Registration No. 33-2627
811-4551
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No 30 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 31 X
SMITH BARNEY EQUITY FUNDS
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 723-9218
Christina T. Sydor
Secretary
Smith Barney Equity Funds
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on April 1, 1995 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ended January 31, 1995 was filed on March 30, 1995.
SMITH BARNEY EQUITY FUNDS
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(b)
Part A.
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Additional
Information
5. Management of the Fund Management of the Trust
and the Fund; Distributor, The
Fund's Expenses; Additional
Information; Annual Report
6. Capital Stock and Other Securities Investment Objective and
Management Policies;
Dividends, Distributions and
Taxes; Additional Information
7. Purchase of Securities Being Purchase of Shares; Valuation of
Offered Shares; Exchange Privilege;
Redemption of Shares;
Distributor; Additional
Information; Minimum Account
Size
8. Redemption or Repurchase Purchase of Shares; Redemption of
Shares; Exchange Privilege
9. Legal Proceedings Not Applicable
Part B
Item No. Statement of Additional
Information Caption
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Distributor; Additional
Information
13. Investment Objectives and Policies Investment Objectives and
Management Policies
14. Management of the Fund Management of the Trust and
the Funds; Distributor
15. Control Persons and Principal Holders Management of the Trust and
of Securities the Funds
16. Investment Advisory and Other Services Management of the Trust and
the Funds; Distributor
17. Brokerage Allocation Investment Objective and
Management Policies;
Distributor
18. Capital Stock and Other Securities Investment Objective and
Management Policies; Purchase
of Shares; Redemption of
Shares; Taxes
19. Purchase, Redemption and Pricing of Purchase of Shares; Redemption
Securities Being Offered of Shares; Distributor
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data Performance
23. Financial Statements Financial Statements
SMITH BARNEY
P GROWTH AND
R INCOME
O FUND
S APRIL 1, 1995
P
E Prospectus begins on page one
C
T
U
S
[LOGO OF SMITH BARNEY MUTUAL FUNDS
SMITH BARNEY INVESTING FOR YOUR FUTURE.
APPEARS HERE] EVERY DAY.
SMITH BARNEY
Growth and Income Fund
PROSPECTUS
April 1, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Growth and Income Fund (the "Fund") seeks long-term capital
growth and income by investing in income producing equity securities, including
dividend-paying common stocks, securities that are convertible into common
stocks and warrants.
The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up Smith Barney 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,
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference. Shares of the other funds offered by the Trust are described
in separate prospectuses that may be obtained by calling the Trust at the tele-
phone number set forth above or by contacting a Smith Barney Financial Consul-
tant.
Additional information about the Fund and the Trust is contained in a State-
ment of Additional Information dated April 1, 1995, 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 a Smith Barney 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 INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS
A CRIMINAL OFFENSE.
1
SMITH BARNEY
Growth and Income Fund
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
-------------------------------------------------
FINANCIAL HIGHLIGHTS 10
-------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 13
-------------------------------------------------
VALUATION OF SHARES 24
-------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 25
-------------------------------------------------
PURCHASE OF SHARES 27
-------------------------------------------------
EXCHANGE PRIVILEGE 37
-------------------------------------------------
REDEMPTION OF SHARES 40
-------------------------------------------------
MINIMUM ACCOUNT SIZE 42
-------------------------------------------------
PERFORMANCE 43
-------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND 44
-------------------------------------------------
DISTRIBUTOR 45
-------------------------------------------------
ADDITIONAL INFORMATION 46
-------------------------------------------------
</TABLE>
No person has been authorized to give any information or to make any repre-
sentations in connection with this offering other than those contained in this
Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust or the distribu-
tor. This Prospectus does not constitute an offer by the Fund or the distribu-
tor to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction.
--------------------------------------------------------------------------------
2
SMITH BARNEY
Growth and Income Fund
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, diversified, management invest-
ment company that seeks long-term capital growth and income by investing in
income producing equity securities, including dividend-paying common stocks,
securities that are convertible into common stocks and warrants. See
"Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS 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 three
Classes of shares: Class A shares, Class B shares and Class C shares which dif-
fer principally in terms of the sales charges and rates of expenses to which
they are subject. A fourth Class of shares, Class Y shares, is offered only to
investors meeting an initial investment minimum of $5,000,000. See "Purchase of
Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% imposed at the time of purchase and are subject to
an annual service fee of 0.25% of the average daily net assets of the Class.
The initial sales charge may be reduced or waived for certain purchases. Pur-
chases of Class A shares, which when combined with current holdings of Class A
shares offered with a sales charge equal or exceed $500,000 in the aggregate,
will be made at net asset value with no sales charge, but will be subject to a
contingent deferred sales charge ("CDSC") of 1.00% on redemptions made within
12 months of purchase. See "Prospectus Summary -- Reduced or No Initial Sales
Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. This CDSC may be waived for certain redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.50% of the average daily net assets of the Class.
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of
3
SMITH BARNEY
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
the original purchase. Upon conversion, these shares will no longer be subject
to an annual 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. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.50% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months of
purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Class C shares, which when combined
with current holdings of Class C shares of the Fund equal or exceed $500,000 in
the aggregate, should be made in Class A shares at net asset value with no
sales charge, and will be subject to a CDSC of 1.00% on redemptions made within
12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject
to lower ongoing expenses over the term of the investment. As an investment
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of these Classes. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case.
Finally, investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame.
4
SMITH BARNEY
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fee. The maximum purchase amount for Class A shares is $4,999,999, Class B
shares is $249,999 and Class C shares is $499,999. There is no maximum purchase
amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share pur-
chases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment will be met by adding the purchase to the net asset value of all
Class A shares offered with a sales charge held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Other Class A
share purchases may also be eligible for a reduced initial sales charge. See
"Purchase of Shares." Because the ongoing expenses of Class A shares will be
lower than those for Class B and Class C shares, purchasers eligible to pur-
chase Class A shares at net asset value or at a reduced sales charge should
consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan spon-
sors 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
5
SMITH BARNEY
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
other types of participant directed, tax-qualified employee benefit plans (col-
lectively, "Participating Plans"). Class A, Class B, Class C and Class Y shares
are available as investment alternatives for Participating Plans. See "Purchase
of Shares--Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney, or a broker that clears securities transactions through
Smith Barney on a fully disclosed basis (an "Introducing Broker") or an invest-
ment dealer in the selling group. Direct purchases by certain retirement plans
may be made through the Fund's transfer agent, The Shareholder Services Group,
Inc. ("TSSG"), a subsidiary of First Data Corporation. See "Purchase of
Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B, and Class C shares and the subsequent invest-
ment requirement for all Classes is $25. The minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment through the Systematic Investment Plan described below is $50. See "Pur-
chase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic
Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares in an amount not less than $50. See "Pur-
chase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc.
("SBMFM")
serves as the Fund's investment adviser. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Hold-
ings is a wholly owned subsidiary of The Travelers Inc. ("Travelers"), a diver-
sified financial services company engaged through its sub
6
SMITH BARNEY
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
sidiaries, principally in four business segments: Investment Services, Consumer
Finance Services, Life Insurance Services and Property & Casualty Insurance
Services.
SBMFM also serves as the Fund's administrator and The Boston Company Advi-
sors, Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston
Advisors is a wholly owned subsidiary of The Boston Company, Inc. ("TBC"),
which in turn is an indirect wholly owned subsidiary of Mellon Bank Corporation
("Mellon"). See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differen-
tial. See "Exchange Privilege Services."
VALUATION OF SHARES Net asset value of the Fund for the prior day is generally
quoted daily in the financial section of most newspapers and is also available
from a Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are paid
quar-
terly. Distributions of net realized capital gains, if any, are declared and
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 reinvestments will not be subject to any sales charge or CDSC.
Class B shares acquired through dividend and distribution reinvestments will
become eligible for conversion to Class A shares on a pro rata basis. See
"Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund's investment objective will be achieved. The market value of fixed income
securities, which may constitute a part of the investments of the Fund, may
vary inversely in response to changes in prevailing interest rates. The mort-
gage related securities in which the Fund may invest are sensitive to changes
in interest rates and to prepayment of mortgages. The Fund may make certain
investments and employ certain investment techniques that involve other risks,
including entering into repurchase agreements, foreign securities, lending
portfolio securities and entering into futures contracts and related options as
hedges. These risks and those associated with when-issued and delayed-delivery
transac
tions and covered option writing are described under "Investment Objective and
Management Policies -- Risk Factors and Special Considerations."
7
SMITH BARNEY
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and unless otherwise noted, the Fund's current
operating expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None None
Maximum CDSC (as a percentage of original cost
or redemption proceeds, whichever is lower) None* 5.00% 1.00% None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .65% .65% .65% .65%
12b-1 fees** .25 .75 .75 --
Other expenses*** .51 .50 .43 .51%
--------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.41% 1.90% 1.83% 1.16%
--------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will
be subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a con-
version feature and, therefore, are subject to an ongoing distribution fee.
As a result, long-term shareholders of Class C shares may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
*** For Class Y shares, "Other expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares had been sold as of
January 31, 1995.
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
actually pay lower or no charges, depending on the amount purchased and, in the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
Program. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
receives an annual 12b-1 service fee of .25% of the value of average daily net
assets of Class A shares. Smith Barney also receives an annual 12b-1 fee of
.75% of the value of average daily net assets of Class B and Class C shares,
consisting of a .50% distribution fee and a .25% service fee. "Other expenses"
in the above table include fees for shareholder services, custodial fees, legal
and accounting fees, printing costs and registration fees.
8
SMITH BARNEY
Growth and Income Fund
PROSPECTUS SUMMARY (CONTINUED)
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each
time period:
Class A $64 $92 $123 $211
Class B 69 90 113 209
Class C 29 58 99 215
Class Y 12 37 64 141
An investor would pay the following
expenses on the same investment,
assuming the same annual return and
no redemption:
Class A $64 $92 $123 $211
Class B 19 60 103 209
Class C 19 58 99 215
Class Y 12 37 64 141
------------------------------------------------------------------------
</TABLE>
* 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.
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may result
in an actual return greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CON-
SIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
9
SMITH BARNEY
Growth and Income Fund
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand L.L.P., inde-
pendent accountants, whose report thereon appears in the Fund's Annual Report
dated January 31, 1995. The information set forth below should be read in con-
junction 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 YEAR:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
1/31/95 1/31/94** 1/31/93*
-------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.36 $ 9.58 $ 9.50
-------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.20 0.20 0.01
Net realized and unrealized gain (loss) on
investments (0.61) 0.81 0.07
-------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.41) 1.01 0.08
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.19) (0.23) --
Distributions from net realized gains (0.14) -- --
-------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.33) (0.23) --
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.62 $10.36 $ 9.58
-------------------------------------------------------------------------------
TOTAL RETURN+ (3.93)% 10.70% 0.84%
-------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $95,054 $4,468 $3,520
Ratio of operating expenses to average net
assets 1.41% 1.54% 1.41%++
Ratio of net investment income to average net
assets 1.86% 2.00% 0.28%++
Portfolio turnover rate 127% 79% 1%
-------------------------------------------------------------------------------
</TABLE>
* The Fund commenced selling Class A shares on November 6, 1992.
** The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year,
since use of the undistributed net investment income method did not accord
with results of operations.
+ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
++ Annualized.
10
SMITH BARNEY
Growth and Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
1/31/95 1/31/94** 1/31/93*
--------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.38 $9.58 $9.50
--------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(loss) 0.17 0.15 (0.01)
Net realized and unrealized gain (loss) on
investments (0.62) 0.80 0.09
--------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.45) 0.95 0.08
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.14) (0.15) --
Distributions from net realized gains (0.14) -- --
--------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.28) (0.15) --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.65 $10.38 $9.58
--------------------------------------------------------------------------------
TOTAL RETURN+ (4.33)% 10.01% 0.84%
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $92,153 $68,144 $35,173
Ratio of operating expenses to average net
assets 1.90% 1.99% 1.91%++
Ratio of net investment income/(loss) to aver-
age net assets 1.38% 1.55% (0.22)%++
Portfolio turnover rate 127% 79% 1%
--------------------------------------------------------------------------------
</TABLE>
* The Fund commenced selling Class B shares on November 6, 1992.
** The per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year,
since use of the undistributed net investment income method did not accord
with results of operations.
+ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
++ Annualized.
11
SMITH BARNEY
Growth and Income Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
PERIOD
ENDED
1/31/95*
---------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.91
---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.07
Net realized and unrealized loss on investments (0.13)
---------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.06)
---------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.06)
Distributions from net realized gains (0.14)
---------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.20)
---------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.65
---------------------------------------------------------------
TOTAL RETURN+ (0.58)%
---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 85
Ratio of operating expenses to average net assets 1.83%++
Ratio of net investment income to average net assets 1.44%++
Portfolio turnover rate 127%
---------------------------------------------------------------
</TABLE>
* The Fund commenced selling Class C shares (formerly Class D shares) on
January 29, 1993. These shares commenced operations on August 15, 1994.
+ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
++ Annualized.
As of January 31, 1995, no Class Y shares had been sold and, accordingly, no
comparable financial information is available at this time for that class.
12
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek income and long-term capital
growth. The Fund's investment objective may be changed only with the approval
of a majority of the Fund's outstanding shares. There can be no assurance that
the Fund's investment objective will be achieved.
The Fund seeks to achieve its investment objective by investing in income
producing equity securities, including dividend-paying common stocks, securi-
ties that are convertible into common stocks and warrants. SBMFM has developed
quantitative investment criteria against which prospective investments will be
evaluated and will make buy and sell decisions based on those criteria. Those
criteria establish parameters for suitable investments and deal with such mat-
ters as market capitalization, credit quality, dividend growth, historic earn-
ings, current yield and industry concentration. The criteria, which may be
changed by SBMFM in light of its experience in managing the Fund or in response
to changing market or economic conditions, are designed to identify companies
with consistent dividend paying histories, relatively high levels of dividends,
the capacity to raise dividends in the future and the potential for capital
appreciation. Consistent with the data used in developing and maintaining the
quantitative investment criteria, the Fund expects to invest primarily in
domestic companies of varying sizes, generally with capitalizations exceeding
$250 million in a wide range of industries. The Fund may also invest up to 20%
in the securities of foreign issuers, including American Depositary Receipts or
European Depositary Receipts. Under normal market conditions, the Fund will
invest substantially all -- but not less than 65% -- of its assets in equity
securities. The Fund may invest the remainder of its assets in high grade money
market instruments in order to develop income, as well as in corporate bonds
and mortgage related securities that are rated investment grade or are deemed
by SBMFM to be of comparable quality and in United States government securi-
ties, in furtherance of its objective of income and long-term capital growth.
The Fund also may enter into repurchase agreements, lend portfolio securities,
enter into interest rate and stock index futures and related options, purchase
or sell securities on a when-issued or delayed-delivery basis and write covered
options.
13
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may, as a cash management tool, hold up to
20% of the value of its assets in cash and invest in short-term instruments
and, when SBMFM believes that market conditions warrant, the Fund may adopt a
temporary defensive posture and may hold cash and invest in short-term instru-
ments without limitation. Short-term instruments in which the Fund may invest
include securities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. government securities"); obligations of
banks having at least $1 billion in assets (including certificates of deposit,
time deposits and bankers' acceptances of domestic or foreign banks, domestic
savings and loan associations and similar institutions); commercial paper rated
no lower than A-2 by Standard & Poor's Corporation ("S&P") or Prime-2 by
Moody's Investors Service, Inc. ("Moody's") or the equivalent from another
nationally recognized statistical rating organization ("NRSRO") or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
two highest rating categories; and repurchase agreements with respect to any of
the foregoing entered into with banks and non-bank dealers approved by the
Trust's Board of Trustees. The NRSROs currently designated as such by the SEC
are S&P, Moody's, Fitch Investors Service, Inc., Duff & Phelps, Inc., IBCA Lim-
ited and its affiliate, IBCA, Inc. and Thomson BankWatch. A more detailed dis-
cussion of the ratings of NRSROs is contained in 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 (such as
Treasury Bills, Treasury Notes and Treasury Bonds), and obligations issued by
U.S. government agencies and instrumentalities, including securities that are
supported by the full faith and credit of the United States (such as certifi-
cates issued by the Government National Mortgage Association); securities that
are supported by the right of the issuer to borrow from the United States Trea-
sury (such as securities of Federal Home Loan Banks); and securities that are
supported only by the credit of the instrumentality (such as bonds issued by
Federal National Mortgage Association and the Federal Home Loan Mortgage Corpo-
ration). Treasury Bills have maturities of less than one year, Treasury Notes
have maturities of one to ten years and Treasury Bonds generally have maturi-
ties of greater than ten years at the date of issuance.
Convertible Securities. Convertible securities are fixed-income securities
that may be converted at either a stated price or stated rate into underlying
shares of common stock and therefore are deemed to be equity securities for
purposes
14
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
of the Fund's investment objective and techniques. 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 addi-
tion, because of the conversion feature, the market value of convertible secu-
rities tends to vary with fluctuations in the market value of the underlying
common stocks and, therefore, also will react to variations in the general mar-
ket for equity securities. A unique feature of convertible securities is that
as the market price of the underlying common stock declines, convertible secu-
rities tend to trade increasingly on a yield basis and so may not experience
market value declines to the same extent as the underlying common stock. When
the market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the under-
lying common stock. While no securities investments are without risk, invest-
ments in convertible securities generally entail less risk than investments in
common stocks of the same issuer.
As fixed-income securities, convertible securities provide for a stable
stream of income with generally higher yields than common stocks. Of course,
like all fixed-income securities, convertible securities offer no assurance of
current income because the issuers of the securities may default on their obli-
gations. Convertible securities, however, generally offer lower interest or
dividend yields than non-convertible securities of similar quality because of
the potential for 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 cor-
porate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible securi-
ties typically have lower ratings than similar non-convertible securities.
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
15
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
any given time or under any particular economic condition. More detailed infor-
mation 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 with certain dealers on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, the Fund
would acquire an underlying debt obligation for a relatively short period (usu-
ally 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 SBMFM or Boston Advisors to
ensure that the value is at least equal at all times to the total amount of the
repurchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obliga-
tions and the Fund is delayed or prevented from exercising its rights to dis-
pose of the collateral securities, including the risk of a possible decline in
the value of the underlying securities during the period in which the Fund
seeks to assert these rights. SBMFM or Boston Advisors, acting under the super-
vision of the Trust's Board of Trustees, reviews on an ongoing basis the value
of the collateral and the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements to evaluate potential risks.
Lending of Securities. The Fund has the ability to lend portfolio securities
to brokers, dealers and other financial organizations. By lending its securi-
ties, the Fund can increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash collateral in short-
term instruments or obtaining yield in the form of interest paid by the bor-
rower when U.S. government securities are used as collateral. Loans of portfo-
lio securities, if and when made, by the Fund may not exceed 33 1/3% of the
Fund's total assets, taken at value. Loans of portfolio securities will be col-
lateralized by cash, letters of credit or U.S. government securities, which are
maintained at all times in an amount equal to the current market value of the
loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund. The risks in lending portfolio securities, as with other extensions
of secured credit, consist of possible delay in receiving additional collateral
or in the recovery of the securities or
16
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
possible loss of rights in the collateral should the borrower fail financially.
