enabling investors to choose the Class that best suits their needs, given the
amount of purchase and intended length of investment. A third class--Class D--
is
offered only to Participating Plans.
Class A Shares. Class A shares are sold at net asset value per share plus
a
maximum initial sales charge of 5% imposed at the time of purchase. The
initial
sales charge may be reduced or waived for certain purchases. Class A shares
are
subject to an annual service fee of .25% of the value of the Fund's average
daily net assets attributable to the Class. The annual service fee is used by
Smith Barney Shearson to compensate its Financial Consultants for ongoing
services provided to shareholders. The sales charge is used to compensate
Smith
Barney Shearson for expenses incurred in selling Class A shares. See "Purchase
of Shares."
Class B Shares. Class B shares are sold at net asset value per share
subject to a maximum 5% CDSC, which is assessed only if the shareholder
redeems
shares within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Fund. For each year of
investment within this five-year time frame, the applicable CDSC declines by
1%;
in year six, the applicable CDSC is reduced to 0%. See "Purchase of Shares"
and
"Redemption of Shares."
Class B shares are subject to an annual service fee of .25% and an annual
distribution fee of .75% of the value of a Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearson's branch office overhead expenses
and marketing costs associated with Class B shares, such as preparation of
sales
literature, advertising and printing and distributing prospectuses, statements
of additional information and other materials to prospective investors in
Class
B shares. A Financial Consultant may receive different levels of compensation
for selling different Classes. Class B shares are subject to a distribution
fee
and higher transfer agency fees than Class A shares which, in turn, will cause
Class B shares to have a higher expense ratio and pay lower dividends than
Class
A shares.
12
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
VARIABLE PRICING SYSTEM (CONTINUED)
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
shares of each Class, and will no longer be subject to a distribution fee. In
addition, a certain portion of Class B shares that have been acquired through
the reinvestment of dividends and distributions ("Class B Dividend Shares")
will
be converted at that time. That portion will be a percentage of the total
number
of Class B Dividend Shares owned by the shareholder equal to the ratio of the
total number of Class B shares owned by the shareholder converting at the time
to the total number of Class B shares (other than Class B Dividend Shares)
owned
by the shareholder. The first of these conversions will commence on or about
September 30, 1994. The conversion of Class B shares into Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that such conversions will not constitute taxable events for Federal tax
purposes.
Class D Shares. Class D shares of the Fund are sold to Participating
Plans
at net asset value per share and are not subject to an initial sales charge or
CDSC. This Class of shares is subject to an annual service fee of .25% and an
annual distribution fee of .75% of the value of the Fund's average daily net
assets attributable to Class D shares. The distribution fee is used by Smith
Barney Shearson for expenses incurred in selling Class D shares, and the
service
fee is used to compensate Smith Barney Shearson Financial Consultants for
ongoing services provided to Class D shareholders. Class D shares are subject
to
a distribution fee which will cause Class D shareholders to have a higher
expense ratio and pay lower dividends than Class A shares.
- ------------------------------------------------------------------------------
- --
THE FUND'S PERFORMANCE
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total
return"
over various periods of time for each Class. Such total return figures show
the
average percentage change in the value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the
period
were reinvested in shares of the same Class. Class A total return figures
include the maximum initial 5% sales charge and Class B total return figures
13
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
THE FUND'S PERFORMANCE (CONTINUED)
include any applicable CDSC. These figures also take into account the service
and distribution fees, if any, payable with respect to each Class.
Total return figures will be given for the recent one-, five-and ten-year
periods, or for the life of a Class to the extent it has not been in existence
for any such periods, and may be given for other periods as well, such as on a
year-by-year basis. When considering average annual total return figures for
periods longer than one year, it is important to note that the total return
for
any one year in the period might have been greater or less than the average
for
the entire period. "Aggregate total return" figures may be used for various
periods, representing the cumulative change in value of an investment in a
Class
for the specific period (again reflecting changes in share prices and assuming
reinvestment of dividends and distributions). Aggregate total return may be
calculated either with or without the effect of the maximum 5% sales charge
for
the Class A shares or any applicable CDSC for Class B shares and may be shown
by
means of schedules, charts, or graphs, and indicate subtotals of the various
components of total return (that is, changes in the value of initial
investment,
income dividends, and capital gains distributions). Because of the differences
in sales charges and distribution fees, the performance of each Class will
differ.
In reports or other communications to shareholders or in advertising
material, performance of the Classes may be compared with that of other mutual
funds or classes of shares of other funds as listed in rankings prepared by
Lipper Analytical Services, Inc. or similar independent services that monitor
the performance of mutual funds, or other industry or financial publications
such as Barron's, Business Week, CDA Investment Technologies, Inc., Forbes,
Fortune, Institutional Investor, Investors Daily, Kiplinger's Personal
Finance,
Money, Morningstar Mutual Fund Values, The New York Times, USA Today and The
Wall Street Journal. Performance figures are based on historical earnings and
are not intended to indicate future performance. To the extent any
advertisement
or sales literature of the Fund describes the expenses or performance of one
Class it will also disclose such information for the other Classes. The
Statement of Additional Information contains a description of the methods used
to determine performance. Performance figures may be obtained from your Smith
Barney Shearson Financial Consultant.
14
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
MANAGEMENT OF THE TRUST AND THE FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Fund rests with the Trust's Board of Trustees. The Trustees approve all
significant agreements between the Trust and the companies that furnish
services
to the Fund, including agreements with the Trust's distributor, custodian and
transfer agent and the Fund's investment adviser and administrator. The day-
to-
day operations of the Fund are delegated to the Fund's investment adviser and
administrator. The Statement of Additional Information contains background
information regarding each Trustee of the Trust and the executive officers of
the Trust.
INVESTMENT ADVISER AND ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's investment adviser and administrator. Boston Advisors
provides investment management, investment advisory and/or administrative
services to investment companies that had aggregate assets under management as
of March 1, 1994, in excess of $92.5 billion.
Subject to the supervision and direction of the Trust's Board of Trustees,
Boston Advisors manages the securities held by the Fund in accordance with the
Fund's stated investment objective and policies, makes investment decisions
for
the Fund, places orders to purchase and sell securities on behalf of the Fund
and employs professional portfolio managers. In addition, Boston Advisors
calculates the net asset value of the Fund's shares and generally assists in
all
aspects of the Fund's administration and operation.
PORTFOLIO MANAGEMENT
William W. Carter, Vice President of Boston Advisors, has served as
Investment Administrator of the Fund since February 2, 1987, and manages the
day-to-day operations of the Fund, including making all investment decisions.
Mr. Carter's management discussion and analysis and additional performance
information regarding the Fund during the fiscal year ended January 31, 1994
is
included in the Annual Report dated January 31, 1994. A copy of the Annual
Report may be obtained upon request and without charge from your Smith Barney
Shearson Financial Consultant or by writing or calling the Fund at the address
or phone number listed on page one of this prospectus.
15
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
ASSET ALLOCATION CONSULTANT
Smith Barney Shearson, located at Two World Trade Center, New York, New
York
10048, serves without compensation as asset allocation consultant to the Fund.
As asset allocation consultant, Smith Barney Shearson provides the asset
allocation mix that may be a primary determinant of the Fund's investment
performance.
Smith Barney Shearson is a wholly owned subsidiary of Smith Barney Shearson
Holdings Inc. ("Holdings"), which is in turn a wholly owned subsidiary of The
Travelers Inc. (formerly Primerica Corporation) ("Travelers"). Travelers, a
diversified financial services holding company is principally engaged in the
business of providing investment services, consumer financial services and
insurance services.
- ------------------------------------------------------------------------------
- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is high total return consisting of
capital appreciation and current income. The Fund's investment objective may
be
changed only with the approval of a majority of the Fund's outstanding voting
securities. There can be no assurance the Fund's investment objective will be
achieved.
The Fund seeks to achieve its objective by investing in a variable
combination of equity, fixed-income and money market instruments and "Gold
Securities." The percentages of the Fund's assets invested in each of these
four
types of securities are adjusted from time to time to conform to the asset
allocation percentages most recently determined by the Investment Policy Group
of Smith Barney Shearson, the Fund's asset allocation consultant. These
percentages represent Smith Barney Shearson's conclusions concerning the
portions of a model portfolio that should be invested in equity, fixed-income
and money market securities and gold in light of current economic and market
conditions. Although the asset allocation may call for an investment in gold,
the Fund will not hold gold bullion or coins and will seek to comply with
Smith
Barney Shearson's asset allocation to gold by investing in Gold Securities.
Gold
Securities in which the Fund may invest consist of equity and debt securities
of
companies principally engaged in businesses relating to the exploration,
mining,
16
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
processing or distribution of gold and companies principally engaged in
financing, managing, controlling or operating such companies. As of March 1,
1994, the Fund's asset allocation approach resulted in 55% of the Fund's
assets
being invested in equity securities, 30% in fixed-income securities and 15% in
cash. The mix of the Fund's investments will vary from time to time in the
future, and at any given time the Fund may be substantially or entirely
invested
in equity, fixed-income or money market securities. The Fund's investments in
Gold Securities may represent up to 25% of its total assets.
Boston Advisors has sole responsibility for the selection of specific
securities on behalf of the Fund. As soon as practicable after Smith Barney
Shearson's asset allocations become available, except as described below,
Boston
Advisors enters into purchase and sale transactions that will result in the
Fund's holding assets in appropriate percentages. Boston Advisors may diverge
from the allocations determined by Smith Barney Shearson when Boston Advisors
believes that a higher cash position is necessary in order to meet anticipated
redemption requests or that strict adherence to designated allocations might
affect the Fund's ability to qualify as a regulated investment company or
cause
the Fund to violate an applicable investment restriction. Boston Advisors
adjusts the Fund's assets to coincide with the immediately preceding
allocation
to each category of investments when the percentage of assets invested in a
category varies by more than 10% from Smith Barney Shearson's designated
percentage. For example, if Smith Barney Shearson had assigned an allocation
of
60% to equity securities, Boston Advisors would adjust the Fund's assets to
conform to the 60% allocation if the percentage of the Fund's assets invested
in
equity securities increased or decreased by more than 6%. Following this asset
allocation strategy may involve frequent shifts among classes of investments
and
result in the Fund's having a relatively high portfolio turnover rate.
The equity portion of the assets of the Fund will consist generally of
common
stocks of established companies traded on exchanges or over the counter that
represent an opportunity for total return on a long-term basis. In evaluating
companies for investment, Boston Advisors selects securities of companies that
it believes are undervalued based on relevant indicators such as
price/earnings
ratios, return on assets and ratios of market value to book value, or that are
trading at depressed prices because of perceived current problems or industry
conditions. Equity investments may be made without regard to the size of
companies and generally will be made in a broad spectrum of industries. The
Fund
also may invest in preferred stock, securities convertible into or
exchangeable
for
17
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
common stock and warrants. The fixed-income portion of the Fund's assets will
be
composed primarily of investment-grade corporate bonds, debentures and notes
and
obligations of the United States government or its agencies or
instrumentalities
("U.S. government securities"). The Fund's fixed-income assets may be short-,
medium-or long-term, as determined at the discretion of Boston Advisors based
upon an evaluation of economic and market trends. The money market securities
in
which the Fund may invest include commercial paper, bank obligations and
short-term U.S. government securities. Up to 10% of the Fund's assets may be
invested in equity and debt securities of foreign issuers. The Fund also may
write covered call options and lend its portfolio securities. Risk factors and
special considerations associated with the Fund's investments are described
under "Investment Strategies and Techniques" and "Risk Factors and Special
Considerations" below.
INVESTMENT STRATEGIES AND TECHNIQUES
In attempting to achieve its investment objective, the Fund may employ,
among
others, one or more of the strategies and techniques set forth below. The Fund
is under no obligation to use any of the strategies or techniques at any given
time or under any particular economic condition. More detailed information
concerning these strategies and techniques and their related risks is
contained
in the Statement of Additional Information.
Repurchase Agreements. The Fund may enter into repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the Fund
and 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 seven days), 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 will be
monitored
on an ongoing basis by Boston Advisors to ensure that the value is at least
equal at all times to the total amount of the repurchase obligation, including
interest. Boston Advisors, acting under the supervision of the Trust's Board
of
Trustees, reviews on an ongoing basis the value of the collateral and the
creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements to evaluate potential risks.
18
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Lending of Portfolio Securities. The Fund has the ability to lend
portfolio
securities to brokers, dealers and other financial organizations. Loans, if
and
when made, may not exceed 20% of the Fund's assets taken at value. Loans of
portfolio securities by the Fund will be collateralized by cash, letters of
credit or U.S. government securities that are maintained at all times in a
segregated account in an amount at least equal to the current market value of
the loaned securities.
Covered Option Writing. The Fund may write covered call options on
portfolio
securities and will realize fees (referred to as "premiums") for granting the
rights evidenced by the options. In return for a premium, the Fund will
forfeit
the right to any appreciation in the value of the underlying security for the
life of the option (or until a closing purchase transaction can be effected).
The purchaser of a call option written by the Fund has the right to purchase
from the Fund an underlying security owned by the Fund at an agreed-upon price
for a specified time period. Upon the exercise of a call option written by the
Fund, the Fund may suffer a loss equal to the underlying security's market
value
at the time of the option's exercise over the exercise price plus the premium
received for writing the option. Whenever the Fund writes a call option, it
will
(a) continue to own or have the absolute and immediate right to acquire the
underlying security without additional cash consideration or (b) hold a call
option at the same or a lower exercise price for the same exercise period on
the
same underlying security as the call option written, for as long as it remains
obligated as the writer of the option.
The Fund may engage in a closing purchase transaction to realize a profit,
to
prevent an underlying security from being called or to unfreeze an underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). To effect a closing
purchase transaction, the Fund would purchase, prior to the holder's exercise
of
an option the Fund has written, an option of the same series as that on which
the Fund desires to terminate its obligation. The obligation of the Fund under
an option it has written would be terminated by a closing purchase
transaction,
but the Fund would not be deemed to own an option as the result of the
transaction. There can be no assurance that the Fund will be able to effect
closing purchase transactions at a time when it wishes to do so. To facilitate
closing purchase transactions, however, the Fund will ordinarily write options
only if a secondary market for the options exists on a domestic securities
exchange or in the over-the-counter market.
19
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may hold cash and invest in money
market
instruments without limitation when deemed advantageous by Boston Advisors and
Smith Barney Shearson. Short-term instruments in which the Fund may invest
include: U.S. government securities; bank obligations (including certificates
of
deposit, time deposits and bankers' acceptances of domestic or foreign banks,
domestic savings and loan associations and other banking institutions having
total assets in excess of $500 million); commercial paper rated no lower than
A-2 by Standard & Poor's Corporation ("S&P") or Prime-2 by Moody's Investors
Service, Inc. ("Moody's") or the equivalent from another nationally recognized
rating service or, if unrated, of an issuer having an outstanding, unsecured
debt issue then rated within the three highest rating categories. A
description
of the commercial paper rating categories of Moody's and S&P is contained in
the
Appendix to the Statement of Additional Information.
U.S. Government Securities. The U.S. government securities in which the
Fund
may invest include: direct obligations of the United States Treasury and
obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including instruments supported by the full faith and
credit
of the United States; securities supported by the right of the issuer to
borrow
from the United States Treasury; and securities supported solely by the credit
of the instrumentality.
CERTAIN INVESTMENT GUIDELINES
Up to 10% of the assets of the Fund may be invested in securities with
contractual or other restrictions on resale ("restricted securities") and
other
instruments that are not readily marketable ("illiquid securities"), including
in the aggregate (a) repurchase agreements with maturities greater than seven
days, (b) futures contracts and options thereon for which a liquid secondary
market does not exist, (c) time deposits maturing in more than seven calendar
days and (d) securities of new and early stage companies whose securities are
not publicly traded. In addition, the Fund may invest up to 10% of its assets
in
the securities of issuers that have been in continuous operation for less than
three years.
20
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with
respect to the Fund that may not be changed without approval of a majority of
the Fund's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended ("1940 Act"). Included among those fundamental
restrictions are the following that prohibit the Fund from:
1. Purchasing the securities of any issuer (other than U.S. government
securities) if as a result more than 5% of the value of the Fund's total
assets would be invested in the securities of the issuer, except that up to
25% of the value of the Fund's total assets may be invested without regard
to
this 5% limitation.
2. Purchasing more than 10% of the voting securities of any one issuer, or
more than 10% of the securities of any class of any one issuer; provided
that
this limitation will not apply to investments in U.S. government
securities.
(For purposes of the above-described investment limitation, issuers include
predecessors, sponsors, controlling persons, general partners, guarantors
and
originators of underlying assets which have less than three years of
continuous operation or relevant business experience.)
3. Borrowing money, except that the Fund may borrow from banks for
temporary
or emergency (not leveraging) purposes, including the meeting of redemption
requests that might otherwise require the untimely disposition of
securities,
in any amount not to exceed 10% of the value of the Fund's total assets
(including the amount borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the borrowing is made. Whenever
borrowings exceed 5% of the value of the total assets of the Fund, the Fund
will not make any additional investments.
4. Making loans to others, except through the purchase of qualified debt
obligations, loans of portfolio securities and the entry into repurchase
agreements.
5. Purchasing any securities (other than U.S. government securities) that
would cause more than 25% of the value of the Fund's total assets at the
time
of purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry.
A complete list of investment restrictions that the Trust has adopted with
respect to the Fund, identifying additional restrictions that cannot be
changed
21
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
without the approval of the majority of the Fund's outstanding shares, is
contained in the Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves special considerations, such as those
described below:
Restricted Securities. The Fund may not be able to dispose of restricted
securities at a time when, or at a price which, it desires to do so and may
have
to bear expenses associated with registering the securities.
Warrants. Because a warrant does not carry with it the right to dividends
or
voting rights with respect to the securities that the warrant holder is
entitled
to purchase, and because a warrant does not represent any rights to the assets
of the issuer, a warrant may be considered more speculative than certain other
types of investments. In addition, the value of a warrant does not necessarily
change with the value of the underlying security and a warrant ceases to have
value if it is not exercised prior to its expiration date. The investment in
warrants, valued at the lower of cost or market, may not exceed 5% of the
value
of the Fund's net assets. Included within that amount, but not to exceed 2% of
the value of the Fund's net assets, may be warrants that are not listed on the
NYSE or the American Stock Exchange. Warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
Securities of Unseasoned Issuers. Securities in which the Fund may invest
may have limited marketability and, therefore, may be subject to wide
fluctuations in market value. In addition, certain securities may be issued by
companies that lack a significant operating history and are dependent on
products or services without an established market share.
