As filed with the Securities and Exchange Commission
on January 30, 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. 31
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended
Amendment No. 32 [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
Approximate Date of Proposed Public Offering:
As soon as possible after this
Post-Effective Amendment becomes
effective.
It is proposed that this filing become effective:
_____ Immediately upon filing pursuant to Rule 485(b)
_____ on [ ], 1995 pursuant to Rule 485(b)
X 60 days after filing pursuant to Rule
485(a)
_____ on -------------- pursuant to Rule 485(a)
The Registrant has previously filed a declaration
of indefinite
registration of its shares pursuant to Rule 24f-2 under
the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-
2 Notice for
the fiscal year ended January 31, 1996 will be 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 Cover Page;
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
PROSPECTUS
SMITH BARNEY
Strategic
Investors
Fund
, 1996
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Strategic Investors Fund
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Prospectus
XXXXXX , 1996
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388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Strategic Investors Fund (the "Fund")
seeks high total return
consisting of current income and capital appreciation by
investing in a
combination of equity, fixed-income and money market
instruments and "Gold
Securities."
The Fund is one of a number of funds, each having
distinct investment
objectives and policies, making up Smith Barney Equity
Funds (the "Trust"). The
Trust is an open-end management investment company
commonly referred to as a
"mutual fund."
This Prospectus sets forth concisely certain
information about the Fund and
the Trust, including sales charges, distribution and
service fees and expenses,
that prospective investors will find helpful in making an
investment decision.
Investors are encouraged to read this Prospectus carefully
and retain it for
future reference. Shares of the other funds offered by the
Trust are described
in separate prospectuses that may be obtained by calling
the Trust at the
telephone number set forth above or by contacting a Smith
Barney Financial
Consultant.
Additional information about the Fund and the Trust
is contained in a
Statement of Additional Information dated ________ __,
1996, as amended or
supplemented from time to time, that is available upon
request and without
charge by calling or writing the Trust at the telephone
number or address set
forth above or by contacting a Smith Barney Financial
Consultant. The Statement
of Additional Information has been filed with the
Securities and Exchange
Commission (the "SEC") and is incorporated by reference
into this Prospectus in
its entirety.
Smith Barney Inc.
Distributor
Smith Barney Strategy Advisers Inc.
Investment Adviser and Administrator
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
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Smith Barney Strategic Investors Fund
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Table of Contents
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Prospectus Summary
3
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Financial Highlights
10
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Investment Objective and Management Policies
13
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Valuation of Shares
20
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Dividends, Distributions and Taxes
20
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Purchase of Shares
22
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Exchange Privilege
32
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Redemption of Shares
35
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Minimum Account Size
37
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Performance
37
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Management of the Fund
38
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Distributor
41
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Additional Information
42
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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 an offer or solicitation in such jurisdiction.
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======================
2
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Smith Barney Strategic Investors Fund
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Prospectus Summary
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The following summary is qualified in its entirety by
detailed information
appearing elsewhere in this Prospectus and in the
Statement of Additional
Information. Cross references in this summary are to
headings in the Prospectus.
See "Table of Contents."
Investment Objective The Fund is an open end, diversified
management investment
company that seeks high total return consisting of current
income and capital
appreciation by investing in a combination of equity,
fixed-income and money
market investments and "Gold Securities." See "Investment
Objective and
Management Policies."
Alternative Purchase Arrangements The Fund offers
several classes of shares
("Classes") to investors designed to provide them with the
flexibility of
selecting an investment best suited to their needs. The
general public is
offered three classes of shares: Class A shares, Class B
shares and Class C
shares, which differ principally in terms of sales charges
and rates of expenses
to which they are subject. A fourth Class of shares, Class
Y shares, is offered
only to investors meeting an initial investment minimum of
$5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value
plus an initial sales
charge of up to 5.00% and are subject to an annual service
fee of 0.25% of the
value of the average daily net assets of the Class. The
initial sales charge may
be reduced or waived for certain purchases. Purchases of
Class A shares, which
when combined with current holdings of Class A shares
offered with a sales
charge equal or exceed $500,000 in the aggregate, will be
made at net asset
value with no 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 Summary--Reduced or No Initial Sales
Charge."
Class B Shares. Class B shares are offered at net asset
value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by
1.00% each year after
the date of purchase to zero. This CDSC may be waived for
certain redemptions.