Loans will be made to firms deemed by SBMFM to be of good standing and will not
be made unless, in the judgment of SBMFM the consideration to be earned from
such loans would justify the risk.
Futures and Options on Futures. When deemed advisable by SBMFM, the Fund may
enter into interest rate futures contracts, stock index futures contracts and
related options that are traded on a domestic exchange or board of trade. These
transactions will be made solely for the purpose of hedging against the effects
of changes in the value of portfolio securities due to anticipated changes in
interest rates, market conditions and currency values, as the case may be. All
futures and options contracts will be entered into only when the transactions
are economically appropriate to the reduction of risks inherent in the manage-
ment of the Fund.
An interest rate futures contract provides for the future sale by one party
and the purchase by the other party of a specified amount of a particular
financial instrument (debt security) at a specified price, date, time and
place. Similarly, a foreign currency futures contract provides for the future
sale by one party and the purchase by another party of a certain amount of a
particular currency at a specified price, date, time and place. Stock index
futures contracts are based on indexes that reflect the market value of common
stock of the firms included in the indexes. An index futures contract is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally entered into. An option on an interest rate, stock
index or currency futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position
if the option is a call and a short position if the option is a put) at a spec-
ified exercise price at any time prior to the expiration date of the option.
The use of futures contracts and options on futures contracts as a hedging
device involves several risks. There can be no assurance that there will be a
correlation between price movements in the underlying securities, index or cur-
rency, on the one hand, and price movements in the securities that are the sub-
ject of the hedge, on the other hand. Positions in futures contracts and
options on futures contracts may be closed out only on the exchange or board of
trade on which they were entered into, and there can be no assurance that an
active market will exist for a particular contract or option at any particular
time.
17
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
With respect to long positions in futures or options on futures, the Fund
will set aside cash, short-term U.S. debt obligations or other U.S. dollar
denominated high quality short-term money market instruments in an amount equal
to the underlying commodity value of those positions.
When-Issued Securities and Delayed-Delivery Transactions. The Fund may pur-
chase and sell securities on a when-issued basis, which calls for the purchase
(or sale) of securities at an agreed-upon price on a specified future date. The
Fund will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage. In such transactions,
delivery of the securities occurs beyond the normal settlement periods, but no
payment or delivery is made by, and no interest accrues to, the Fund prior to
the actual delivery or payment by the other party to the transaction. Due to
fluctuations in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the returns obtained on such securities may be higher
or lower than the returns available in the market on the dates when the invest-
ments are actually delivered to the buyers. The Fund will establish a segre-
gated account consisting of cash, U.S. government securities or other high-
grade debt obligations in an amount equal to the amount of its when-issued and
delayed-delivery commitments. Placing securities rather than cash in the segre-
gated account may have a leveraging effect on the Fund's net assets. The Fund
will not accrue income with respect to a when-issued security prior to its
stated delivery date.
Covered Option Writing. The Fund may write put and call options on securi-
ties. The Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the options. A put option embodies the right of its pur-
chaser to compel the writer of the option to purchase from the option holder an
underlying security at a specified price at any time during the option period.
In contrast, a call option embodies the right of its purchaser to compel the
writer of the option to sell to the option holder an underlying security at a
specified price at any time during the option period. Thus, the purchaser of a
put option written by the Fund has the right to compel the Fund to purchase
from it the underlying security at the agreed-upon price for a specified time
period, while the purchaser of a call option written by the Fund has the right
to purchase from the Fund the underlying security owned by the Fund at the
agreed-upon price for a specified time period.
18
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Upon the exercise of a put option written by the Fund, the Fund may suffer a
loss equal to the difference between the price at which the Fund is required to
purchase the underlying security plus the premium received for writing the
option and its market value at the time of the option exercise. Upon the exer-
cise of a call option written by the Fund, the Fund may suffer a loss equal to
the difference between the security's market value at the time of the option
exercise less the premium received for writing the option and the Fund's acqui-
sition cost of the security.
The Fund will write only covered options. Accordingly, whenever the Fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option. To support its obligation to purchase the underlying
security if a put option is exercised, the Fund will either (a) deposit with
PNC Bank, National Association ("PNC"), the Trust's custodian, in a segregated
account cash, U.S. government securities or other high grade debt obligations
having a value at least equal to the exercise price of the underlying securi-
ties or (b) continue to own an equivalent number of puts of the same "series"
(that is, puts on the same underlying security having the same exercise prices
and expiration dates as those written by the Fund) or an equivalent number of
puts of the same "class" (that is, puts on the same underlying security) with
exercise prices greater than those that it has written (or, if the exercise
prices of the puts that it holds are less than the exercise prices of those
that it has written, it will deposit the difference with Boston Safe in a seg-
regated account).
The Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Fund would purchase
prior to the holder's exercise of an option that the Fund has written, an
option of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written
would be terminated by a closing purchase transaction, but the Fund would not
be deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions at
a time when it wishes to do so. To facilitate closing purchase transactions,
however, the Fund ordinarily will write options only if a secondary market for
the options exists on a domestic securities exchange or in the over-the-counter
market.
19
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The staff of the SEC considers most over-the-counter options to be illiquid.
The ability to terminate option positions established in the over-the-counter
market may be more limited than in the case of exchange-traded options and may
also involve the risk that securities dealers participating in such transac-
tions would fail to meet their obligations to the Fund.
Reverse Repurchase Agreements. In order to generate additional income, the
Fund may engage in reverse repurchase agreement transactions with banks, bro-
ker-dealers and other financial intermediaries. Reverse repurchase agreements
are the same as repurchase agreements except that, in this instance, the Fund
would assume the role of seller/borrower in the transaction. The Fund will
maintain segregated accounts with Boston Safe consisting of U.S. government
securities, cash or money market instruments that at all time are in an amount
equal to their obligations under reverse repurchase agreements. The Fund will
invest the proceeds in other money market instruments or repurchase agreements
maturing not later than the expiration of the reverse repurchase agreement.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the repurchase price of the secu-
rities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves special considerations, such as those
described below:
Foreign Securities. There are certain risks involved in investing in securi-
ties of companies and governments of foreign nations which are in addition to
the usual risks inherent in domestic investments. These risks include those
resulting from revaluation of currencies, future adverse political and economi-
cal developments and the possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions, reduced availability of public
information concerning issuers and the lack of uniform accounting, auditing and
financial reporting standards or of other regulatory practices and requirements
comparable to those applicable to domestic companies. The yield of the Fund may
be adversely affected by fluctuations in value of one or more foreign curren-
cies relative to the U.S. dollar. Moreover, securities of many foreign compa-
nies and their markets may be less liquid and their prices more volatile than
those of securities of comparable domestic companies. In addition, with respect
to certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Fund, including the withholding of dividends. For-
eign securities
20
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
may be subject to foreign government taxes that could reduce the yield on such
securities. Because the Fund may 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 apprecia-
tion or depreciation of investments. Investment in foreign securities also may
result in higher expenses due to the cost of converting foreign currency to
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on domestic exchanges, and the
expense of maintaining securities with foreign custodians, and the imposition
of transfer taxes or transaction charges associated with foreign exchanges.
Fixed-Income Securities. The market value of the Fund's fixed-income obliga-
tions can be expected to vary inversely in relation to changes in prevailing
interest rates and also may be affected by other market and credit factors.
Investors also should recognize that in periods of declining interest rates the
yield of an income-oriented fund such as the Fund may be somewhat higher than
prevailing market rates, and in periods of rising interest rates the Fund's
yield may be somewhat lower. In addition, when interest rates are falling, the
inflow of net new money to the Fund from the continuous sale of their shares
probably will be invested in instruments producing lower yields than the bal-
ance of its holdings, thereby reducing the Fund's current yield. In periods of
rising interest rates the opposite can be expected to occur. In addition,
fixed-income securities in which the Fund may invest may not yield as high a
level of current income as might be achieved by investing in securities with
less liquidity and safety and longer maturities.
To the extent the Fund purchases mortgage related securities at a premium,
mortgage foreclosures and prepayments of principal by mortgagors (which may be
made at any time without penalty) may result in some loss of the Fund's princi-
pal investment to the extent of the premium paid. The yield of a fund that
invests in mortgage related securities may be affected by reinvestment of pre-
payments at higher or lower rates than the original investment. In addition,
like those of other debt securities, the values of mortgage related securities,
including government and government-related mortgage pools, generally will
fluctuate in relation to interest rates.
CERTAIN INVESTMENT GUIDELINES
Up to 15% of the assets of the Fund may be invested in securities and other
instruments that are illiquid ("illiquid securities"), although the Fund has no
present intention to invest more than 10% of its assets in the aggregate in
illiq-
21
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
uid securities, including (a) repurchase agreements with maturities greater
than seven days, (b) futures contracts and options thereon for which a liquid
secondary market does not exist, (c) time deposits maturing in more than seven
calendar days and (d) securities of new and early stage companies whose securi-
ties are not publicly traded. In addition, the Fund may invest up to 5% of its
assets in the securities of issuers that have been in continuous operation for
less than three years.
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with
respect to the Fund that may not be changed without approval of a majority of
the Fund's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended ("1940 Act"). Included among those fundamental restric-
tions are the following that prohibit the Fund from:
1. With respect to 75% of the value of its total assets, investing more than
5% of its total assets in securities of any one issuer, except securities
issued or guaranteed by the United States government, or purchase more
than 10% of the outstanding voting securities of such issuer.
2. Borrowing money, except that (a) the Fund may borrow from banks for tem-
porary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount not exceeding 10% of the value of the Fund's
total assets (including the amount borrowed) valued at market less lia-
bilities (not including the amount borrowed) at the time the borrowing is
made and (b) the Fund may enter into reverse repurchase agreements. When-
ever borrowings, including reverse repurchase agreements, exceed 5% of
the value of the total assets of the Fund, the Fund will not make any
additional investments.
3. Making loans of its funds or securities. This restriction does not apply
to: (a) the purchase of debt obligations in which the Fund may invest
consistent with its investment objective, (b) the entering into repur-
chase agreements, and (c) the making of loans of its portfolio securi-
ties.
4. Investing more than 25% of its total assets in securities, the issuers of
which are in the same industry. For purposes of this limitation, U.S.
government securities and securities of state or municipal governments
and their political subdivisions are not considered members of any indus-
try.
22
SMITH BARNEY
Growth and Income Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
A complete list of investment restrictions that the Trust has adopted with
respect to the Fund identifying additional restrictions that cannot be changed
without the approval of the majority of the Fund's outstanding shares is con-
tained in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND TURNOVER
Securities held by the Fund ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the best
price or execution will be obtained. Usually no brokerage commissions, as such,
are paid by the Fund for purchases and sales undertaken through principal
transactions, although the price paid usually includes an undisclosed compensa-
tion to the dealer acting as principal. The prices paid to underwriters of new-
ly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers ordinarily
are executed at a price between the bid and asked price.
Transactions on behalf of the Fund are allocated to various brokers and deal-
ers by SBMFM in its best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that pri-
mary consideration, brokers and dealers may be selected for research, statisti-
cal or other services to enable SBMFM to supplement its own research and analy-
sis with the views and information of other securities firms. The Fund may,
from time to time, in accordance with an exemptive order granted by the SEC,
enter into principal transactions involving certain money market instruments
with Smith Barney and certain Smith Barney affiliated dealers.
The Fund cannot accurately predict its portfolio turnover rate, but antici-
pates that its annual turnover will not exceed 50%. An annual turnover rate of
50% would occur if half of the securities held by the Fund are replaced once
during a period of one year. SBMFM will not consider turnover rate a limiting
factor in making investment decisions consistent with the Fund's investment
objective and policies.
23
SMITH BARNEY
Growth and Income Fund
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined by or under the direc-
tion of the Trust's Board of Trustees. Portfolio securities that are primarily
traded on foreign exchanges are generally valued at the preceding closing val-
ues of such securities on their respective exchanges, except that when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair market value of those securities will be
determined by consideration of other factors by or under the direction of the
Trustees or its delegates. A security that is traded primarily on a domestic 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 secu-
rities (other than U.S. government securities and short-term obligations) are
valued by SBMFM and 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 amor-
tization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the instrument) whenever the
Trustees determine that amortized cost reflects fair value of those invest-
ments. An option written by the Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last offer price. An option pur-
chased by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. Short sales of securities,
which are not traded on a national securities exchange, are valued at the last
asked price. Alternatively, long positions are valued at the last bid price.
The value of a futures contract equals the unrealized gain or loss on the con-
tract that is determined by marking the contract to the current settlement
price for a like contract on the valuation date of the futures contract. A set-
tlement price may not be used if the market makes a limit move with respect to
a particular futures contract or if the securities underlying the futures con-
tract experience significant price fluctuations after the determination of the
settlement price. In such event, the futures contract will be valued at a fair
market price as determined by or under the direction of the Board of Trustees.
Further information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
24
SMITH BARNEY
Growth and Income Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute its net investment income (that is, its
income other than its net realized capital gains) quarterly, and to declare and
pay 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.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed ordi-
nary income or capital gains and expects to pay any other dividends and distri-
butions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally as
a result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice fee applicable to Class A shares. Distributions of capital gains, if any,
will be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
Federal income tax purposes, the amount of its net investment income and capi-
tal gains earned will be determined without regard to the earnings on distribu-
tions of the other funds of the Trust. The Trust intends for the Fund to qual-
ify each year as a regulated investment company under the Code. Dividends paid
from the Fund's net investment income and distributions of the Fund's net real-
ized short-term capital gains are taxable to shareholders (other than IRAs,
self-employed retirement plans and other tax-exempt investors) as ordinary
income, regardless of how long shareholders have held their Fund shares and
whether the dividends or distributions are received in cash or reinvested in
additional Fund shares. Distributions of the Fund's net realized long-term cap-
ital gains will be taxable to shareholders as long-term capital gains, regard-
less of how long shareholders have held Fund shares and whether the distribu-
tions are received in cash or reinvested in additional Fund shares. In addi-
tion, as a general rule, a shareholder's gain or loss on a sale or redemption
of shares of the
25
SMITH BARNEY
Growth and Income Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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.
Income received by the Fund from sources within foreign countries may be sub-
ject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to the Fund's sharehold-
ers. If (a) the Fund qualifies as a regulated investment company, (b) certain
distribution requirements are satisfied and (c) more than 50% of the value of
the Fund's assets at the close of the taxable year consist of securities of
foreign corporations, the Trust may elect, for Federal income tax purposes, to
treat foreign income taxes paid by the Fund that can be treated as income taxes
under Federal income tax principles as paid by the Fund's shareholders. The
Fund may qualify for, and the Trust may make, this election in some, but not
necessarily all, of the Fund's taxable years. If the Trust were to make an
election, an amount equal to the foreign income taxes paid by the Fund would be
included in the income of its shareholders and the shareholders would be enti-
tled to credit their portions of this amount against their Federal tax liabili-
ties, if any, or to deduct such portions from their Federal taxable income, if
any. Shortly after any year for which the Trust makes such an election, the
Trust will report to the Fund's shareholders, in writing, the amount per share
of such foreign tax that must be included in each shareholder's gross income
and the amount that will be available for deduction or credit. No deduction for
foreign taxes may be claimed by a shareholder who does not itemize deductions.
Certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
Statements as to the tax status of each shareholder's dividends and distribu-
tions are mailed annually. Each shareholder also will receive, if appropriate,
various written notices after the close of the Fund's prior taxable year as to
the Federal income tax status of his or her dividends and distributions which
were received from the Fund during the Fund's prior taxable year. Shareholders
should consult their tax advisors about the status of the Fund's dividends and
distributions for Federal, state and local tax liabilities.
26
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without an
initial sales charge but with higher ongoing expenses and a CDSC payable upon
certain redemptions. Class Y shares are sold without an initial sales charge or
a CDSC, and are available only to investors investing a minimum of $5,000,000.
See "Prospectus Summary -- Alternative Purchase Arrangements" for a discussion
of factors to consider in selecting which Class of shares to purchase.
Purchases of shares must be made through a brokerage account maintained with
Smith Barney, an Introducing Broker or an investment dealer in the selling
group, except for investors purchasing shares of the Fund through a qualified
retirement plan who may do so directly through TSSG. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A, Class B,
Class C or Class Y shares. No maintenance fee will be charged in connection
with a brokerage account through which an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000. Sub-
sequent investments of at least $50 may be made for all Classes. For partici-
pants in retirement plans qualified under Section 403(b)(7) or Section 401(a)
of the Code, the minimum initial investment requirement for Class A, Class B
and Class C shares and the subsequent investment requirement for all Classes in
the Fund is $25. For the Fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A, Class B and Class C shares and the subse-
quent investment requirement for all Classes is $50. There are no minimum
investment requirements for Class A shares, for employees of Travelers and its
subsidiaries, including Smith Barney or Trustees of the Trust and their spouses
and children. The Fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the shareholder's account
by the Trust's transfer agent, TSSG. Share certificates are issued only upon a
shareholder's written request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular trad-
ing on the NYSE, on any day on which the Fund calculates its net asset value,
are priced according to the net asset value determined on that day. Orders
received by dealers or Introducing Brokers, prior to the close of regular trad-
ing
27
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
on the NYSE on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day, provided the order is
received by Smith Barney prior to Smith Barney's close of business (the "trade
date"). Currently payment for Fund shares is due on the fifth business day (the
"settlement date") after the trade date. The Fund anticipates that, in accor-
dance with regulatory changes, beginning on or about June 1, 1995, the settle-
ment date will be the third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is authorized through preau-
thorized transfers of $100 or more to charge the regular bank account or other
financial institution indicated by the shareholder on a monthly or quarterly
basis to provide systematic additions to the shareholder's Fund account. A
shareholder who has insufficient funds to complete the transfer will be charged
a fee of up to $25 by Smith Barney or TSSG. The Systematic Investment Plan also
authorizes Smith Barney to apply cash held in the shareholder's Smith Barney
brokerage account or redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional information is avail-
able from the Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------
DEALERS'
% OF % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED
OFFERING PRICE
---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$ 25,000 - 49,999 4.00% 4.17% 3.60%
50,000 - 99,999 3.50% 3.63% 3.15%
100,000 - 249,999 3.00% 3.09% 2.70%
250,000 - 499,999 2.00% 2.04% 1.80%
500,000 and more * * *
---------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months
of purchase. The CDSC on Class A shares is payable to Smith Barney, which
compensates Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the same
circumstances in which the CDSC applicable to Class B and Class C shares is
waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
28
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual, his or her spouse and children, or a trustee or other fiduciary of
a single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value
of all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Trustees
of the Trust and employees of Travelers and its subsidiaries, or the spouses
and children of such persons (including the surviving spouse of a deceased
Trustee or employee, and retired Trustees or employees), or sales to any trust,
pension, profit-sharing or other benefit plan for such persons provided such
sales are made upon the assurance of the purchaser that the purchase is made
for investment purposes and that the securities will not be re-sold except
through redemption or repurchase; (b) offers of Class A shares to any other
investment company in connection with the combination of such company with the
Fund by merger, acquisition of assets or otherwise; (c) purchases of Class A
shares by any client of a newly employed Smith Barney Financial Consultant (for
a period up to 90 days from the commencement of the Financial Consultant's
employment with Smith Barney), on the condition the purchase of Class A shares
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 the client by the Financial Consultant and (iii) was subject to a sales
charge; (d) shareholders who have redeemed Class A shares in the Fund (or Class
A shares of another fund of the Smith Barney Mutual Funds that are offered with
a sales charge equal to or greater than the maximum sales charge of the Fund)
and who wish to reinvest their redemption proceeds in the Fund provided the
reinvestment is made within 60 calendar days of the redemption; and (e) ac-
counts managed by registered investment advisory subsidiaries of Travelers. In
order to obtain such discounts, the purchaser must provide sufficient informa-
tion at the time of purchase to permit verification that the purchaser would
qualify for the elimination of the sales charge.