Options. Option writing for the Fund may be limited by position and
exercise
limits established by national securities exchanges and by requirements of the
Code for qualification as a regulated investment company. See "Dividends,
Distributions and Taxes." In addition to writing covered call options to
generate current income, the Fund may enter into options transactions as
hedges
to reduce investment risk, generally by making an investment expected to move
in
the opposite direction of a portfolio position. A hedge is designed to offset
a
loss on a portfolio position with a gain on the hedge position; at the same
time, however, a properly correlated hedge will result in a gain on the
portfolio position being offset by a loss on the hedge position. The Fund
bears
22
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
the risk that the prices of the securities being hedged will not move in the
same amount as the hedge. The Fund will engage in hedging transactions only
when
deemed advisable by Boston Advisors. Successful use by the Fund of options
will
be subject to Boston Advisors' ability to predict correctly movements in the
direction of the stock or index underlying the option used as a hedge. Losses
incurred in hedging transactions and the costs of these transactions will
affect
the Fund's performance.
The ability of the Fund to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While the Fund
generally will write options only if a liquid secondary market appears to
exist
for the options purchased or sold, for some options no such secondary market
may
exist or the market may cease to exist. If the Fund cannot enter into a
closing
purchase transaction with respect to a call option it has written, the Fund
will
continue to be subject to the risk that its potential loss upon exercise of
the
option will increase as a result of any increase in the value of the
underlying
security. The Fund could also face higher transaction costs, including
brokerage
commissions, as a result of its options transactions.
Repurchase Agreements. The Fund bears a risk of loss in the event that the
other party to a repurchase agreement defaults on its obligations and the Fund
is delayed or prevented from exercising its rights to dispose of the
underlying
securities, including 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 a part of the income from the agreement.
Foreign Securities. Certain risks are involved in investing in the
securities of companies and governments of foreign nations that go beyond the
usual risks inherent in U.S. investments. These risks include those resulting
from revaluation of currencies, future adverse political and economic
developments, the possible imposition of restrictions on the repatriation of
currencies or other foreign governmental laws or restrictions, reduced
availability of public information concerning issuers and the lack of uniform
accounting, auditing and financial reporting standards or of other regulatory
practices and requirements comparable to those applicable to domestic
companies.
The value of the assets of the Fund invested in foreign securities may be
adversely affected by fluctuations in value of one or more foreign currencies
relative to the dollar. Moreover, securities of many foreign companies may be
less liquid and their prices more volatile than those of securities of
comparable domestic companies. In addition,
23
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
the possibility exists in certain foreign countries of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal
of
funds or other assets of the Fund, including the withholding of dividends.
Foreign securities may be subject to foreign government taxes that could
reduce
the yield on such securities. Because the Fund will invest in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates may adversely affect the value of portfolio
securities and the appreciation or depreciation of investments. Investment in
foreign securities may also result in higher expenses due to the cost of
converting foreign currency to U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions
on
domestic exchanges, and the expense of maintaining securities with foreign
custodians.
Securities of Developing Countries. A developing country generally is
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income markets of
developing countries involves exposure to economic structures that are
generally
less diverse and mature, and to political systems that can be expected to have
less stability than those of developed countries. Historical experience
indicates the markets of developing countries have been more volatile than the
markets of the more mature economies of developed countries; however, such
markets often have higher rates of return to investors.
Gold Securities. Historically, stock prices of companies involved in gold-
related industries have been volatile. Economic and political conditions
prevailing in the countries that are the largest producers of gold,
particularly
the Republic of South Africa, may adversely affect the value of the Gold
Securities held by the Fund. In addition, issuers of securities in gold-
related
industries are often located outside the United States, which presents risks
described above that are not present in domestic investments.
PORTFOLIO TRANSACTIONS AND TURNOVER
All orders for transactions in securities or options on behalf of the Fund
are placed by Boston Advisors with broker-dealers that Boston Advisors
selects,
including Smith Barney Shearson and other affiliated brokers. The Fund may
utilize Smith Barney Shearson or a broker that is affiliated with Smith Barney
Shearson in connection with a purchase or sale of securities when Boston
Advisors believes that the broker's charge for the transaction does not exceed
usual and customary levels.
24
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. In addition, higher portfolio turnover rates
can result in corresponding increases in brokerage commissions. The Fund will
not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its objective and policies.
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- --
PURCHASE OF SHARES
Purchases of shares must be made through a brokerage account maintained
with
Smith Barney Shearson or with an Introducing Broker, except that investors
purchasing shares of the Fund through a qualified retirement plan may do so
directly through the Trust's transfer agent. When purchasing shares of the
Fund,
investors must specify whether the purchase is for Class A shares, Class B
shares or, in the case of Participating Plans, Class D shares. No maintenance
fee will be charged in connection with a brokerage account through which an
investor purchases or holds shares. Purchases are effected at the public
offering price next determined after a purchase order is received by Smith
Barney Shearson or an Introducing Broker (the "trade date"). Payment is
generally due to Smith Barney Shearson or an Introducing Broker on the fifth
business day (the "settlement date") after the trade date. Investors who make
payment prior to the settlement date may permit the payment to be held in
their
brokerage accounts or may designate a temporary investment (such as a money
market fund in the Smith Barney Shearson Group of Funds) for such payment
until
settlement date. The Trust reserves the right to reject any purchase order and
to suspend the offering of shares of the Fund for a period of time.
Purchase orders received by Smith Barney Shearson or an Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York
time, on any day on which the Fund's net asset value is calculated, are priced
according to the net asset value determined on that day. Purchase orders
received after the close of regular trading on the NYSE are priced as of the
time the net asset value per share is next determined. See "Valuation of
Shares."
Systematic Investment Plan. The Fund offers shareholders a Systematic
Investment Plan, under which shareholders may authorize Smith Barney Shearson
or
an Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid
automatically
from cash held in the shareholder's Smith Barney Shearson brokerage account or
through the automatic redemption of the shareholder's
25
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
PURCHASE OF SHARES (CONTINUED)
shares of a Smith Barney Shearson money market fund. For further information
regarding the Systematic Investment Plan, shareholders should contact their
Smith Barney Shearson Financial Consultants.
Minimum Investments. The minimum initial investment in the Fund is $1,000
and the minimum subsequent investment is $200, except that for purchases
through
(a) IRAs and Self-Employed Retirement Plans, the minimum initial and
subsequent
investments are $250 and $100, respectively, (b) retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum initial and
subsequent investments are $25 and (c) the Fund's Systematic Investment Plan,
the minimum initial and subsequent investments are both $100. There are no
minimum investment requirements for employees of Travelers and its
subsidiaries,
including Smith Barney Shearson. The Trust reserves the right at any time to
vary the initial and subsequent investment minimums. Certificates for Fund
shares are issued upon request to the Trust's transfer agent.
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class plus a sales charge, which is imposed in accordance with the
following schedule:
SALES CHARGE AS %
SALES CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF
NET ASSET VALUE
- ------------------------------------------------------------------------------
- --------------
Less than $25,000 5.00%
5.26%
$25,000 but under $100,000 4.00%
4.17%
$100,000 but under $250,000 3.25%
3.36%
$250,000 but under $500,000 2.50%
2.56%
$500,000 but under $1,000,000 2.00%
2.04%
$1,000,000 or more** .00%
.00%
- ------------------------------------------------------------------------------
- --------------
* Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and Introducing Brokers that single investments of $250,000
or
more should be made in Class A shares.
** No sales charge is imposed on purchases of Class A shares of $1 million
or
more; however, a CDSC of .75% is imposed for the first year after
purchase.
The CDSC on Class A shares is payable to Smith Barney Shearson which,
with
Boston Advisors, compensates Smith Barney Shearson Financial Consultants
upon the sale of these shares. The CDSC is waived in the same
circumstances
in which the CDSC applicable to Class B shares is waived. See "Redemption
of Shares--Contingent Deferred Sales Charge--Class B Shares--Waivers of
CDSC."
26
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
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- --
PURCHASE OF SHARES (CONTINUED)
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to
combine
their purchases of Class A shares to receive volume discounts. Investors
eligible to receive volume discounts include individuals and their immediate
families, tax-qualified employee benefit plans and trustees or other
professional fiduciaries (including a bank, or an investment adviser
registered
with the SEC under the Investment Advisers Act of 1940, as amended) purchasing
shares for one or more trust estates or fiduciary accounts even though more
than
one beneficiary is involved. The initial sales charge is also reduced to 1%
for
Smith Barney Personal Living Trust program participants for whom Smith Barney
Shearson acts as trustee. Reduced sales charges on Class A shares are also
available under a combined right of accumulation, under which an investor may
combine the value of Class A shares already held in the Fund and in any of the
funds in the Smith Barney Shearson Group of Funds listed below (except those
sold without a sales charge), along with the value of the Fund's Class A
shares
being purchased, to qualify for a reduced sales charge. For example, if an
investor owns Class A shares of the Fund and other funds in the Smith Barney
Shearson Group of Funds that have an aggregate value of $22,000, and makes an
additional investment in Class A shares of the Fund of $4,000, the sales
charge
applicable to the additional investment would be 4%, rather than the 5%
normally
charged on a $4,000 purchase. Investors interested in further information
regarding reduced sales charges should contact their Smith Barney Shearson
Financial Consultants.
Class A shares of the Fund may be offered without any applicable sales
charges to: (a) employees of Travelers and its subsidiaries, including Smith
Barney Shearson, employee benefit plans for such employees and their immediate
families when orders on their behalf are placed by such employees; (b)
accounts
managed by registered investment advisory subsidiaries of Travelers; (c)
directors, trustees or general partners of any investment company for which
Smith Barney Shearson serves as distributor; (d) any other investment company
in
connection with the combination of such company with the Fund by merger,
acquisition of assets or otherwise; (e) shareholders who have redeemed Class A
shares in the Fund (or Class A shares of another fund in the Smith Barney
Shearson Group of Funds that are sold with a maximum 5% sales charge) and who
wish to reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 30 days of the redemption; and (f) any client of a
newly-employed Smith Barney Shearson Financial Consultant (for a
27
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PURCHASE OF SHARES (CONTINUED)
period up to 90 days from the commencement of the Financial Consultant's
employment with Smith Barney Shearson), on the condition that the purchase is
made with the proceeds of the redemption of shares of a mutual fund which (i)
was sponsored by the Financial Consultant's prior employer, (ii) was sold to a
client by the Financial Consultant, and (iii) when purchased, such shares were
sold with a sales charge.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of purchase. A
CDSC is imposed, however, on certain redemptions of Class B shares. See
"Redemption of Shares," which describes the CDSC in greater detail.
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Financial
Consultants and Introducing Brokers that all purchases of shares of $250,000
or
more should be for Class A shares. Smith Barney Shearson reserves the right to
vary these guidelines at any time.
SMITH BARNEY SHEARSON 401(K) PROGRAM
Investors may be eligible to participate in the Smith Barney Shearson
401(k)
Program, which is generally designed to assist employers or plan sponsors in
the
creation and operation of retirement plans under Section 401(a) of the Code.
To
the extent applicable, the same terms and conditions are offered to all
Participating Plans in the 401(k) Program, which includes both 401(k) plans
and
other types of participant directed, tax-qualified employee benefit plans.
The Fund offers to Participating Plans three classes of shares, Class A,
Class B and Class D shares, as investment alternatives under the 401(k)
Program.
Class A shares are available to all Participating Plans and are the only
investment alternative for Participating Plans that are eligible to purchase
Class A shares at net asset value without a sales charge. In addition, Class B
shares are offered only to Participating Plans satisfying certain criteria
with
respect to the amount of the initial investment and the number of employees
eligible to participate in the Plan at that time. Alternatively, Class D
shares
are offered only to Participating Plans that meet other criteria relating to
the
amount of initial investment and number of employees eligible to participate
in
the Plan at that time, as described below.
28
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PURCHASE OF SHARES (CONTINUED)
The Class A and Class B shares acquired through the 401(k) Program are
subject to the same service and/or distribution fees as, but different sales
charge and CDSC schedules than, the Class A and Class B shares acquired by
other
investors. Class D shares acquired by Participating Plans are offered at net
asset value per share without any sales charge or CDSC. The Fund pays annual
service and distribution fees based on the value of the average daily net
assets
attributable to this Class.
Once a Participating Plan has made an initial investment in the Fund, all
of
its subsequent investments in the Fund must be in the same Class of shares,
except as otherwise described below.
Class A Shares. The sales charges for Class A shares acquired by
Participating Plans are as follows:
SALES CHARGE AS
%
SALES CHARGE AS % OF
NET ASSET
AMOUNT OF INVESTMENT OF OFFERING PRICE
VALUE
- ------------------------------------------------------------------------------
- -----------
Less than $25,000 5.00%
5.26%
$25,000 up to $100,000 4.00%
4.17%
$100,000 up to $250,000 3.25%
3.36%
$250,000 up to $500,000 2.50%
2.56%
$500,000 up to $750,000 2.00%
2.04%
$750,000 and over .00%
.00%
- ------------------------------------------------------------------------------
- -----------
A Participating Plan will have a combined right of accumulation under
which,
to qualify for a reduced sales charge, it may combine the value of Class A
shares being purchased with the value of Class A shares already held in the
Fund
and in any of the funds listed below under "Exchange Privilege" that are sold
with a sales charge.
Class A shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of Class A shares of
one
or more funds in the Smith Barney Shearson Group of Funds under the combined
right of accumulation described above; (b) has 250 or more employees eligible
to
participate in the Participating Plan at the time of initial investment in the
Fund; or (c) currently holds Class A shares in the Fund that were received as
a
result of an exchange of Class B shares or Class D shares of the Fund as
described below.
Class A shares acquired through the 401(k) Program will not be subject to a
CDSC.
29
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PURCHASE OF SHARES (CONTINUED)
Class B Shares. Under the 401(k) Program, Class B shares are offered to
Participating Plans that: (a) purchase less than $250,000 of Class B shares of
one or more funds in the Smith Barney Shearson Group of Funds that are sold
subject to a CDSC; and (b) that have less than 100 employees eligible to
participate in the Participating Plan at the time of initial investment in the
Fund. Class B shares acquired by such Plans will be subject to a CDSC of 3% of
redemption proceeds, if redeemed within eight years of the date the
Participating Plan first purchases Class B shares. No CDSC is imposed to the
extent that the net asset value of the Class B shares redeemed does not exceed
(a) the current net asset value of Class B shares purchased through
reinvestment
of dividends or capital gains distributions, plus (b) the current net asset
value of Class B shares purchased more than eight years prior to the
redemption,
plus (c) increases in the net asset value of the shareholder's Class B shares
above the purchase payments made during the preceding eight years. The CDSC
applicable to a Participating Plan depends on the number of years since the
Participating Plan first became a holder of Class B shares, unlike the CDSC
applicable to other Class B shareholders, which depends on the number of years
since those shareholders made the purchase payment from which the amount is
being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a)
the retirement of an employee in the Participating Plan; (b) the termination
of
employment of an employee in the Participating Plan; (c) the death or
disability
of an employee in the Participating Plan; (d) the attainment of age 59 1/2 by
an
employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code;
or
(f) redemptions of Class B shares in connection with a loan made by the
Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class B
share, it will be offered the opportunity to exchange all of its Class B
shares
for Class A of the Fund. Such Plans will be notified of the pending exchange
in
writing approximately 60 days before the eighth anniversary of the purchase
date
and, unless the exchange has been rejected in writing, the exchange will occur
on or about the eighth anniversary date. Once the exchange has occurred, a
Participating Plan will not be eligible to acquire additional Class B shares
of
the Fund but instead may acquire Class A shares of the Fund. If the
Participating Plan elects not to exchange all of its Class B shares at that
time, each Class B share
30
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
PURCHASE OF SHARES (CONTINUED)
held by the Participating Plan will have the same conversion feature as Class
B
shares held by other investors. See "Variable Pricing System--Class B Shares."
Class D Shares. Class D shares are offered to Participating Plans that:
(a)
purchase less than $750,000 but more than $250,000 of Class D shares of one or
more funds in the Smith Barney Shearson Group of Funds that offer one or more
Classes of shares subject to a sales charge and/or CDSC; or (b) have at least
100 but no more than 250 employees eligible to participate in the
Participating
Plan at the time of initial investment in the Fund.
Class D shares acquired by Participating Plans are offered at net asset
value
per share without any sales charge or CDSC. The Fund pays annual service and
distribution fees based on the value of the average daily net assets
attributable to this Class. Class D shares are not subject to an automatic
conversion feature as are the Class B shares. Participating Plans which hold
Class D shares valued at $750,000 or more in any fund or funds in the Smith
Barney Shearson Group of Funds that offer one or more Classes of shares
subject
to a sales charge and/or CDSC will be offered the opportunity to exchange all
of
their Class D shares for Class A shares. Such Plans will be notified of the
pending exchange in writing within 30 days after the last business day of the
calendar year, and unless the exchange offer has been rejected in writing, the
exchange will occur on or about the last business day of March in the
following
calendar year. Once the exchange has occurred, a Participating Plan will not
be
eligible to acquire Class D shares of the Fund but instead may acquire Class A
shares of the Fund. Any Class D shares not converted will continue to be
subject
to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the
401(k)
Program must purchase such shares directly from the Trust's transfer agent.
For
further information regarding the 401(k) Program, investors should contact
their
Smith Barney Shearson Financial Consultants.
31
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day on which the Fund's net
asset
value is calculated. See "Valuation of Shares." Redemption requests received
in
proper form prior to the close of regular trading on the NYSE are priced at
the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value
next determined. If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being redeemed. In the event of
a
failure to specify which Class, or if the investor owns fewer shares of the
Class than specified, the redemption request will be delayed until the Trust's
transfer agent receives further instructions from Smith Barney Shearson, or if
the shareholder's account is not with Smith Barney Shearson, from the
shareholder directly.
The Trust normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney Shearson or the Introducing Broker at no
charge (other than any applicable CDSC) within seven days after receipt of a
redemption request. Generally, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney Shearson
will benefit from the use of temporarily uninvested funds. A shareholder who
pays for Fund shares by personal check will be credited with the proceeds of a
redemption of those shares only after the purchase check has been collected,
which may take up to 10 days or more. A shareholder who anticipates the need
for
more immediate access to his or her investment should purchase shares with
Federal funds, by bank wire or by a certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less
may be subject to redemption by the Fund, but only after the shareholder has
been given at least 30 days in which to increase the account balance to more
than $500.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A shareholder desiring to redeem shares represented by
certificates must also present the certificates to Smith Barney Shearson or
the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
32
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES (CONTINUED)
involving shares represented by certificates will not be deemed received until
the certificates are received by the Trust's transfer agent in proper form.