Class B shares are subject to an annual service fee of
0.25% and an annual
distribution fee of 0.75% of the value of the average
daily net assets of the
Class. The Class B shares' distribution fee may cause that
Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will
convert automatically to
Class A shares, based on relative net asset value, eight
years after the date of
the original purchase. Upon conversion, these shares will
no longer be subject
3
<PAGE>
Smith Barney Strategic Investors Fund
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Prospectus Summary (continued)
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to an annual distribution fee. In addition, a certain
portion of Class B shares
that have been acquired through the reinvestment of
dividends and distributions
("Class B Dividend Shares") will be converted at that
time. See "Purchase of
Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value
with no initial sales
charge. They are subject to an annual service fee of 0.25%
and an annual
distribution fee of 0.75% of the value of the average
daily net assets of the
Class, and investors pay a CDSC of 1.00% if they redeem
Class C shares within 12
months of purchase. The CDSC may be waived for certain
redemptions. The Class C
shares' distribution fee may cause that Class to have
higher expenses and pay
lower dividends than Class A shares. Purchases of Fund
shares, which when
combined with current holdings of Class C shares of the
Fund equal or exceed
$500,000 in the aggregate, should be made in Class A
shares at net asset value
with no sales charge, and will be subject to a CDSC of
1.00% on redemptions made
within 12 months of purchase.
Class Y Shares. Class Y shares are available only to
investors meeting an
initial investment minimum of $5,000,000. Class Y shares
are sold at net asset
value with no initial sales charge or CDSC. They are not
subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase,
investors should
consider the following factors, as well as any other
relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of
shares is more
beneficial to an investor depends on the amount and
intended length of his or
her investment. Shareholders who are planning to establish
a program of regular
investment may wish to consider Class A shares; as the
investment accumulates
shareholders may qualify for reduced sales charges and the
shares are subject to
lower ongoing expenses over the term of the investment. As
an investment
alternative, Class B and Class C shares are sold without
any initial sales
charge so the entire purchase price is immediately
invested in the Fund. Any
investment return on these additional invested amounts may
partially or wholly
offset the higher annual expenses of these Classes.
Because the Fund's future
return cannot be predicted, however, there can be no
assurance that this would
be the case.
Finally, investors should consider the effect of the
CDSC period and any
conversion rights of the Classes in the context of their
own investment time
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.
4
<PAGE>
Smith Barney Strategic Investors Fund
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Prospectus Summary (continued)
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Investors investing a minimum of $5,000,000 must
purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or
service or
distribution fee. The maximum purchase amount for Class A
shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999.
There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales
charge on Class A shares
may be waived for certain eligible purchasers, and the
entire purchase price
will be immediately invested in the Fund. In addition,
Class A share purchases,
which when combined with current holdings of Class A
shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be
made at net asset
value with no initial sales charge, but will be subject to
a CDSC of 1.00% on
redemptions made within 12 months of purchase. The
$500,000 aggregate investment
will be met by adding the purchase to the net asset value
of all Class A shares
offered with a sales charge held in funds sponsored by
Smith Barney Inc. ("Smith
Barney") listed under "Exchange Privilege." Other Class A
share purchases may
also be eligible for a reduced initial sales charge. See
"Purchase of Shares."
Because the ongoing expenses of Class A shares will be
lower than those for
Class B and Class C shares, purchasers eligible to
purchase Class A shares at
net asset value or at a reduced sales charge should
consider doing so.
Smith Barney Financial Consultants may receive
different compensation for
selling each Class of shares. Investors should understand
that the purpose of
the CDSC on the Class B and Class C shares is the same as
that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund"
for a complete
description of the sales charges and service and
distribution fees for each
Class of shares and "Valuation of Shares," "Dividends,
Distributions and Taxes"
and "Exchange Privilege" for other differences between the
Classes of shares.
Smith Barney 401(k) Program Investors may be eligible
to participate in the
Smith Barney 401(k) Program, which is generally designed
to assist plan sponsors
in the creation and operation of retirement plans under
Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), as
well as other types
of participant directed, tax-qualified employee benefit
plans (collec tively,
"Participating Plans"). Class A, Class B, Class C and
Class Y shares are
available as investment alternatives for Participating
Plans. See "Purchase of
Shares--Smith Barney 401(k) Program."
