<PAGE>1
Registration No.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No.
Smith Barney Shearson Equity Funds
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (212) 720-9218
Two World Trade Center, New York, New York 10048
(Address of Principal Executive Offices) (Zip Code)
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
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Registrant has registered an indefinite amount of securities pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended; accordingly, no
fee is payable herewith. Registrant's Rule 24f-2 Notice for the fiscal period
ended January 31, 1994 was filed with the Securities and Exchange Commission
on March 31, 1994.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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SMITH BARNEY SHEARSON EQUITY FUNDS
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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SMITH BARNEY SHEARSON EQUITY FUNDS
FORM N-14 CROSS REFERENCE SHEET
Pursuant to Rule 481(a) Under the Securities Act of 1933
Prospectus/Proxy
Part A Item No. and Caption Statement Caption
Item 1. Beginning of Cover Page; Cross Reference
Registration Sheet
Statement and
Outside Front Cover
Page of Prospectus
Item 2. Beginning and Table of Contents
Outside Back Cover
Page of Prospectus
Item 3. Synopsis Information Overview; Comparison of
and Risk Factors Investment Objectives and
Policies
Item 4. Information About Overview; Reasons for the
the Transaction Reorganization; Information
About the Reorganization;
Comparative Information on
Shareholder Rights; Exhibit A
(Agreement and Plan of
Reorganization)
Item 5. Information About Cover Page; Overview;
the Registrant Information About the
Reorganization; Comparison of
Investment Objectives and
Policies; Comparative
Information on Shareholder
Rights; Additional Information
About the Acquiring Fund and
the Acquired Fund; Prospectus
of Smith Barney Shearson
Strategic Investors Fund dated
April 1, 1994
Item 6. Information About Overview; Information About
the Company Being the Reorganization; Comparison
Acquired of Investment Objectives and
Policies; Comparative
Information on Shareholder
Rights; Additional Information
About the Acquiring Fund and
the Acquired Fund
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Item 7. Voting Information Overview; Information About
the Reorganization;
Comparative Information on
Shareholder Rights; Voting
Information
Item 8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
Item 9. Additional Not Applicable
Information required
for Reoffering By
Persons Deemed to be
Underwriters
Statement of Additional
Part B Item No. and Caption Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. Additional Cover Page; Statement of
Information About Additional Information of
the Registrant Smith Barney Shearson Equity
Funds dated April 1, 1994
Item 13. Additional Not Applicable
Information About
the Company Being
Acquired
Item 14. Financial Statements Annual Report of Smith Barney
Shearson Strategic Investors
Fund; Annual Report of Smith
Barney Shearson Sector
Analysis Fund; Pro-Forma
Financial Statements
Part C Item No. and Caption Other Information Caption
Item 15. Indemnification Incorporated by reference to
Part A caption "Comparative
Information on Shareholder
Rights -- Trustees' Liability"
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
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A SPECIAL NOTICE TO SHAREHOLDERS OF
SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND
a separate investment series of
Smith Barney Shearson Equity Funds
Your Vote is Important
Dear Shareholder:
The Board of Trustees of Smith Barney Shearson Equity Funds ("Equity Funds")
has recently reviewed and (unanimously) endorsed a proposal for a
reorganization of Smith Barney Shearson Sector Analysis Fund ("Sector Analysis
Fund") which it judges to be in the best interests of the Sector Analysis
Fund's shareholders.
UNDER THE TERMS OF THE PROPOSAL, SMITH BARNEY SHEARSON STRATEGIC INVESTORS
FUND ("STRATEGIC INVESTORS FUND"), ANOTHER INVESTMENT PORTFOLIO OF EQUITY
FUNDS, WOULD ACQUIRE SUBSTANTIALLY ALL OF THE ASSETS AND LIABILITIES OF SECTOR
ANALYSIS FUND. After the transaction, Sector Analysis Fund would be dissolved
and you would become a shareholder of Strategic Investors Fund, having
received the same class of shares with an aggregate value equivalent to the
aggregate net asset value of your investment in Sector Analysis Fund at the
time of the transaction. No sales charge would be imposed in the transaction.
The transaction would, in the opinion of counsel, be free from federal income
taxes to you, Strategic Investors Fund and Sector Analysis Fund.
SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT
The Board of Trustees of Equity Funds has determined that the proposed
reorganization should provide benefits to shareholders due, in part, to
savings in expenses borne by shareholders. We have therefore called a Special
Meeting of Shareholders to be held June 29, 1994 to consider this transaction.
WE STRONGLY INVITE YOUR PARTICIPATION BY ASKING YOU TO REVIEW, COMPLETE AND
RETURN YOUR PROXY PROMPTLY.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. On behalf of the board, I thank you for your
participation as a shareholder and urge you to please exercise your right to
vote by completing, dating and signing the enclosed proxy card. A self-
addressed, postage-paid envelope has been enclosed for your convenience.
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If you have any questions regarding the proposed transaction, please feel free
to call your Smith Barney Shearson Financial Consultant.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED PROMPTLY.
Sincerely,
HEATH B. McLENDON
Chairman of the Board
__________ ___, 1994
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SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND
a separate investment series of
Smith Barney Shearson Equity Funds
Two World Trade Center
New York, New York 10048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on June 29, 1994
To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Smith Barney Shearson Sector Analysis Fund ("Sector Analysis
Fund"), a separate investment series of Smith Barney Shearson Equity Funds
("Equity Funds"), will be held at Two World Trade Center, 100th Floor, New
York, New York on June 29, 1994, commencing at A.M. for the following
purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of ________________, 1994 providing for (i)
the acquisition of substantially all of the assets of Sector
Analysis Fund by Smith Barney Shearson Strategic Investors Fund
("Strategic Investors Fund"), another investment series of Equity
Funds, in exchange for shares of Strategic Investors Fund and the
assumption by Strategic Investors Fund of certain liabilities of
Sector Analysis Fund, (ii) the distribution of such shares of
Strategic Investors Fund to shareholders of Sector Analysis Fund in
liquidation of Sector Analysis Fund and (iii) the subsequent
liquidation and termination of Sector Analysis Fund.
2. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of Equity Funds have fixed the close of business on
__________ ___, 1994 as the record date for the determination of shareholders
of Sector Analysis Fund entitled to notice of and to vote at the Meeting and
any adjournment or adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO
DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE URGED TO SIGN AND RETURN
WITHOUT DELAY THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE, SO THAT THEIR SHARES MAY BE REPRESENTED AT THE MEETING.
INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXY CARDS ARE SET FORTH ON THE
FOLLOWING PAGE.
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By Order of the Board of Trustees
FRANCIS J. McNAMARA III
Secretary
_______________ ___, 1994
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
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INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and avoid the time and expense involved in validating your
vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration
on the proxy card.
3. All Other Accounts: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
registration. For example:
Registration Valid Signatures
Corporate Accounts
(1) ABC Corp. . . . . . . . . . ABC Corp.
(2) ABC Corp . . . . . . . . . . John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer . John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
Trust Accounts
(1) ABC Trust . . . . . . . . . Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 . . . . . . Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA John B. Smith
(2) John B. Smith . . . . . . . John B. Smith, Jr., Executor
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PROSPECTUS/PROXY STATEMENT DATED ______ , 1994
Acquisition Of The Assets Of
SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND
a separate investment series of
Smith Barney Shearson Equity Funds
Two World Trade Center
New York, New York 10048
(212) 720-9218
By And In Exchange For Class A, Class B
and Class D Shares Of
SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND,
a separate investment series of
Smith Barney Shearson Equity Funds
Two World Trade Center
New York, New York 10048
(212) 720-9218
This Prospectus/Proxy Statement is being furnished to shareholders
of Smith Barney Shearson Sector Analysis Fund (the "Acquired Fund"), a
separate investment series of Smith Barney Shearson Equity Funds ("Equity
Funds"), in connection with a proposed plan of reorganization to be submitted
to shareholders of the Acquired Fund for consideration at a Special Meeting of
Shareholders to be held on June 29, 1994 at _______ A.M. (the "Meeting"), at
Two World Trade Center, 100th Floor, New York, New York or any adjournment or
adjournments thereof.
The plan provides for all or substantially all of the assets of the
Acquired Fund to be acquired by Smith Barney Shearson Strategic Investors Fund
(the "Acquiring Fund"), another series of Equity Funds in exchange for Class
A, Class B and Class D shares of the Acquiring Fund and the assumption by the
Acquiring Fund of certain liabilities of the Acquired Fund (hereinafter
referred to as the "Reorganization"; the Acquiring Fund and the Acquired Fund
are sometimes referred to hereinafter as the "Funds" and individually as a
"Fund"). Acquired Fund shareholders will receive the class of shares in the
Acquiring Fund that corresponds to the class of shares of the Acquired Fund
currently held by such shareholders. The Class A, Class B and Class D shares
of the Acquiring Fund would be distributed to shareholders of the Acquired
Fund in liquidation of the Acquired Fund and the Acquired Fund would be
terminated. As a result of the proposed Reorganization, each shareholder of
the Acquired Fund will receive that number of shares of the Acquiring Fund
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of the Acquired Fund. Holders of Class A shares in
the Acquired Fund
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will receive Class A shares of the Acquiring Fund, and no sales charge will be
imposed on the Class A shares of the Acquiring Fund received by the Acquired
Fund's Class A shareholders. Holders of Class B shares in the Acquired Fund
will receive Class B shares of the Acquiring Fund; any contingent deferred
sales charge ("CDSC") which is applicable to an Acquired Fund shareholder's
investment will continue to apply as it did and at the same rate prior to the
Reorganization and, in calculating the applicable CDSC payable upon the
subsequent redemption of Class B shares of the Acquiring Fund, the period
during which an Acquired Fund shareholder held Class B shares of the Acquired
Fund will be counted. Plans holding Class D shares of the Acquired Fund will
receive Class D shares of the Acquiring Fund. This transaction is structured
to be tax-free for federal income tax purposes to shareholders and to both the
Acquiring Fund and the Acquired Fund.
The Acquiring Fund is a diversified fund and is another series of
Equity Funds, an open-end management, investment company. The Boston Company
Advisors, Inc. ("Boston Advisors") currently serves as investment adviser to
the Acquiring Fund. It is proposed that, in connection with the
Reorganization, Smith Barney Shearson Strategy Advisors Inc. ("SBSSA"), the
current investment adviser to the Acquired Fund, become the investment adviser
and that Boston Advisors become a sub-investment adviser to the combined fund.
SBSSA is a subsidiary of Smith, Barney Advisers, Inc., which is in turn an
indirect wholly owned subsidiary of The Travelers Inc.
The investment objectives of the Acquiring Fund are generally
similar to those of the Acquired Fund. The Acquiring Fund's investment
objective is high total return consisting of current income and capital
appreciation. The investment objective of the Acquired Fund is capital
appreciation. Certain differences in the investment policies of the Acquiring
Fund and the Acquired Fund, however, are described under "Comparison of
Investment Objectives and Policies" in this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated in whole or in part by reference. A
Statement of Additional Information dated ___________, 1994, relating to this
Prospectus/Proxy Statement and the Reorganization, has been filed with the SEC
and is incorporated by reference into this Prospectus/Proxy Statement. A copy
of such Statement of Additional Information is available upon request and
without charge by writing to the Acquired Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-
____________.
1. The Prospectus of Smith Barney Shearson Strategic Investors Fund
dated April 1, 1994 is incorporated in its entirety by reference and
a copy is included herein.
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2. The Prospectus of Smith Barney Shearson Sector Analysis Fund dated
April 1, 1994 is incorporated in its entirety by reference.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a
copy of the Agreement and Plan of Reorganization (the "Plan") for the proposed
transaction.
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/PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Reasons for the Reorganization . . . . . . . . . . . . . . . . . . . . . . 9
Information About the Reorganization . . . . . . . . . . . . . . . . . . . 10
Comparison of Investment Objectives and Policies . . . . . . . . . . . . . 14
Information on Shareholders' Rights . . . . . . . . . . . . . . . . . . . . 16
Additional Information About Smith Barney
Shearson Sector Analysis Fund and Smith Barney
Shearson Strategic Investors Fund . . . . . . . . . . . . . . . . . . . 18
Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Voting Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Financial Statements and Experts . . . . . . . . . . . . . . . . . . . . . 20
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Exhibit A: Agreement and Plan of Reorganization
ADDITIONAL MATERIALS
Prospectus of Smith Barney Shearson Strategic Investors
Fund, dated April 1, 1994.
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SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ADDITIONAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT,
THE AGREEMENT AND PLAN OF REORGANIZATION, A COPY OF WHICH IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS EXHIBIT A, THE ACCOMPANYING PROSPECTUS OF THE
ACQUIRING FUND DATED APRIL 1, 1994 AND THE PROSPECTUS OF THE ACQUIRED FUND
DATED APRIL 1, 1994.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all
of the assets of the Acquired Fund to the Acquiring Fund in exchange for
Class A, Class B and Class D shares of the Acquiring Fund and the assumption
by the Acquiring Fund of certain liabilities of the Acquired Fund. The Plan
also calls for the distribution of shares of the Acquiring Fund to the
Acquired Fund's shareholders in liquidation of the Acquired Fund. (The
foregoing proposed transaction is referred to in this Prospectus/Proxy
Statement as the "Reorganization"). As a result of the Reorganization, each
shareholder of the Acquired Fund will become the owner of that number of full
and fractional shares of the Acquiring Fund having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's shares of
the Acquired Fund as of the close of business on the date that the Acquired
Fund's assets are exchanged for shares of the Acquiring Fund. An Acquired
Fund shareholder will receive the class of shares in the Acquiring Fund that
corresponds to the class of shares of the Acquired Fund currently held by such
shareholder. See "Information About the Reorganization--Plan of
Reorganization."
For the reasons set forth below under "Reasons for the
Reorganization," the Board of Trustees of Equity Funds, including the trustees
of Equity Funds (the "Independent Trustees") who are not "interested persons,"
as that term is defined in the Investment Company Act of 1940 (the "1940
Act"), has unanimously concluded that the Reorganization would be in the best
interests of the shareholders of the Acquired Fund and that the interests of
the Acquired Fund's existing shareholders will not be diluted as a result of
the transaction contemplated by the Reorganization, and therefore has
submitted the Plan for approval by the Acquired Fund's shareholders. The
Board of Trustees of Equity Funds has also approved the Reorganization in
respect of the Acquiring Fund.
Approval of the Reorganization will require the affirmative vote of
a majority, as defined in the 1940 Act, of the outstanding shares of the
Acquired Fund, which is the lesser of: (i) 67% of the voting securities of
the Acquired Fund present at the Meeting, if the holders of more than 50% of
the outstanding voting securities of the Acquired Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the Acquired Fund. See "Voting Information."
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TAX CONSEQUENCES. Prior to completion of the Reorganization, the
Acquired Fund will have received an opinion of counsel that, upon the
Reorganization and the transfer of the assets of the Acquired Fund, no gain or
loss will be recognized by the Acquired Fund or its shareholders for federal
income tax purposes. The holding period and aggregate tax basis of the
Acquiring Fund Class A, Class B or Class D shares that are received by an
Acquired Fund shareholder will be the same as the holding period and aggregate
tax basis of the shares of the Acquired Fund previously held by such
shareholder. In addition, the holding period and tax basis of the assets of
the Acquired Fund in the hands of the Acquiring Fund as a result of the
Reorganization will be the same as in the hands of the Acquired Fund
immediately prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The Acquired Fund and the
Acquiring Fund have generally similar investment objectives, policies and
restrictions. The Acquired Fund seeks capital appreciation while the
Acquiring Fund seeks high total return consisting of current income and
capital appreciation. To achieve their objectives, the Funds invest primarily
in equity securities of companies across a broad spectrum of industry groups.
Nevertheless, there are certain differences between the investment policies of
the Acquiring Fund and the Acquired Fund, which are described under
"Comparison of Investment Objectives and Policies."
FEES AND EXPENSES. The Acquired Fund pays its investment adviser a
monthly fee computed at an annual rate of 0.40% of the value of the Acquired
Fund's average daily net assets (of which .15% is paid to Lehman Brothers as
sub-investment adviser). The Acquired Fund also pays to each of PanAgora
Asset Management, Inc., which serves as a sub-investment adviser to the
Acquired Fund, and Boston Advisors, which serves as its administrator, a
monthly fee computed at an annual rate of 0.20% of the value of the Acquired
Fund's average daily net assets. The Acquiring Fund pays Boston Advisors, its
investment adviser, a monthly fee computed at an annual rate of 0.55% of the
value of its average daily net assets. The Acquiring Fund also pays Boston
Advisors, which serves as administrator to the Acquiring Fund, a monthly fee
computed at an annual rate of 0.20% of the value of the Acquiring Fund's
average daily net assets.
It is anticipated that, in connection with the Reorganization, SBSSA
will become the investment adviser and Boston Advisors will become a sub-
investment adviser to the combined fund. The investment advisory fee payable
by the combined fund to SBSSA will continue to be 0.55% of the value of
average daily net assets (of which .275% will be payable to Boston Advisors as
sub-investment adviser). It is also anticipated that, in connection with the
Reorganization, Boston Advisors will be replaced as administrator of the
Acquiring Fund by Smith, Barney Advisers, Inc. and that Boston Advisors will
become sub-administrator to the Acquiring Fund. The aggregate administration
fee payable to Smith, Barney Advisers, Inc. (including the sub-administration
fee payable to Boston Advisors) will continue to be 0.20% of the value of the
combined fund's average daily net assets.
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The expense ratio of the Acquiring Fund subsequent to the
Reorganization is expected to be lower than that of the Acquired Fund. See
"Reasons for the Reorganization." Total operating expenses for the Acquiring
Fund stated as a percentage of average net assets for the fiscal year ended
January 31, 1994 for Class A shares, Class B and Class D shares were 1.25%,
1.98% and 1.93%, respectively. Total operating expenses for the Acquired Fund
stated as a percentage of average net assets for the fiscal year ended January
31, 1994 for Class A and Class B shares were 1.41% and 2.16%, respectively.
In effecting the Reorganization, it is estimated that the expense ratios for
the Class A, Class B and Class D shares of the combined funds would be reduced
to 1.23%, 1.97% and 1.93%, respectively.
Shares of the Acquiring Fund and the Acquired Fund are both sold
subject to distribution plans adopted pursuant to Rule 12b-1 under the 1940
Act. Under their respective plans, Smith Barney Shearson Inc. ("Smith Barney
Shearson") is paid a service fee calculated at the annual rate of 0.25% of the
value of each Fund's average daily net assets attributable to the respective
Fund's Class A, Class B and Class D shares. In addition, each Fund's Class B
and Class D shares pays a distribution fee primarily intended to compensate
Smith Barney Shearson for its initial expense of paying financial consultants
a commission upon sales of the respective shares. The distribution fees for
both Funds' Class B and Class D shares are calculated at the annual rate of
0.75% of the value of the respective Fund's average net assets attributable to
the shares of the respective Class. However, eight years after the date of
purchase, Class B shares of the Acquiring Fund 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. The Acquired
Fund's Class B shareholders who receive Class B shares of the Acquiring Fund
will begin their eight year period as of the date they first purchased Class B
shares of the Acquired Fund. See "Distributor" in the accompanying prospectus
of the Acquiring Fund.
EXCHANGE PRIVILEGES. Shareholders of both the Acquired Fund and the
Acquiring Fund are entitled to exchange shares of each Class for shares of the
same Class in certain funds in the Smith Barney Shearson Group of Funds
("Group of Funds") to the extent shares are offered for sale in the
shareholder's state of residence. As a result of the Reorganization, each
shareholder of Class A, Class B and Class D shares of the Acquired Fund who
becomes the owner of the respective Class of shares of the Acquiring Fund will
be entitled to the exchange privileges offered by that Class of shares. Any
exchange will be a taxable event for which a shareholder may have to recognize
a gain or loss under federal income tax provisions. For the purposes of any
exchange of shares acquired through the Reorganization, the Acquired Fund
shareholders will be deemed to have paid the maximum sales charge currently
applicable for shares of the Acquiring Fund. A "sales charge differential"
will be imposed on all the Acquiring Fund shareholders if they choose to
exchange their shares of the Acquiring Fund for shares of another fund in the
Group of Funds which imposes a higher sales charge than that imposed on the
Acquiring Fund shares. The Acquiring Fund reserves the right to amend or
terminate the exchange privilege after
<PAGE>18
providing notice to shareholders. See "Exchange Privilege" in the
accompanying prospectus of the Acquiring Fund.
DIVIDENDS. The policies of each Fund with regard to dividends and
distributions are the same. It is the policy of both Funds to declare and
distribute quarterly its net investment income (that is, its taxable income
other than its net realized capital gains). Each Fund's policy is to
distribute its net realized capital gains, if any, once a year, normally at
the end of the year in which earned or at the beginning of the next year.
Unless a shareholder instructs that dividends and capital gains distributions
be paid in cash and credited to the shareholder's account at Smith Barney
Shearson, dividends and capital gains distributions will be reinvested
automatically in additional shares of the Acquiring Fund at net asset value,
without a sales charge or CDSC. The Acquired Fund shareholders that have
elected to receive dividends and distributions in cash will continue to
receive distributions in such manner from the Acquiring Fund. Subsequent to
the Reorganization, the Acquired Fund shareholders may elect at any time to
have their dividends and distributions reinvested automatically in additional
shares of the Acquiring Fund by contacting their Smith Barney Shearson
Financial Consultant. See "Dividends, Distributions and Taxes" in the
accompanying prospectus of the Acquiring Fund.
PURCHASE AND REDEMPTION PROCEDURES. Purchase of shares of the
Acquiring Fund and the Acquired Fund must be made through a brokerage account
maintained with Smith Barney Shearson or with a broker that clears securities
transactions through Smith Barney Shearson on a fully disclosed basis (an
"Introducing Broker"). Class A shares of the Acquiring Fund and of the
Acquired Fund are sold subject to a maximum initial sales charge of up to
5.00% of the public offering price. Class B shares of the Acquiring Fund and
the Acquired Fund are sold without an initial sales charge but are subject to
certain higher expenses. See "Purchase of Shares" in the accompanying
Prospectus of the Acquiring Fund.
Class A shares of the Acquiring Fund and the Acquired Fund may be
redeemed at their net asset value per share without charge; Class B shares of
the Acquiring Fund and the Acquired Fund may be redeemed at their net asset
value per share subject to a maximum CDSC of 5.00%. Redemptions may be made
by submitting a redemption request through Smith Barney Shearson or an
Introducing Broker or the respective Fund's transfer agent. See "Redemption
of Shares" in the accompanying Prospectus of the Acquiring Fund.
The Acquiring Fund and the Acquired Fund also offer Class D shares.
Class D shares are available to participants in the Smith Barney Shearson
401(k) Program and are sold at net asset value per share. Class D shares are
not subject to an initial sales charge or CDSC. Class D shares of both Funds
are subject to an annual service fee of 0.25% and an annual distribution fee
of 0.75% of the value of average daily net assets attributable to such Class.
See "Purchase of Shares" in the accompanying Prospectus of the Acquiring Fund.
<PAGE>19
SHAREHOLDERS' RIGHTS. Since the Acquiring Fund and the Acquired
Fund are both series in Equity Funds, shareholders of the Acquiring Fund and
the Acquired Fund have identical voting rights. For example, Equity Funds
does not hold annual meetings of shareholders and there is normally 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. In addition, under the laws of The Commonwealth of
Massachusetts and the Master Trust Agreement of Equity Funds, shareholders of
the Acquired Fund do not have appraisal rights in connection with a
combination or acquisition of the assets of the Acquired Fund by another
entity. Shareholders of the Acquired Fund may, however, redeem their shares
at net asset value (subject to any applicable CDSC) prior to the date of the
Reorganization. See "Comparative Information on Shareholder Rights."
RISK FACTORS. Due to the similarities of investment objectives and
policies of the Acquiring Fund and the Acquired Fund, an investment in the
Acquiring Fund involves investment risks that are substantially similar to
those of the Acquired Fund. Such risks are those generally associated with
investing in a managed portfolio consisting primarily of equity securities.
In addition, both Funds have investment techniques, such as purchasing
warrants, writing options, lending portfolio securities and entering into
repurchase agreements, that involve certain risks and special considerations.
For a full description of the risk factors involved in investing in the
Acquiring Fund, refer to "Risk Factors and Special Considerations" in the
accompanying Prospectus of the Acquiring Fund.
REASONS FOR THE REORGANIZATION
The Board of Trustees of Equity Funds has determined that it is
advantageous to combine the Acquired Fund with the Acquiring Fund. The Funds
have generally similar investment objectives and policies and the Funds have
the same custodian and transfer agent.
The Board of Trustees of the Equity Funds has determined that the
Reorganization should provide certain benefits to shareholders of the Acquired
Fund. In making such determination, the Board of Trustees considered, among
other things, the savings in expenses borne by shareholders expected to be
realized by the Reorganization, the comparative investment performance of the
Funds and the advantages of eliminating duplication inherent in marketing two
funds with similar investment objectives.
In light of the foregoing, the Board of Trustees of Equity Funds,
including the Independent Trustees, has decided that it is in the best
interests of the Acquired Fund and its shareholders to combine with the
Acquiring Fund. The Board of Trustees has also determined that a combination
of the Acquired Fund and the Acquiring Fund would not result in a dilution of
the Acquired Fund's shareholders' interest.
The Board of Trustees of Equity Funds has also determined that it is
advantageous to the Acquiring Fund to acquire the assets of the Acquired Fund.
Among
<PAGE>20
other reasons, the Board of Trustees believes that: (1) the Reorganization is
likely to slightly reduce the expense ratios on Class A, Class B and Class D
shares of the Acquiring Fund; and (2) the Reorganization will be effected as a
tax-free reorganization. Accordingly, the Board of Trustees, including a
majority of the Independent Trustees, has determined that the Reorganization
is in the best interests of the Acquiring Fund's shareholders and that the
interests of the Acquiring Fund's shareholders will not be diluted as a result
of the Reorganization.
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the Plan is
qualified in its entirety by reference to the Plan (Exhibit A hereto). The
Plan provides that the Acquiring Fund will acquire all or substantially all of
the assets of the Acquired Fund in exchange for shares of the Acquiring Fund
and the assumption by the Acquiring Fund of certain liabilities of the
Acquired Fund on ___________, 1994 or such later date as may be agreed upon by
the parties (the "Closing Date").
Prior to the Closing Date, the Acquired Fund will endeavor to
discharge all of its known liabilities and obligations. The Acquiring Fund
will not assume any liabilities or obligations other than those reflected on
an unaudited statement of assets and liabilities of the Acquired Fund prepared
as of the close of regular trading on the New York Stock Exchange, Inc. (the
"NYSE"), currently 4:00 p.m. New York time, on the Closing Date. The number
of full and fractional Class A, Class B and Class D shares of the Acquiring
Fund to be issued to the Acquired Fund shareholders will be determined on the
basis of the Acquiring Fund's and the Acquired Fund's relative net asset
values per Class A, Class B and Class D shares, respectively, computed as of
the close of regular trading on the NYSE on the Closing Date. The net asset
value per share of each Class will be determined by dividing assets, less
liabilities, by the total number of outstanding shares.
Both the Acquired Fund and the Acquiring Fund will utilize Boston
Advisors as agent to determine the value of their respective portfolio
securities. The Acquired Fund and the Acquiring Fund also will use the same
independent pricing service to determine the value of each security so that
Boston Advisors, as agent, can determine the aggregate value of each Fund's
portfolio. The method of valuation employed will be consistent with the
requirements set forth in the Prospectus of the Acquiring Fund, Rule 22c-1
under the 1940 Act, and with the interpretation of such rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, each of the Acquired Fund and the
Acquiring Fund shall have declared a dividend or dividends which, together
with all previous such dividends, shall have the effect of distributing to
their respective shareholders all taxable income for the taxable year ending
on or prior to the Closing Date (computed without regard to any deduction for
dividends paid) and all of the respective Funds' net capital gains
<PAGE>21
realized in the taxable year ending on or prior to the Closing Date (after
reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date the full and fractional shares
of the Acquiring Fund received by the Acquired Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the
names of the Acquired Fund's shareholders on the share records of the
Acquiring Fund's transfer agent. Each account will represent the respective
pro rata number of full and fractional shares of the Acquiring Fund due to
each of the Acquired Fund's shareholders. After such distribution and the
winding up of its affairs, the Acquired Fund will be terminated.
The consummation of the Reorganization is subject to the conditions
set forth in the Plan. Notwithstanding approval of the Acquired Fund's
shareholders, the Plan may be terminated at any time at or prior to the
Closing Date by (1) mutual agreement of the Acquired Fund and the Acquiring
Fund or (2) by either party to the Plan upon a material breach by the other
party of any representation, warranty or agreement contained therein.
The Acquiring Fund and the Acquired Fund shall each be liable for
its respective expenses incurred in connection with entering into and carrying
out the Plan, whether or not the Reorganization is consummated.
Approval of the Plan will require the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the Acquired Fund. The 1940 Act defines "majority" as the lesser of: (i) 67%
of the voting securities of the Acquired Fund present at the Meeting, if the
holders of more than 50% of the outstanding voting securities of the Acquired
Fund are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of the Acquired Fund. If the Reorganization is
not approved by shareholders of the Acquired Fund, the Board of Trustees of
Equity Funds will consider other possible courses of action, including
liquidation of the Acquired Fund.
DESCRIPTION OF THE ACQUIRING FUND'S SHARES. Full and fractional
shares of the respective Class of shares of beneficial interest of the
Acquiring Fund will be issued to the Acquired Fund in accordance with the
procedures detailed in the Plan and as described in the Acquiring Fund's
Prospectus. Generally, the Acquiring Fund does not issue share certificates
to shareholders unless a specific request is submitted to the Acquiring Fund's
transfer agent. The shares of the Acquiring Fund to be issued to the Acquired
Fund shareholders and registered on the shareholder records of the transfer
agent will have no pre-emptive or conversion rights. However, eight years
after the date of purchase, Class B shares of the Acquiring Fund 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.
The Acquired Fund Class B shareholders who receive Class B shares
<PAGE>22
of the Acquiring Fund will begin their eight year period as of the date they
first purchased Class B shares of the Acquired Fund. See "Comparative
Information on Shareholder Rights" and the Acquiring Fund's Prospectus for
additional information with respect to the shares of the Acquiring Fund.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of assets for shares
of the Acquiring Fund is intended to qualify for federal income tax purposes
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, the Acquired Fund will receive an opinion from Willkie Farr &
Gallagher, counsel to both the Acquired Fund and the Acquiring Fund, to the
effect that, on the basis of the existing provisions of the Code, U.S.
Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Reorganization:
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund's shares and the assumption by
the Acquiring Fund of certain identified liabilities of the Acquired Fund
will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code, and the Acquiring Fund and the Acquired Fund
are each a "party to a reorganization" within the meaning of Section
368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund's shares and the assumption of certain identified
liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund's assets to the Acquiring Fund in
exchange for the Acquiring Fund's shares and the assumption of certain
identified liabilities of the Acquired Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund's shares to the
Acquired Fund's shareholders;
(4) no gain or loss will be recognized by shareholders of the
Acquired Fund upon the exchange of their shares of the Acquired Fund for
shares of the Acquiring Fund and the assumption by the Acquiring Fund of
certain identified liabilities of the Acquired Fund;
(5) the aggregate tax basis for shares of the Acquiring Fund
received by each shareholder of the Acquired Fund pursuant to the
Reorganization will be the same as the aggregate tax basis of shares of
the Acquired Fund held by that shareholder immediately prior to the
Reorganization, and the holding period of shares of the Acquiring Fund to
be received by each shareholder of the Acquired Fund will include the
period during which shares of the Acquired Fund exchanged therefor were
<PAGE>23
held by such shareholder (provided shares of the Acquired
Fund were held as capital assets on the date of the Reorganization); and
(6) the tax basis of the Acquired Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization, and the holding
period of the assets of the Acquired Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Acquired Fund.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
CAPITALIZATION. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund as of January 31, 1994, and on a pro
forma basis as of that date, giving effect to the proposed acquisition of
assets at net asset value.
Smith Barney Smith Barney
Shearson Shearson
Sector Strategic Pro Forma
Analysis Investors for
Fund Fund Reorganization
CLASS A SHARES
Net Assets $ 3,573,305 $6,216,293 $9,789,598
Net asset value per $ 16.00 $ 17.72 $ 17.72
share
Shares outstanding 223,373 350,896 552,601
CLASS B SHARES
Net Assets $129,652,048 $334,414,597 $464,066,645
Net asset value per
share $ 15.99 $ 17.79 $ 17.79
Shares outstanding 8,108,309 18,794,896 26,081,650
<PAGE>24
CLASS D SHARES
Net Assets $ 16.00 $ 399,005 $ 399,021
Net asset value per
share $ 15.99 $ 17.79 $ 17.79
Shares outstanding 1 22,424 22,425
As of the Record Date, , 1994, there were
outstanding Class A shares, outstanding Class B shares and
outstanding Class D shares of the Acquired Fund and
outstanding Class A shares, outstanding Class B shares and
outstanding Class D shares of the Acquiring Fund. As of the Record
Date, the officers and Trustees of Equity Funds beneficially owned as a group
less than 1% of the outstanding shares of each of the Acquired Fund and the
Acquiring Fund. To the best knowledge of the Trustees of Equity Funds, as of
the Record Date, no other shareholder or "group" (as that term is used in
Section 13(d) of the Exchange Act of 1934, the "Exchange Act") beneficially
owned more than 5% of the outstanding shares of either the Acquired Fund or
the Acquiring Fund.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment objectives, policies
and restrictions of the Acquiring Fund and the Acquired Fund is based upon and
qualified in its entirety by the respective investment objectives, policies
and restrictions sections of the prospectuses of the Acquiring Fund and the
Acquired Fund. For a full discussion of the investment objectives, policies
and restrictions of the Acquiring Fund, refer to the Acquiring Fund's
Prospectus, which accompanies this Prospectus/Proxy Statement, under the
caption "Investment Objective and Management Policies," and for a discussion
of these issues as they apply to the Acquired Fund, refer to the Acquired
Fund's Prospectus under the caption "Investment Objective and Management
Policies."