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submitting a written request to your Smith Barney Shearson Financial
Consultant.
All other shares may be redeemed by submitting a written request for
redemption
to:
Smith Barney Shearson
Strategic Investors Fund
Class A, B or D (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to TSSG or your Smith Barney Shearson
Financial
Consultant must (a) state the Class and number or dollar amount of shares to
be
redeemed, (b) identify the shareholder's account number and (c) be signed by
each registered owner exactly as the shares are registered. If the shares to
be
redeemed were issued in certificate form, the certificates must be endorsed
for
transfer (or be accompanied by an endorsed stock power) and must be submitted
to
TSSG together with the redemption request. Any signature appearing on a
redemption request, share certificate or stock power must be guaranteed by a
domestic bank, savings and loan institution, domestic credit union, member
bank
of the Federal Reserve System or member firm of a national securities
exchange.
TSSG may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A redemption
request will not be deemed properly received until TSSG receives all required
documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly. Retirement plan
accounts
are eligible for automatic cash withdrawal plans only where the shareholder is
eligible to receive qualified distributions and has an account value of at
least
$5,000. Any applicable CDSC will not be waived on amounts withdrawn by a
shareholder that exceed 2% per month of the value of the shareholder's shares
subject to the CDSC at the time the withdrawal plan
33
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES (CONTINUED)
commences. For further information regarding the automatic cash withdrawal
plan,
shareholders should contact their Smith Barney Shearson Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years, except in the case of purchases by Participating Plans, as described
above. See "Purchase of Shares--Smith Barney Shearson 401(k) Program." No
charge
is imposed to the extent the net asset value of the Class B shares redeemed
does
not exceed (a) the current net asset value of Class B shares purchased through
reinvestment of dividends or capital gains distributions, plus (b) the current
net asset value of Class B shares purchased more than five years prior to the
redemption, plus (c) increases in the net asset value of the shareholder's
Class
B shares above the purchase payments made during the preceding five years.
In circumstances in which the CDSC is imposed, the amount of the charge
will
depend on the number of years since the shareholder made the purchase payment
from which the amount is being redeemed, except in the case of purchases
through
Participating Plans which are subject to a different CDSC. See "Purchase of
Shares--Smith Barney Shearson 401(k) Program." Solely for purposes of
determining the number of years since a purchase payment, all purchase
payments
during a month will be aggregated and deemed to have been made on the last day
of the preceding Smith Barney Shearson statement month. The following table
sets
forth the rates of the charge for redemptions of Class B shares:
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
- ------------------------------------------------------------------------------
- -----
First
5.00%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
- ------------------------------------------------------------------------------
- -----
34
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
REDEMPTION OF SHARES (CONTINUED)
Class B shares will automatically convert to Class A shares eight years
after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fee. The first of the conversions will commence on or
about
September 30, 1994. See "Variable Pricing System--Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not
already been effected. In the case of redemptions of Class B shares of other
funds in the Smith Barney Shearson Group of Funds issued in exchange for Class
B
shares of the Fund, the term "purchase payments" refers to the purchase
payments
for the shares given in exchange. In the event of an exchange of Class B
shares
of funds with differing CDSC schedules, the shares will be, in all cases,
subject to the higher CDSC schedule. See "Exchange Privilege."
Waivers of CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) automatic cash withdrawals in amounts equal to or less than
2%
per month of the value of the shareholder's shares at the time the withdrawal
plan commences (see above); (c) redemptions of shares in connection with
certain
post-retirement distributions and withdrawals from retirement plans or IRAs or
following the death or disability of the shareholder; (d) involuntary
redemptions; (e) redemption proceeds from other funds in the Smith Barney
Shearson Group of Funds that are reinvested within 30 days of the redemption;
(f) redemptions of shares in connection with a combination of any investment
company with the Fund by merger, acquisition of assets or otherwise; and (h)
certain redemptions of shares of the Fund in connection with lump-sum or other
distributions made by a Participating Plan. See "Purchase of Shares--Smith
Barney Shearson 401(k) Program."
- ------------------------------------------------------------------------------
- --
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE is currently
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of a Class is determined as of the close of
regular trading on the NYSE and is computed by dividing the value of the
Fund's
net
35
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
VALUATION OF SHARES (CONTINUED)
assets attributable to that Class by the total number of shares of that Class
outstanding. In general, the Fund's investments will be valued at market value
or, in the absence of a market value, at fair value as determined by or under
the direction of the Trust's Board of Trustees. Securities that are primarily
traded on foreign exchanges are generally valued at the preceding closing
values
of the securities on their respective exchanges, except that when an
occurrence
subsequent to the time a value was so established is likely to have changed
that
value, then the fair market value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Trustees or its delegates. A security that is primarily traded on a domestic
or
foreign stock exchange is valued at the last sale price on that exchange or,
if
there were no sales during the day, at the current quoted bid price. Debt
securities (other than U.S. government securities and short-term obligations)
are valued by Boston Advisors after consultation with independent pricing
services approved by the Trustees. Investments in U.S. government securities
(other than short-term securities) are valued at the average of the quoted bid
and asked prices in the over-the-counter market. Short-term investments that
mature in 60 days or less are valued at amortized cost (which involves valuing
an investment instrument at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect
of
fluctuating interest rates on the market value of the instrument) whenever the
Board of Trustees determines that amortized cost reflects fair value of those
investments. An option written by the Fund is generally valued at the last
sale
price or, in the absence of the last sale price, the last offer price. Further
information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
36
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence.
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- -----------------------------------------------------------------------
Municipal Bond Funds
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND,
an intermediate-term municipal bond fund investing in
investment-grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate-and long-term municipal bond fund investing
in medium-and lower-rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for Arizona investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an
intermediate-and long-term municipal bond fund designed
for Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate-and long-term municipal bond fund designed
for Massachusetts investors.
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for New Jersey investors.
37
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- -----------------------------------------------------------------------
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term bond fund designed
for New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for New York investors.
Income Funds
A, B, D* SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME
FUND, seeks high current income while limiting the degree
of fluctuation in net asset value resulting from movement
in interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND,
invests in a portfolio of high quality debt securities
that may be denominated in U.S. dollars or selected
foreign currencies and that have remaining maturities of
not more than 18 months.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND,
invests in high quality, short-term debt securities
denominated in U.S. dollars as well as a range of foreign
currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests exclusively in securities issued by the United
States Treasury and other U.S. government securities.
A, B, D* SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND,
seeks high current income primarily by allocating and
reallocating its assets among various types of
fixed-income securities.
A, B, D* SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC.,
invests in obligations issued or guaranteed by the United
States government and its agencies and instrumentalities
with emphasis on mortgage-backed government securities.
A, B, D* SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a
high current return by investing in U.S. government
securities.
38
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- -----------------------------------------------------------------------
A, B, D* SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks
maximum current income consistent with prudent investment
management and preservation of capital by investing in
corporate bonds.
A, B, D* SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high
current income by investing in high-yielding corporate
bonds, debentures and notes.
A, B, D* SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current
income and capital appreciation by investing in bonds,
debentures and notes of foreign and domestic issuers.
Growth and Income Funds
A, B, D* SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current
income and capital appreciation by investing in
convertible securities.
A, B, D* SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return
by investing in equity and debt securities of utilities
companies.
A, B, D* SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks
total return by investing in dividend-paying common
stocks.
A, B, D* SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks
income and long-term capital growth by investing in
income-producing equity securities.
Growth Funds
A, B, D* SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks
long-term appreciation of capital.
A, B, D* SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks
long-term capital growth with current income as a
secondary objective.
A, B, D* SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
39
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- -----------------------------------------------------------------------
A, B SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND,
seeks capital appreciation, with income as a secondary
consideration.
A, B, D* SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A, B, D* SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-
term capital appreciation by investing in equity
securities primarily of emerging growth companies.
A, B, D* SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks
long-term capital growth by investing principally in the
common stocks of foreign and domestic issuers.
A, B, D* SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term
capital appreciation by investing primarily in securities
of issuers based in European countries.
A, B, D* SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND
INC., seeks long-term capital appreciation by investing
primarily in precious metal-and mineral-related companies
and gold bullion.
Money Market Funds
** SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of high quality money market
instruments.
*** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND INC., invests
in a diversified portfolio of high quality money market
instruments.
*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND INC.,
invests in short-term U.S. government and agency
securities.
+ SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND INC.,
invests in short-term, high quality municipal
obligations.
40
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- -----------------------------------------------------------------------
+ SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND, invests in short-term, high quality California
municipal obligations.
+ SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET
FUND, invests in short-term, high quality New York
municipal obligations.
- ---------------
* Class D shares of this fund may be acquired only by Participating Plans
in
the Smith Barney Shearson 401(k) Program.
** Shares of this money market fund may be exchanged for Class B shares of
the
Fund.
*** Shares of this money market fund may be exchanged for Class A and Class D
shares of the Fund.
+ Shares of this money market fund may be exchanged for Class A shares of
the
Fund.
Tax Effect. The exchange of shares of one fund for shares of another fund
is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
Class A Exchanges. Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 5% will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A shares of the Fund
or other funds sold with a higher sales charge. The "sales charge
differential"
is limited to a percentage rate no greater than the excess of the sales charge
rate applicable to purchases of shares of the mutual fund being acquired in
the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends, as described below, are treated as having paid the
same sales charges applicable to the shares on which the dividends were paid.
However, except in the case of the 401(k) Program, if no sales charge was
imposed upon the initial purchase of the shares, any shares obtained through
automatic reinvestment will be subject to a sales charge differential upon
exchange.
41
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE (CONTINUED)
Class B Exchanges. Class B shareholders of the Fund who wish to exchange
all
or a portion of their Class B shares for Class B shares of any of the funds
identified above may do so without imposition of an exchange fee. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Fund that have been exchanged. In the
event Class B shareholders wish to exchange all or a portion of their shares
for
shares of the Fund the exchanged Class B shares will be subject to the higher
applicable CDSC.
Class D Exchanges. Participating Plans may exchange Class D shares of the
Fund for Class D shares in any of the funds listed above without charge. Class
D
shares may be acquired only by Participating Plans.
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. Boston Advisors
may determine that a pattern of frequent exchanges is excessive and contrary
to
the best interests of the Fund's other shareholders. In this event, Boston
Advisors will notify Smith Barney Shearson, and Smith Barney Shearson may, at
its discretion, decide to limit additional purchases and/or exchanges by the
shareholder. Upon such a determination, Smith Barney Shearson will provide
notice in writing or by telephone to the shareholder at least 15 days prior to
suspending the exchange privilege and during the 15-day period the shareholder
will be required to (a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds in the Smith Barney
Shearson Group of Funds ordinarily available, which position the shareholder
would expect to maintain for a significant period of time. All relevant
factors
will be considered in determining what constitutes an abusive pattern of
exchanges.
Shareholders exercising the exchange privilege with any of the other funds
in
the Smith Barney Shearson Group of Funds should review the prospectus of that
fund carefully prior to making an exchange. Smith Barney Shearson reserves the
right to reject any exchange request. The exchange privilege may be modified
or
terminated at any time after written notice to shareholders. For further
information regarding the exchange privilege or to obtain the current
prospectuses for members of the Smith Barney Shearson Group of Funds,
investors
should contact their Smith Barney Shearson Financial Consultants.
42
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New
York
10013 and serves as distributor of the Fund's shares.
Smith Barney Shearson is paid an annual service fee with respect to Class
A,
Class B and Class D shares of the Fund at the rate of .25% of the value of the
average daily net assets of the respective Class. Smith Barney Shearson is
also
paid an annual distribution fee with respect to Class B and Class D shares at
the rate of .75% of the value of the average daily net assets attributable to
those shares. The fees are authorized pursuant to a services and distribution
plan (the "Plan") adopted by the Trust pursuant to Rule 12b-1 under the 1940
Act, and are used by Smith Barney Shearson to pay its Financial Consultants
for
servicing shareholder accounts and, in the case of the Class B and Class D
shares, to cover expenses primarily intended to result in the sale of those
shares. These expenses include: costs of printing and distributing the Fund's
Prospectus, Statement of Additional Information and sales literature to
prospective investors; an allocation of overhead and other Smith Barney
Shearson's branch office distribution-related expenses; payments to and
expenses
of Smith Barney Shearson Financial Consultants and other persons who provide
support services in connection with the distribution of the shares; and
accruals
for interest on the amount of the foregoing expenses that exceed distribution
fees and, in the case of Class B shares, the CDSC received by Smith Barney
Shearson. The payments to Smith Barney Shearson Financial Consultants for
selling shares of a Class include a commission paid at the time of sale and a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. The service fee is credited at the rate of
.25%
of the value of the average daily net assets of the Class that remain invested
in the Fund. Smith Barney Shearson Financial Consultants may receive different
levels of compensation for selling one Class of shares over the other.
Although it is anticipated that some promotional activities will be
conducted
on a Trust-wide basis, payments made by a fund of the Trust under the Plan
generally will be used to finance the distribution of shares of that fund.
Expenses incurred in connection with Trust-wide activities may be allocated on
a
pro-rata basis among all funds of the Trust on the basis of their relative net
assets.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson and
the
payments may exceed distribution expenses actually incurred. The Trust's Board
of Trustees will evaluate the appropriateness of the Plan and its payment
terms
on a continuing basis and in so doing will consider all relevant factors,
including
43
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
DISTRIBUTOR (CONTINUED)
expenses borne by Smith Barney Shearson, amounts received under the Plan and
proceeds of the CDSC.
The Trust anticipates that, for the foreseeable future, distribution
expenses
incurred by Smith Barney Shearson will be greater than amounts payable by the
Trust's funds under the Plan. During the period from March 3, 1986 (the
Trust's
commencement of operations) through the fiscal year ended January 31, 1994,
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"), the Trust's
distributor prior to Smith Barney Shearson together with Smith Barney Shearson
incurred with respect to the Class B shares of the Trust's existing funds,
total
distribution expenses of approximately $67,446,000 while receiving
approximately
$45,277,771 pursuant to the Plan and approximately $22,168,000 from the CDSC.
The excess of such distribution expenses incurred by Shearson Lehman Brothers
and/or Smith Barney Shearson over such distribution fees and CDSC, or
approximately $28,650,000, was equivalent to approximately 4.56% of the
Trust's
net assets on January 31, 1994. The Trust's Board of Trustees will evaluate
the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so will consider all relevant factors, including expenses borne by Smith
Barney Shearson and the amount received under the Plan.
- ------------------------------------------------------------------------------
- --
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund will be treated separately from the Trust's other funds in
determining the amount of dividends from net investment income and
distributions
of capital gains payable to shareholders of the Fund. Dividends from net
investment income (that is, income other than net realized capital gains) of
the
Fund will be declared and distributed quarterly. Distribution of the Fund's
net
realized capital gains, if any, will be declared and distributed annually,
normally at the end of the calendar year in which earned or at the beginning
of
the subsequent year. Unless a shareholder instructs that dividends and capital
gains distributions on shares of a Class be paid in cash and credited to the
shareholder's account at Smith Barney Shearson, dividends and capital gains
distributions will automatically be reinvested in additional shares of the
Class
at net asset value subject to no sales charge or CDSC. The Fund is subject to
a
4% nondeductible excise tax on certain undistributed amounts of ordinary
income
and capital gains. The
44
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Trust expects to make any additional distributions necessary to avoid the
application of this tax. Dividends and interest received by the Fund may give
rise to withholding and other taxes imposed on the Fund by foreign countries.
Shareholders of the Fund will not be allowed a deduction or credit for foreign
taxes incurred by the Fund, and certain limitations may be imposed on the
extent
to which the credit (but not the deduction) for foreign taxes may be claimed.
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
Federal income tax purposes, the amount of its net investment income and
capital
gains earned will be determined without regard to the earnings on
distributions
of the other funds of the Trust. The Trust intends for the Fund to qualify
each
year as a regulated investment company under the Code. Dividends paid from the
Fund's net investment income and distributions of the Fund's net realized
short-term capital gains are taxable to shareholders (other than IRAs,
Self-Employed Retirement Plans and other tax-exempt investors) as ordinary
income, regardless of how long shareholders have held Fund shares and whether
the dividends or distributions are received in cash or reinvested in
additional
Fund shares. Distributions of the Fund's net realized long-term capital gains
will be taxable to shareholders as long-term capital gains, regardless of how
long shareholders have held Fund shares and whether the distributions are
received in cash or reinvested in additional Fund shares. In addition, as a
general rule, a shareholder's gain or loss on a sale or redemption of shares
of
the Fund will be a long-term capital gain or loss if the shareholder has held
the shares for more than one year and will be a short-term capital gain or
loss
if the shareholder has held the shares for one year or less. Some of the
Fund's
dividends declared from net investment income may qualify for the Federal
dividends-received deduction for corporations. The per share dividends on
Class
A shares will be higher than those on Class B and Class D shares as a result
of
lower distribution and transfer agency fees applicable to the Class A shares.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to the Fund's
shareholders. If (a) the Fund qualifies as a regulated investment company, (b)
certain distribution requirements are satisfied and (c) more than 50% of the
value of the Fund's assets at the close of the taxable year consists of
securities of foreign
45
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
corporations, the Trust may elect, for Federal income tax purposes, to treat
foreign income taxes paid by the Fund that can be treated as income taxes
under
Federal income tax principles as paid by the Fund's shareholders. The Fund may
qualify for, and the Trust may make, this election in some, but not
necessarily
all, of the Fund's taxable years. If the Trust were to make an election, an
amount equal to the foreign income taxes paid by the Fund would be included in
the income of its shareholders and the shareholders would be entitled to
credit
their portions of this amount against their Federal tax liabilities, if any,
or
to deduct such portions from their Federal taxable income, if any. Shortly
after
any year for which the Trust makes such an election, the Trust will report to
the Fund's shareholders, in writing, the amount per share of such foreign tax
that must be included in each shareholder's gross income and the amount that
will be available for deduction or credit. No deduction for foreign taxes may
be
claimed by a shareholder who does not itemize deductions. Certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Statements as to the tax status of the dividends and distributions received
by shareholders of the Fund are mailed annually. Each shareholder also will
receive, if applicable, various written notices after the close of the Fund's
prior taxable year with respect to certain dividends and distributions that
were
received from the Fund during the Fund's prior taxable year.