29
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney that are
offered with a sales charge listed under "Exchange Privilege" then held by such
person and applying the sales charge applicable to such aggregate. In order to
obtain such discount, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales related expenses. An individual who is a
member of a qualified group may also purchase Class A shares of the Fund at the
reduced sales charge applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distribut
30
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
ing shares. A qualified group must have more than 10 members, must be available
to arrange for group meetings between representatives of the Fund and the mem-
bers, and must agree to include sales and other materials related to the Fund
in its publications and mailing to members at no cost to Smith Barney. In order
to obtain such reduced sales charge or to purchase at net asset value, the pur-
chaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity for
an investor to obtain a reduced sales charge by aggregating investments over a
13 month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all Class
A shares of the Fund and other funds of the Smith Barney Mutual Funds offered
with a sales charge over the 13 month period based on the total amount of
intended purchases plus the value of all Class A shares previously purchased
and still owned. An alternative is to compute the 13 month period starting up
to 90 days before the date of execution of a Letter of Intent. Each investment
made during the period receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales charges applica-
ble to the purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed. Please contact a Smith Barney
Financial Consultant or TSSG to obtain a Letter of Intent application.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares which when combined with Class A shares offered
with a sales charge currently held by an investor equal or exceed $500,000 in
the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the time of
31
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, 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. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
purchases by Participating Plans, as described below. See "Purchase of
Shares -- Smith Barney 401(k) Program."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
----------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 0.00
Seventh 0.00
Eighth 0.00
----------------------------
</TABLE>
Class B shares automatically will 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 fees. There also will be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") that were
held on July 15, 1994 and who subsequently exchange those shares for Class B
shares of the Fund will be offered the opportunity to exchange all such
32
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
Class B shares for Class A shares of the Fund four years after the date on
which those shares were deemed to have been purchased. Holders of such Class B
shares will be notified of the pending exchange in writing approximately 30
days before the fourth anniversary of the purchase date and, unless the
exchange has been rejected in writing, the exchange will occur on or about the
fourth anniversary date. See "Prospectus Summary -- Alternative Purchase
Arrangements -- Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
For Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired five addi-
tional shares through dividend reinvestment. During the 15th month after the
purchase, the investor decided to redeem $500 of his or her investment. Assum-
ing at the time of the redemption the net asset value had appreciated to $12
per share, the value of the investor's shares would be $1,260 (105 shares at
$12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b) au-
tomatic cash withdrawals in amounts equal to or less than 1% per month of the
value of the shareholder's shares at the time the withdrawal plan commences
(see below) (provided, however, that automatic cash withdrawals in amounts
equal to or less than 2% per month of the value of the shareholder's shares
will be permitted for withdrawal plans that were established prior to November
7, 1994); (c) redemptions of shares within 12 months following the death or
disability of the shareholder; (d) redemption of shares made in connection with
qualified distributions from retirement plans or IRAs upon the attain
33
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
ment of age 59 1/2; (e) involuntary redemptions; and (f) redemptions of shares
in connection with a combination of the Fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a shareholder who has
redeemed shares from other funds of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the redemption proceeds within
60 days and receive pro rata credit for any CDSC imposed on the prior redemp-
tion.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by TSSG in the case
of all other shareholders) of the shareholder's status or holdings, as the case
may be.
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the Smith Barney 401(k) Program,
which is generally designed to assist employers or plan sponsors in the crea-
tion 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 Participat-
ing Plans in the Smith Barney 401(k) Program.
The Fund offers to Participating Plans Class A, Class B, Class C and Class Y
shares, as investment alternatives under the Smith Barney 401(k) Program. The
Class A, Class B and Class C shares acquired through the Smith Barney 401(k)
Program are subject to the same service and/or distribution fees as, but dif-
ferent sales charge and CDSC schedules than, the Class A, Class B and Class C
shares acquired by other investors. Similar to those available to other invest-
ors, Class Y shares acquired through the Smith Barney 401(k) Program are not
subject to any initial sales charge, CDSC or service or distribution fees. Once
a Participating Plan has made an initial investment in the Fund, all of its
subsequent investments in the Fund must be in the same Class of shares, except
as otherwise described below.
Class A Shares. Class A shares of the Fund are offered without any initial
sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
34
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
Class B Shares. Class B shares of the Fund are offered to any Participating
Plan that purchases less than $250,000 of one or more funds of the Smith Barney
Mutual Funds. Class B shares acquired through the Smith Barney 401(k) Program
are subject to a CDSC of 3.00% of redemption proceeds, if the Participating
Plan terminates within eight years of the date the Participating Plan first
enrolled in the Smith Barney 401(k) Program.
Eight years after the date the Participating Plan enrolled in the Smith Bar-
ney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Fund. Such Plans will be notified of
the pending exchange in writing approximately 60 days before the eighth anni-
versary of the enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth anniversary date. Once
the exchange has occurred, a Participating Plan will not be eligible to acquire
additional Class B shares of the Fund but instead may acquire Class A shares of
the Fund. If the Participating Plan elects not to exchange all of its Class B
shares at that time, each Class B share held by the Participating Plan will
have the same conversion feature as Class B shares held by other investors. See
"Purchase of Sales -- Deferred Sales Charge Alternatives."
Class C Shares. Class C shares of the Fund are offered to any Participating
Plan that purchases from $250,000 to $499,999 of one or more funds of the Smith
Barney Mutual Funds. Class C shares acquired through the Smith Barney 401(k)
Program after November 7, 1994 are subject to a CDSC of 1.00% of redemption
proceeds, if the Participating Plan terminates within four years of the date
the Participating Plan first enrolled in the Smith Barney 401(k) Program. In
any year after the date a Participating Plan enrolled in the Smith Barney
401(k) Program, if its total Class C holdings equal to least $500,000 as of the
calendar year-end, the Participating Plan will be offered the opportunity to
exchange all of its Class C shares for Class A shares of the Fund. Such Plans
will be notified 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 the following March.
Once the exchange has occurred, a Participating Plan will not be eligible to
acquire Class C shares of the Fund but instead may acquire Class A shares of
the Fund. Class C shares not converted will continue to be subject to the dis-
tribution fee.
Class Y Shares. Class Y shares of the Fund are offered without any service or
distribution fees, sales charge or CDSC to any Participating Plan that pur
35
SMITH BARNEY
Growth and Income Fund
PURCHASE OF SHARES (CONTINUED)
chases $5,000,000 or more of Class Y shares of one or more funds of the
Smith Barney Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to the extent that the net
asset value of the shares redeemed does not exceed the current net asset value
of the shares purchased through reinvestment of dividends or capital gain dis-
tributions, plus (a) with respect to Class A and Class C shares, the current
net asset value of such shares purchased more than one year prior to redemption
and, with respect to Class B shares, the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus (b) with
respect to Class A and Class C shares, increases in the net asset value of the
shareholder's Class A or Class C shares above the purchase payments made during
the preceding year and, with respect to Class B shares, increases in the net
asset value of the shareholder's Class B shares above the purchase payments
made during the preceding eight years. Whether or not the CDSC applies to a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the applica-
bility of the CDSC to other 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 CDSC Shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of shares in connection with a loan made by the Par-
ticipating Plan to an employee.
Participating Plans wishing to acquire shares of the Fund through the
Smith Barney 401(k) Program must purchase such shares directly from TSSG. For
further information regarding the Smith Barney 401(k) Program, investors should
contact a Smith Barney Financial Consultant.
36
SMITH BARNEY
Growth and Income Fund
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the Smith Barney Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of Class A, Class B and
Class C shares are subject to minimum investment requirements and all shares
are subject to the other requirements of the fund into which exchanges are made
and a sales charge differential may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Funds, Inc. -- Utilities Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment Government Portfolio
+++Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
37
SMITH BARNEY
Growth and Income Fund
EXCHANGE PRIVILEGE (CONTINUED)
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
*Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
*Smith Barney Muni Funds -- California Limited Term Portfolio
Smith Barney Muni Funds -- California Portfolio
*Smith Barney Muni Funds -- Florida Limited Term Portfolio
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
*Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc. -- Cash Portfolio
++Smith Barney Money Funds, Inc. -- Government Portfolio
***Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
38
SMITH BARNEY
Growth and Income Fund
EXCHANGE PRIVILEGE (CONTINUED)
+++Smith Barney Muni Funds -- California Money Market Portfolio
+++Smith Barney Muni Funds -- New York Money Market Portfolio
--------------------------------------------------------------------------------
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A, Class B and Class Y shares of the
Fund. In addition, shareholders who own Class C shares of the Fund through
the Smith Barney 401(k) Program may exchange those shares for Class C
shares of this fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the Smith
Barney 401(k) Program may exchange those shares for Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shareholders of the Smith Barney Mutual Funds sold
without a sales charge or with a maximum sales charge of less than the maximum
charged by other Smith Barney Mutual Funds will be subject to the appropriate
"sales charge differential" upon the exchange of their shares for Class A
shares of a Fund sold with a higher sales charge. The "sales charge differen-
tial" 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 reinvest-
ment of dividends and capital gain distributions are treated as having paid the
same sales charges applicable to the shares on which the dividends or distribu-
tions were paid; however, except in the case of the Smith Barney 401(k) Pro-
gram, if no sales charge was imposed upon the initial purchase of the shares,
any shares obtained through automatic reinvestment will be subject to a sales
charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Income Fund on July
15, 1994) wishes to exchange all or a portion of his or her shares in any of
the funds imposing a higher CDSC than that imposed by the Fund, the exchanged
Class B shares will be subject to the higher applicable CDSC. Upon an exchange,
the new Class B shares will be deemed to have been purchased on the same date
as the Class B shares of the Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
39
SMITH BARNEY
Growth and Income Fund
EXCHANGE PRIVILEGE (CONTINUED)
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
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. SBMFM may deter-
mine that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, SBMFM will notify
Smith Barney, and Smith Barney may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by a shareholder. Upon such a determination,
Smith Barney will provide notice in writing or by telephone to the shareholder
at least 15 days prior to suspending the exchange privilege and during the 15
day period the shareholder will be required to (a) redeem his or her shares in
the Fund or (b) remain invested in the Fund or exchange into any of the funds
of the Smith Barney Mutual Funds ordinarily available, which position the
shareholder would expect to maintain for a significant period of time. All rel-
evant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
Exchanges will be processed at the net asset value next determined after the
redemption proceeds are available. Redemption procedures discussed below are
also applicable for exchanging shares, and exchanges will be made upon receipt
of all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the
shares of the fund exchanged, no signature guarantee is required. A capital
gain or loss for tax purposes will be realized upon the exchange, depending
upon the cost or other basis of shares redeemed. Before exchanging shares,
investors should read the current prospectus describing the shares to be
acquired. The Fund reserves the right to modify or discontinue exchange privi-
leges upon 60 days' prior notice to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
40
SMITH BARNEY
Growth and Income Fund
REDEMPTION OF SHARES (CONTINUED)
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Fund's transfer agent
receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. The Fund anticipates that,
in accordance with regulatory changes, beginning on or about June 1, 1995, pay-
ment will be made on the third business day after receipt of proper tender.
Generally, if the redemption proceeds are remitted to a Smith Barney brokerage
account, these funds will not be invested for the shareholder's benefit without
specific instruction and Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other than
a certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney Growth and Income Fund
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request 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 regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates 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 an eligible guarantor institution such as 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
41
SMITH BARNEY
Growth and Income Fund
REDEMPTION OF SHARES (CONTINUED)
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 cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the share-
holder is eligible to receive qualified distributions and has an account value
of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not
exceed 2.00% per month of the value of the shareholder's shares subject to the
CDSC.) For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund, how-
ever, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
42
SMITH BARNEY
Growth and Income Fund
PERFORMANCE
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class C and Class Y shares of the Fund. These figures are based on histori-
cal earnings and are not intended to indicate future performance. Total return
is computed for a specified period of time assuming deduction of the maximum
sales charge, if any, from the initial amount invested and reinvestment of all
income dividends and capital gains distributions on the reinvestment dates at
prices calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC, is derived from this total return, which provides the
ending redeemable value. Such standard total return information may also be
accompanied with nonstandard total return information for differing periods
computed in the same manner but without annualizing the total return or taking
sales charges into account. The Fund calculates current dividend return for
each Class by annualizing the most recent monthly distribution and dividing by
the net asset value or the maximum public offering price (including sales
charge) on the last day of the period for which current dividend return is pre-
sented. The current dividend return for each Class may vary from time to time
depending on market conditions, the composition of its investment portfolio and
operating expenses. These factors and possible differences in the methods used
in calculating current dividend return should be considered when comparing a
Class' current return to yields published for other investment companies and
other investment vehicles. The Fund may also include comparative performance
information in advertising or marketing its shares. Such performance informa-
tion may include data from Lipper Analytical Services, Inc. and other financial
publications. The Fund will include performance data for Class A, Class B,
Class C and Class Y shares in any advertisement or information including per-
formance data of the Fund.
43
SMITH BARNEY
Growth and Income Fund
MANAGEMENT OF THE TRUST AND THE FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Fund rests with the Trust's Board of Trustees. The Trustees approve all signif-
icant agreements between the Trust and the companies that furnish services to
the Fund, including agreements with the Trust's distributor, custodian and
transfer agent and the Fund's investment adviser, administrator and sub-admin-
istrator. The day-to-day operations of the Fund are delegated to the Fund's
investment adviser, administrator and sub-administrator. The Statement of Addi-
tional Information contains background information regarding each Trustee of
the Trust and the executive officers of the Trust.
INVESTMENT ADVISER -- SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser pursuant to a transfer of the investment advisory
agreement effective November 7, 1994, from its affiliate, Mutual Management
Corp. (Mutual Management Corp. and SBMFM are both wholly owned subsidiaries of
Holdings.) Investment advisory services continue to be provided to the Fund by
the same portfolio managers who had provided services under the agreement with
Mutual Management Corp. SBMFM (through its predecessor) has been in the invest-
ment counseling business since 1934 and is a registered investment adviser.
SBMFM renders investment advice to investment companies that had aggregate
assets under management as of March 1, 1995 in excess of $52.4 billion.
Subject to the supervision and direction of the Trust's Board of Trustees,
SBMFM manages the Fund's portfolio in accordance with the Fund's investment
objective and policies and makes investment decisions for the Fund, places
orders to purchase and sell securities and employs professional portfolio man-
agers and securities analysts who provide research services to the Fund. For
investment advisory services rendered, the Fund pays SBMFM a fee at the annual
rate of .45% of the value of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
R. Jay Gerken and George Novello, Managing Directors of Greenwich Street
Advisors, a division of SBMFM, have served as Investment Officers of the Fund
since it commenced operations and manage the day-to-day operations of the Fund,
including making all investment decisions.
44
SMITH BARNEY
Growth and Income Fund
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
Management's discussion and analysis, and additional performance information
regarding the Fund during the fiscal year ended January 31, 1995 is included in
the Annual Report dated January 31, 1995. A copy of the Annual Report may be
obtained upon request and without charge from a Smith Barney Financial Consul-
tant or by writing or calling the Fund at the address or phone number listed on
page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of the
Fund's administration. For administration services rendered, the Fund pays
SBMFM a fee at an annual rate of .20% of the value of the Fund's average daily
net assets.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with respect to Class A, Class B and Class C shares of the Fund at the annual
rate of 0.25% of the value of the average daily net assets of the respective
Class. Smith Barney is also paid an annual distribution fee with respect to
Class B and Class C shares at the annual rate of 0.50% of the value of the
average daily net assets attributable to those Classes. Class B shares which
automatically convert to Class A shares eight years after the date of original
purchase will no longer be subject to distribution fees. The fees are used by
Smith Barney to pay its Financial Consultants for servicing shareholder
accounts and, in the case of Class B and Class C shares, to cover expenses pri-
marily intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to poten-
tial investors; payments to and expenses of Smith Barney Financial Consultants
and other persons who provide support services in connection with the distribu-
tion of shares; interest and/or carrying charges; and indirect and overhead
costs of Smith Barney associated with the sale of Fund shares, including lease,
utility, communications and sale promotion expenses.
45
SMITH BARNEY
Growth and Income Fund
DISTRIBUTOR (CONTINUED)
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Trust's Board of Trust-
ees will evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
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 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 four Classes -- A, B, C and Y. 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 Clas-
ses. 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 out-
standing
46
SMITH BARNEY
Growth and Income Fund
ADDITIONAL INFORMATION (CONTINUED)
shares and the Fund will assist Shareholders in calling such a meeting as
required by the 1940 Act. Shareholders of record owning no less than two-thirds
of the outstanding shares of the Trust may remove a Trustee through a declara-
tion 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 matters affect-
ing the interests of one Class of shares.
PNC is located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, 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
printing and mailing costs, the Trust plans to consolidate the mailing of its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. In addition, the Trust also plans to con-
solidate the mailing of the Fund's Prospectus so that a shareholder having mul-
tiple accounts (that is, individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a single Prospectus annually. Shareholders who do not
want this consolidation to apply to their accounts should contact a Smith Bar-
ney Financial Consultant or TSSG.
47
SMITH BARNEY
------------
A Member of Travelers Group
SMITH BARNEY
GROWTH AND
INCOME
FUND
388 Greenwich Street
New York, New York 10013
[RECYCLED LOGO Recycled FUND 228, 229, 230,419
APPEARS HERE] Recyclable FD0250 C3
<PAGE>
___________________________________________________________________________
____
PROSPECTUS
SMITH BARNEY
STRATEGIC
INVESTORS
FUND
APRIL 1, 1995
PROSPECTUS BEGINS ON PAGE ONE
<LOGO>SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERYDAY.
___________________________________________________________________________
____
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
PROSPECTUS April 1, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney 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 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,
that 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 a Smith Barney Financial
Consultant.
Additional information about the Fund and the Trust is contained in a
Statement of Additional Information dated April 1, 1995, 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 a Smith Barney 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 INC.
Distributor
SMITH BARNEY STRATEGY ADVISERS INC.