5
<PAGE>
Smith Barney Strategic Investors Fund
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Prospectus Summary (continued)
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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 ("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
Retirement Plan. Investors in Class Y shares may open an
account for an initial
investment of $5,000,000. Subsequent investments of at
least $50 may be made for
all Classes. For participants in retirement plans
qualified under Section 403(b)
(7)or Section 401(a) of the Code, the minimum initial
investment requirement for
Class A, Class B, and Class C shares and the subsequent
investment requirement
for all Classes is $25. The minimum initial investment
requirement for Class A,
Class B, and Class C shares and the subsequent investment
through the Systematic
Investment Plan described below is $50. See "Purchase of
Shares."
Systematic Investment Plan The Fund offers shareholders a
Systematic Investment
Plan under which they may authorize the automatic
placement of a purchase order
each month or quarter for Fund shares in an amount of at
least $50. See
"Purchase of Shares."
Redemption of Shares Shares may be redeemed on each day
the New York Stock
Exchange, Inc. ("NYSE") is open for business. See
"Redemption of Shares."
Management of the Fund Smith Barney Strategy Advisers
Inc.("Strategy Advisers")
serves as the Fund's investment adviser and is a wholly
owned subsidiary of
Smith Barney Mutual Funds Management Inc. ("SBMFM"). SBMFM
provides investment
advisory and management services to investment companies
affiliated with Smith
Barney. SBMFM, which also serves as the Fund's
administrator, is a wholly owned
subsidiary of Smith Barney Holdings Inc. ("Holdings"),
which in turn is a wholly
owned subsidiary of Travelers Group Inc. ("Travelers"), a
diversified financial
services company engaged through its subsidiaries
principally in four business
segments: Investment Services, Consumer Finance Services,
Life Insurance
Services, and Property & Casualty Insurance Services.
6
<PAGE>
Smith Barney Strategic Investors Fund
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Prospectus Summary (continued)
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Exchange Privilege Shares of a Class may be exchanged for
shares of the same
Class of certain other funds of the Smith Barney Mutual
Funds at the respective
net asset values next determined, plus any applicable
sales charge differential.
See "Exchange Privilege Services."
Valuation of Shares Net asset value of the Fund for the
prior day is generally
quoted daily in the financial section of most newspapers
and is also available
from any Smith Barney Financial Consultant. See "Valuation
of Shares."
Dividends and Distributions Dividends from net investment
income are paid
quarterly. Distributions of net realized capital gains, if
any, are declared and
paid annually. See "Dividends, Distributions and Taxes."
Reinvestment of Dividends Dividends and distributions
paid on shares of a Class
will be reinvested automatically, unless otherwise
specified by an investor, in
additional shares of the same Class at current net asset
value. Shares acquired
by dividend and distribution reinvestments will not be
subject to any sales
charge or CDSC. Class B shares acquired through dividend
and distribution
reinvestments will become eligible for conversion to Class
A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
Risk Factors and Special Considerations There can be no
assurance that the
Fund's investment objective will be achieved. The foreign
securities in which
the Fund may invest may be subject to certain risks in
addition to those
inherent in domestic investments. The Fund may make
certain investments and
employ certain investment techniques that involve other
risks and special
considerations. The techniques presenting the Fund with
risks or special
considerations are investing in restricted securities,
warrants, convertible
securities, securities of unseasoned issuers, options,
Gold Securities and
securities of developing countries, entering into
repurchase agreements and
lending portfolio securities. These risks and those
associated with when-issued
and delayed-delivery transactions and covered option
writing are described under
"Investment Objective and Management Policies--Risk
Factors and Special
Considerations."
7
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Smith Barney Strategic Investors Fund
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Prospectus Summary (continued)
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THE FUND'S EXPENSES The Fund's Expenses The following
expense table lists the
costs and expenses an investor will incur either directly
or indirectly as a
shareholder of the Fund, based on the maximum sales charge
or maximum CDSC that
may be incurred at the time of purchase or redemption and,
unless otherwise
noted, the Fund's operating expenses for its most recent
fiscal year:
Class A Class
B Class C Class Y
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======================
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 average net
assets)Management fees 0.75%
0.75% 0.75% 0.75%
12b-1 fees** 0.25 1.00
1.00 None
Other expenses*** 0.__ 0.__
0.__ 0.__
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======================
TOTAL FUND OPERATING EXPENSES _.__%
_.__% _.__% _.__%
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======================
* Purchases of Class A shares, which when combined with
current holdings of
Class A shares offered with a sales charge equal or
exceed $500,000 in the
aggregate, will be made at net asset value with no
sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within
12 months.
