g:\funds\slep\orgdocs\sai96eqt.doc
As filed with the Securities and Exchange Commission on
August 29, 1996
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Registration No. 33-2627
811-4551
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [X] Post-Effective
Amendment No. 34
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended
Amendment No. 35 [X]
SMITH BARNEY EQUITY FUNDS
(Exact name of Registrant as Specified in Charter)
Area Code and Telephone Number: (212) 723-9218
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Christina T. Sydor
Secretary
388 Greenwich Street New York, New York 10013
(Name and Address of Agent for Service)
copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
It is proposed that this filing become effective:
_____ Immediately upon filing pursuant to Rule 485(b)
on April 22, 1996 pursuant to Rule 485(b)
X 75 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, 1996 was filed on March 29, 1996.
SMITH BARNEY EQUITY FUNDS
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and
documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
SMITH BARNEY EQUITY FUNDS
FORM N-1A CROSS REFERENCE SHEET
Pursuant to Rule 495(a) Under the Securities Act of 1933, as ame
nded
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 CoverPage; Prospectus Summary;
Investment Objective and
Management
Policies; Distributor;
Additional
Information
5. Management of the Fund Prospectus
Summary; Management of
the Trust and the Fund;
Distributor;
Additional Information
6. Capital Stock and Other Securities Investment
Objective and Management
Policies; Dividends,
Distributions
and Taxes; Additional
Information
7. Purchase of Securities Being Offered Valuation
of Shares; Purchase of
Shares; Exchange
Privilege; Redemption
of Shares; Minimum
Account Size;
Distributor; Additional
Information
8. Redemption or Repurchase of Shares Purchase of
Shares; Redemption
of Shares; Exchange Privilege
9. Pending Legal Proceedings Not Applicable
Part B Statement of
Additional
Item No. 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 Management of
the Trust and the Funds
Holders of Securities
16. Investment Advisory and Other Services Management
of the Trust and the Funds;
Distributor
17. Brokerage Allocation Investment
Objectives and Management
Policies; Distributor
18. Capital Stock and Other Securities Investment
Objectives and Management
Policies; Purchase of Shares;
Redemption of Shares;Taxes
19. Purchase, Redemption and Pricing Purchase of Shares; Redemption of
of Securities Being Offered Shares;
Valuation of Shares; Distributor;
Exchange Privilege
20. Tax Status Taxes
21. Underwriters Distributor
22.Calculation of Performance Data
Performance Data
23. Financial Statements Financial Statements
SMITH BARNEY EQUITY FUNDS
PART A
<PAGE>
P R O S P E C T U S
PEACHTREE
Growth
Fund
[ ], 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Peachtree
Growth Fund
PROSPECTUS
[ ], 1996
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The investment objective of Peachtree Growth Fund (the
"Fund")
is long term growth of capital, which the Fund pursues
through investing
primarily in equity securities.
The Fund is one of a number of funds, each having distinct
investment objec-
tives and policies, making up the Smith Barney Equity Funds
(the "Trust"). The
Fund is an open-end, management investment company commonly
referred to as a
mutual fund.
This Prospectus sets forth concisely certain information
about the Trust and
the Fund, 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.
Additional information about the Fund is contained in a
Statement of Addi-
tional Information dated [ ], 1996, as amended or
supplemented from time to
time, that is available upon request and without charge by
calling or writing
the Fund at the telephone number or address set forth above
or by contacting a
Smith Barney Financial Consultant. The 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
<PAGE>
Peachtree
Growth Fund
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 10
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RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS 10
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VALUATION OF SHARES 12
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DIVIDENDS, DISTRIBUTIONS AND TAXES 13
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PURCHASE OF SHARES 15
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EXCHANGE PRIVILEGE 27
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REDEMPTION OF SHARES 31
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MINIMUM ACCOUNT SIZE 32
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PERFORMANCE 33
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MANAGEMENT OF THE TRUST AND THE FUND 34
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DISTRIBUTOR 35
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ADDITIONAL INFORMATION 36
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</TABLE>
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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.
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2
<PAGE>
Peachtree
Growth Fund
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
detailed information
appearing elsewhere in this Prospectus and in the Statement
of Additional
Information. Cross references in this summary are to
headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, management
investment company
whose investment objective is long term growth of capital.
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 rate 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% 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. Purchases of Class
A shares, which
when combined with current holdings of Class A shares 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 contingent deferred sales
charge ("CDSC") of
1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summa-
ry--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 bear an annual service fee of
0.25% and an annual
distribution fee of 0.75% 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 original purchase. Upon conversion, these shares
will no longer be
subject
3
<PAGE>
Peachtree
Growth Fund
PROSPECTUS SUMMARY (CONTINUED)
to an annual distribution fee. In addition, a certain
portion of Class B
shares that have been acquired through the reinvestment of
dividends and dis-
tributions ("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 bear an annual service fee of 0.25% and
an annual distribu-
tion fee of 0.75% 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 pur-
chase. 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 com-
bined 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 serv-
ice 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 regu-
lar investment may wish to consider Class A shares; as the
investment accumu-
lates shareholders may qualify for reduced sales charges and
the shares are
subject to lower ongoing expenses over the term of the
investment. As an
alternative, Class B shares 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.
4
<PAGE>
Peachtree
Growth Fund
PROSPECTUS SUMMARY (CONTINUED)
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. 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.
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
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 may
be met by adding
the purchase to the net asset value of all Class A shares
held in funds spon-
sored by Smith Barney Inc. ("Smith Barney") listed under
"Exchange Privilege."
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 may be lower than those for Class B and Class C
shares, purchasers eli-
gible 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 different Classes of shares. Investors should
understand that the pur-
pose 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 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-
tively, the "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."
5
<PAGE>
Peachtree
Growth Fund
PROSPECTUS SUMMARY (CONTINUED)
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, First Data Investor
Services Group, Inc.
("First Data"). 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 minimum requirement for all Classes 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 "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 "Purchase
of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management
Inc. (the "Manag-
er") serves as the Fund's investment adviser. The Manager
provides investment
advisory and management services to investment companies
affiliated with Smith
Barney. The Manager is a wholly owned subsidiary of Smith
Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of
Travelers Group Inc.
("Travelers"), a diversified financial services holding
company engaged
through its subsidiaries principally in four business
segments: Investment
Services, Consumer Finance Services, Life Insurance Services
and Property &
Casualty Insurance Services. The Manager also serves as the
Fund's administra-
tor. See "Management of the Fund."
6
<PAGE>
Peachtree
Growth Fund
PROSPECTUS SUMMARY (CONTINUED)
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 respec-
tive net asset values next determined, plus any applicable
sales charge dif-
ferential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the
prior day generally is
quoted daily in the financial section of most newspapers and
is also available
from Smith Barney Financial Consultants. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment
income and distribu-
tions 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 dis-
tribution 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 The Fund invests
principally in common
stocks. The prices of common stocks and other securities
fluctuate and, there-
fore, the value of an investment in the Fund will vary based
upon the Fund's
investment performance. Any income from these investments
will be incidental
to the goal of growth of capital. See "Investment Objective
and Manage-
ment Policies."
7
<PAGE>
Peachtree
Growth Fund
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the
costs and expenses
that an investor will incur either directly or indirectly as
a shareholder of
the Fund, based on the maximum sales charge or maximum CDSC
that may be
incurred at the time of purchase or redemption:
<TABLE>
<CAPTION>
CLASS A CLASS
B CLASS C CLASS Y
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- ------------------
<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
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- ------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management Fees 0.75%
0.75% 0.75% 0.75%
12b-1 Fees** 0.25%
1.00% 1.00% None
Other Expenses*** [ ]% [
]% [ ]% [ ]%
- ------------------------------------------------------------
- ------------------
TOTAL FUND OPERATING EXPENSES [ ]% [
]% [ ]% 0.[ ]%
- ------------------------------------------------------------
- ------------------
</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
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.
*** "Other Expenses" have been based on estimated expenses
of the Fund for the
fiscal year ending January 31, 1997.
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 average
daily net assets of
Class A shares. Smith Barney also receives with respect to
Class B shares and
Class C shares, an annual 12b-1 fee of 1.00% of the value of
average daily net
assets of the respective Classes, consisting of a 0.25%
service fee and a 0.75%
distribution fee. "Other expenses" in the above table
include fees for share-
holder services, custodial fees, legal and accounting fees,
printing costs and
registration fees.
8
<PAGE>
Peachtree
Growth 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
- ------------------------------------------------------------
- ------------------
<S>
<C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5.00% annual return and (2)
redemp-
tion at the end of each time period:
Class
A.................................................... $[ ]
$[ ]
Class
B.................................................... $[ ]
$[ ]
Class
C.................................................... $[ ]
$[ ]
Class
Y.................................................... $[ ]
$[ ]
An investor would pay the following expenses on the same
investment, assuming the same annual return and no redemp-
tion:
Class
A.................................................... $[ ]
$[ ]
Class
B.................................................... $[ ]
$[ ]
Class
C.................................................... $[ ]
$[ ]
Class
Y.................................................... $[ ]
$[ ]
- ------------------------------------------------------------
- ------------------
</TABLE>
9
<PAGE>
Peachtree
Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Fund's investment objective is long-term growth of
capital, which the
Fund pursues through investing primarily in equity
securities. Income from
investments will be incidental to the goal of growth of
capital. The Fund's
investment objective may not be changed without the approval
of the
holders of a majority of the Fund's outstanding shares.
There can be no assurance
that the Fund's investment objective will be achieved.