Investment Adviser
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
--------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 10
--------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 13
--------------------------------------------------------------------------
VALUATION OF SHARES 20
--------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 20
--------------------------------------------------------------------------
PURCHASE OF SHARES 22
--------------------------------------------------------------------------
EXCHANGE PRIVILEGE 32
--------------------------------------------------------------------------
REDEMPTION OF SHARES 35
--------------------------------------------------------------------------
MINIMUM ACCOUNT SIZE 37
--------------------------------------------------------------------------
PERFORMANCE 37
--------------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND 38
--------------------------------------------------------------------------
DISTRIBUTOR 41
--------------------------------------------------------------------------
ADDITIONAL INFORMATION 42
--------------------------------------------------------------------------
</TABLE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust or the
distributor. This Prospectus does not constitute an offer by the Fund or the
distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
2
<PAGE>
SMITH BARNEY
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."
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."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of
shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rates of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% on offering price imposed at the time of purchase
and are subject to an annual service fee of 0.25% of the value of the average
daily net assets of the Class. The initial sales charge may be reduced or waived
for certain purchases. Purchases of Class A shares, which when combined with
current holdings of Class A shares offered with a sales charge equal or exceed
$500,000 in the aggregate, will be made at net asset value with no sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--Reduced
or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year after
the date of purchase to zero. This CDSC may be waived for certain redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the value of the average daily net assets of the
Class. The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically to
Class A shares, based on relative net asset value, eight years after the date of
the
3
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
original purchase. Upon conversion, these shares will no longer be subject to an
annual 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. See "Purchase of
Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the value of the average daily net assets of the
Class, and investors pay a CDSC of 1.00% if they redeem Class C shares within 12
months of purchase. The CDSC may be waived for certain redemptions. The Class C
shares' distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A shares. Purchases of Class C shares, which when
combined with current holdings of Class C shares of the Fund equal or exceed
$500,000 in the aggregate, should be made in Class A shares at net asset value
with no sales charge, and will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an investment
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of these Classes. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
4
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fee. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases,
which when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase. The $500,000 aggregate investment
will be met by adding the purchase to the net asset value of all Class A shares
offered with a sales charge held in funds sponsored by Smith Barney Inc. ("Smith
Barney") listed under "Exchange Privilege." Other Class A share purchases may
also be eligible for a reduced initial sales charge. See "Purchase of Shares."
Because the ongoing expenses of Class A shares will be lower than those for
Class B and Class C shares, purchasers eligible to purchase Class A shares at
net asset value or at a reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan sponsors
in the creation and operation of retirement plans under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as other types
of participant directed, tax-qualified employee benefit plans (collec-
5
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
tively, "Participating Plans"). Class A, Class B, Class C and Class Y shares are
available as investment alternatives for Participating Plans. See "Purchase of
Shares--Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney, a broker that clears securities transactions through Smith Barney
on a fully disclosed basis (an "Introducing Broker") or an investment dealer in
the selling group. Direct purchases by certain retirement plans may be made
through the Fund's transfer agent, The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed
Retirement Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made for
all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B, and Class C shares and the subsequent
investment requirement for all Classes is $25. The minimum initial investment
requirement for Class A, Class B, and Class C shares and the subsequent
investment through the Systematic Investment Plan described below is $50. See
"Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic
Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares in an amount of at least $50. 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. See "Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Strategy Advisers Inc. ("Strategy
Advisers") serves as the Fund's investment adviser and is a wholly owned
subsidiary of Smith Barney Mutual Funds Management Inc. ("SBMFM"). SBMFM, which
also serves as the Fund's administrator, is a wholly owned subsidiary of Smith
Barney Holdings Inc. ("Holdings"), which in turn is a wholly owned subsidiary of
The Travelers Inc. ("Travelers"), a diversified financial services company
engaged through its subsidiaries principally in four
6
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
business segments: Investment Services, Consumer Finance Services, Life
Insurance Services, and Property & Casualty Insurance Services.
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
sub-investment adviser. Boston Advisors is a wholly owned subsidiary of The
Boston Company Inc., which in turn is a wholly owned subsidiary of Mellon Bank
Corporation. See "Management of the Trust and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differential.
See "Exchange Privilege Services."
VALUATION OF SHARES Net asset value of the Fund for the prior day is generally
quoted daily in the financial section of most newspapers and is also available
from any Smith Barney Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are paid
quarterly. Distributions of net realized capital gains, if any, are declared and
paid annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund's investment objective will be achieved. 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
"Invest-
7
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
ment Objective and Management Policies--Risk Factors and Special
Considerations."
THE FUND'S EXPENSES The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and, unless otherwise noted, the Fund's operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00 % None None None
Maximum CDSC
(as a percentage of original cost or
redemption proceeds, whichever is lower) None* 5.00 % 1.00% None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.75 % 0.75 % 0.75% 0.75%
12b-1 fees** 0.25 1.00 1.00% None
Other expenses*** 0.33 0.25 0.23% 0.33%
------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.33 2.00 1.98%
1.08%
------------------------------------------------------------------------------------------
<FN>
* Purchases of Class A shares, which when combined with current holdings of Class A
shares offered with a sales charge equal or
exceed $500,000 in the aggregate, will be made at net asset value with no sales charge,
but will be subject to a CDSC of 1.00%
on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will no longer be
subject to a distribution fee. Class C
shares do not have a conversion feature and, therefore, are subject to an ongoing
distribution fee. As a result, long-term
shareholders of Class C shares may pay more than the economic equivalent of the
maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
*** For Class Y shares, "Other expenses" have been estimated based on expenses incurred
by the Class A shares because no
Class Y shares had been sold as of January 31, 1995.
</TABLE>
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
actually pay lower or no charges, depending on the amount purchased and, in the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
Program. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
receives an annual 12b-1 service fee of 0.25% of the value of the average daily
net assets of Class A shares. Smith Barney also receives an annual 12b-1 fee of
1.00% of the value of the average daily net assets of Class B and Class C
shares, consisting of a 0.75% distribution fee and a 0.25% service fee. "Other
expenses"
8
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
in the above table include fees for shareholder services, custodial fees, legal
and accounting fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in understanding
the various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
10 YEARS*
<S> <C> <C> <C>
<C>
---------------------------------------------------------------------------------------------------------------
--------------
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5.00% annual return and
(2) redemption at the end of each time period:
Class A $63 $90 $119
$202
Class B 70 93 118
215
Class C 30 62 107
231
Class Y 11 34 60
132
An investor would pay the following expenses on the same
investment, assuming the same annual return and
no redemption:
Class A 63 90 119
202
Class B 20 63 108
215
Class C 20 62 107
231
Class Y 11 34 60
132
---------------------------------------------------------------------------------------------------------------
--------------
<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.
</TABLE>
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may result in
an actual return greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
9
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report thereon appears in the Fund's Annual
Report dated January 31, 1995. The information set out below should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report which is incorporated by reference into the Statement
of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
1/31/95# 1/31/94+ 1/31/93*
<S> <C> <C> <C>
Net asset value, beginning of year $ 17.72 $16.85 $16.80
---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.57 0.52 0.13
Net realized and unrealized gain/(loss) on
investments (1.25) 2.37 0.88
---------------------------------------------------------------------------------------------
Total from investment operations (0.68) 2.89 1.01
---------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.47) (0.56) (0.11)
Distributions from net realized capital gains (0.66) (1.46) (0.85)
---------------------------------------------------------------------------------------------
Total distributions (1.13) (2.02) (0.96)
---------------------------------------------------------------------------------------------
Net asset value, end of year $ 15.91 $17.72 $16.85
---------------------------------------------------------------------------------------------
Total return++ (3.82)% 17.80% 6.12%
---------------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental data:
Net assets, end of year (000's) $159,247 $6,216 $ 693
Ratio of expenses to average net assets 1.33% 1.25% 1.25%**
Ratio of net investment income to average net
assets 2.89 2.85 3.61**
Portfolio turnover rate 103 131 93
---------------------------------------------------------------------------------------------
<FN>
* 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.
# As of July 15, 1994, the Fund changed its investment adviser from Boston Advisors to
its current investment adviser, Strategy
Advisers. Boston Advisors is currently the sub-investment adviser to the Fund.
</TABLE>
10
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
ENDED ENDED ENDED
1/31/95# 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> <C>
Net asset value,
beginning of year $17.79 $16.84 $17.26 $15.61 $15.57
$15.03 $13.62 $14.00
---------------------------------------------------------------------------------------------------------------
----------------
Income from investment
operations:
Net investment income 0.39 0.38 0.51 0.52 0.54 0.53
0.52 0.36***
Net realized and
unrealized
gain/(loss) on
investments (1.20) 2.37 1.06 2.56 0.47 1.10
1.48 (0.44)
---------------------------------------------------------------------------------------------------------------
----------------
Total from investment
operations (0.81) 2.75 1.57 3.08 1.01 1.63
2.00 (0.08)
---------------------------------------------------------------------------------------------------------------
----------------
Less distributions:
Distributions from net
investment income (0.35) (0.34) (0.50) (0.55) (0.51) (0.69)
(0.48) (0.23)
Distributions from net
realized capital gains (0.66) (1.46) (1.49) (0.88) (0.46) (0.38)
(0.11) (0.07)
Distributions from
capital -- -- -- -- -- (0.02) -- -
-
---------------------------------------------------------------------------------------------------------------
----------------
Total distributions (1.01) (1.80) (1.99) (1.43) (0.97) (1.09)
(0.59) (0.30)
---------------------------------------------------------------------------------------------------------------
----------------
Net asset value, end of
year $15.97 $17.79 $16.84 $17.26 $15.61 $15.57
$15.03 $13.62
---------------------------------------------------------------------------------------------------------------
----------------
Total return++ (4.54)% 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) $216,035 $334,408 $287,983 $234,321 $197,170
$206,385 $146,987 $151,223
Ratio of expenses to
average net assets 2.00% 1.98% 2.02% 2.06% 2.09%
2.24% 2.29% 2.14% **+++
Ratio of net investment
income to average
net assets 2.21% 2.11% 2.84% 3.02% 3.43%
3.46% 3.59% 2.83% **
Portfolio turnover rate 103% 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. Any
shares outstanding prior to November 6, 1992 were designated as Class B shares.
** Annualized
*** Net investment income before waiver by investment adviser for the period ended
January 31, 1988 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 charges.
+++ Annualized expense ratio before waiver by investment adviser for the period ended
January 31, 1988 was 2.18%.
# As of July 15, 1994, the Fund changed its investment adviser from Boston Advisors to
its current investment adviser, Strategy
Advisers. Boston Advisors is currently the sub-investment adviser to the Fund.
</TABLE>
11
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
1/31/95# 1/31/94*+
<S> <C> <C>
Net asset value, beginning of year $17.79 $17.54
------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38 0.32
Net realized and unrealized gain (loss) on investments (1.19) 1.67
------------------------------------------------------------------------------------
Total from investment operations (0.81) 1.99
------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.35) (0.28)
Distributions from net realized capital gains (0.66) (1.46)
------------------------------------------------------------------------------------
Total distributions (1.01) (1.74)
------------------------------------------------------------------------------------
Net asset value, end of year $15.97 $17.79
------------------------------------------------------------------------------------
Total return++ (4.54)% 11.83%
------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental data:
Net assets, end of period (000's) $1,972 $ 399
Ratio of operating expenses to average net assets 1.98% 1.93%**
Ratio of net investment income to average net assets 2.24% 2.16%**
Portfolio turnover rate 103% 131%
------------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class C shares (previously designated as Class D shares)
on January 29, 1993. These shares
commenced operations on May 5, 1993.
** 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.
# As of July 15, 1994, the Fund changed its investment adviser from Boston Advisors to
its current investment adviser, Strategy
Advisers. Boston Advisors is currently the sub-investment adviser to the Fund.
</TABLE>
As of January 31, 1995, no Class Y shares had been sold and, accordingly,
no comparable financial information is available at this time for that Class.
12
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
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, the Fund's asset allocation consultant. These percentages
represent Smith Barney'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 but will seek to comply with Smith Barney'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,
processing or distribution of gold and companies principally engaged in
financing, managing, controlling or operating such companies. As of March 1,
1995, the Fund's asset allocation approach resulted in 53% of the Fund's assets
being invested in equity securities, 30% in fixed-income securities and 17% 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.
Strategy Advisers and Boston Advisors (the "Managers") have
responsibility for the selection of specific securities on behalf of the Fund.
See "Management of the Trust and the Fund." As soon as practicable after Smith
Barney's asset allocations become available, except as described below,
Strategy Advisers 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 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
13
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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's designated percentage. For example,
if Smith Barney 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 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
14
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 of
time (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.
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 net asset 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
15
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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.
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 SBMFM. 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
16
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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.
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
5.00% of the value of the Fund's net assets. Included within that amount, but
not to exceed 2.00% 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
17
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
offset a loss on a portfolio position with a gain on the hedge position; at the
same time, however, a properly correlated hedge will result in a gain on the
portfolio position being offset by a loss on the hedge position. The Fund bears
the risk that the prices of the securities being hedged will not move in the
same amount as the hedge. The Fund will engage in hedging transactions only when
deemed advisable by Strategy Advisers. Successful use by the Fund of options
will be subject to Strategy Advisers' ability to predict correctly movements in
the direction of the stock or index underlying the option used as a hedge.
Losses incurred in hedging transactions and the costs of these transactions will
affect the Fund's performance.
The ability of the Fund to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While the Fund
generally will 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
18
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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, 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 and the former Soviet Union, 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 the Managers select,
including Smith Barney and other affiliated brokers. The Fund may utilize Smith
Barney or a broker that is affiliated with Smith Barney in connection with a
19
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
purchase or sale of securities when the Managers believe that the charges for
the transaction do not exceed usual and customary levels.
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.
--------------------------------------------------------------------------------
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE on each day that the NYSE is open, by dividing the
value of the Fund's net assets attributable to each Class by the total number of
shares of the Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Trustees. Short-term
investments that mature in 60 days or less are valued at amortized cost whenever
the Trustees determine that amortized cost is fair value. Further information
regarding the Fund's valuation policies is contained in the Statement of
Additional Information.
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all of its net investment
income (that is, its income other than its net realized capital gains)
quarterly, and to declare and pay 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.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4.00% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed
20
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
ordinary income or capital gains and expects to pay any other dividends and
distributions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally as
a result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the service
fee applicable to Class A shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Dividends paid from net investment
income and distributions of net realized short-term capital gains are taxable to
shareholders as ordinary income, regardless of how long shareholders have held
their Fund shares and whether such dividends and distributions are received in
cash or reinvested in additional Fund shares. Distributions of net realized
long-term capital gains will be taxable to shareholders as long-term capital
gains, regardless of how long shareholders have held Fund shares and whether
such distributions are received in cash or are reinvested in additional Fund
shares. Furthermore, as a general rule, a shareholder's gain or loss on a sale
or redemption of Fund shares will be a long-term capital gain or loss if the
shareholder has held the shares for more than one year and will be a short-term
capital gain or loss if the shareholder has held the shares for one year or
less. Some of the Fund's dividends declared from net investment income may
qualify for the Federal dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder also will receive, if
appropriate, various written notices after the close of the Fund's prior taxable
year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior taxable
year. Shareholders should consult their tax advisors about the status of the
Fund's dividends and distributions for state and local tax liabilities.
21
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES
GENERAL
The Fund offers five Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC and
are available only to investors investing a minimum of $5,000,000. See
"Prospectus Summary--Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group, except for investors purchasing shares of the Fund through a
qualified retirement plan who may do so directly through TSSG. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class A,
Class B, Class C or Class Y shares. No maintenance fee will be charged by the
Fund in connection with a brokerage account through which an investor purchases
or holds shares.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Fund. Investors in Class Y shares
may open an account by making an initial investment of $5,000,000. Subsequent
investments of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and Class
C shares and the subsequent investment requirement for all Classes in the Fund
is $25. For the Fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A, Class B and Class C shares and the minimum
subsequent investment is $50. There are no minimum investment requirements for
Class A shares for employees of Travelers and its subsidiaries, including Smith
Barney, and Trustees of the Trust and their spouses and children. The Fund
reserves the right to waive or change minimums, to decline any order to purchase
its shares and to suspend the offering of shares from time to time. Shares
purchased will be held in the shareholder's account by the Fund's transfer
agent, TSSG. Share certificates are issued only upon a shareholder's written
request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular
trading on the NYSE, on any day the Fund calculates its net asset value, are
priced according to the net asset value determined on that day. Orders received
by dealers or Introducing Brokers prior to the close of regular trading on the
22
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
NYSE on any day the Fund calculates its net asset value, are priced according to
the net asset value determined on that day, provided the order is received by
Smith Barney prior to Smith Barney's close of business (the "trade date").
Currently, payment for Fund shares is due on the fifth business day (the
"settlement date") after the trade date. The Fund anticipates that, in
accordance with regulatory changes, beginning on or about June 1, 1995, the
settlement date will be the third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by
purchasing shares through a service known as the Systematic Investment Plan.
Under the Systematic Investment Plan, Smith Barney or TSSG is authorized through
preauthorized transfers of $50 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply cash held in the shareholder's Smith
Barney brokerage account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional information is
available from the Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
DEALERS
% OF % OF AMOUNT REALLOWANCE
AS
AMOUNT OF INVESTMENT OFFERING PRICE INVESTED
% OF OFFERING PRICE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$25,000-$49,999 4.00 4.17 3.60
$50,000-$99,999 3.50 3.63 3.15
$100,000-$249,999 3.00 3.09 2.70
$250,000-$499,999 2.00 2.04 1.80
$500,000 and more*
---------------------------------------------------------------------------------------------------
<FN>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months
of purchase. The CDSC on Class A shares is payable to Smith Barney, which
compensates Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the same
circumstances in which the CDSC applicable to Class B and Class C shares is
waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
</TABLE>
23
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Fund made at one time by "any person," which includes
an individual, his or her spouse and children, or a trustee or other fiduciary
of a single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value of
all Class A shares offered with a sales charge held in funds sponsored by Smith
Barney listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Trustees
of the Trust and employees of Travelers and its subsidiaries, or the spouses and
children of such persons (including the surviving spouse of a deceased Trustee
or employee, and retired Trustees or employees), or sales to any trust, pension,
profit-sharing or other benefit plan for such persons provided such sales are
made upon the assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be re-sold except through
redemption or repurchase; (b) offers of Class A shares to any other investment
company in connection with the combination of such company with the Fund by
merger, acquisition of assets or otherwise; (c) purchases of Class A shares by
any client of a newly employed Smith Barney Financial Consultant (for a period
up to 90 days from the commencement of the Financial Consultant's employment
with Smith Barney), on the condition the purchase of Class A shares 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 the
client by the Financial Consultant and (iii) was subject to a sales charge; (d)
shareholders who have redeemed Class A shares in the Fund (or Class A shares of
another fund of the Smith Barney Mutual Funds that are offered with a sales
charge equal to or greater than the maximum sales charge of the Fund) and who
wish to reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 60 calendar days of the redemption; and (e) accounts
managed by registered investment advisory subsidiaries of Travelers. In order to
obtain such discounts, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase would qualify for the
elimination of the sales charge.