** Upon conversion of Class B shares to Class A shares,
such shares will no
longer be subject to a distribution fee. Class C
shares do not have a
conversion feature and, therefore, are subject to an
ongoing distribution
fee. As a result, long-term shareholders of Class C
shares may pay more than
the economic equivalent of the maximum front-end sales
charge permitted by
the National Association of Securities Dealers, Inc.
*** For Class Y shares "other expenses" have been
estimated based on expenses
incurred by the Class A share because there were no
Class Y purchases for
the year ended January 31, 1996.
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
and Class C shares, an annual 12b-1 fee of 1.00% of the
value of average daily
net assets of the respective Class, consisting of a 0.75%
distribution fee and a
0.25% service fee. "Other expenses" in the above table
include fees for
shareholder services, custodial fees, legal and accounting
fees, printing costs
and registration fees.
8
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Smith Barney Strategic Investors Fund
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Prospectus Summary (continued)
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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."
1 year 3 years
5 years 10 years*
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======================
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A $___ $___
$____ $___
Class B
Class C
Class Y
An investor would pay the following expenses on the
same investment, assuming the same annual return and
no redemption:
Class A
Class B
Class C
Class Y
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======================
*Ten-year figures assume conversion of Class B shares to
Class A shares at the
end of the eighth year following the date of purchase.
The example also provides a means for the investor to
compare expense
levels of funds with different fee structures over varying
investment periods.
To facilitate such comparison, all funds are required to
utilize a 5.00% annual
return assumption. However, the Fund's actual return will
vary and may result in
an actual return greater or less than 5.00%. This example
should not be
considered a representation of past or future expenses and
actual expenses may
be greater or less than those shown.
9
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Smith Barney Strategic Investors Fund
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Financial Highlights
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The following information for the fiscal year ended
January 31, 1996 has
been audited by KPMG Peat Marwick LLP, independent
accountants, whose report
thereon appears in the Fund's Annual Report dated January
31, 1996. The
following information for the fiscal years ended January
31, 1987 through
January 31, 1995 has been audited by Coopers & Lybrand
L.L.P. The information
set out below should be read in conjunction with the
financial statements and
related notes that also appear in the Fund's Annual Report
which is incorporated
by reference into the Statement of Additional Information.
For a Class A share outstanding throughout each period:
Year Year
Year Period
Ended Ended
Ended Ended
1/31/96 1/31/95#
1/31/94+ 1/31/93*
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======================
Net Asset Value, Beginning of Period $17.72
$16.85 $16.80
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Income From Investment Operations
Net investment income 0.5
0.52 0.13
Net realized and unrealized
gain (loss) on investments (1.25)
2.37 0.88
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Total Income From Investment Operations (0.68)
2.89 1.01
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Less Distributions From:
Net investment income (0.47)
(0.56) (0.11)
Net Realized Capital Gains (0.66)
(1.46) (0.85)
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Total Distributions (1.13)
(2.02) (0.96)
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Net Asset Value, End of Year $15.91
$17.72 $16.85
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Total Return++ (3.82)
% 17.80% 6.12%
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Ratios to Average Net Assets/
Supplemental Data:
Net Assets, End of Period (000s) $159,247
$6,216 $693
Ratios to Average Net Assets:
Expenses 1.339
% 1.25% .25%**
Net investment income 2.89%
2.85% 3.61%**
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Portfolio Turnover Rate 103%
131% 93%
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======================
* The Fund commenced selling Class A shares on
November 6, 1992.
** Annualized.
+ The per share amounts have been calculated using
the monthly average
shares method, which more appropriately presents per share
data for this year
since use of the undistributed net investment income
method does not accord with
results of operations.
++ Total return represents aggregate total return for
the periods
indicated and does not reflect any applicable sales
charges.
# As of July 15, 1994, the Fund changed its
investment adviser from
Boston Advisors to its current investment adviser,
Strategy Advisers. Boston
Advisors remained as the sub-investment adviser to the
Fund until August 14,
1995.