In attempting to achieve its investment objective, the
Manager uses a disciplined
approach to identify the equity securities of middle- and
larger-sized
companies (companies with a market capitalization of $1
billion or more at the
time of purchase), which have the prospects of strong,
sustainable earnings growth and are
believed to afford attractive opportunities for stock price
appreciation. This
disciplined approach involves computer-aided, quantitative
analysis supported
by fundamental research. Utilizing its propietary computer
models, the Manager selects
stocks for the Fund's portfolio by sorting a universe of
1500 stocks into
deciles based on earnings and valuation characteristics;
such as, earnings
exceeding expectations; a positive revision to the company's
earnings outlook;
above-average operating earnings growth; reasonable stock
valuations and
strong fundamentals. Only those stocks sorted into the top
two deciles are
further analyzed as investment candidates. Each stock in the
top two deciles
is examined both quantitatively and fundamentally to
determine if it is an
attractive investment. No more than 5% of the Fund's assets
will be invested
in the common stock of any one company. In addition, the
quantitative ranking
is used to determine if a particular stock continues to be
an attractive
investment or if it should be replaced by another stock.
Stocks appearing in
the bottom two deciles are sold. It is anticipated that the
Fund's portfolio generally
will consist of 40 to 50 stocks at any given time.
Although the Fund's assets will be invested primarily in
equity securities,
including convertible stocks and debentures, government
securities and money
market instruments, including commercial paper, bank
obligations and short-term U.S.
government securities, may be held and repurchase agreements
may be entered into
for temporary defensive purposes and so that the Fund may
receive a return on
its otherwise uninvested cash. When the Manager invests in
such securities,
investment income will increase and may constitute a larger
portion of the
return on the Fund.
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Lending Securities. The Fund is authorized to lend
securities it holds to
brokers, dealers and other financial organizations. These
loans, if and when
made, may not exceed 33 1/3% of the Fund's assets taken at
value. The Fund's
loans of
10
<PAGE>
Peachtree
Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
securities will be collateralized by cash, letters of credit
or government
securities that are maintained at all times in a segregated
account with the
Fund's custodian in an amount at least equal to the current
market value of the
loaned securities. By lending its portfolio securities, the
Fund will seek to
generate income by continuing to receive interest on the
loaned securities, by
investing the cash collateral in short-term instruments or
by obtaining yield
in the form of interest paid by the borrower when government
securities are
used as collateral. The risks in lending portfolio
securities, as with other
extensions of secured credit, consist of possible delays in
receiving addi-
tional 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 the Manager to be of good standing
and will not be made
unless, in the judgment of the Manager, the consideration to
be earned from
such loans would justify the risk.
Foreign Securities. The Fund may invest up to 10% of its
net assets in secu-
rities of foreign issuers, which includes American
Depository Receipts
("ADR's"), European Depository Receipts ("EDR's") and Global
Depository
Receipts ("GDR's"). Investing in foreign securities involves
certain risks,
including those resulting from fluctuations in currency
exchange rates, revalu-
ation of currencies, future political or economic
developments and the possible
imposition of restrictions or prohibitions on the
repatriation of foreign cur-
rencies or other foreign governmental laws or restrictions,
reduced availabil-
ity of public information concerning issuers, and,
typically, the lack of uni-
form accounting, auditing and financial reporting standards
or other regulatory
practices and requirements comparable to those applicable to
domestic compa-
nies. Moreover, securities of many foreign companies may be
less liquid and
their prices more volatile than those of securities of
comparable domestic com-
panies. In addition, with respect to certain foreign
countries, the possibility
exists of expropriation, confiscatory taxation and
limitations on the use or
removal of funds or other assets of the Fund, including the
withholding of div-
idends.
ADR's, EDR's and GDR's are issued by foreign companies and
have certain
risks, including trading for a lower price, having less
liquidity than their
underlying securities and risks relating to the issuing bank
or trust company.
ADR's can be sponsored by the issuing bank or trust company
or unsponsored.
Holders of unsponsored ADR's have a greater risk that
receipt of corporate
information will be untimely and incomplete and costs may be
higher.
11
<PAGE>
Peachtree
Growth Fund
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
Restricted and Illiquid Securities. The Fund may invest up
to 15% of its
assets in securities (excluding those subject to Rule 144A
under the Securi-
ties Act of 1933, as amended (the "1933 Act") that have been
determined to be
liquid by the Trust's Board of Trustees), with contractual
or other restric-
tions on resale ("Restricted Securities") and other
instruments that are not
readily marketable, including (a) repurchase agreements with
maturities
greater than seven days, (b) to the extent that a liquid
secondary market does
not exist for the securities and (c) other securities that
are subject to restrictions
on resale that the Manager has determined are not liquid
under the guidelines
established by the Trust's Board of Trustees.
Securities of Unseasoned Issuers. The Fund may invest in
the securities
issued by companies that lack a significant market history
and are dependent
on products or services without an established market share.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Manager arranges for the purchase and sale of the
Fund's securities and
selects brokers and dealers (including Smith Barney), which
in its best judg-
ment provide prompt and reliable execution at favorable
prices and reasonable
commission rates. The Manager may select brokers and dealers
(including Smith
Barney), which provide it with research services and may
cause the Fund to pay
such brokers and dealers commissions which exceed those
other brokers and
dealers may have charged, if it views the commissions as
reasonable in rela-
tion to the value of the brokerage and/or research services.
It is anticipated that the annual portfolio turnover rate
of the Fund nor-
mally will be less than 100%. The Fund's portfolio turnover
rate is calculated
by dividing the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
Fund's securities, with
money market instruments with less than one year to maturity
excluded. A 100%
portfolio turnover rate would occur, for example, if all
included securities
were replaced once during the year.
12
<PAGE>
Peachtree
Growth 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 with respect to any securities, at
fair value. Secu-
rities listed on an exchange are valued on the basis of the
last sale prior to
the time the valuation is made. If there has been no sale
since the immediately
previous valuation, then the current bid price is used.
Quotations are taken
from the exchange where the security is primarily traded.
Portfolio securities
which are primarily traded on foreign exchanges may be
valued with the assis-
tance of a pricing service and are generally valued at the
preceding closing
values of such securities on their respective exchange,
except that when an
occurrence subsequent to the time a foreign security is
valued is likely to
have changed such value, then the fair value of those
securities will be deter-
mined by consideration of other factors by or under the
direction of the Board
of Trustees. Over-the-counter securities are valued on the
basis of the bid
price at the close of business on each day. Unlisted foreign
securities are
valued at the mean between the last available bid and offer
price prior to the
time of valuation. Any assets or liabilities initially
expressed in terms of
foreign currencies will be converted into U.S. dollar values
at the mean
between the bid and offered quotations of such currencies
against U.S. dollars
as last quoted by any recognized dealer. Securities for
which market quotations
are not readily available are valued at fair value.
Notwithstanding the above,
bonds and other fixed-income securities are valued by using
market quotations
and may be valued on the basis of prices provided by a
pricing service approved
by the Board of Trustees.
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) and net
realized capital gains, if any, once a year, normally at the
end of the year in
which earned or at the beginning of the next year.
13
<PAGE>
Peachtree
Growth Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
If a shareholder does not otherwise instruct, dividends and
capital gain dis-
tributions 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% non-deductible excise tax
on certain undis-
tributed amounts of ordinary income and capital gains, the
Fund may make an
additional distribution shortly before December 31 in each
year of any undis-
tributed ordinary income or capital gains and expects to pay
any other divi-
dends 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
as a "regulated
investment company" under the Code. To qualify, the Fund
must first meet cer-
tain requirements, including the distribution of at least
90% of its invest-
ment company taxable income (which includes, among other
items, dividends,
interest and the excess of any net short-term capital gains
over net long-term
capital losses).
Distributions of any investment company taxable income are
taxable to share-
holders as ordinary income. Distributions of any net capital
gains designated
by the Fund as capital gains dividends are taxable to
shareholders as long-
term capital gains regardless of the length of time a
shareholder may have
held shares of the Fund.
Dividends (including capital gain dividends) declared by
the Fund in October,
November or December of any calendar year to shareholders of
record on a date
in such a month will be deemed to have been received by
shareholders on Decem-
ber 31 of that calendar year, provided that the dividend is
actually paid by
the Fund during January of the following calendar year.
14
<PAGE>
Peachtree
Growth Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Upon the disposition of shares of the Fund (whether by
redemption, sale or
exchange), a shareholder generally will realize a taxable
gain or loss. Such
gain or loss generally will be a capital gain or loss if the
shares are capital
assets in the shareholder's hands, and generally will be
long-term or short-
term depending upon the shareholder's holding period for the
shares. Any loss
realized by a shareholder on disposition of Fund shares held
by the shareholder
for six months or less will be treated as long-term capital
loss to the extent
of any distributions of capital gains dividends received by
the shareholder
with respect to such shares.
Shareholders will be notified annually about the amounts
of dividends and
distributions, including the amounts (if any) for that year
which have been
designated as capital gain dividends. Dividends and
distributions and gains
realized upon a disposition of Fund shares may also be
subject to state, local
or foreign taxes depending on each shareholder's particular
situation. Divi-
dends consisting of interest from U.S. government securities
may be exempt from
all state and local income taxes. Shareholders should
consult their tax advi-
sors for specific information on the tax consequences of
particular types of
distributions.
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 are subject to a CDSC payable upon
certain redemp-
tions. 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 "Pro-
spectus Summary--Alternative Purchase Arrangements" for a
discussion of factors
to consider in selecting which Class of shares to purchase.
Purchasers of Fund shares must be made through a brokerage
account maintained
with Smith Barney, through an Introducing Broker or an
investment dealer in the
selling group, except for investors purchasing shares of the
Fund thought a
qualified retirement plan who may do so directly though
First Data. When pur-
chasing 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.