24
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net asset value of all Class
A shares of the Fund and of funds sponsored by Smith Barney that are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based upon
the aggregate sales of Class A shares of Smith Barney Mutual Funds offered with
a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan must be open
to specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
of the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform
criteria which enable Smith Barney to realize economies of scale in its
25
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
costs of distributing shares. A qualified group must have more than 10 members,
must be available to arrange for group meetings between representatives of the
Fund and the members, and must agree to include sales and other materials
related to the Fund in its publications and mailings to members at no cost to
Smith Barney. In order to obtain such reduced sales charge or to purchase at net
asset value, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. Approval of group purchase reduced sales charge plans is subject
to the discretion of Smith Barney.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charge by aggregating investments over
a 13 month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all Class
A shares of the Fund and other funds of the Smith Barney Mutual Funds offered
with a sales charge over the 13 month period based on the total amount of
intended purchases plus the value of all Class A shares previously purchased and
still owned. An alternative is to compute the 13 month period starting up to 90
days before the date of execution of a Letter of Intent. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the period,
the investor must pay the difference between the sales charges applicable to the
purchases made and the charges previously paid, or an appropriate number of
escrowed shares will be redeemed. Please contact a Smith Barney Financial
Consultant or TSSG to obtain a Letter of Intent application.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which when combined with Class A shares
offered with a sales charge currently held by an investor equal or exceed
$500,000 in the aggregate.
26
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Any applicable CDSC will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class C shares and Class A shares that are CDSC
Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, 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. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
purchases by Participating Plans, as described below. See "Purchase of
Shares--Smith Barney 401(k) Program."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
-------------------------------------------------------------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 0.00
Seventh 0.00
Eighth 0.00
-------------------------------------------------------------------------------------
</TABLE>
Class B shares automatically will 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 fees. There also will be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. Shareholders who held Class B shares of Smith
27
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Barney Shearson Short-Term World Income Fund (the "Short-Term World Income
Fund") that were held on July 15, 1994 and who subsequently exchange those
shares for Class B shares of the Fund will be offered the opportunity to
exchange all such Class B shares for Class A shares of the Fund four years after
the date on which those shares were deemed to have been purchased. Holders of
such Class B shares will be notified of the pending exchange in writing
approximately 30 days before the fourth anniversary of the purchase date and,
unless the exchange has been rejected in writing, the exchange will occur on or
about the fourth anniversary date. See "Prospectus Summary--Alternative Purchase
Arrangements--Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption. The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.
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 1% per month of the
value of the shareholder's shares at the time the withdrawal plan commences (see
below) (provided, however, that automatic cash withdrawals in amounts equal to
or less than 2% per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to
28
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
November 7, 1994); (c) redemptions of shares within 12 months following the
death or disability of the shareholder; (d) redemption of shares made in
connection with qualified distributions from retirement plans or IRAs upon the
attainment of age 59 1/2; (e) involuntary redemptions; and (f) redemptions of
shares in connection with a combination of the Fund with any investment company
by merger, acquisition of assets or otherwise. In addition, a shareholder who
has redeemed shares from other funds of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the redemption proceeds within 60
days and receive pro rata credit for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by TSSG in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the Smith Barney 401(k)
Program, which is generally designed to assist 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 Smith Barney 401(k) Program.
The Fund offers to Participating Plans Class A, Class B, Class C and
Class Y shares, as investment alternatives under the Smith Barney 401(k)
Program. Class A, Class B and Class C shares acquired through the Smith Barney
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, Class B and Class
C shares acquired by other investors. Similar to those available to other
investors, Class Y shares acquired through the Smith Barney 401(k) Program are
not subject to any initial sales charge, CDSC or service or distribution fees.
Once a Participating Plan has made an initial investment in the Fund, all of
its subsequent investments in the Fund must be in the same Class of shares,
except as otherwise described below.
Class A Shares. Class A shares of the Fund are offered without any initial
sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if
29
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
the Participating Plan terminates within four years of the date the
Participating Plan first enrolled in the Smith Barney 401(k) Program.
Class B Shares. Class B shares of the Fund are offered to any
Participating Plan that purchases less than $250,000 of one or more funds of the
Smith Barney Mutual Funds. Class B shares acquired through the Smith Barney
401(k) Program are subject to a CDSC of 3.00% of redemption proceeds, if the
Participating Plan terminates within eight years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
Eight years after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Fund. Such Plans will be notified of
the pending exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth anniversary date. Once
the exchange has occurred, a Participating Plan will not be eligible to acquire
additional Class B shares of the Fund but instead may acquire Class A shares of
the Fund. If the Participating Plan elects not to exchange all of its Class B
shares at that time, each Class B share held by the Participating Plan will have
the same conversion feature as Class B shares held by other investors. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares of the Fund are offered to any
Participating Plan that purchases from $250,000 to $499,999 of one or more funds
of the Smith Barney Mutual Funds. Class C shares acquired through the Smith
Barney 401(k) Program after November 7, 1994 are subject to a CDSC of 1.00% of
redemption proceeds, if the Participating Plan terminates within four years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program. In any year after the date a Participating Plan enrolled in the Smith
Barney 401(k) Program if its total Class C holdings equal at least $500,000 as
of the calendar year-end, the Participating Plan will be offered the opportunity
to exchange all of its Class C shares for Class A shares of the Fund. Such Plans
will be notified 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 the following March.
Once the exchange has occurred, a Participating Plan will not be eligible to
acquire Class C shares of the Fund but instead may acquire Class A shares of the
Fund. Class C shares not converted will continue to be subject to the
distribution fee.
30
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Class Y Shares. Class Y shares of the Fund are offered without any service
or distribution fees, sales charge or CDSC to any Participating Plan that
purchases $5,000,000 or more of Class Y shares of one or more funds of the Smith
Barney Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to the extent that the net
asset value of the shares redeemed does not exceed the current net asset value
of the shares purchased through reinvestment of dividends or capital gain
distributions, plus (a) with respect to Class A and Class C shares, the current
net asset value of such shares purchased more than one year prior to redemption
and, with respect to Class B shares, the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus (b) with
respect to Class A and Class C shares, increases in the net asset value of the
shareholder's Class A or Class C shares above the purchase payments made during
the preceding year and, with respect to Class B shares, increases in the net
asset value of the shareholder's Class B shares above the purchase payments made
during the preceding eight years. Whether or not the CDSC applies to a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the CDSC to other 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 CDSC 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 shares in connection with a loan made by the Participating
Plan to an employee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program must purchase such shares directly from TSSG. For further
information regarding the Smith Barney 401(k) Program, investors should contact
a Smith Barney Financial Consultant.
31
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following funds of the Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence. Exchanges of Class A,
Class B and Class C shares are subject to minimum investment requirements and
all shares are subject to the other requirements of the fund into which
exchanges are made and a sales charge differential may apply.
<TABLE>
<CAPTION>
FUND NAME
Growth Funds
<C> <S>
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth Portfolio
Smith Barney Funds, Inc.--Utilities Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc.--Income Return Account Portfolio
Smith Barney Funds, Inc.--Monthly Payment Government Portfolio
+++ Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
</TABLE>
32
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds--California Limited Term Portfolio
Smith Barney Muni Funds--California Portfolio
* Smith Barney Muni Funds--Florida Limited Term Portfolio
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
* Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New Jersey Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond
Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc.--Cash Portfolio
++ Smith Barney Money Funds, Inc.--Government Portfolio
*** Smith Barney Money Funds, Inc.--Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds--California Money Market Portfolio
+++ Smith Barney Muni Funds--New York Money Market Portfolio
--------------------------------------------------------------------------------
<FN>
* Available for exchange with Class A, Class C and Class Y shares of the Fund.
** Available for exchange with Class A, Class B and Class Y shares of the Fund. In
addition, shareholders who own Class C shares
of the Fund through the Smith Barney 401(k) Program may exchange those shares for
Class C shares of this fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
Available for exchange with Class A and Class Y shares of the Fund. In addition,
shareholders who own Class C shares of the
Fund through the Smith Barney 401(k) Program may exchange those shares for Class C
shares of this fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
</TABLE>
Class A Exchanges. Class A shares of the Smith Barney Mutual Funds sold
without a sales charge or with a maximum sales charge of less than the maximum
charged by other Smith Barney Mutual Funds will be subject to the
33
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
appropriate "sales charge differential" upon the exchange of such shares for
Class A shares of a fund 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 and capital gain distributions are treated
as having paid the same sales charges applicable to the shares on which the
dividends or distributions were paid; however, except in the case of the Smith
Barney 401(k) Program, if no sales charge was imposed upon the initial purchase
of the shares, any shares obtained through automatic reinvestment will be
subject to a sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a portion of his or her shares in any
of the funds imposing a higher CDSC than that imposed by the Fund, the
exchanged Class B shares will be subject to the higher applicable CDSC. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be
deemed to have been purchased on the same date as the Class C shares of the
Fund that have been exchanged.
Class Y Exchanges. Class Y shareholders of the Fund who wish to
exchange all or a portion of their Class Y shares for Class Y shares in any of
the funds identified above may do so without imposition of any charge.
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. The Managers 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, the Managers
will notify Smith Barney and Smith Barney may, at its discretion, decide to
limit additional purchases and/or exchanges by a shareholder. Upon such a
determination, Smith Barney 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
34
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
her shares in the Fund or (b) remain invested in the Fund or exchange into any
of the funds of the Smith Barney Mutual Funds ordinarily available, which
position the shareholder would be expected to maintain for a significant period
of time. All relevant factors will be considered in determining what constitutes
an abusive pattern of exchanges.
Exchanges will be processed at the net asset value next determined after
the redemption proceeds are available. Redemption procedures discussed below are
also applicable for exchanging shares, and exchanges will be made upon receipt
of all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the shares
of the fund exchanged, no signature guarantee is required. A capital gain or
loss for tax purposes will be realized upon the exchange, depending upon the
cost or other basis of shares redeemed. Before exchanging shares, investors
should read the current prospectus describing the shares to be acquired. The
Fund reserves the right to modify or discontinue exchange privileges upon 60
days' prior notice to shareholders.
--------------------------------------------------------------------------------
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. 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 Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as permitted
under the Investment Company Act of 1940, as amended (the "1940 Act") in
extraordinary circumstances. The Fund anticipates that, in accordance with
regulatory changes, beginning on or about June 1, 1995, payment will be made on
the third business day after receipt of proper tender. Generally, if the
redemption
35
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
proceeds are remitted to a Smith Barney brokerage account, these funds will not
be invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Strategic Investors Fund
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request 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 an eligible guarantor institution such as 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.
36
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
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 cash payments of at least $50 monthly or quarterly. 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. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not exceed
2.00% per month of the value of the shareholder's shares subject to the CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
--------------------------------------------------------------------------------
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
--------------------------------------------------------------------------------
PERFORMANCE
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum
37
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
PERFORMANCE (CONTINUED)
sales charge, if any, from the initial amount invested and reinvestment of all
income dividends and capital gains distributions on the reinvestment dates at
prices calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount invested
and subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total return, which provides the ending redeemable
value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the last
day of the period for which current dividend return is presented. The current
dividend return for each Class may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating
current dividend return should be considered when comparing a Class' current
return to yields published for other investment companies and other investment
vehicles. The Fund may also include comparative performance information in
advertising or marketing its shares. Such performance information may include
data from Lipper Analytical Services, Inc. and other financial publications. The
Fund will include performance data for Class A, Class B, Class C and Class Y
shares in any advertisement or information including performance data of the
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, sub-investment adviser,
administrator and sub-administrator. The day-to-day operations of the Fund are
delegated to the Fund's investment adviser, sub-investment adviser,
administrator and sub-administrator. The Statement of Additional Information
contains
38
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
background information regarding each Trustee of the Trust and executive officer
of the Trust.
INVESTMENT ADVISER--STRATEGY ADVISERS
Strategy Advisers, located at 388 Greenwich Street, New York, New York
10013, serves as the Fund's investment adviser. As investment adviser, Strategy
Advisers, subject to the supervision and direction of the Trust's Board of
Trustees, is generally responsible for furnishing, or causing to be furnished to
the Fund, investment management services. Included among the specific services
provided by Strategy Advisers as investment adviser are: the selection and
compensation of a sub-investment adviser to the Fund; the review of all
purchases and sales of portfolio instruments made by the Fund to assess
compliance with its stated investment objectives and policies; the monitoring of
the selection of brokers and dealers effecting investment transactions on behalf
of the Fund; and the payment of reasonable salaries and expenses of those of the
Fund's officers and employees, and the fees and expenses of those members of the
Trust's Board of Trustees, who are directors, officers or employees of Strategy
Advisers. Strategy Advisers provides investment management, investment advisory
and/or administrative services to individual, institutional and investment
company clients that had aggregate assets under management, as of March 1, 1995,
in excess of $2.9 billion. For advisory services rendered to the Fund, under an
Advisory Agreement dated July 15, 1994, the Fund pays Strategy Advisers a fee at
the annual rate of 0.55% of the value of the Fund's average daily net assets.
From its fee, Strategy Advisers pays Boston Advisors a fee of 0.275% of the
value of the Fund's average daily net assets for its services as sub-investment
adviser.
ADMINISTRATOR--SBMFM
SBMFM serves as the Fund's administrator and generally assists in all
aspects of the Fund's administration and operation. SBMFM provides investment
management and administration services to a wide variety of individual,
institutional and investment companies that had aggregate assets under
management, as of March 1, 1995, in excess of $52.4 billion. For administration
services rendered, the Fund pays SBMFM a fee at the annual rate of 0.20% of the
value of the Fund's average daily net assets.
39
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
SUB-INVESTMENT ADVISER--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-investment adviser. Boston Advisors provides investment
management, investment advisory and/or administrative services to investment
companies that had aggregate assets under management, as of March 1, 1995, in
excess of $69.7 billion.
Subject to the supervision and direction of the Trust's Board of Trustees
and Strategy Advisers, Boston Advisors manages the Fund's portfolio in
accordance with the Fund's investment objective and policies, makes investment
decisions for the Fund, places orders to purchase and sell securities and
employs professional portfolio managers and securities analysts who provide
research services to the Fund.
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.
Management's discussion and analysis and additional performance information
regarding the Fund during the fiscal year ended January 31, 1995 is included in
the Annual Report dated January 31, 1995. A copy of the Annual Report may be
obtained upon request and without charge from a Smith Barney Financial
Consultant or by writing or calling the Fund at the address or phone number
listed on page one of this prospectus.
ASSET ALLOCATION CONSULTANT
Smith Barney, located at 388 Greenwich Street, New York, New York 10013,
serves without compensation as asset allocation consultant to the Fund. As asset
allocation consultant, Smith Barney provides the asset allocation mix that may
be a primary determinant of the Fund's investment performance.
40
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS FUND
--------------------------------------------------------------------------------
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A, Class B and Class C shares of the Fund at the annual rate of
0.25% of the value of the average daily net assets of the respective Class.
Smith Barney is also paid an annual distribution fee with respect to Class B and
Class C shares at the annual rate of 0.75% of the value of the average daily net
assets attributable to those Classes. Class B shares which automatically convert
to Class A shares eight years after the date of original purchase will no longer
be subject to distribution fees. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses; the cost
of printing and mailing prospectuses to potential investors; payments to and
expenses of Smith Barney Financial Consultants and other persons who provide
support services in connection with the distribution of shares; interest and/or
carrying charges; and indirect and overhead costs of Smith Barney associated
with the sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder services expenses actually incurred by Smith Barney and the payments
may exceed such expenses actually incurred. The Trust's Board of Trustees will
evaluate the appropriateness of the Plan and its payment terms on a continuing
basis and in so doing will consider all relevant factors, including expenses
borne by Smith Barney, amounts received under the Plan and proceeds of the CDSC.
41
<PAGE>
SMITH BARNEY
STRATEGIC INVESTORS 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 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 four Classes -- A, B, C and Y.
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 and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. 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.
42
<PAGE>
SMITH BARNEY
Strategic Investors Fund
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
PNC Bank, National Association, is located at 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103, 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 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.
Shareholders who do not want this consolidation to apply to their accounts
should contact a Smith Barney Financial Consultant or TSSG.
------------------------
43
<PAGE>
SMITH BARNEY
------------
A Member of Travelers Group[LOGO]
SMITH BARNEY
STRATEGIC
INVESTORS
FUND
388 Greenwich Street
New York, New York 10013
Fund 10.199.215.4447
FD D225 05
<PAGE>
Smith Barney
EQUITY FUNDS
388 Greenwich Street
New York, New York 10013
(212) 723-9218
---------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION APRIL 1, 1995
---------------------------------------------------------
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectuses, each dated April 1, 1995, as
amended or supplemented from time to time, of Smith Barney Equity Funds (the
"Trust") relating to Smith Barney Strategic Investors Fund ("Strategic Investors
Fund") and Smith Barney Growth and Income Fund ("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
from a Smith Barney Financial Consultant or by writing or calling the Trust at
the address or telephone number set forth above. This Statement of Additional
Information, although not in itself a prospectus, is incorporated by reference
into the Prospectuses in its entirety.
<TABLE>
TABLE OF 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:
<S> <C>
Management of the Trust........................................................ 2
Investment Objectives and Management Policies.................................. 6
Purchase of Shares............................................................. 16
Redemption of Shares........................................................... 17
Distributor.................................................................... 18
Valuation of Shares............................................................ 21
Exchange Privilege............................................................. 22
Performance Data (See in each Prospectus "Performance")........................ 23
Taxes (See in each Prospectus "Dividends, Distributions and Taxes")............ 26
Additional Information......................................................... 29
Financial Statements........................................................... 30
Appendix....................................................................... 31
</TABLE>
<PAGE>
<TABLE>
MANAGEMENT OF THE TRUST
The executive officers of the Trust are employees of certain of the
organizations that provide services to the Trust. These organizations are the
following:
<CAPTION>
NAME SERVICE
---- -------
<S> <C>
Smith Barney Inc.
("Smith Barney")....................... Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM").............................. Investment Adviser (Growth and Income Fund)
and Administrator
Smith Barney Strategy Advisers Inc.
("Strategy Advisers").................. Investment Adviser (Strategic Investors Fund)
The Boston Company Advisors, Inc.
("Boston Advisors").................... Sub-Investment Adviser (Strategic Investors
Fund) and Sub-Administrator
PNC Bank, National Association
("PNC")................................ Custodian
The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data
Corporation............................ Transfer Agent
</TABLE>
These organizations and the services they perform for the Trust and the
Funds are discussed in the Prospectuses and in this Statement of Additional
Information.
The names of the Trustees and the executive officers of the Trust, together
with information as to their principal business occupations, are set forth
below. Each Trustee who is an "interested person" of the Trust, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), is indicated by
an asterisk.
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST
Lee Abraham, Trustee (Age 67). Retired; formerly 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 (Age 57). 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 (Age 65). 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 (Age 53). Headmaster, The Peck School,
Morristown, NJ; prior to July 1, 1994 Headmaster, Lawrence Country Day
School--Woodmere Academy, Woodmere, New York; prior to July 1, 1990, Headmaster
of Woodmere Academy. His address is 247 South Street, Morristown, NJ 07960.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age 61).