INVESTMENT OBJECTIVE. The investment objective of the Acquired Fund
is capital appreciation. The investment objective of the Acquiring Fund is
high total return consisting of current income and capital appreciation. Both
the Acquiring Fund and the Acquired Fund's investment objectives are
considered fundamental policies which cannot be changed without shareholder
approval.
PRIMARY INVESTMENTS. The Acquiring Fund invests in a variable
combination of equity, fixed-income and money-market instruments and gold
securities. The mix of the Acquiring Fund's asset allocation is adjusted from
time to time although the equity portion has historically been the largest.
The equity portion of the Acquiring Fund's investments consists generally of
common stock of established companies, spanning a broad spectrum of
industries, which, in the opinion of its investment adviser, is undervalued
based
<PAGE>25
on indicators such as a company's price/earning ratio and ratios of market
value to book value. The fixed-income portion of the Acquiring Fund's assets
consists primarily of investment-grade corporate bonds, debentures and notes
and obligations of the United States government or its agencies of
instrumentalities ("U.S. government securities"). The Acquiring Fund also
invests in money market securities such as commercial paper, bank obligations
and short-term U.S. government securities. Gold securities in which the
Acquiring Fund may invest consist of equity and debt securities of companies
principally engaged in businesses relating to the exploration, mining,
processing or distribution of gold and companies principally engaged in
financing, managing, controlling or operating such companies.
The Acquired Fund follows a sector strategy. This strategy involves
dividing the U.S. equity market into 90 sectors, each of which is subsequently
given a designation of either "attractive," "neutral" or "unattractive."
These designations are based upon the investment adviser's evaluation of a
sector's price/earning ratio and earnings prospects. The Acquired Fund's
assets are then invested in equity securities issued by companies in sectors
designated "attractive" by its investment adviser. The Acquired Fund may also
invest in money market instruments and U.S. government securities, though to a
lesser extent than that of the Acquiring Fund.
The Acquiring Fund and the Acquired Fund both seek to invest broadly
in equity securities of companies with prospects for growth in the future.
Unlike the Acquired Fund, the Acquiring Fund may also invest in equity
securities of foreign issuers, including American Depositary Receipts and
European Depositary Receipts. For a complete discussion of the Acquiring
Fund's investment objective and policies, refer to the Acquiring Fund's
Prospectus under the caption "Investment Objective and Policies."
INVESTMENT TECHNIQUES. From time to time, each Fund may lend its
portfolio securities to brokers, dealers and other financial organizations.
These loans will not exceed 20% of each Fund's total assets taken at value.
Loans of portfolio securities by each Fund must be collateralized by cash,
letters of credit or U.S. government securities which are maintained at all
times in a segregated account in an amount equal to at least 100% of the
current market value of the loaned securities.
Each Fund may also enter into repurchase agreements with certain
member banks of the Federal Reserve System and with certain dealers on the
Federal Reserve Bank of New York's list of reporting dealers.
The Acquiring Fund may write covered call options on portfolio
securities and realize fees for granting the rights evidenced by the options.
The Acquired Fund's portfolio strategies relating to options are somewhat
broader. The Acquired Fund may purchase put and write call options on certain
securities. It may also purchase put and call options and write call options
on domestic stock indexes for capital appreciation or for the purpose of
<PAGE>26
hedging its portfolio. It may also sell call options on securities and on
stock indexes. The Acquired Fund may engage in short sales of certain
securities and may invest in stock index futures and interest rate futures
contracts and purchase options on certain interest rate futures contracts
solely for hedging purposes.
The Acquiring 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. A detailed discussion of this and other
investment practices of the Acquiring Fund and their associated risks can be
found under the caption "Investment Objective and Management Policies" in the
Acquiring Fund's prospectus, attached as Exhibit A to this Prospectus/Proxy
Statement.
INFORMATION ON SHAREHOLDERS' RIGHTS
GENERAL. The Acquiring Fund and the Acquired Fund are separate
series of Equity Funds, an open-end management investment company registered
under the 1940 Act which continuously offer to sell shares at their current
net asset value. Equity Funds is organized as a business trust under the laws
of The Commonwealth of Massachusetts and is governed by a Master Trust
Agreement, By-laws and Board of Trustees. Both Funds are also governed by
applicable state and federal law.
TRUSTEES. Under the Master Trust Agreement of Equity Funds, persons
serving as Trustees will continue as Trustees for the duration of Equity
Funds' existence until they resign, die or are removed by a written
instrument, signed by at least two-thirds of the Trustees or by vote of the
shareholders holding not less than two-thirds of the shares then outstanding,
cast in person or by proxy at any meeting called for that purpose or by a
written declaration signed by the shareholders holding not less than two-
thirds of the shares then outstanding and filed with the Fund's custodian.
Vacancies on the Board of Equity Funds may be filled by the Trustees remaining
in office. A meeting of shareholders will be required for the purpose of
electing additional Trustees whenever fewer than a majority of the Trustees
then in office were elected by shareholders.
SHAREHOLDER LIABILITY. Under Massachusetts law, shareholders of
Equity Funds may, under certain circumstances, be held personally liable for
the obligations of Equity Funds. Equity Funds' Master Trust Agreement,
however, disclaims shareholder liability for acts or obligations of Equity
Funds, and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by Equity Funds. The Master
Trust Agreement for Equity Funds provides for indemnification out of Equity
Funds' property for all losses and expenses of any shareholder held personally
liable for the obligations of Equity Funds. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which a disclaimer is
inoperative and Equity Funds itself would be unable to meet its
<PAGE>27
obligations. A substantial number of mutual funds in the United States are
organized as Massachusetts business trusts.
VOTING RIGHTS. Equity Funds do not hold annual meetings of
shareholders, except for purposes of voting on certain matters as required
under the 1940 Act. Special meetings of shareholders of Equity Funds must be
called upon the written request of holders of not less than 10% of the then
outstanding voting securities of Equity Funds. On each matter submitted to a
vote of the shareholders of Equity Funds, each shareholder is entitled to one
vote for each whole share owned and a proportionate fractional vote for any
fractional share outstanding in the shareholder's name on the books and
records of Equity Funds. Generally, shares of Equity Funds vote by individual
portfolio on all matters except on matters affecting only the interests of one
or more portfolios, in which case only shares of the affected portfolio or
portfolios would be entitled to vote or when the 1940 Act requires that shares
of the portfolios be voted in the aggregate.
LIQUIDATION. In the event of the liquidation of the Acquiring Fund
or the Acquired Fund, the shareholders of either Fund are entitled to receive,
when, and as declared by the Trustees, the excess of the assets belonging to
the Fund over the liabilities belonging to the Fund. In either case, the
assets so distributed to shareholders of the Fund will be distributed among
the shareholders in proportion to the number of shares of the Fund held by
them and recorded on the books of the Fund.
LIABILITY OF TRUSTEES. Under the Master Trust Agreement of Equity
Funds, a Trustee will be personally liable only for his or her own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee. The Master Trust Agreement
further provides that Trustees and officers will be indemnified for the
expenses of litigation against them unless it is determined that the person
did not act in good faith in the reasonable belief that the person's actions
were in or not opposed to the best interests of the Fund or the person's
conduct is determined to constitute willful misfeasance, bad faith, gross
negligence or reckless disregard of the person's duties.
RIGHTS OF INSPECTION. Shareholders of the Acquiring Fund and the
Acquired Fund have the same inspection rights as are permitted shareholders of
a Massachusetts corporation under Massachusetts corporate law. Currently,
each shareholder of a Massachusetts corporation is permitted to inspect the
records, accounts and books of a corporation for any legitimate business
purpose.
The foregoing is only a summary of certain characteristics of the
operations of the Acquired Fund and the Acquiring Fund, the Master Trust
Agreement and By-laws of Equity Funds and Massachusetts law. The foregoing is
not a complete description of the documents cited. Shareholders should refer
to the provisions of the corporate documents and state laws governing Equity
Funds for a more thorough description.
<PAGE>28
ADDITIONAL INFORMATION ABOUT
SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND
AND
SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND
SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND. Information about the
Acquired Fund is included in its current prospectus dated April 1, 1994, and
in the statement of additional information that has been filed with the SEC
both of which are incorporated herein by reference. A copy of the prospectus
and the statement of additional information is available upon request and
without charge by writing the Acquired Fund at the address listed on the cover
page of this Prospectus/Proxy Statement or by calling toll-free 1-800-
.
SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND. Information
concerning the operation and management of the Acquiring Fund is incorporated
herein by reference from the prospectus dated April 1, 1994 and statement of
additional information dated April 1, 1994. A copy of such statement of
additional information is available upon request and without charge by writing
the Acquiring Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800- .
Both the Acquiring Fund and the Acquired Fund are subject to the
informational requirements of the Exchange Act and in accordance therewith
file reports and other information including proxy material, reports and
charter documents with the SEC. These materials can be inspected and copies
obtained at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the New York Regional Office of
the SEC, 75 Park Place, New York, New York 10007. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, SEC, Washington, D.C. 20549 at prescribed rates.
OTHER BUSINESS
The Trustees of Equity Funds do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of Equity Funds in respect of
the Acquired Fund to be used at the Special Meeting of Shareholders to be held
at ___ a.m. on June 29, 1994, at Two World Trade Center, New York, New York
10048-0002 and at any adjournment thereof. This Prospectus/Proxy Statement,
along with a Notice of the Meeting and a proxy
<PAGE>29
card, is first being mailed to shareholders of the Acquired Fund on or about
, 1994. Only shareholders of record as of the close of business on
the Record Date will be entitled to notice of, and to vote at, the Meeting or
any adjournment thereof. The holders of a majority of the shares of the
Acquired Fund outstanding at the close of business on the Record Date present
in person or represented by proxy will constitute a quorum for the Meeting.
If the enclosed form of proxy is properly executed and returned in time to be
voted at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed Reorganization and FOR any
other matters deemed appropriate. A proxy may be revoked at any time on or
before the Meeting by written notice to the Secretary of the Acquired Fund,
Francis J. McNamara III, Exchange Place, Boston, Massachusetts 02109. Unless
revoked, all valid proxies will be voted in accordance with the specifications
thereon or, in the absence of such specifications, for approval of the Plan
and the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the Acquired Fund, which is the lesser of: (i) 67% of the voting securities
of the Acquired Fund present at the Meeting, if the holders of more than 50%
of the outstanding voting securities of the Acquired Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the Acquired Fund. Shareholders of the Acquired Fund are
entitled to one vote for each share. Fractional shares are entitled to
proportional voting rights.
Proxies are solicited by mail. Additional solicitations may be made
by telephone, telegraph or personal contact by officers or employees of Smith
Barney Shearson and its affiliates or by proxy soliciting firms retained by
Smith Barney Shearson. Smith Barney Shearson has retained Management
Information Systems to provide proxy solicitation services in connection with
the Meeting at an estimated cost of $ .
The Acquiring Fund and the Acquired Fund will each be liable for its
respective expenses in connection with entering into and carrying out the
Reorganization, whether or not the Reorganization is consummated.
In the event that sufficient votes to approve the Reorganization are
not received by June 29, 1994, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies.
In determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon a
decision to adjourn the Meeting.
<PAGE>30
The votes of the shareholders of the Acquiring Fund are not being
solicited by this Prospectus/Proxy Statement.
FINANCIAL STATEMENTS AND EXPERTS
The statement of assets and liabilities of the Acquired Fund,
including the schedule of portfolio investments, as of January 31, 1994, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the six years in the period then ended
and for the period from August 28, 1987 (commencement of operations) to
January 31, 1988, and the statement of assets and liabilities of the Acquiring
Fund, including the schedule of portfolio investments, as of January 31, 1994,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the six years in the period then ended
and for the period from February 2, 1987 (commencement of operations) to
January 31, 1988 have been incorporated by reference into this
Prospectus/Proxy Statement in reliance on the reports of Coopers & Lybrand,
independent accountants, given on the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the
Acquiring Fund will be passed upon by Willkie Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York, New York 10022.
THE BOARD OF TRUSTEES OF EQUITY FUNDS IN RESPECT OF THE ACQUIRED
FUND, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMEND APPROVAL OF
THE PLAN, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL
BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
<PAGE>31
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
as of this day of , 1994, by and between Smith Barney Shearson
Equity Funds ("Equity Funds") on behalf of Smith Barney Shearson Sector
Analysis Fund (the "Acquired Fund") and Equity Funds on behalf of Smith Barney
Shearson Strategic Investors Fund (the "Acquiring Fund"), each an investment
series of Equity Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts, with its principal place of business at Two
World Trade Center, New York, New York 10048.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund in exchange solely for
Class A, Class B and Class D shares of beneficial interest of the Acquiring
Fund (the "Acquiring Fund Shares") and the assumption by the Acquiring Fund of
certain liabilities of the Acquired Fund and the distribution, after the
Closing Date herein referred to, of Acquiring Fund Shares to the shareholders
of the Acquired Fund in liquidation of the Acquired Fund and the termination
of the Acquired Fund, all upon the terms and conditions hereinafter set forth
in this Agreement.
WHEREAS, Equity Funds is a registered investment company of the
management type and the Acquired Fund owns securities that generally are
assets of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, Equity Funds is authorized to issue shares of beneficial
interest;
WHEREAS, the Board of Trustees of Equity Funds has determined that
the exchange of all or substantially all of the assets and certain of the
liabilities of the Acquired Fund for Acquiring Fund Shares and the assumption
of such liabilities by the Acquiring Fund is in the best interests of the
Acquired Fund shareholders and the Acquiring Fund shareholders and that
neither the interests of the existing shareholders of the Acquired Fund nor
the Acquiring Fund would be diluted as a result of this transaction.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties hereto covenant
and agree as follows:
<PAGE>32
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND ASSUMPTION OF THE ACQUIRED FUND'S STATED LIABILITIES AND
LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, the Acquired
Fund agrees to transfer the Acquired Fund's assets as set forth in paragraph
1.2 to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor:
(i) to deliver to the Acquired Fund the number of Class A Acquiring Fund
Shares, including fractional Class A Acquiring Fund Shares, determined by
dividing the value of the Acquired Fund's net assets attributable to its Class
A shares, computed in the manner and as of the time and date set forth in
paragraph 2.1, by the net asset value of one Acquiring Fund Class A Share,
computed in the manner and as of the time and date set forth in paragraph 2.2;
(ii) to deliver to the Acquired Fund the number of Class B Acquiring Fund
Shares, including fractional Class B Acquiring Fund Shares, determined by
dividing the value of the Acquired Fund's net assets attributable to its Class
B shares, computed in the manner and as of the time and date set forth in
paragraph 2.1, by the net asset value of one Acquiring Fund Class B Share,
computed in the manner and as of the time and date set forth in paragraph 2.2;
(iii) to deliver to the Acquired Fund the number of Class D Acquiring Fund
Shares, including fractional Class D Acquiring Fund Shares, determined by
dividing the value of the Acquired Funds net assets attributable to its Class
D shares, computed in the manner and as of the time and date set forth in
paragraph 2.1, by the net asset value of one Acquiring Fund Class D Share,
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (iv) to assume certain liabilities of the Acquired Fund, as set forth in
paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing").
1.2. (a) The assets of the Acquired Fund to be acquired by the
Acquiring Fund shall consist of all property, including without limitation,
all cash, securities and dividends or interest receivable which are owned by
the Acquired Fund and any deferred or prepaid expenses shown as an asset on
the books of the Acquired Fund on the closing date provided in paragraph 3.1
(the "Closing Date").
(b) The Acquired Fund has provided the Acquiring Fund with a
list of all of the Acquired Fund's assets as of the date of execution of this
Agreement. The Acquired Fund reserves the right to sell any of these
securities but will not, without the prior approval of the Acquiring Fund,
acquire any additional securities other than securities of the type in which
the Acquiring Fund is permitted to invest. The Acquiring Fund will, within a
reasonable time prior to the Closing Date, furnish the Acquired Fund with a
statement of the Acquiring Fund's investment objectives, policies and
restrictions and a list of the securities, if any, on the Acquired Fund's list
referred to in the first sentence of this paragraph which do not conform to
the Acquiring Fund's investment objectives, policies and restrictions. In the
event that the Acquired Fund holds any investments which the Acquiring Fund
may not
<PAGE>33
hold, the Acquired Fund will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the portfolios of the Acquired
Fund and the Acquiring Fund, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon the Acquiring Fund with
respect to such investments, the Acquired Fund if requested by the Acquiring
Fund will dispose of and/or reinvest a sufficient amount of such investments
as may be necessary to avoid violating such limitations as of the Closing
Date.
1.3. The Acquired Fund will endeavor to discharge all the Acquired
Fund's known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume all liabilities, expenses, costs, charges and
reserves reflected on an unaudited Statement of Assets and Liabilities of the
Acquired Fund prepared by The Boston Company Advisors, Inc. ("Boston
Advisors"), as administrator of the Acquiring Fund and the Acquired Fund, as
of the Valuation Date (as defined in paragraph 2.1), in accordance with
generally accepted accounting principles consistently applied from the prior
audited period. The Acquiring Fund shall assume only those liabilities of the
Acquired Fund reflected in that unaudited Statement of Assets and Liabilities
and shall not assume any other liabilities, whether absolute or contingent,
not reflected thereon.
1.4. As provided in paragraph 3.4, as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to the Acquired Fund's shareholders of
record determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares it receives pursuant
to paragraph 1.1. Such liquidation and distribution will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the name of the Acquired Fund's shareholders
and representing the respective pro rata number of the Acquiring Fund Shares
due such shareholders. All issued and outstanding shares of the Acquired Fund
will simultaneously be cancelled on the books of the Acquired Fund, although
share certificates representing interests in the Acquired Fund will represent
a number of Acquiring Fund Shares after the Closing Date as determined in
accordance with paragraph 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books
of the Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued
in the manner described in the Acquiring Fund's current prospectus and
statement of additional information.
1.6. Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund shares
on the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
<PAGE>34
1.7. Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the Closing
Date and such later dates on which the Acquired Fund is dissolved and
deregistered.
1.8. The Acquired Fund shall be terminated under the relevant laws
of its state of organization and in accordance with the governing documents of
Equity Funds, promptly following the Closing Date and the making of all
distributions pursuant to paragraph 1.4.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. (the "NYSE") on
the Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in Equity Funds' Master Trust
Agreement and the Acquiring Fund's then current prospectus or statement of
additional information.
2.2. The net asset value of Acquiring Fund Shares shall be the net
asset value per share computed as of the close of regular trading on the NYSE
on the Valuation Date, using the valuation procedures set forth in Equity
Funds' Master Trust Agreement and the Acquiring Fund's then current prospectus
or statement of additional information.
2.3. The number of shares of each class of the Acquiring Fund to be
issued (including fractional shares, if any) in exchange for the Acquired
Fund's net assets shall be determined by dividing the value of the net assets
of the Acquired Fund attributable to the respective class of shares determined
using the same valuation procedures referred to in paragraph 2.1 by the net
asset value per share of such class of Acquiring Fund Shares determined in
accordance with paragraph 2.2.
2.4. All computations of value shall be made by Boston Advisors in
accordance with its regular practice as pricing agent for the Acquiring Fund.
2.5 In carrying out the valuations and calculations required in
this section, Acquiring Fund Class A Shares shall be issued only to the extent
of the value of the assets of the Acquired Fund representing the pro rata
interest of Class A shares of the Acquired Fund. Acquiring Fund Class B
Shares shall be issued only to the extent of the value of the assets of the
Acquired Fund representing the pro rata interest of Class B shares of the
Acquired Fund. Acquiring Fund Class D Shares shall be issued only to the
extent of the value of the assets of the Acquired Fund representing the pro
rata interest of Class D Shares of the Acquired Fund.
<PAGE>35
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be , 1994, or such later date
as the parties may agree to in writing. All acts taking place at the Closing
shall be deemed to take place simultaneously as of the close of business on
the Closing Date unless otherwise provided. The Closing shall be held as of
5:00 p.m. at the offices of Boston Advisors, One Boston Place, Boston,
Massachusetts 02108, or at such other time and/or place as the parties may
agree.
3.2. Boston Safe Deposit and Trust Company, as custodian for the
Acquiring Fund (the "Custodian"), shall deliver at the Closing a certificate
of an authorized officer stating that: (a) the Acquired Fund's portfolio
securities, cash and any other assets shall have been delivered in proper form
to the Acquiring Fund within two business days prior to or on the Closing Date
and (b) all necessary transfer taxes including all applicable federal and
state stock transfer stamps, if any, shall have been paid, or provision for
payment shall have been made, in conjunction with the delivery of portfolio
securities.
3.3. In the event that on the Valuation Date (a) the NYSE or
another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that accurate appraisal of the value of the net assets
of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.4. The Acquired Fund shall deliver at the Closing a list of the
names and addresses of the Acquired Fund's shareholders and the number, class
and percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing, certified on behalf of the Acquired Fund by
its President. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to the
Secretary of the Acquired Fund, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1. Equity Funds and the Acquired Fund represent and warrant to
the Acquiring Fund as follows:
<PAGE>36
(a) The Acquired Fund is a series of Equity Funds which is a
Massachusetts business trust, duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts;
(b) Equity Funds is a registered investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act") is in
full force and effect;
(c) Equity Funds is not, and the execution, delivery and
performance of this Agreement in respect of the Acquired Fund will not result,
in a material violation of its Master Trust Agreement or By-laws or of any
agreement, indenture, instrument, contract, lease or other undertaking with
respect to the Acquired Fund to which Equity Funds is a party or by which it
is bound;
(d) Equity Funds has no material contracts or other commitments
(other than this Agreement) with respect to the Acquired Fund which will be
terminated with liability to it prior to the Closing Date;
(e) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or to its
knowledge threatened against Equity Funds with respect to the Acquired Fund or
any of the Acquired Fund's properties or assets (other than that previously
disclosed to the other party to the Agreement) which, if adversely determined,
would materially and adversely affect its financial condition or the conduct
of its business. Equity Funds and the Acquired Fund know of no facts which
might form the basis for the institution of such proceedings and neither
Equity Funds nor the Acquired Fund is a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The Statements of Assets and Liabilities of the Acquired Fund
for the fiscal period from August 28, 1987 (commencement of operations)
through January 31, 1988 and for the fiscal years ended January 31, 1989
through January 31, 1994 have been audited by Coopers & Lybrand, certified
public accountants, and are in accordance with generally accepted accounting
principles consistently applied, and such statements (copies of which have
been furnished to the Acquiring Fund) fairly reflect the financial condition
of the Acquired Fund as of such dates, and there are no known contingent
liabilities of the Acquired Fund as of such dates not disclosed therein;
(g) Since January 31, 1994, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of
<PAGE>37
indebtedness maturing more than one year from the date that such indebtedness
was incurred, except as otherwise disclosed to and accepted by the Acquiring
Fund. For the purposes of this subparagraph (g), a decline in net asset value
per share of the Acquired Fund shall not constitute a material adverse change;
(h) At the Closing Date, all material federal and other tax returns
and reports of the Acquired Fund required by law then to have been filed by
such dates shall have been filed, and all federal and other taxes shown as due
on such returns shall have been paid so far as due, or provision shall have
been made for the payment thereof and, to the best of the Acquired Fund's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to such returns;
(i) For the most recent fiscal year of its operation, the Acquired
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company;
(j) All issued and outstanding shares of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable. All of the issued and outstanding shares of the
Acquired Fund will, at the time of Closing, be held by the persons and in the
amounts set forth in the records of the transfer agent as provided in
paragraph 3.4. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquired
Fund's shares, nor is there outstanding any security convertible into any of
the Acquired Fund's shares;
(k) At the Closing Date, Equity Funds in respect of the Acquired
Fund will have good and marketable title to assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power and authority
to sell, assign, transfer and deliver such assets hereunder and, upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto, subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the Securities Act
of 1933, as amended (the "1933 Act"), other than as disclosed to the Acquiring
Fund;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action on
the part of Equity Funds' Board of Trustees, and subject to the approval of
the Acquired Fund's shareholders, this Agreement will constitute a valid and
binding obligation of Equity Funds in respect of the Acquired Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights and to general equity principles;
(m) The information to be furnished by the Acquired Fund for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions
<PAGE>38
contemplated hereby shall be accurate and complete in all material respects
and shall comply in all material respects with federal securities and other
laws and regulations thereunder applicable thereto; and
(n) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.7 (other than information therein that relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading.
4.2. Equity Funds and the Acquiring Fund represent and warrant to
the Acquired Fund as follows:
(a) The Acquiring Fund is a series of Equity Funds which is a
business trust, duly organized, validly existing and in good standing under
the laws of The Commonwealth of Massachusetts;
(b) Equity Funds is a registered investment company classified as a
management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;
(c) The current prospectus of the Acquiring Fund and statement of
additional information of Equity Funds conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(d) At the Closing Date, Equity Funds will have good and marketable
title to the Acquiring Fund's assets;
(e) Equity Funds is not, and the execution, delivery and
performance of this Agreement on behalf of the Acquiring Fund will not result,
in a material violation of its Master Trust Agreement or By-laws or of any
agreement, indenture, instrument, contract, lease or other undertaking with
respect to the Acquiring Fund to which Equity Funds is a party or by which it
is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or threatened against Equity Funds with respect to the Acquiring Fund or any
of the Acquiring Fund's properties or assets, except as previously disclosed
in writing to the Acquired Fund. Equity Funds and the
<PAGE>39
Acquiring Fund know of no facts which might form the basis for the institution
of such proceedings and neither Equity Funds nor the Acquiring Fund is a party
to or subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects the Acquiring
Fund's business or Equity Funds' ability on behalf of the Acquiring Fund to
consummate the transactions contemplated herein;
(g) The Statement of Assets and Liabilities of the Acquiring Fund
for the fiscal period from February 2, 1987 (commencement of operations)
through January 31, 1988 and for the fiscal years ended January 31, 1989
through January 31, 1994 have been audited by Coopers & Lybrand, certified
public accountants, and are in accordance with generally accepted accounting
principles consistently applied, and such statements (copies of which have
been furnished to the Acquired Fund) fairly reflect the financial condition of
the Acquiring Fund as of such dates, and there are no known contingent
liabilities of the Acquiring Fund as of such dates not disclosed therein;
(h) Since January 31, 1994, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date that such indebtedness was incurred. For the purposes of
this subparagraph (h), a decline in net asset value per share of the Acquiring
Fund shall not constitute a material adverse change;
(i) At the Closing Date, all material federal and other tax returns
and reports of the Acquiring Fund required by law then to have been filed by
such dates shall have been filed, and all federal and other taxes shown as due
on said returns shall have been paid so far as due, or provision shall have
been made for the payment thereof and, to the best of the Acquiring Fund's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to such returns;
(j) For the most recent fiscal year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company and the Acquiring Fund intends
to do so in the future;
(k) At the date hereof, all issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly issued
and outstanding, fully paid and non-assessable, with no personal liability
attaching to the ownership thereof. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any shares of the Acquiring Fund, nor is there outstanding any security
convertible into any shares of the Acquiring Fund;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action,
if any, on the part of Equity Funds' Board of Trustees and the Acquiring
Fund's shareholders, and this Agreement
<PAGE>40
will constitute a valid and binding obligation of Equity Funds on behalf of
the Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(m) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund's Shareholders, pursuant
to the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable with no
personal liability attaching to the ownership thereof;
(n) The information to be furnished by the Acquiring Fund for use
in no-action letters, applications for exemptive orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
(o) The Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund and Equity Funds)
will, on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not materially misleading; and
(p) Equity Funds, on behalf of the Acquiring Fund, agrees to use
all reasonable efforts to obtain the approvals and authorizations required by
the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws
as it may deem appropriate in order to continue the Acquiring Fund's
operations after the Closing Date.
5. COVENANTS OF THE ACQUIRED FUND, THE ACQUIRING FUND AND EQUITY FUNDS
5.1. Equity Funds on behalf of the Acquiring Fund and the Acquired
Fund will operate each of the Acquiring Fund's and the Acquired Fund's
business in the ordinary course between the date hereof and the Closing Date
and understands that such ordinary course of business will include the
declaration and payment of customary dividends and distributions and any other
dividends and distributions deemed advisable.
5.2. The Acquired Fund will call a meeting of its shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
<PAGE>41
5.3. The Acquired Fund covenants that the Acquiring Fund Shares to
be issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this
Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining
such information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.
5.5. Subject to the provisions of this Agreement, Equity Funds on
behalf of each of the Acquiring Fund and the Acquired Fund, will take, or
cause to be taken, all action, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6. As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in
such form as is reasonably satisfactory to the Acquiring Fund, a statement of
the earnings and profits of the Acquired Fund for federal income tax purposes
which will be carried over to the Acquiring Fund as a result of Section 381 of
the Code, and which will be certified by the President and Treasurer of Equity
Funds.
5.7. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will include the Proxy Statement, referred to in paragraph
4.1(n), all to be included in a Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933
Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act in
connection with the meeting of the Acquired Fund's shareholders to consider
approval of this Agreement and the transactions contemplated herein.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF EQUITY FUNDS IN RESPECT OF THE
ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Equity Funds and the Acquiring Fund of all of the obligations to be performed
by them hereunder on or before the Closing Date and, in addition thereto, the
following further conditions:
6.1. All representations and warranties of Equity Funds and the
Acquiring Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date;
<PAGE>42
6.2. Equity Funds on behalf of the Acquiring Fund shall have
delivered to the Acquired Fund a certificate executed in its name by its
President or Vice President and its Treasurer or Assistant Treasurer, in a
form reasonably satisfactory to the Acquired Fund and dated as of the Closing
Date, to the effect that the representations and warranties of Equity Funds
and the Acquiring Fund made in this Agreement are true and correct at and as
of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement and as to such other matters as the Acquired
Fund shall reasonably request; and
6.3. The Acquired Fund shall have received on the Closing Date a
favorable opinion from Willkie Farr & Gallagher, counsel to the Acquiring
Fund, dated as of the Closing Date, in a form reasonably satisfactory to
Francis J. McNamara III Esq., General Counsel of Boston Advisors, as
administrator to the Acquired Fund, covering the following points:
That (a) the Acquiring Fund is a series of Equity Funds which is a
business trust duly organized, validly existing and in good standing
under the laws of The Commonwealth of Massachusetts and has the
power, under its Master Trust Agreement, to own all of its
properties and assets and to carry on its business as presently
conducted; (b) the Agreement has been duly authorized, executed and
delivered by Equity Funds on behalf of the Acquiring Fund and,
assuming that the Prospectus, Registration Statement and Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act
and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of the Agreement by Equity
Funds on behalf of the Acquired Fund, is a valid and binding
obligation of Equity Funds on behalf of the Acquiring Fund
enforceable against Equity Funds in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles; (c)
the Acquiring Fund Shares to be issued to the Acquired Fund's
shareholders as provided by this Agreement are duly authorized and
upon such delivery will be validly issued and outstanding and are
fully paid and non-assessable with no personal liability attaching
to ownership thereof, and no shareholder of the Acquiring Fund has
any preemptive rights to subscription or purchase in respect
thereof; (d) the execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will
not, result in a material violation of Equity Funds' Master Trust
Agreement or By-laws or any provision of any agreement (known to
such counsel) to which Equity Funds is a party with respect to the
Acquiring Fund or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree
to which Equity Funds is a party with respect to the Acquiring Fund
or by which it is bound; (e) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or
governmental authority of the
<PAGE>43
United States, the State of New York or The Commonwealth of Massachusetts is
required for the consummation by Equity Funds on behalf of the Acquiring Fund
of the transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act and the 1940 Act, and such as may be required
under state securities law; (f) only insofar as they relate to Equity Funds
and the Acquiring Fund, the descriptions in the Proxy Statement of statutes,
legal and governmental proceedings and contracts and other documents, if any,
are accurate and fairly present the information required to be shown; (g) such
counsel does not know of any legal or governmental proceedings, only insofar
as they relate to the Acquiring Fund, existing on or before the effective date
of the Registration Statement or the Closing Date required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement which are not described as required; (h) Equity Funds is registered
as an investment company under the 1940 Act and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; and (i) to the best knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to Equity Funds with
respect to the Acquiring Fund or any of the properties or assets of the
Acquiring Fund and Equity Funds is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body, which
materially and adversely affects the business of the Acquiring Fund, other
than as previously disclosed in the Registration Statement. In addition, such
counsel also shall state that they have participated in conferences with
officers and other representatives of Equity Funds at which the contents of
the Proxy Statement and related matters were discussed and, although they are
not passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Proxy Statement
(except to the extent indicated in paragraph (f) of their above opinion), on
the basis of the foregoing (relying as to materiality to a large extent upon
the opinions of officers and other representatives of Equity Funds), no facts
have come to their attention that lead them to believe that the Proxy
Statement as of its date, as of the date of the Acquired Fund shareholders'
meeting, and as of the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein regarding Equity Funds or the Acquiring Fund or necessary to make the
statements therein regarding Equity Funds or the Acquiring Fund, in the light
of the circumstances under which they were made, not misleading. Such opinion
may state that such counsel does not express any opinion or belief as to the
financial statements or other financial data or as to the information relating
to the Acquired Fund contained in the Proxy Statement or Registration
Statement, and that such opinion is solely for the benefit of Equity Funds,
its trustees and its officers. Such counsel may rely, as to matters
<PAGE>44
governed by the laws of The Commonwealth of Massachusetts, on an opinion of
Massachusetts counsel. Such opinion also shall include such other matters
incident to the transaction contemplated hereby as Equity Funds on behalf of
the Acquired Fund may reasonably request. Finally, such opinion need not
opine with respect to the applicability of Section 17(a) under the 1940 Act
and Rule 17a-8 thereunder.