Shareholders are urged to consult their tax advisors regarding the
application of Federal, state and local tax laws to their specific situation
before investing in the Fund.
- ------------------------------------------------------------------------------
- --
ADDITIONAL INFORMATION
The Trust was organized on January 8, 1986 under the laws of the
Commonwealth
of Massachusetts and is a business entity commonly known as a "Massachusetts
business trust." The Trust commenced operations on March 3, 1986, under the
name
Shearson Lehman Special Equity Portfolios. The Fund changed its name from
Strategic Investors Portfolio to Strategic Investors Fund on November 5, 1992
and on July 30, 1993 to its current name. The Trust offers shares of
beneficial
interest of separate funds with a par value of $.001 per share. The Fund
offers
shares of beneficial interest currently classified into three Classes -- A, B
and D.
46
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
ADDITIONAL INFORMATION (CONTINUED)
Each Class represents an identical interest in the Fund's investment
portfolio. As a result, the Classes have the same rights, privileges and
preferences, except with respect to: (a) the designation of each Class; (b)
the
effect of the respective sales charges, if any, for each Class; (c) the
distribution and/or service fees borne by each Class; (d) the expenses
allocable
exclusively to each Class; (e) voting rights on matters exclusively affecting
a
single Class; (f) the exchange privilege of each Class; and (g) the conversion
feature of the Class B shares. The Trust's Board of Trustees does not
anticipate
that there will be any conflicts among the interests of the holders of the
different Classes. The Trustees, on an ongoing basis, will consider whether
any
such conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Trustees unless and
until
such time as less than a majority of the Trustees holding office have been
elected by shareholders. The Trustees will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Trust's
outstanding
shares. Shareholders of record owning no less than two-thirds of the
outstanding
shares of the Trust may remove a Trustee through a declaration in writing or
by
vote cast in person or by proxy at a meeting called for that purpose. When
matters are submitted for shareholder vote, shareholders of each Class will
have
one vote for each full share owned and a proportionate, fractional vote for
any
fractional share held of that Class. Generally, shares of the Trust vote by
individual fund on all matters except (a) matters affecting only the interests
of one or more of the funds, in which case only shares of the affected fund or
funds would be entitled to vote or (b) when the 1940 Act requires that shares
of
the funds be voted in the aggregate. Similarly, shares of the Fund will be
voted
generally on a Fund-wide basis except with respect to matters affecting the
interests of one Class of shares.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as custodian of the Fund's
investments.
TSSG, is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Trust's transfer agent.
The Trust sends shareholders of the Fund a semi-annual report and an
audited
annual report, which include listings of the investment securities held by the
Fund at the end of the reporting period. In an effort to reduce the Fund's
47
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
- ------------------------------------------------------------------------------
- --
ADDITIONAL INFORMATION (CONTINUED)
printing and mailing costs, the Trust plans to consolidate the mailing of the
Fund's 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 Trust also plans
to
consolidate the mailing of the Fund's Prospectus so that a shareholder having
multiple accounts (that is, individual, IRA and/or Self-Employed Retirement
Plan
accounts) will receive a single Prospectus annually. Any shareholder of the
Fund
who does not want this consolidation to apply to his or her account should
contact his or her Financial Consultant or the Trust's transfer agent.
Shareholders may seek information regarding the Fund from their Smith
Barney
Shearson Financial Consultants.
------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement
of
Additional Information and/or the official sales literature in connection with
the offering of the Fund's shares, and, if given or made, such other
information
or representations must not be relied upon as having been authorized by the
Trust. This Prospectus does not constitute an offer in any state in which, or
to
any person to whom, such offer may not lawfully be made.
48
- ------------------------------------------------------------------------------
- --
- ------------------------------------------------------------------------------
- --
SMITH BARNEY SHEARSON
STRATEGIC
INVESTORS
FUND
Two World Trade Center
New York, New York 10048
Fund 38,233,246
FD0225 C4
Smith Barney Shearson
EQUITY FUNDS
Two World Trade Center
New York, New York 10048
(212) 720-9218
- ---------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION APRIL 1,
1994
- ---------------------------------------------------------
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectuses, each dated April 1, 1994,
as
amended or supplemented from time to time, of Smith Barney Shearson Equity
Funds
(the "Trust") relating to Smith Barney Shearson Strategic Investors Fund,
Smith
Barney Shearson Sector Analysis Fund and Smith Barney Shearson Growth and
Income
Fund (each, a "Fund" and collectively, the "Funds"), each a series of the
Trust,
and should be read in conjunction with the Prospectuses. The Prospectuses may
be
obtained by contacting your Smith Barney Shearson Financial Consultant or by
writing or calling the Trust at the address or telephone number listed above.
This Statement of Additional Information, although not in itself a prospectus,
is incorporated by reference into the Prospectuses in its entirety.
CONTENTS
For ease of reference, the same section headings are used in the Prospectuses
and in this Statement of Additional Information, except where shown below:
Management of the
Trust................................................................ 2
(See in each Prospectus "Management of the Trust and the Fund")
Investment Objectives and Management
Policies.......................................... 6
(See in each Prospectus "Investment Objective and Management Policies")
Purchase of
Shares.....................................................................
20
Redemption of
Shares...................................................................
21
Distributor...................................................................
......... 22
Valuation of
Shares....................................................................
23
Exchange
Privilege................................................................
24
Performance
Data.......................................................................
24
(See in each Prospectus "The Fund's Performance")
Taxes.........................................................................
......... 27
(See in each Prospectus "Dividends, Distributions and Taxes")
Organization of the
Trust.............................................................. 31
(See in each Prospectus "Additional Information")
Custodian and Transfer
Agent........................................................... 32
(See in each Prospectus "Additional Information")
Financial
Statements................................................................
32
Appendix......................................................................
......... 32
MANAGEMENT OF THE TRUST
The names of the Trust's Trustees and the executive officers of the Funds,
together with information as to their principal business occupations, are set
forth below. The executive officers of the Funds are employees of
organizations
that provide services to the Funds. 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. As of March 1, 1994, the Trust's Trustees and
officers of the Funds as a group owned less than 1% of the outstanding shares
of
the Trust.
THE TRUST'S TRUSTEES:
Lee Abraham, Trustee. Chairman and Chief Executive Officer of Associated
Merchandising Corporation, a major retail merchandising and sourcing
organization. His address is 1440 Broadway, Suite 1001, New York, New York
10018.
Antoinette C. Bentley, Trustee. Retired; formerly Senior Vice President
and
Associate General Counsel of Crum and Foster, Inc., an insurance holding
company. Her address is 24 Fowler Road, Far Hills, New Jersey 07931.
Allan J. Bloostein, Trustee. Consultant; formerly Vice Chairman of the
Board of and Consultant to The May Department Stores Company; Director of
Crystal Brands, Inc., Melville Corp. and R.G. Barry Corp. His address is
Anderson Road, Sherman, Connecticut 06784.
Richard E. Hanson, Jr., Trustee. Headmaster, Lawrence Country Day
School--Woodmere Academy, Woodmere, New York; prior to July 1, 1990,
Headmaster
of Woodmere Academy. His address is 336 Woodmere Boulevard, Woodmere, New York
11598.
Heath B. McLendon, Chairman of the Board and Investment Officer.
Executive
Vice President of Smith Barney Shearson and Chairman of Smith Barney Strategy
Advisers Inc. ("Strategy Advisers"); prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"); Vice
Chairman of Shearson Asset Management, a member of the Asset Management Group
of
Shearson Lehman Brothers; a Director of PanAgora Asset Management, Inc. and
PanAgora Asset Management Limited. His address is Two World Trade Center, New
York, New York 10048.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney Shearson; Director and President of Mutual Management Corp. and
Smith, Barney Advisers, Inc.; and Trustee of Corporate Realty Income Trust I.
His address is 1345 Avenue of the Americas, New York, New York 10105.
Madelon DeVoe Talley, Trustee. Author; Governor at Large of the National
Association of Securities Dealers, Inc.; prior to 1985, Chairman of Rothschild
Asset Management Inc., a money management firm. Her address is 876 Park
Avenue,
New York, New York 10021.
EXECUTIVE OFFICERS OF ALL FUNDS EXCEPT STRATEGIC INVESTORS FUND:
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney Shearson; President of Strategic Advisers; prior to July 1993, Senior
Vice President of Shearson Lehman Brothers, Vice President of Shearson Lehman
Investment Strategy Advisors Inc. His address is Two World Trade Center, New
York, New York 10048.
Richard A. Crowell, Investment Officer. President and Managing Director
of
PanAgora Management; prior to June 1991, Senior Vice President, The Boston
Company Advisors, Inc. ("Boston Advisors"), The
2
Boston Company Institutional Investors, Inc. ("III") and The Boston Company,
Inc. ("TBC"). His address is 260 Franklin Street, Boston, Massachusetts 02110.
Elaine M. Garzarelli, Vice President and Investment Officer. Managing
Director of Lehman Brothers Inc. ("Lehman Brothers"); prior to July 31, 1993
Managing Director of Lehman Brothers Division of Shearson Lehman Brothers. Her
address is American Express Tower, World Financial Center, New York, New York
10285.
R. Jay Gerken, Vice President and Investment Officer. Managing Director
of
Greenwich Street Advisors; prior to July 1993 Managing Director of Shearson
Lehman Advisors. His address is Two World Trade Center, New York, New York
10048.
George V. Novello, Investment Officer. Managing Director of Greenwich
Street Advisors; prior to July 31, 1993 Managing Director of Shearson Lehman
Advisors. His address is Two World Trade Center, New York, New York 10048.
Richard T. Wilk, Investment Officer. Senior Manager of Equity Investments
of PanAgora Management; prior to June 1991, Vice President of Boston Safe,
Boston Advisors and III. His address is 260 Franklin Street, Boston,
Massachusetts 02110.
Vincent Nave, Treasurer. Senior Vice President of Boston Advisors and
Boston Safe. His address is One Boston Place, Boston, Massachusetts 02108.
Francis J. McNamara, III, Secretary. Senior Vice President and General
Counsel of Boston Advisors; prior to June 1989, Vice President and Associate
Counsel of Boston Advisors. His address is One Boston Place, Boston,
Massachusetts 02108.
EXECUTIVE OFFICERS AND ADMINISTRATIVE PERSONNEL OF STRATEGIC INVESTORS FUND:
Richard P. Roelofs, Executive Vice President, Treasurer and Secretary.
Vincent Nave, Financial Administrator.
Francis J. McNamara, III, Legal Administrator.
William W. Carter, Jr., Investment Administrator. Vice President of
Boston
Advisors; Executive Vice President of III; President of The Boston Company of
Southern California. His address is 300 S. Grand, Suite 1200, Los Angeles,
California 90071.
Stephen Thalasinos, Investment Administrator.
Each Trustee also serves as a trustee, director and/or general partner of
certain other mutual funds for which Smith Barney Shearson serves as
distributor. Strategy Advisors and PanAgora Management (collectively referred
to
as the "Advisers" and individually referred to as an "Adviser") are
"affiliated
persons" of the Trust as defined in the 1940 Act by virtue of their positions
as
advisers and/or sub-investment adviser to the Funds.
Remuneration. No director, officer or employee of Smith Barney Shearson,
or any affiliate of Smith Barney Shearson or the Advisers will receive any
compensation from the Trust for serving as an officer of a Fund or Trustee of
the Trust. The Trust pays each Trustee who is not a director, officer or
employee of
3
Smith Barney Shearson, the Advisers or any of their affiliates a fee of $6,000
per annum plus $1,500 per meeting attended and reimburses them for travel and
out-of-pocket expenses. For the fiscal year ended January 31, 1994, such fees
and expenses totalled $62,177.
INVESTMENT ADVISERS AND ADMINISTRATOR
Greenwich Street Advisors serves as investment adviser to Growth and
Income
Fund pursuant to a written agreement (the "Advisory Agreement"), which was
first
approved by the Trust's Board of Trustees, including a majority of the
Trustees
who are not "interested persons" of the Trust or Greenwich Street Advisors
("Independent Trustees") on April 6, 1993. Greenwich Street Advisors pays the
salary of any officer and employee who is employed by both it and the Trust.
Greenwich Street Advisors bears all expenses in connection with the
performance
of its services. Certain of the services provided by Greenwich Street Advisors
under the Advisory Agreement are described in the Prospectus under "Management
of the Trust and the Fund." Greenwich Street Advisors is a division of Mutual
Management Corp., which is controlled by Smith Barney Shearson Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc.
("Travelers").
As compensation for Greenwich Street Advisors services rendered to Growth
and Income Fund, the Fund pays a fee computed daily and paid monthly at the
annual rate of .45% of the value of the average daily net assets of the Fund.
Boston Advisors serves as investment adviser and administrator to
Strategic
Investors Fund pursuant to separate written agreements dated May 22, 1993,
which
were most recently approved by the Trust's Board of Trustees, including a
majority of the Independent Trustees, on August 4, 1993. Boston Advisors
serves
as administrator to Sector Analysis Fund and Growth and Income Fund pursuant
to
separate written agreements (the "Administration Agreements"), which was most
recently approved by the Trust's Board of Trustees, including a majority of
the
Independent Trustees, on August 4, 1993. Prior to May 22, 1993, Boston
Advisors
served as sub-investment adviser to Growth and Income Fund. Boston Advisors is
a
wholly owned subsidiary of TBC, a financial services holding company, which is
a
wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Certain of the
services provided to the Funds by Boston Advisors are described in the
Prospectuses under "Management of the Trust and the Fund." In addition to
those
services, Boston Advisors maintains office facilities for each Fund, furnishes
each Fund with statistical and research data, clerical help and accounting,
data
processing, bookkeeping, internal auditing and legal services and certain
other
services required by the Funds, prepares reports to the Funds' shareholders
and
prepares tax returns, reports to and filings with the Securities and Exchange
Commission (the "SEC") and state Blue Sky authorities. Boston Advisors bears
all
expenses in connection with the performance of its services.
As compensation for Boston Advisors' services rendered to the Funds, the
Trust pays a fee computed daily and paid monthly at the annual rates of: .75%
of
the value of the average daily net assets of Strategic Investors Fund; .20% of
the value of the average daily net assets of Sector Analysis Fund; and .20% of
the value of the average daily net assets of Growth and Income Fund.
Strategy Advisers serves as investment adviser to Sector Analysis Fund
pursuant to a written agreement (the "Strategy Advisery Agreement"), which was
most recently approved by the Trust's Board of Trustees, including a majority
of
the Independent Trustees, on April 6, 1993. Strategy Advisers is a wholly
owned
4
subsidiary of Holdings. Certain of the services provided by Strategy Advisors
under the Strategy Advisory Agreement are described in the Prospectus under
"Management of the Trust and the Fund."
As compensation for Strategy Advisers' services rendered to Sector
Analysis
Fund, the Fund pays a fee computed daily and paid monthly at the annual rate
of
.40% of the value of the Fund's average daily net assets.
PanAgora Management serves as sub-investment adviser to Sector Analysis
Fund pursuant to a written agreement (the "PanAgora Sub-Advisory Agreement"),
which was most recently approved by the Trust's Board of Trustees, including a
majority of the Independent Trustees, on August 4, 1993. Fifty percent of the
outstanding voting stock of PanAgora Management is owned by Nippon Life
Insurance Company and fifty percent is owned by Lehman Brothers. Lehman
Brothers
is a wholly owned subsidiary of Lehman Brothers Holdings Inc. ("Lehman
Holdings"). American Express Company owns 100% of Lehman Holdings issued and
outstanding common stock, which represents approximately 92% of Holdings'
voting
stock. The remainder of Holdings voting stock is owned by Nippon Life
Insurance
Company. Certain of the services provided by PanAgora Management under the
PanAgora Sub-Advisory Agreement are described in Sector Analysis Fund's
Prospectus under "Management of the Trust and Fund."
As compensation for PanAgora Management's services rendered to Sector
Analysis Fund, the Fund pays a fee computed daily and paid monthly at the
annual
rate of .20% of the value of the Fund's average daily net assets.
Each of the Funds' Advisers pays the salaries of all officers and
employees
who are employed by both it and the Trust, and maintains office facilities for
the Funds. Each of the service providers also bears all expenses in connection
with the performance of its services under its agreement relating to a Fund.
For the fiscal years ended January 31, 1994, 1993 and 1992, the Funds
paid
investment advisory and sub-investment advisory and/or administration fees to
their respective Advisers, sub-investment advisers and administrator as
follows:
GROWTH AND INCOME FUND
FISCAL YEAR ENDED
JANUARY 31,
- ----------------------
1994 1993
- -------- --------
Investment Advisory fees..................................................
$264,363 $ 25,070
Administration fees......................................................
117,495 11,142
STRATEGIC INVESTORS FUND
SECTOR ANALYSIS FUND
FISCAL YEAR ENDED JANUARY 31,
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------
- -----------------------------------
1994 1993 1992
1994 1993 1992
---------- ---------- ----------
- -------- -------- ----------
Investment Advisory fees....... $1,702,756 $1,466,635 $1,180,350
$632,931 $755,175 $ 706,308
Sub-Investment Advisory fees... -- --
316,466 377,588 353,153
Administration fees............ 609,031 532,668 429,218
316,466 377,588 353,153
Each Adviser, sub-investment adviser and/or administrator has agreed that
if in any fiscal year the aggregate expenses of the Fund it serves (including
fees payable pursuant to its agreement with respect to the Fund, but excluding
interest, taxes, brokerage, fees paid pursuant to the Trust's services and
distribution plan, and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitation of any
state
having jurisdiction over the Fund, the Adviser and administrator, to the
extent
required by state law, will reduce their fees to the Fund by the amount of
such
excess expense, such
5
amount to be allocated between or among them in the same proportion as their
respective fees bear to the combined fees for investment advice and
administration. Such fee reduction, if any, will be estimated and reconciled
on
a monthly basis. The most restrictive state expense limitation currently
applicable to any Fund requires a reduction of fees in any year that such
expenses exceed 2.5% of the Fund's first $30 million of average net assets, 2%
of the next $70 million of average net assets and 1.5% of the remaining
average
net assets.
Smith Barney Shearson serves as asset allocation consultant to Strategic
Investors Fund pursuant to a written agreement with the Trust, under which
Smith
Barney Shearson provides the Fund with its conclusions concerning the portion
of
a model portfolio's assets that should be invested in equity, fixed-income and
money market instruments and gold securities in light of current economic and
market conditions. Strategic Investors Fund does not pay any fee to Smith
Barney
Shearson for performing this service, and Smith Barney Shearson bears all
expenses in connection with providing this service.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as counsel to the Trust. Stroock & Stroock &
Lavan serves as counsel to the Trust's Independent Trustees.