15
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
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. 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 invest-
ment requirement for Class A, Class B and Class C shares and
the subsequent
investment requirement for all Classes is $50. There are no
minimum investment
requirements for Class A shares for employees of Travelers
and its subsidiar-
ies, including Smith Barney, Trustees of the Trust and their
spouses and chil-
dren. 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, First Data. Share certificates are issued
only upon a share-
holder's written request to First Data.
Purchase orders received by the Fund or Smith Barney prior
to the close of
regular trading on the NYSE, on any day the Fund calculates
its net asset val-
ue, are priced according to the net asset value determined
on that day (the
"trade date"). Orders received by dealers or Introducing
Brokers 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, provided the order is received by the Fund or Smith
Barney prior to Smith
Barney's close of business. For shares purchased through
Smith Barney or Intro-
ducing Brokers purchasing through Smith Barney, payment for
Fund shares is due
on the third business day after the trade date. In all other
cases, payment
must be made with a purchase order.
SYSTEMATIC INVESTMENT PLAN
During the continuous offering period, 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 First Data 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
16
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
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
First Data. 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
------------------------------
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 over * *
*
- ------------------------------------------------------------
- ---------------
</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."
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
17
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
asset value of all Class A shares offered with a sales
charge held in funds
sponsored by Smith Barney that are offered with a sales
charge 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 to (i)
Directors, Trustees
and employees of Travelers and its subsidiaries and any of
the Smith Barney
Mutual Funds; the immediate families of such persons; and to
a pension, prof-
it-sharing or other benefit plan for such persons and (ii)
employees of mem-
bers of the National Association of Securities Dealers,
Inc., 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
resold though
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 in 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.
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
18
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
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 informa-
tion at the time of purchase to permit verification that the
purchase quali-
fies for the reduced sales charge. The right of accumulation
is subject to
modification or discontinuance at any time with respect to
all shares pur-
chased 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 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 pay-
roll deductions, IRAs or investments pursuant to retirement
plans under Sec-
tions 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 quali-
fied group may also purchase Class A shares at the reduced
sales charge appli-
cable 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 pre-
viously purchased and 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 dis-
count and (c) satisfies uniform criteria which enable Smith
Barney to realize
economies of scale in its 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 pur-
19
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
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
Class A Shares. 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 the
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 pur-
chases 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 previ-
ously 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 Con-
tact a Smith Barney Financial Consultant or First Data to
obtain a Letter of
Intent application.
Class Y Shares. A Letter of Intent may also be used as a
way for investors to
meet the minimum investment requirement for Class Y shares.
Such investors must
make an initial minimum purchase of $1,000,000 in Class Y
shares of the Fund
and agree to purchase a total of $5,000,000 of Class Y
shares of the same Fund
within six months from the date of the Letter. If a total
investment of
$5,000,000 is not made within the six-month period, all
Class Y shares pur-
chased to date will be transferred to Class A shares, where
they will be sub-
ject to all fees (including a service fee of 0.25%) and
expenses applicable to
the Fund's Class A shares, which may include a CDSC of
1.00%. Please contact a
Smith Barney Financial Consultant or First Data for further
information.
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
20
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
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
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>
21
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
Class B shares will convert automatically to Class A
shares eight years after
the date on which they were purchased and thereafter will no
longer be subject
to any distribution fee. There will also be converted at
that time such propor-
tion 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") on July 15,
1994 and who subsequently exchanged 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."
In determining the applicability of any CDSC, it will be
assumed that a
redemption is made first of shares representing capital
appreciation, next of
shares representing the reinvestment of dividends and
capital gain distribu-
tions and finally of other shares held by the shareholders
for the longest
period of time. 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 addi-
tional shares through dividend reinvestment. During the
fifteenth month after
the purchase, the investor decided to redeem $500 of the
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 appre-
22
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
ciation ($200) and the value of the reinvested dividend
shares ($60). There-
fore, $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
1.00% per month of
the value of the shareholder's shares at the time the
withdrawal plan commences
(see "Automatic Cash Withdrawal Plan"); (c) redemption 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)
redemption 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 Smith Barney clients or by
First Data 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 opera-
tion of retirement plans under Section 401(a) of the Code.
To the extent appli-
cable, the same terms and conditions are offered to all
Participating Plans in
the 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 dif-
ferent sales charge and CDSC schedules than, the Class A,
Class B and Class C
shares
23
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
acquired by other investors. Similar to those available to
other investors,
Class Y shares acquired through the Smith Barney 401(k)
Program are not sub-
ject to any initial sales charge, CDSC or service or
distribution fee. Once a
Participating Plan has made an initial investment in the
Fund, all of its sub-
sequent 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 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 Bar-
ney Mutual Funds. Class B shares acquired through the Smith
Barney 401(k) Pro-
gram are subject to a CDSC of 3.00% of redemption proceeds,
if the Participat-
ing 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 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 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. Each
year after the
date a
24
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
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 Par-
ticipating 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 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.
Class Y Shares. Class Y shares of the Fund are offered
without any service
or distribution fee, sales charge or CDSC to any
Participating Plan that pur-
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 gains
distributions, plus (a) with respect to Class A and Class C
shares, the cur-
rent 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 pay-
ments 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 Class B
shareholders, which
depends on the number of years since those shareholders made
the purchase pay-
ment 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
25
<PAGE>
Peachtree
Growth Fund
PURCHASE OF SHARES (CONTINUED)
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 First Data. For
further information regarding the Smith Barney 401(k)
Program, investors should
contact a Smith Barney Financial Consultant.
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 Natural Resources Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
26
<PAGE>
Peachtree
Growth Fund
EXCHANGE PRIVILEGE (CONTINUED)
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 Intermediate Maturity California
Municipals Fund
**Smith Barney Intermediate Maturity New York
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--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--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc.--Emerging Markets
Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government
Bond Portfolio
Smith Barney World Funds, Inc.--International
Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity
Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
27
<PAGE>
Peachtree
Growth Fund
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Concert Series, Inc.
Smith Barney Concert Series, Inc.--High Growth
Portfolio
Smith Barney Concert Series, Inc.--Growth Portfolio
Smith Barney Concert Series, Inc.--Balanced Portfolio
Smith Barney Concert Series, Inc.--Conservative
Portfolio
Smith Barney Concert Series, Inc.--Income 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.
- ------------------------------------------------------------
- -------------------
* 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, Class C and Class Y
shares of the
Fund.
***Available for exchange with Class A shares of the Fund.
+Available for exchange with Class A and Class Y 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 this
Fund through the
Smith Barney 401(k) Program may exchange those shares
for Class C shares
of this Fund.
Class A Exchanges. Class A shares of 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
differential" is lim-
ited 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 pur-
poses of the exchange privilege, shares obtained through
automatic reinvest-
ment of dividends and capital gains distributions, are
treated as having paid
the same sales charges applicable to the shares on which the
dividends or dis-
tributions were paid; however, except in the case of the
Smith Barney 401(k)
Program, if
28
<PAGE>
Peachtree
Growth Fund
EXCHANGE PRIVILEGE (CONTINUED)
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
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 Manager
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
Manager will notify Smith Barney and Smith Barney may, at
its discretion,
decide to limit additional purchases and/or exchanges by the
shareholder. Upon
such a determination, Smith Barney will provide notice in
writing or by tele-
phone 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 be expected
to maintain for a
significant period of time. All relevant factors will be
considered in deter-
mining what constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See
"Redemption of Shares--Telephone Redemption and Exchange
Program." Exchanges
will be processed at the net asset value next determined,
plus any
29
<PAGE>
Peachtree
Growth Fund
EXCHANGE PRIVILEGE (CONTINUED)
applicable sales charge differential. 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 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 third day
following receipt of
proper tender, except on days on which the NYSE is closed or
as permitted under
the 1940 Act in extraordinary circumstances. Generally, if
the redemption pro-
ceeds 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
30
<PAGE>
Peachtree
Growth Fund
REDEMPTION OF SHARES (CONTINUED)
Financial Consultant, Introducing Broker or dealer in the
selling group or by
submitting a written request for redemption to:
Peachtree Growth Fund - Class A, B, C or Y (please
specify)
c/o First Data Investor 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 First Data 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. First Data may require additional supporting
documents for redemp-
tions made by corporations, executors, administrators,
trustees or guardians.
A redemption request will not be deemed properly received
until First Data
receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal
plan, under which
shareholders who own shares with a value of at least $10,000
may elect to
receive periodic cash payments of at least $50 monthly or
quarterly. Retire-
ment 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. For further information regarding
the automatic
cash withdrawal plan, shareholders should contact a Smith
Barney Financial
Consultant.
31
<PAGE>
Peachtree
Growth Fund
REDEMPTION OF SHARES (CONTINUED)
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage
account may be eligible
to redeem and exchange Fund shares by telephone. To
determine if a shareholder
is entitled to participate in this program, he or she should
contact First Data
at 1-800 331-1710. Once eligibility is confirmed, the
shareholder must complete
and return a Telephone/Wire Authorization Form, along with a
signature guaran-
tee that will be provided by First Data upon request.
(Alternatively, an
investor may authorize telephone redemption on the new
account application with
the applicant's signature guarantee when making his/her
initial investment in
the Fund.)
Redemptions. Redemption requests of up to $10,000 of any
class or classes of
the Fund's shares may be made by eligible shareholders by
calling First Data at
1-800 331-1710. Such requests may be made between 9:00 a.m.
and 5:00 p.m (New
York City time) on any day the NYSE is open. Redemption
requests received after
the close of regular trading on the NYSE are priced at the
net asset value next
determined. Redemptions of shares (i) by retirement plans or
(ii) for which
certificates have been issued are not permitted by
telephone.