In this paragraph 6.3, references to the Proxy Statement include and
relate only to the text of such Proxy Statement and not to any exhibits or
attachments thereto or to any documents incorporated by reference therein.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF EQUITY FUNDS IN RESPECT OF THE
ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by
Equity Funds on behalf of the Acquired Fund of all the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following conditions:
7.1. All representations and warranties of Equity Funds and the
Acquired Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date;
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, together with a list
of the Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer or Assistant Treasurer of Equity
Funds;
7.3. Equity Funds shall have delivered on behalf of the Acquired
Fund to the Acquiring Fund on the Closing Date a certificate executed in its
name by its President or Vice President and its Treasurer or Assistant
Treasurer, in form and substance satisfactory to the Acquiring Fund and dated
as of the Closing Date, to the effect that the representations and warranties
of Equity Funds and the Acquired Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as
the Acquiring Fund shall reasonably request; and
7.4. The Acquiring Fund shall have received on the Closing Date a
favorable opinion of Willkie Farr & Gallagher, counsel to the Acquired Fund,
in a form satisfactory to
<PAGE>45
Francis J. McNamara III Esq., General Counsel of Boston Advisors, as
administrator to the Acquiring Fund, covering the following points:
That (a) the Acquired Fund is a series of Equity Funds which is a
business trust duly organized, validly existing and in good standing
under the laws of The Commonwealth of Massachusetts and has the power,
under its Master Trust Agreement, to own all of its properties and assets
and to carry on its business as presently conducted; (b) the Agreement
has been duly authorized, executed and delivered by Equity Funds on
behalf of the Acquired Fund and, assuming that the Prospectus, the
Registration Statement and the Proxy Statement comply with the 1933 Act,
the 1934 Act and the 1940 Act and the rules and regulations thereunder
and, assuming due authorization, execution and delivery of the Agreement
by Equity Funds on behalf of the Acquired Fund, is a valid and binding
obligation of the Acquired Fund enforceable against Equity Funds in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles;
(c) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in
a material violation of Equity Funds' Master Trust Agreement or By-laws
or any provision of any agreement (known to such counsel) to which Equity
Funds is a party with respect to the Acquired Fund or by which it is
bound or, to the knowledge of such counsel, result in the acceleration of
any obligation or the imposition of any penalty, under any agreement,
judgment or decree to which Equity Funds is a party or by which it is
bound; (d) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the
United States, the State of New York or The Commonwealth of Massachusetts
is required for the consummation by Equity Funds of the transactions
contemplated herein on behalf of the Acquired Fund, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such
as may be required under state securities laws; (e) only insofar as they
relate to Equity Funds and the Acquired Fund, the descriptions in the
Proxy Statement of statutes, legal and governmental proceedings and
contracts and other documents, if any, are accurate and fairly present
the information required to be shown; (f) such counsel does not know of
any legal or governmental proceedings, only insofar as they relate to the
Acquired Fund existing on or before the effective date of the
Registration Statement or the Closing Date, required to be described in
the Proxy Statement or to be filed as exhibits to the Registration
Statement which are not described and filed as required; (g) Equity Funds
is registered as an investment company under the 1940 Act and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect; and (h) to the best knowledge of such
counsel, no litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or
threatened as to Equity Funds with respect to the Acquired Fund or any of
the properties or assets of the Acquired Fund and Equity Funds is not a
party to nor subject to the provisions of any order, decree or
<PAGE>46
judgment of any court or governmental body, which materially and adversely
affects the business of the Acquired Fund other than as previously disclosed
in the Proxy Statement. Such counsel also shall state that they have
participated in conferences with officers and other representatives of the
Equity Funds at which the contents of the Proxy Statement and related matters
were discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Proxy Statement (except to the extent indicated in paragraph
(e) of their above opinion), on the basis of the foregoing (relying as to
materiality to a large extent upon the opinions of officers and other
representatives of Equity Funds), no facts have come to their attention that
lead them to believe that the Proxy Statement as of its date, as of the date
of the Acquired Fund shareholders' meeting, and as of the Closing Date,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein regarding Equity Funds or the
Acquired Fund or necessary in the light of the circumstances under which they
were made, to make the statements therein not misleading. Such opinion may
state that such counsel does not express any opinion or belief as to the
financial statements or other financial data, or as to the information
relating to the Acquiring Fund, contained in the Proxy Statement or
Registration Statement, and that such opinion is solely for the benefit of
Equity Funds, its trustees and its officers. Such counsel may rely, as to
matters governed by the laws of the Commonwealth of Massachusetts, on an
opinion of Massachusetts counsel. Such opinion also shall include such other
matters incident to the transaction contemplated hereby as Equity Funds on the
behalf of the Acquiring Fund may reasonably request. Finally, the opinion
need not opine upon any issues arising from the applicability of Section 17(a)
under the 1940 Act and Rule 17a-8 thereunder.
In this paragraph 7.4, references to the Proxy Statement include and
relate to only the text of such Proxy Statement and not to any exhibits or
attachments thereto or to any documents incorporated by reference therein.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND, THE
ACQUIRING FUND AND EQUITY FUNDS
If any of the conditions set forth below do not exist on or before
the Closing Date with respect to Equity Funds on behalf of either the
Acquiring Fund or the Acquired Fund, the other party to this Agreement shall,
at its option, not be required to consummate the transactions contemplated by
this Agreement:
8.1. The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of Equity Funds'
Master Trust Agreement and By-laws and certified copies of the votes
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, Equity Funds may not,
<PAGE>47
either on behalf of the Acquiring Fund or the Acquired Fund, waive the
conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders
and permits of federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no-action" positions of and exemptive orders from such federal and
state authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the assets or properties of the Acquiring Fund or the
Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;
8.4. The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act;
8.5. Equity Funds on behalf of each of the Acquiring Fund and the
Acquired Fund, shall have declared and paid a dividend or dividends on the
outstanding shares of the Acquiring Fund and the Acquired Fund, respectively,
which, together with all previous such dividends, shall have the effect of
distributing to the shareholders of the Acquiring Fund and the Acquired Fund
all of the investment company taxable income of the Acquiring Fund and the
Acquired Fund for all taxable years ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid) and all of each
fund's net capital gain realized in all taxable years ending on or prior to
the Closing Date (after reduction for any capital loss carry forward);
8.6. The parties shall have received a favorable opinion of Willkie
Farr & Gallagher, addressed to Equity Funds in respect of the Acquiring Fund
and the Acquired Fund and satisfactory to Francis J. McNamara III, Esq.,
General Counsel of Boston Advisors, as administrator of the Acquiring Fund and
the Acquired Fund, substantially to the effect that for federal income tax
purposes:
(a) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund Shares and the assumption by
the Acquiring Fund of certain identified liabilities of the Acquired Fund
will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code, and the Acquiring Fund and
<PAGE>48
the Acquired Fund are each a "party to a reorganization" within the meaning of
Section 368(b) of the Code; (b) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain identified liabilities of the Acquired Fund; (c) no gain or loss will
be recognized by the Acquired Fund upon the transfer of the Acquired Fund's
assets to the Acquiring Fund in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of certain identified liabilities of the
Acquired Fund or upon the distribution (whether actual or constructive) of the
Acquiring Fund Shares to the Acquired Fund's shareholders; (d) no gain or loss
will be recognized by shareholders of the Acquired Fund upon the exchange of
their Acquired Fund shares for the Acquiring Fund Shares and the assumption by
the Acquiring Fund of certain identified liabilities of the Acquired Fund; (e)
the aggregate tax basis for the Acquiring Fund Shares received by each of the
Acquired Fund's shareholders pursuant to the Reorganization will be the same
as the aggregate tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Acquired Fund shareholder
will include the period during which the Acquired Fund shares exchanged
therefor were held by such shareholder (provided that the Acquired Fund shares
were held as capital assets on the date of the Reorganization); and (f) the
tax basis of the Acquired Fund's assets acquired by the Acquiring Fund will be
the same as the tax basis of such assets to the Acquired Fund immediately
prior to the Reorganization, and the holding period of the assets of the
Acquired Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, Equity Funds may
not, on behalf of either the Acquiring Fund or the Acquired Fund, waive the
conditions set forth in this paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1. Equity Funds hereby represents and warrants that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2. (a) Except as may be otherwise provided herein, the Acquiring
Fund and the Acquired Fund shall each be liable for its expenses incurred in
connection with entering into and carrying out the provisions of this
Agreement, whether or not the transactions contemplated hereby are
consummated. The expenses payable by the Acquired Fund hereunder shall
include the expenses of: (i) its counsel and independent accountants
associated with the Reorganization; (ii) printing and mailing the
Prospectus/Proxy Statement and soliciting proxies in connection with the
meeting of shareholders of the Acquired Fund referred to in paragraph 5.2
hereof; (iii) all fees and expenses related to the liquidation and
<PAGE>49
termination of the Acquired Fund; (iv) fees and expenses of the Acquired
Fund's custodian and transfer agent incurred in connection with the
Reorganization; and (v) any special pricing fees associated with the valuation
of the Acquired Fund's portfolio on the Closing Date. The expenses payable on
behalf of the Acquiring Fund hereunder shall include: (i) fees and expenses of
its counsel and independent accountants associated with the Reorganization;
(ii) expenses associated with preparing this Agreement and preparing and
filing the Registration Statement under the 1933 Act covering the Acquiring
Fund Shares to be issued in the Reorganization; (iii) registration or
qualification fees and expenses of preparing and filing such forms, if any,
necessary under applicable state securities laws to qualify the Acquiring Fund
Shares to be issued in connection with the Reorganization; (iv) any fees and
expenses of the Acquiring Fund's custodian and transfer agent incurred in
connection with the Reorganization; and (v) any special pricing fees
associated with the valuation of the Acquiring Fund's portfolio on the Closing
Date.
(b) Consistent with the provisions of paragraph 1.3, the Acquired
Fund, prior to the Closing, shall pay for or include in the unaudited
Statement of Assets and Liabilities prepared pursuant to paragraph 1.3 all of
its known and reasonably estimated expenses associated with the transactions
contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the
Closing Date by: (1) the mutual agreement of the Acquired Fund and the
Acquiring Fund; (2) the Acquired Fund in the event the Acquiring Fund or
Equity Funds in respect of the Acquiring Fund shall, or the Acquiring Fund in
the event the Acquired Fund or Equity Funds in respect of the Acquired Fund
shall, materially breach any representation, warranty or agreement contained
herein to be performed at or prior to the Closing Date; or (3) a condition
herein expressed to be precedent to the obligations of the terminating party
has not been met and it reasonably appears that it will not or cannot be met.
11.2. In the event of any such termination, there shall be no
liability for damages on the part of either the Acquired Fund or the Acquiring
Fund to the other party,
<PAGE>50
but each shall bear the expenses incurred by it incidental to the preparation
and carrying out of this Agreement as provided in paragraph 9.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the parties hereto;
provided, however, that following the meeting of the Acquired Fund
shareholders called by the Acquired Fund pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions
for determining the number of the Acquiring Fund Shares to be issued to the
Acquired Fund's shareholders under this Agreement to the detriment of such
shareholders without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Acquired Fund, Two
World Trade Center, 100th Floor, New York, New York 10048, Attention: Heath
B. McLendon; or to the Acquiring Fund, Two World Trade Center, 100th Floor,
New York, New York 10048, Attention: Heath B. McLendon.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1. The article and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14.4. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm, corporation or other entity, other than the parties hereto
and their respective successors and assigns, any rights or remedies under or
by reason of this Agreement.
<PAGE>51
14.5. It is expressly agreed that the obligations of Equity Funds
hereunder shall not be binding upon any of the trustees, shareholders,
nominees, officers, agents or employees of Equity Funds personally, but bind
only the trust property of the Acquiring Fund or the Acquired Fund as provided
in the Master Trust Agreement of Equity Funds. The execution and delivery of
this Agreement have been authorized by the trustees of Equity Funds and this
Agreement has been executed by authorized officers of Equity Funds on behalf
of the Acquiring Fund and the Acquired Fund, acting as such, and neither such
authorization by such trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Acquiring Fund or the Acquired Fund as provided in the Master
Trust Agreement of Equity Funds.
<PAGE>52
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its Chairman of the Board, President or Vice
President and its seal to be affixed thereto and attested by its Secretary or
Assistant Secretary.
Attest: SMITH BARNEY SHEARSON EQUITY FUNDS
on behalf of SMITH BARNEY SHEARSON
SECTOR ANALYSIS FUND
By:
Name: Name:
Title: Title:
Attest: SMITH BARNEY SHEARSON EQUITY FUNDS,
on behalf of SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
By:
Name: Name:
Title: Title:
<PAGE>
PROSPECTUS OF
SMITH BARNEY SHEARSON
STRATEGIC INVESTORS FUND
DATED APRIL 1, 1994
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
April 1, 1994
SMITH BARNEY SHEARSON
Strategic
Investors
Fund
Prospectus begins
on page one.
<PAGE>
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
.
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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FINANCIAL HIGHLIGHTS 9
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VARIABLE PRICING SYSTEM 12
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THE FUND'S PERFORMANCE 13
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MANAGEMENT OF THE TRUST AND THE FUND 15
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 16
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PURCHASE OF SHARES 25
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REDEMPTION OF SHARES 32
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VALUATION OF SHARES 35
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EXCHANGE PRIVILEGE 37
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DISTRIBUTOR 43
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DIVIDENDS, DISTRIBUTIONS AND TAXES 44
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ADDITIONAL INFORMATION 46
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</TABLE>
.
2
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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."
.
<TABLE>
.
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:
.
.
<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 .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
- -----------------------------------------------------------------------------------------
.
<FN>
* 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.
</TABLE>
6
<PAGE>
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------
.
<FN>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
** Assumes deduction at the time of purchase of the maximum 5% sales charge.
*** Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
</TABLE>
8
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
<TABLE>
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:
<CAPTION>
YEAR PERIOD
ENDED ENDED
1/31/94+ 1/31/93*
<S> <C> <C>
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.
.
</TABLE>
9
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
.
<CAPTION>
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*
<S> <C> <C> <C> <C> <C> <C> <C>
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%
- -----------------------------------------------------------------------------------------------------
<FN>
* 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.
.
</TABLE>
10
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE PERIOD:
.
<CAPTION>
PERIOD
ENDED
1/31/94*+
<S> <C>
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%
- -------------------------------------------------------------------------------------
<FN>
* 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.
.
</TABLE>
11
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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.
<TABLE>
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:
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Less than $25,000 5.00% 5.26%
$25,000 but under $100,000 4.00% 4.17%
$100,000 but under $250,000 3.25% 3.36%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 2.00% 2.04%
$1,000,000 or more** .00% .00%
- -------------------------------------------------------------------------------------
<FN>
* Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and Introducing Brokers that single investments of $250,000 or
more should be made in Class A shares.
** No sales charge is imposed on purchases of Class A shares of $1 million or
more; however, a CDSC of .75% is imposed for the first year after purchase.
The CDSC on Class A shares is payable to Smith Barney Shearson which, with
Boston Advisors, 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."
</TABLE>
26
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
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
<PAGE>
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
<PAGE>
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.
<TABLE>
Class A Shares. The sales charges for Class A shares acquired by
Participating Plans are as follows:
<CAPTION>
SALES CHARGE AS %
SALES CHARGE AS % OF NET ASSET
AMOUNT OF INVESTMENT OF OFFERING PRICE 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 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<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>
34
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
- -----------------------------------------------------------------------
Municipal Bond Funds
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND,
an intermediate-term municipal bond fund investing in
investment-grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate-and long-term municipal bond fund investing
in medium-and lower-rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed
for Arizona investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.
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.
</TABLE>
37
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
.
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
- -----------------------------------------------------------------------
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.
</TABLE>
.
38
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
- -----------------------------------------------------------------------
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.
</TABLE>
39
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
.
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
- -----------------------------------------------------------------------
A, B SMITH BARNEY SHEARSON 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.
</TABLE>
.
40
<PAGE>
SMITH BARNEY SHEARSON
Strategic Investors Fund
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
.
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- -----------------------------------------------------------------------
<S> <C>
+ SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND, invests in short-term, high quality California
municipal obligations.
+ SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET
FUND, invests in short-term, high quality New York
municipal obligations.
.
- ---------------
<FN>
* 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.
</TABLE>
Tax Effect. The exchange of shares of one fund for shares of another fund is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize a
taxable gain or loss in connection with an exchange.
Class A Exchanges. Class A shareholders of the 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SMITH BARNEY SHEARSON
Strategic
Investors
Fund
Two World Trade Center
New York, New York 10048
Fund 38,233,246
FD0225 C4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED _________ , 1994
Acquisition Of The Assets Of
SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND
a separate investment series of
Smith Barney Shearson Equity Funds
Two World Trade Center
New York, New York 10048
(212) 720-9218
By And In Exchange For Class A, Class B and Class D Shares Of
SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND
a separate investment series of
Smith Barney Shearson Equity Funds
Two World Trade Center
New York, New York 10048
(212) 720-9218
This Statement of Additional Information, relating specifically to
the proposed transfer of all or substantially all of the assets of Smith
Barney Shearson Sector Analysis Fund (the "Acquired Fund"), to Smith Barney
Shearson Strategic Investors Fund (the "Acquiring Fund"), each a series of
Smith Barney Shearson Equity Funds ("Equity Funds"), in exchange for Class A,
Class B and Class D shares of the Acquiring Fund and the assumption by the
Acquiring Fund of certain liabilities of the Acquired Fund consists of this
cover page and the following described documents, each of which accompanies
this Statement of Additional Information (except as noted below) and is
incorporated herein by reference.
1. Statement of Additional Information of Equity Funds dated April 1,
1994.
2. Annual Report of the Acquiring Fund for the fiscal year ended
January 31, 1994.
3. Annual Report of the Acquired Fund for the fiscal year ended January
31, 1994.
4. Pro Forma Financial Statements.
<PAGE>
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated _________ , 1994, relating to the above
referenced matter may be obtained without charge by calling or writing either
the Acquiring Fund or the Acquired Fund at the telephone numbers or addresses
set forth above or by contacting any Smith Barney Shearson Financial
Consultant or by calling toll-free 1-800- . This Statement of
Additional Information should be read in conjunction with the Prospectus/Proxy
Statement dated __________, 1994.
The date of this Statement of Additional Information is __________,
1994.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OF
SMITH BARNEY SHEARSON
EQUITY FUNDS
DATED APRIL 1, 1994
<PAGE>
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:
.
<TABLE>
<S> <C>
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
</TABLE>
.
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,
<PAGE>
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 of The Boston
Company Advisors, Inc. ("Boston Advisors"), Senior Vice President of Boston Safe
Deposit and Trust Company ("Boston Safe"), The Boston Company
.
2
<PAGE>
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 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 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. Vice President of Boston
Advisors; Vice President of The Boston Company of Southern California; Vice
President of The Boston Company Asset Management, Inc. His address is 300 S.
Grand, Los Angeles, California 90071.
.
.
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.
.
3
<PAGE>
.
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 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.
4
<PAGE>
.
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
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:
.
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
FISCAL YEAR ENDED
JANUARY 31,
----------------------
1994 1993
-------- --------
<S> <C> <C>
Investment Advisory fees...................................................... $264,363 $ 25,070
Administration fees........................................................... 117,495 11,142
</TABLE>
.
.
<TABLE>
<CAPTION>
STRATEGIC INVESTORS FUND SECTOR ANALYSIS FUND
FISCAL YEAR ENDED JANUARY 31, FISCAL YEAR ENDED JANUARY 31,
---------------------------------------- -----------------------------------
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
.
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
5
<PAGE>
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 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.
6
<PAGE>
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 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
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listed on national securities exchanges and will not purchase put or write call
options traded over the counter.
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
8
<PAGE>
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, have at times rendered certain of the
facilities of the Clearing Corporation and the 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
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<PAGE>
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 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
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<PAGE>
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 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,
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<PAGE>
may partially or completely offset losses on the futures contract. As described
above, however, no assurance 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.
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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.
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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
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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.
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<PAGE>
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
<PAGE>
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
<PAGE>
For the fiscal years ended January 31, 1994 and 1993, the portfolio
turnover rates of the Funds were as follows:
.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Strategic Investors Fund 131 % 93 %
Sector Analysis Fund 145 % 155 %
Growth and Income Fund 79 % 1 %
</TABLE>
.
.
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
<PAGE>
The following table sets forth certain information regarding each Fund's
payment of brokerage commissions:
.
<TABLE>
<CAPTION>
FISCAL YEAR STRATEGIC SECTOR
ENDED INVESTORS ANALYSIS GROWTH AND
JANUARY 31 FUND FUND INCOME FUND
------------ --------- -------- -----------
<S> <C> <C> <C> <C>
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%
</TABLE>
.
- ---------------
* 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
<PAGE>
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
<PAGE>
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
<PAGE>
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. For the fiscal
year ended January 31, 1994, Smith Barney Shearson received $2,015,
respectively, under the Plan from Class D shares. For the
.
22
<PAGE>
.
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
<PAGE>
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
<PAGE>
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:
.
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
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:
.
.
<TABLE>
<CAPTION>
PER ANNUM
FROM COMMENCEMENT OF
ONE YEAR PERIOD OPERATIONS* THROUGH
NAME OF FUND ENDED 1/31/94 1/31/94
- ------------------------------------------------------ --------------- ---------------------
<S> <C> <C>
Strategic Investors................................... 11.91% 14.95%
Sector Analysis....................................... 3.64 8.08
Growth and Income..................................... 5.16 4.88
</TABLE>
.
- -------------
.
*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
<PAGE>
.
The average annual total returns of the Funds' Class B shares were as
follows for the periods indicated:
.
.
<TABLE>
<CAPTION>
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
- ------------------------------------------ ---------------- ---------- ---------------------
<S> <C> <C> <C>
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
</TABLE>
.
- -------------
.
(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:
.
<TABLE>
<S> <C> <C>
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.
</TABLE>
.
The aggregate total returns for the Funds' Class A shares were as follows
for the periods indicated:
.
.
<TABLE>
<CAPTION>
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***
- ------------------------------------------ ------------------- ------------ -------------------
<S> <C> <C> <C> <C>
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
</TABLE>
.
- ---------------
.
* 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
<PAGE>
The aggregate total returns for the Funds' Class B shares were as follows
for the periods indicated:
.
<TABLE>
<CAPTION>
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**
- ---------------------------------- --------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
.
- ---------------
* 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
ANNUAL REPORT
OF
SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
<PAGE>
1994 ANNUAL REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a personal computer with pie charts of
stocks/bonds/cash. Also shown are a few booklets containing financial
statements pertaining to the charts.
Smith Barney Shearson
STRATEGIC
INVESTORS
FUND
..............................
JANUARY 31, 1994
SMITH BARNEY SHEARSON
<PAGE>
STRATEGIC INVESTORS FUND
DEAR SHAREHOLDER:
Strategic Investors Fund is a "balanced" fund using a combination of stocks,
bonds, and cash instruments. Its investment objective is to deliver a total
return consisting of capital appreciation and income from dividends and
interest.
Strategic Investors earned an average annual total return (without the
deduction of applicable sales charges) of 17.80% for Class A shareholders and
16.88% for Class B shareholders for the fiscal year ended January 31, 1994.
Since the commencement of operations of the Fund in 1987, the Class B shares
have earned an average annual total return (without the deduction of applicable
sales charges) of 11.05%. For comparison, the S&P 500 returned 11.96% since
1987, the Lehman Government/Corporate Bond Index earned 10.3% and the Lehman
Brothers Government/Corporate Long-Term Bond Index earned 15.8%.
At fiscal year-end, Smith Barney Shearson's asset allocation model
called for 55% equities, 30% bonds and 15% cash reserves. This mix of assets
reflects in part the high valuation level of the stock market. Even though the
U.S. is in the midst of an economic recovery and corporate earnings are moving
up, stock prices are high relative to earnings, dividend yields, and book value.
The bond weighting of 30% attests to the continued favorable inflation outlook
in the U.S. While interest rates may rise with the improving economy, low
inflation should prevent interest rates from rising as much as in previous,
stronger recoveries.
Within the stock portion of the portfolio, the outperformance of the Strategic
Investors Fund relative to benchmark S&P 500 Index was driven by stock selection
strength in the areas of financial services, health care, consumer services, and
capital goods. A greater than market sector weighting in consumer durables and
an underweighting in consumer non-durables were also responsible for the Fund's
outperformance.
In the bond portion of the portfolio, an overweighting in the corporate sector
and an underweighting in mortgage-backed securities were partially responsible
for the Fund's strong showing relative to the Lehman Brothers
Government/Corporate Bond Index (one of the fund's benchmark indices). In
general, the yield spread between corporate bonds and U.S. Treasuries narrowed
during the year, while the spread between mortgage-backed securities and U.S.
Treasuries widened. The duration of the Fund's bond portfolio, at 7.7 years, was
longer than the 5.3 years of the Lehman Brothers Government/Corporate Bond
Index, but not as aggressive as the 9.3 years of the second benchmark index for
the Fund, the Lehman Brothers Government/Corporate Long-Term Bond Index. This
1
<PAGE>
accounts for a significant portion of the Fund's outperformance compared to the
Government/Corporate Bond Index and its underperformance compared to the
long-term index.
STOCK MARKET COMMENTARY
Consumer durables, particularly auto and machinery makers, which are classic
cyclical businesses, were the outstanding stock market performers for the fourth
quarter and entire year of 1993. Health care bounced back in the fourth quarter,
but was still the worst-performing sector for the year, owing to declining
industry profitability and political uncertainty. Similarly, consumer
non-durables, especially tobacco and food companies, came to life in the quarter
because of announced cost-cutting moves by companies such as Philip Morris and
RJR Nabisco; however, they were still down for the year.
Capital goods, technology, and transportation, all cyclical sectors, did well
because of rising expectations for the economy. As long-term interest rates rose
during the fall, utilities and finance, stars earlier in the year, suffered.
Another early star, energy, gave back a lot in the final quarter, when oil
prices plunged.
Faced with stagnant sales during 1993 and before, scores of companies in
numerous industries announced massive personnel layoffs, divestitures of poorly
performing divisions, and cost-cutting. Many of the corporate moves were brought
about by activist shareholders pressuring managements to improve profitability.
Shareholders were rewarded as investors bid up the prices of the restructured
companies. For example, General Motors, which has massively cut expenses under
new Chief Executive John Smith, registered a total return of 72.6% last year.
Other similarly "restructured" companies performed well, too: Eastman Kodak, up
43.8%; American Express, up 27%; and Sears Roebuck, up 19.7% (not counting the
highly profitable spin-off of Dean Witter-Discover).
Looking to 1994, we think that the pressure to improve profitability will be
unrelenting. Foreign and domestic competition is as keen as ever. Sales growth,
both in units and nominal prices, will probably be modest. That leaves
cost-cutting as the only way to achieve earnings growth. We expect to see
further consolidations, divestitures, and layoffs in such industries with
overcapacity as pharmaceuticals, tobacco, paper, chemicals, banking, and
insurance.
BOND MARKET COMMENTARY
The bond market enjoyed an excellent year in 1993 with the overall investment
grade market returning 10.0%. The fourth quarter was the weakest, however, as
coupon income was almost entirely offset by price declines. Yields along the
Treasury curve rose 0.2% to 0.4%, limiting fourth-quarter returns to 0.1%. Bond
prices fell during the quarter for several reasons. Economic growth picked up in
2
<PAGE>
the third quarter with GDP (Gross Domestic Product) growing 2.9%, up from 1.9%
and 0.8% in the second and first quarters, respectively. Although the CPI and
PPI price indices show limited inflation, higher commodity prices in the CRB
index and a rebound in gold prices have increased concerns. More importantly,
stronger data in the housing and auto sectors led to growth close to 5.0% in the
fourth quarter.
During the fourth quarter, the mortgage sector outperformed the government and
corporate sectors, reversing the pattern of the first three quarters. The
difference between mortgage and Treasury yields contracted as higher mortgage
rates reduced the risk of rapid prepayments.
We continue to emphasize corporate issues and mortgage-backed securities in
portfolio holdings. Our corporates include issuers in healthy industries such as
telecommunications, brokerage, and industrial issuers whose prospects will
improve with the economy. Our mortgages are concentrated in lower coupon
passthroughs with less prepayment risk.
As we look ahead, interest rates are likely to remain fairly stable. Declining
foreign interest rates, modest inflation, and higher taxes have curbed the
normal tendency of interest rates to rise during a recovery. However, the
economy is gaining momentum, and with low inventory levels, we could see further
improvement in 1994. If this trend continues, we are poised to shift from a
neutral to a defensive duration posture with respect to our benchmarks.
In an environment of low and more stable interest rates, we believe that
emphasizing the higher-yielding corporate and mortgage sectors will prove
increasingly advantageous. First, the opportunities to identify meaningful
interest rate changes are reduced. Second, future returns will more nearly match
portfolio yields. Third, the yield advantage from the non-government sectors
more than compensates for their credit and prepayment risks. Finally, the best
opportunities to add value through security selection are in the corporate and
mortgage sectors.
Sincerely,
<TABLE>
<S> <C>
Heath B. McLendon William W. Carter
Heath B. McLendon William W. Carter
Chairman of the Board and Vice President and
Investment Officer Investment Officer
March 18, 1994
</TABLE>
3
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE -- CLASS A SHARES
<TABLE>
<CAPTION>
Year Ended Net Asset Value Capital Dividends Total
January 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
11/6/92 -
1/31/93 $ 16.80 $16.85 $ 0.85 $0.11 6.12%
- -------------------------------------------------------------------------------
1994 $ 16.85 $17.72 $ 1.46 $0.56 17.80%
- -------------------------------------------------------------------------------
Total $ 2.31 $0.67
- -------------------------------------------------------------------------------
Cumulative Total Return (11/6/92 through 1/31/94) 25.00%
- -------------------------------------------------------------------------------
</TABLE>
* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not assume deduction of the
sales charge (maximum 5.0% as of November 6, 1992).
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS QUARTERLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN** -- CLASS A SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge
<S> <C> <C>
- ---------------------------------------------------------------------------------
Year Ended 1/31/94 17.80% 11.91%
- ---------------------------------------------------------------------------------
Inception 11/6/92 through 1/31/94 19.83% 14.95%
- ---------------------------------------------------------------------------------
</TABLE>
** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value. Average annual total return
figures shown assume the deduction of the maximum 5.0% sales charge.
NOTE: The Fund began offering Class A shares on November 6, 1992 subject to a
maximum 5% sales charge and an annual service fee of 0.25% of average daily
net assets attributable to that class.
4
<PAGE>
GROWTH OF $10,000 INVESTED IN CLASS A SHARES
OF SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND+
- --------------------------------------------------------------------------------
November 6, 1992 - January 31, 1994
[SET ON MAC -- CHART A]
DESCRIPTION OF MOUNTAIN CHART IN SHEARSON COVERS (CLASS A)
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Equity Funds -
Strategic Investors Fund's Class A shares on November 6, 1992 through January
31, 1994 as compared with the growth of a $10,000 investment in Standard &
Poor's 500 Index, the Lehman Government/Corporate Long-Term Bond Index and the
Lehman Government/Corporate Bond Index. The plot points used to draw the line
graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000
INVESTMENT IN THE GROWTH OF $10,000
LEHMAN INVESTMENT IN THE
GROWTH OF $10,000 GROWTH OF $10,000 GOVERNMENT/ LEHMAN
INVESTED IN CLASS A INVESTMENT IN THE CORPORATE GOVERNMENT/
MONTH SHARES OF THE STANDARD & POOR'S LONG-TERM CORPORATE
ENDED FUND 500 INDEX BOND INDEX BOND INDEX
<S> <C> <C> <C> <C>
10/31/92 - $10,000 $10,000 $10,000
11/06/92 $ 9,500 - - -
11/92 $ 9,692 $10,340 $10,052 $ 9,991
12/92 $ 9,866 $10,466 $10,315 $10,162
03/93 $10,513 $10,923 $10,951 $10,635
06/93 $10,701 $10,975 $10,488 $10,954
09/93 $11,342 $11,258 $12,134 $11,317
12/93 $11,399 $11,526 $11,981 $11,284
01/94 $11,875 $11,917 $12,270 $11,453
</TABLE>
+ Illustration of $10,000 invested in Class A shares on November 6, 1992
assuming deduction of the maximum 5.0% sales charge and reinvestment of
dividends and capital gains at net asset value through January 31, 1994.