Coopers & Lybrand, independent accountants, One Post Office Square,
Boston,
Massachusetts 02109, serve as auditors of the Trust and render an opinion on
each Fund's financial statements annually.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectuses discuss the investment objectives of the Funds and the
policies
employed to achieve those objectives. This section contains supplemental
information concerning the types of securities and other instruments in which
the Funds may invest, the investment policies and portfolio strategies the
Funds
may utilize and certain risks attendant to such investments, policies and
strategies. There can be no assurance that the respective investment
objectives
of the Funds will be achieved.
United States Government Securities (All Funds). United States
government
securities include debt obligations of varying maturities issued or guaranteed
by the United States government or its agencies or instrumentalities ("U.S.
government securities"). Direct obligations of the United States Treasury
include a variety of securities that differ in their interest rates,
maturities
and dates of issuance.
U.S. government securities include not only direct obligations of the
United States Treasury, but also include securities issued or guaranteed by
the
Federal Housing Administration, Federal Financing Bank, Export-Import Bank of
the United States, Small Business Administration, Government National Mortgage
Association, General Services Administration, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association,
Maritime
Administration, Resolution Trust Corporation, Tennessee Valley Authority,
District of Columbia Armory Board, Student Loan Marketing Association and
various institutions that previously were or currently are part of the Farm
Credit System (which has been undergoing a reorganization since 1987). Because
the United States government is not obligated by law to provide support to an
instrumentality that it sponsors, a Fund will invest in obligations issued by
such an instrumentality only if the Fund's Adviser determines that the credit
risk with respect to the instrumentality does not make its securities
unsuitable
for investment by the Fund.
Venture Capital Investments (Strategic Investors Funds). Strategic
Investors Fund may invest up to 5% of its total assets in venture capital
investments, that is, new and early stage companies whose securities are not
publicly traded. Venture capital investments may present significant
opportunities for capital
6
appreciation but involve a high degree of business and financial risk that can
result in substantial losses. The disposition of U.S. venture capital
investments, which may include limited partnership interests, normally would
be
restricted under Federal securities laws. Generally, restricted securities may
be sold only in privately negotiated transactions or in public offerings
registered under the Securities Act of 1933, as amended. The Fund also may be
subject to restrictions contained in the securities laws of other countries in
disposing of portfolio securities. As a result of these restrictions, the Fund
may be unable to dispose of such investments at times when disposal is deemed
appropriate due to investment or liquidity considerations; alternatively, the
Fund may be forced to dispose of such investments at less than fair market
value. Where registration is required, the Fund may be obligated to pay part
or
all of the expenses of such registration.
Lending of Portfolio Securities. Each Fund has the ability to lend
portfolio securities to brokers, dealers and other financial organizations.
These loans, if and when made, may not exceed 20% of a Fund's total assets
taken
at value. A Fund will not lend portfolio securities to Smith Barney Shearson
unless it has applied for and received specific authority to do so from the
SEC.
Loans of portfolio securities will be collateralized by cash, letters of
credit
or U.S. government securities that are maintained at all times in a segregated
account in an amount equal to 100% of the current market value of the loaned
securities. From time to time, a Fund may pay a part of the interest earned
from
the investment of collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Fund and that is acting as
a
"finder."
By lending its securities, a Fund can increase its income by continuing
to
receive interest on the loaned securities as well as by either investing the
cash collateral in short-term instruments or obtaining yield in the form of
interest paid by the borrower when U.S. government securities are used as
collateral. A Fund will comply with the following conditions whenever its
portfolio securities are loaned: (a) the Fund must receive at least 100% cash
collateral or equivalent securities from the borrower; (b) the borrower must
increase such collateral whenever the market value of the securities loaned
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 any dividends, interest or other distribution 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 Trust's Board of Trustees must terminate the loan and regain the
right to vote the securities. The risks in lending portfolio securities, as
with
other extensions of secured credit, consist of a possible delay in receiving
additional collateral or in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. Loans will be
made to firms deemed by each Fund's Adviser to be of good standing and will
not
be made unless, in its judgment, the consideration to be earned from such
loans
would justify the risk.
Options on Securities (All Funds). Strategic Investors Fund may write
covered call options and enter into closing transactions with respect thereto.
Sector Analysis Fund may purchase put and write call options on securities
that
are not held by the Fund and that are issued by companies in sectors
designated
as "unattractive" by its Adviser. In addition, Sector Analysis Fund only will
purchase put and write call options listed on national securities exchanges
and
will not purchase put or write call options traded over the counter.
7
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 a 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 Funds normally will have expiration dates between
one and nine months from the date they are written. The exercise price of the
options may be below ("in-the-money"), equal to ("at-the-money"), or above
("out-of-the-money"), the market values of the underlying securities at the
times the options are written. A Fund may write (a) in-the-money call options
when its Adviser 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 its Adviser 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 its Adviser expects that the price of the
underlying security may increase but not above a price equal to the sum of the
exercise price plus the premiums received from writing the call option. 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 a 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. A 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, a 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 domestic 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 of the same series on a securities exchange or in the
over-the-counter market. Strategic Investors Fund expects to write options
only
on domestic securities exchanges.
A Fund may realize a profit or loss upon entering into a closing
transaction. In cases in which a 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. Similarly, when Sector Analysis Fund has purchased an option
and engage in a closing sale transaction, whether the Fund realizes a profit
or
loss will depend upon whether the amount received in the closing sale
transaction is more or less than the premium the Fund initially paid for the
original option plus the related transaction costs.
Although Sector Analysis Fund generally will purchase or write, and
Strategic Investors Fund generally will write, only those options for which
their respective Advisers believe 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
8
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
domestic 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 otherwise may 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, a 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 have established limitations governing the maximum
number of calls and puts of each class that 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 Funds and
other clients of their respective Advisers and certain of their affiliates may
be considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions.
In the case of options written by a Fund that are deemed covered by
virtue
of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stocks with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery
in
accordance with an exercise notice. In these instances, a Fund may purchase or
temporarily borrow the underlying securities for purposes of physical
delivery.
By so doing, the Fund will not bear any market risk because the Fund will have
the absolute right to receive from the issuer of the underlying securities an
equal number of shares to replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expense in connection with any such
purchase or borrowing.
Stock Index Options (Sector Analysis Fund). Sector Analysis Fund may
purchase put and call options and write call options on domestic stock indexes
listed on domestic exchanges in order to realize its investment objective of
capital appreciation or for the purpose of hedging its portfolio. A stock
index
fluctuates with changes in the market values of the stocks included in the
index. Some stock index options are based on a broad market index such as the
New York Stock Exchange Composite Index or the Canadian Market Portfolio
Index,
or a narrower market index such as the Standard & Poor's 100. Indexes also are
based on an industry or market segment such as the American Stock Exchange Oil
and Gas Index or the Computer and Business Equipment Index.
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock
index
gives the holder the right to receive a cash "exercise settlement amount"
equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by
(b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of
the
option expressed in dollars or a foreign
9
currency, as the case may be, times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in stock index options prior
to
expiration by entering into a closing transaction on an exchange or it may let
the option expire unexercised.
The effectiveness of purchasing or writing stock index options as a
hedging
technique will depend upon the extent to which price movements in the portion
of
the securities portfolio of Sector Analysis Fund correlate with price
movements
of the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
stock,
whether Sector Analysis Fund will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by Sector Analysis Fund of options on stock
indexes will be subject to its Adviser's ability to predict correctly
movements
in the direction of the stock market generally or of a particular industry.
This
requires different skills and techniques than predicting changes in the price
of
individual stocks.
Futures Contracts and Related Options (Sector Analysis Fund). Sector
Analysis Fund may invest in stock index and interest rate futures contracts
and
options on interest rate futures contracts that are traded on a domestic
exchange or board of trade. These investments may be made by Sector Analysis
Fund solely for the purpose of hedging against changes in the value of its
portfolio securities due to anticipated changes in interest rates and market
conditions and not for purposes of speculation. Sector Analysis Fund is not
permitted to enter into futures and options contracts for which aggregate
initial margin deposits and premiums exceed 5% of the fair market value of its
assets, after taking into account unrealized profits and unrealized losses on
futures contracts into which it has entered.
The purpose of entering into a futures contract by Sector Analysis Fund
is
to protect the Fund from fluctuations in the value of securities or in
interest
rates without actually buying or selling the securities. For example, in the
case of stock index futures contracts, if Sector Analysis Fund anticipates an
increase in the price of stocks that it intends to purchase at a later time,
the
Fund could enter into contracts to purchase the stock index (known as taking a
"long" position) as a temporary substitute for the purchase of stocks. If an
increase in the market occurs that influences the stock index as anticipated,
the value of the futures contracts increases and thereby serves as a hedge
against Sector Analysis Fund's not participating in a market advance. Sector
Analysis Fund then may close out the futures contracts by entering into
offsetting futures contracts to sell the stock index (known as taking a
"short"
position) as it purchases individual stocks. Or, in the case of interest rate
futures contracts, if Sector Analysis Fund owns long-term U.S. Treasury bonds
and interest rates are expected to increase, the Fund may take a short
position
in interest rate futures contracts. Taking such a position would have much the
same effect as Sector Analysis Fund's selling some of the long-term bonds in
its
portfolio. If interest rates increase as anticipated, the value of the long-
term
U.S. Treasury bonds would decline, but the value of Sector Analysis Fund's
futures contracts will increase at approximately the same rate, thereby
keeping
the net asset value of the Fund from declining as much as it may have
otherwise.
Of course, because the value of portfolio securities will far exceed the value
of the futures contracts entered into by Sector Analysis Fund, an increase in
the value of the futures contracts can only mitigate--but not totally
offset--the decline in value of the portfolio. If, on the other hand, Sector
Analysis Fund held cash reserves and interest rates are expected to decline,
the
Fund may enter into futures contracts for the purchase of long-term U.S.
Treasury bonds in anticipation of later closing out the futures
10
position and purchasing the bonds. Sector Analysis Fund can accomplish similar
results by buying securities with long maturities and selling securities with
short maturities. But by using futures contracts as an investment tool to
reduce
risk, given the greater liquidity in the futures market than in the cash
market,
it may be possible to accomplish the same result more easily and more quickly.
No consideration will be paid or received by Sector Analysis Fund upon
the
purchase or sale of a futures contract. Initially, Sector Analysis Fund will
be
required to deposit with the broker an amount of cash or cash equivalents
equal
to approximately 1% to 10% of the contract amount (this amount is subject to
change by the exchange or board of trade on which the contract is traded and
brokers or members of such board of trade may charge a higher amount). This
amount is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract which is returned to Sector Analysis
Fund,
upon termination of the futures contract, assuming all contractual obligations
have been satisfied. Subsequent payments, known as "variation margin," to and
from the broker, will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short
positions
in the futures contract more or less valuable, a process known as
"marking-to-market." In addition, when Sector Analysis Fund enters into a long
position in a futures contract or an option on a futures contract, it must
deposit into a segregated account with the Trust's custodian an amount of cash
or cash equivalents equal to the total market value of the underlying futures
contract, less amounts held in the Fund's commodity brokerage account at its
broker. At any time prior to the expiration of a futures contract, Sector
Analysis Fund may elect to close the position by taking an opposite position,
which will operate to terminate the Fund's existing position in the contract.
There are several risks in connection with the use of futures contracts
as
a hedging device. Successful use of futures contracts by Sector Analysis Fund
is
subject to the ability of PanAgora Management, its sub-investment adviser, to
predict correctly movements in the stock market or in the direction of
interest
rates. These predictions involve skills and techniques that may be different
from those involved in the management of investments in securities. In
addition,
there can be no assurance that there will be a perfect correlation between
movements in the price of the securities underlying the futures contract and
movements in the price of the securities that are the subject of the hedge. A
decision of whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in market behavior or interest
rates.
Positions in futures contracts may be closed out only on the exchange on
which they were entered into (or through a linked exchange) and no secondary
market exists for those contracts. In addition, although Sector Analysis Fund
intends to enter into futures contracts only if there is an active market for
the contracts, there is no assurance that an active market will exist for the
contracts at any particular time. Most futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit. It is
possible that futures contract prices could move to the daily limit for
several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, and in the event of adverse price
movements,
Sector Analysis Fund would be required to make daily cash payments of
variation
margin; in such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely offset losses on
the
futures contract. As described above, however, no assurance
11
can be given that the price of the securities being hedged will correlate with
the price movements in a futures contract and thus provide an offset to losses
on the futures contract.
If Sector Analysis Fund has hedged against the possibility of an increase
in interest rates adversely affecting the value of securities held in its
portfolio and rates decrease instead, the Fund will lose part or all of the
benefit of the increased value of securities which it has hedged because it
will
have offsetting losses in its futures positions. In addition, in such
situations, if Sector Analysis Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it may
be
disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the decline in interest
rates.
An option on an interest rate futures contract, as contrasted with the
direct investment in such a contract, gives the purchaser the right, in return
for the premium paid, to assume a position in an interest rate futures
contract
at a specified exercise price at any time prior to the expiration date of the
option. Upon exercise of an option, the delivery of the futures position by
the
writer of the option to the holder of the option will be accompanied by
delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract
exceeds,
in the case of a call, or is less than, in the case of a put, the exercise
price
of the option on the futures contract. The potential loss related to the
purchase of an option on futures contracts is limited to the premium paid for
the option (plus transaction costs). Because the value of the option purchased
is fixed at the point of sale, there are no daily cash payments by the
purchaser
to reflect changes in the value of the underlying contract; however, the value
of the option does change daily and that change would be reflected in the net
asset value of Sector Analysis Fund.
In addition to the risks that apply to all options transactions, there
are
several special risks relating to options on interest rate futures contracts.
These risks include the lack of assurance of perfect correlation between the
price movements in the options on interest rate futures, on the one hand, and
price movements in the portfolio securities that are the subject to the hedge,
on the other hand. In addition, Sector Analysis Fund's writing of put and call
options on interest rate futures will be based upon predictions as to
anticipated interest rate trends, which predictions could prove to be
inaccurate. The ability to establish and close out positions on such options
will be subject to the maintenance of a liquid market, and there can be no
assurance that such a market will be maintained or that closing transactions
will be effected. In addition, there are risks specific to writing (as
compared
to purchasing) such options. While Sector Analysis Fund's risk of loss with
respect to purchased put and call options on interest rate futures contracts
is
limited to the premium paid for the option (plus transaction costs), when the
Fund writes such an option it is obligated to a broker for the payment of
initial and variation margin.
Money Market Instruments. (All Funds). Subject to the restrictions noted
in the Prospectuses, the money market instruments in which the Funds may
invest
are: 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.
12
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 a 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, each Fund's Adviser will carefully evaluate such investments on
a
case-by-case basis.
13
Savings and loan associations, the CDs of which may be purchased by the
Funds, are supervised by the Office of Thrift Supervision and are insured by
the
Savings Association and Insurance Fund. 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. A Fund may invest in
short-term debt obligations of issuers that at the time of purchase are rated
A-2, A-1 or A-1+ by Standard & Poor's Corporation ("S&P") or Prime-2 or Prime-
1
by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are issued by
companies having an outstanding unsecured debt issue currently rated within
the
two highest ratings of S&P or Moody's. A discussion of S&P and Moody's rating
categories appears in the Appendix to this Statement of Additional
Information.
A 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. A
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. Each Fund's Adviser 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. The Funds may invest in 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 thus 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
14
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. The Funds may invest in preferred stocks. Preferred
stocks, like debt obligations, are generally fixed-income securities.
Shareholders of preferred stocks normally have the right to receive dividends
at
a fixed rate when and as declared by the issuer's board of directors, but do
not
participate in other amounts available for distribution by the issuing
corporation. Dividends on the preferred stock may be cumulative, and all
cumulative dividends usually must be paid prior to common stockholders
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.
American, European and Continental Depositary Receipts (Growth and Income
and Strategic Investors Funds). The assets of Strategic Investors Fund may be
invested in the securities of foreign issuers in the form of American
Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). These securities
may not necessarily be denominated in the same currency as the securities into
which they may be converted. ADRs are U.S. dollar-denominated receipts
typically
issued by a domestic bank or trust company that evidence ownership of
underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-U.S. banks and trust companies that evidence ownership of
either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs and CDRs in bearer form
are
designed for use in European securities markets.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 8 below have been adopted by
the
Trust with respect to each Fund as fundamental policies. Under the 1940 Act, a
fundamental policy of a Fund may not be changed without the vote of a majority
of the outstanding voting securities of the Fund, as defined in the 1940 Act.
Such majority is defined as the lesser of (a) 67% or more of the shares
present
at the meeting, if the holders of more than 50% of the outstanding shares of
the
Fund are present or represented by proxy, or (b) more than 50% of the
outstanding shares. Investment restrictions 9 through 18 may be changed by
vote
of a majority of the Trust's Board of Trustees at any time.
The investment policies adopted by the Trust prohibit a Fund from:
1. Purchasing the securities of any issuer (other than U.S.
government securities) if as a result more than 5% of the value of the
Fund's total assets would be invested in the securities of the issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to this 5% limitation.
15
2. Purchasing more than 10% of the voting securities of any one
issuer, or more than 10% of the securities of any class of any one
issuer;
provided that this limitation shall not apply to investments in U.S.
government securities.
3. Borrowing money, except that a Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting
of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount not to exceed 10% of the value of the Fund's
total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
is made. Whenever borrowings exceed 5% of the value of the total assets
of
a Fund, the Fund will not make any additional investments.
4. Underwriting the securities of other issuers, except insofar as
the Fund may be deemed an underwriter under the Securities Act of 1933,
as
amended, by virtue of disposing of portfolio securities.
5. Purchasing or selling real estate or interests in real estate,
except that the Fund may purchase and sell securities that are secured by
real estate and may purchase securities issued by companies that invest
or
deal in real estate.
6. Investing in commodities, except that (a) Sector Analysis Fund
may
invest in futures contracts and options on futures contracts as described
in the Fund's Prospectus and this Statement of Additional Information,
and
(b) upon 60 days' notice given to its shareholders, Strategic Investors
Fund may engage in hedging transactions involving futures contracts and
related options, including foreign and domestic stock index futures
contracts and financial futures contracts.
7. Making loans to others, except through the purchase of qualified
debt obligations, loans of portfolio securities and the entry into
repurchase agreements.