A shareholder will have the option of having the
redemption proceeds mailed
to his/her address of record or wired to a bank account
predesignated by the
shareholder. Generally, redemption proceeds will be mailed
or wired, as the
case may be, on the next business day following receipt of
the redemption request. In
order to use the wire procedures, the bank receiving the
proceeds must be a
member of the Federal Reserve system or have a correspondent
relationship with
a member bank. The Fund reserves the right to charge
shareholders a nominal fee
for each wire redemption. Such charges, if any, will be
assessed against the
shareholder's account from which shares were redeemed. In
order to change the
bank account designated to receive redemption proceeds, a
shareholder must com-
plete a new Telephone/Wire Authorization Form and, for the
protection of the
shareholder's assets, will be required to provide a
signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the
account registration of the shares of the fund being
acquired is identical to
the registration of the shares of the fund exchanged. Such
exchange requests
may
32
<PAGE>
Peachtree
Growth Fund
REDEMPTION OF SHARES (CONTINUED)
be made by calling First Data at 1-800 331-1710 between 9:00
a.m. and 5:00 p.m.
(New York City time) on any day on which the NYSE is open.
Exchange requests
received after the close of regular trading on the NYSE are
processed at the
net asset value next determined.
Additional Information regarding Telephone Redemption and
Exchange
Program. Neither the Fund nor its agents will be liable for
following instruc-
tions communicated by telephone that are reasonably believed
to be genuine. The
Fund and its agents will employ procedures designed to
verify the identity of
the caller and legitimacy of instructions (for example, a
shareholder's name
and account number will be required and phone calls may be
recorded). The Fund
reserves the right to suspend, modify or discontinue the
telephone redemption
and exchange program or to impose a charge for this service
at any time follow-
ing at least seven (7) days prior notice to shareholders.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any
shareholder's
account in the Fund if the aggregate net asset value of the
shares held in the
Fund account is less than $500. (If a shareholder has more
than one account in
the Fund, each account must satisfy the minimum account
size). The Fund, 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.
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 sales
charge, if any, from the initial amount invested and
reinvestment of all income
dividends and capital gain distributions on the reinvestment
dates at prices
calculated as stated in this Prospectus, then dividing the
value of the
33
<PAGE>
Peachtree
Growth Fund
PERFORMANCE (CONTINUED)
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 by nonstandard total return information for
differing periods com-
puted 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 portfo-
lio 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 perfor-
mance information may include data from Lipper Analytical
Services, Inc. and
other financial publications.
MANAGEMENT OF THE TRUST AND THE FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of
the Trust 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 and the Trust, including agreements with its
distributor, investment
adviser, custodian and transfer agent. The day-to-day
operations of the Fund
are delegated to the Manager. The Statement of Additional
Information contains background information regarding each
Trustee of the
Trust and executive officers of the Fund.
MANAGER
The Manager, located at 388 Greenwich Street, New York,
New York 10013,
serves as the Fund's investment adviser and manages the day-
to-day operations
of the Fund pursuant to a management agreement entered into
by the Trust, on
behalf of the Fund. The Manager (through its predecessors)
has been
34
<PAGE>
Peachtree
Growth Fund
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
in the investment counseling business since 1934 and is a
registered invest-
ment adviser. The Manager renders investment advice to
investment companies
that had aggregate assets under management as of [
], in excess of
$[ ].
Subject to the supervision and direction of the Trust's
Board of Trustees,
the Manager manages the Fund's portfolio in accordance with
the Fund's stated
investment objective and policies, makes investment
decisions for the Fund,
places orders to purchase and sell securities and employs
professional portfo-
lio managers and securities analysts who provide research
services to the
Fund. For investment advisory services rendered, the Fund
pays the Manager a
monthly fee at the annual rate of 0.[ ]% of the value of
its average daily
net assets. Although this fee is higher than that paid by
most investment com-
panies, the Fund's management has determined that it is
comparable to the fee
charged by other investment advisers of investment companies
that have similar
investment objectives and policies.
PORTFOLIO MANAGEMENT
Dennis A. Johnson, CFA, a Managing Director of Smith
Barney and President
and Chief Investment Officer of Peachtree Asset Management,
a division of the
Manager, will manage the day to day operations of the Fund's
investment port-
folio. Prior to joining Peachtree Asset Management, Mr.
Johnson was Vice Pres-
ident and Portfolio Manager at Trusco Capital, where he
managed Equity, Bal-
anced, Fixed-Income and Liquidity Portfolios.
Management's discussion and analysis, and additional
performance information
regarding the Fund during the fiscal year ending January 31,
1997 will be
included in the Annual Report dated January 31, 1997. 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.
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
35
<PAGE>
Peachtree
Growth Fund
DISTRIBUTOR (CONTINUED)
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 serv-
ice fee with respect to Class A, Class B and Class C shares
of the Fund at the
annual rate of 0.25% of the average daily net assets of the
respective Class.
Smith Barney is also paid a distribution fee with respect to
Class B and Class
C shares at the annual rate of 0.75% of the average daily
net assets attribut-
able to those Classes. Class B shares that automatically
convert to Class A
shares eight years after the date of original purchase will
no longer be sub-
ject to distribution fees. The fees are used by Smith Barney
to pay its Finan-
cial 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 asso-
ciated 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 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 pay-
ments may exceed distribution expenses actually incurred.
The Trust's Board of
Trustees will evaluate the appropriateness of the Plan and
its payment terms
on a continuing basis and in so doing will consider all
relevant factors,
including expenses borne by Smith Barney, amounts received
under the Plan and
proceeds of the CDSC.
36
<PAGE>
Peachtree
Growth 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 rep-
resents 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 con-
flicts among the interests of the holders of the different
Classes. The Trust-
ees, 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 shares and the Trust will assist shareholders in
calling such a meet-
ing 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 on a Fund-wide basis except for
matters affecting
only the interests of one Class of shares.
37
<PAGE>
Peachtree
Growth 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.
First Data is located at Exchange Place, Boston,
Massachusetts 02109, and
serves as the Company's transfer agent.
The Fund sends its shareholders a semi-annual report and
an audited annual
report, each of which includes a list 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
plans to consoli-
date the mailing of its Prospectuses so that a shareholder
of the Fund having
multiple accounts (i.e., individual, IRA and/or Self-
Employed Retirement Plan accounts)
will receive a single Prospectus annually. Shareholders who
do not want this
consolidation to apply to their accounts should contact
their Smith Barney
Financial Consultant or First Data.
38
<PAGE>
SMITH BARNEY
- ------------
A Member of
TravelersGroup[LOGO]
PEACHTREE
GROWTH
FUND
388 Greenwich Street
New
York, New York 10013
FD [ ] 4/96
SMITH BARNEY EQUITY FUNDS
PART B
Smith Barney
EQUITY FUNDS
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION -------------,
1996
This Statement of Additional Information expands upon
and supplements the information contained in the current
Prospectuses, each dated April 22, 1996, as amended or
supplemented from time to time, of Smith Barney Strategic
Investors Fund ("Strategic Investors Fund") and Smith Barney
Growth and Income Fund ("Growth and Income Fund") and the
Prospectus dated [ ], 1996, as amended or
supplemented from time to time, of Peachtree Growth Fund
("Growth Fund") (Strategic Investors Fund, Growth and Income
Fund and Growth Fund each, a "Fund" and collectively, the
"Funds"). Each Fund is a series of Smith Barney Equity
Funds (the "Trust"). This Statement of Additional
Information 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.
CONTENTS
For ease of reference, the same section headings are
used in the Prospectuses and in this Statement of Additional
Information, except where shown below:
Management of the
Trust.......................................................
......................... 2
Investment Objectives and Management
Policies............................................ 6
Purchase of
Shares......................................................
................................... 15
Redemption of
Shares......................................................
.............................. 15
Distributor.................................................
.................................................... 16
Valuation of
Shares......................................................
.................................. 19
Exchange
Privilege...................................................
..................................... 20
Performance Data (See in each Prospectus
"Performance")............................ 21
Taxes (See in each Prospectus "Dividends, Distributions and
Taxes")............ 23
Additional
Information.................................................
................................. 27
Financial
Statements..................................................
................................... 27
Appendix....................................................
................................................... A-1
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:
Name Service
Smith Barney Inc.
("Smith
Barney")....................................................
Distributor
Smith Barney Mutual Funds Management Inc. Investment
Adviser to Growth and Income Fund
and Growth Fund
("SBMFM")...................................................
.........and Administrator
Smith Barney Strategy Advisers Inc.
("Strategy
Advisers")...............................................Inv
estment Adviser to Strategic Investors Fund
PNC Bank, National Association
("PNC").....................................................
..............Custodian
First Data Investor Services Group
("First
Data")......................................................
.....Transfer Agent
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.
Trustees and Executive Officers of The Trust
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.
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 35 Old Forge Road, Wilton,
Connecticut 06897.
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 27 West
67th Street, New York, New York 10023.
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. 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 the Board of Strategy Advisers; prior to July
1993, Senior Executive Vice President of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"); Vice Chairman of
Shearson Asset Management, a Director of PanAgora Asset
Management, Inc. and PanAgora Asset Management Limited. Mr.
McLendon also serves as Chairman of the Board of 41 other
mutual funds of the Smith Barney Mutual Funds. 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.; Commissioner of Port Authority of New York and New
Jersey as of 1996. 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. Ms. Bibliowicz
also serves as President of 39 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 Smith Barney; 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 Smith Barney; prior to July 1993, Managing
Director of Shearson Lehman Advisors. His address is 388
Greenwich Street, New York, New York 10013.