The Standard & Poor's Composite Index of 500 Common Stocks ("S&P 500") is
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is
useful in depicting the general movement of the stock market, but because
it is unmanaged the S&P 500 is not subject to the same management and
trading expenses of a mutual fund.
The Lehman Government/Corporate Bond Index is a combination of Government
Corporate and Yankee indices.
The Lehman Government/Corporate Long-Term Bond Index is a combination of
Government and Corporate bonds with maturities of 10 years or more.
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class A
shares.
5
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE -- CLASS B SHARES
<TABLE>
<CAPTION>
Year Ended Net Asset Value Capital Dividends Total
January 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
2/2/87 - 1/31/88 $ 14.00 $13.62 $ 0.07 $0.23 -0.57%
- -------------------------------------------------------------------------------------
1989 $ 13.62 $15.03 $ 0.11 $0.48 15.10%
- -------------------------------------------------------------------------------------
1990 $ 15.03 $15.57 $ 0.38 $0.71 10.76%
- -------------------------------------------------------------------------------------
1991 $ 15.57 $15.61 $ 0.46 $0.51 6.80%
- -------------------------------------------------------------------------------------
1992 $ 15.61 $17.26 $ 0.88 $0.55 19.96%
- -------------------------------------------------------------------------------------
1993 $ 17.26 $16.84 $ 1.49 $0.50 9.68%
- -------------------------------------------------------------------------------------
1994 $ 16.84 $17.79 $ 1.46 $0.34 16.88%
- -------------------------------------------------------------------------------------
Total $ 4.85 $3.32
- -------------------------------------------------------------------------------------
Cumulative Total Return (2/2/87 through 1/31/94) 108.18%
- -------------------------------------------------------------------------------------
</TABLE>
* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not assume deduction of the
contingent deferred sales charge ("CDSC").
IT IS THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS QUARTERLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN** -- CLASS B SHARES
<TABLE>
<CAPTION>
Without CDSC With CDSC
<S> <C> <C>
- ------------------------------------------------------------------------------
Year Ended 1/31/94 16.88% 11.88%
- ------------------------------------------------------------------------------
Five Years Ended 1/31/94 12.71% 12.59%
- ------------------------------------------------------------------------------
Inception 2/2/87 through 1/31/94 11.05% 11.05%
- ------------------------------------------------------------------------------
</TABLE>
** All average annual total return figures shown reflect the reinvestment of
dividends and capital gains at net asset value. Average annual total return
figures shown assume the deduction of the maximum applicable CDSC which is
described in the prospectus. The Fund commenced operations on February 2,
1987.
NOTE: As of November 6, 1992, outstanding shares of the Fund were designated as
Class B -- subject to a maximum 5.0% CDSC and annual service and distribution
fees of 0.25% and 0.75%, respectively, of average daily net assets attributable
to that class.
6
<PAGE>
GROWTH OF $10,000 INVESTED IN CLASS B SHARES
OF SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND INC.+
- --------------------------------------------------------------------------------
February 2, 1987 - January 31, 1994
[SET ON MAC -- CHART A]
DESCRIPTION OF MOUNTAIN CHART IN SHEARSON COVERS (CLASS B)
A line graph depicting the total growth (including reinvestment of
divdidends and capital gains) of a hypothetical investment of $10,000 in
Equity Funds - Strategic Investors Fund's Class B shares on February 2, 1987
through January 31, 1994 as compared with the growth of a $10,000 investment
in Standard & Poor's 500 Index, the Lehman Government/Corporate Long-Term
Bond Index and the Lehman Government/Corporate Bond Index. The plot points
used to draw the line graph were as follows:
<TABLE>
<CAPTION> GROWTH OF $10,000
INVESTMENT IN THE GROWTH OF $10,000
LEHMAN INVESTMENT IN THE
GROWTH OF $10,000 GROWTH OF $10,000 GOVERNMENT/ LEHMAN
INVESTED IN CLASS B INVESTMENT IN THE CORPORATE GOVERNMENT/
MONTH SHARES OF THE STANDARD & POOR'S LONG-TERM CORPORATE
ENDED FUND 500 INDEX BOND INDEX BOND INDEX
<S> <C> <C> <C> <C>
01/31/87 - $10,000 $10,000 $10,000
02/02/87 $10,000 - - -
02/87 $10,300 $10,395 $10,099 $10,065
03/87 $10,307 $10,695 $9,967 $10,011
06/87 $10,372 $11,232 $9,547 $9,821
09/87 $10,564 $11,973 $8,904 $9,534
12/87 $9,338 $9,276 $9,705 $10,091
03/88 $10,118 $9,803 $10,125 $10,452
06/88 $10,528 $10,455 $10,224 $10,555
09/88 $10,762 $10,490 $10,458 $10,752
12/88 $10,920 $10,810 $10,650 $10,856
03/89 $11,615 $11,577 $10,775 $10,976
06/89 $12,353 $12,597 $11,979 $11,858
09/89 $13,088 $13,943 $12,020 $11,969
12/89 $13,230 $14,230 $12,517 $12,401
03/90 $12,902 $13,802 $12,109 $12,259
06/90 $13,371 $14,668 $12,651 $12,701
09/90 $11,808 $12,655 $12,415 $12,778
12/90 $12,940 $13,788 $13,324 $13,429
03/91 $14,571 $15,787 $13,736 $13,791
06/91 $14,471 $15,749 $13,862 $13,999
09/91 $15,354 $16,590 $14,957 $14,804
12/91 $16,363 $17,979 $15,927 $15,594
03/92 $16,391 $17,526 $15,483 $15,360
06/92 $16,664 $17,858 $16,143 $15,982
09/92 $17,072 $18,421 $17,104 $16,763
12/92 $17,442 $19,347 $17,286 $16,777
03/93 $18,546 $20,190 $18,352 $17,557
06/93 $18,859 $20,287 $19,252 $18,084
09/93 $19,950 $20,810 $20,335 $16,682
12/93 $19,999 $21,305 $20,078 $18,627
01/94 $20,818 $22,028 $20,562 $18,907
</TABLE>
+ Illustration of $10,000 invested in Class B shares on February 2, 1987
assuming deduction of the maximum applicable CDSC at the time of
redemption and reinvestment of dividends and capital gains at net asset
value through January 31, 1994.
The Standard & Poor's Composite Index of 500 Common Stocks ("S&P 500") is
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is
useful in depicting the general movement of the stock market, but because
it is unmanaged the S&P 500 is not subject to the same management and
trading expenses of a mutual fund.
The Lehman Government/Corporate Bond Index is a combination of
Government, Corporate, and Yankee indices.
The Lehman Government/Corporate Long-Term Bond Index is a combination of
Government and Corporate bonds with maturities of 10 years or more.
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.
NOTE: All figures cited here and on the following pages represent past
performance of the Fund and do not guarantee future results of Class B
shares.
7
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE -- CLASS D SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended Net Asset Value Capital Gains Dividends Total
January 31 Beginning Ending Paid Paid Return*
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
5/5/93 -
1/31/94 $ 17.54 $17.79 $1.46 $0.28 11.83%
- --------------------------------------------------------------------------------
Cumulative Total Return (5/5/93 through 1/31/94) 11.83%
- --------------------------------------------------------------------------------
</TABLE>
* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value.
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS QUARTERLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN** -- CLASS D SHARES
- --------------------------------------------------------------------------------
Inception (5/5/93 through 01/31/94) 11.83%
- --------------------------------------------------------------------------------
** All average annual total return figures shown reflect the reinvestment
of dividends and capital gains at net asset value.
NOTE: The Fund began offering Class D shares on January 29, 1993 for purchase
by participants in the Smith Barney Shearson 401(k) program. These shares were
first publicly purchased on May 5, 1993.
8
<PAGE>
GROWTH OF $10,000 INVESTED IN CLASS D SHARES
OF SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND+
- --------------------------------------------------------------------------------
May 5, 1993 - January 31, 1994
[SET ON MAC -- CHART A]
DESCRIPTION OF MOUNTAIN CHART IN SHEARSON COVERS (CLASS D)
A line graph depicting the total growth (including reinvestment of dividends
and capital gains) of a hypothetical investment of $10,000 in Equity Funds -
Strategic Investors Fund's Class D shares on May 5, 1993 through January 31,
1994 as compared with the growth of a $10,000 investment in Standard & Poor's
500 Index, the Lehman Government/Corporate Long-Term Bond Index and the Lehman
Government/Corporate Bond Index. The plot points used to draw the line graph
were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000
INVESTMENT IN THE GROWTH OF $10,000
LEHMAN INVESTMENT IN THE
GROWTH OF $10,000 GROWTH OF $10,000 GOVERNMENT/ LEHMAN
INVESTED IN CLASS D INVESTMENT IN THE CORPORATE GOVERNMENT/
MONTH SHARES OF THE STANDARD & POOR'S LONG-TERM CORPORATE
ENDED FUND 500 INDEX BOND INDEX BOND INDEX
<S> <C> <C> <C> <C>
04/30/93 - $10,000 $10,000 $10,000
05/05/93 $10,000 - - -
05/93 $10,006 $10,267 $10,032 $ 9,994
06/93 $10,128 $10,297 $10,418 $10,221
09/93 $10,714 $10,562 $11,004 $10,559
12/93 $10,743 $10,813 $10,865 $10,528
01/94 $11,183 $11,181 $11,127 $10,686
</TABLE>
+ Illustration of $10,000 invested in Class D shares on May 5, 1993
assuming reinvestment of dividends and capital gains at net asset value
through January 31, 1994.
The Standard & Poor's Composite Index of 500 Common Stocks ("S&P 500") is
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is
useful in depicting the general movement of the stock market, but,
because it is unmanaged, the S&P 500 is not subject to the same
management and trading expenses of a mutual fund.
The Lehman Government/Corporate Bond Index is a combination of
Government, Corporate and Yankee indices.
The Lehman Government/Corporate Long-Term Bond Index is a combination of
Government and Corporate bonds with maturities of 10 years or more.
Index Information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class D
shares.
9
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31, 1994
- --------------------------------------------------------------------------------
PORTFOLIO BREAKDOWN
[INSERT PIE CHART]
[SET ON MAC]
Industry Breakdown
Pie chart depicting the allocation of the Equity Funds - Strategic Investors
Fund's investment securities held at January 31, 1994 by industry
classification. The pie is broken in pieces representing industries in the
following percentages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Equities 55.5
Bonds 34.4%
Commercial Paper & Net Other
Assets and Liabilities 15.4%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- ----------------------------------------------------------------------------
Common Stocks
GENERAL MOTORS CORPORATION 1.9%
AETNA LIFE & CASUALTY COMPANY 1.8
PHILIPS N V 1.4
LOEWS CORPORATION 1.3
MORGAN (J.P.) & COMPANY, INC. 1.2
- ----------------------------------------------------------------------------
Corporate Bonds & Notes
COMMONWEALTH EDISON COMPANY 2.5
BOEING COMPANY 1.6
FHLMC MULTICLASS MORTGAGE 1.2
SEARS OVERSEAS FINANCE, NV 1.1
COMSAT CORPORATION 1.1
</TABLE>
10
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
COMMON STOCKS - 54.0%
FINANCIAL SERVICES - 10.7%
94,200 Aetna Life & Casualty Company $ 5,981,700
41,800 American International Group Inc. 3,871,725
87,900 Chase Manhattan Corporation+ 3,175,388
76,600 Continental Bank Corporation 2,690,575
47,300 Federal National Mortgage Association 4,132,838
38,700 First Chicago Corporation 1,818,900
12,800 Golden West Financial Corporation 568,000
17,300 Lincoln National Corporation 735,250
30,300 Mid Ocean Ltd.+ 780,225
59,200 Morgan (J.P.) & Company, Inc. 4,247,600
11,400 Morgan Stanley Group, Inc. 906,300
64,700 Republic Bank of New York Corporation 3,291,613
22,800 St. Paul Companies Inc. 2,014,950
15,490 Standard Federal Bank 447,274
40,400 Student Loan Marketing Association 1,974,550
- ---------------------------------------------------------------------------------------
36,636,888
- ---------------------------------------------------------------------------------------
CONSUMER NON-DURABLES - 7.0%
66,900 Burlington Industries Equity Inc.+ 978,413
50,800 Chiquita Brands International Inc. 755,650
28,600 Dial Corporation 1,247,675
53,200 Eastman Kodak Company 2,347,450
21,700 Libbey Inc. 363,475
45,600 Loews Corporation 4,520,100
74,000 Nestle S A ADR++ 3,626,000
4,380 Nestle S A ADR, Registered Shares++ 214,620
80,600 Owens-Illinois Inc.+ 936,975
48,900 Philip Morris Companies Inc. 2,946,225
14,900 Premark International Inc. 1,283,263
259,600 RJR Nabisco Holdings Corporation+ 1,947,000
7,820 Ralston Continental Baking Group 70,380
59,000 Ralston Purina Company 2,596,000
- ---------------------------------------------------------------------------------------
23,833,226
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CONSUMER SERVICES - 6.7%
12,000 Brown Group Inc. $ 421,500
8,000 Caldor Corporation+ 212,000
8,000 Caesars World Inc.+ 441,000
89,000 Carter Hawley Hale Stores Inc.+ 867,750
48,100 Dilliard Department Stores Inc., Class A 1,725,588
120,800 Federated Department Stores+ 2,642,500
30,900 King World Productions Inc.+ 1,274,625
48,800 Kroger Company+ 1,091,900
86,400 Levitz Furniture Inc.+ 1,684,800
31,600 May Department Stores 1,248,200
7,100 McDonald's Corporation 431,325
2,700 Meyer (Fred) Inc.+ 99,225
57,300 Rite Aid Corporation 1,067,213
49,000 Rogers Cantel Mobile Communication Inc.+ 1,310,750
8,400 Scripps (E.W.) Company, Class A 226,800
65,800 Sears Roebuck & Company 3,610,775
16,200 Shoneys Inc.+ 372,600
36,800 Sizzler International Inc. 299,000
2,400 Smith Food & Drug Centers Inc., Class B 54,744
16,500 Tandy Corporation 787,875
67,400 Times Mirror Company, Series A 2,443,250
38,600 United States Shoe Corporation 487,325
12,300 Value City Department Stores+ 190,650
- ---------------------------------------------------------------------------------------
22,991,395
- ---------------------------------------------------------------------------------------
ENERGY - 4.9%
36,900 Amerada Hess Corporation 1,789,650
35,800 Chevron Corporation 3,342,825
17,500 Kerr McGee Corporation 805,000
18,200 Mitchell Energy & Development Corporation, Class B 393,575
17,300 Mobil Corporation 1,401,300
44,100 Occidental Petroleum Corporation 793,800
68,400 Repsol S A ADR 2,334,150
27,700 Royal Dutch Petroleum Company, New York 3,047,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ENERGY (CONTINUED)
27,500 Tenneco Inc. $ 1,581,250
46,700 USX-Marathon Group 863,950
22,700 Weatherford International Inc.+ 218,488
- ---------------------------------------------------------------------------------------
16,570,988
- ---------------------------------------------------------------------------------------
CONSUMER DURABLES - 4.4%
19,100 Ford Motor Company 1,279,700
103,600 General Motors Corporation 6,358,450
24,900 Genuine Parts Company 964,875
57,500 Volkswagen ADR 2,939,688
40,300 Volvo AB ADR 3,551,438
- ---------------------------------------------------------------------------------------
15,094,151
- ---------------------------------------------------------------------------------------
CAPITAL GOODS - 4.4%
12,000 Deere & Company 966,000
9,400 General Electric Company 1,012,850
22,800 Goodrich (B.F.) Company 951,900
40,700 ITT Corporation 4,003,863
7,900 Litton Industries Inc.+ 541,150
193,700 Philips N V+ 4,890,925
17,700 Raytheon Company 1,199,175
13,400 Xerox Corporation 1,314,875
- ---------------------------------------------------------------------------------------
14,880,738
- ---------------------------------------------------------------------------------------
BASIC INDUSTRIES - 3.8%
59,300 Alumax Inc.+ 1,586,275
179,900 British Steel ADR 3,867,850
37,700 Champion International Corporation 1,258,238
9,000 Eastman Chemical Company+ 393,750
41,300 Federal Paper Board Inc. 1,084,125
15,300 Geon Company 413,100
13,200 International Paper Company 991,650
45,300 James River Corporation 911,663
75,800 Repap Enterprises Inc.+ 279,513
34,300 Riverwood International Corporation 651,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BASIC INDUSTRIES (CONTINUED)
29,100 Stone Container Corporation+ $ 480,150
16,900 Temple Inland Inc. 887,250
23,000 Timberwest Ltd.+ ++ 273,010
- ---------------------------------------------------------------------------------------
13,078,274
- ---------------------------------------------------------------------------------------
UTILITIES - 3.3%
86,800 CMS Energy Corporation 2,104,900
71,358 Entergy Corporation 2,658,086
28,600 Illinois Power Company 622,050
7,800 National Service Industry Inc. 210,600
112,500 Pacific Enterprises 2,531,250
55,100 Pinnacle West Capital Corporation 1,232,863
121,500 TransCanada Pipeline Ltd. 1,868,063
- ---------------------------------------------------------------------------------------
11,227,812
- ---------------------------------------------------------------------------------------
HEALTH CARE - 2.8%
32,400 American Medical Holdings Inc.+ 656,100
13,363 Bausch & Lomb Inc. 703,228
11,800 Genetech Inc.+ 594,425
23,700 Hospital Corporation of America, Class A+ 921,338
29,500 Healthtrust Inc.-The Hospital Company+ 829,688
19,600 Johnson & Johnson 830,550
59,800 Warner-Lambert Companies 3,894,475
32,100 Wellpoint Health Networks Inc.+ 1,027,200
- ---------------------------------------------------------------------------------------
9,457,004
- ---------------------------------------------------------------------------------------
TRANSPORTATION - 2.4%
28,400 AMR Corporation+ 2,041,250
8,300 Burlington Northern Inc. 536,387
39,500 Consolidated Rail Corporation 2,567,500
120,200 KLM Royal Dutch Air Lines+ 2,929,875
- ---------------------------------------------------------------------------------------
8,075,012
- ---------------------------------------------------------------------------------------
INSURANCE - 2.1%
38,400 ACE Ltd. 1,084,800
43,100 Allstate Corporation 1,228,350
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
59,400 Continental Corporation $ 1,678,050
28,900 EXEL Ltd. 1,260,763
93,900 Reliance Group Holdings Inc. 715,988
21,400 TIG Holdings Inc. 462,775
16,700 Transatlantic Holdings Inc. 889,275
- ---------------------------------------------------------------------------------------
7,320,001
- ---------------------------------------------------------------------------------------
TECHNOLOGY - 1.1%
44,700 Cray Research, Inc.+ 1,402,463
27,800 Honeywell Inc. 906,975
50,600 Quantum Corporation+ 815,925
17,300 Seagate Technology+ 417,362
14,800 Sun Microsystems+ 392,200
- ---------------------------------------------------------------------------------------
3,934,925
- ---------------------------------------------------------------------------------------
OTHER - 0.4%
10,800 Avalon Properties Inc. 234,900
51,700 Crown American Realty 736,725
10,500 Security-Conn Corporation 228,375
- ---------------------------------------------------------------------------------------
1,200,000
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $155,849,827) 184,300,414
- ---------------------------------------------------------------------------------------
FACE VALUE
- ---------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 19.5%
FINANCIAL SERVICES - 7.1%
$ 750,000 Bankamerica Corporation, Sub. Note,
6.850% due 3/1/03 777,187
500,000 Bell Atlantic Financial, Medium Term Note,
5.700% due 8/15/99 503,750
1,000,000 Centel Capital Corporation, Note,
9.000% due 10/15/19 1,098,750
2,400,000 Chemical Banking Corporation, Medium Term Note,
3.638% due 8/19/96 2,397,048
875,000 China International Trust, Deb.,
6.875% due 8/1/03 889,219
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
$1,551,647 Equi Credit Corporation, Asset Backed Note,
5.150% due 9/15/08 $ 1,538,555
2,750,000 Goldman Sachs Group, Note,
6.375% due 6/15/00++ 2,798,125
325,000 Guandong International Trust & Investment, Corporate Bond,
6.750% due 11/15/03++ 320,125
InterAmerican Development Bank, Bonds:
1,550,000 8.875% due 6/1/09 1,953,000
750,000 8.400% due 9/1/09 914,061
1,500,000 Korea Development Bank, Medium Term Note,
9.400% due 8/1/01 1,768,125
1,911,240 Railcar Trust, Note,
7.750% due 6/1/04 2,116,696
5,030,000 Sears Overseas Finance, NV, Zero coupon due 7/12/98 3,904,536
Sears Roebuck & Company, Medium Term Notes:
1,000,000 8.120% due 3/16/99 1,110,000
1,000,000 8.000% due 1/16/02 1,118,750
1,000,000 8.620% due 4/2/02 1,160,000
- ---------------------------------------------------------------------------------------
24,367,927
- ---------------------------------------------------------------------------------------
INDUSTRIAL - 4.5%
5,000,000 Boeing Company, Deb.,
7.950% due 8/15/24 5,581,250
Commonwealth Edison Company:
2,000,000 6.400% due 10/15/05 1,900,000
2,000,000 1st Mortgage,
7.500% due 7/1/13 2,022,500
4,250,000 Series 88,
8.375% due 2/15/23 4,616,562
1,000,000 Motorola Inc., Deb.,
8.400% due 8/15/31 1,242,500
- ---------------------------------------------------------------------------------------
15,362,812
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES (CONTINUED)
TELEPHONE COMMUNICATIONS - 1.9%
$3,250,000 Comsat Corporation, Deb.,
8.125% due 4/1/04 $ 3,712,189
2,000,000 GTE Southwest Corporation, Deb.,
5.820% due 12/1/99 2,010,000
105,000 Pacific Telephone & Telegraph Company, Deb.,
7.250% due 2/1/08 107,756
540,000 Southern Bell Telephone & Telegraph, Deb.,
6.000% due 10/1/04 547,425
- ---------------------------------------------------------------------------------------
6,377,370
- ---------------------------------------------------------------------------------------
INSURANCE - 1.8%
2,500,000 Conseco Inc., Sr. Note,
8.125% due 2/15/03 2,637,500
1,225,000 Kemper Corporation, Note,
6.875% due 9/15/03++ 1,217,342
2,220,000 Metropolitan Life Insurance Company, Surplus Note,
6.300% due 11/1/03++ 2,181,150
- ---------------------------------------------------------------------------------------
6,035,992
- ---------------------------------------------------------------------------------------
OIL - 1.7%
1,000,000 Occidental Petroleum Corporation, Deb.,
9.250% due 8/1/19 1,186,250
2,900,000 Occidental Petroleum Corporation, Medium Term Note,
8.750% due 1/15/23 3,168,423
1,300,000 Petroliam Nasional Berhad, Note,
6.875% due 7/1/03++ 1,329,250
- ---------------------------------------------------------------------------------------
5,683,923
- ---------------------------------------------------------------------------------------
TECHNOLOGY - 1.2%
1,000,000 Telecommunications Inc., Medium Term Note,
6.430% due 3/9/98 1,021,250
2,800,000 United Telecommunications Inc., Sr. Note,
9.750% due 4/1/00 3,314,500
- ---------------------------------------------------------------------------------------
4,335,750
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES (CONTINUED)
CONSUMER NON-DURABLES - 0.7%
$1,000,000 Eastman Kodak Company, Note,
9.750% due 10/1/04 $ 1,256,250
1,000,000 General Motors Acceptance Corporation, Note,
8.875% due 6/1/10 1,220,000
- ---------------------------------------------------------------------------------------
2,476,250
- ---------------------------------------------------------------------------------------
ENTERTAINMENT - 0.6%
1,700,000 Time Warner Entertainment Company Ltd., Sr. Sub Note,
8.375% due 7/15/33 1,831,750
- ---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost $64,708,840) 66,471,774
- ---------------------------------------------------------------------------------------
OTHER BONDS AND NOTES - 1.2%
1,750,000 Manitoba, Province of Canada, Deb.,
9.125% due 1/15/18 2,185,312
2,000,000 Newfoundland, Province of Canada, Deb.,
7.320% due 10/13/23 1,987,500
- ---------------------------------------------------------------------------------------
TOTAL OTHER BONDS AND NOTES (Cost $3,780,048)
- ---------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 2.7%
FEDERAL HOME LOAN MORTGAGE COMPANY
(FHLMC) CERTIFICATES - 1.3%
141,268 FHLMC 6.250% due 7/1/02 142,515
290,663 FHLMC 8.500% due 12/1/02 304,133
4,000,000 FHLMC Multiclass Mortgage, 6.400% due 1/15/19 4,033,750
- ---------------------------------------------------------------------------------------
4,480,398
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES - 1.4%
$ 558,388 FNMA 5.500% due 3/1/99 $ 508,831
2,120,000 FNMA REMIC Pass Through Certificate,
5.200% due 12/25/16 2,024,600
1,500,000 FNMA REMIC Pass Through Certificate,
6.500% due 6/25/19 1,455,677
661,986 FNMA REMIC Pass Through Certificate, PO, due 1/25/22 592,404
- ---------------------------------------------------------------------------------------
4,581,512
- ---------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES (Cost $8,901,038) 9,061,910
- ---------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 5.5%
U.S. Treasury Bonds:
2,750,000 Zero Coupon due 2/15/01 1,830,070
2,500,000 8.125% due 5/15/21 3,056,425
1,000,000 7.250% due 5/15/16 1,103,860
2,000,000 7.500% due 11/15/16 2,266,880
U.S. Treasury Notes:
180,000 6.375% due 8/15/02 190,235
2,750,000 5.750% due 8/15/03 2,772,000
Other Treasury Obligations:
3,000,000 Synthetic - Treasury Receipt
6.000% due 8/15/09+++ 2,943,750
1,500,000 Treasury Synthetic - Linked Coupon Securities
6.000% due 8/15/09+++ 1,455,870
14,540,000 U.S. Treasury Bond Stripped Principal Payment
Zero coupon due 8/15/17 3,012,686
- ---------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $17,226,312) 18,631,776
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
- ---------------------------------------------------------------------------------------
PREFERRED CONVERTIBLE STOCKS - 1.2%
35,700 Ford Motor Company, Depositary Shares Representing 1/1000
pfd. conv., Series A $ 3,993,938
3,400 Genetics Institute Inc., Depositary Shares Representing 1
share+ 167,025
- ---------------------------------------------------------------------------------------
TOTAL PREFERRED CONVERTIBLE STOCKS (Cost $2,189,448) 4,160,963
- ---------------------------------------------------------------------------------------
YANKEE BOND - 0.6% (Cost $2,104,163)
$2,120,000 Pohang Iron & Steel Ltd., 6.625% due 7/1/03 2,112,050
- ---------------------------------------------------------------------------------------
COMMERCIAL PAPER - 14.5%
39,398,000 Ford Motor Credit Company,
3.100% due 2/1/94 39,398,000
10,000,000 General Electric Capital Corporation,
3.125% due 2/1/94 10,000,000
- ---------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost $49,398,000) 49,398,000
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $304,157,676*) 99.2% 338,309,699
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 0.8 2,720,197
- ---------------------------------------------------------------------------------------
NET ASSETS 100.0% $341,029,896
- ---------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
+++These instruments represent ownership interest in a series of U.S. Treasury
Bond STRIPS. STRIPS are zero coupon securities issued by the U.S. Treasury as
component parts of Treasury Bonds that represent scheduled interest and
principal payment on the bonds. The market value of these holdings will
fluctuate with the value of the underlying STRIPS.
Abbreviations:
ADR -- American Depositary Receipts
PO -- Principal Only
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $304,157,676) (Note 1)
See accompanying schedule $338,309,699
Cash 33,564
Receivable for investment securities sold 7,789,535
Interest receivable 1,633,931
Receivable for Fund shares sold 1,087,897
Dividends receivable 318,008
- ---------------------------------------------------------------------------------------
TOTAL ASSETS 349,172,634
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased $7,319,827
Distribution fee payable (Note 3) 207,210
Payable for Fund shares redeemed 194,077
Investment advisory fee payable (Note 2) 153,797
Service fee payable (Note 3) 70,329
Administration fee payable (Note 2) 55,926
Transfer agent fees payable (Notes 2 and 4) 42,710
Custodian fees payable (Note 2) 18,900
Accrued Trustees' fees and expenses (Note 2) 1,519
Accrued expenses and other payables 78,443
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES 8,142,738
- ---------------------------------------------------------------------------------------
NET ASSETS $341,029,896
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET ASSETS CONSIST OF:
Undistributed net investment income $ 1,133,571
Accumulated net realized gain on investments sold 3,623,336
Unrealized appreciation of investments 34,152,023
Par value 19,168
Paid-in capital in excess of par value 302,101,798
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS $341,029,896
- ---------------------------------------------------------------------------------------
NET ASSETS:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($6,216,293 / 350,896 shares of beneficial interest
outstanding) $17.72
- ---------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE per share ($17.72 / 0.95)
(based on sales charges of 5% of the offering price on January 31,
1994) $18.65
- ---------------------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($334,414,598 / 18,794,896 shares of beneficial interest
outstanding) $17.79
- ---------------------------------------------------------------------------------------
CLASS D SHARES:
NET ASSET VALUE, offering and redemption price per share
($399,005 / 22,424 shares of beneficial interest
outstanding) $17.79
- ---------------------------------------------------------------------------------------
</TABLE>
+ Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $8,424,051
Dividends (net of withholding tax of $106,473) 4,318,217
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 12,742,268
- ---------------------------------------------------------------------------------------
EXPENSES:
Distribution fee (Note 3) $2,303,869
Investment advisory fee (Note 2) 1,702,756
Service fees (Note 3) 778,529
Administration fee (Note 2) 609,031
Transfer agent fees (Notes 2 and 4) 447,217
Custodian fees (Note 2) 82,804
Legal and audit fees 58,878
Trustees' fees and expenses (Note 2) 22,079
Other 137,326
- ---------------------------------------------------------------------------------------
TOTAL EXPENSES 6,142,489
- ---------------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,599,779
- ---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain on investments during the year 27,571,787
Net unrealized appreciation of investments during the year 14,596,793
- ---------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 42,168,580
- ---------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $48,768,359
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
1/31/94 1/31/93
<S> <C> <C>
Net investment income $ 6,599,779 $ 7,586,745
Net realized gain on investments sold during the year 27,571,787 17,870,780
Net unrealized appreciation/(depreciation) of
investments during the year 14,596,793 (453,962)
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 48,768,359 25,003,563
Distributions to shareholders from net investment
Income:
Class A (141,463) (999)
Class B (5,841,811) (7,416,126)
Class D (4,926) --
Distribution to shareholders from net realized gain on
investments:
Class A (443,959) (8,021)
Class B (25,063,436) (22,859,586)
Class D (29,445) --
Net increase in net assets from share transactions (Note
6):
Class A 5,470,486 689,324
Class B 29,240,621 58,946,602
Class D 399,877 17
- ---------------------------------------------------------------------------------------
Net increase in net assets 52,354,303 54,354,774
NET ASSETS:
Beginning of year 288,675,593 234,320,819
- ---------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $1,133,571 and $475,168, respectively) $341,029,896 $288,675,593
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
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 $ 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%
- -------------------------------------------------------------------------------------
</TABLE>
* 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.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
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*
<S> <C> <C> <C> <C> <C> <C> <C>
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%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
1/31/94*+
<S> <C>
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%
- -------------------------------------------------------------------------------------
</TABLE>
* 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.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Equity Funds (the "Trust") was organized under the laws of
the Commonwealth of Massachusetts on January 8, 1986 and is an entity commonly
known as a "Massachusetts business trust." The Trust is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"), as a diversified, open-end management investment
company. The Trust offers three managed investment portfolios: Smith Barney
Shearson Growth and Income Fund, Smith Barney Shearson Strategic Investors Fund
(the "Fund") and Smith Barney Shearson Sector Analysis Fund. As of November 6,
1992, the Fund offered two classes of shares to the general public: Class A
shares and Class B shares. Class A shares are sold with a front-end sales
charge. Class B may be subject to a contingent deferred sales charge ("CDSC").
Class B shares will automatically convert to Class A shares eight years after
the original purchase date. On January 29, 1993, the Fund offered Class D shares
to investors that are eligible to participate in the Smith Barney Shearson
401(k) Program. Class D shares are offered without a front-end sales charge or a
CDSC fee. Each class of shares has identical rights and privileges except with
respect to the effect of the respective sales charges, the distribution and/or
service fees borne by each class, expenses allocable exclusively to each class,
voting rights on matters affecting a single class, the exchange privilege of
each class and the conversion feature of Class B shares. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
Portfolio valuation: The Fund's investments are valued at market value or, in
the absence of a market value with respect to any portfolio securities, at fair
value as determined by or under the direction of the Trust's Board of Trustees.
A security which is traded primarily on a domestic or foreign 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. Over-the-counter securities are valued on
the basis of the bid price at the close of business on each day. 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.