8. Purchasing any securities (other than U.S. government
securities)
which would cause more than 25% of the value of the Fund's total assets
at
the time of purchase to be invested in the securities of issuers
conducting
their principal business activities in the same industry.
9. Purchasing securities on margin, except that Sector Analysis
Fund
may sell securities short and any Fund may obtain any short-term credits
necessary for the clearance of purchases and sales of securities. For
purposes of this restriction, the deposit or payment of initial or
variation margin in connection with futures contracts or related options
will not be deemed to be a purchase of securities on margin by any Fund
permitted to engage in transactions in futures contracts or related
options.
10. Making short sales of securities or maintaining a short
position
except that Sector Analysis Fund may sell securities short and obtain any
short-term credits necessary for the clearance of purchases and sales of
securities.
11. Pledging, hypothecating, mortgaging or otherwise encumbering
more
than 10% of the value of the Fund's total assets. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with the
writing of covered call options and (b) collateral arrangements with
respect to (i) the purchase and sale of options on stock indexes and (ii)
initial or variation margin for futures contracts, will not be deemed to
be
pledges of a Fund's assets.
12. Investing in oil, gas or other mineral exploration or
development
programs, except that the Fund may invest in the securities of companies
that invest in or sponsor those programs.
16
13. Investing in securities of other investment companies
registered
or required to be registered under the 1940 Act, except as they may be
acquired as part of a merger, consolidation, reorganization, acquisition
of
assets or an offer of exchange.
14. Writing or selling puts, calls, straddles, spreads or
combinations thereof, except that (a) Strategic Investors Fund may write
covered call options, and (b) Sector Analysis Fund will not write or sell
puts, calls, straddles or combinations thereof, except as described in
the
Prospectus and this Statement of Additional Information.
15. Purchasing restricted securities, illiquid securities (such as
repurchase agreements with maturities in excess of seven days) or other
securities that are not readily marketable if more than 10% of the total
assets of the Fund would be invested in such securities. Sector Analysis
Fund will not invest in time deposits maturing in more than seven days
if,
as a result, the Fund's holdings of such time deposits exceed 10% of its
net assets.
16. Purchasing any security if as a result the Fund would then have
more than 10% of its total assets (5% for Sector Analysis Fund) invested
in
securities of companies (including predecessors) that have been in
continuous operation for fewer than three years.
17. Making investments for the purpose of exercising control or
management.
18. Purchasing or retaining securities of any company if, to the
knowledge of the Trust, any of a Fund's officers or Trustees of the Trust
or any officer or director of an Adviser individually owns more than 1/2
of
1% of the outstanding securities of such company and together they own
beneficially more than 5% of such securities.
The Trust may make commitments more restrictive than the restrictions
listed above with respect to a Fund so as to permit the sale of shares of the
Fund in certain states. Should the Trust determine that any such commitment is
no longer in the best interests of a Fund and its shareholders, the Trust will
revoke the commitment by terminating the sale of shares of the Fund in the
relevant state. The percentage limitations contained in the restrictions
listed
above apply at the time of purchases of securities.
PORTFOLIO TURNOVER
The Funds do not intend to seek profits through short-term trading.
Nevertheless, the Funds will not consider turnover rate a limiting factor in
making investment decisions.
Under certain market conditions, a Fund may experience increased
portfolio
turnover as a result of its options activities. For instance, the exercise of
a
substantial number of options written by a Fund (due to appreciation of the
underlying security in the case of call options or depreciation of the
underlying security in the case of put options) could result in a turnover
rate
in excess of 100%. In addition, Strategic Investors Fund may experience
increased portfolio turnover as a result of the asset allocation strategy that
it employs. Sector Analysis Fund's sector strategy and other investment
policies
followed by the Fund may result in frequent shifts among its investments and
in
its experiencing turnover and transaction costs significantly higher than
those
of more conventional mutual funds. The portfolio turnover rate of a Fund is
calculated by dividing the lesser of purchases or sales of portfolio
securities
for the year by the monthly average value of portfolio securities. Securities
with remaining maturities of one year or less on the date of acquisition are
excluded from the calculation.
17
For the fiscal years ended January 31, 1994 and 1993, the portfolio
turnover rates of the Funds were as follows:
1994
1993
----
- ----
Strategic Investors Fund 131 %
93 %
Sector Analysis Fund 145 %
155 %
Growth and Income Fund 79 %
1 %
PORTFOLIO TRANSACTIONS
Most of the purchases and sales of securities for a Fund, whether transacted
on
a securities exchange or over the counter, will be effected in the primary
trading market for the securities. The primary trading market for a given
security generally is located in the country in which the issuer has its
principal office. Decisions to buy and sell securities for a Fund are made by
its Adviser or sub-investment adviser, which also is responsible for placing
these transactions, subject to the overall review of the Trust's Trustees.
Although investment decisions for each Fund are made independently from those
of
the other accounts managed by its Adviser, investments of the type the Fund
may
make also may be made by those other accounts. When a Fund and one or more
other
accounts managed by its Adviser 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 the Adviser to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by a
Fund
or the size of the position obtained or disposed of by the Fund.
Transactions on domestic stock exchanges and some foreign stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. There is
generally no stated commission in the case of securities traded in domestic or
foreign over-the-counter markets, but the prices of those securities include
undisclosed commissions or mark-ups. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the United States Treasury or from
the
issuing agency or instrumentality, respectively.
18
The following table sets forth certain information regarding each Fund's
payment of brokerage commissions:
FISCAL YEAR STRATEGIC
SECTOR
ENDED INVESTORS
ANALYSIS GROWTH AND
JANUARY 31 FUND
FUND INCOME FUND
------------ --------- -----
- --- -----------
Total Brokerage Commissions 1992 $ 217,936
$877,575 *
1993 258,626
639,185 30,915
1994 467,989
531,304 143,865
Commissions paid to 1992 62,521
454,124 *
Smith Barney or 1993 57,354
190,765 2,733
Shearson Lehman Brothers 1994 106,879
51,419 19,650
% of Total Brokerage
Commissions paid to
Smith Barney Shearson 1994 22.84%
9.68% 13.66%
% of Total Transactions
involving Commissions paid
to Smith Barney Shearson 1994 25.99%
6.72% 12.35%
- ---------------
* The Fund commenced operations on November 6, 1992.
The total brokerage commissions paid by the Funds for each fiscal year
vary
primarily due to increases or decreases in the Funds' volume of securities
transactions on which brokerage commissions are charged.
In selecting brokers or dealers to execute portfolio transactions on
behalf
of a Fund, the Fund's Adviser or sub-investment adviser seeks the best overall
terms available. In assessing the best overall terms available for any
transaction, each Adviser or sub-investment adviser will consider the factors
the Adviser or sub-investment adviser deems relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and the 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, each advisory agreement between the Trust and an Adviser relating
to a Fund authorizes the Adviser, 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,
the
other Funds and/or other accounts over which the Adviser or its affiliates
exercise investment discretion. The fees under the advisory agreements and the
sub-investment advisory agreements relating to the Funds between the Trust and
the Advisers and the sub-investment advisers, respectively, are not reduced by
reason of their receiving such brokerage and research services. The Trust's
Board of Trustees periodically will review the commissions paid by the Funds
to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
To the extent consistent with applicable provisions of the 1940 Act and
the
rules and exemptions adopted by the SEC thereunder, the Board of Trustees has
determined that transactions for a Fund may be executed through Smith Barney
Shearson and other affiliated broker-dealers if, in the judgment of the Fund's
Adviser, the use of such broker-dealer is likely to result in price and
execution at least as favorable as those of other qualified broker-dealers,
and
if, in the transaction, such broker-dealer charges the Fund a rate
19
consistent with that charged to comparable unaffiliated customers in similar
transactions. In addition, under rules recently adopted by the SEC, Smith
Barney
Shearson may directly execute such transactions for the Funds on the floor of
any national securities exchange, provided (a) the Board of Trustees has
expressly authorized Smith Barney Shearson to effect such transactions, and
(b)
Smith Barney Shearson annually advises the Trust of the aggregate compensation
it earned on such transactions. 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 Funds will not purchase any security, including U.S. government
securities, during the existence of any underwriting or selling group relating
thereto of which Smith Barney Shearson is a member, except to the extent
permitted by the SEC. Sector Analysis Fund may use Smith Barney Shearson as a
commodities broker in connection with entering into futures contracts and
commodity options. Smith Barney Shearson has agreed to charge Sector Analysis
Fund commodity commissions at rates comparable to those charged by Smith
Barney
Shearson to its most favored clients for comparable trades in comparable
accounts.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospectuses
applies to purchases made by any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual, his or her immediate family,
purchasing shares for his or her own account; (c) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account; (d) a
pension, profit-sharing or other employee benefit plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and
qualified employee benefit plans of employers who are "affiliated persons" of
each other within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; (f) any other organized
group of persons, provided that the organization has been in existence for at
least six months and was organized for a purpose other than the purchase of
investment company securities at a discount; or (g) a trustee or other
professional fiduciary (including a bank, or an investment adviser registered
with the SEC under the Investment Advisers Act of 1940, as amended) purchasing
shares of a Fund for one or more trust estates or fiduciary accounts.
Purchasers
who wish to combine purchase orders to take advantage of volume discounts on
Class A shares should contact their Smith Barney Shearson Financial
Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectuses,
apply to any purchase of Class A shares if the aggregate investment in Class A
shares of any Fund and in Class A shares of other funds in the Smith Barney
Shearson Group of Funds that are sold with a sales charge, including the
purchase being made, of any purchaser is $25,000 or more. The reduced sales
charge is subject to confirmation of the shareholder's holdings through a
check
of appropriate records. The Trust reserves the right to terminate or amend the
combined right of accumulation at any time after notice to shareholders. For
further information regarding the right of accumulation, shareholders should
contact their Smith Barney Shearson Financial Consultants.
20
DETERMINATION OF PUBLIC OFFERING PRICE
The Trust offers shares of the Funds to the public on a continuous basis. The
public offering price per Class A share of the Funds is equal to the net asset
value per share at the time of purchase plus a sales charge based on the
aggregate amount of the investment. The public offering price per Class B and
Class D share of a Fund (and Class A share purchases, including applicable
right
of accumulation, equalling or exceeding $1 million), is equal to the net asset
value per share at the time of purchase and no sales charge is imposed at the
time of purchase. A contingent deferred sales charge ("CDSC"), however, is
imposed on certain redemptions of Class B shares, and Class A shares when
purchased in amounts equalling or exceeding $1 million. The method of
computation of the public offering price is shown in the Funds' financial
statements incorporated by reference in their entirety into this Statement of
Additional Information.
REDEMPTION OF SHARES
The right of redemption of shares of a Fund may be suspended or the date of
payment postponed (a) for any period during which the New York Stock Exchange,
Inc. is closed (other than for customary weekend and holiday closings), (b)
when
trading in markets the Fund normally utilizes is restricted, or an emergency
exists, as determined by the SEC, so that disposal of the Fund's investments
or
determination of its net asset value is not reasonably practicable or (c) for
such other periods as the SEC by order may permit for protection of the Fund's
shareholders.
DISTRIBUTIONS IN KIND
If the Trust's Board of Trustees determines that it would be detrimental to
the
best interests of the remaining shareholders of a Fund to make a redemption
payment wholly in cash, the Fund may pay, in accordance with rules adopted by
the SEC, any portion of a redemption in excess of the lesser of $250,000 or 1%
of its net assets by distribution in kind of portfolio securities in lieu of
cash. Portfolio securities issued in a distribution in kind will be readily
marketable, although shareholders receiving distributions in kind may incur
brokerage commissions when subsequently disposing of those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
periodically. Withdrawals of at least $50 monthly may be made under the
Withdrawal Plan by redeeming as many shares of the Funds as may be necessary
to
cover the stipulated withdrawal payment. Any applicable CDSC will not be
waived
on amounts withdrawn by shareholders that exceed 2% per month of the value of
a
shareholder's shares at the time the Withdrawal Plan commences. To the extent
withdrawals exceed dividends, distributions and appreciation of the
shareholder's investment in a Fund, there will be a reduction in the value of
the shareholder's investment and continued withdrawal payments will reduce the
shareholder's investment and may ultimately exhaust it. Withdrawal payments
should not be considered as income from investment in a Fund. Furthermore, as
it
would not generally be advantageous to a shareholder to make additional
investments in a Fund at the same time that he or she is participating in the
Withdrawal Plan, purchases by such shareholders in amounts of less than $5,000
will not ordinarily be permitted.
21
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with
The
Shareholder Services Group, Inc. ("TSSG") as agent for Withdrawal Plan
members.
All dividends and distributions on shares in the Withdrawal Plan are
automatically reinvested at net asset value in additional shares of a Fund.
All
applications for participation in the Withdrawal Plan must be received by TSSG
as Withdrawal Plan agent no later than the eighth day of the month to be
eligible for participation beginning with that month's withdrawal. The
Withdrawal Plan will not be carried over on exchanges between Funds or Classes
of the Funds. A new Withdrawal Plan application is required to establish the
Withdrawal Plan in a new Fund or Class. For additional information,
shareholders
should contact their Smith Barney Shearson Financial Consultants.
DISTRIBUTOR
SETTLEMENT OF PURCHASES
Smith Barney Shearson forwards investors' funds for the purchase of shares
five
business days after placement of purchase orders (the "settlement date"). When
an investor makes payment before the settlement date, unless otherwise
directed
by the investor, the funds will be held as a free credit balance in the
investor's brokerage account and Smith Barney Shearson will benefit from the
temporary use of the funds. The investor may designate another use for the
funds
prior to the settlement date such as an investment in a money market fund
(other
than Smith Barney Shearson Money Market Fund) in the Smith Barney Shearson
Group
of Funds. If the investor instructs Smith Barney Shearson to invest the funds
in
a money market fund in the Smith Barney Shearson Group of Funds, the amount of
the investment will be included as part of the average daily net assets of
both
the Fund involved and the Smith Barney Shearson money market fund. Affiliates
of
Smith Barney Shearson that serve these funds in an investment advisory or
administrative capacity will benefit by receiving fees from both such funds,
computed on the basis of their average daily net assets. The Trust's Board of
Trustees has been advised of the benefits to Smith Barney Shearson resulting
from five-day settlement procedures and will take such benefits into
consideration when reviewing the Advisory and Distribution Agreements for
continuance.
DISTRIBUTION ARRANGEMENTS
Shares of the Trust are distributed on a best efforts basis by Smith Barney
Shearson as exclusive sales agent of the Trust pursuant to a written agreement
(the "Distribution Agreement"). To compensate Smith Barney Shearson for the
services it provides and for the expense it bears under the Distribution
Agreement, the Trust has adopted a services and distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act.
Under the Plan, the Trust pays Smith Barney Shearson with respect to each
Fund a service fee, accrued daily and paid monthly, calculated at the annual
rate of .25% of the value of the Fund's average daily net assets attributable
to
the Fund's Class A, Class B and Class D shares. In addition, the Trust pays
Smith Barney Shearson a distribution fee with respect to each Fund's Class B
and
Class D shares primarily intended to compensate Smith Barney Shearson for its
initial expense of paying Financial Consultants a commission upon sales of
these
shares. The Class B and Class D distribution fee is calculated at the annual
rate of .75% of the value of a Fund's average net assets attributable to the
shares of that Class. During the fiscal years ended January 31, 1992, 1993 and
1994, Smith Barney Shearson received $5,898,000, $5,808,234 and $6,380,987,
respectively, from Class B shares of the Trust under the Plan. From the period
from November 6, 1992 through January 31, 1993 and the fiscal year ended
January
31, 1994, Smith Barney
22
Shearson received $ and $2,015, respectively, under the Plan from
Class
D shares. For the 1992, 1993 and 1994 fiscal years, Smith Barney Shearson
received $762,855, $838,080 and $868,000, respectively, representing a CDSC on
redemptions of Class B shares of the Trust. For the same period the
distribution
expenses incurred by Smith Barney Shearson totalling approximately
$10,075,000,
consisting of approximately $54,000 for advertising, $72,000 for printing and
mailing of Prospectuses, $718,000 for support services, $3,789,000 to Smith
Barney Shearson Financial Consultants and $5,442,000 in accruals for interest
on
the excess of Smith Barney Shearson's expenses incurred in distributing the
Trust's shares over the sum of the distribution fees and CDSC received by
Smith
Barney Shearson from the Trust.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Trust's Board of Trustees,
including a majority of the Independent Trustees who have no direct or
indirect
financial interest in the operation of the Plan or in the Distribution
Agreement. The Plan may not be amended to increase the amount of the service
and
distribution fees without shareholder approval, and all material amendments of
the Plan also must be approved by the Trustees and such Independent Trustees
in
the manner described above. The Plan may be terminated with respect to a Class
at any time, without penalty, by vote of a majority of such Independent
Trustees
or by a vote of a majority of the outstanding voting securities of the Class
(as
defined in the 1940 Act). Pursuant to the Plan, Smith Barney Shearson will
provide the Trust's Board of Trustees with periodic reports of amounts
expended
under the Plan and the purpose for which such expenditures were made.
VALUATION OF SHARES
The Prospectuses discuss the time at which the net asset value of shares of
each
Class is determined for purposes of sales and redemptions. Because of the
differences in distribution fees and Class-specific expenses, the per share
net
asset value of each Class will differ. The following is a description of the
procedures used by the Trust in valuing assets of the Funds.
A security that is listed or traded on more than one exchange is valued
at
the quotation on the exchange determined to be the primary market for such
security. All assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid
and
offered quotations of such currencies against U.S. dollars as last quoted by
any
recognized dealer. If such quotations are not available, the rate of exchange
will be determined in good faith by the Trust's Board of Trustees. In carrying
out the Board's valuation policies, Boston Advisors may consult with an
independent pricing service (the "Pricing Service") retained by the Trust.
Debt securities of domestic issuers (other than U.S. government
securities
and short-term investments) are valued by Boston Advisors, as administrator,
after consultation with the Pricing Service approved by the Trust's Board of
Trustees. When, in the judgment of the Pricing Service, quoted bid prices for
investments are readily available and are representative of the bid side of
the
market, these investments are valued at the mean between the quoted bid prices
and asked prices. Investments for which, in the judgment of the Pricing
Service,
there are no readily obtainable market quotations are carried at fair value as
determined by the Pricing Service. The procedures of the Pricing Service are
reviewed periodically by the officers of the Funds under the general
supervision
and responsibility of the Trust's Board of Trustees.