Managing Director of Smith Barney and Chairman of Strategy Advisers; prior to
July 1993, Senior Executive Vice President of
2
<PAGE>
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 388 Greenwich Street, New York, New
York 10013.
Madelon DeVoe Talley, Trustee (Age 62). 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.
Jessica M. Bibliowicz, President (Age 35). Executive Vice President of
Smith Barney; prior to 1994, Director of Sales and Marketing for Prudential
Mutual Funds; prior to 1990, First Vice President, Asset Management Division of
Shearson Lehman Brothers. Ms. Bibliowicz also serves as President of 26 other
mutual funds of the Smith Barney Mutual Funds. Her address is 388 Greenwich
Street, New York, New York, 10013.
R. Jay Gerken, Investment Officer (Age 43). Managing Director of Greenwich
Street Advisors, a division of SBMFM; prior to July 1993 Managing Director of
Shearson Lehman Advisors. His address is 388 Greenwich Street, New York, New
York 10013.
George V. Novello, Investment Officer (Age 52). Managing Director of
Greenwich Street Advisors, a division of SBMFM; prior to July 1993, Managing
Director of Shearson Lehman Advisors. His address is 388 Greenwich Street, New
York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 37). Managing
Director and Chief Financial Officer of Smith Barney; Director and Senior Vice
President of SBMFM. Mr. Daidone also serves as Senior Vice President and
Treasurer of 41 other funds of the Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 44). Managing Director of Smith Barney;
General Counsel and Secretary of SBMFM. Ms. Sydor also serves as Secretary of 41
other funds of the Smith Barney Mutual Funds. Her address is 388 Greenwich
Street, New York, New York 10013.
William W. Carter, Jr., Investment Administrator (Age 53). Vice President
of Boston Advisors; President of The Boston Company Asset Management, Inc. His
address is 300 S. Grand, Suite 1200, 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 serves as distributor. As of
March 1, 1995, the Trust's Trustees and officers of the Funds as a group owned
less than 1.00% of the outstanding shares of the Trust.
No officer, director or employee of Smith Barney, or of any parent or
subsidiary receives any compensation from the Trust for serving as an officer or
Trustee of the Trust. The Trust pays each Trustee who is not an officer,
director or employee of Smith Barney or any of its affiliates a fee of $6,000
per annum plus $1,500 per meeting attended and reimburses each Trustee for
travel and out-of-pocket expenses. For the fiscal year ended January 31, 1995,
such fees and expenses totalled $64,091.
3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
AGGREGATE COMPENSATION FROM THE SMITH
BARNEY
TRUSTEE(*) FROM THE FUND MUTUAL FUNDS
---------- ---------------------- ----------------------
<S> <C> <C>
Lee Abraham(2)..................... $ 16,125 $ 38,500
Antoinette C. Bentley(2)........... 16,125 38,500
Allan J. Bloostein(8).............. 16,125 79,000
Richard E. Hanson, Jr.(2).......... 16,125 38,500
Heath B. McLendon(29).............. N/A N/A
Madelon Devoe Talley(3)............ 13,500 63,500
---------------
<FN>
(*) Number of director/trusteeships held with other mutual funds of the Smith Barney
Mutual Funds.
</TABLE>
INVESTMENT ADVISERS, SUB-INVESTMENT ADVISER, ADMINISTRATOR AND
SUB-ADMINISTRATOR
SBMFM (formerly known as Smith, Barney Advisers, Inc.) serves as investment
adviser to Growth and Income Fund pursuant to a transfer of the investment
advisory agreement effective November 7, 1994, from its affiliate, Mutual
Management Corp. Mutual Management Corp. and SBMFM are both wholly owned
subsidiaries of Smith Barney Holdings Inc. ("Holdings"), which in turn is a
wholly owned subsidiary of The Travelers Inc. ("Travelers"). The Advisory
Agreement is dated July 30, 1993 (the "Advisory Agreement"), and 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 SBMFM ("Independent Trustees")
on April 6, 1993. The services provided by SBMFM under the Advisory Agreement
are described in the Prospectus under "Management of the Trust and the Fund."
SBMFM bears all expenses in connection with the performance of its services and
pays the salary of any officer and employee who is employed by both it and the
Trust.
As compensation for investment advisory services rendered to Growth and
Income Fund, the Fund pays a fee computed daily and paid monthly at the annual
rate of 0.45% of the value of the average daily net assets of the Fund.
SBMFM also serves as administrator to the Funds pursuant to a written
agreement (the "Administration Agreement") dated May 4, 1994, which was most
recently approved by the Trust's Board of Trustees, including a majority of the
Independent Trustees, on August 10, 1994.
Boston Advisors serves as sub-administrator to the Funds under a written
agreement (the "Sub-Administration Agreement") dated April 20, 1994, which was
most recently approved by the Trust's Board of Trustees, including a majority of
the Independent Trustees on April 20, 1994. Under the Sub-Administration
Agreement, Boston Advisors is paid a portion of the administration fee paid by
the Fund to SBMFM at a rate agreed upon from time to time between Boston
Advisors and SBMFM. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc., a financial services holding company, which in turn is a wholly
owned subsidiary of Mellon Bank Corporation ("Mellon").
Certain of the services provided to the Funds by SBMFM and Boston Advisors
are described in the Prospectuses under "Management of the Trust and the Fund."
In addition to those services, SBMFM and Boston Advisors pay the salaries of all
officers and employees who are employed by SBMFM, Boston Advisors and the Fund,
maintain office facilities for each Fund, furnish 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, prepare reports to the Funds' shareholders and prepare tax returns,
reports to and filings with the Securities and Exchange Commission (the "SEC")
and
4
<PAGE>
state Blue Sky authorities. SBMFM and Boston Advisors bear all expenses in
connection with the performance of their services.
Strategy Advisers serves as investment adviser to Strategic Investors Fund
pursuant to a written agreement (the "Strategy Advisory Agreement"), which was
approved most recently by the Trust's Board of Trustees, including a majority of
the Independent Trustees, on August 10, 1994. Strategy Advisers is a wholly
owned subsidiary of Holdings. Certain of the services provided by Strategy
Advisers 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 Strategic
Investors Fund, the Fund pays a fee computed daily and paid monthly at the
annual rate of .55% of the value of the Fund's average daily net assets.
Boston Advisors serves as sub-investment adviser to Strategic Investors
Fund pursuant to a written agreement (the "TBCA Sub-Advisory Agreement"), which
was most recently approved by the Trust's Board of Trustees, including a
majority of the Independent Trustees, on August 10, 1994. Boston Advisors is an
indirect wholly owned subsidiary of Mellon.
As compensation for Boston Advisors services rendered to Strategic
Investors Fund, the Fund pays a fee computed daily and paid monthly at the
annual rate of 0.275% of the value of the Fund's average daily net assets.
Each of SBMFM, Strategy Advisers and Boston Advisors (each, an "Adviser"
and collectively, the "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.
<TABLE>
For the fiscal years ended January 31, 1995, 1994 and 1993, the Funds paid
investment advisory and sub-investment advisory and/or administration fees to
their respective Advisers, sub-investment advisers and administrator as follows:
<CAPTION>
GROWTH AND INCOME FUND
FISCAL YEAR ENDED JANUARY
31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Investment Advisory fees......................................... $ 847,149 $ 264,363 $
25,070
Administration fees.............................................. 376,511 117,495
11,142
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC INVESTORS FUND
FISCAL YEAR ENDED JANUARY
31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Investment Advisory fees......................................... $2,013,080 $1,702,756
$1,466,635
Administration fees.............................................. 732,029 609,031
532,668
</TABLE>
Each Adviser, sub-investment adviser, administrator and sub-administrator
has agreed that if in any fiscal year the aggregate expenses of the Fund it
serves (including fees payable pursuant to its agreement with respect to the
Fund, but excluding interest, taxes, brokerage, fees paid pursuant to the
Trust's services and distribution plan, and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, the Adviser and administrator, to
the extent required by state law, will reduce their fees to the Fund by the
amount of such excess expense, such amount to be allocated between or among them
in the same proportion as their respective fees bear to
5
<PAGE>
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 2.50% of the Fund's
first $30 million of average net assets, 2.00% of the next $70 million of
average net assets and 1.50% of the remaining average net assets.
Smith Barney serves as asset allocation consultant to Strategic Investors
Fund pursuant to a written agreement with the Trust, under which Smith Barney
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 for
performing this service, and Smith Barney 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.
KMPG Peat Marwick LLP, independent accountants, 345 Park Avenue, New York,
New York 10154, serve as auditors of the Trust and will render an opinion on
each fund's financial statements annually. Prior to October 19, 1994, Coopers &
Lybrand L.L.P., independent auditors, served as auditors of the Trust and
rendered an opinion on each Fund's financial statements for the fiscal year
ended January 31, 1995.
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. United States government securities
include debt obligations of varying maturities issued or guaranteed by the
United States government or its agencies or instrumentalities ("U.S. government
securities"). Direct obligations of the United States Treasury include a variety
of securities that differ in their interest rates, maturities and dates of
issuance.
U.S. government securities include not only direct obligations of the
United States Treasury, but also include securities issued or guaranteed by the
Federal Housing Administration, Federal Financing Bank, Export-Import Bank of
the United States, Small Business Administration, Government National Mortgage
Association, General Services Administration, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Maritime
Administration, Resolution Trust Corporation, Tennessee Valley Authority,
District of Columbia Armory Board, Student Loan Marketing Association and
various institutions that previously were or currently are part of the Farm
Credit System (which has been undergoing a reorganization since 1987). Because
the United States government is not obligated by law to provide support to an
instrumentality that it sponsors, a Fund will invest in obligations issued by
such an instrumentality only if the Fund's Adviser determines that the credit
risk with respect to the instrumentality does not make its securities unsuitable
for investment by the Fund.
Venture Capital Investments (Strategic Investors Fund). 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
6
<PAGE>
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 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 distributions on the loaned
securities, and any increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan; and (f) voting rights on
the loaned securities may pass to the borrower, provided, however, that if a
material event adversely affecting the investment in the loaned securities
occurs, the 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. The Funds may write covered call options and enter
into closing transactions with respect thereto.
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
7
<PAGE>
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.
Although Strategic Investors Fund generally will write only those options
for which the Fund's Adviser believes there is an active secondary market so as
to facilitate closing transactions, there is no assurance that sufficient
trading interest to create a liquid secondary market on a securities exchange
will exist for any particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the past, for example,
higher than anticipated trading activity or order flow, or other unforeseen
events, have at times rendered certain of the facilities of the Clearing
Corporation and the 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.
8
<PAGE>
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.
Money Market Instruments. 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.
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
9
<PAGE>
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.
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.
10
<PAGE>
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 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.
11
<PAGE>
American, European and Continental Depositary Receipts. 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 Trust has adopted the following investment restrictions for the protection
of shareholders. Restrictions 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,
as defined in the 1940 Act, of the outstanding voting securities of the Fund.
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.
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.
12
<PAGE>
6. Investing in commodities, except that 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. 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.
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 indices 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.
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 or 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.
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.
16. Purchasing any security if as a result the Fund would then have
more than 10% of its total assets 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
13
<PAGE>
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. 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.
<TABLE>
For the fiscal years ended January 31, 1995 and 1994, the portfolio
turnover rates of the Funds were as follows:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Strategic Investors Fund 103 % 131 %
Growth and Income Fund 127 % 79 %
</TABLE>
PORTFOLIO TRANSACTIONS
Most of the purchases and sales of securities for a Fund, whether transacted on
a securities exchange or on the over-the-counter market, 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
14
<PAGE>
issued U.S. government securities may be purchased directly from the United
States Treasury or from the issuing agency or instrumentality, respectively.
<TABLE>
The following table sets forth certain information regarding each Fund's
payment of brokerage commissions:
<CAPTION>
FISCAL YEAR STRATEGIC
ENDED INVESTORS GROWTH AND
JANUARY 31 FUND INCOME FUND
------------ --------- -----------
<S> <C> <C> <C>
Total Brokerage Commissions 1993 258,626 30,915
1994 467,989 143,865
1995 541,403 567,988
Commissions paid to 1993 57,354 2,733
Smith Barney or 1994 106,879 19,650
Shearson Lehman Brothers 1995 117,328 53,370
% of Total Brokerage
Commissions paid to
Smith Barney 1995 21.70% 9.40%
% of Total Transactions
involving Commissions paid
to Smith Barney 1995 24.67% 8.15%
</TABLE>
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.
15
<PAGE>
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 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 consistent with that
charged to comparable unaffiliated customers in similar transactions. In
addition, under rules recently adopted by the SEC, Smith Barney 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 to effect such transactions, and (b) Smith Barney 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 is a member, except to the extent permitted by the
SEC.
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's spouse and his or her children
purchasing shares for his or her own account; (c) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account; (d) a
pension, profit-sharing or other employee benefit plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and
qualified employee benefit plans of employers who are "affiliated persons" of
each other within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; and (f) a trustee or other
professional fiduciary (including a bank, or an investment adviser registered
with the SEC under the Investment Advisers Act of 1940, as amended) purchasing
shares of 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 a Smith Barney Financial Consultant.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedules 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 of the Smith Barney
Mutual Funds that are offered with a sales charge, including the purchase being
made, of any purchaser is $25,000 or more. The reduced sales charge is subject
to confirmation of the shareholder's holdings through a check of appropriate
records. The Trust reserves the right to terminate or amend the combined right
of accumulation at any time after written notice to shareholders. For further
information regarding the combined right of accumulation, shareholders should
contact a Smith Barney Financial Consultant.
16
<PAGE>
DETERMINATION OF PUBLIC OFFERING PRICE
The Trust offers shares of the Funds to the public on a continuous basis. The
public offering price for Class A shares 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 for Class B,
Class C, Class Y and Class Z shares of a Fund (and Class A share purchases,
including applicable right of accumulation, equalling or exceeding $500,000) is
equal to the net asset value per share at the time of purchase and no sales
charge is imposed at the time of purchase. A contingent deferred sales charge
("CDSC"), however, is imposed on certain redemptions of Class B and Class C
shares and of Class A shares when purchased in amounts equalling or exceeding
$500,000. The method of computation of the public offering price is shown in the
Funds' financial statements, which are incorporated by reference in their
entirety into this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed (a)
for any period during which the New York Stock Exchange, Inc. ("NYSE") 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 Board of Trustees of the Trust determines that it would be detrimental to
the best interests of the remaining shareholders 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 1.00% of its
net assets by distribution in kind of portfolio securities in lieu of cash.
Securities issued as a distribution in kind may incur brokerage commissions when
shareholders subsequently sell those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly. 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 1.00% per month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal Plans in effect prior to
November 7, 1994, any applicable CDSC will be waived on amounts withdrawn that
do not exceed 2.00% per month of the value of a shareholder's shares at the time
the Withdrawal Plan commences.) To the extent withdrawals exceed dividends,
distributions and appreciation of 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
17
<PAGE>
time he or she is participating in the Withdrawal Plan, purchases by such
shareholders in amounts of less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with 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.
Effective November 7, 1994, Withdrawal Plans should be set up with any Smith
Barney Financial Consultant. A shareholder who purchases shares directly through
TSSG may continue to do so and applications for participation in the Withdrawal
Plan must be received by TSSG no later than the eighth day of the month to be
eligible for participation beginning with that month's withdrawal. For
additional information, shareholders should contact a Smith Barney Financial
Consultant.
DISTRIBUTOR
Shares of the Trust are distributed on a best efforts basis by Smith Barney
as exclusive sales agent of the Trust pursuant to a written agreement (the
"Distribution Agreement").
When payment is made by the investor before settlement date, unless
otherwise noted by the investor, the funds will be held as a free credit balance
in the investor's brokerage account and Smith Barney may benefit from the
temporary use of the Funds. The investor may designate another use for the funds
prior to settlement date, such as an investment in a money market fund (other
than Smith Barney Exchange Reserve Fund) of the Smith Barney Mutual Funds. If
the investor instructs Smith Barney to invest the funds in a Fund of the Smith
Barney money market fund, the amount of the investment will be included as part
of the average daily net assets of both the Fund and the Smith Barney money
market fund, and affiliates of Smith Barney that serve the funds in an
investment advisory or administrative capacity will benefit from the fact they
are receiving investment management fees from both such investment companies for
managing these assets 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
resulting from these settlement procedures and will take such benefits into
consideration when reviewing the Advisory, Administration and Distribution
Agreements for continuance.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney 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 with respect to each Fund a service fee,
accrued daily and paid monthly, calculated at the annual rate of 0.25% of the
value of the Fund's average daily net assets attributable to the Fund's Class A,
Class B and Class C shares. In addition, the Trust pays Smith Barney a
distribution fee with respect to each Fund's Class B and Class C shares
primarily intended to compensate Smith Barney for its initial expense of paying
its Financial Consultants a commission upon sales of those shares. The Class B
and Class C distribution fees are calculated at the annual rate of 0.75% for the
Strategic Investors Fund and 0.50% for the Growth and Income Fund of the value
of a Fund's average daily net assets attributable to the shares of that Class.
18
<PAGE>
<TABLE>
The following expense were incurred during the periods indicated:
Sales Charges (paid to Smith Barney or Shearson Lehman Brothers, its predecessor).
<CAPTION>
CLASS A
---------------------------------------------
PERIOD
OF 11/6/92 FISCAL YEAR FISCAL YEAR
NAME OF FUND THROUGH 1/31/93* ENDED 1/31/94 ENDED
1/31/95
------------ ---------------- -------------- -------------
<S> <C> <C> <C>
Strategic Investors............... $ 9,430 $ 15,079 $13,735
Growth and Income................. 99,355 51,877 39,518
---------------
<FN>
* The Funds commenced selling Class A shares on November 6, 1992.
</TABLE>
<TABLE>
CDSC (paid to Smith Barney or Shearson Lehman Brothers, its predecessor)
<CAPTION>
CLASS B
---------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
NAME OF FUND ENDED 1/31/93 ENDED 1/31/94 ENDED
1/31/95
------------ ---------------- -------------- -------------
<S> <C> <C> <C>
Strategic Investors*.............. $262,930 $288,907 $ 311,572
---------------
<FN>
* The Fund commenced selling Class B shares on February 2, 1987.
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
PERIOD
OF 11/6/92 FISCAL YEAR FISCAL YEAR
NAME OF FUND THROUGH 1/31/93 ENDED 1/31/94 ENDED
1/31/95
------------ ---------------- -------------- -------------
<S> <C> <C> <C>
Growth and Income*................ $ 4,678 $131,421 $ 271,979
---------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
</TABLE>
<TABLE>
<CAPTION>
CLASS C
(FORMERLY CLASS D SHARES)
------------------------------
PERIOD
OF 5/5/95 FISCAL YEAR
NAME OF FUND THROUGH 1/31/94 ENDED 1/31/95
------------ --------------- --------------
<S> <C> <C>
Strategic Investors*.............................. -- $ 55
---------------
<FN>
* Class C shares were first purchased by the public on May 5, 1993.