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after trade date. Realized
gains and losses from securities sold are recorded on the identified cost basis.
28
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Investment
income and realized and unrealized gains and losses are allocated based upon
relative net assets of each class.
Repurchase agreements: The Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation 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 collateral is at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund seeks
to assert its rights. The Fund's investment adviser or administrator, acting
under the supervision of the 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.
Dividends and distributions to shareholders: Dividends from net investment
income determined on a class level, if any, generally will be made quarterly.
Distribution of any net realized capital gain determined on a Fund level,
generally will be made annually after the close of the fiscal year in which they
are earned. Distributions of the Fund's net investment income and capital gains
may be made more frequently at the discretion of the Board of Trustees.
Additional distributions of net investment income and capital gains for each
Fund may be made at the discretion of the Board of Trustees in order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of net investment income and capital gains. Income distributions and
capital gain distributions on a Fund level are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Fund, timing
differences and differing characterization of distributions made by the Fund as
a whole.
29
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Permanent differences incurred during the year ended January 31, 1994
resulting from different book and tax accounting for certain debt instruments
have been reclassified between accumulated net realized gain on investments sold
and undistributed net investment income.
Federal income taxes: The Trust intends that the Fund qualify as a regulated
investment company if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
Reclassifications: During the current year, the Fund adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies." Accordingly, certain reclassifications have been made to the
components of capital in the Statement of Net Assets to conform with the
accounting and reporting guidelines of this statement. Distributions in excess
of book basis accumulated realized gains or undistributed net investment income
that were the result of permanent book and tax accounting differences have been
reclassified to paid-in capital. In addition, amounts distributed in excess of
undistributed net investment income as determined for financial statement
purposes but as distributions from investment income or net realized gains for
tax purposes, previously having been reported as distributions from paid-in
capital, have been reclassified to reflect the tax characterization.
Accordingly, amounts as of January 31, 1993 have been restated to reflect an
increase in paid-in capital of $286,045, an increase in undistributed net
investment income of $232,413, and a decrease in accumulated net realized gains
of $518,458. The Statement of Changes in Net Assets and Financial Highlights for
prior periods have not been restated to reflect this change in presentation. Net
investment income, net realized gains, and net assets on a book and tax basis
were not affected by this change.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
The Fund entered into an investment advisory agreement (the "Advisory
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Advisory Agreement, the Fund pays a monthly fee at the annual rate of 0.55%
of the value of its average daily net assets. Boston Advisors also serves as
30
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
administrator to the Fund and is paid a monthly fee at the annual rate of 0.20%
of the value of its average daily net assets.
As of the close of business on July 30, 1993, The Travelers Inc. (formerly known
as Primerica Corporation) and Smith Barney, Harris Upham & Co. Incorporated
completed the acquisition of the domestic retail brokerage and asset management
business of Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers") and Smith
Barney, Harris Upham & Co. Incorporated was renamed Smith Barney Shearson Inc.
("Smith Barney Shearson").
Smith Barney Shearson serves without compensation as asset allocation consultant
to the Fund.
For the year ended January 31, 1994, the Fund incurred total brokerage
commissions of $467,989, of which $101,335 was paid to Smith Barney Shearson and
$5,544 was paid to Smith Barney Harris, Upham & Co.
For the year ended January 31, 1994, Smith Barney Shearson received $15,079 from
investors representing commissions (sales charges) on sales of Class A shares.
A CDSC is generally payable by the shareholder in connection with the redemption
of Class B shares within five years (eight years in the case of purchases by
certain 401(k) plans) after the date of purchase. In circumstances in which the
CDSC is imposed, the amount ranges between 5% and 1% of net asset value
depending on the number of years since the date of purchases (except in the case
of purchases by certain 401(k) plans in which case a 3% CDSC is imposed for the
eight year period after the date of purchase). For the year ended January 31,
1994, Smith Barney Shearson received from shareholders $288,907 in CDSC on the
redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson or Boston Advisors or
any of their affiliates receives any compensation from the Trust for serving as
Trustee or officer of the Trust. The Trust pays each Trustee who is not an
officer, director or employee of Smith Barney Shearson or Boston Advisors or any
of their affiliates $6,000 per annum plus $1,500 per meeting attended and
reimburses each such Trustee for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, serves as the Trust's transfer agent.
31
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Trust's shares pursuant to a
distribution agreement with the Trust and sells shares of the Fund through Smith
Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Services and
Distribution Plan (the "Plan"). Effective November 6, 1992, under this Plan, the
Trust compensates Smith Barney Shearson for servicing shareholder accounts for
Class A, Class B and Class D shareholders, and covers expenses incurred in
distributing Class B and Class D 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 each respective
class of shares. 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. For the year ended
January 31, 1994, the Fund incurred $10,573, $767,452, and $504 in service fees
for Class A, Class B and Class D shares, respectively. For the year ended
January 31, 1994, the Fund incurred $2,302,358 and $1,511 in distribution fees
for Class B and Class D shares, respectively. Prior to July 31, 1993, Shearson
Lehman Brothers served as the Fund's distributor and received a fee equivalent
to the current rate for its services.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class of
shares are prorated among the classes based upon the relative net assets of each
class. Operating expenses directly attributable to a class of shares are charged
to that class' operations. In addition to the above servicing and distribution
fees, class specific operating expenses include transfer agent fees of $6,621,
$440,407 and $189 for Class A, Class B, and Class D shares, respectively.
5. PURCHASES AND SALES OF SECURITIES
Purchases and proceeds from sales of securities, excluding U.S. Government and
other short-term investments, aggregated $313,197,503 and $329,355,887,
respectively, during the year ended January 31, 1994.
Purchases and proceeds from sales of long-term U.S. Government securities,
excluding all short-term investments, aggregated $55,573,355 and $40,517,022,
respectively, during the year ended January 31, 1994.
32
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
At January 31, 1994, aggregate gross unrealized appreciation for all securities
in which there was an excess of value of over tax cost was $38,239,173 and
aggregate gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $4,087,100.
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest with a
$.001 par value. Changes in shares of beneficial interest for the Fund which are
divided into three classes (Class A, Class B and Class D) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
1/31/94 1/31/93*
Class A shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Sold 308,990 $5,480,439 40,608 $ 680,637
Issued as reinvestment of dividends 33,250 568,728 546 8,994
Redeemed (32,479) (578,681) (19) (307)
- -----------------------------------------------------------------------------------------
Net increase 309,761 $5,470,486 41,135 $ 689,324
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/94 1/31/93
Class B shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Sold 2,934,899 $52,511,316 3,103,894 $52,883,624
Issued in exchange for shares of
MLTP (Note 8) -- -- 1,633,493 27,369,103
Issued as reinvestment of dividends 1,680,078 28,838,201 1,686,483 27,914,231
Redeemed (2,920,527) (52,108,896) (2,899,808) (49,220,356)
- -----------------------------------------------------------------------------------------
Net increase 1,694,450 $29,240,621 3,524,062 $58,946,602
- -----------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
1/31/94 1/31/93*
Class D shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Sold 22,137 $396,964 1 $17
Issued as reinvestment of dividends 2,006 34,371 -- --
Redeemed (1,720) (31,458) -- --
- -------------------------------------------------------------------------------------
Net increase 22,423 $399,877 1 $17
- -------------------------------------------------------------------------------------
</TABLE>
* The Fund commenced selling Class A shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated Class B shares. On
January 29, 1993, the Fund began offering Class D shares.
7. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Continental Bank N.A. under an Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992, primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. The Fund may
borrow up to the lesser of $25 million or 10% of its net assets. Interest is
payable either at the bank's Money Market Rate or the London Interbank Offered
Rate (LIBOR) plus .375% on an annualized basis. The Fund and the other
affiliated entities are charged an aggregate commitment fee of $125,000 which is
allocated equally among each of the participants. The Agreement requires, among
other provisions, each participating fund to maintain a ratio of net assets (not
including funds borrowed pursuant to the Agreement) to aggregate amount of
indebtedness pursuant to the Agreement of no less than 5 to 1. During the year
ended January 31, 1994, the Fund did not borrow under the Agreement.
8. REORGANIZATION
On May 1, 1992, the Fund acquired the assets and liabilities of Shearson Lehman
Brothers Multiple Opportunities Portfolio L.P. ("MLTP") pursuant to a plan of
reorganization approved by the partners of MLTP on April 30, 1992. The
acquisition was accomplished by a taxable exchange of 1,633,493 shares of the
Fund (valued at $27,246,663) for shares of MLTP outstanding. The net assets of
MLTP on the date of acquisition ($27,244,608) were combined with those of the
Fund. The net assets of the Fund and MLTP immediately before the acquisition
were $235,459,423 and $27,244,608, respectively.
34
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND OF
SMITH BARNEY SHEARSON EQUITY FUNDS:
We have audited the accompanying statement of assets and liabilities of Smith
Barney Shearson Strategic Investors Fund of Smith Barney Shearson Equity Funds,
including the schedule of portfolio investments, as of January 31, 1994, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the six years in the period then ended and
for the period from February 2, 1987 (commencement of operations) to January 31,
1988. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Shearson Strategic Investors Fund of Smith Barney Shearson Equity Funds
as of January 31, 1994, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the six years in the period then ended
and for the period from February 2, 1987 (commencement of operations) to January
31, 1988, in conformity with generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
March 15, 1994
35
<PAGE>
Smith Barney Shearson
STRATEGIC INVESTORS FUND
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FISCAL YEAR ENDED JANUARY 31, 1994
- --------------------------------------------------------------------------------
The amount of long-term capital gain paid for the fiscal year ended January 31,
1994 was $15,817,519.
Of the distributions made during the fiscal year ended January 31, 1994, 25.17%
qualifies for the dividends received deduction available to corporate
shareholders.
Of the dividends paid from net investment income for the year ended January 31,
1994, 4.43% was derived from investments in U.S. Government Obligations. All or
a portion of the distributions from this income may be exempt from taxation at
the state level. Consult your tax advisor for state specific information.
36
<PAGE>
STRATEGIC
INVESTORS
FUND
DIRECTORS
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
William W. Carter
Vice President and
Investment Officer
John B. Fullerton
Vice President and
Investment Officer
Guy R. Scott
Vice President and
Investment Officer
Patricia A. Zuch
Vice President and
Investment Officer
Vincent Nave
Treasurer
Frank J. McNamara, III
Secretary
This report is submitted for the general information of the shareholders of the
Strategic Investors Fund of Smith Barney Shearson. It is not authorized for
distribution to prospective investors unless accompanied or preceded by an
effective Prospectus for the Fund, which contains information concerning the
Fund's investment policies and expenses as well as other pertinent information.
Performance cited is through January 31, 1994. Please consult Smith Barney
Shearson Mutual Funds Quarterly Performance Update for figures through the most
recent calendar quarter.
SMITH BARNEY SHEARSON
SMITH BARNEY SHEARSON MUTUAL FUNDS
Two World Trade Center
New York, NY 10048
Fund 38,233,246
FD2165 C4
1994
ANNUAL
REPORT
<PAGE>
ANNUAL REPORT
OF
SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
<PAGE>
SMITH BARNEY SHEARSON EQUITY FUNDS
SECTOR ANALYSIS FUND
EDGAR DESCRIPTIONS
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a PC keyboard, an airplane, wheel and two
magnifiers.
<PAGE>
-----------------------------------------------
DESCRIPTION OF ARTWORK ON REPORT COVER
Small box above fund name showing a PC
keyboard, an airplane, wheel and two magnifiers.
-----------------------------------------------
SMITH BARNEY SHEARSON
SECTOR
ANALYSIS
FUND
---------
<PAGE>
SECTOR ANALYSIS FUND
DEAR SHAREHOLDER:
We are pleased to present Smith Barney Shearson Sector Analysis Fund's Annual
Report for the recently completed fiscal year. For the year ended January 31,
1994, the average annual total return (without the deduction of applicable
sales charges) for the Fund was 9.10% and 8.34% for Class A and Class B shares,
respectively. This compared with a gain of 12.85% for the Standard & Poor's
Daily Price Index of 500 Common Stocks.
Our 14-indicator stock market composite is at a bullish reading of 63.5% (a
reading of 30% or lower is considered a sell signal). We continue to
believe, among alternative investments, that stocks are the superior investment
vehicle.
We would become cautious on the stock market if interest rates rose to
competitive levels. Based on our analysis, that level would be at a three-month
treasury-bill rate of 3.7% which is 1% above the current S&P 500 dividend yield
of 2.7% (as of this writing, the three-month treasury bill rate is at 3.25% --
discounted). With inflation and oil prices low, it would take a few Fed
tightenings to drive rates to the danger level. Overly bullish sentiment --
typically, 70% or more of investment advisers being bullish -- would also be a
cause for concern. Today, approximately 50% of those surveyed by Investors
Intelligence are bullish on the stock market.
We believe that the 1990s should be a decade in which earnings growth, as
opposed to expanding P/E multiples, will drive stock prices. We believe that
industries which are the direct beneficiaries of increased spending on
infrastructure and capital goods as well as manufacturing and technology will
achieve increased earnings momentum which should help them outperform the stock
market through 1996. The increase in capital spending will come about due to
powerful macroeconomic undercurrents such as: low interest rates, increased
corporate cash flow and, in late 1994 and beyond, a pickup in export growth.
Currently, the Fund is invested 100% in stocks. The heaviest weightings are in
Automobiles, Electronic-Semiconductors, Major Regional Banks, Machinery
(Diversified), and Electrical Equipment. We remain optimistic on the stock
market and feel and any corrections should be limited to 4-7% unless our
14-indicator stock market composite drops to a level below 30% (a sell signal).
A sell signal would result in the Fund shifting from 100% equities to a 100%
cash position.
1
<PAGE>
As portfolio managers, we work closely with your Smith Barney Shearson Financial
Consultants by providing frequent updates on the financial markets and our
investment portfolio. Should you have any questions about either, we urge you to
contact your Financial Consultant for more information. As always, we appreciate
the opportunity to help you reach your investment goals.
Sincerely,
<TABLE>
<S> <C>
/s/ Heath B. McLendon /s/ Elaine M. Garzarelli
Heath B. McLendon Elaine M. Garzarelli
Chairman of the Board and Vice President and
Investment Officer Investment Officer
</TABLE>
March 21, 1994
2
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Equity Funds - Sector Analysis Fund's
investment securities held at January 31, 1994 by industry classification. The
pie is broken in pieces representing industries in the following percentages:
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Communications 5.8%
Commercial Banking 6.1%
Building Products 7.5%
Technology 11.0%
Consumer Durables 12.8%
U.S. Treasury Obilgations, Commercial
Paper, Other Common Stocks and Net
Other Assets and Liabilities 37.9%
Healthcare & Pharmaceuticals 4.3%
Publishing 4.6%
Machinery 4.7%
Retail & Specialty Stores 5.3%
</TABLE>
<TABLE>
TOP TEN HOLDINGS
<CAPTION>
Percentage of
Company Net Assets
- --------------------------------------------------------------------
<S> <C>
GENERAL MOTORS CORPORATION 3.3%
GENERAL ELECTRIC COMPANY 2.8
FORD MOTOR COMPANY 2.5
INTEL CORPORATION 2.3
MOTOROLA, INC. 2.3
FLEETWOOD ENTERPRISES, INC. 2.1
MCDONALD'S CORPORATION 2.1
COCA-COLA COMPANY 1.7
CHRYSLER CORPORATION 1.6
WAL-MART STORES INC. 1.6
</TABLE>
3
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE - CLASS A SHARES
- --------------------------------------------------------------------------------
<CAPTION>
Year Ended Net Asset Value Capital Dividends Total
January 31 Beginning Ending Gains Paid+ Paid+ Return*
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
11/6/92 -
1/31/93 $13.99 $14.78 -- $0.07 6.12%
==============================================================================
1994 $14.78 $16.00 -- $0.12 9.10%
- ------------------------------------------------------------------------------
Total $0.00 $0.19
- ------------------------------------------------------------------------------
Cumulative Total Return -- (11/6/92 through 1/31/94) 15.78%
- ------------------------------------------------------------------------------
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions
at net asset value and do not assume deduction of the sales charge (maximum
5.0% as of November 6, 1992).
+ The above distributions may differ from those cited in the Financial Highlights
contained elsewhere in this report. These differences result from accounting
rules requiring the redesignation of distributions due to the tax characterization
of such distributions.
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS
AND CAPITAL GAINS, IF ANY, ANNUALLY.
<TABLE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN** - CLASS A SHARES (UNAUDITED)
- --------------------------------------------------------------------------------
<CAPTION>
Without Sales Charge With Sales Charge
<S> <C> <C>
- ---------------------------------------------------------------------------------
Year Ended 1/31/94 9.10% 3.64%
- ---------------------------------------------------------------------------------
Inception 11/6/92 through 1/31/94 12.71% 8.08%
- ---------------------------------------------------------------------------------
<FN>
** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value. Average annual total return
figures shown assume the deduction of the maximum 5.0% sales charge.
</TABLE>
NOTE: The Fund began offering Class A shares on November 6, 1992 subject to a
maximum 5.0% front-
end sales charge and an annual service fee of 0.25% of average daily net assets
attributable to that class.
4
<PAGE>
<TABLE>
GROWTH OF $10,000 INVESTED IN CLASS A SHARES
OF SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND+
- --------------------------------------------------------------------------------
November 6, 1992 - January 31, 1994
DESCRIPTION OF MOUNTAIN CHART IN SHEARSON COVERS (CLASS A0
A line graph depicting the total growth (including reinvestment of dividends and capital gains) of a hypothetical
investment of $10,000 in Equity Funds - Sector Analysis Fund's Class A shares on November 6, 1992 through
January 31, 1994 as compared with the growth of a $10,000 investment in Standard & Poor's 500 Index. The
plot points used to draw the line graph were as follows:
GROWTH OF $10,000 GROWTH OF $10,000
INVESTED IN CLASS A INVESTMENT IN THE
MONTH SHARES OF THE STANDARD & POOR'S
ENDED FUND 500 INDEX
<S> <C> <C>
10/31/92 - $10,000
11/06/92 $ 9,500 -
11/92 $ 9,853 $10,340
12/92 $ 9,979 $10,466
03/93 $10,225 $10,923
06/93 $10,054 $10,975
09/93 $10,457 $11,258
12/93 $10,504 $11,526
01/94 $10,999 $11,917
<FN>
+ Illustration of $10,000 invested in Class A shares on November 6, 1992 (commencement of operations)
assuming deduction of the maximum 5.0% sales charge and reinvestment of dividends and capital gains
at net asset value through January 31, 1994.
</TABLE>
The Standard & Poor's Daily Price Index of 500 Common Stocks ("S&P 500")
is composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is
useful in depicting the general movement of the stock market, but because
it is unmanaged the S&P 500 is not subject to the same management and
trading expenses of a mutual fund.
Index information is available at month-end only; therefore the closest
month-end to inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class A
shares.
5
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE - CLASS B SHARES
- --------------------------------------------------------------------------------
<CAPTION>
Year Ended Net Asset Value Capital Dividends Total
January 31 Beginning Ending Gains Paid+ Paid+ Return*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8/28/87 - 1/31/88 $ 12.00 $11.80 $0.23 $0.13 1.30%
- ------------------------------------------------------------------------------------
1989 $ 11.80 $10.60 $ -- $0.41 (6.45)%
- ------------------------------------------------------------------------------------
1990 $ 10.60 $10.99 $ -- $0.45 7.69%
- ------------------------------------------------------------------------------------
1991 $ 10.99 $11.68 $ -- $0.40 10.33%
- ------------------------------------------------------------------------------------
1992 $ 11.68 $13.93 $ -- $0.11 20.22%
- ------------------------------------------------------------------------------------
1993 $ 13.93 $14.77 $ -- $0.05 6.40%
- ------------------------------------------------------------------------------------
1994 $ 14.77 $15.99 $ -- $0.01 8.34%
- ------------------------------------------------------------------------------------
Total $0.23 $1.56
- ------------------------------------------------------------------------------------
Cumulative Total Return from 8/28/87 through 1/31/94 56.04%
- ------------------------------------------------------------------------------------
<FN>
* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not assume deduction of the
contingent deferred sales charge ("CDSC").
+ The above distribution may differ from those cited in the Financial
Highlights contained elsewhere in this report. These differences result
from accounting rules requiring the redesignation of distributions due to
the tax characterization of such distribution.
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS
AND CAPITAL GAINS, IF ANY, ANNUALLY.
<TABLE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN** - CLASS B SHARES (UNAUDITED)
- --------------------------------------------------------------------------------
<CAPTION>
Without CDSC With CDSC
Actual Actual
- ------------------------------------------------------------------------------
<S> <C> <C>
Year Ended 1/31/94 8.34% 3.34%
- ------------------------------------------------------------------------------
Five Years Ended 1/31/94 10.49% 10.35%
- ------------------------------------------------------------------------------
Inception 8/28/87 through 1/31/94 7.17% 7.17%
- ------------------------------------------------------------------------------
<FN>
** All average annual total return figures shown reflect the reinvestment of
dividends and capital gains at net asset value. Average annual total return
figures shown assume the deduction of the maximum applicable CDSC which is
described in the prospectus. The Fund commenced operations on August 28,
1987.
</TABLE>
NOTE: As of November 6, 1992, existing shares of the Fund were designated as
Class B - subject to a maximum 5.00% CDSC and annual service and distribution
fees of 0.25% and 0.75%, respectively, of average daily net assets attributable
to that class.
6
<PAGE>
<TABLE>
GROWTH OF $10,000 INVESTED IN CLASS B SHARES
OF SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND+
- --------------------------------------------------------------------------------
August 28, 1987 - January 31, 1994
DESCRIPTION OF MOUNTAIN CHART IN SHEARSON COVERS (CLASS B)
A line graph depicting the total growth (including reinvestment of dividends and capital gains) of a hypothetical
investment of $10,000 in Equity Funds - Sector Analysis Fund's Class B shares on August 28, 1987 through
January 31, 1994 as compared with the growth of a $10,000 investment in Standard & Poor's 500 Index. The
plot points used to draw the line graph were as follows:
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000
INVESTED IN CLASS B INVESTMENT IN THE
MONTH SHARES OF THE STANDARD & POOR'S
ENDED FUND 500 INDEX
<S> <C> <C>
08/28/87 $10,000 -
08/87 $10,008 $10,000
09/87 $ 9,742 $ 9,781
12/87 $10,242 $ 7,578
03/88 $ 9,821 $ 8,008
06/88 $ 9,512 $ 8,541
09/88 $ 9,057 $ 8,570
12/88 $ 8,896 $ 8,831
03/89 $ 9,378 $ 9,457
06/89 $10,004 $10,290
09/89 $11,157 $11,391
12/89 $10,892 $11,625
03/90 $10,456 $11,275
06/90 $11,041 $11,983
09/90 $ 9,574 $10,338
12/90 $10,112 $11,263
03/91 $12,359 $12,897
06/91 $12,474 $12,866
09/91 $12,484 $13,553
12/91 $13,293 $14,688
03/92 $13,750 $14,317
06/92 $13,429 $14,589
09/92 $13,303 $15,049
12/92 $14,266 $15,805
03/93 $14,597 $16,494
06/93 $14,334 $16,573
09/93 $14,870 $17,000
12/93 $14,911 $17,404
01/94 $15,604 $17,996
<FN>
+ Illustration of $10,000 invested in Class B shares on August 28, 1987 assuming deduction of
the maximum applicable CDSC at the time of redemption and reinvestment of dividends and capital
gains at net asset value through January 31, 1994.
</TABLE>
The Standard & Poor's Daily Price Index of 500 Common Stocks ("S&P 500")
is composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is
useful in depicting the general movement of the stock market, but because
it is unmanaged the S&P 500 is not subject to the same management and
trading expenses of a mutual fund.
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class B
shares.
7
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 100.1%
CONSUMER DURABLES - 12.8%
5,000 Basset Furniture Industries Inc. $ 171,875
2,800 Briggs & Stratton Corporation 242,200
35,100 Chrysler Corporation 2,158,650
5,400 Crane Company 144,450
3,400 Echlin Inc. 118,150
50,200 Ford Motor Company 3,363,400
72,400 General Motors Corporation 4,443,550
5,500 ITT Corporation 541,062
47,500 Maytag Corporation 908,438
21,100 Pall Corporation 398,263
19,900 Phelps Dodge Corporation 1,079,575
28,000 Skyline Corporation 581,000
31,200 Whirlpool Corporation 2,109,900
14,100 Westinghouse Electric Corporation 197,400
5,300 Xerox Corporation 520,063
12,800 Zenith Electronics Corporation+ 100,800
- ---------------------------------------------------------------------------------------
17,078,776
- ---------------------------------------------------------------------------------------
TECHNOLOGY - 11.0%
10,100 Advanced Micro Devices Inc.+ 207,050
18,200 Amdahl Corporation 129,675
26,700 Apple Computer Inc. 874,425
900 Autodesk, Inc. 46,575
7,000 Ceridian Corporation+ 159,250
11,800 Compaq Computer+ 1,014,800
6,300 Computer Association International, Inc. 232,313
1,800 Computer Sciences Corporation+ 62,100
4,200 Cray Research, Inc.+ 131,775
6,000 Data General Corporation+ 49,500
8,600 Digital Equipment Corporation+ 260,150
14,000 Hewlett-Packard Company 1,195,250
5,400 Honeywell Inc. 176,175
47,300 Intel Corporation 3,086,325
8,000 Intergraph Financial Corporation+ 90,000
2,100 Litton Industries, Inc.+ 143,850
1,600 Lotus Development Corporation+ 93,200
5,100 Millipore Corporation 209,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TECHNOLOGY (CONTINUED)
30,500 Motorola, Inc. $ 3,004,250
12,400 National Semiconductor Corporation+ 223,200
11,900 Novell Inc.+ 269,238
10,800 Oracle Systems Corporation 346,950
5,100 Perkin-Elmer Corporation 199,537
3,000 Shared Medical Systems Corporation 73,500
15,800 Sun Microsystems Inc.+ 418,700
18,200 Tandem Computers, Inc.+ 245,700
9,300 Texas Instruments, Inc. 653,325
4,100 Textron, Inc. 242,413
8,400 Tyco International Ltd. 453,600
26,200 Unisys Corporation+ 347,150
- ---------------------------------------------------------------------------------------
14,639,076
- ---------------------------------------------------------------------------------------
BUILDING PRODUCTS - 7.5%
16,500 Armstrong World Industries Inc. 928,125
112,200 Fleetwood Enterprises, Inc. 2,819,025
10,700 Georgia Pacific Corporation 805,175
20,200 Illinois Tool Works, Inc. 858,500
7,300 Johnson Controls, Inc. 428,875
13,100 Louisiana Pacific Corporation 579,675
2,500 Lowe's Companies Inc. 152,500
28,300 MASCO Corporation 1,100,162
7,800 Owens Corning Fiberglass Corporation+ 351,975
3,500 Potlatch Corporation 164,938
1,700 Raychem Corporation 62,050
16,400 Sherwin Williams Company 559,650
24,500 Weyerhaeuser Company 1,197,437
- ---------------------------------------------------------------------------------------
10,008,087
- ---------------------------------------------------------------------------------------
COMMERCIAL BANKING - 6.1%
28,200 Banc One Corporation 1,057,500
3,100 Bankers Trust New York Corporation 260,013
4,400 Barnett Banks, Inc. 185,900
10,400 Boatmens Bancshares, Inc. 304,200
6,800 Chase Manhattan Corporation 245,650
9,400 Chemical Banking Corporation 371,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COMMERCIAL BANKING (CONTINUED)
14,000 Citicorp+ $ 612,500
12,400 CoreStates Financial Corporation 334,800
3,100 First Chicago Corporation 145,700
3,400 First Fidelity Bancorporation 150,025
3,400 First Interstate Bancorp 238,425
7,600 First Union Corporation 330,600
6,200 Fleet/Norstar Financial Group, Inc. 217,775
7,200 Morgan (J.P.) & Company, Inc. 516,600
12,100 NationsBank Corporation 614,075
7,200 NBD Bancorp, Inc. 214,200
13,100 Norwest Corporation 345,513
10,600 PNC Financial Corporation 314,025
4,300 Shawmut National Corporation 102,662
5,700 SunTrust Banks, Inc. 262,912
5,900 U.S. Bancorp, Oregon 150,450
7,800 Wachovia Corporation 272,025
6,500 Wells Fargo & Company 891,313
- ---------------------------------------------------------------------------------------
8,138,163
- ---------------------------------------------------------------------------------------
COMMUNICATIONS - 5.8%
2,100 Andrew Corporation 92,925
1,600 CBS, Inc. 489,600
1,600 Capital Cities/ABC, Inc. 1,048,000
15,200 Comcast Corporation, Class A 476,900
6,100 DSC Communications Inc.+ 366,762
24,300 Dun & Bradstreet Corporation 1,527,862
3,400 M/A-Com, Inc.+ 28,475
24,600 McCaw Cellular Communications Inc., Class A+ 1,328,400
31,800 Northern Telecomm Ltd. 1,033,500
46,700 Tele-Communications Inc., Class A+ 1,272,575
- ---------------------------------------------------------------------------------------
7,664,999
- ---------------------------------------------------------------------------------------
RETAIL & SPECIALTY STORES - 5.3%
3,400 Charming Shoppes Inc. 39,100
3,200 Circuit City Stores Inc. 62,400
4,500 Dayton Hudson Corporation 295,875
7,100 Dillard Department Stores Inc., Class A 254,712
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RETAIL & SPECIALTY STORES (CONTINUED)
4,900 Gap Inc. $ 207,025
15,200 Home Depot Inc. 592,800
14,100 K mart Corporation 276,713
12,400 Limited Inc. 220,100
15,600 May Department Stores Inc. 616,200
3,600 Melville Corporation 143,100
2,300 Mercantile Stores Inc. 90,850
5,200 Nordstrom Inc. 182,000
8,100 Penney (J.C.) Inc. 424,237
2,100 Pep Boys-Manny, Moe & Jack 58,800
12,100 Sears, Roebuck & Company 663,988
2,200 Tandy Corporation 105,050
2,500 TJX Companies Inc. 70,625
9,900 Toys "R" Us Inc.+ 361,350
79,700 Wal-Mart Stores Inc. 2,112,050
4,600 Woolworth Corporation 119,600
- ---------------------------------------------------------------------------------------
6,896,575
- ---------------------------------------------------------------------------------------
MACHINERY - 4.7%
19,700 Caterpillar, Inc. 2,051,262
34,100 Cincinnati Milacron, Inc. 865,288
3,400 Clark Equipment Company+ 198,050
1,600 Cummins Engine Inc. 88,400
14,900 Deere & Company 1,199,450
26,700 Giddings & Lewis, Inc. 734,250
20,500 Ingersoll-Rand Company 784,125
6,700 Varity Corporation+ 301,500
- ---------------------------------------------------------------------------------------
6,222,325
- ---------------------------------------------------------------------------------------
PUBLISHING - 4.6%
15,200 Dow Jones & Company, Inc. 602,300
22,400 Gannett, Inc. 1,276,800
8,300 Knight-Ridder, Inc. 481,400
16,100 New York Times Company, Class A 458,850
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PUBLISHING (CONTINUED)
50,600 Time Warner, Inc. $ 2,024,000
19,600 Times Mirror Company, Series A 710,500
10,200 Tribune Company 613,275
- ---------------------------------------------------------------------------------------
6,167,125
- ---------------------------------------------------------------------------------------
HEALTHCARE & PHARMACEUTICALS - 4.3%
2,100 Allergan Inc. 48,825
40,700 Columbia Healthcare Corporation 1,541,512
11,400 Community Psychiatric Centers 196,650
9,500 Lilly (Eli) & Company 568,812
37,200 Merck & Company Inc. 1,357,800
44,800 National Medical Enterprises Inc. 711,200
10,600 Pfizer, Inc. 685,025
6,300 Schering-Plough Corporation 396,900
7,200 Syntex Corporation 110,700
5,700 Upjohn Company 171,000
- ---------------------------------------------------------------------------------------
5,788,424
- ---------------------------------------------------------------------------------------
CONSUMER NON-DURABLES - 4.3%
7,000 American Brands Inc. 250,250
54,600 Coca-Cola Company 2,231,775
33,400 PepsiCo Inc. 1,348,525
27,500 Phillip Morris Companies Inc. 1,656,875
7,400 UST Inc. 210,900
- ---------------------------------------------------------------------------------------
5,698,325
- ---------------------------------------------------------------------------------------
PAPER & PAPER PRODUCTS - 4.1%
11,200 Champion International Corporation 373,800
5,000 Federal Paper Board, Inc. 131,250
5,000 Harnischfeger Industries, Inc. 120,625
14,800 International Paper 1,111,850
9,600 James River Corporation 193,200
19,200 Kimberly Clark Corporation 1,092,000
6,700 McGraw Hill, Inc. 463,975
7,000 Mead Corporation 331,625
2,100 Meredith Corporation 88,462
5,300 Moore Corporation, Ltd. 107,987
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER & PAPER PRODUCTS (CONTINUED)
8,800 Pitney Bowes $ 394,900
8,900 Scott Paper Company 416,075
8,300 Union Camp Corporation 407,738
8,000 Westvaco Corporation 290,000
- ---------------------------------------------------------------------------------------
5,523,487
- ---------------------------------------------------------------------------------------
OIL SERVICES - 3.6%
5,400 Amerada Hess Corporation 261,900
28,700 Amoco Corporation 1,542,625
3,500 Ashland Oil, Inc. 131,250
9,200 Atlantic Richfield Company 1,016,600
17,600 Occidental Petroleum Corporation 316,800
5,600 Oryx Energy Company 100,800
2,600 Pennzoil Company 143,650
15,100 Phillips Petroleum Company 445,450
6,100 Sun, Inc. 188,338
13,900 Unocal Corporation 408,312
16,500 USX-Marathon Group 305,250
- ---------------------------------------------------------------------------------------
4,860,975
- ---------------------------------------------------------------------------------------
TRANSPORTATION - 3.4%
4,400 AMR Corporation+ 316,250
4,200 Burlington Northern Inc. 271,425
3,800 Conrail Inc. 247,000
18,400 Consolidated Freightways Inc.+ 478,400
5,000 CSX Corporation 458,750
2,900 Delta Air Lines, Inc. 162,400
6,700 Norfolk Southern Corporation 493,287
7,900 Roadway Services Inc. 553,000
8,800 Santa Fe Pacific Corporation 215,600
1,400 UAL Corporation+ 205,800
9,800 Union Pacific Corporation 640,675
3,400 USAir Group, Inc.+ 50,150
14,100 Yellow Corporation 405,375
- ---------------------------------------------------------------------------------------
4,498,112
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONICS - 3.1%
3,200 Eaton Corporation $ 182,400
34,200 General Electric Company 3,685,050
4,800 Scientific Atlanta Inc. 136,200
3,500 Tektronix, Inc. 98,875
2,500 Teledyne, Inc. 57,500
- ---------------------------------------------------------------------------------------
4,160,025
- ---------------------------------------------------------------------------------------
ENERGY - 2.5%
22,200 Cooper Industries, Inc. 921,300
25,800 Cyprus Minerals Company 774,000
10,300 Dover Corporation 614,138
8,900 Parker Hannifin Corporation 340,425
5,300 Santa Fe Energy Resources 49,025
7,800 Tenneco, Inc. 448,500
5,200 Trinova Corporation 171,600
- ---------------------------------------------------------------------------------------
3,318,988
- ---------------------------------------------------------------------------------------
RESTAURANTS - 2.4%
3,400 Luby's Cafeterias, Inc. 77,350
45,200 McDonald's Corporation 2,745,900
10,300 Ryans Family Steak Houses, Inc.+ 81,112
5,100 Shoneys, Inc.+ 117,300
12,600 Wendy's International, Inc. 215,775
- ---------------------------------------------------------------------------------------
3,237,437
- ---------------------------------------------------------------------------------------
STEEL - 2.4%
19,300 Armco, Inc.+ 127,863
11,800 Asarco, Inc. 302,375
17,300 Bethlehem Steel Corporation+ 408,712
6,800 Inland Steel Industries, Inc.+ 238,850
16,600 Nucor Corporation 979,400
5,500 Timken Company 200,750
13,200 USX-U.S. Steel Group 580,800
17,250 Worthington Industries, Inc. 340,688
- ---------------------------------------------------------------------------------------
3,179,438
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ALUMINUM - 2.3%
42,800 Alcan Aluminum, Ltd. $1,048,600
17,000 Aluminum Company of America 1,345,125
11,500 Reynolds Metals Company 613,812
- ---------------------------------------------------------------------------------------
3,007,537
- ---------------------------------------------------------------------------------------
CAPITAL GOODS - 1.9%
4,500 Boise Cascade Corporation 120,937
14,300 Centex Corporation 632,775
8,100 Fedders Corporation+ 58,725
7,300 Genuine Parts 282,875
2,000 Grainger (W.W.) Inc. 125,250
31,000 Inco, Ltd. 856,375
14,700 Kaufman & Broad Home Corporation 341,775
800 SPX Corporation 13,700
1,725 PACCAR Inc. 104,794
- ---------------------------------------------------------------------------------------
2,537,206
- ---------------------------------------------------------------------------------------
CHEMICALS - 1.8%
3,100 Air Products & Chemicals, Inc. 153,837
7,500 Dow Chemical Company 476,250
18,500 DuPont (E.I.) DeNemours & Company 1,036,000
3,300 Ethyl Corporation 60,638
700 Goodrich (B.F.) Company 29,225
1,900 Great Lakes Chemical Corporation 149,863
1,200 Hercules, Inc. 131,400
3,300 Monsanto Company 254,513
1,500 NL Industries, Inc.+ 9,375
1,900 Rohm & Haas Company 108,538
- ---------------------------------------------------------------------------------------
2,409,639
- ---------------------------------------------------------------------------------------
MINING - 1.5%
26,000 American Barrick Resource Corporation 724,750
10,200 Echo Bay Mines, Ltd. 135,150
12,600 Homestake Mining Company 277,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MINING (CONTINUED)
6,300 Newmont Mining Corporation $ 337,838
21,900 Placer Dome, Inc. 555,712
- ---------------------------------------------------------------------------------------
2,030,650
- ---------------------------------------------------------------------------------------
ENTERTAINMENT - 1.2%
7,700 Blockbuster Entertainment Corporation 212,713
11,400 Disney (Walt) Company 538,650
13,400 King World Productions, Inc.+ 552,750
6,400 Promus Company Inc. 324,000
- ---------------------------------------------------------------------------------------
1,628,113
- ---------------------------------------------------------------------------------------
BASIC INDUSTRIES - 1.1%
4,200 AMP Inc. 262,500
2,100 Dana Corporation 122,588
9,000 Emerson Electric Company 551,250
8,500 Goodyear Tire & Rubber Company 411,187
800 Thomas & Betts Corporation 50,600
4,100 Union Carbide Corporation 104,550
- ---------------------------------------------------------------------------------------
1,502,675
- ---------------------------------------------------------------------------------------
FINANCIAL SERVICES - 0.8%
6,600 Beneficial Corporation 261,525
11,600 Household International Inc. 384,250
12,400 Pulte Corporation 430,900
- ---------------------------------------------------------------------------------------
1,076,675
- ---------------------------------------------------------------------------------------
INSURANCE - 0.6%
4,400 Capital Holding Corporation 159,500
2,300 Jefferson-Pilot Corporation 106,375
4,100 Lincoln National Corporation 174,250
2,900 SAFECO Corporation 171,100
3,300 Torchmark Corporation 157,162
1,000 USLIFE Corporation 40,375
- ---------------------------------------------------------------------------------------
808,762
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1994
- --------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
APPAREL MANUFACTURING & DESIGN - 0.5%
700 Brown Group Inc. $ 24,588
1,000 Genesco Inc.+ 4,125
1,500 Hartmarx Corporation+ 10,125
3,900 Liz Claiborne Inc. 80,925
3,100 NIKE, Inc., Class B 155,000
700 Oshkosh B'Gosh Inc., Class A 11,900
3,600 Reebok International Ltd. 115,650
1,900 Russell Corporation 50,112
2,000 Stride Rite Corporation 32,500
3,000 V.F. Corporation 139,125
- ---------------------------------------------------------------------------------------
624,050
- ---------------------------------------------------------------------------------------
HOTELS - 0.3%
3,000 Hilton Hotels Corporation 192,000
7,300 Marriott International Inc. 214,437
- ---------------------------------------------------------------------------------------
406,437
- ---------------------------------------------------------------------------------------
DATA PROCESSING - 0.2%
5,300 Automatic Data Processing, Inc. 277,587
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $117,775,727) 133,389,668
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATION - 0.2% (Cost $298,704)
$ 300,000 U.S. Treasury Bills, 2.882%** due 03/24/94 298,704
- ---------------------------------------------------------------------------------------
COMMERCIAL PAPER - 0.3% (Cost $327,000)
327,000 Ford Motor Company, 3.100% due 02/01/94 327,000
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $118,401,431*) 100.6% 134,015,372
- ---------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) (0.6) (790,003)
- ---------------------------------------------------------------------------------------
NET ASSETS 100.0% $133,225,369
- ---------------------------------------------------------------------------------------
<FN>
* Aggregate cost for Federal tax purposes.