23
EXCHANGE PRIVILEGE
Class A, Class B and Class D shares of a Fund may be exchanged for shares of
the
respective Class of many of the funds in the Smith Barney Shearson Group of
Funds, as indicated in the Prospectuses, to the extent such shares are offered
for sale in the shareholder's state of residence. Except as noted below,
shareholders of any fund in the Smith Barney Shearson Group of Funds may
exchange all or part of their shares for shares of the same class of other
funds
in the Smith Barney Shearson Group of Funds, as listed in the Prospectuses, on
the basis of relative net asset value per share at the time of exchange as
follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds, and the sales
charge differential, if any, will be applied. Class A shares of any fund
may be exchanged without a sales charge for shares of the funds that are
offered without a sales charge. Class A shares of any fund purchased
without a sales charge may be exchanged for shares sold with a sales
charge, and the appropriate sales charge differential will be applied.
B. Class A shares of any fund acquired by a previous exchange of
shares purchased with a sales charge may be exchanged for Class A shares
of
any of the other funds, and the sales charge differential, if any, will
be
applied.
C. Class B shares of any fund may be exchanged without a sales
charge. Class B shares of a Fund exchanged for Class B shares of another
fund will be subject to the higher applicable CDSC of the two funds and,
for purposes of calculating CDSC rates and conversion periods, will be
deemed to have been held since the date the shares being exchanged were
purchased.
Dealers other than Smith Barney Shearson must notify TSSG of the
investor's
prior ownership of Class A shares of Smith Barney Shearson High Income Fund
and
the account number in order to accomplish an exchange of shares of High Income
Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
class in a fund with different investment objectives when they believe that a
shift between funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange, the shareholder should
obtain and review a copy of the current prospectus of each fund into which an
exchange is being considered. Prospectuses may be obtained from any Smith
Barney
Shearson Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents,
shares submitted for exchange are redeemed at the then-current net asset value
and, subject to any applicable CDSC, the proceeds immediately invested, at a
price as described above, in shares of the fund being acquired. Smith Barney
Shearson reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time after written notice to
shareholders.
PERFORMANCE DATA
From time to time, the Trust may quote total return of the Classes of the
various Funds in advertisements or in reports and other communications to
shareholders. To the extent any advertisement or sales literature of the Funds
describes the expenses or performance of a Class of a Fund, it will also
disclose such information for the other Classes.
24
AVERAGE ANNUAL TOTAL RETURN
The "average annual total return" figures for a Class of a Fund is 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 payment
made at the beginning of the 1-, 5-or 10-
year period at the
end of the
1-, 5-or 10-year period (or fractional
portion thereof),
assuming reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period, and assumes that the maximum 5% sales charge or
maximum CDSC, as the case may be, has been deducted from the hypothetical
$1,000
initial investment. A Fund's net investment income changes in response to
fluctuations in interest rates and the expenses of the Fund.
From time to time, the Trust may quote the performance of a Fund's
Classes
in terms of total return in reports or other communications to shareholders or
in advertising material. Total return combines principal changes and income
dividends and capital gains distributions reinvested for the periods shown.
Principal changes are based on the difference between the beginning and
closing
net asset values for the period. The period selected will depend upon the
purpose of reporting the performance.
The average annual total return of the Funds' Class A shares were as
follows for the periods indicated:
PER ANNUM
FROM COMMENCEMENT OF
ONE YEAR PERIOD
OPERATIONS* THROUGH
NAME OF FUND ENDED 1/31/94
1/31/94
- ------------------------------------------------------ --------------- ---
- ------------------
Strategic Investors................................... 11.91%
14.95%
Sector Analysis....................................... 3.64
8.08
Growth and Income..................................... 5.16
4.88
- -------------
*The Fund commenced selling Class A shares on November 6, 1992.
These total return figures reflect the deduction of the maximum 5% sales
charge at the time the shares were purchased.
25
The average annual total returns of the Funds' Class B shares were as
follows for the periods indicated:
PER ANNUM
FOR THE
PER ANNUM FOR PERIOD
ONE YEAR FIVE YEARS
FROM COMMENCEMENT
PERIOD ENDED ENDED
OF OPERATIONS THROUGH
NAME OF FUND 1/31/94 1/31/94
1/31/94
- ------------------------------------------ ---------------- ----------
- ---------------------
Strategic Investors Fund(1)............... 11.88% 12.59%
11.05%
Sector Analysis Fund(2)................... 3.34 10.35
7.17
Growth and Income Fund(3)................. 5.01 --
5.59
- -------------
(1) The Fund commenced operations on February 2, 1987.
(2) The Fund commenced operations on August 28, 1987.
(3) The Fund commenced operations on November 6, 1992.
These total return figures reflect the deduction of the CDSC in the
amount
that would have been deducted upon a redemption of shares at the end of the
periods indicated.
AGGREGATE TOTAL RETURN
The "aggregate total return" figure of a Class of a Fund represents the
cumulative change in the value of an investment in the Class for the specified
period and is computed by the following formula:
ERV-P
-----
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the
beginning of the 1-, 5-or 10-year period at the end of the
1-, 5-or
10-year period (or fractional portion thereof), assuming
reinvestment of
all dividends and distributions.
The aggregate total returns for the Funds' Class A shares were as follows
for the periods indicated:
PERIOD FROM
PERIOD FROM
COMMENCEMENT
COMMENCEMENT
ONE YEAR OF OPERATIONS* ONE YEAR
OF OPERATIONS*
PERIOD ENDED THROUGH PERIOD
ENDED THROUGH
NAME OF FUND 1/31/94** 1/31/94** 1/31/94***
1/31/94***
- ------------------------------------------ ------------------- -----------
- - -------------------
Strategic Investors........... 17.80% 25.00% 11.91%
18.75%
Sector Analysis............... 9.10 15.78 3.64
9.99
Growth and Income............. 10.70 11.63 5.16
6.05
- ---------------
* The Fund commenced selling Class A shares on November 6, 1992.
** Figures do not include the effect of the maximum 5% sales charge. If the
sales charge had been included, it would have had the effect of lowering
the
returns above.
*** Figures include the maximum sales charge of 5%.
26
The aggregate total returns for the Funds' Class B shares were as follows
for the periods indicated:
PERIOD FROM
PERIOD FROM
COMMENCEMENT
FIVE COMMENCEMENT
ONE YEAR FIVE YEAR OF ONE YEAR
YEAR OF
PERIOD PERIOD OPERATIONS PERIOD
PERIOD OPERATIONS
ENDED ENDED THROUGH ENDED
ENDED THROUGH
NAME OF FUND 1/31/94* 1/31/94* 1/31/94* 1/31/94**
1/31/94** 1/31/94**
- ---------------------------------- --------- ------------ -------- -----
- --- ------------
Strategic Investors
Fund(1)................. 16.88% 81.89% 108.18% 11.88%
80.89% 108.18%
Sector Analysis Fund(2)... 8.34 64.65 56.04 3.34
63.65 56.04
Growth and Income
Fund(3)................. 10.01 -- 10.94 5.01 --
6.94
- ---------------
* Figures do not include the effect of the CDSC. If the applicable CDSC
(maximum 5%) had been included, it would have had the effect of lowering
the
returns shown.
** Figures include the applicable CDSC (maximum 5%).
(1) The Fund commenced operations on February 2, 1987.
(2) The Fund commenced operations on August 28, 1987.
(3) The Fund commenced operations on November 6, 1992.
Performance will vary from time to time depending upon market conditions,
the composition of portfolio securities and operating expenses of each Class.
It
is important to note that the total return figures set forth above are based
on
historical earnings and are not intended to indicate future performance. In
addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund's Classes with certain bank deposits or
other
investments that pay a fixed yield for a stated period of time.
TAXES
Set forth below is a summary of certain Federal income tax considerations
generally affecting the Funds and their shareholders. The summary is not
intended as a substitute for individual tax planning, and investors are urged
to
consult their tax advisors with specific reference to their own Federal, state
or local tax situations.
TAX STATUS OF THE FUNDS
Each Fund will be treated as a separate taxable entity for Federal income tax
purposes with the result that: (a) each Fund must meet separately the income
and
distribution requirements for qualification as a regulated investment company
and (b) the amounts of investment income and capital gains earned will be
determined on a Fund-by-Fund (rather than on a Trust-wide) basis.
TAXATION OF SHAREHOLDERS
Dividends paid by a Fund from investment income and distributions of short-
term
capital gains will be taxable to shareholders as ordinary income for Federal
income tax purposes, whether received in cash or reinvested in additional
shares. Distributions of long-term capital gains will be taxable to
shareholders
as long-term capital gains, whether paid in cash or reinvested in additional
shares, and regardless of the length of time the investor has held his or her
shares of the Fund.
Dividends of investment income (but not capital gains) from any Fund
generally will qualify for the Federal dividends-received deduction for
corporate shareholders to the extent such dividends do not exceed the
aggregate
amount of dividends received by the Fund from domestic corporations. If
securities held by a Fund are considered to be "debt-financed" (generally,
acquired with borrowed funds), are held by the Fund
27
for less than 46 days (91 days in the case of certain preferred stock), or are
subject to certain forms of hedges or short sales, the portion of the
dividends
paid by the Fund that corresponds to the dividends paid with respect to such
securities will not be eligible for the corporate dividends-received
deduction.
If a shareholder (a) incurs a sales charge in acquiring shares of a Fund,
(b) disposes of those shares within 90 days and (c) acquires shares in a
mutual
fund for which the otherwise applicable sales charge is reduced by reason of a
reinvestment right (that is, an exchange privilege), the sales charge
increases
the shareholder's tax basis in the original shares only to the extent the
otherwise applicable sales charge for the second acquisition is not reduced.
The
portion of the original sales charge that does not increase the shareholder's
tax basis in the original shares would be treated as incurred with respect to
the second acquisition and, as a general rule, would increase the
shareholder's
tax basis in the newly acquired shares. Furthermore, the same rule also
applies
to a disposition of the newly acquired or redeemed shares made within 90 days
of
the second acquisition. This provision prevents a shareholder from immediately
deducting the sales charge by shifting his or her investment in a family of
mutual funds.
Capital Gains Distribution. In general, a shareholder who redeems or
exchanges his or her shares will recognize long-term capital gain or loss if
the
shares have been held for more than one year, and will recognize short-term
capital gain or loss if the shares have been held for one year or less. If a
shareholder receives a distribution taxable as long-term capital gain with
respect to shares of a Fund and redeems or exchanges the shares before he or
she
has held them for more than six months, any loss on such redemption or
exchange
that is less than or equal to the amount of the distribution will be treated
as
long-term capital loss.
Backup Withholding. If a shareholder fails to furnish a correct taxpayer
identification number, fails to fully 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 withholding, then the shareholder
may be subject to a 31% Federal backup withholding tax with respect to (a) any
dividends and distributions and (b) any proceeds of any redemptions or
exchanges. An individual's taxpayer identification number is his or her social
security number. The backup withholding tax is not an additional tax and may
be
credited against a shareholder's regular Federal income tax liability.
REGULATED INVESTMENT COMPANY STATUS
Each Fund intends to continue to qualify in subsequent years as a regulated
investment company within the meaning of Section 851 of the Code. The Trust
will
monitor each Fund's investments so as to meet the requirements for
qualification
on a continuing basis.
As a regulated investment company, a Fund will not be subject to Federal
income tax on the net investment income and net capital gains, if any, that it
distributes to its shareholders, provided that at least 90% of the sum of
investment income and short-term capital gains is distributed to its
shareholders. All net investment income and net capital gains earned by a Fund
will be reinvested automatically in additional shares of the Fund, unless the
shareholder elects to receive dividends and distributions in cash. Amounts
reinvested in additional shares will be considered to have been distributed to
shareholders.
To qualify as a regulated investment company, each Fund must meet certain
requirements set forth in the Code. One requirement is that each 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
28
stock or securities or foreign currencies and (e) other income (including but
not limited to gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies
(the "90% Test"). An additional requirement is that each Fund must earn less
than 30% of its gross income from the sale or other disposition of stock or
securities held for less than three months (the "30% Test"). Legislation
currently pending before the U.S. Congress would repeal the 30% Test. However,
it is impractical at this time to predict whether this legislation will become
law and, if it is so enacted, what form it will eventually take.
Each Fund will invest in a combination of common stock, preferred stock,
notes and bonds and will earn interest and dividend income, gains from the
sale
of such securities, and income from repurchase agreements entered into with
respect to such securities, all of which generally would be considered to be
qualified income under the 90% Test. Each Fund generally will hold its
investments longer than three months and therefore should not risk
disqualification under the 30% Test. Depending upon the circumstances,
however,
a Fund may be limited in the extent to which it may: (a) sell securities held
for less than three months; (b) effect short sales of securities that are
identical (or substantially identical) to securities held by it for less than
three months; (c) write options that expire in less than three months; and (d)
effect closing transactions with respect to call or put options that have been
written or purchased within the preceding three months. A Fund's gain or loss
from the sale (including open short sales) or other dispositions of stock or
securities (with the term "securities" defined to include put and call
options)
held for less than three months will be netted against its gain or loss on
positions that are part of a "designated hedge" with respect to such three-
month
investments.
TAXATION OF FUND INVESTMENTS
Gain or loss on the sale of a security by a 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 not more than one year
generally
will be short-term capital gain or loss. If a Fund acquires a debt security at
a
substantial discount, a portion of any gain upon sale or redemption of such
debt
security will be taxed as ordinary income rather than capital gain to the
extent
it reflects accrued market discount.
Options Transactions. The tax consequences of options transactions
entered
into by a Fund will vary depending on whether the underlying security is held
as
a capital asset, whether the Fund is writing or purchasing the option and
whether the "straddle" rules, discussed separately below, apply to the
transaction.
A Fund may write a call option on an equity or convertible debt security.
If the option expires unexercised or if the Fund enters into a closing
purchase
transaction, the Fund will realize a gain or loss without regard to any
unrealized gain or loss on the underlying security. Generally, any such gain
or
loss will be short-term capital gain or loss, except that any loss on certain
covered call stock options will be treated as long-term capital loss. If a
call
option written by a Fund is exercised, the Fund will treat the premium
received
for writing such call option as additional sales proceeds and will recognize a
capital gain or loss from the sale of the underlying security. Whether the
gain
or loss will be long-term or short-term will depend on the Fund's holding
period
for the underlying security.
If a Fund purchases a put option on an equity or convertible debt
security
and it expires unexercised, the Fund will realize a capital loss equal to the
cost of the option. If a Fund enters into a closing sale
29
transaction with respect to the option, it will realize a capital gain or loss
and such gain or loss will be short-term or long-term depending on the Fund's
holding period for the option. If a Fund exercises such a put option, it will
realize a short-term or long-term capital gain or loss (depending on the
Fund's
holding period for the underlying security) from the sale of the underlying
security. The amount realized on such sale will be the sales proceeds reduced
by
the premium paid.
Mark-to-Market. The Code imposes a special "mark-to-market" system for
taxing "Section 1256 contracts" including options on nonconvertible debt
securities (including U.S. government securities), options on certain stock
indexes and certain foreign currency contracts. In general, gain or loss on
Section 1256 contracts will be taken into account for tax purposes when
actually
realized (by a closing transaction, by exercise, by taking delivery or by
other
termination). In addition, any Section 1256 contracts held at the end of the
taxable year will be treated as though they were sold at their year-end fair
market value (that is, "marked to market"), and the resulting gain or loss
will
be recognized for tax purposes. Provided that a Fund holds its Section 1256
contracts as capital assets and they are not part of a straddle, both the
realized and the unrealized year-end gains or losses from these investment
positions (including premiums on options that expire unexercised) will be
treated as 60% long-term and 40% short-term capital gain or loss, regardless
of
the period of time particular positions have actually been held by a Fund.
A portion of the mark-to-market gain on instruments held for less than
three months at the close of a Fund's taxable year may represent a gain on
securities held for less than three months for purposes of the 30% Test
discussed above. Accordingly, the Funds may restrict their fourth-quarter
transactions in Section 1256 contracts.
Straddles. The Code contains rules applicable to "straddles," which are
"offsetting positions in actively traded personal property," including equity
securities and options of the type in which a Fund may invest. If applicable,
the "straddle" rules generally override the other provisions of the Code. In
general, investment positions will be offsetting if there is a substantial
diminution in the risk of loss from holding one position by reason of holding
one or more other positions. The Funds generally are authorized to enter into
put, call, and covered put and call positions. Depending on what other
investments are held by a Fund at the time it enters into one of the above
transactions, a Fund may create a straddle for Federal income tax purposes.
If two (or more) positions constitute a straddle, recognition of a
realized
loss from one position (including a mark-to-market loss) must be deferred to
the
extent of unrecognized gain in an offsetting position. Interest and other
carrying charges allocable to personal property that is part of a straddle
must
be capitalized. In addition, "wash sale" rules apply to straddle transactions
to
prevent the recognition of loss from the sale of a position at a loss when a
new
offsetting position is or has been acquired within a prescribed period. To the
extent the straddle rules apply to positions established by a Fund, losses
realized by the Fund may be deferred or recharacterized as long-term losses,
and
long-term gains realized by the Fund may be converted to short-term gains.
If a Fund chooses to identify a particular offsetting position as being
one
component of a straddle, a realized loss on any component of that straddle
will
be recognized no earlier than upon the liquidation of all components of that
straddle. Special rules apply to "mixed" straddles (that is, straddles
consisting of a Section 1256 contract and an offsetting position that is not a
Section 1256 contract). If the Trust makes certain elections, all or a portion
of the Section 1256 contract components of such mixed straddles of a
30
Fund will not be subject to the 60%/40% mark-to-market rules. If any such
election is made, the amount, the nature (as long-term or short-term) and the
timing of the recognition of the Fund's gains or losses from the effected
straddle positions will be determined under rules that will vary according to
the type of election made.
ORGANIZATION OF THE TRUST
The Trust was organized as an unincorporated business trust under the laws of
The Commonwealth of Massachusetts pursuant to a Master Trust Agreement dated
January 8, 1986, as amended from time to time (the "Trust Agreement"). The
Trust
commenced business as an investment company on March 3, 1986, under the name
Shearson Lehman Special Equity Portfolios. On December 6, 1988, August 27,
1990,
November 5, 1992 and July 30, 1993, the Trust changed its name to SLH Equity
Portfolios, Shearson Lehman Brothers Equity Portfolios, Shearson Lehman
Brothers
Equity Funds and Smith Barney Shearson Equity Funds, respectively.