</TABLE>
As of the fiscal year ended January 31, 1995, no Growth and Income Fund
Class C shares had been redeemed.
<TABLE>
Service Fees
<CAPTION>
CLASS A
---------------------------------------------
PERIOD
OF 11/6/92 FISCAL YEAR FISCAL YEAR
NAME OF FUND THROUGH 1/31/93* ENDED 1/31/94 ENDED
1/31/95
------------ ---------------- -------------- -------------
<S> <C> <C> <C>
Strategic Investors............... $ 128 $ 10,573 $ 148,061
Growth and Income................. 1,424 9,731 97,689
---------------
<FN>
* The Funds commenced selling Class A shares on November 6, 1992.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
NAME OF FUND ENDED 1/31/93 ENDED 1/31/94 ENDED
1/31/95
------------ ---------------- -------------- -------------
<S> <C> <C> <C>
Strategic Investors*.............. $160,260 $767,452 $ 764,217
---------------
<FN>
* The Fund commenced selling Class B shares on February 2, 1987.
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
PERIOD
OF 11/6/92 FISCAL YEAR FISCAL YEAR
NAME OF FUND THROUGH 1/31/93 ENDED 1/31/94 ENDED
1/31/95
------------ --------------- ------------- -------------
<S> <C> <C> <C>
Growth and Income*................ $ 12,504 $135,701 $372,877
---------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
</TABLE>
<TABLE>
<CAPTION>
CLASS C
(FORMERLY CLASS D SHARES)
------------------------------
PERIOD
OF 5/5/93 FISCAL YEAR
NAME OF FUND THROUGH 1/31/94 ENDED 1/31/95
------------ --------------- --------------
<S> <C> <C>
Strategic Investors*.............................. $ 504 $2,759
---------------
<FN>
* Class C Shares were first purchased by the public on May 5, 1993.
</TABLE>
<TABLE>
<CAPTION>
CLASS C
(FORMERLY
DESIGNATED AS
CLASS D)
---------------
PERIOD
OF 8/15/94
THROUGH 1/31/95
---------------
NAME OF FUND
------------
<S> <C>
Growth and Income*............................................... $39
---------------
<FN>
* Class C Shares were first purchased by the public on August 15, 1994.
</TABLE>
<TABLE>
Distribution Fees
<CAPTION>
CLASS B
---------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
NAME OF FUND ENDED 1/31/93 ENDED 1/31/94 ENDED
1/31/95
------------ ---------------- -------------- -------------
<S> <C> <C> <C>
Strategic Investors*.............. $2,501,795 $2,302,358 $ 2,292,652
---------------
<FN>
* The Fund commenced selling Class B shares on February 2, 1987.
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
NAME OF FUND ENDED 1/31/93 ENDED 1/31/94 ENDED
1/31/95
------------ ---------------- -------------- -------------
<S> <C> <C> <C>
Growth and Income*................ $ 25,008 $ 271,401 $ 745,754
---------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
</TABLE>
<TABLE>
<CAPTION>
CLASS C
(FORMERLY CLASS D SHARES)
---------------------------------
PERIOD
OF 5/5/93 FISCAL YEAR
NAME OF FUND THROUGH 1/31/94 ENDED 1/31/95
------------ --------------- ----------------
<S> <C> <C>
Strategic Investors*.......................... $1,511 $8,277
---------------
<FN>
* Class C Shares were first purchased by the public on May 5, 1993.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CLASS C
(FORMERLY CLASS
D SHARES)
----------------
PERIOD
OF 8/15/94
NAME OF FUND THROUGH 1/31/95
------------ ----------------
<S> <C>
Growth and Income*............................................ $78
---------------
<FN>
* Class C Shares were first purchased by the public on August 15, 1994.
</TABLE>
For the fiscal year ended January 31, 1995, the distribution expenses
incurred by Smith Barney and its predecessor, Shearson Lehman Brothers on Class
B and Class C shares totaled approximately $7,848,000, consisting of
approximately $63,000 for advertising, $58,000 for printing and mailing of
Prospectuses, $3,499,000 for support services, $1,837,000 to Smith Barney
Financial Consultants and $2,391,000 in accruals for interest on the excess of
Smith Barney's expenses incurred in distributing the Trust's shares over the sum
of the distribution fees and CDSCs received by Smith Barney 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 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
Each Class' net asset value per share is calculated on each day, Monday through
Friday, except days on which the NYSE is closed. The NYSE currently is scheduled
to be closed on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas, and on the preceding
Friday or subsequent Monday when one of these holidays falls on a Saturday or
Sunday, respectively. Because of the differences in distribution fees and
Class-specific expenses, the per share net asset value of each Class may differ.
The following is a description of the procedures used by the 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
21
<PAGE>
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, SBMFM, as administrator, 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 SBMFM, 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.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney Mutual Funds
may exchange all or part of their shares for shares of the same class of other
funds of the Smith Barney Mutual Funds, to the extent such shares are offered
for sale in the shareholder's state of residence, on the basis of relative net
asset value per share at the time of exchange as follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds, and the sales
charge differential, if any, will be applied. Class A shares of any fund
may be exchanged without a sales charge for shares of the funds that are
offered without a sales charge. Class A shares of any fund purchased
without a sales charge may be exchanged for shares sold with a sales
charge, and the appropriate sales charge differential will be applied.
B. Class A shares of any fund acquired by a previous exchange of
shares purchased with a sales charge may be exchanged for Class A shares of
any of the other funds, and the sales charge differential, if any, will be
applied.
C. Class B shares of any fund may be exchanged without a sales
charge. Class B shares of 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
deemed to be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney 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 a Smith Barney
Financial Consultant.
22
<PAGE>
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and, subject to any applicable CDSC, the proceeds are immediately invested, at a
price as described above, in shares of the fund being acquired. Smith Barney
reserves the right to reject any exchange request. The exchange privilege may be
modified or terminated at any time after written notice to shareholders.
PERFORMANCE DATA
From time to time, the Trust may quote total return of the Classes of the
various Funds in advertisements or in reports and other communications to
shareholders. The Fund may include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include the following industry and financial publications: Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. To the extent any
advertisement or sales literature of the Funds describes the expenses or
performance of Class A, Class B, Class C or Class Y, it will also disclose such
information for the other Classes.
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
"Average annual total return" figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
<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>
<TABLE>
The average annual total returns of the Funds' Class A shares were as
follows for the periods indicated:
Class A Shares:
<CAPTION>
PER ANNUM
FOR THE PERIOD
FROM COMMENCEMENT OF
ONE YEAR PERIOD OPERATIONS*
THROUGH
NAME OF FUND ENDED 1/31/95 1/31/95
------------ --------------- --------------------
<S> <C> <C>
Strategic Investors................................... (8.62)% 6.13%
Growth and Income..................................... (8.73) .84
---------------
<FN>
*The Funds commenced selling Class A shares on November 6, 1992.
</TABLE>
23
<PAGE>
<TABLE>
The average annual total returns of the Funds' Class B shares were as follows for the
periods indicated:
Class B Shares:
<CAPTION>
PER ANNUM
FOR THE PER ANNUM
FIVE YEAR FOR THE PERIOD
ONE YEAR PERIOD FROM
COMMENCEMENT
PERIOD ENDED ENDED OF OPERATIONS
THROUGH
NAME OF FUND 1/31/95 1/31/95 1/31/95
------------ ------------- ---------- ---------------------
<S> <C> <C> <C>
Strategic Investors(1)...................... (9.03)% 9.27% 8.97%
Growth and Income(2)........................ (8.97) N/A 1.39
---------------
<FN>
(1) The Fund commenced selling Class B shares on February 2, 1987.
(2) The Fund commenced selling Class B shares on November 6, 1992.
</TABLE>
<TABLE>
The average annual total returns of the Funds' Class C shares were as follows for the
periods indicated:
Class C Shares:
<CAPTION>
ONE YEAR PER ANNUM FOR
PERIOD ENDED THE PERIOD
ENDED
NAME OF FUND 1/31/95 1/31/95*
------------ ------------ ----------------
<S> <C> <C>
Strategic Investors............................................ (5.44)% 3.83%
Growth and Income.............................................. -- (1.56)
---------------
<FN>
* The Funds commenced selling Class C shares (previously Class D shares) on January 29,
1993. Strategic
Investors Fund shares were first sold to the public on May 5, 1993. Growth and Income
Fund shares were
first sold to the public on August 15, 1994.
</TABLE>
Average annual total return figures calculated in accordance with the above
formula assume that the maximum 5% sales charge or maximum CDSC, as the case may
be, has been deducted from the hypothetical investment. A Fund's net investment
income changes in response to fluctuations in interest rates and the expenses of
the Fund.
AGGREGATE TOTAL RETURN
<TABLE>
"Aggregate total return" figures represent the cumulative change in the value of
an investment in the Class for the specified period and are computed by the
following formula:
ERV-P
-----
P
<S> <C> <C>
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>
24
<PAGE>
<TABLE>
The aggregate total returns (with fees waived) of the Class B shares were as follows for
the
periods indicated:
<CAPTION>
NO LOAD LOAD
---------------------------------- ---------------------------------
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
1/31/95* 1/31/95* 1/31/95* 1/31/95** 1/31/95** 1/31/95**
<S> <C> <C> <C> <C> <C>
<C>
NAME OF FUND
------------
Strategic Investors(1).... (4.54)% 56.76% 98.72% (5.44)% 55.76%
98.72%
Growth and Income(2)...... (4.33) N/A 6.14 (8.97) N/A 3.14
---------------
<FN>
* Figures do not include the effect of the maximum sales charge or maximum applicable
CDSC.
If they had been included, it would have had the effect of lowering the returns shown.
** Figures include the effect of the maximum sales charge or maximum applicable CDSC.
(1) The Fund commenced selling Class B shares on February 2, 1987.
(2) The Fund commenced selling Class B shares on November 6, 1992.
</TABLE>
<TABLE>
The aggregate total returns (with fees waived) of the Class A and Class C shares of the
Funds
were as follows for the periods indicated:
<CAPTION>
NO LOAD
------- LOAD
PERIOD FROM ----
NO LOAD LOAD COMMENCEMENT
PERIOD FROM
------- ---- OF COMMENCEMENT
ONE YEAR ONE YEAR OPERATIONS* OF
OPERATIONS*
PERIOD ENDED PERIOD ENDED THROUGH
THROUGH
1/31/95* 1/31/95** 1/31/95* 1/31/95**
<S> <C> <C> <C> <C>
NAME OF FUND
------------
Strategic Investors
Class A+................. (3.82)% (8.62)% 20.23% 14.22%
Class C++................ (4.54) (9.03) 6.75 6.75
Growth and Income
Class A+................. (3.93) (8.73) 7.24 1.88
Class C+++............... -- -- .58 (1.56)
---------------
<FN>
* Figures do not include the effect of the maximum sales charge or maximum applicable
CDSC.
If they had been included, it would have had the effect of lowering the returns shown.
** Figures include the effect of the maximum sales charge or maximum applicable CDSC.
+ The Fund commenced selling Class A shares on November 6, 1992.
++ The Fund commenced selling Class C shares (previously Class D shares) on January
29, 1993.
Shares were first sold to the public on May 5, 1993.
+++ The Fund commenced selling Class C shares (previously Class D shares) on January
29, 1993.
Shares were first sold to the public on August 15, 1994.
</TABLE>
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.
A Class' performance will vary from time to time depending on market
conditions, the composition of the relevant Fund's portfolio and operating
expenses and the expenses exclusively attributable to that Class. Consequently,
any given performance quotation should not be considered representative of the
Class' performance for any specified period in the future. Because performance
will vary, it may not provide a basis for comparing an investment in the Class
with certain bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing the Class' performance with that of
other mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
25
<PAGE>
TAXES
The following is a summary of certain Federal income tax considerations that may
affect the Funds and their shareholders. This summary is not intended as a
substitute for individual tax advice, and investors are urged to consult their
own tax advisors as to the tax consequences of an investment in any Fund of the
Trust.
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 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.
26
<PAGE>
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 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.
27
<PAGE>
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 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.
28
<PAGE>
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 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.
ADDITIONAL INFORMATION
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, July 30, 1993 and October 14, 1994, the Trust changed its name
to SLH Equity Portfolios, Shearson Lehman Brothers Equity Portfolios, Shearson
Lehman Brothers Equity Funds, Smith Barney Shearson Equity Funds and Smith
Barney Equity Funds, respectively.
PNC is located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, and serves as custodian for the Funds. Under its custodial agreement with
the Trust, PNC 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, PNC 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.
29
<PAGE>
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, 1995 are
incorporated into this Statement of Additional Information by reference in their
entirety.
30
<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
31
<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.
32
<PAGE>
Smith Barney
EQUITY FUNDS
<TABLE>
<S> <C>
-----------------------------
STRATEGIC INVESTORS FUND
-----------------------------
-----------------------------
GROWTH AND INCOME FUND
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
</TABLE>
STATEMENT OF
ADDITIONAL INFORMATION
APRIL 1, 1995
SMITH BARNEY
EQUITY FUNDS
388 Greenwich Street [SMITH BARNEY LOGO]
New York, New York 10013
SMITH BARNEY EQUITY FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year ended January 31,
1995 and the Report of Independent Accountants dated March 22, 1995 are
incorporated by reference to the Definitive 30D filed on March 30, 1995 as
Accession # 0000053798-95-000146.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
All references are to the Registrant's registration statement on Form
N-1A as filed with the Securities and Exchange Commission on January 9,
1986. File Nos. 33-2627 and 811-4551 (the "Registration Statement").
1(a) Amended and Restated Master Trust Agreement and all Amendments
are incorporated by reference to Post-Effective Amendment No. 26 to the
Registration Statement filed on January 31, 1994 ("Post-Effective Amendment
No. 26").
(b) Amendment dated October 14, 1994 and Form of Amendment to
Amended and Restated Master Trust Agreement are incorporated by reference
to Post-Effective Amendment No. 29 to the Registration Statement filed on
November 7, 1994 ("Post-Effective Amendment No. 29").
2 Registrant's By-Laws are incorporated by reference to Pre-
Effective Amendment No. 1 to the Registration Statement filed on February
25, 1986 ("Pre-Effective Amendment No. 1").
3 Not applicable.
4 Form of share certificate for Class A, B, C and Y shares will
be filed by amendment.
5(a) Investment Advisory Agreement between Registrant and The Boston
Company Advisors, Inc. (relating to the Strategic Investors Fund) dated May
22, 1993 is incorporated by reference to Post-Effective Amendment No. 26.
(b) Investment Advisory Agreement between Registrant and Smith
Barney Shearson Strategy Advisers Inc. (relating to the Sector Analysis
Fund) dated May 22, 1993 is incorporated by reference to Post-Effective
Amendment No. 26.
(c) Investment Advisory Agreement between Registrant and Greenwich
Street Advisors (relating to the Growth and Income Fund) dated May 22, 1993
is incorporated by reference to Post-Effective Amendment No. 26.
(d) Sub-Investment Advisory Agreement between Registrant and
Lehman Brothers Global Asset Management, Inc. (relating to the Sector
Analysis Fund) dated July 30, 1993 is incorporated by reference to Post-
Effective Amendment No. 26.
(e) Asset Allocation Consulting Agreement between Registrant
and Shearson Lehman Hutton Inc. (relating to the Strategic Investors
Portfolio) is incorporated by reference to Post-Effective Amendment No. 4.
6 Distribution Agreement between Registrant and Smith Barney
Shearson dated July 30, 1993 is incorporated by reference to Post-Effective
Amendment No. 26.
7 Not applicable.
8(a) Form of Supplement to Custody Agreement between Registrant and
Boston Safe Deposit and Trust Company (relating to the Strategic Investors
Portfolio) is incorporated by reference to Post-Effective Amendment No. 2.
(b) Supplement to Custody Agreement between Registrant and Boston
Safe Deposit and Trust Company (relating to the Sector Analysis Portfolio)
is incorporated by reference to Post-Effective Amendment No. 6.
(c) Supplement to Custody Agreement between Registrant and Boston
Safe Deposit and Trust Company (relating to the Growth and Income
Portfolio) is incorporated by reference to Post-Effective Amendment No. 19
to the Registration Statement filed on March 10, 1992 ("Post-Effective
Amendment No. 19").
(d) Sub-Custodian Agreement among Registrant, Morgan Guaranty Trust
company of New York and Boston Safe Deposit and Trust Company is
incorporated by reference to Post-Effective Amendment No. 6.
9(a) Administration Agreements between Registrant and Smith,
Barney Advisers, Inc. (relating to the Growth and Income Fund and Strategic
Investors Fund) dated May 4, 1994 are incorporated by reference to Post-
Effective Amendment No. 29.
(b) Sub-Administration Agreements between Registrant and The
Boston Company Advisors, Inc. (relating to the Growth and Income Fund and
Strategic Investors Fund) dated May 4, 1994 are incorporated by reference
to Post-Effective Amendment No. 29.
(c) Transfer Agency Agreement between Registrant and The
Shareholder Services Group, Inc. dated August 5, 1993 is incorporated by
reference to Post-Effective Amendment No. 26.
10 Not applicable.
11(a) Consent of Independent Accountants
(b) Consent of Morningstar Mutual Fund Values is incorporated
by reference to Post-Effective Amendment No. 22.
12 Not applicable.
13 Not Applicable
14 Not applicable.
15 Amended Services and Distribution Plans pursuant to Rule
12b-1 between the Registrant on behalf of Smith Barney Growth and Income
Fund and Smith Barney Strategic Investors Fund are incorporated by
reference to Post-Effective Amendment No. 29.
16 Performance information is incorporated by reference to Post-
Effective Amendments No. 9 and 10.
Item 25. Persons Controlled by or Under
Common Control with Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Series Holders as of February
24, 1995
Class A Class B Class C
Smith Barney Strategic Investors Fund 23,878 24,771 54
Smith Barney Growth and Income Fund 14,047 11,900 18
Item 27. Indemnification
The response to this item is incorporated by reference to
Registrant's Pre-Effective Amendment No. 1.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Strategy Advisers Inc.
Smith Barney Strategy Advisers Inc. ("Strategy Advisers") was
incorporated on October 22, 1986 under the laws of the State of Delaware.
Strategy Advisers is a wholly owned subsidiary of Smith, Barney Mutual
Funds Management Inc. ("SBMFM"). SBMFM is a wholly owned subsidiary of
Smith Barney Holdings Inc., which in turn is a wholly owned subsidiary of
The Travelers Inc. ("Travelers"). Strategy Advisers is registered as an
investment adviser under the Investment Adviser Act of 1940 (the "Advisers
Act"). Strategy Advisers is also registered with the Commodity Futures
Trading Commission (the "CFTC") as a commodity pool operator under the
Commodity Exchange Act (the "CEA"), and is a member of the National Futures
Association (the "NFA").
The list required by this Item 28 of officers and directors of SBMFM and
Strategy Advisers, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by
such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of FORM ADV filed by SBMFM on behalf of
Strategy Advisers pursuant to the Advisers Act (SEC File No. 801-8314).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Investment Strategy Advisors Inc. ("Shearson Lehman Strategy
Advisors"), was a wholly owned subsidiary of Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers"), and served as the Registrant's investment
adviser. On the Closing, Travelers and Smith Barney, Harris Upham & Co.