** Rate represents annualized yield to maturity (unaudited).
+ Non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost $118,401,431) (Note 1)
See accompanying schedule $134,015,372
Cash 58
Dividends and interest receivable 177,985
Receivable for Fund shares sold 37,777
- -----------------------------------------------------------------------------------------
TOTAL ASSETS 134,231,192
- -----------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares redeemed $239,536
Distribution fee payable (Note 3) 82,767
Investment advisory fee payable (Note 2) 45,347
Administration fee payable (Note 2) 22,673
Sub-investment advisory fee payable (Note 2) 22,673
Transfer agent fees payable (Notes 2 and 4) 38,650
Service fee payable (Note 3) 28,342
Custodian fees payable (Note 2) 15,000
Accrued expenses and other payables 510,835
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,005,823
- -----------------------------------------------------------------------------------------
NET ASSETS $133,225,369
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (continued)
- --------------------------------------------------------------------------------
<S> <C>
NET ASSETS CONSIST OF:
Accumulated net realized loss on investments sold $ (4,914,490)
Unrealized appreciation of investments 15,613,941
Par value 8,332
Paid-in capital in excess of par value 122,517,586
- -----------------------------------------------------------------------------------------
TOTAL NET ASSETS $133,225,369
- -----------------------------------------------------------------------------------------
NET ASSET VALUE
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($3,573,305 / 223,373 shares of beneficial interest outstanding) $16.00
- -----------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE per share ($16.00 / 0.95)
(based on sales charges of 5% of the offering price on January 31, 1994) $16.84
- -----------------------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($129,652,048 / 8,108,309 shares of beneficial interest outstanding) $15.99
- -----------------------------------------------------------------------------------------
CLASS D SHARES:
NET ASSET VALUE, offering and redemption price per share
($15.99 / 1 share of beneficial interest outstanding) $15.99
- -----------------------------------------------------------------------------------------
<FN>
+ Redemption price per share is equal to Net Asset Value less any applicable
CDSC.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $2,067) $ 3,179,895
Interest 321,440
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 3,501,335
- ---------------------------------------------------------------------------------------
EXPENSES:
Distribution fee (Note 3) $ 1,160,037
Investment advisory fee (Note 2) 632,931
Service fee (Note 3) 395,582
Sub-investment advisory fee (Note 2) 316,466
Administration fee (Note 2) 316,466
Transfer agent fees (Notes 2 and 4) 309,577
Custodian fees (Note 2) 63,804
Legal and audit fees 58,600
Trustees' fees and expenses (Note 2) 20,549
Other 122,287
- ---------------------------------------------------------------------------------------
Total Operating Expenses Before Interest Expense 3,396,299
Interest expense (Note 8) 23,023
- ---------------------------------------------------------------------------------------
TOTAL EXPENSES 3,419,322
- ---------------------------------------------------------------------------------------
NET INVESTMENT INCOME 82,013
- ---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain on:
Securities transactions 11,435,995
Futures contracts 1,282,207
- ---------------------------------------------------------------------------------------
Net realized gain on investments during the year 12,718,202
- ---------------------------------------------------------------------------------------
Net change in unrealized depreciation of:
Securities (1,272,411)
Futures contracts (167,750)
- ---------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (1,440,161)
- ---------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 11,278,041
- ---------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,360,054
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/94 1/31/93
<S> <C> <C>
Net investment income $ 82,013 $ 524,273
Net realized gain on securities sold and futures
contracts during the year 12,718,202 5,873,882
Net unrealized appreciation/(depreciation) of securities
and futures contracts during the year (1,440,161) 4,749,419
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,360,054 11,147,574
Distributions to shareholders from net investment income:
Class A (17,631) (221)
Class B (64,382) (544,670)
Distribution to shareholders from capital (Note 1):
Class A -- (42)
Class B -- (104,743)
Distributions to shareholders in excess of realized
gains:
Class A (9,525) --
Class B (34,783) --
Net increase/(decrease) in net assets from share
transactions (Note 6):
Class A 2,366,203 998,609
Class B (66,894,874) (10,590,665)
Class D -- 15
- ---------------------------------------------------------------------------------------
Net increase/(decrease) in net assets (53,294,938) 905,857
NET ASSETS:
Beginning of year 186,520,307 185,614,450
- ---------------------------------------------------------------------------------------
End of year $133,225,369 $186,520,307
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
YEAR PERIOD
ENDED ENDED
1/31/94# 1/31/93*
<S> <C> <C>
Net asset value, beginning of period $14.78 $13.99
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13 0.07
Net realized and unrealized gain on investments 1.21 0.79
- -------------------------------------------------------------------------------------
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) --
- -------------------------------------------------------------------------------------
Total distributions (0.12) (0.07)
- -------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------
<FN>
* 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<CAPTION>
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*
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $14.77 $13.93 $11.68 $10.99 $10.60 $11.80 $12.00
- ---------------------------------------------------------------------------------------------------------
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 0.63 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%
- ---------------------------------------------------------------------------------------------------------
<FN>
* 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Equity Funds (the "Trust") was organized under the laws of
the Commonwealth of Massachusetts on January 8, 1986 and is an entity commonly
known as a "Massachusetts business trust." The Trust is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"), as a diversified, open-end management investment
company. As of January 31, 1994, the Trust offered three managed investment
portfolios: Smith Barney Shearson Strategic Investors Fund, Smith Barney
Shearson Growth and Income Fund and Smith Barney Shearson Sector Analysis Fund
(the "Fund"). As of November 6, 1992, the Fund offered two classes of shares to
the general public: Class A shares and Class B shares. Class A shares are sold
with a front-end sales charge. Class B may be subject to a contingent deferred
sales charge ("CDSC"). Class B shares will automatically convert to Class A
shares eight years after the original purchase date. On January 29, 1993, the
Fund began offering Class D shares to investors that are eligible to participate
in the Smith Barney Shearson 401(k) Program. Class D shares are offered without
a front-end sales charge or a CDSC. Each class of shares has identical rights
and privileges except with respect to the effect of the respective sales
charges, the distribution and/or service fees borne by each class, expenses
allocable exclusively to each class, voting rights on matters affecting a single
class, the exchange privilege of each class and the conversion feature of Class
B shares. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Portfolio valuation: The Fund's investments are valued at market value or, in
the absence of a market value with respect to any portfolio securities, at fair
value as determined by or under the direction of the Trust's Board of Trustees.
A security which is traded primarily on a domestic or foreign 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. Over-the-counter securities are valued on
the basis of the bid price at the close of business on each day. An option
generally is valued at the last sale price or in the absence of a sale price,
the offer price. 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. The value of a stock index futures
contract equals the unrealized gain or loss on the contract, which is determined
by marking the contract to the current settlement price for a like contract
acquired on the day on which the stock index futures contract is being valued. A
settlement price may not be used if the market makes a limit
24
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
move with respect to a particular commodity. In such event, the futures contract
will be valued at a fair market price to be determined by or under the direction
of the Board of Trustees. Short-term investments that mature in 60 days or less
are valued at amortized cost.
Futures contracts: The Fund may enter into futures contracts in order to hedge
against changes in the value of its portfolio. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin." Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract.
For financial statement purposes, an amount equal to the settlement amount of
the contract is included in its Statement of Assets and Liabilities as an asset
and as an equivalent liability. For long futures positions, the asset is
marked-to-market daily. For short futures positions, the liability is
marked-to-market daily. The daily changes in the contract are recorded as
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments or index, which may not correlate
with the change in value of the hedged investments. Therefore, anticipated gains
may not result and anticipated losses may not be offset. In addition, there is
the risk that the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market.
Repurchase agreements: The Fund engages in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession of
an underlying debt obligation 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 collateral is at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event that the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert its rights. The Fund's investment
25
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
adviser or sub-investment adviser, acting under the supervision of the Board of
Trustees, reviews 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.
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after trade date. Realized
gains and losses from securities sold are recorded on the identified cost basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Investment
income and realized and unrealized gains and losses are allocated based upon
relative net assets of each class.
Dividends and distributions to shareholders: Dividends from net investment
income, if any, are determined on a class level. Distributions of any net
realized capital gain earned by the Fund generally will be made annually after
the close of the fiscal year in which they are earned. Distributions of the
Fund's net investment income and capital gains may be made more frequently at
the discretion of the Board of Trustees. Additional distributions of net
investment income and capital gains for the Fund may be made at the discretion
of the Board of Trustees in order to avoid the application of a 4% nondeductible
excise tax on certain undistributed amounts of net investment income and capital
gains. Income distributions and capital gain distributions on a Fund level are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distributions
made by the Fund as a whole. Payment differences incurred during the year ended
January 31, 1994 resulting from different book and tax accounting for certain
distributions have been reclassified to paid-in-capital at year end.
Reclassifications: During the current year, the Fund adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies." Accordingly, certain reclassifications have been made to the
components of capital in the Statement of Net Assets to conform with the
accounting and reporting guidelines of this statement. Distributions in excess
of book basis accumulated realized gains or undistributed net investment income
that were the result of permanent book and tax accounting differences have been
reclassified to
26
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
paid-in capital. In addition, amounts distributed in excess of undistributed net
investment income as determined for financial statement purposes but as
distributions from net investment income or net realized gains for tax purposes,
previously having been reported as distributions from paid-in capital, have been
reclassified to reflect the tax characterization. Accordingly, amounts as of
January 31, 1993 have been restated to reflect an increase in paid-in capital of
$1,071,568, and an increase in accumulated net realized loss of $1,071,568. The
Statement of Changes in Net Assets and Financial Highlights for prior periods
have not been restated to reflect this change in presentation. Net investment
income, net realized gains, and net assets on a book and tax basis were not
affected by this change.
Federal income taxes: The Trust intends that the Fund qualify as a regulated
investment company if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, SUB-INVESTMENT
ADVISORY FEE, ADMINISTRATION FEE AND OTHER
RELATED PARTY TRANSACTIONS
Up to the close of business on July 30, 1993, the Fund was a party to an invest-
ment advisory agreement with Shearson Lehman Investment Strategy Advisors Inc.
("Strategy Advisors"), a wholly owned subsidiary of Shearson Lehman Brothers
Inc. ("Shearson Lehman Brothers"). Under the investment advisory agreement, the
Fund paid a monthly fee at the annual rate of 0.40% of its average daily net
assets.
As of the close of business on July 30, 1993, The Travelers Inc. ("Travelers")
(formerly known as Primerica Corporation) and Smith Barney, Harris Upham & Co.
Incorporated completed the acquisition of the domestic retail brokerage and
asset management business of Shearson Lehman Brothers and Smith Barney, Harris
Upham & Co. Incorporated was renamed Smith Barney Shearson Inc. ("Smith Barney
Shearson").
As of the close of business on July 30, 1993, Smith Barney Shearson Strategy
Advisers Inc. ("SBSSA"), which is controlled by Smith Barney Shearson Holdings
Inc. ("Holdings"), succeeded Strategy Advisors as the Fund's investment adviser.
Holdings is a wholly owned subsidiary of Travelers. The new investment
27
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
advisory agreement with SBSSA contains terms and conditions substantially
similar to the investment advisory agreement with the predecessor investment
adviser and provides for payment at the same rate as was paid to such
predecessor investment adviser.
The Fund also entered into a sub-investment advisory agreement (the "Sub-
Advisory Agreement") with PanAgora Asset Management, Inc. ("PanAgora
Management"). Fifty percent of the outstanding voting stock of PanAgora
Management is owned by Nippon Life Insurance Company, and 50% is owned by Lehman
Brothers Inc. Under the Sub-Advisory Agreement, the Fund pays a monthly fee at
the annual rate of 0.20% of the value of its average daily net assets.
The Fund also entered into an administration agreement (the "Administration
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Administration Agreement, Boston Advisors is paid a fee computed and paid
monthly at the annual rate of 0.20% of the value of the Fund's average daily net
assets.
For the year ended January 31, 1994, the Fund incurred total brokerage
commissions of $531,304, of which $51,419 was paid to Smith Barney Shearson.
For the year ended January 31, 1994, Smith Barney Shearson received $9,448 from
investors representing commissions (sales charges) on sales of Class A shares.
A contingent deferred sales charge ("CDSC") is generally payable by a
shareholder in connection with the redemption of Class B shares within five
years (eight years in the case of purchases by certain 401(k) plans) after the
date of purchase. In circumstances in which the CDSC is imposed, the amount
ranges between 5% and 1% of net asset value depending on the number of years
since the date of purchase (except in the case of purchases by certain 401(k)
plans in which case a 3% CDSC is imposed for the eight year period after the
date of purchase). For the year ended January 31, 1994, Smith Barney Shearson
received from shareholders $380,087 in CDSC on the redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, PanAgora Management
or Boston Advisors or any of their affiliates receives any compensation from the
Trust for serving as a Trustee or officer of the Trust. The Trust pays each
Trustee who is not an officer, director or employee of Smith Barney Shearson,
PanAgora Management, or Boston Advisors or any of their affiliates $6,000 per
annum plus $1,500 per meeting attended and reimburses each such Trustee for
travel and out-of-pocket expenses.
28
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, serves as the Fund's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Trust's shares pursuant to a
distribution agreement with the Trust, and sells shares of the Fund through
Smith Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Services and
Distribution Plan (the "Plan"). Under this Plan, the Trust compensates Smith
Barney Shearson for servicing shareholder accounts for Class A, Class B and
Class D shareholders, and covers expenses incurred in distributing Class B and
Class D 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 each respective class of shares. 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. During the year ended January 31, 1994, the
Fund incurred $8,904 and $386,678 in service fees for Class A and Class B
shares, respectively. Prior to July 31, 1993, Shearson Lehman Brothers served as
the Fund's distributor and received a fee equal to the current rate for its
services. For the year ended January 31, 1994, the Fund incurred $1,160,037 in
distribution fees for Class B shares.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class of
shares are prorated among the classes based upon the relative net assets of each
class. Operating expenses directly attributable to a class of shares are charged
to that class' operations. In addition to the above servicing and distribution
fees, class specific operating expenses include transfer agent fees of $6,777
and $302,800 for Class A and Class B shares, respectively.
5. PURCHASES AND SALES OF SECURITIES
Purchases and proceeds from sales of securities, excluding short-term
investments and U.S. government securities, aggregated $203,031,185 and
$253,943,447, respectively, during the year ended January 31, 1994. Purchases
and proceeds
29
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
from sales of securities for U.S. government securities, aggregated $11,043,000
and $11,163,938, respectively, during the year ended January 31, 1994.
At January 31, 1994 aggregate gross unrealized appreciation for all securities
in which there is an excess of value of over tax cost was $18,038,393 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $2,424,452.
<TABLE>
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest with a
$.001 par value. Changes in shares of beneficial interest for the Fund which are
divided into three classes (Class A, Class B and Class D) were as follows:
<CAPTION>
YEAR ENDED PERIOD ENDED
1/31/94 1/31/93*
Class A shares: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Sold 540,390 $ 8,014,489 67,903 $ 998,346
Issued as reinvestment of
dividends 1,739 26,572 18 263
Redeemed (386,677) (5,674,858) -- --
- -----------------------------------------------------------------------------------------
Net increase 155,452 $ 2,366,203 67,921 $ 998,609
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
Class B shares: Shares 1/31/94Amount Shares 1/31/93 Amount
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 502,884 $ 7,481,991 4,206,154 $ 59,662,085
Issued as reinvestment of
dividends 6,131 93,687 42,404 623,335
Redeemed (4,964,245) (74,470,552) (5,009,494) (70,876,085)
- -----------------------------------------------------------------------------------------
Net decrease (4,455,230) $(66,894,874) (760,936) $(10,590,665)
- -----------------------------------------------------------------------------------------
<FN>
* The Fund began offering Class A shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated as Class B shares.
</TABLE>
As of January 31, 1994, the Fund had issued one Class D share in the amount of
$15.99 to Smith Barney Shearson. As of January 31, 1994, there were no income or
expenses allocated to this one Class D share.
30
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
7. CAPITAL LOSS CARRYFORWARDS
As of January 31, 1994, the Fund had available for Federal tax purposes unused
capital loss carryforwards of $4,032,486 and $1,160,933 expiring in 1999 and
1997, respectively.
8. LINE OF CREDIT
The Fund and several affiliated entities participated in a $50 million line of
credit provided by Continental Bank N.A. under Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992, primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. Under this
Agreement, the Fund may borrow up to the lesser of $25 million or 10% of its net
assets. Interest is payable either at the bank's Money Market Rate or the London
Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. The Fund and
the other affiliated entities are charged an aggregate commitment fee of
$125,000 which is allocated equally among each of the participants. The
Agreement requires, among other provisions, each participating fund to maintain
a ratio of net assets (not including funds borrowed pursuant to the Agreement)
to the aggregate amount of indebtedness pursuant to the Agreement of no less
than 5 to 1. At January 31, 1994, the Fund had no outstanding borrowings
pursuant to the Agreement. During the year ended January 31, 1994, the Fund had
an average outstanding balance of $427,945 with interest rates ranging from
3.3125% to 6.375%. Interest expense totalled $23,023 for the year ended January
31, 1994.
31
<PAGE>
Smith Barney Shearson
SECTOR ANALYSIS FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND OF
SMITH BARNEY SHEARSON EQUITY FUNDS:
We have audited the accompanying statement of assets and liabilities of Smith
Barney Shearson Sector Analysis Fund of Smith Barney Shearson Equity Funds,
including the schedule of portfolio investments, as of January 31, 1994, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the six years in the period then ended and
for the period from August 28, 1987 (commencement of operations) to January 31,
1988. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Shearson Sector Analysis Fund of Smith Barney Shearson Equity Funds as of
January 31, 1994, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the six years in the period then ended and
for the period from August 28, 1987 (commencement of operations) to January 31,
1988, in conformity with generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
March 15, 1994
32
<PAGE>
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
This report is submitted for the general information of the shareholders of
Smith Barney Shearson Sector Analysis Fund. It is not authorized for
distribution to prospective investors unless accompanied or preceded by an
effective Prospectus for the Fund, which contains information concerning the
Fund's investment policies, fees and expenses as well as other pertinent
information.