10
<PAGE>
Smith Barney Strategic Investors Fund
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Financial Highlights
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For a Class B share outstanding througheach year:
<TABLE>
<CAPTION>
Year Year Year
Year Year Year Year Year Period
Ended Ended Ended
Ended Ended Ended Ended Ended Ended
1/31/96 1/31/95#
1/31/94+ 1/31/93 1/31/92 1/31/91 1/31/90- 1/90/89
1/31/88*
==========================================================
==========================================================
=======
<S> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $___ $17.79 $16.84
$17.26 $15.61 $15.57 $15.03 $13.62 $14.00
- ----------------------------------------------------------
- ----------------------------------------------------------
- -------
Income From
Investment Operations
Net investment income 0.39 0.38
0.51 0.52 0.54 0.53 0.52 0.36**
Net realized and
unrealized gain/(loss)
on investments (1.20) 2.37
1.06 2.56 0.47 1.10 1.48 (0.44)
- ----------------------------------------------------------
- ----------------------------------------------------------
- -------
Total From
Investment Operations (0.81) 2.75
1.57 3.08 1.01 1.63 2.00 (0.08)
- ----------------------------------------------------------
- ----------------------------------------------------------
- -------
Less Distributions From:
Net investment income (0.35)
(0.34) (0.50) (0.55) (0.51) (0.69) (0.48)
(0.23)
Net Realized
Capital Gains (0.66)
(1.46) (1.49) (0.88) (0.46) (0.38) (0.11)
(0.07)
Capital -- --
- -- -- -- (0.02) -- --
- ----------------------------------------------------------
- ----------------------------------------------------------
- -------
Total Distributions (1.01)
(1.80) (1.99) (1.43) (0.97) (1.09) (0.59)
(0.30)
==========================================================
==========================================================
=======
Ratios to Average Net
Assets/Supplemental
Data:
Net Assets, End of
Period (000s) $216,035
$334,408 $287,983 $234,321 $197,170 $206,385 $146,987
$151,223
Ratios to Average
Net Assets:
Expenses 2.00%
1.98% 2.02% 2.06% 2.09% 2.24% 2.29%
2.14%**++
Net investment income 2.21%
2.11% 2.84% 3.02% 3.43% 3.46% 3.59%
2.83%**
- ----------------------------------------------------------
- ----------------------------------------------------------
- -------
Portfolio Turnover Rate 103%
131% 93% 76% 56% 61% 42%
56%
==========================================================
==========================================================
=======
* The Fund commenced operations on February 2, 1987. On
November 6, 1992, the
Fund commenced selling Class A shares. Any shares
outstanding prior to
November 6, 1992 were designated as Class B shares.
** Annualized.
*** Net investment income before waiver by investment
adviser for the period
ended January 31, 1988 was $0.37.
+ The per share amounts have been calculated using the
monthly average shares
method, which more appropriately presents per share
data for this year since
use of the undistributed net investment income method
does not accord with
results of operations.
++ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charges.
+++ Annualized expense ratio before waiver by investment
adviser for the period
ended January 31, 1988 was 2.18%.
# As of July 15, 1994, the Fund changed its investment
adviser from Boston
Advisors to its current investment adviser, Strategy
Advisers.
Boston Advisors remained as the sub-investment adviser
to the Fund until
August 14, 1995.
11
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Financial Highlights (continued)
- ----------------------------------------------------------
- ----------------------
For a Class C share outstanding throughout each period:
Year
Year Period
Ended
Ended Ended
1/31/96
1/31/95 1994*+
==========================================================
======================
Net Asset Value, Beginning of Period $_____
$17.79 $17.54
- ----------------------------------------------------------
- ----------------------
Income From Investment Operations
Net investment income
0.38 0.32
Net realized and unrealized
gain (loss) on investments and
written options
(1.19) 1.67
- ----------------------------------------------------------
- ----------------------
Total Income From Investment Operations
(0.81) 1.99
- ----------------------------------------------------------
- ----------------------
Less Distributions From:
Net investment income
(0.35) (0.28)
Net Realized Capital Gains
(0.66) (1.46)
- ----------------------------------------------------------
- ----------------------
Total Distributions
(1.01) (1.74)
- ----------------------------------------------------------
- ----------------------
Net Asset Value, End of Year
$15.97 $17.79
- ----------------------------------------------------------
- ----------------------
Total Return++ %
(4.54)% 11.83%
- ----------------------------------------------------------
- ----------------------
Ratios to Average Net Assets/Supplemental Data:
Net Assets, End of Period (000s) $______
$1,972 $399
Ratios to Average Net Assets:
Expenses %
1.98% 1.93%**
Net investment income %
2.24% 2.16%**
- ----------------------------------------------------------
- ----------------------
Portfolio Turnover Rate %
103% 131%
==========================================================
======================
* The Fund commenced selling Class C (previously
designated as Class D shares)
shares on August 10, 1993.