Robert J. Brady, Investment Officer (Age 56). Managing
Director of Smith Barney. Mr. Brady was previously Director
of Investment Strategy at EF Hutton and Special Situations
Analyst for Forbes Inc. His address is 388 Greenwich Street,
New York, New York 10013.
Ellen S. Cammer, Investment Officer (Age 41). Managing
Director of Smith Barney. Her address is 388 Greenwich
Street, New York, New York 10013.
Dennis A. Johnson, Investment Officer (Age ). Managing
Director of Smith Barney and President and Chief Investment
Officer of Peachtree Asset Management, a division of SBMFM;
prior to 1994, Vice President and Portfolio Manager of
Trusco Capital. His address is One Peachtree Center, Suite
4500, 303 Peachtree Street, NE, Atlanta, Georgia 30308.
Lewis E. Daidone, Senior Vice President and Treasurer (Age
37). Managing Director 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.
As of [ ], 1996, 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 $1,000 per meeting attended and
reimburses each Trustee for travel and out-of-pocket
expenses. For the fiscal year ended January 31, 1996, such
fees and expenses totalled $72,450.00.
For the fiscal year ended January 31, 1996, the
Trustees of the Trust were paid the following compensation:
Aggregate
Compensation
Aggregate Compensation from the Smith
Barney
Trustee(*) from the Fund**
Mutual Funds
Lee Abraham(9)....................................
$52,700 $52,700
Antoinette C. Bentley(9)#...................... 48,750
48,750
Allan J. Bloostein(15)............................
52,800 91,300
Richard E. Hanson, Jr.(9)...................... 52,800
52,800
Madelon Devoe Talley(10)## ................ 48,050
67,550
(*) Number of directorships/trusteeships held with other
mutual funds in the Smith Barney Mutual Funds.
** The aggregate remunueration paid to the Trustees by the
Trust for the fiscal year ended January 31, 1996, which
includes reimbursement for travel and out-of-pocket
expenses.
# 1996 fees 100% deferred
## 1996 fees 50% deferred
Investment Advisers and 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 (the "Growth and Income Advisory
Agreement"), from its affiliate, Mutual Management Corp.
SBMFM also serves as investment advisor and administrator to
the Growth Fund pursuant to an Investment Advisory and
Administration Agreement dated [ ], 1996 (the "Growth
Fund Advisory Agreement"). 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 Travelers Group Inc. ("Travelers"). The Growth
and Income Advisory Agreement and the Growth Fund Advisory
Agreement each an "Advisory Agreement" and collectively the
"Advisory Agreements"). The Growth and Income Advisory
Agreement is dated August 31, 1994. The services provided
by SBMFM under the Advisory Agreements are described in the
Prospectuses 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.
As compensation for investment advisory and
administration services rendered to the Growth Fund, the
Fund pays a fee, computed daily and paid monthly, at the
annual rate of 0.75% of the value of the average daily net
assets of the Fund.
SBMFM also serves as administrator to the Growth and
Income Fund and the Strategic Investors Fund pursuant to a
written agreement (the "Administration Agreement") dated
August 31, 1996. For administration services rendered, the
Growth and Income Fund and the Strategic Investors Fund pay
SBMFM a fee at the annual rate of 0.20% of the value of the
respective Funds' average daily net assets.
Certain of the services provided to the Funds by SBMFM
are described in the Prospectuses under "Management of the
Trust and the Fund." In addition to those services, SBMFM
pays the salaries of all officers and employees who are
employed by SBMFM and the Fund, maintains office facilities
for each Fund, furnishes each Fund with statistical and
research data, clerical help and accounting, data
processing, bookkeeping, internal auditing and legal
services and certain other services required by the Funds,
prepares reports to the Funds' shareholders and prepares tax
returns, reports to and filings with the Securities and
Exchange Commission (the "SEC") and state Blue Sky
authorities. SBMFM bears all expenses in connection with the
performance of its services.
Strategy Advisers serves as investment adviser to
Strategic Investors Fund pursuant to a written agreement
(the "Strategy Advisory Agreement"), dated August 31, 1996.
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.
Each of SBMFM and Strategy Advisers (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.
For the fiscal years ended January 31, 1994, 1995 and
1996, the Funds paid investment advisory and/or
administration fees to their respective Advisers and the
administrator as follows:
Growth and Income Fund
Fiscal Year Ended January 31,
1994 1995 1996
Investment Advisory
fees...........................................$264,363
$847,149 $918,110
Administration
fees.....................................................117
,495 376,511 408,049
Strategic Investors Fund
Fiscal Year Ended January 31,
1994 1995 1996
Investment Advisory
fees...........................................$1,702,756
$2,013,080 $2,095,050
Administration
fees........................................................
609,031 732,029 761,836
Each Adviser and the 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 them in the same proportion as their respective fees
bear to the combined fees for investment advice and
administration. Such fee reduction, if any, will be
estimated and reconciled on a monthly basis. The most
restrictive state expense limitation currently applicable to
any Fund requires a reduction of fees in any year that such
expenses exceed 2.50% 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 legal counsel to the
Trust. Stroock & Stroock & Lavan serves as counsel to the
Independent Trustees of the Funds.
KMPG Peat Marwick LLP, 345 Park Avenue, New York, New
York 10154, has been selected as the Trust's independent
auditor to examine and report on the Trust's financial
statements and highlights for the fiscal year ending January
31, 1997.
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 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% (33 1/3% in the case of the
Growth Fund) 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 Growth and Income Fund
and the Strategic Investors Fund 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 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.
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 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 Ratings Group
("S&P") or Prime-2 or Prime-1 by Moody's Investors Service,
Inc. ("Moody's") or, if unrated, are issued by companies
having an outstanding unsecured debt issue currently rated
within the two highest ratings of S&P or Moody's. A
discussion of S&P and Moody's rating categories appears in
the Appendix to this Statement of Additional Information.
A Fund also may invest in variable rate master demand
notes, which typically are issued by large corporate
borrowers providing for variable amounts of principal
indebtedness and periodic adjustments in the interest rate
according to the terms of the instrument. Demand notes are
direct lending arrangements between the Fund and an issuer,
and are not normally traded in a secondary market. A Fund,
however, may demand payment of principal and accrued
interest at any time. In addition, while demand notes
generally are not rated, their issuers must satisfy the same
criteria as those set forth above for issuers of commercial
paper. Each Fund's Adviser will consider the earning power,
cash flow and other liquidity ratios of issuers of demand
notes and continually will monitor their financial ability
to meet payment on demand.
Convertible Securities. The Funds may invest in
convertible securities. Convertible securities are fixed-
income securities that may be converted at either a stated
price or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar
to both fixed-income and equity securities. Although to a
lesser extent than with fixed-income securities generally,
the market value of convertible securities tends to decline
as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market
value of the underlying common stocks and, therefore, also
will react to variations in the general market for equity
securities. A unique feature of convertible securities is
that as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly
on a yield basis, and thus may not experience market value
declines to the same extent as the underlying common stock.
When the market price of the underlying common stock
increases, the prices of the convertible securities tend to
rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk,
investments in convertible securities generally entail less
risk than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are
investments that provide for a stable stream of income with
generally higher yields than common stocks. Of course, like
all fixed-income securities, there can be no assurance of
current income because the issuers of the convertible
securities may default on their obligations. Convertible
securities, however, generally offer lower interest or
dividend yields than non-convertible securities of similar
quality because of the potential for capital appreciation. A
convertible security, in addition to providing fixed income,
offers the potential for capital appreciation through the
conversion feature, which enables the holder to benefit from
increases in the market price of the underlying common
stock. There can be no assurance of capital appreciation,
however, because securities prices fluctuate.
Convertible securities generally are subordinated to
other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt
obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior
to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities
typically have lower ratings than similar non-convertible
securities.
Preferred Stock. The Funds may invest in preferred
stocks. Preferred stocks, like debt obligations, are
generally fixed-income securities. Shareholders of preferred
stocks normally have the right to receive dividends at a
fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available
for distribution by the issuing corporation. Dividends on
the preferred stock may be cumulative, and all cumulative
dividends usually must be paid prior to common stockholders
receiving any dividends. Preferred stock dividends must be
paid before common stock dividends and for that reason
preferred stocks generally entail less risk than common
stocks. Upon liquidation, preferred stocks are entitled to a
specified liquidation preference, which is generally the
same as the par or stated value, and are senior in right of
payment to common stock. Preferred stocks are, however,
equity securities in the sense that they do not represent a
liability of the issuer and therefore do not offer as great
a degree of protection of capital or assurance of continued
income as investments in corporate debt securities. In
addition, preferred stocks are subordinated in right of
payment to all debt obligations and creditors of the issuer,
and convertible preferred stocks may be subordinated to
other preferred stock of the same issuer.
American, European, Global and Continental
Depositary Receipts. The assets of Strategic Investors Fund
and the Growth Fund may be invested in the securities of
foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs"). 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.
6. Investing in commodities, except that (a) the
Growth and Income Fund may invest in futures contracts
and options on futures contracts as described in the
Fund's Prospectus and (b) upon 60 days' notice given to
its shareholders, Strategic Investors Fund may engage
in hedging transactions involving futures contracts and
related options, including foreign and domestic stock
index futures contracts and financial futures
contracts.
7. Making loans to others, except through the
purchase of qualified debt obligations, loans of
portfolio securities and the entry into repurchase
agreements.
8. Purchasing any securities (other than U.S.
government securities) which would cause more than 25%
of the value of the Fund's total assets at the time of
purchase to be invested in the securities of issuers
conducting their principal business activities in the
same industry.