Incorporated acquired the domestic retail brokerage and asset management
business of Shearson Lehman Brothers which included the business of the
Registrant's prior investment adviser. Shearson Lehman Brothers was a
wholly owned subsidiary of Shearson Lehman Brothers Holdings Inc.
("Shearson Holdings"). All of the issued and outstanding common stock of
Shearson Holdings (representing 92% of the voting stock) was held by
American Express Company. Information as to any past business vocation or
employment of a substantial nature engaged in by officers and directors of
Shearson Lehman Investment Strategy Advisors can be located in Schedules A
and D of FORM ADV filed by Shearson Lehman Investment Strategy Advisors
prior to July 30, 1993. (SEC FILE NO. 801-28715)
8/23/93
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management Inc., formerly
known as Smith, Barney Advisers, Inc. ("SBMFM")
SBMFM was incorporated in December 1968 under the laws of the State of
Delaware. SBMFM is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SBMFM pursuant to the Advisers Act
(SEC File No. 801-8314).
Prior to the close of business on November 7, 1994, Greenwich Street
Advisors served as investment adviser. Greenwich Street Advisors, through
its predecessors, has been in the investment counseling business since 1934
and is a division of Mutual Management Corp. ("MMC"). MMC was incorporated
in 1978 and is a wholly owned subsidiary of Holdings, which is in turn a
wholly owned subsidiary of Travelers. The list required by this Item 28 of
officers and directors of MMC and Greenwich Street Advisors, together with
information as to any other business, profession, vocation or employment of
a substantial nature engaged in by such officers and directors during the
past two fiscal years, is incorporated by reference to Schedules A and D of
FORM ADV filed by MMC on behalf of Greenwich Street Advisors pursuant to
the Advisers Act (SEC File No. 801-14437).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Advisors, a member of the Asset Management Group of Shearson Lehman
Brothers, served as the Registrant's investment adviser. On the Closing,
Travelers and Smith Barney Inc. (formerly known as Smith Barney Shearson
Inc.) acquired the domestic retail brokerage and asset management business
of Shearson Lehman Brothers, which included the business of the
Registrant's prior investment adviser. Information as to any past business
vocation or employment of a substantial nature engaged in by officers and
directors of Shearson Lehman Advisors can be located in Schedules A and D
of FORM ADV filed by Shearson Lehman Brothers on behalf of Shearson Lehman
Advisors prior to July 30, 1993. (SEC FILE NO. 801-3701)
11/3/94
Item 28(b). Business and Other Connections of Sub-Investment Adviser
Investment Adviser -- The Boston Company Advisors, Inc.
The Boston Company Advisors, Inc. ("Boston Advisors") is a wholly owned
subsidiary of The Boston Company, Inc., which is in turn a wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). Mellon is a publicly
owned multibank holding company registered under the Federal 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. Boston Advisors is an investment adviser
registered under the Investment Advisers Act of 1940 (the "Advisers Act")
and serves as investment counsel for individuals with substantial capital,
executors, trustees and institutions. It also serves as investment
adviser, sub-investment adviser, administrator or sub-administrator to
numerous investment companies.
The list required by this Item 28 of officers and directors of Boston
Advisors, together with information as to any other business profession,
vocation or employment of a substantial nature engaged in by such officers
and directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by Boston Advisors pursuant to the
Advisers Act (SEC File No. 801-14158).
11/01/94
Item 29. Principal Underwriters
Smith Barney currently acts as distributor for Smith Barney Managed
Municipals Fund Inc., Smith Barney New York Municipals Fund Inc., Smith
Barney California Municipals Fund Inc., Smith Barney Massachusetts
Municipals Fund, Smith Barney Global Opportunities Fund, Smith Barney
Aggressive Growth Fund Inc., Smith Barney Appreciation Fund Inc., Smith
Barney Principal Return Fund, Smith Barney Income Funds, Smith Barney
Equity Funds, Smith Barney Investment Funds Inc., Smith Barney Precious
Metals and Minerals Fund Inc., Smith Barney Telecommunications Trust, Smith
Barney Arizona Municipals Fund Inc., Smith Barney New Jersey Municipals
Fund Inc., The USA High Yield Fund N.V., Garzarelli Sector Analysis
Portfolio N.V., Smith Barney Fundamental Value Fund Inc., Smith Barney
Series Fund, Consulting Group Capital Markets Funds, Smith Barney Income
Trust, Smith Barney Adjustable Rate Government Income Fund, Smith Barney
Florida Municipals Fund, Smith Barney Oregon Municipals Fund, Smith Barney
Funds, Inc., Smith Barney Muni Funds, Smith Barney World Funds, Inc., Smith
Barney Money Funds, Inc., Smith Barney Tax Free Money Fund, Inc., Smith
Barney Variable Account Funds, Smith Barney U.S. Dollar Reserve Fund
(Cayman), Worldwide Special Fund, N.V., Worldwide Securities Limited,
(Bermuda), Smith Barney International Fund (Luxembourg) and various series
of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings. On June 1,
1994, Smith Barney changed its name from Smith Barney Shearson Inc. to its
current name. The information required by this Item 29 with respect to
each director, officer and partner of Smith Barney is incorporated by
reference to Schedule A of FORM BD filed by Smith Barney pursuant to the
Securities Exchange Act of 1934 (SEC File No. 812-8510).
11/4/94
Item 30. Location of Accounts and Records
(1) Smith Barney Equity Funds
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds Management Inc..
388 Greenwich Street
New York, New York 10013
(3) Lehman Brothers Global Asset Management Inc.
American Express Tower
New York, New York 10285
(4)
Smith Barney Strategy Advisers Inc.
388 Greenwich Street
New York, New York 10013
(5) The Boston Company Advisors, Inc.
One Boston Place
Boston, MA 02108
(6) Boston Safe Deposit and Trust Company
One Cabot Road
Medford, Massachusetts 02155
(7) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
None
Item 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
hereby undertakes further, in connection with the meeting to comply with
the provisions of Section 16 (c) of the Investment Company Act of 1940, as
amended, relating to communications with shareholders of certain common-law
trusts.
485(b) Certification
The Registrant hereby certifies that it meets all requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of
1933, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended (the "1933 Act"), and the Investment Company Act of 1940, as
amended, the Registrant, SMITH BARNEY EQUITY FUNDS, has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, State
of New York on the 30th day of March, 1995.
SMITH BARNEY EQUITY FUNDS
By:/s/ Heath B. McLendon
Heath B. McLendon,
Chief Executive Officer
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board and Trustee 03/30/95
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice Presient and 03/30/95
Lewis E. Daidone (Chief Financial
and Accounting Officer)
/s/ Allan J. Bloostein Trustee 03/30/95
Allan J. Bloostein
/s/ Lee Abraham Trustee 03/30/95
Lee Abraham
/s/ Antoinette C. Bentley Trustee 03/30/95
Antoinette C. Bentley
Signature Title Date
/s/ Richard E. Hanson Trustee 03/30/95
Richard Hanson
/s/ Madelon DeVoe Talley Trustee 03/30/95
Madelon DeVoe Talley
g:\shared\domestic\clients\funds\slep\pea#30
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> SB GROWTH AND INCOME - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 177,371,864
<INVESTMENTS-AT-VALUE> 184,797,088
<RECEIVABLES> 2,871,976
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 105,791
<TOTAL-ASSETS> 187,774,855
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 482,642
<TOTAL-LIABILITIES> 482,642
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 179,203,728
<SHARES-COMMON-STOCK> 9,877,686
<SHARES-COMMON-PRIOR> 431,297
<ACCUMULATED-NII-CURRENT> 169,142
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 494,119
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,425,224
<NET-ASSETS> 187,292,213
<DIVIDEND-INCOME> 5,281,294
<INTEREST-INCOME> 876,097
<OTHER-INCOME> 0
<EXPENSES-NET> 3,379,629
<NET-INVESTMENT-INCOME> 2,777,762
<REALIZED-GAINS-CURRENT> 3,961,502
<APPREC-INCREASE-CURRENT> (14,098,390)
<NET-CHANGE-FROM-OPS> (7,359,126)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 887,487
<DISTRIBUTIONS-OF-GAINS> 1,393,249
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,072,728
<NUMBER-OF-SHARES-REDEEMED> 856,835
<SHARES-REINVESTED> 230,496
<NET-CHANGE-IN-ASSETS> 114,679,921
<ACCUMULATED-NII-PRIOR> 9,508
<ACCUMULATED-GAINS-PRIOR> (732,079)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 847,149
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,379,629
<AVERAGE-NET-ASSETS> 188,241,543
<PER-SHARE-NAV-BEGIN> 10.36
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> (0.61)
<PER-SHARE-DIVIDEND> 0.19
<PER-SHARE-DISTRIBUTIONS> 0.14
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<ARTICLE> 6
<SERIES>
[NUMBER] 5
<NAME> SB GROWTH AND INCOME - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 177,371,864
[INVESTMENTS-AT-VALUE] 184,797,088
[RECEIVABLES] 2,871,976
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 105,791
[TOTAL-ASSETS] 187,774,855
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 482,642
[TOTAL-LIABILITIES] 482,642
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 179,203,728
[SHARES-COMMON-STOCK] 9,553,177
[SHARES-COMMON-PRIOR] 6,564,267
[ACCUMULATED-NII-CURRENT] 169,142
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 494,119
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 7,425,224
[NET-ASSETS] 187,292,213
[DIVIDEND-INCOME] 5,281,294
[INTEREST-INCOME] 876,097
[OTHER-INCOME] 0
[EXPENSES-NET] 3,379,629
[NET-INVESTMENT-INCOME] 2,777,762
[REALIZED-GAINS-CURRENT] 3,961,502
[APPREC-INCREASE-CURRENT] (14,098,390)
[NET-CHANGE-FROM-OPS] (7,359,126)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1,723,518
[DISTRIBUTIONS-OF-GAINS] 1,348,003
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 15,856,315
[NUMBER-OF-SHARES-REDEEMED] 13,158,120
[SHARES-REINVESTED] 290,715
[NET-CHANGE-IN-ASSETS] 114,679,921
[ACCUMULATED-NII-PRIOR] 9,508
[ACCUMULATED-GAINS-PRIOR] (732,079)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 847,149
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,379,629
[AVERAGE-NET-ASSETS] 188,241,543
[PER-SHARE-NAV-BEGIN] 10.38
[PER-SHARE-NII] 0.17
[PER-SHARE-GAIN-APPREC] (0.62)
[PER-SHARE-DIVIDEND] 0.14
[PER-SHARE-DISTRIBUTIONS] 0.14
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.65
[EXPENSE-RATIO] 1.90
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
<ARTICLE> 6
<SERIES>
[NUMBER] 5
<NAME> SB GROWTH AND INCOME - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 177,371,864
[INVESTMENTS-AT-VALUE] 184,797,088
[RECEIVABLES] 2,871,976
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 105,791
[TOTAL-ASSETS] 187,774,855
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 482,642
[TOTAL-LIABILITIES] 482,642
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 179,203,728
[SHARES-COMMON-STOCK] 8,857
[SHARES-COMMON-PRIOR] 1
[ACCUMULATED-NII-CURRENT] 169,142
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 494,119
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 7,425,224
[NET-ASSETS] 187,292,213
[DIVIDEND-INCOME] 5,281,294
[INTEREST-INCOME] 876,097
[OTHER-INCOME] 0
[EXPENSES-NET] 3,379,629
[NET-INVESTMENT-INCOME] 2,777,762
[REALIZED-GAINS-CURRENT] 3,961,502
[APPREC-INCREASE-CURRENT] (14,098,390)
[NET-CHANGE-FROM-OPS] (7,359,126)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 140
[DISTRIBUTIONS-OF-GAINS] 1,035
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 8,731
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 125
[NET-CHANGE-IN-ASSETS] 114,679,921
[ACCUMULATED-NII-PRIOR] 9,508
[ACCUMULATED-GAINS-PRIOR] (732,079)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 847,149
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,379,629
[AVERAGE-NET-ASSETS] 188,241,543
[PER-SHARE-NAV-BEGIN] 9.91
[PER-SHARE-NII] 0.07
[PER-SHARE-GAIN-APPREC] (0.13)
[PER-SHARE-DIVIDEND] 0.06
[PER-SHARE-DISTRIBUTIONS] 0.14
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.65
[EXPENSE-RATIO] 1.83
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SB STRATEGIC INVESTORS - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 390,779,667
<INVESTMENTS-AT-VALUE> 387,523,915
<RECEIVABLES> 3,198,258
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,745
<TOTAL-ASSETS> 390,724,918
<PAYABLE-FOR-SECURITIES> 12,580,656
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 890,667
<TOTAL-LIABILITIES> 13,471,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 378,577,052
<SHARES-COMMON-STOCK> 10,012,321
<SHARES-COMMON-PRIOR> 350,896
<ACCUMULATED-NII-CURRENT> 1,378,742
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 553,553
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,255,752)
<NET-ASSETS> 377,253,595
<DIVIDEND-INCOME> 4,484,747
<INTEREST-INCOME> 10,943,483
<OTHER-INCOME> 0
<EXPENSES-NET> 6,930,995
<NET-INVESTMENT-INCOME> 8,497,235
<REALIZED-GAINS-CURRENT> 13,742,008
<APPREC-INCREASE-CURRENT> (37,407,775)
<NET-CHANGE-FROM-OPS> (15,168,532)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,415,447
<DISTRIBUTIONS-OF-GAINS> 2,058,358
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,453,723
<NUMBER-OF-SHARES-REDEEMED> 1,002,524
<SHARES-REINVESTED> 210,226
<NET-CHANGE-IN-ASSETS> 36,223,699
<ACCUMULATED-NII-PRIOR> 1,133,571
<ACCUMULATED-GAINS-PRIOR> 3,623,336
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,013,080
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,930,995
<AVERAGE-NET-ASSETS> 366,014,528
<PER-SHARE-NAV-BEGIN> 17.72
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> (1.25)
<PER-SHARE-DIVIDEND> 0.47
<PER-SHARE-DISTRIBUTIONS> 0.66
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.91
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<ARTICLE> 6
<SERIES>
[NUMBER] 3
<NAME> SB STRATEGIC INVESTORS - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 390,779,667
[INVESTMENTS-AT-VALUE] 387,523,915
[RECEIVABLES] 3,198,258
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 2,745
[TOTAL-ASSETS] 390,724,918
[PAYABLE-FOR-SECURITIES] 12,580,656
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 890,667
[TOTAL-LIABILITIES] 13,471,323
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 378,577,052
[SHARES-COMMON-STOCK] 13,527,240
[SHARES-COMMON-PRIOR] 18,794,896
[ACCUMULATED-NII-CURRENT] 1,378,742
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 553,553
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (3,255,752)
[NET-ASSETS] 377,253,595
[DIVIDEND-INCOME] 4,484,747
[INTEREST-INCOME] 10,943,483
[OTHER-INCOME] 0
[EXPENSES-NET] 6,930,995
[NET-INVESTMENT-INCOME] 8,497,235
[REALIZED-GAINS-CURRENT] 13,742,008
[APPREC-INCREASE-CURRENT] (37,407,775)
[NET-CHANGE-FROM-OPS] (15,168,532)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 6,383,429
[DISTRIBUTIONS-OF-GAINS] 11,409,401
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 7,894,058
[NUMBER-OF-SHARES-REDEEMED] 14,163,327
[SHARES-REINVESTED] 1,001,613
[NET-CHANGE-IN-ASSETS] 36,223,699
[ACCUMULATED-NII-PRIOR] 1,133,571
[ACCUMULATED-GAINS-PRIOR] 3,623,336
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,013,080
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 6,930,995
[AVERAGE-NET-ASSETS] 366,014,528
[PER-SHARE-NAV-BEGIN] 17.79
[PER-SHARE-NII] 0.39
[PER-SHARE-GAIN-APPREC] (1.20)
[PER-SHARE-DIVIDEND] 0.35
[PER-SHARE-DISTRIBUTIONS] 0.66
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 15.97
[EXPENSE-RATIO] 2.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
<ARTICLE> 6
<SERIES>
[NUMBER] 3
<NAME> SB STRATEGIC INVESTORS - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
[INVESTMENTS-AT-COST] 390,779,667
[INVESTMENTS-AT-VALUE] 387,523,915
[RECEIVABLES] 3,198,258
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 2,745
[TOTAL-ASSETS] 390,724,918
[PAYABLE-FOR-SECURITIES] 12,580,656
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 890,667
[TOTAL-LIABILITIES] 13,471,323
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 378,577,052
[SHARES-COMMON-STOCK] 123,475
[SHARES-COMMON-PRIOR] 22,424
[ACCUMULATED-NII-CURRENT] 1,378,742
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 553,553
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (3,255,752)
[NET-ASSETS] 377,253,595
[DIVIDEND-INCOME] 4,484,747
[INTEREST-INCOME] 10,943,483
[OTHER-INCOME] 0
[EXPENSES-NET] 6,930,995
[NET-INVESTMENT-INCOME] 8,497,235
[REALIZED-GAINS-CURRENT] 13,742,008
[APPREC-INCREASE-CURRENT] (37,407,775)
[NET-CHANGE-FROM-OPS] (15,168,532)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 24,664
[DISTRIBUTIONS-OF-GAINS] 47,515
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 100,482
[NUMBER-OF-SHARES-REDEEMED] 3,919
[SHARES-REINVESTED] 4,488
[NET-CHANGE-IN-ASSETS] 36,223,699
[ACCUMULATED-NII-PRIOR] 1,133,571
[ACCUMULATED-GAINS-PRIOR] 3,623,336
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,013,080
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 6,930,995
[AVERAGE-NET-ASSETS] 366,014,528
[PER-SHARE-NAV-BEGIN] 17.79
[PER-SHARE-NII] 0.38
[PER-SHARE-GAIN-APPREC] (1.19)
[PER-SHARE-DIVIDEND] 0.35
[PER-SHARE-DISTRIBUTIONS] 0.66
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 15.97
[EXPENSE-RATIO] 1.98
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Equity Funds:
We hereby consent to the following with respect to
Post-Effective Amendment No. 30 to the Registration Statement on
Form N-1A (File No. 33-2627) under the Securities Act of 1933,
as amended, of Smith Barney Equity Funds (formerly Smith Barney
Shearson Equity Funds) (consisting of Smith Barney Strategic
Investors Fund and Smith Barney Growth and Income Fund):
1. The incorporation by reference of our reports dated March
22, 1995 accompanying the respective Annual Reports dated
January 31, 1995 of the Smith Barney Strategic Investors Fund
and Smith Barney Growth and Income Fund, in the Statement of
Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectuses of the Smith Barney Strategic
Investors Fund and Smith Barney Growth and Income Fund.
3. The reference to our firm under the heading "Counsel and
Auditors" in the aforementioned Statement of Additional
Information.
S/COOPERS & LYBRAND L.L.P
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 28, 1995