In the interest of economy and convenience, certificates representing
shares in the Funds are not physically issued except upon specific request
made
by a shareholder to TSSG. TSSG maintains a record of each shareholder's
ownership of shares of the Funds. Shares do not have cumulative voting rights,
which means that holders of more than 50% of the shares voting for the
election
of Trustees can elect all Trustees. Shares are transferable but have no
preemptive, conversion or subscription rights. Shareholders generally vote by
Fund, except with respect to the election of Trustees and the selection of
independent public accountants.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Trust Agreement disclaims shareholder liability for acts or obligations of the
Trust, however, and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee of the Trust. The Trust Agreement provides for indemnification from
the
property of a Fund for all losses and expenses of any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations, a possibility the Trust's management believes is remote. Upon
payment of any liability incurred by a Fund, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Fund.
The Trustees intend to conduct the operations of the Trust and the Funds in
such
a way so as to avoid, as far as possible, ultimate liability of the
shareholders
for liabilities of the Funds.
31
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of the Boston Company, Inc., is located
at One Boston Place, Boston, Massachusetts 02108, and serves as custodian for
the Funds. Under its custodial agreement with the Trust, Boston Safe is
authorized to appoint one or more foreign or domestic banking institutions as
sub-custodians of assets owned by a Fund. For its custody services, Boston
Safe
receives monthly fees charged to each Fund based upon the month-end, aggregate
net asset value of the Fund, plus certain charges for securities transactions.
The assets of the Trust are held under bank custodianship in accordance with
the
1940 Act.
TSSG, a subsidiary of First Data Corporation, is located at Exchange
Place,
Boston, Massachusetts 02109, and serves as the Trust's transfer agent. For its
services as transfer agent, TSSG receives fees charged to the Funds at an
annual
rate based upon the number of shareholder accounts maintained during the year.
TSSG also is reimbursed by the Funds for its out-of-pocket expenses.
FINANCIAL STATEMENTS
The Funds' Annual Reports for the fiscal year ended January 31, 1994 are
incorporated into this Statement of Additional Information by reference in
their
entirety.
32
APPENDIX
DESCRIPTION OF S&P AND MOODY'S RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS:
AAA--Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay
principal
although they are somewhat more susceptible to the adverse effects of changes
in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B AND CCC--Bonds rated BB and B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a
lower
degree of speculation than B and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
AAA--Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
likely to change, such changes as can be visualized are most unlikely to
impair
the fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and
are to be considered as upper medium grade obligations. Factors giving
security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade
obligations,
that is, they are neither highly protected nor poorly secured. Interest
payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
33
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements;
their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds that are rated Caa are of poor standing. These issues may be
in
default or present elements of danger may exist with respect to principal or
interest.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding
timely payment is either overwhelming or very strong. Those issues determined
to
possess overwhelming safety characteristics are denoted A-1+. Capacity for
timely payment on commercial paper rated A-2 is strong, but the relative
degree
of safety is not as high as for issues designated A-1.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short-term promissory obligations.
This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
34
Smith Barney Shearson
EQUITY FUNDS
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GROWTH AND INCOME FUND
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STATEMENT OF
ADDITIONAL INFORMATION
APRIL 1, 1994
SMITH BARNEY SHEARSON
[Logo Bottom]
EQUITY FUNDS
Two World Trade Center
New York, New York 10048
SMITH BARNEY SHEARSON EQUITY FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year ended January 31,
1994 and the Report of Independent Accountants dated March 15, 1994 are
incorporated by reference to the Definitive 30b2-1 filed on March 31, 1994 as
Accession # 0000053798-94-000154.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
All references are to the Registrant's registration statement on Form N-
1A as filed with the Securities and Exchange Commission on January 9, 1986.
File Nos. 33-2627 and 811-4551 (the "Registration Statement").
1 Amended and Restated Master Trust Agreement and all Amendments
are incorporated by reference to Post-Effective Amendment No. 26 to the
Registration Statement filed on January 31, 1994 ("Post-Effective Amendment
No. 26").
2 Registrant's By-Laws are incorporated by reference to Pre-
Effective Amendment No. 1 to the Registration Statement filed on February
25, 1986 ("Pre-Effective Amendment No. 1").
3 Not applicable.
4 Form of share certificate for Class A, B and D shares of
beneficial interest for each sub-trust of the Registrant are incorporated by
reference to Post-Effective Amendment No. 22 to the Registration Statement
filed on October 20, 1992 ("Post-Effective Amendment No. 22").
5(a) Investment Advisory Agreement between Registrant and The Boston
Company Advisors, Inc. (relating to the Strategic Investors Fund) dated May
22, 1993 is incorporated by reference to Post-Effective Amendment No. 26.
(b) Investment Advisory Agreement between Registrant and Smith Barney
Shearson Strategy Advisers Inc. (relating to the Sector Analysis Fund) dated
May 22, 1993 is incorporated by reference to Post-Effective Amendment No.
26.
(c) Investment Advisory Agreement between Registrant and Greenwich
Street Advisors (relating to the Growth and Income Fund) dated May 22, 1993
is incorporated by reference to Post-Effective Amendment No. 26.
(d) Sub-Investment Advisory Agreement between Registrant and Lehman
Brothers Global Asset Management, Inc. (relating to the Sector Analysis Fund)
dated July 30, 1993 is incorporated by reference to Post-Effective
Amendment No. 26.
(e) Administration Agreement between Registrant and The Boston Company
Advisors, Inc. (relating to the Sector Analysis Fund) dated May 21, 1993
is incorporated by reference to Post-Effective Amendment No. 26.
(f) Asset Allocation Consulting Agreement between Registrant and
Shearson Lehman Hutton Inc. (relating to the Strategic Investors Portfolio) is
incorporated by reference to Post-Effective Amendment No. 4.
6 Distribution Agreement between Registrant and Smith Barney
Shearson dated July 30, 1993 is incorporated by reference to Post-
Effective Amendment No. 26.
7 Not applicable.
8(a) Form of Supplement to Custody Agreement between Registrant and
Boston Safe Deposit and Trust Company (relating to the Strategic Investors
Portfolio) is incorporated by reference to Post-Effective Amendment No. 2.
(b) Supplement to Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company (relating to the Sector Analysis Portfolio) is
incorporated by reference to Post-Effective Amendment No. 6.
(c) Supplement to Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company (relating to the Growth and Income Portfolio) is
incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement filed on March 10, 1992 ("Post-Effective Amendment No.
19").
(d) Sub-Custodian Agreement among Registrant, Morgan Guaranty Trust
company of New York and Boston Safe Deposit and Trust Company is incorporated
by reference to Post-Effective Amendment No. 6.
9 Transfer Agency Agreement between Registrant and The Shareholder
Services Group, Inc. dated August 5, 1993 is incorporated by reference to
Post-Effective Amendment No. 26.
10 Not applicable.
11(a) Consent of Independent Accountants is filed herein.
(b) Consent of Morningstar Mutual Fund Values is incorporated by
reference to Post-Effective Amendment No. 22.
12 Not applicable.
13(a) Purchase Agreement between Registrant and Shearson Lehman Hutton
Inc. (relating to the Strategic Investors Portfolios) is incorporated by
reference to Post-Effective Amendment No. 2.
(b) Purchase Agreement between Registrant and Shearson Lehman
Hutton Inc. (relating to the Sector Analysis Portfolio) is incorporated by
reference to Post-Effective Amendment No. 4.
(c) Form of Purchase Agreement between Registrant and Shearson
Lehman Brothers Inc. (relating to the Growth and Income Portfolio) is
incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement filed on March 10, 1992 ("Post-Effective Amendment No.
19").
14 Not applicable.
15 Amended and Restated Services and Distribution Plan pursuant to
Rule 12b-1 dated July 30, 1993 is incorporated by reference to Post-
Effective Amendment No. 26.
16 Performance information is incorporated by reference to Post-
Effective Amendments No. 9 and 10.
Item 25. Persons Controlled by or Under
Common Control with Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Series Holders as of
February 11, 1994
Class A Class B
Class D
Smith Barney Shearson Strategic Investors Fund 728 31,032
5
Smith Barney Shearson Sector Analysis Fund 520 16,029
1
Smith Barney Shearson Growth and Income Fund 588 6,394
1
Item 27. Indemnification
The response to this item is incorporated by reference to
Registrant's Pre-
Effective Amendment No. 1.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Greenwich Street Advisors
Greenwich Street Advisors, through its predecessors, has been in the
investment counseling business since 1934 and is a division of Mutual
Management Corp. ("MMC"). MMC was incorporated in 1978 and is a wholly owned
subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"), which is in
turn a wholly owned subsidiary of The Travelers Inc., formerly known as
Primerica Corporation.
The list required by this Item 28 of officers and directors of MMC and
Greenwich Street Advisors, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by MMC on behalf of Greenwich
Street Advisors pursuant to the Advisers Act (SEC File No. 801-14437).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Advisors, a member of the Asset Management Group of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), served as the Registrant's
investment adviser. On the Closing, Primerica Corporation and Smith Barney,
Harris Upham & Co. Incorporated acquired the domestic retail brokerage and
asset management business of Shearson Lehman Brothers, which included the
business of the Registrant's prior investment adviser. Shearson Lehman
Brothers was a wholly owned subsidiary of Shearson Lehman Brothers Holdings
Inc. ("Shearson Holdings"). All of the issued and outstanding common stock of
Shearson Holdings (representing 92% of the voting stock) was held by American
Express Company. Information as to any past business vocation or employment
of a substantial nature engaged in by officers and directors of Shearson
Lehman Advisors can be located in Schedules A and D of FORM ADV filed by
Shearson Lehman Brothers on behalf of Shearson Lehman Advisors prior to July
30, 1993. (SEC FILE NO. 801-3701)
1/27/94
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser -- The Boston Company Advisors, Inc.
The Boston Company Advisors, Inc. ("Boston Advisors") is a wholly owned
subsidiary of The Boston Company, Inc., which is in turn a wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). Mellon is a publicly owned
multibank holding company registered under the Federal Holding Company Act of
1956 and through its subsidiaries Mellon provides a comprehensive range of
financial products and services in domestic and selected international
markets. Boston Advisors is an investment adviser registered under the
Investment Advisers Act of 1940 (the "Advisers Act") and serves as investment
counsel for individuals with substantial capital, executors, trustees and
institutions. It also serves as investment adviser, sub-investment adviser,
administrator or sub-administrator to numerous investment companies.
The list required by this Item 28 of officers and directors of Boston
Advisors, together with information as to any other business profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of FORM ADV filed by Boston Advisors pursuant to the Advisers Act (SEC
File No. 801-14158).
8/23/93
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Shearson Strategy Advisers Inc.
Smith Barney Shearson Strategy Advisers Inc. ("Strategy Advisers") was
incorporated on October 22, 1986 under the laws of the State of Delaware.
Strategy Advisers is a wholly owned subsidiary of Smith, Barney Advisers, Inc.
("SBA"), which was incorporated under the laws of the state of Delaware in
1968. SBA is a wholly owned subsidiary of Smith Barney Shearson Holdings
Inc., which in turn is a wholly owned subsidiary of Primerica Corporation.
Strategy Advisers is registered as an investment adviser under the Investment
Adviser Act of 1940 (the "Advisers Act"). Strategy Advisers is also
registered with the Commodity Futures Trading Commission (the "CFTC") as a
commodity pool operator under the Commodity Exchange Act (the "CEA"), and is a
member of the National Futures Association (the "NFA").
The list required by this Item 28 of officers and directors of SBA and
Strategy Advisers, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of FORM ADV filed by SBA on behalf of Strategy Advisers
pursuant to the Advisers Act (SEC File No. 801-8314).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Investment Strategy Advisors Inc. ("Shearson Lehman Strategy
Advisors"), was a wholly owned subsidiary of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers"), and served as the Registrant's investment
adviser. On the Closing, Primerica Corporation and Smith Barney, Harris Upham
& Co. Incorporated acquired the domestic retail brokerage and asset management
business of Shearson Lehman Brothers which included the business of the
Registrant's prior investment adviser. Shearson Lehman Brothers was a wholly
owned subsidiary of Shearson Lehman Brothers Holdings Inc. ("Shearson
Holdings"). All of the issued and outstanding common stock of Shearson
Holdings (representing 92% of the voting stock) was held by American Express
Company. Information as to any past business vocation or employment of a
substantial nature engaged in by officers and directors of Shearson Lehman
Investment Strategy Advisors can be located in Schedules A and D of FORM ADV
filed by Shearson Lehman Investment Strategy Advisors prior to July 30, 1993.
(SEC FILE NO. 801-28715)
8/23/93
Item 29. Principal Underwriters
Smith Barney Shearson Inc. ("Smith Barney Shearson") currently acts as
distributor for Smith Barney Shearson Managed Municipals Fund Inc., Smith
Barney Shearson New York Municipals Fund Inc., Smith Barney Shearson
California Municipals Fund Inc., Smith Barney Shearson Massachusetts
Municipals Fund, Smith Barney Shearson Global Opportunities Fund, Smith Barney
Shearson Aggressive Growth Fund Inc., Smith Barney Shearson Appreciation Fund
Inc., Smith Barney Shearson Small Capitalization Fund, Smith Barney Shearson
Worldwide Prime Assets Fund, Smith Barney Shearson Short-Term World Income
Fund, Smith Barney Shearson Principal Return Fund, Smith Barney Shearson
Municipal Money Market Fund Inc., Smith Barney Shearson Daily Dividend Fund
Inc., Smith Barney Shearson Government and Agencies Fund Inc., Smith Barney
Shearson Managed Governments Fund Inc., Smith Barney Shearson New York
Municipal Money Market Fund, Smith Barney Shearson California Municipal Money
Market Fund, Smith Barney Shearson Income Funds, Smith Barney Shearson Equity
Funds, Smith Barney Shearson Investment Funds Inc., Smith Barney Shearson
Precious Metals and Minerals Fund Inc., Smith Barney Shearson
Telecommunications Trust, Smith Barney Shearson Arizona Municipals Fund Inc.,
Smith Barney Shearson New Jersey Municipals Fund Inc., The USA High Yield Fund
N.V., Garzarelli Sector Analysis Portfolio N.V., The Advisors Fund L.P., Smith
Barney Shearson Fundamental Value Fund Inc., Smith Barney Shearson Series
Fund, The Trust for TRAK Investments, Smith Barney Shearson Income Trust,
Smith Barney Shearson FMA R Trust, Smith Barney Shearson Adjustable Rate
Government Income Fund, Smith Barney Shearson Florida Municipals Fund, Smith
Barney Funds, Inc., Smith Barney Equity Funds, Inc., Smith Barney Muni Funds,
Smith Barney World Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney
Tax Free Money Fund, Inc., Smith Barney Variable Account Funds, Smith Barney
U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), and various series of unit investment trusts.
Smith Barney Shearson is a wholly owned subsidiary of Smith Barney
Shearson Holdings Inc., which in turn is a wholly owned subsidiary of The
Travelers Inc. The information required by this Item 29 with respect to each
director, officer and partner of Smith Barney Shearson is incorporated by
reference to Schedule A of FORM BD filed by Smith Barney Shearson pursuant to
the Securities Exchange Act of 1934 (SEC File No. 812-8510).
1/27/94
Item 30. Location of Accounts and Records
(1) Smith Barney Shearson Equity Funds
Two World Trade Center
New York, New York 10048
(2) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(3) Lehman Brothers Global Asset Management Inc.
American Express Tower
New York, New York 10285
(4) Smith Barney Shearson Strategy Advisers Inc.
Two World Trade Center
New York, New York 10048
(5) Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
(6) Boston Safe Deposit and Trust Company
One Cabot Road
Medford, Massachusetts 02155
(7) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
None
Item 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant hereby
undertakes further, in connection with the meeting to comply with the
provisions of Section 16 (c) of the Investment Company Act of 1940, as
amended, relating to communications with shareholders of certain common-law
trusts.
Rule 485(b) Certification
The Registrant hereby certifies that it meets all requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933, as
amended.
The Registrant further represents pursuant to Rule 485(b)(2)(iv) that the
resignation of Robert B. Clark as Trustee of the Registrant was not due to any
disagreement with the Registrant on any matter relating to its operaion,
policies or practices. Mr. Clark resigned his position with the Fund
because of health problems.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended, the
Registrant, SMITH BARNEY SHEARSON EQUITY FUNDS, has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Boston, Commonwealth of
Massachusetts on the 31st day of March, 1994.
SMITH BARNEY SHEARSON
EQUITY FUNDS
By:/s/ Heath B. McLendon*
Heath B. McLendon, Chief Executive Officer
Pursuant to the requirements of the 1933 Act, this Amendment to the
Registration Statement and the above Power of Attorney has been signed below
by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Heath B. McLendon* Chairman of the Board and Trustee
3/31/94
Heath B. McLendon (Chief Executive Officer)
/s/ Vincent Nave* Treasurer (Chief Financial
3/31/94
Vincent Nave and Accounting Officer)
/s/ Allan J. Bloostein* Trustee
3/31/94
Allan J. Bloostein
Trustee
3/31/94
Lee Abraham
Trustee
3/31/94
Antoinette C. Bentley
Signature Title Date
/s/ Richard E. Hanson* Trustee
3/31/94
Richard Hanson
/s/ Madelon DeVoe Talley* Trustee
3/31/94
Madelon DeVoe Talley
* Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact, pursuant
to power of attorney dated October 27, 1992.
/s/ Lee D. Augsburger
Lee D. Augsburger
g:\shared\domestic\clients\funds\slep\pea#27
EXHIBIT 11(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Shearson Equity Funds:
We hereby consent to the following with respect to
Post-Effective Amendment No. 27 to the Registration Statement on
Form N-1A (File No. 33-2627) under the Securities Act of 1933,
as amended, of Smith Barney Shearson Equity Funds (consisting of
Smith Barney Shearson Strategic Investors Fund, Smith Barney
Shearson Sector Analysis Fund, and Smith Barney Shearson Growth
and Income Fund):
1. The incorporation by reference of our reports dated March
15, 1994 accompanying the respective Annual Reports dated
January 31, 1994 of the Smith Barney Shearson Strategic
Investors Fund, Smith Barney Shearson Sector Analysis Fund, and
Smith Barney Shearson Growth and Income Fund, in the Statement
of Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectuses of the Smith Barney Shearson
Strategic Investors Fund, Smith Barney Shearson Sector Analysis
Fund, and Smith Barney Shearson Growth and Income Fund.
3. The reference to our firm under the heading "Counsel and
Auditors" in the aforementioned Statement of Additional
Information.
COOPERS & LYBRAND
Boston, Massachusetts
March 25, 1994