9. Purchasing securities on margin. For purposes of
this restriction, the deposit or payment of initial or
variation margin in connection with futures contracts
or related options will not be deemed to be a purchase
of securities on margin by any Fund permitted to engage
in transactions in futures contracts or related
options.
10. Making short sales of securities or maintaining a
short position, except that the Growth Fund may sell
securities short "against the box.".
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 Strategic
Investors Fund may write covered call options.
15. Purchasing restricted securities (other than
securities subject to Rule 144A of the Securities Act
of 1933, as amended, that have been determined to be
liquid by the Board of Trustees), 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% (15% in the case of
the Growth Fund) 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 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 and the Growth Fund's
disciplined sell strategy may result in an increased
portfolio turnover. 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.
For the fiscal years ended January 31, 1995 and 1996,
the portfolio turnover rates of the Funds were as follows:
1995 1996
Strategic Investors Fund 103 %
81%
Growth and Income Fund 127 %
15%
Portfolio Transactions
Most of the purchases and sales of securities for a Fund,
whether transacted on a securities exchange or in 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, which
also is responsible for placing these transactions, subject
to the overall review of the Trust's Trustees.
Although investment decisions for each Fund are made
independently from those of the other accounts managed by
its Adviser, investments of the type the Fund may make also
may be made by those other accounts. When a Fund and one or
more other accounts managed by its Adviser are prepared to
invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be
allocated in a manner believed by the Adviser to be
equitable to each. In some cases, this procedure may
adversely affect the price paid or received by a Fund or the
size of the position obtained or disposed of by the Fund.
Transactions on domestic stock exchanges and some
foreign stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among
different brokers. On most foreign exchanges, commissions
are generally fixed. There is generally no stated commission
in the case of securities traded in domestic or foreign over-
the-counter markets, but the prices of those securities
include undisclosed commissions or mark-ups. The cost of
securities purchased from underwriters includes an
underwriting commission or concession, and the prices at
which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down. U.S. government
securities are generally purchased from underwriters or
dealers, although certain newly issued U.S. government
securities may be purchased directly from the United States
Treasury or from the issuing agency or instrumentality,
respectively.
The following table sets forth certain information
regarding the payment of brokerage commissions by the
Strategic Investors Fund and the Growth and Income Fund:
Fiscal Year Strategic
Ended Investors
Growth and
January 31, Fund
Income Fund
Total Brokerage Commissions 1994 $467,989
$143,865
1995 541,403 567,988
1996 232,581 95,978
Commissions paid to 1994 106,879
19,650
Smith Barney or 1995 117,328
53,370
Shearson Lehman Brothers 1996 16,210
3,690
% of Total Brokerage
Commissions paid to
Smith Barney 1996 7%
4%
% of Total Transactions
involving Commissions paid
to Smith Barney 1996 9%
5%
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 seeks
the best overall terms available. In assessing the best
overall terms available for any transaction, each Adviser
will consider the factors the 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 relating
to the Funds between the Trust and the Advisers are not
reduced by reason of their receiving such brokerage and
research services. The Trust's Board of Trustees
periodically will review the commissions paid by the Funds
to determine if the commissions paid over representative
periods of time were reasonable in relation to the benefits
inuring to the Funds.
To the extent consistent with applicable provisions of
the 1940 Act and the rules and exemptions adopted by the SEC
thereunder, the Board of Trustees has determined that
transactions for a Fund may be executed through Smith Barney
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. 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 numerated 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.
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. To the extent
withdrawals exceed dividends, distributions and appreciation
of the shareholder's investment in a Fund, there will be a
reduction in the value of the shareholder's investment, and
continued withdrawal payments will reduce the shareholder's
investment and may ultimately exhaust it. Withdrawal
payments should not be considered as income from investment
in a Fund. Furthermore, as it would not generally be
advantageous to a shareholder to make additional investments
in a Fund at the same time 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 First Data Investor
Services Group. ("First Data") 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 First Data may continue to do so and
applications for participation in the Withdrawal Plan must
be received by First Data 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 the Growth
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.
The following expenses were incurred during the periods
indicated:
Sales Charges (paid to Smith Barney or Shearson Lehman
Brothers, its predecessor).
Class A
Fiscal Year Fiscal Year
Fiscal Year
Name of Fund Ended 1/31/94 Ended 1/31/95
Ended 1/31/96
Strategic Investors $ 15,079 $13,735
$47,000
Growth and Income 51,877 39,518
69,000
CDSC (paid to Smith Barney or Shearson Lehman Brothers,
its predecessor)
Class B
Fiscal Year Fiscal Year
Fiscal Year
Name of Fund Ended 1/31/94 Ended 1/31/95
Ended 1/31/96
Strategic Investors $288,907 $ 311,572
$382,000
Growth and Income 131,421 271,979
216,000
Class C
(formerly Class D Shares)
Fiscal Year Fiscal Year
Ended 1/31/95 Ended 1/31/96
Name of Fund
Strategic Investors $55 $1,000
As of the fiscal year ended January 31, 1996, no Growth
and Income Fund Class C shares had been redeemed.
Service Fees (paid to Smith Barney or Shearson Lehman
Brothers, its predecessor)
Class A
Fiscal Year Fiscal Year
Fiscal Year
Name of Fund Ended 1/31/94 Ended 1/31/95
Ended 1/31/96
Strategic Investors $ 10,573 $ 148,061
$401,114
Growth and Income 9,731 97,689
256,112
Class B
Fiscal Year Fiscal Year
Fiscal Year
Name of Fund Ended 1/31/94 Ended 1/31/95
Ended 1/31/96
Strategic Investors $767,452 $ 764,217
$544,656
Growth and Income 135,701 372,877
252,848
Class C
(formerly Class D Shares)
Period
of 5/5/93 Fiscal Year Fiscal
Year
Through 1/31/94 Ended 1/31/95
Ended 1/31/96
Name of Fund
Strategic Investors*. $ 504 $2,759
$6,110
___________________________
* Class C Shares were first purchased by the public on May
5, 1993.
Class C
(formerly designated as Class D
Shares)
Period
of 8/15/94
Fiscal Year
Through 1/31/95 Ended
1/31/96
Name of Fund
Growth and Income* $39 $1,100
____________________________
* Class C Shares were first purchased by the public on
August 15, 1994.
Distribution Fees (paid to Smith Barney or Shearson Lehman
Brothers, its predecessor)
Class B
Fiscal Year Fiscal Year
Fiscal Year
Name of Fund Ended 1/31/94 Ended 1/31/95
Ended 1/31/96
Strategic Investors $2,302,358 $ 2,292,652
$1,633,968
Growth and Income 271,401 745,754
505,697
Class C
(formerly Class D Shares)
Period
of 5/5/93 Fiscal Year
Fiscal Year
Through 1/31/94 Ended 1/31/95
Ended 1/31/96
Name of Fund
Strategic Investors* $1,511
$8,277 $18,328
_________________________________
* Class C Shares were first purchased by the public on May
5, 1993.
Class C
(formerly designated as Class D
Shares)
Period
of 8/15/94
Fiscal Year
Through 1/31/95 Ended
1/31/96
Name of Fund
Growth and Income* $78 $2,200
_____________________________
* Class C Shares were first purchased by the public on
August 15, 1994.
For the fiscal year ended January 31, 1996, the
distribution expenses incurred by Smith Barney on Class B
and Class C shares totaled $2,160,193.
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 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 First Data
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.
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. A 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.
Average Annual Total Return
"Average annual total return" figures are computed according
to a formula prescribed by the SEC. The formula can be
expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a
hypothetical $1,000 payment made
at the beginning of the 1-, 5- or 10-
year period at the
end of the 1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all dividends
and distributions.
The average annual total returns of the Funds' Class A
shares were as follows for the periods indicated:
Per Annum
for the
Period
from the
Commencement of
One Year Period Operations*
through
Ended 1/31/96 1/31/96
Name of Fund
Strategic Investors 20.14%
12.05%
Growth and Income 24.38
9.32
______________________________
*The Funds commenced selling Class A shares on November 6,
1992.
The average annual total returns of the Funds' Class B
shares were as follows for the
periods indicated:
Per Annum Per Annum
for the for the
Period
One Year Five Year from the
Commencement of
Period Ended Period Ended
Operations* through
1/31/96 1/31/96
1/31/96
Name of Fund
Strategic Investors(1) 20.58% 12.89%
10.70%
Growth and Income(2) 25.23 N/A
10.03
________________________________
(1) The Fund commenced selling Class B shares on February 2,
1987.
(2) The Fund commenced selling Class B shares on November 6,
1992.
The average annual total returns of the Funds' Class C
shares were as follows for the
periods indicated:
One Year Per Annum for
Period Ended the Period Ended
1/31/96 1/31/96
Name of Fund
Strategic Investors 24.77% 11.34%
Growth and Income 29.23 19.31
______________________________
*The Funds commenced selling Class C shares (previously
Class D shares) on January 29, 1993.
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
"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
Where: P = a hypothetical initial payment of
$10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at
the beginning of the 1-, 5- or 10-year
period at the end of the 1-, 5- or
10-year period (or fractional portion
thereof), assuming reinvestment of
all dividends and distributions.
The aggregate total returns (with fees waived) for the
following classes, were as follows for the periods
indicated:
Without Sales Charge With Sales
Charge
Period from | Period from
One Year Five Year Commencement |One Year Five Year
Commencement
Period Period of Operations |Period
Period of Operations
Ended Ended through |Ended Ended
tbrough
1/31/96* 1/31/96* 1/31/96* |1/31/96**
1/31/96** 1/31/96**
Strategic Investors
Class A+ 26.47% ----- 52.05% 20.14%
- ---- 44.49%
Class B (1) 25.58% 84.33% 149.55 20.58
83.33% 149.55
Class C++ 25.77 ----- 34.26
24.77 ---- 34.26
Growth and Income
Class A+ 30.97% ----- 40.46% 24.38%
- ---- 33.44%
Class B (2) 30.23 ----- 38.22 25.23
- ---- 36.22
Class C++ 30.23 ----- 29.47 29.23
- ---- 29.47
_____________________________________
* 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.