SMITH BARNEY SHEARSON
- ---------------------
SMITH BARNEY SHEARSON
MUTUAL FUNDS
Two World Trade Center
New York, New York 10048
Fund 55,251
FD2168 C4
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
<PAGE>1
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 67.0%
Financial Services - 7.4%
0 28,200 28,200 Banc One Corporation. . . . . . . . . . . $0 $1,057,500 $1,057,500
0 3,100 3,100 Bankers Trust New York Corporation. . . . 0 260,013 260,013
0 4,400 4,400 Barnett Banks, Inc. . . . . . . . . . . . 0 185,900 185,900
0 6,600 6,600 Beneficial Corporation. . . . . . . . . . 0 261,525 261,525
0 10,400 10,400 Boatmens Bancshares, Inc. . . . . . . . . 0 304,200 304,200
87,900 6,800 94,700 Chase Manhattan Corporation . . . . . . . 3,175,388 245,650 3,421,038
0 9,400 9,400 Chemical Banking Corporation. . . . . . . 0 371,300 371,300
0 14,000 14,000 Citicorp+ . . . . . . . . . . . . . . . . 0 612,500 612,500
76,600 0 76,600 Continental Bank Corporation. . . . . . . 2,690,575 0 2,690,575
0 12,400 12,400 CoreStates Financial Corporation. . . . . 0 334,800 334,800
47,300 0 47,300 Federal National Mortgage Association . . 4,132,838 0 4,132,838
38,700 3,100 41,800 First Chicago Corporation . . . . . . . . 1,818,900 145,700 1,964,600
0 3,400 3,400 First Fidelity Bancorporation . . . . . . 0 150,025 150,025
0 3,400 3,400 First Interstate Bancorp. . . . . . . . . 0 238,425 238,425
0 7,600 7,600 First Union Corporation . . . . . . . . . 0 330,600 330,600
0 6,200 6,200 Fleet/Norstar Financial Group, Inc. . . . 0 217,775 217,775
12,800 0 12,800 Golden West Financial Corporation . . . . 568,000 0 568,000
30,300 0 30,300 Mid Ocean Ltd.. . . . . . . . . . . . . . 780,225 0 780,225
59,200 7,200 66,400 Morgan (J.P.) & Company, Inc. . . . . . . 4,247,600 516,600 4,764,200
11,400 0 11,400 Morgan Stanley Group, Inc.. . . . . . . . 906,300 0 906,300
0 12,100 12,100 NationsBank Corporation . . . . . . . . . 0 614,075 614,075
0 7,200 7,200 NBD Bancorp, Inc. . . . . . . . . . . . . 0 214,200 214,200
0 13,100 13,100 Norwest Corporation . . . . . . . . . . . 0 345,513 345,513
0 10,600 10,600 PNC Financial Corporation . . . . . . . . 0 314,025 314,025
0 12,400 12,400 Pulte Corporation . . . . . . . . . . . . 0 430,900 430,900
64,700 0 64,700 Republic Bank of New York Corporation . . 3,291,613 0 3,291,613
0 4,300 4,300 Shawmut National Corporation. . . . . . . 0 102,662 102,662
22,800 0 22,800 St. Paul Companies Inc. . . . . . . . . . 2,014,950 0 2,014,950
15,490 0 15,490 Standard Federal Bank . . . . . . . . . . 447,274 0 447,274
40,400 0 40,400 Student Loan Marketing Association. . . . 1,974,550 0 1,974,550
0 5,700 5,700 SunTrust Banks, Inc.. . . . . . . . . . . 0 262,912 262,912
0 5,900 5,900 U.S. Bancorp, Oregon. . . . . . . . . . . 0 150,450 150,450
0 7,800 7,800 Wachovia Corporation. . . . . . . . . . . 0 272,025 272,025
0 6,500 6,500 Wells Fargo & Company . . . . . . . . . . 0 891,313 891,313
26,048,213 8,830,588 34,878,801
Consumer Durables - 6.8%
0 5,000 5,000 Basset Furniture Industries Inc.. . . . . 0 171,875 171,875
0 2,800 2,800 Briggs & Stratton Corporation . . . . . . 0 242,200 242,200
0 35,100 35,100 Chrysler Corporation. . . . . . . . . . . 0 2,158,650 2,158,650
0 5,400 5,400 Crane Company . . . . . . . . . . . . . . 0 144,450 144,450
0 3,400 3,400 Echlin Inc. . . . . . . . . . . . . . . . 0 118,150 118,150
19,100 50,200 69,300 Ford Motor Company. . . . . . . . . . . . 1,279,700 3,363,400 4,643,100
103,600 72,400 176,000 General Motors Corporation. . . . . . . . 6,358,450 4,443,550 10,802,000
24,900 0 24,900 Genuine Parts Company . . . . . . . . . . 964,875 0 964,875
0 5,500 5,500 ITT Corporation . . . . . . . . . . . . . 0 541,062 541,062
0 47,500 47,500 Maytag Corporation. . . . . . . . . . . . 0 908,438 908,438
0 21,100 21,100 Pall Corporation. . . . . . . . . . . . . 0 398,263 398,263
0 19,900 19,900 Phelps Dodge Corporation. . . . . . . . . 0 1,079,575 1,079,575
0 28,000 28,000 Skyline Corporation . . . . . . . . . . . 0 581,000 581,000
57,500 0 57,500 Volkswagen ADR. . . . . . . . . . . . . . 2,939,688 0 2,939,688
40,300 0 40,300 Volvo AB ADR. . . . . . . . . . . . . . . 3,551,438 0 3,551,438
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>2
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
0 31,200 31,200 Whirlpool Corporation . . . . . . . . . . $0 $2,109,900 $2,109,900
0 14,100 14,100 Westinghouse Electric Corporation . . . . 0 197,400 197,400
0 5,300 5,300 Xerox Corporation . . . . . . . . . . . . 0 520,063 520,063
0 12,800 12,800 Zenith Electronics Corporation+ . . . . . 0 100,800 100,800
15,094,151 17,078,776 32,172,927
Consumer Non-Durables - 6.2%
0 7,000 7,000 American Brands Inc.. . . . . . . . . . . 0 250,250 250,250
66,900 0 66,900 Burlington Industries Equity Inc. + . . . 978,413 0 978,413
50,800 0 50,800 Chiquita Brands International Inc.. . . . 755,650 0 755,650
0 54,600 54,600 Coca-Cola Company . . . . . . . . . . . . 0 2,231,775 2,231,775
28,600 0 28,600 Dial Corporation. . . . . . . . . . . . . 1,247,675 0 1,247,675
53,200 0 53,200 Eastman Kodak Company . . . . . . . . . . 2,347,450 0 2,347,450
21,700 0 21,700 Libbey Inc. . . . . . . . . . . . . . . . 363,475 0 363,475
45,600 0 45,600 Loews Corporation . . . . . . . . . . . . 4,520,100 0 4,520,100
74,000 0 74,000 Nestle S A ADR. . . . . . . . . . . . . . 3,626,000 0 3,626,000
4,380 0 4,380 Nestle S A ADR, Registered Shares++ . . . 214,620 0 214,620
80,600 0 80,600 Owens-Illinois Inc. + . . . . . . . . . . 936,975 0 936,975
0 33,400 33,400 PepsiCo Inc.. . . . . . . . . . . . . . . 0 1,348,525 1,348,525
48,900 27,500 76,400 Phillip Morris Companies Inc. + . . . . . 2,946,225 1,656,875 4,603,100
14,900 0 14,900 Premark International Inc.. . . . . . . . 1,283,263 0 1,283,263
259,600 0 259,600 RJR Nabisco Holdings Corporation +. . . . 1,947,000 0 1,947,000
7,820 0 7,820 Ralston Continental Baking Group. . . . . 70,380 0 70,380
59,000 0 59,000 Ralston Purina Company. . . . . . . . . . 2,596,000 0 2,596,000
0 7,400 7,400 UST Inc.. . . . . . . . . . . . . . . . . 0 210,900 210,900
23,833,226 5,698,325 29,531,551
Energy & Oil Services - 5.2%
36,900 5,400 42,300 Amerada Hess Corporation. . . . . . . . . 1,789,650 261,900 2,051,550
0 28,700 28,700 Amoco Corporation . . . . . . . . . . . . 0 1,542,625 1,542,625
0 3,500 3,500 Ashland Oil, Inc. . . . . . . . . . . . . 0 131,250 131,250
0 9,200 9,200 Atlantic Richfield Company. . . . . . . . 0 1,016,600 1,016,600
35,800 0 35,800 Chevron Corporation . . . . . . . . . . . 3,342,825 0 3,342,825
0 22,200 22,200 Cooper Industries, Inc. . . . . . . . . . 0 921,300 921,300
0 25,800 25,800 Cyprus Minerals Company . . . . . . . . . 0 774,000 774,000
0 10,300 10,300 Dover Corporation . . . . . . . . . . . . 0 614,138 614,138
17,500 0 17,500 Kerr McGee Corporation. . . . . . . . . . 805,000 0 805,000
18,200 0 18,200 Mitchell Energy & Development Corp.,
Class B. . . . . . . . . . . . . . . . . 393,575 0 393,575
17,300 0 17,300 Mobil Corporation . . . . . . . . . . . . 1,401,300 0 1,401,300
44,100 17,600 61,700 Occidental Petroleum Corporation. . . . . 793,800 316,800 1,110,600
0 5,600 5,600 Oryx Energy Company . . . . . . . . . . . 0 100,800 100,800
0 8,900 8,900 Parker Hannifin Corporation . . . . . . . 0 340,425 340,425
0 2,600 2,600 Pennzoil Company. . . . . . . . . . . . . 0 143,650 143,650
0 15,100 15,100 Phillips Petroleum Company. . . . . . . . 0 445,450 445,450
68,400 0 68,400 Repsol S A ADR. . . . . . . . . . . . . . 2,334,150 0 2,334,150
27,700 0 27,700 Royal Dutch Petroleum Company, N.Y. . . . 3,047,000 0 3,047,000
0 5,300 5,300 Santa Fe Energy Resources . . . . . . . . 0 49,025 49,025
0 6,100 6,100 Sun, Inc. . . . . . . . . . . . . . . . . 0 188,338 188,338
27,500 7,800 35,300 Tenneco Inc.. . . . . . . . . . . . . . . 1,581,250 448,500 2,029,750
0 5,200 5,200 Trinova Corporation . . . . . . . . . . . 0 171,600 171,600
0 13,900 13,900 Unocal Corporation. . . . . . . . . . . . 0 408,312 408,312
46,700 16,500 63,200 USX-Marathon Group. . . . . . . . . . . . 863,950 305,250 1,169,200
22,700 0 22,700 Weatherford International Inc.. . . . . . 218,448 0 218,488
16,570,988 8,179,963 24,750,951
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>3
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
Retail & Specialty Stores - 4.5%
8,000 0 8,000 Caldor Corporation. . . . . . . . . . . . $212,000 $0 $212,000
89,000 0 89,000 Carter Hawley Hale Stores Inc. +. . . . . 867,750 0 867,750
0 3,400 3,400 Charming Shoppes Inc. . . . . . . . . . . 0 39,100 39,100
0 3,200 3,200 Circuit City Stores Inc.. . . . . . . . . 0 62,400 62,400
0 4,500 4,500 Dayton Hudson Corporation . . . . . . . . 0 295,875 295,875
48,100 7,100 55,200 Dillard Department Stores Inc.,Class A. . 1,725,588 254,712 1,980,300
120,800 0 120,800 Federated Department Stores . . . . . . . 2,642,500 0 2,642,500
0 4,900 4,900 Gap Inc.. . . . . . . . . . . . . . . . . 0 207,025 207,025
0 15,200 15,200 Home Depot Inc. . . . . . . . . . . . . . 0 592,800 592,800
0 14,100 14,100 K mart Corporation. . . . . . . . . . . . 0 276,713 276,713
86,400 0 86,400 Levitz Furniture Inc. . . . . . . . . . . 1,684,800 0 1,684,800
0 12,400 12,400 Limited Inc.. . . . . . . . . . . . . . . 0 220,100 220,100
31,600 15,600 47,200 May Department Stores Inc.. . . . . . . . 1,248,200 616,200 1,864,400
0 3,600 3,600 Melville Corporation. . . . . . . . . . . 0 143,100 143,100
0 2,300 2,300 Mercantile Stores Inc.. . . . . . . . . . 0 90,850 90,850
0 5,200 5,200 Nordstrom Inc.. . . . . . . . . . . . . . 0 182,000 182,000
0 8,100 8,100 Penney (J.C.)Inc. . . . . . . . . . . . . 0 424,237 424,237
0 2,100 2,100 Pep Boys-Manny, Moe & Jack. . . . . . . . 0 58,800 58,800
57,300 0 57,300 Rite Aid Corporation. . . . . . . . . . . 1,067,213 0 1,067,213
65,800 12,100 77,900 Sears, Roebuck & Company. . . . . . . . . 3,610,775 663,988 4,274,763
2,400 0 2,400 Smith Food & Drug Centers Inc.,Class B. . 54,744 0 54,744
16,500 2,200 18,700 Tandy Corporation . . . . . . . . . . . . 787,875 105,050 892,925
0 2,500 2,500 TJX Companies Inc.. . . . . . . . . . . . 0 70,625 70,625
0 9,900 9,900 Toys "R" Us Inc. +. . . . . . . . . . . . 0 361,350 361,350
38,600 0 38,600 United States Shoe Corporation. . . . . . 487,325 0 487,325
12,300 0 12,300 Value City Department Stores. . . . . . . 190,650 0 190,650
0 79,700 79,700 Wal-Mart Stores Inc.. . . . . . . . . . . 0 2,112,050 2,112,050
0 4,600 4,600 Woolworth Corporation . . . . . . . . . . 0 119,600 119,600
14,579,420 6,896,575 21,475,995
Insurance - 4.0%
38,400 0 38,400 ACE Ltd.. . . . . . . . . . . . . . . . . 1,084,800 0 1,084,800
94,200 0 94,200 Aetna Life & Casualty Company . . . . . . 5,981,700 0 5,981,700
43,100 0 43,100 Allstate Corporation. . . . . . . . . . . 1,228,350 0 1,228,350
41,800 0 41,800 American International Group Inc. . . . . 3,871,725 0 3,871,725
0 4,400 4,400 Capital Holding Corporation . . . . . . . 0 159,500 159,500
59,400 0 59,400 Continental Corporation . . . . . . . . . 1,678,050 0 1,678,050
28,900 0 28,900 EXEL Ltd. . . . . . . . . . . . . . . . . 1,260,763 0 1,260,763
0 11,600 11,600 Household International Inc.. . . . . . . 0 384,250 384,250
0 2,300 2,300 Jefferson-Pilot Corporation . . . . . . . 0 106,375 106,375
17,300 4,100 21,400 Lincoln National Corporation. . . . . . . 735,250 174,250 909,500
93,900 0 93,900 Reliance Group Holdings Inc.. . . . . . . 715,988 0 715,988
0 2,900 2,900 SAFECO Corporation. . . . . . . . . . . . 0 171,100 171,100
21,400 0 21,400 TIG Holdings Inc. + . . . . . . . . . . . 462,775 0 462,775
0 3,300 3,300 Torchmark Corporation . . . . . . . . . . 0 157,162 157,162
16,700 0 16,700 Transatlantic Holdings Inc. . . . . . . . 889,275 0 889,275
0 1,000 1,000 USLIFE Corporation. . . . . . . . . . . . 0 40,375 40,375
17,908,676 1,193,012 19,101,688
Technology - 3.9%
0 10,100 10,100 Advanced Micro Devices Inc. + . . . . . . 0 207,050 207,050
0 18,200 18,200 Amdahl Corporation. . . . . . . . . . . . 0 129,675 129,675
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>4
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
0 26,700 26,700 Apple Computer Inc. . . . . . . . . . . . $0 $874,425 $874,425
0 900 900 Autodesk, Inc.. . . . . . . . . . . . . . 0 46,575 46,575
0 7,000 7,000 Ceridian Corporation. . . . . . . . . . . 0 159,250 159,250
0 11,800 11,800 Compaq Computer + . . . . . . . . . . . . 0 1,014,800 1,014,800
0 6,300 6,300 Computer Association International, Inc. 0 232,313 232,313
0 1,800 1,800 Computer Sciences Corporation+. . . . . . 0 62,100 62,100
44,700 4,200 48,900 Cray Research, Inc.+. . . . . . . . . . . 1,402,463 131,775 1,534,238
0 6,000 6,000 Data General Corporation+ . . . . . . . . 0 49,500 49,500
0 8,600 8,600 Digital Equipment Corporation+. . . . . . 0 260,150 260,150
0 14,000 14,000 Hewlett-Packard Company . . . . . . . . . 0 1,195,250 1,195,250
27,800 5,400 33,200 Honeywell Inc.. . . . . . . . . . . . . . 906,975 176,175 1,083,150
0 47,300 47,300 Intel Corporation . . . . . . . . . . . . 0 3,086,325 3,086,325
0 8,000 8,000 Intergraph Financial Corporation+ . . . . 0 90,000 90,000
0 2,100 2,100 Litton Industries, Inc. . . . . . . . . . 0 143,850 143,850
0 1,600 1,600 Lotus Development Corporation+. . . . . . 0 93,200 93,200
0 5,100 5,100 Millipore Corporation . . . . . . . . . . 0 209,100 209,100
0 30,500 30,500 Motorola, Inc.. . . . . . . . . . . . . . 0 3,004,250 3,004,250
0 12,400 12,400 National Semiconductor Corporation+ . . . 0 223,200 223,200
0 11,900 11,900 Novell Inc+ . . . . . . . . . . . . . . . 0 269,238 269,238
0 10,800 10,800 Oracle Systems Corporation+ . . . . . . . 0 346,950 346,950
0 5,100 5,100 Perkin-Elmer Corporation. . . . . . . . . 0 199,537 199,537
50,600 0 50,600 Quantum Corporation . . . . . . . . . . . 815,925 0 815,925
17,300 0 17,300 Seagate Technology. . . . . . . . . . . . 417,362 0 417,362
0 3,000 3,000 Shared Medical Systems Corporation. . . . 0 73,500 73,500
14,800 15,800 30,600 Sun Microsystems. . . . . . . . . . . . . 392,200 418,700 810,900
0 18,200 18,200 Tandem Computers, Inc.+ . . . . . . . . . 0 245,700 245,700
0 9,300 9,300 Texas Instruments, Inc. . . . . . . . . . 0 653,325 653,325
0 4,100 4,100 Textron, Inc. . . . . . . . . . . . . . . 0 242,413 242,413
0 8,400 8,400 Tyco International Ltd. . . . . . . . . . 0 453,600 453,600
0 26,200 26,200 Unisys Corporation+ . . . . . . . . . . . 0 347,150 347,150
3,934,925 14,639,076 18,574,001
Capital Goods - 3.7%
0 4,500 4,500 Boise Cascade Corporation . . . . . . . . 0 120,937 120,937
0 14,300 14,300 Centex Corporation. . . . . . . . . . . . 0 632,775 632,775
12,000 0 12,000 Deere & Company . . . . . . . . . . . . . 966,000 0 966,000
0 8,100 8,100 Fedders Corporation+. . . . . . . . . . . 0 58,725 58,725
9,400 0 9,400 General Electric Company. . . . . . . . . 1,012,850 0 1,012,850
0 7,300 7,300 Genuine Parts . . . . . . . . . . . . . . 0 282,875 282,875
22,800 0 22,800 Goodrich (B.F.) Company . . . . . . . . . 951,900 0 951,900
0 2,000 2,000 Grainger (W.W.) Inc.. . . . . . . . . . . 0 125,250 125,250
0 31,000 31,000 Inco, Ltd.. . . . . . . . . . . . . . . . 0 856,375 856,375
40,700 0 40,700 ITT Corporation . . . . . . . . . . . . . 4,003,863 0 4,003,863
0 14,700 14,700 Kaufman & Broad Home Corporation. . . . . 0 341,775 341,775
7,900 0 7,900 Litton Industries Inc. +. . . . . . . . . 541,150 0 541,150
0 1,725 1,725 PACCAR Inc. . . . . . . . . . . . . . . . 0 104,794 104,794
193,700 0 193,700 Philips N V+. . . . . . . . . . . . . . . 4,890,925 0 4,890,925
17,700 0 17,700 Raytheon Company. . . . . . . . . . . . . 1,199,175 0 1,199,175
0 800 800 SPX Corporation . . . . . . . . . . . . . 0 13,700 13,700
13,400 0 13,400 Xerox Corporation . . . . . . . . . . . . 1,314,875 0 1,314,875
14,880,783 2,537,206 17,417,944
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>5
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
Healthcare & Pharmaceuticals - 3.2%
0 2,100 2,100 Allergan Inc. . . . . . . . . . . . . . . $0 $48,825 $48,825
32,400 0 32,400 American Medical Holdings Inc. +. . . . . 656,100 0 656,100
13,363 0 13,363 Bausch & Lomb Inc.. . . . . . . . . . . . 703,228 0 703,228
0 40,700 40,700 Columbia Healthcare Corporation . . . . . 0 1,541,512 1,541,512
0 11,400 11,400 Community Psychiatric Centers . . . . . . 0 196,650 196,650
11,800 0 11,800 Genetech Inc. + . . . . . . . . . . . . . 594,425 0 594,425
23,700 0 23,700 Hospital Corporation of America,
Class A . . . . . . . . . . . . . . . . 921,338 0 921,338
29,500 0 29,500 Healthtrust Inc. - The Hospital
Company . . . . . . . . . . . . . . . . 829,688 0 829,688
19,600 0 19,600 Johnson & Johnson . . . . . . . . . . . . 830,550 0 830,550
0 9,500 9,500 Lilly (Eli) & Company. . . . . . . . . . . 0 568,812 568,812
0 37,200 37,200 Merck & Company Inc.. . . . . . . . . . . 0 1,357,800 1,357,800
0 44,800 44,800 National Medical Enterprises Inc. . . . . 0 711,200 711,200
0 10,600 10,600 Pfizer, Inc.. . . . . . . . . . . . . . . 0 685,025 685,025
0 6,300 6,300 Schering-Plough Corporation . . . . . . . 0 396,900 396,900
0 7,200 7,200 Syntex Corporation. . . . . . . . . . . . 0 110,700 110,700
0 5,700 5,700 Upjohn Company. . . . . . . . . . . . . . 0 171,000 171,000
59,800 0 59,800 Warner-Lambert Companies. . . . . . . . . 3,894,475 0 3,894,475
32,100 0 32,100 Wellpoint Health Networks Inc. +. . . . . 1,027,200 0 1,027,200
9,457,004 5,788,424 15,245,428
Basic Industries - 3.1%
59,300 0 59,300 Alumax Inc. . . . . . . . . . . . . . . . 1,586,275 0 1,586,275
0 4,200 4,200 AMP Inc.. . . . . . . . . . . . . . . . . 0 262,500 262,500
179,900 0 179,900 British Steel ADR . . . . . . . . . . . . 3,867,850 0 3,867,850
37,700 0 37,700 Champion International Corporation. . . . 1,258,238 0 1,258,238
0 2,100 2,100 Dana Corporation. . . . . . . . . . . . . 0 122,588 122,588
9,000 0 9,000 Eastman Chemical Company. . . . . . . . . 393,750 0 393,750
0 9,000 9,000 Emerson Electric Company. . . . . . . . . 0 551,250 551,250
41,300 0 41,300 Federal Paper Board Inc.. . . . . . . . . 1,084,125 0 1,084,125
15,300 0 15,300 Geon Company +. . . . . . . . . . . . . . 413,100 0 413,100
0 8,500 8,500 Goodyear Tire & Rubber Company. . . . . . 0 411,187 411,187
13,200 0 13,200 International Paper Company . . . . . . . 991,650 0 991,650
45,300 0 45,300 James River Corporation . . . . . . . . . 911,663 0 911,663
75,800 0 75,800 Repap Enterprises Inc.. . . . . . . . . . 279,513 0 279,513
34,300 0 34,300 Riverwood International Corporation . . . 651,700 0 651,700
29,100 0 29,100 Stone Container Corporation . . . . . . . 480,150 0 480,150
16,900 0 16,900 Temple Inland Inc.. . . . . . . . . . . . 887,250 0 887,250
23,000 0 23,000 Timberwest Ltd. ++. . . . . . . . . . . . 273,010 0 273,010
0 800 800 Thomas & Betts Corporation. . . . . . . . 0 50,600 50,600
0 4,100 4,100 Union Carbide Corporation . . . . . . . . 0 104,550 104,550
13,078,274 1,502,675 14,580,949
Transportation - 2.7%
28,400 4,400 32,800 AMR Corporation + . . . . . . . . . . . . 2,041,250 316,250 2,357,500
8,300 4,200 12,500 Burlington Northern Inc.. . . . . . . . . 536,387 271,425 807,812
0 3,800 3,800 Conrail Inc. . . . . . . . . . . . . . . 0 247,000 247,000
0 18,400 18,400 Consolidated Freightways Inc.+. . . . . . 0 478,400 478,400
39,500 0 39,500 Consolidated Rail Corporation . . . . . . 2,567,500 0 2,567,500
5,000 5,000 CSX Corporation . . . . . . . . . . . . . 0 458,750 458,750
2,900 2,900 Delta Air Lines, Inc. . . . . . . . . . . 0 162,400 162,400
120,200 0 120,200 KLM Royal Dutch Air Lines . . . . . . . . 2,929,875 0 2,929,875
6,700 6,700 Norfolk Southern Corporation. . . . . . . 0 493,287 493,287
7,900 7,900 Roadway Services Inc. . . . . . . . . . . 0 553,000 553,000
8,800 8,800 Santa Fe Pacific Corporation. . . . . . . 0 215,600 215,600
1,400 1,400 UAL Corporation + . . . . . . . . . . . . 0 205,800 205,800
9,800 9,800 Union Pacific Corporation . . . . . . . . 0 640,675 640,675
3,400 3,400 USAir Group, Inc. + . . . . . . . . . . . 0 50,150 50,150
14,100 14,100 Yellow Corporation. . . . . . . . . . . . 0 405,375 405,375
8,075,012 4,498,112 12,573,124
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>6
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
Utilities - 2.4%
86,800 0 86,800 CMS Energy Corporation. . . . . . . . . . $2,104,900 $0 $2,104,900
71,358 0 71,358 Entergy Corporation . . . . . . . . . . . 2,658,086 0 2,658,086
28,600 0 28,600 Illinois Power Company. . . . . . . . . . 622,050 0 622,050
7,800 0 7,800 National Service Industry Inc.. . . . . . 210,600 0 210,600
112,500 0 112,500 Pacific Enterprises . . . . . . . . . . . 2,531,250 0 2,531,250
55,100 0 55,100 Pinnacle West Capital Corporation + . . . 1,232,863 0 1,232,863
121,500 0 121,500 TransCanada Pipeline Ltd. . . . . . . . . 1,868,063 0 1,868,063
11,227,812 0 11,227,812
Building Products - 2.1%
0 16,500 16,500 Armstrong World Industries Inc. . . . . . 0 928,125 928,125
0 112,200 112,200 Fleetwood Enterprises, Inc. . . . . . . . 0 2,819,025 2,819,025
0 10,700 10,700 Georgia Pacific Corporation . . . . . . . 0 805,175 805,175
0 20,200 20,200 Illinois Tool Works, Inc. . . . . . . . . 0 858,500 858,500
0 7,300 7,300 Johnson Controls, Inc.. . . . . . . . . . 0 428,875 428,875
0 13,100 13,100 Louisiana Pacific Corporation . . . . . . 0 579,675 579,675
0 2,500 2,500 Lowe's Companies Inc. . . . . . . . . . . 0 152,500 152,500
0 28,300 28,300 MASCO Corporation . . . . . . . . . . . . 0 1,100,162 1,100,162
0 7,800 7,800 Owens Corning Fiberglass
Corporation+. . . . . . . . . . . . . . 0 351,975 351,975
0 3,500 3,500 Potlatch Corporation. . . . . . . . . . . 0 164,938 164,938
0 1,700 1,700 Raychem Corporation . . . . . . . . . . . 0 62,050 62,050
0 16,400 16,400 Sherwin Williams Company. . . . . . . . . 0 559,650 559,650
0 24,500 24,500 Weyerhaeuser Company. . . . . . . . . . . 0 1,197,437 1,197,437
0 10,008,087 10,008,087
Consumer Services - 1.9%
0 7,700 7,700 Blockbuster Entertainment Corporation . . 0 212,713 212,713
12,000 0 12,000 Brown Group Inc.. . . . . . . . . . . . . 421,500 0 421,500
8,000 0 8,000 Caesars World Inc.. . . . . . . . . . . . 441,000 0 441,000
0 11,400 11,400 Disney (Walt) Company . . . . . . . . . . 0 538,650 538,650
30,900 13,400 44,300 King World Productions Inc. + . . . . . . 1,274,625 552,750 1,827,375
48,800 0 48,800 Kroger Company. . . . . . . . . . . . . . 1,091,900 0 1,091,900
2,700 0 2,700 Meyer (Fred) Inc. . . . . . . . . . . . . 99,225 0 99,225
0 6,400 6,400 Promus Company Inc. . . . . . . . . . . . 0 324,000 324,000
49,000 0 49,000 Rogers Cantel Mobile Communication
Inc. +. . . . . . . . . . . . . . . . . 1,310,750 0 1,310,750
8,400 0 8,400 Scripps (E.W.) Company, Class A . . . . . 226,800 0 226,800
67,400 0 67,400 Times Mirror Company, Series A. . . . . . 2,443,250 0 2,443,250
7,309,050 1,628,113 8,937,163
Communications - 1.6%
0 2,100 2,100 Andrew Corporation. . . . . . . . . . . . 0 92,925 92,925
0 1,600 1,600 CBS, Inc. . . . . . . . . . . . . . . . . 0 489,600 489,600
0 1,600 1,600 Capital Cities/ABC, Inc.. . . . . . . . . 0 1,048,000 1,048,000
0 15,200 15,200 Comcast Corporation, Class A. . . . . . . 0 476,900 476,900
0 6,100 6,100 DSC Communications Inc. + . . . . . . . . 0 366,762 366,762
0 24,300 24,300 Dun & Bradstreet Corporation. . . . . . . 0 1,527,862 1,527,862
0 3,400 3,400 M/A-Com, Inc. + . . . . . . . . . . . . . 0 28,475 28,475
0 24,600 24,600 McCaw Cellular Communications Inc.,
Class A . . . . . . . . . . . . . . . . 0 1,328,400 1,328,400
0 31,800 31,800 Northern Telecomm Ltd.. . . . . . . . . . 0 1,033,500 1,033,500
0 46,700 46,700 Tele-Communications Inc.,
Class A+. . . . . . . . . . . . . . . . 0 1,272,575 1,272,575
0 7,664,999 7,664,999
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>7
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
Machinery - 1.3%
0 19,700 19,700 Caterpillar, Inc. . . . . . . . . . . . . $0 $2,051,262 $2,051,262
0 34,100 34,100 Cincinnati Milacron, Inc. . . . . . . . . 0 865,288 865,288
0 3,400 3,400 Clark Equipment Company . . . . . . . . . 0 198,050 198,050
0 1,600 1,600 Cummins Engine Inc. . . . . . . . . . . . 0 88,400 88,400
0 14,900 14,900 Deere & Company . . . . . . . . . . . . . 0 1,199,450 1,199,450
0 26,700 26,700 Giddings & Lewis, Inc.. . . . . . . . . . 0 734,250 734,250
0 20,500 20,500 Ingersoll-Rand Company. . . . . . . . . . 0 784,125 784,125
0 6,700 6,700 Varity Corporation. . . . . . . . . . . . 0 301,500 301,500
0 6,222,325 6,222,325
Publishing - 1.3%
0 15,200 15,200 Dow Jones & Company, Inc. . . . . . . . . 0 602,300 602,300
0 22,400 22,400 Gannett, Inc. . . . . . . . . . . . . . . 0 1,276,800 1,276,800
0 8,300 8,300 Knight-Ridder, Inc. . . . . . . . . . . . 0 481,400 481,400
0 16,100 16,100 New York Times Company,
Class A . . . . . . . . . . . . . . . . 0 458,850 458,850
0 50,600 50,600 Time Warner, Inc. . . . . . . . . . . . . 0 2,024,000 2,024,000
0 19,600 19,600 Times Mirror Company,
Series A. . . . . . . . . . . . . . . . 0 710,500 710,500
0 10,200 10,200 Tribune Company . . . . . . . . . . . . . 0 613,275 613,275
0 6,167,125 6,167,125
Paper & Paper Products - 1.2%
0 11,200 11,200 Champion International
Corporation . . . . . . . . . . . . . . 0 373,800 373,800
0 5,000 5,000 Federal Paper Board . . . . . . . . . . . 0 131,250 131,250
0 5,000 5,000 Harnischfeger Industries, Inc.. . . . . . 0 120,625 120,625
0 14,800 14,800 International Paper . . . . . . . . . . . 0 1,111,850 1,111,850
0 9,600 9,600 James River Corporation . . . . . . . . . 0 193,200 193,200
0 19,200 19,200 Kimberly Clark Corporation. . . . . . . . 0 1,092,000 1,092,000
0 6,700 6,700 McGraw Hill, Inc. . . . . . . . . . . . . 0 463,975 463,975
0 7,000 7,000 Mead Corporation. . . . . . . . . . . . . 0 331,625 331,625
0 2,100 2,100 Meredith Corporation. . . . . . . . . . . 0 88,462 88,462
0 5,300 5,300 Moore Corporation, Ltd. . . . . . . . . . 0 107,987 107,987
0 8,800 8,800 Pitney Bowes. . . . . . . . . . . . . . . 0 394,900 394,900
0 8,900 8,900 Scott Paper Company . . . . . . . . . . . 0 416,075 416,075
0 8,300 8,300 Union Camp Corporation. . . . . . . . . . 0 407,738 407,738
0 8,000 8,000 Westvaco Corporation. . . . . . . . . . . 0 290,000 290,000
0 5,523,487 5,523,487
Restaurants - 0.9%
0 3,400 3,400 Luby's Cafeterias, Inc. . . . . . . . . . 0 77,350 77,350
7,100 45,200 52,300 McDonald's Corporation. . . . . . . . . . 431,325 2,745,900 3,177,225
0 10,300 10,300 Ryans Family Steak Houses, Inc.+. . . . . 0 81,112 81,112
16,200 5,100 21,300 Shoneys Inc.+ . . . . . . . . . . . . . . 372,600 117,300 489,900
36,800 0 36,800 Sizzler International Inc.. . . . . . . . 299,000 0 299,000
0 12,600 12,600 Wendy's International, Inc. . . . . . . . 0 215,775 215,775
1,102,925 3,237,437 4,340,362
Electronics - 0.9%
0 3,200 3,200 Eaton Corporation . . . . . . . . . . . . 0 182,400 182,400
0 34,200 34,200 General Electric Company. . . . . . . . . 0 3,685,050 3,685,050
0 4,800 4,800 Scientific Atlanta Inc. . . . . . . . . . 0 136,200 136,200
0 3,500 3,500 Tektronix, Inc. . . . . . . . . . . . . . 0 98,875 98,875
0 2,500 2,500 Teledyne, Inc.. . . . . . . . . . . . . . 0 57,500 57,500
0 4,160,025 4,160,025
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>8
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
Steel - 0.7%
0 19,300 19,300 Armco, Inc. + . . . . . . . . . . . . . . $0 $127,863 $127,863
0 11,800 11,800 Asarco, Inc.. . . . . . . . . . . . . . . 0 302,375 302,375
0 17,300 17,300 Bethlehem Steel Corporation+. . . . . . . 0 408,712 408,712
0 6,800 6,800 Inland Steel Industries, Inc.+. . . . . . 0 238,850 238,850
0 16,600 16,600 Nucor Corporation . . . . . . . . . . . . 0 979,400 979,400
0 5,500 5,500 Timken Company. . . . . . . . . . . . . . 0 200,750 200,750
0 13,200 13,200 USX-U.S. Steel Group. . . . . . . . . . . 0 580,800 580,800
0 17,250 17,250 Worthington Industries, Inc.. . . . . . . 0 340,688 340,688
0 3,179,438 3,179,438
Aluminum - 0.6%
0 42,800 42,800 Alcan Aluminum, Ltd.. . . . . . . . . . . 0 1,048,600 1,048,600
0 17,000 17,000 Aluminum Company of America . . . . . . . 0 1,345,125 1,345,125
0 11,500 11,500 Reynolds Metals Company . . . . . . . . . 0 613,812 613,812
. . 0 3,007,537 3,007,537
Chemicals - 0.5%
0 3,100 3,100 Air Products & Chemicals, Inc.. . . . . . 0 153,837 153,837
0 7,500 7,500 Dow Chemical Company. . . . . . . . . . . 0 476,250 476,250
0 18,500 18,500 DuPont (E.I.) DeNemours & Company . . . . 0 1,036,000 1,036,000
0 3,300 3,300 Ethyl Corporation . . . . . . . . . . . . 0 60,638 60,638
0 700 700 Goodrich (B.F.) Company . . . . . . . . . 0 29,225 29,225
0 1,900 1,900 Great Lakes Chemical Corporation. . . . . 0 149,863 149,863
0 1,200 1,200 Hercules, Inc.. . . . . . . . . . . . . . 0 131,400 131,400
0 3,300 3,300 Monsanto Company. . . . . . . . . . . . . 0 254,513 254,513
0 1,500 1,500 NL Industries, Inc. . . . . . . . . . . . 0 9,375 9,375
0 1,900 1,900 Rohm & Haas Company . . . . . . . . . . . 0 108,538 108,538
0 2,409,639 2,409,639
Mining - 0.4%
0 26,000 26,000 American Barrick Resource Corporation . . 0 724,750 724,750
0 10,200 10,200 Echo Bay Mines, Ltd.. . . . . . . . . . . 0 135,150 135,150
0 12,600 12,600 Homestake Mining Company. . . . . . . . . 0 277,200 277,200
0 6,300 6,300 Newmont Mining Corporation. . . . . . . . 0 337,838 337,838
0 21,900 21,900 Placer Dome, Inc. . . . . . . . . . . . . 0 555,712 555,712
. . 0 2,030,650 2,030,650
Apparel Manufacturing & Design - 0.1%
0 700 700 Brown Group Inc.. . . . . . . . . . . . . 0 24,588 24,588
0 1,000 1,000 Genesco Inc.. . . . . . . . . . . . . . . 0 4,125 4,125
0 1,500 1,500 Hartmarx Corporation +. . . . . . . . . . 0 10,125 10,125
0 3,900 3,900 Liz Claiborne Inc. . . . . . . . . . . . 0 80,925 80,925
0 3,100 3,100 NIKE, Inc.. . . . . . . . . . . . . . . . 0 155,000 155,000
0 700 700 Oshkosh B'Gosh Inc., Class A. . . . . . . 0 11,900 11,900
0 3,600 3,600 Reebok International Ltd. . . . . . . . . 0 115,650 115,650
0 1,900 1,900 Russell Corporation . . . . . . . . . . . 0 50,112 50,112
0 2,000 2,000 Stride Rite Corporation . . . . . . . . . 0 32,500 32,500
0 3,000 3,000 V.F. Corporation. . . . . . . . . . . . . 0 139,125 139,125
0 624,050 624,050
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>9
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
Other - 0.4%
0 5,300 5,300 Automatic Data Processing, Inc. . . . . . $0 $277,587 $277,587
10,800 0 10,800 Avalon Properties Inc.. . . . . . . . . . 234,900 0 234,900
51,700 0 51,700 Crown American Realty.. . . . . . . . . . 736,725 0 736,725
0 3,000 3,000 Hilton Hotels Corporation . . . . . . . . 0 192,000 192,000
0 7,300 7,300 Marriott International Inc. . . . . . . . 0 214,437 214,437
10,500 0 10,500 Security-Conn Corporation . . . . . . . . 228,375 0 228,375
1,200,000 684,024 1,884,024
TOTAL COMMON STOCKS
(Cost $273,625,554) . . . . . . . . . . . . . 184,300,414 133,389,668 317,690,082
Face Value
________________________________
CORPORATE BONDS AND NOTES - 14.0%
Financial Services - 5.2%
$750,000 $0 $750,000 Bankamerica Corporation, Sub. Note,
6.850% due 3/1/03 . . . . . . . . . . . $777,187 $0 $777,187
500,000 0 500,000 Bell Atlantic Financial, Medium Term Note,
5.700% due 8/15/99. . . . . . . . . . . 503,750 0 503,750
1,000,000 0 1,000,000 Centel Capital Corporation, Note,
9.000% due 10/15/19 . . . . . . . . . . 1,098,750 0 1,098,750
2,400,000 0 2,400,000 Chemical Banking Corporation, Medium Term
Note, 3.638% due 8/19/96. . . . . . . . 2,397,048 0 2,397,048
875,000 0 875,000 China International Trust, Deb.,
6.875% due 8/1/03 . . . . . . . . . . . 889,219 0 889,219
1,551,647 0 1,551,647 EQCC Home Equity, Asset Backed Note,
5.150% due 9/15/08 . . . . . . . . . . . 1,538,555 0 1,538,555
2,750,000 0 2,750,000 Goldman Sachs Group, Note,
6.375% due 6/15/00 ++ . . . . . . . . . 2,798,125 0 2,798,125
325,000 0 325,000 Guandong International Trust & Investment,
Corporate Bond, 6.750% due 11/15/03 ++ 320,125 0 320,125
InterAmerican Development Bank, Bonds:
1,550,000 0 1,550,000 8.875% due 6/1/09 . . . . . . . . . . . 1,953,000 0 1,953,000
750,000 0 750,000 8.400% due 9/1/09 . . . . . . . . . . . 914,061 0 914,061
1,500,000 0 1,500,000 Korea Development Bank, Medium Term Note,
9.400% due 8/1/01 . . . . . . . . . . . 1,768,125 0 1,768,125
1,911,240 0 1,911,240 Railcar Trust, Note,
7.750% due 6/1/04 . . . . . . . . . . . 2,116,696 0 2,116,696
5,030,000 0 5,030,000 Sears Overseas Finance, NV,
Zero coupon due 7/12/98 . . . . . . . . 3,904,536 0 3,904,536
Sears Roebuck & Company, Medium Term Notes:
1,000,000 0 1,000,000 8.120% due 3/16/99. . . . . . . . . . . 1,110,000 0 1,110,000