(1) The Fund commenced selling Class B shares on February
2, 1987.
(2) The Fund commenced selling Class B shares on November
6, 1992.
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.
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.
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 qualify or continue to qualify in
subsequent years, as applicable, 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
impossible at this time to predict whether this legislation
will become law and, if it is so enacted, what form it will
eventually take. Depending upon the circumstances, the 30%
Test may limit the extent to which the Fund may: (a) sell
securities held for less than three months; (b) effect short
sales of securities that are identical (or substantially
identical) to securities held by it for less than three
months; (c) write options that expire in less than three
months; and (d) effect closing transactions with respect to
call or put options that have been written or purchased
within the preceding three months. A Fund's gain or loss
from the sale (including open short sales) or other
dispositions of stock or securities (with the term
"securities" defined to include put and call options) held
for less than three months will be netted against its gain
or loss on positions that are part of a "designated hedge"
with respect to such three-month investments.
Taxation of Fund Investments
Gain or loss on the sale of a security by a Fund generally
will be long-term capital gain or loss if the Fund has held
the security for more than one year. Gain or loss on the
sale of a security held for not more than one year generally
will be short-term capital gain or loss. If a Fund acquires
a debt security at a substantial discount, a portion of any
gain upon sale or redemption of such debt security will be
taxed as ordinary income rather than capital gain to the
extent it reflects accrued market discount.
Options Transactions. The tax consequences of options
transactions entered into by a Fund will vary depending on
whether the underlying security is held as a capital asset,
whether the Fund is writing or purchasing the option and
whether the "straddle" rules, discussed separately below,
apply to the transaction.
A Fund may write a call option on an equity or
convertible debt security. If the option expires unexercised
or if the Fund enters into a closing purchase transaction,
the Fund will realize a gain or loss without regard to any
unrealized gain or loss on the underlying security.
Generally, any such gain or loss will be short-term capital
gain or loss, except that any loss on certain covered call
stock options will be treated as long-term capital loss. If
a call option written by a Fund is exercised, the Fund will
treat the premium received for writing such call option as
additional sales proceeds and will recognize a capital gain
or loss from the sale of the underlying security. Whether
the gain or loss will be long-term or short-term will depend
on the Fund's holding period for the underlying security.
If a Fund purchases a put option on an equity or
convertible debt security and it expires unexercised, the
Fund will realize a capital loss equal to the cost of the
option. If a Fund enters into a closing sale transaction
with respect to the option, it will realize a capital gain
or loss and such gain or loss will be short-term or long-
term depending on the Fund's holding period for the option.
If a Fund exercises such a put option, it will realize a
short-term or long-term capital gain or loss (depending on
the Fund's holding period for the underlying security) from
the sale of the underlying security. The amount realized on
such sale will be the sales proceeds reduced by the premium
paid.
Mark-to-Market. The Code imposes a special "mark-to-
market" system for taxing "Section 1256 contracts" including
options on nonconvertible debt securities (including U.S.
government securities), options on certain stock indexes and
certain foreign currency contracts. In general, gain or loss
on Section 1256 contracts will be taken into account for tax
purposes when actually realized (by a closing transaction,
by exercise, by taking delivery or by other termination). In
addition, any Section 1256 contracts held at the end of the
taxable year will be treated as though they were sold at
their year-end fair market value (that is, "marked to
market"), and the resulting gain or loss will be recognized
for tax purposes. Provided that a Fund holds its Section
1256 contracts as capital assets and they are not part of a
straddle, both the realized and the unrealized year-end
gains or losses from these investment positions (including
premiums on options that expire unexercised) will be treated
as 60% long-term and 40% short-term capital gain or loss,
regardless of the period of time particular positions have
actually been held by a Fund.
A portion of the mark-to-market gain on instruments
held for less than three months at the close of a Fund's
taxable year may represent a gain on securities held for
less than three months for purposes of the 30% Test
discussed above. Accordingly, the Funds may restrict their
fourth-quarter transactions in Section 1256 contracts.
Straddles. The Code contains rules applicable to
"straddles," which are "offsetting positions in actively
traded personal property," including equity securities and
options of the type in which a Fund may invest. If
applicable, the "straddle" rules generally override the
other provisions of the Code. In general, investment
positions will be offsetting if there is a substantial
diminution in the risk of loss from holding one position by
reason of holding one or more other positions. The Funds
generally are authorized to enter into put, call, and
covered put and call positions. Depending on what other
investments are held by a Fund at the time it enters into
one of the above transactions, a Fund may create a straddle
for Federal income tax purposes.
If two (or more) positions constitute a straddle,
recognition of a realized loss from one position (including
a mark-to-market loss) must be deferred to the extent of
unrecognized gain in an offsetting position. Interest and
other carrying charges allocable to personal property that
is part of a straddle must be capitalized. In addition,
"wash sale" rules apply to straddle transactions to prevent
the recognition of loss from the sale of a position at a
loss when a new offsetting position is or has been acquired
within a prescribed period. To the extent the straddle rules
apply to positions established by a Fund, losses realized by
the Fund may be deferred or recharacterized as long-term
losses, and long-term gains realized by the Fund may be
converted to short-term gains.
If a Fund chooses to identify a particular offsetting
position as being one component of a straddle, a realized
loss on any component of that straddle will be recognized no
earlier than upon the liquidation of all components of that
straddle. Special rules apply to "mixed" straddles (that is,
straddles consisting of a Section 1256 contract and an
offsetting position that is not a Section 1256 contract). If
the Trust makes certain elections, all or a portion of the
Section 1256 contract components of such mixed straddles of
a 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 affected
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.
First Data is located at Exchange Place, Boston,
Massachusetts 02109, and serves as the Trust's transfer
agent. For its services as transfer agent, First Data
receives fees charged to the Funds at an annual rate based
upon the number of shareholder accounts maintained during
the year. First Data also is reimbursed by the Funds for its
out-of-pocket expenses.
FINANCIAL STATEMENTS
The Annual Reports of the Strategic Investors Fund and the
Growth and Income Fund for the fiscal year ended January 31,
1996 are incorporated into this Statement of Additional
Information by reference in their entirety.
APPENDIX
Description of 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 degrees 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 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.
A-1
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 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, i.e., 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 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
desirable investments. 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 modifier 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.
A-2
Description of S&P Municipal Bond Ratings
AAA
Prime -- These are obligations of the highest quality. They
have the strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress,
the issuers will suffer the smallest declines in income and will
be least susceptible to autonomous decline. Debt burden is
moderate. A strong revenue structure appears more than adequate
to meet future expenditure requirements. Quality of management
appears superior.
Revenue Bonds -- Debt service coverage has been, and is
expected to remain, substantial. Stability of the pledged
revenues is also exceptionally strong due to the competitive
position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds, debt service
reserve requirements) are rigorous. There is evidence of superior
management.
AA
High Grade -- The investment characteristics of bonds in
this group are only slightly less marked than those of the prime
quality issues. Bonds rated AA have the second strongest capacity
for payment of debt service.
A
Good Grade -- Principal and interest payments on bonds in
this category are regarded as safe although the bonds are
somewhat more susceptible to the adverse affects of changes in
circumstances and economic conditions than bonds in higher rated
categories. This rating describes the third strongest capacity
for payment of debt service. Regarding municipal bonds, the
ratings differ from the two higher ratings because:
General Obligation Bonds -- There is some weakness, either
in the local economic base, in debt burden, in the balance
between revenues and expenditures, or in quality of management.
Under certain adverse circumstances, any one such weakness might
impair the ability of the issuer to meet debt obligations at some
future date.
Revenue Bonds -- Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show some
variations because of increased competition or economic
influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance appears
adequate.
A-3
BBB
Medium Grade -- Of the investment grade ratings, this is the
lowest. Bonds in this group 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.
General Obligation Bonds -- Under certain adverse
conditions, several of the above factors could contribute to a
lesser capacity for payment of debt service. The difference
between A and BBB ratings is that the latter shows more than one
fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the
factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of
the pledged revenues could show substantial variations, with the
revenue flow possibly being subject to erosion over time. Basic
security provisions are no more than adequate. Management
performance could be stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB includes the lowest degree of speculation and CC
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.
C
The rating C is reserved for income bonds on which no
interest is being paid.
D
Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a
plus or a minus sign, which is used to show relative standing
within the major rating categories, except in the AAA-Prime Grade
category.
Description of S&P Municipal Note Ratings
Municipal notes with maturities of three years or less are
usually given note ratings (designated SP-1, -2 or -3) to
distinguish more clearly the credit quality of notes as compared
to bonds. Notes rated SP-1 have a very strong or strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given the designation of
SP-1+. Notes rated SP-2 have satisfactory capacity to pay
principal and interest.
A-4
Description of Moody's Municipal 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, i.e., 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 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
characterize bonds in this class.
B
Bonds which are rated B generally lack characteristics of
the 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.
A-5
Caa
Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B. The modifier 1
indicates that the security ranks in the higher end of its
generic ratings 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 ratings category.
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade (MIG)
and for variable rate demand obligations are designated Variable
Moody's Investment Grade (VMIG). This distinction recognizes the
differences between short- and long-term credit risk. Loans
bearing the designation MIG 1/VMIG 1 are the best quality,
enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to
the market for refinancing, or both. Loans bearing the
designation MIG 2/VMIG 2 are of high quality, with margins of
protection ample, although not as large as the preceding group.
Loans bearing the designation MIG 3/VMIG 3 are of favorable
quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well
established. Loans bearing the designation MIG 4/VMIG 4 are of
adequate quality. Protection commonly regarded as required of an
investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Description of Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest,
commercial paper rating assigned by S&P. Paper rated A-1+ must
have either the direct credit support of an issuer or guarantor
that possesses excellent long-term operating and financial
strength combined with strong liquidity characteristics
(typically, such issuers or guarantors would display credit
quality characteristics which would warrant a senior bond rating
of A\- or higher) or the direct credit support of an issuer or
guarantor that possesses above average long-term fundamental
operating and financing capabilities combined with ongoing
excellent liquidity characteristics. Paper rated A-1 must have
the following characteristics: liquidity ratios are adequate to
meet cash requirements; long-term senior debt is rated A or
better; the issuer has access to at least two additional channels
of borrowing; basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances; typically, the
issuer's industry is well established and the issuer has a strong
position within the industry; and the reliability and quality of
management are unquestioned.
A-6
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (a) evaluation of the
management of the issuer; (b) economic evaluation of the issuer's
industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; (c) evaluation of the
issuer's products in relation to competition and customer
acceptance; (d) liquidity; (e) amount and quality of long-term
debt; (f) trend of earnings over a period of ten years; (g)
financial strength of parent company and the relationships which
exist with the issue; and (h) recognition by the management of
obligations which may be present or may arise as a result of
public interest questions and preparations to meet such
obligations.
Short-term obligations, including commercial paper, rated
A-1+ by IBCA Limited or its affiliate IBCA Inc. are obligations
supported by the highest capacity for timely repayment.
Obligations rated A-1 have a very strong capacity for timely
repayment. Obligations rated A-2 have a strong capacity for
timely repayment, although such capacity may be susceptible to
adverse changes in business, economic and financial conditions.
Thomson BankWatch employs the rating "TBW-1" as its highest
category, which indicates that the degree of safety regarding
timely repayment of principal and interest is very strong.
"TBW-2" is its second highest rating category. While the degree
of safety regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as for
issues rated "TBW-1".
Fitch Investors Services, Inc. employs the rating F-1+ to
indicate issues regarded as having the strongest degree of
assurance of timely payment. The rating F-1 reflects an assurance
of timely payment only slightly less in degree than issues rated
F-1+, while the rating F-2 indicates a satisfactory degree of
assurance of timely payment although the margin of safety is not
as great as indicated by the F-1+ and F-1 categories.
Duff & Phelps Inc. employs the designation of Duff 1 with
respect to top grade commercial paper and bank money instruments.
Duff 1+ indicates the highest certainty of timely payment:
short-term liquidity is clearly outstanding and safety is just
below risk-free U.S. Treasury short-term obligations. Duff 1 -
indicates high certainty of timely payment. Duff 2 indicates good
certainty of timely payment: liquidity factors and company
fundamentals are sound.
Various NRSROs utilize rankings within ratings categories
indicated by a + or -. The Funds, in accordance with industry
practice, recognize such ratings within categories as gradations,
viewing for example S&P's rating of A-1+ and A-1 as being in
S&P's highest rating category.
A-7
Smith Barney
EQUITY FUNDS
Growth and Income Fund
Strategic Investors Fund
Peachtree Growth Fund
Statement of
Additional
Information
[ ],
1996
Smith Barney
Equity Funds
388 Greenwich Street
New York, New York 10013
SMITH BARNEY
SMITH BARNEY EQUITY FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Not applicable.
Included in Part B:
The Annual Reports of the Strategic
Investors Fund and the Growth and Income Fund
for the fiscal year ended January 31, 1996
and the Report of Independent Accountants
were filed pursuant to Rule 30b-2 of the 1933
Act, on April 16, 1996 as accession number
91155-96-000161.
Included in Part C:
Not applicable.
(b) Exhibits
All references are to the Registrant's registration
statement on Form N-1A (the "Registration Statement") as
filed with the SEC on January 9, 1986 (File Nos. 33-2627 and
811-4551).
(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 to be filed by amendment.
(5)(a) Investment Advisory Agreement between
Registrant and Smith Barney Strategy Advisers Inc., with
respect to Strategic Investors Fund, is incorporated by
reference to Post-Effective Amendment No. 31 to the
Registration Statement filed on January 30, 1996 ("Post-
Effective Amendment No. 31").
(b) 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.
(c) 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.
(d) Investment Advisory and Administration
Agreement between Registrant and SBMFM ( relating to
Peachtree Growth Fund) to be filed by Amendment.
(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) Custodian Agreement between Registrant and
PNC Bank, National Association ("PNC Bank") is incorporated
by reference to Post-Effective Amendment No. 31.
(9)(a) Administration Agreements between Registrant
and SBMFM (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) Transfer Agency Agreement between Registrant
and First Data Investor Services Group (formerly The
Shareholder Services Group, Inc.) dated August 5, 1993 is
incorporated by reference to Post-Effective Amendment No.
26.
(10) Not applicable.
(11) Not Applicable
(12) Not applicable.
(13) Not Applicable
(14) (a) Prototype Defined Contribution Plan relating
to 401(k) program is incorporated by reference to Post-
Effective Amendment No. 33 to the Registration Statement
filed with the SEC on April 18, 1996.
(b) Form of Individual Retirement Account
Disclosure Statement is incorporated by reference to Post-
Effective Amendment No. 33 to the Registration Statement
filed with the SEC on April 18, 1996.
(15)(a) 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.
(15)(b) Services and Distribution Agreement pursuant
to 12b-1 between Registrant on behalf of Peachtree Growth
Fund and Smith Barney Inc. will be filed by amendment.
(16) Performance information is incorporated by
reference to Post-Effective Amendments No. 9 and 10.
(17) Financial Data Schedule is incorporated by
reference to Post-Effective Amendment No. 33 to the
Registration Statement filed with the SEC on April 18, 1996.
(18) Plan pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No. 31.
Item 25 Persons Controlled by or Under Common Control
with
Registrant
None.
Item 26 Number of Holders of Securities
Not Applicable.
Item 27 Indemnification
The response to this item is incorporated by reference to
Registrant's Pre-Effective Amendment No. 1 to the
Registration Statement.
Item 28(a) Business and Other Connections of Investment
Adviser
Investment Adviser - - Smith Barney Mutual Funds Management
Inc. ("SBMFM")
SBMFM, formerly known as Smith, Barney Advisers, Inc. SBMFM
was incorporated in December 1968 under the laws of the
State of Delaware. SBMFM is a wholly owned subsidiary of
Smith Barney Holdings Inc. ("Holdings") (formerly known as
Smith Barney Shearson Holdings Inc.), which in turn is a
wholly owned subsidiary of Travelers Group Inc. (formerly
known as Primerica Corporation) ("Travelers"). 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 fiscal 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).
Item 28(a) Business and Other Connections of Investment
Adviser
Investment Adviser - Smith Barney Strategy Advisers Inc.
("Strategy Advisers")
Strategy Advisers was incorporated on October 22, 1986 under
the laws of the State of Delaware. Strategy Advisers is a
wholly owned subsidiary of SBMFM. Strategy Advisers is
registered as an investment adviser under the Investment
Advisers 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, in incorporated b
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).
Item 29. Principal Underwriters
Smith Barney Inc. ("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 Aggressive Growth Fund Inc.,
Smith Barney Appreciation Fund Inc., Smith Barney Principal
Return Fund, Smith Barney Managed Governments Fund Inc.,
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).
Item 30 . Location of Accounts and Records
(1) Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Equity Funds
388 Greenwich Street
New York, New York 10013
(3) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(4) Smith Barney Strategy Advisers Inc.
388 Greenwich Street
New York, New York 10013
(5) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(6) First Data Investor Services Group
One Exchange Place
Boston, Massachusetts 02109
Item 31 Management Services
Not Applicable.
Item 32 Undertakings
(a) The Registrant hereby undertakes to call a
meeting of its shareholders for the purpose of
voting upon the question of removal of a trustee
or trustees of Registrant when requested in to do
so by the holders of at least 10% of Registrant's
outstanding shares. Registrant undertakes further,
in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act
relating to communications with the shareholders
of certain common-law trusts.
(b) The Registrant hereby undertakes to file a
Post-Effective Amendment to its Registration
Statement, including financial statements which
need not be certified, within four to six months
from the effective date of the Registrant's
Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant, SMITH BARNEY 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 28th day of August 1996.
SMITH BARNEY EQUITY FUNDS
By: /s/ Heath B. McLendon*
Heath B. McLendon, Chairman of
the Board
Pursuant to the requirements of the Securities Act of
1933, as amended, this Post-Effective Amendment to the
Registration Statement has been signed below by the
following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board
8/28/96
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President and
8/28/96
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Lee Abraham* Trustee
8/28/96
Lee Abraham
/s/ Antoinette C. Bentley* Trustee
8/28/96
Antoinette C. Bentley
/s/ Allan J. Bloostein* Trustee
8/28/96
Allan J. Bloostein
/s/ Madelon Devoe-Talley* Trustee
8/28/96
Madelon Devoe-Talley
/s/ Richard E. Hanson* Trustee
8/28/96
Richard E. Hanson
* Signed by Lee. D. Augsburger, their duly authorized
attorney-in-fact, pursuant to power of attorney dated
October 27, 1992.
/s/ Lee D. Augsburger
Lee D. Augsburger