1,000,000 0 1,000,000 8.000% due 1/16/02. . . . . . . . . . . 1,118,750 0 1,118,750
1,000,000 0 1,000,000 8.620% due 4/2/02 . . . . . . . . . . . 1,160,000 0 1,160,000
24,367,927 0 24,367,927
Industrial - 3.2%
5,000,000 0 5,000,000 Boeing Company, Deb.,
7.950% due 8/15/24. . . . . . . . . . . 5,581,250 0 5,581,250
Commonwealth Edison Company:
2,000,000 0 2,000,000 6.400% due 10/15/05 . . . . . . . . . . 1,900,000 0 1,900,000
2,000,000 0 2,000,000 1st Mortgage,
7.500% due 7/1/13. . . . . . . . . . . . 2,022,500 0 2,022,500
4,250,000 0 4,250,000 Series 88,
8.375% due 2/15/23 . . . . . . . . . . . 4,616,562 0 4,616,562
1,000,000 0 1,000,000 Motorola, Inc., Deb.,
8.400% due 8/15/31 . . . . . . . . . . . 1,242,500 0 1,242,500
15,362,812 0 15,362,812
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>10
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Face Value Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
Telephone Communications - 1.3%
$3,250,000 $0 $3,250,000 Comsat Corporation, Deb.,
8.125% due 4/1/04. . . . . . . . . . . . $3,712,189 $0 $3,712,189
2,000,000 0 2,000,000 GTE Southwest Corporation, Deb.,
5.820% due 12/1/99 . . . . . . . . . . . 2,010,000 0 2,010,000
105,000 0 105,000 Pacific Telephone & Telegraph
Company, Deb.,
7.250% due 2/1/08 . . . . . . . . . . . 107,756 0 107,756
540,000 0 540,000 Southern Bell Telephone & Telegraph,
Deb., 6.000% due 10/1/04 . . . . . . . . 547,425 0 547,425
6,377,370 0 6,377,370
Insurance - 1.3%
2,500,000 0 2,500,000 Conseco Inc., Sr. Note,
8.125% due 2/15/03 . . . . . . . . . . . 2,637,500 0 2,637,500
1,225,000 0 1,225,000 Kemper Corporation, Note,
6.875% due 9/15/03++ . . . . . . . . . . 1,217,342 0 1,217,342
2,220,000 0 2,220,000 Metropolitan Life Insurance Company,
Surplus Note,
6.300% due 11/1/03++ . . . . . . . . . . 2,181,150 0 2,181,150
6,035,992 0 6,035,992
Oil - 1.2%
Occidental Petroleum Corporation:
Deb.,
1,000,000 0 1,000,000 9.250% due 8/1/19. . . . . . . . . . . . 1,186,250 0 1,186,250
2,900,000 0 2,900,000 Medium Term Note,
8.750% due 1/15/23 . . . . . . . . . . . 3,168,423 0 3,168,423
1,300,000 0 1,300,000 Petroliam Nasional Berhad, Note,
6.875% due 7/1/03++. . . . . . . . . . . 1,329,250 0 1,329,250
5,683,923 0 5,683,923
Technology - 0.9%
1,000,000 0 1,000,000 Telecommunications Inc., Medium
Term Note,
6.430% due 3/9/98. . . . . . . . . . . . 1,021,250 0 1,021,250
2,800,000 0 2,800,000 United Telecommunications Inc., Sr. Note,
9.750% due 4/1/00. . . . . . . . . . . . 3,314,500 0 3,314,500
4,335,750 0 4,335,750
Consumer Non-Durables - 0.5%
1,000,000 0 1,000,000 Eastman Kodak Company, Note,
9.750% due 10/1/04 . . . . . . . . . . . 1,256,250 0 1,256,250
1,000,000 0 1,000,000 General Motors Acceptance Corporation,
Note,
8.875% due 6/1/10. . . . . . . . . . . . 1,220,000 0 1,220,000
2,476,250 0 2,476,250
Entertainment - 0.4%
1,700,000 0 1,700,000 Time Warner Entertainment Company
Ltd., Sr. Sub Note,
8.375% due 7/15/33 . . . . . . . . . . . 1,831,750 0 1,831,750
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>11
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Face Value Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
TOTAL CORPORATE BONDS AND
NOTES (Cost $64,708,840). . . . . . . . . $66,471,774* $0 $66,471,774
OTHER BONDS AND NOTES - 0.9%
$1,750,000 $0 $1,750,000 Manitoba, Province of Canada, Deb.,
9.125% due 1/15/18 . . . . . . . . . . . 2,185,312 0 2,185,312
2,000,000 0 2,000,000 Newfoundland, Province of Canada, Deb.,
7.320% due 10/13/23. . . . . . . . . . . 1,987,500 0 1,987,500
TOTAL OTHER BONDS AND NOTES
(Cost $3,780,048) . . . . . . . . . . . . 4,172,812 0 4,172,812
MORTGAGE-BACKED SECURITIES - 1.9%
Federal Home Loan Mortgage Company
(FHLMC) Certificates - 0.9%
141,268 0 141,268 FHLMC 6.250% due 7/1/02 . . . . . . . . 142,515 0 142,515
290,663 0 290,663 FHLMC 8.500% due 12/1/02. . . . . . . . 304,133 0 304,133
4,000,000 0 4,000,000 FHLMC Multiclass Mortgage,
6.400% due 1/15/19. . . . . . . . . . 4,033,750 0 4,033,750
4,480,398 0 4,480,398
Federal National Mortgage Association
(FNMA) Certificates - 1.0%
558,388 0 558,388 FNMA 5.500% due 3/1/99. . . . . . . . . . 508,831 0 508,831
2,120,000 0 2,120,000 FNMA REMIC Pass Through Certificate,
5.200% due 12/25/16 . . . . . . . . . . 2,024,600 0 2,024,600
1,500,000 0 1,500,000 FNMA REMIC Pass Through Certificate,
6.500% due 6/25/19. . . . . . . . . . . 1,455,677 0 1,455,677
661,986 0 661,986 FNMA REMIC Pass Through Certificate,
PO, due 1/25/22 . . . . . . . . . . . . 592,404 0 592,404
. . 4,581,512 0 4,581,512
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $8,901,038) . . . . . . . . . . . . 9,061,910 0 9,061,910
U.S. TREASURY OBLIGATIONS - 4.0%
U.S. Treasury Bonds:
2,750,000 0 2,750,000 Zero Coupon due 2/15/01 . . . . . . . 1,830,070 0 1,830,070
2,500,000 0 2,500,000 8.125% due 5/15/21. . . . . . . . . . 3,056,425 0 3,056,425
1,000,000 0 1,000,000 7.250% due 5/15/16. . . . . . . . . . 1,103,860 0 1,103,860
2,000,000 0 2,000,000 7.500% due 11/15/16 . . . . . . . . . 2,266,880 0 2,266,880
U.S. Treasury Notes:
180,000 0 180,000 6.375% due 8/15/02. . . . . . . . . . 190,235 0 190,235
2,750,000 0 2,750,000 5.750% due 8/15/03. . . . . . . . . . 2,772,000 0 2,772,000
0 300,000 300,000 U.S. Treasury Bills
2.882% due 03/24/94 . . . . . . . . . 0 298,704 298,704
Other Treasury Obligations:
3,000,000 0 3,000,000 Synthetic - Off The Run - Treasury
Receipt 6.000% due 8/15/09+++ . . . . 2,943,750 0 2,943,750
1,500,000 0 1,500,000 Treasury Synthetic - Linked Coupon
Securities 6.000% due 8/15/09+++. . . 1,455,870 0 1,455,870
14,540,000 0 14,540,000 U.S. Treasury Bond Stripped
Principal Payment Zero
coupon due 8/15/17 . . . . . . . . . . . 3,012,686 0 3,012,686
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $17,525,016). . . . . . . . . . . . 18,631,776 298,704 18,930,480
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>12
Smith Barney Shearson
Strategic Investors Fund
Portfolio of Investments
January 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Shares Value (Note 2)
_________________________________ _________________________________
SBS SBS SBS SBS
Strategic Sector Pro Forma Strategic Sector Pro Forma
Investors Analysis Combined Investors Analysis Combined
Fund Fund (Note 1) Fund Fund (Note 1)
<S> <C> <C> <C> <C> <C> <C>
Shares
________________________________
PREFERRED CONVERTIBLE
STOCKS - 0.9%
35,700 0 35,700 Ford Motor Company,
Depositary Shares
Representing 1/1000
pfd. conv., Series A . . . . . . . . . $3,993,938 $0 $3,993,938
3,400 0 3,400 Genetics Institute Inc.,
Depositary Shares
Representing 1 share . . . . . . . . . 167,025 0 167,025
TOTAL PREFERRED CONVERTIBLE
STOCKS (Cost $2,189,448). . . . . . . . 4,160,963 0 4,160,963
Face Value
________________________________
YANKEE BONDS - 0.4% (Cost
$2,104,163)
$2,120,000 $0 $2,120,000 Pohang Iron & Steel Ltd.,
6.625% due 7/1/03. . . . . . . . . . . 2,112,050 0 2,112,050
COMMERCIAL PAPER - 10.5%
39,398,000 327,000 39,725,000 Ford Motor Credit Company,
3.100% due 2/1/94 . . . . . . . . . . 39,398,000 327,000 39,725,000
10,000,000 0 10,000,000 General Electric Capital,
3.125% due 2/1/94 . . . . . . . . . . 10,000,000 0 10,000,000
TOTAL COMMERCIAL PAPER
(Cost $49,725,000). . . . . . . . . . . 49,398,000 327,000 49,725,000
TOTAL INVESTMENTS (Cost
$422,559,107) . . . . . . . . . . . . . $338,309,699* $134,015,372 $472,325,071
</TABLE>
_________________________________
* Aggregate cost for Federal tax purposes.
+ Non-Income Producing Security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
Abbreviations:
ADR - American Depositary Receipts.
PO - Principal Only.
See Notes to Pro Forma Financial Statements
<PAGE>13
Smith Barney Shearson
Strategic Investors Fund
Pro Forma Combining Statement of Assets and Liabilities (Unaudited)
January 31, 1994
<TABLE>
<CAPTION>
SBS SBS Pro
Strategic Sector Forma
Investors Analysis Combined
Fund Fund Adjustments (Note 1)
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (Cost
$304,157,676, $118,401,431
and $422,559,107 respectively)
(Note 2) See accompanying
schedule. . . . . . . . . . . . $338,309,699 $134,015,372 $472,325,071
Cash. . . . . . . . . . . . . . . 33,564 58 33,622
Dividends receivable. . . . . . . 318,008 177,985 495,993
Receivable for investment
securities sold . . . . . . . . 7,789,535 0 7,789,535
Receivable for Fund shares sold . 1,087,897 37,777 1,125,674
Interest receivable . . . . . . . 1,633,931 0 1,633,931
Total Assets. . . . . . . . 349,172,634 134,231,192 $0 483,403,826
LIABILITIES:
Payable for investment
securities purchased. . . . . . 7,319,827 0 7,319,827
Payable for fund shares
redeemed. . . . . . . . . . . . 194,077 239,536 433,613
Dividends payable . . . . . . . . 0 0
Investment advisory fee
payable . . . . . . . . . . . . 153,797 68,020 221,817
Administration fee payable. . . . 55,926 22,673 78,599
Custodian fee payable . . . . . . 18,900 15,000 33,900
Distribution fees payable . . . . 207,210 82,767 289,977
Service fees payable. . . . . . . 70,329 28,342 98,671
Transfer agent fees payable . . . 42,710 38,650 81,360
Accrued Trustees' fees and
expenses. . . . . . . . . . . . 1,519 1,519
Miscellaneous fees payable. . . . 78,443 510,835 589,278
Total Liabilities . . . . . 8,142,738 1,005,823 0 9,148,561
NET ASSETS. . . . . . . . . . . . . $341,029,896 $133,225,369 $0 $474,255,265
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>14
Smith Barney Shearson
Strategic Investors Fund
Pro Forma Combining Statement of Assets and Liabilities (Unaudited)
January 31, 1994
<TABLE>
<CAPTION>
SBS SBS Pro
Strategic Sector Forma
Investors Analysis Combined
Fund Fund Adjustments (Note 1)
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Class A Shares:
Net Asset Value and redemption price
per share ($6,216,293 divided by
350,896, $3,573,305 divided by
223,373, and $9,789,598 divided by
552,601 shares of common stock
outstanding) $17.72 $16.00 $17.72
Maximum offering price per share
(based on maximum sales charge of 5%,
of offering price on January 31, 1994) $18.65 $16.84 $18.65
Class B Shares:
Net Asset Value and offering price
per share ($334,414,598 divided by
18,794,896, $129,652,048 divided by
8,108,309 and $464,066,646 divided
by 26,081,650 shares of common stock
outstanding) $17.79 $15.99 $17.79
Class D Shares:
Net Asset Value, offering price and
redemption price per share
($399,005 divided by 22,424, $15.99
divided by 1, and $399,021 divided by
22,425 shares of common stock
outstanding) $17.79 $15.99 $17.79
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>15
Smith Barney Shearson
Strategic Investors Fund
Pro Forma Combining Statement of Net Investment Income (Unaudited)
For the Year Ended January 31, 1994
<TABLE>
<CAPTION>
SBS SBS Pro
Strategic Sector Forma
Investors Analysis Combined
Fund Fund Adjustments (Note 1)
<S> <C> <C> <C> <C>
INCOME:
Interest $8,424,051 $321,440 $8,745,491
Dividends 4,318,217 3,179,895 7,498,112
TOTAL INCOME . . . . . . . . . . . . 12,742,268 3,501,335 $0 16,243,603
EXPENSES:
Investment advisory fee . . . . . 1,702,756 949,397 (79,116) (a) 2,573,037
Administration fee. . . . . . . . 609,031 316,466 925,497
Transfer agent fees . . . . . . . 447,217 309,577 756,794
Directors' fees and expenses. . . 22,079 20,549 (20,000) (b) 22,628
Custodian fees. . . . . . . . . . 82,804 63,804 (20,000) 126,608
Distribution fees . . . . . . . . 2,303,869 1,160,037 3,463,906
Service fees. . . . . . . . . . . 778,529 395,582 1,174,111
Audit and legal fees. . . . . . . 58,878 58,600 (45,000) (b) 72,478
Other . . . . . . . . . . . . . . 137,326 122,287 (104,613) (b) 155,000
TOTAL OPERATING EXPENSES. . . . . . 6,142,489 3,396,299 (268,729) 9,270,059
INTEREST EXPENSE. . . . . . . . . . 0 23,023 0 23,023
NET INVESTMENT INCOME (LOSS). . . . 6,599,779 82,013 268,729 6,950,521
(a) Adjustment to reflect SBS Strategic Investors Fund's currently effective fee schedule.
(b) Reductions reflect expected savings when the two funds become one.
See Notes to Pro Forma Financial Statements
</TABLE>
<PAGE>
Smith Barney Shearson
Strategic Investors Fund
NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited)
1. Basis of Combination
The unaudited Pro Forma Combining Portfolio of Investments, the Pro
Forma Combining Statement of Assets and Liabilities and the Pro Forma
Combining Statement of Net Investment Income reflect the accounts of Smith
Barney Shearson Sector Analysis Fund ("Sector") and Smith Barney Shearson
Strategic Investors Fund ("Strategic") at and for the year ended January 31,
1994. These statements have been derived from the funds' annual audited
financial statements at January 31, 1994.
The pro forma statements give effect to the proposed transfer of the
assets and stated liabilities of Sector to Strategic in exchange for shares of
Strategic. Under generally accepted accounting principles, the historical
cost of investment securities will be carried forward to the surviving entity
and the results of operations of Strategic for pre-combination periods will
not be restated. The pro forma statements do not reflect the expenses of
either fund in carrying out its obligations under the Agreement and Plan of
Reorganization.
The Pro Forma Combining Portfolio of Investments and Pro Forma Combining
Statement of Assets and Liabilities and the Pro Forma Combining Statement of
Net Investment Income should be read in conjunction with the historical
financial statements of the funds included or incorporated by reference
in the Statement of Additional Information.
2. Portfolio Valuation
Securities of both Sector and Strategic are valued at market value or,
in the absence of a market value with respect to any portfolio securities, at
fair value as determined by or under the direction of the funds' Board of
Trustees. Portfolio securities that are primarily traded on an exchange are
valued at the last sale price on that exchange or, if there were no sales
during the day, at the current quoted bid price. 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.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of
additional shares of Strategic which would have been issued at January 31,
1994 in connection with the proposed reorganization. The pro forma number of
Class A, B and D shares outstanding of 552,601, 26,801,650 and 22,425,
respectively, consists of 201,705, 7,286,754 and 1 additional Class A, B and D
shares assumed issued in the reorganization plus 350,896, 18,794,896 and
22,424 shares of Strategic outstanding at January 31, 1994.
<PAGE>1
SMITH BARNEY SHEARSON EQUITY FUNDS
PART C
OTHER INFORMATION
Item 15. Indemnification
The response to this item is incorporated by reference to
"Trustees Liability" under the caption "Comparative Information
on Shareholder Rights" in Part A of this Registration
Statement.
Item 16. Exhibits -- References are to Registrant's Registration
Statement on Form N-1A as filed with the
Securities and Exchange Commission on January
10, 1986 (File Nos. 33-2627 and 811-4551) (the
"Registration Statement")
(1) (a) Registrant's Amended and Restated Master Trust Agreement
and all Amendments are incorporated by reference to its
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.
(3) Not Applicable.
(4) Form of Agreement and Plan of Reorganization.*
(5) Form of share certificates for Class A, Class B and Class D
shares of beneficial interest for Smith Barney Shearson
Strategic Investors Fund, a sub-trust of the Registrant, are
incorporated by reference to Post-Effective Amendment No. 22 to
the Registration Statement filed on October 20, 1992.
(6) (a) Investment Advisory Agreement between the Registrant and
The Boston Company Advisors, Inc. (relating to Strategic
Investors Fund) dated May 22, 1993 is incorporated by
reference to Post-Effective Amendment No. 26.
(6) (b) Administration Agreement between the Registrant and The Boston
Company Advisors, Inc. dated May 21, 1993.**
<PAGE>2
(6) (c) Asset Allocation Consulting Agreement between Registrant
and Shearson Lehman Hutton Inc. (relating to Strategic
Investors Portfolio) is incorporated by reference to Post-
Effective Amendment No. 4 to the Registration Statement
filed on June 1, 1987.
(7) Distribution Agreement between Registrant and Smith Barney
Shearson Inc. dated July 30, 1993 is incorporated by reference
to Post-Effective Amendment No. 26.
(8) Not Applicable.
(9)(a) Form of Custody Agreement between Registrant and Boston
Safe Deposit and Trust Company is incorporated by
reference to Pre-Effective Amendment No. 1 to the
Registration Statement filed on February 25, 1986.
(9) (b) Form of Supplement to Custodian Agreement between Registrant
and Boston Safe Deposit and Trust Company (relating to
Strategic Investors Portfolio) is incorporated by reference to
Post-Effective Amendment No. 2 to the Registration Statement
filed on November 19, 1986.
(9) (c) Sub-Custody 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 to the Registration Statement.
(9) (d) 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) 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.
(11) Opinion and Consent of Willkie Farr & Gallagher with respect to
legality (with Opinion of Francis J. McNamara III, Esq.
attached thereto).***
(12) Opinion and Consent of Willkie Farr & Gallagher with respect to
tax matters.***
(13) Not Applicable.
(14) Consent of Coopers & Lybrand.**
(15) Not Applicable.
<PAGE>3
(16) Powers of Attorney.****
(17) (a) Form of Proxy Card.**
(17) (b) Registrant's Declaration pursuant to Rule 24f-2 is incorporated
by reference to its initial Registration Statement filed on
January 10, 1986.
* Filed herewith as Exhibit A to Registrant's Prospectus/Proxy Statement
contained in Part A of this Registration Statement.
** Filed herewith.
*** To be filed by amendment.
**** Filed herewith on the signature page to this Registration Statement.
<PAGE>4
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of
a prospectus which is a part of this Registration
Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will
contain the information called for by the applicable
registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a
part of an amendment to the Registration Statement and
will not be used until the amendment is effective, and
that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed
to be a new registration statement for the securities
offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide
offering of them.
<PAGE>5
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the registrant, in the City of New York
and State of New York on the 27th day of April 1994.
SMITH BARNEY SHEARSON
EQUITY FUNDS on behalf of
SMITH BARNEY SHEARSON STRATEGIC
INVESTORS FUND
By: /s/ Stephen J. Treadway
Stephen J. Treadway
President
We, the undersigned, hereby severally constitute and appoint Heath
B. McLendon, Francis J. McNamara, III, and Lee D. Augsburger and each of them
singly, our true and lawful attorneys, with full power to them and each of
them, to sign for us, and in our hands and in the capacities indicated below,
any and all Pre-Effective and Post-Effective Amendments to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
therewith, with the Securities and Exchange Commission, granting unto said
attorneys, and each of them, acting alone, full authority and power to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys or any of them
may lawfully do or cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board April 27, 1994
Heath B. McLendon
/s/ Stephen J. Treadway President April 27, 1994
Stephen J. Treadway
<PAGE>6
/s/ Vincent Nave Treasurer (Chief Financial April 27, 1994
Vincent Nave and Accounting Officer)
/s/ Lee Abraham Trustee April 22, 1994
Lee Abraham
/s/ Antoinette C. Bentley Trustee April 27, 1994
Antoinette C. Bentley
/s/ Allan J. Bloostein Trustee April 20, 1994
Allan J. Bloostein
/s/ Richard E. Hanson Trustee April 20, 1994
Richard E. Hanson
/s/ Madelon DeVoe Talley Trustee April 23, 1994
Madelon DeVoe Talley
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
(4) Form of Agreement and Plan of Reorganization. *
(6) (b) Administration Agreement between the Registrant **
and The Boston Company Advisors, Inc.
dated May 21, 1993.
(11) Opinion and Consent of Willkie Farr ***
& Gallagher with respect to legality
(with Opinion of Francis J. McNamara
III, Esq., attached thereto).
(12) Opinion and Consent of Willkie Farr & ***
Gallagher with respect to tax matters.
(14) Consent of Coopers & Lybrand. **
(16) Powers of Attorney. ****
(17) (a) Form of Proxy Card. **
* Filed herewith as Exhibit A to Registrant's Prospectus/Proxy Statement
contained in Part A of this Registration Statement.
** Filed herewith.
*** To be filed by amendment.
**** Filed herewith on the signature page to this Registration Statement.
<PAGE>1
Shearson Lehman Brothers--
Strategic Investors Fund
ADMINISTRATION AGREEMENT
May 21, 1993
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
Dear Sirs:
Shearson Lehman Brothers Equity Funds (the "Trust") a business trust
organized under the laws of the Commonwealth of Massachusetts, confirms its
agreement with The Boston Company Advisors, Inc. ("Boston Advisors") and
its sub-trust Strategic Investors Fund (the "Fund") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting
in investments of the kind and in accordance with the limitations specified
in the Trust's Amended and Restated Master Trust Agreement (the "Master
Trust Agreement"), as amended from time to time, in the Fund's Prospectus
and Statement of Additional Information as from time to time in effect, and
in such manner and to the extent as may from time to time be approved by
the Board of Trustees of the Trust. Copies of the Fund's Prospectus,
Statement of Additional Information and the Master Trust Agreement have
been submitted to Boston Advisors. The Trust employs Boston Advisors (the
"Adviser") as its investment adviser and desires to employ and hereby
appoints Boston Advisors as its administrator. Boston Advisors accepts
this appointment and agrees to furnish services for the compensation set
forth below.
2. Services as Administrator
Subject to the supervision and direction of the Board of Trustees of
the Trust, Boston Advisors will (a) assist in supervising all aspects of
the Fund's operations except those performed by the Fund's Adviser under
its investment advisory agreement; (b) assist in the execution of cash
management decisions made by the Fund's Adviser(s) pursuant to instructions
from Fund's Adviser(s); (c) furnish such statistical or other factual
information, advice regarding economic factors and trends and advice as to
occasional transactions in specific securities (but without generally
furnishing advice or making recommendations regarding the purchase or sale
of securities) as may be requested by the Fund's Adviser(s) in connection
with the selection of cash equivalent investments as may be requested from
time to time by the Fund's Adviser(s); (d) supply the Fund with office
facilities (which may be Boston Advisors' own offices) statistical and
research data, data processing services, clerical, accounting and
bookkeeping services, including but not limited to, the calculation of net
asset value of shares of the Fund, internal auditing and legal services,
internal executive and administrative services, and stationary and office
supplies; and (e) prepare reports to the shareholders of the Fund, tax
returns and reports to and filings with the Securities and Exchange
Commission and state Blue Sky authorities.
<PAGE>2
3. Compensation
In consideration of services rendered pursuant to this Agreement, the
Fund will pay Boston Advisors on the first business day of each month a fee
for the previous month at the annual rates of .20% of the Fund's average
daily net assets. Upon any termination of this Agreement before the end of
any month, the fee for such part of the month shall be prorated according
to the proportion which such period bears to the full monthly period and
shall be payable upon the date of termination of this Agreement. For the
purpose of determining fees payable to Boston Advisors, the value of the
Fund's net assets shall be computed at the times and in the manner
specified in the Prospectus and Statement of Additional Information as from
time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees of the
Trust who are not officers, directors, or employees of the Adviser or
Boston Advisors; Securities and Exchange Commission fees and state Blue Sky
qualification fees; charges of custodians and transfer and dividend
disbursing agents; certain insurance premiums; outside auditing and legal
expenses, costs of maintenance of corporate existence; costs attributable
to investor services, including without limitation, telephone and personnel
expenses; costs of preparing and printing prospectuses and statement of
additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and meetings, and
meetings of the officers or Board of Trustees of the Trust; and any
extraordinary expenses.
5. Reimbursement to the Fund
If in any fiscal year, the aggregate expenses of the Fund (including
fees pursuant to this Agreement and the Fund's investment advisory
agreement, but excluding interest, taxes, brokerage and, if permitted by
state securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston Advisors
will reimburse the Fund for that excess expense to the extent required by
state law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of Boston Advisors will be limited to the amount
of fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering the
services listed in paragraph 2 above. Boston Advisors shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates
provided that nothing in this Agreement shall be deemed to protect or
purport to protect Boston Advisors against liability to the Fund or to its
shareholders to which Boston Advisors would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of Boston Advisors' reckless
disregard of its obligations and duties under this Agreement.
<PAGE>3
7. Term of Agreement
This Agreement shall continue automatically (unless terminated as
provided herein) for successive annual periods provided that such
continuance is specifically approved at least annually by the Board of
Trustees of the Trust including a majority of the Board of Trustees who are
not "interested persons" (as defined in the Investment Company Act of 1940,
as amended) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting such approval. This Agreement is
terminable, without penalty, on 60 days' written notice, by the Board of
Trustees of the Trust or by vote of holders of a majority of the Fund's
shares, or upon 90 days' written notice, by Boston Advisors.
8. Service to Other Companies or Accounts
The Trust understands that Boston Advisors now acts, will continue to
act and may act in the future as administrator to one or more other
investment companies, and the Trust has no objection to Boston Advisors' so
acting. The Trust understands that the persons employed by Boston Advisors
to assist in the performance of Boston Advisors' duties hereunder will not
devote their full time to such service and nothing contained herein shall
be deemed to limit or restrict the right of Boston Advisors or any
affiliate of Boston Advisors to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.
9. Filing of Trust Agreement
The Trust represents that a copy of its Amended and Restated Master
Trust Agreement, dated November 5, 1992, together with all amendments
thereto, is on file with the Secretary of the Commonwealth of Massachusetts
and with the Boston City Clerk.
10. Limitation of Liability
This Trust and Boston Advisors agree that the obligations of the Fund
under this Agreement shall not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust individually, but are binding only upon the
assets and property of the Fund, as provided in the Master Trust Agreement.
The execution and delivery of this Agreement have been authorized by the
Trustees and the sole shareholder of the Trust, and signed by an authorized
officer of the Fund, acting as such, and neither such authorization by such
Trustees and shareholder nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose
any liability on any of them personally, but shall bind only the assets and
property of the Fund as provided in the Master Trust Agreement.
<PAGE>4
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed
copy hereof.
Very truly yours,
Shearson Lehman Brothers Equity Funds--
Strategic Investors Fund
By:/s/ Heath B. McLendon
Title:
Accepted:
The Boston Company Advisors, Inc.
By: /s/ Alan D. Greene
Title: Executive Vice President
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CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Shearson Equity Funds:
We hereby consent to the following with respect to the Registration
Statement on Form N-14 under the Securities Act of 1933, as amended, of Smith
Barney Shearson Equity Funds:
1. The incorporation by reference of our reports dated March 15,
1994, accompanying the respective financial statements of the
Smith Barney Shearson Strategic Investors Fund and Smith Barney
Shearson Sector Analysis Fund as of January 31, 1994, which
reports are included in Post-Effective Amendment No. 27 to the
Registration Statement on Form N-1A (File No. 33-2627) of the
Smith Barney Shearson Equity Funds.
2. The reference to our firm under the heading "Financial
Statements and Experts" in the Prospectus/Proxy Statement.
COOPERS & LYBRAND
Boston, Massachusetts
April 26, 1994
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VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
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Please indicate your vote by an "X" in the appropriate box below.
This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSAL.
Please refer to the Prospectus/Proxy Statement for a discussion of the
Proposal.
1. To approve the Agreement and Plan of Reorganization
FOR / / AGAINST / / ABSTAIN / /
dated as of ___, 1994 providing for (i) the acquisition of substantially
all of the assets of Smith Barney Shearson Sector Analysis Fund ("Sector
Analysis Fund") by Smith Barney Shearson Strategic Investors Fund ("Strategic
Investors Fund"), in exchange for shares of Strategic Investors Fund and the
assumption by Strategic Investors Fund of certain liabilities of Sector
Analysis Fund, (ii) the distribution of such shares of Strategic Investors
Fund to shareholders of Sector Analysis Fund in liquidation of Sector Analysis
Fund and (iii) the subsequent termination of Sector Analysis Fund.
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VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
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SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND
PROXY SOLICITED BY THE BOARD OF TRUSTEES
The undersigned holder of shares of Sector Analysis Fund ("Sector Analysis
Fund"), an investment series of Smith Barney Shearson Equity Funds, hereby
appoints Heath B. McLendon, Francis J. McNamara III and Lee D. Augsburger
attorneys and proxies for the undersigned with full powers of substitution and
revocation, to represent the undersigned and to vote on behalf of the
undersigned all shares of the Sector Analysis Fund that the undersigned is
entitled to vote at the Special meeting of Shareholders of Sector Analysis
Fund to be held at the offices of the Sector Analysis Fund, Two World Trade
Center, New York, New York on June 29, 1994 at _____, and any adjournment or
adjournments thereof. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting and Prospectus/Proxy Statement dated ,
1994 and hereby instructs said attorneys and proxies to vote said shares as
indicated herein. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the Special Meeting. A
majority of the proxies present and acting at the Special Meeting in person or
by substitute (or, if only one shall be so present, then that one) shall have
and may exercise all of the power and authority of said proxies hereunder.
The undersigned hereby revokes any proxy previously given.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Note: Please sign exactly as your name appears
on this Proxy. If joint owners, EITHER may sign
this Proxy. When signing as attorney, executor,
administrator, trustee, guardian or corporate
officer, please give your full title.
Date:
Signature(s) (Title(s), if applicable)