* The Fund commenced selling Class C shares (previously
designated as Class D
shares) on January 29, 1993. These shares commenced
operations on
May 5, 1993.
** Annualized
+ The per share amounts have been calculated using the
monthly average shares
method, which more appropriately presents per share
data for this year since
use of the undistributed net investment income method
does not accord with
results of operations.
++ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charges.
# As of July 15, 1994, the Fund changed its investment
adviser from Boston
Advisors to its current investment adviser, Strategy
Advisers.
Boston Advisors remained as the sub-investment adviser
to the Fund
until August 14, 1995.
As of January 31, 1995, no Class Y shares had been sold
and, accordingly, no
comparable financial information is available at this time
for that Class.
12
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Investment Objective and Management Policies
- ----------------------------------------------------------
- ----------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is high total
return consisting of
capital appreciation and current income. The Fund's
investment objective may be
changed only with the approval of a majority of the Fund's
outstanding voting
securities. There can be no assurance the Fund's
investment objective will be
achieved.
The Fund seeks to achieve its objective by investing
in a variable
combination of equity, fixed-income and money market
instruments and "Gold
Securities." The percentages of the Fund's assets invested
in each of these four
types of securities are adjusted from time to time to
conform to the asset
allocation percentages most recently determined by the
Investment Policy Group
of Smith Barney, the Fund's asset allocation consultant.
These percentages
represent Smith Barney's conclusions concerning the
portions of a model
portfolio that should be invested in equity, fixed-income
and money market
securities and gold in light of current economic and
market conditions. Although
the asset allocation may call for an investment in gold,
the Fund will not hold
gold bullion or coins but will seek to comply with Smith
Barney's asset
allocation to gold by investing in Gold Securities. Gold
Securities in which the
Fund may invest consist of equity and debt securities of
companies principally
engaged in businesses relating to the exploration, mining,
processing or
distribution of gold and companies principally engaged in
financing, managing,
controlling or operating such companies. As of September
30, 1995, the Fund's
asset allocation approach resulted in 59% of the Fund's
assets being invested in
equity securities, 25% in fixed-income securities and 16%
in cash. The mix of
the Fund's investments will vary from time to time in the
future, and at any
given time the Fund may be substantially or entirely
invested in equity,
fixed-income or money market securities. The Fund's
investments in Gold
Securities may represent up to 25% of its total assets.
Strategy Advisers has responsibility for the
selection of specific
securities on behalf of the Fund. See "Management of the
Trust and the Fund." As
soon as practicable after Smith Barney's asset allocations
become available,
except as described below, Strategy Advisers enters into
purchase and sale
transactions that will result in the Fund's holding assets
in appropriate
percentages. Strategy Advisers may diverge from the
allocations determined by
Smith Barney when Strategy Advisers believes that a higher
cash position is
necessary in order to meet anticipated redemption requests
or that strict
adherence to designated allocations might affect the
Fund's ability to qualify
as a regulated investment company or cause the Fund to
violate an applicable
investment restriction. Strategy Advisers adjusts the
Fund's assets to coincide
with the immediately preceding allocation to each category
of investments when
the percentage of assets invested in a category varies by
more than 10% from
13
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------
- ----------------------
Smith Barney's designated percentage. For example, if
Smith Barney had assigned
an allocation of 60% to equity securities, Strategy
Advisers would adjust the
Fund's assets to conform to the 60% allocation if the
percentage of the Fund's
assets invested in equity securities increased or
decreased by more than 6%.
Following this asset allocation strategy may involve
frequent shifts among
classes of investments and result in the Fund's having a
relatively high
portfolio turnover rate.
The equity portion of the assets of the Fund will
consist generally of
common stocks of established companies traded on exchanges
or over-the-counter
that represent an opportunity for total return on a long-
term basis. In
evaluating companies for investment, Strategy Advisers
selects securities of
companies that it believes are undervalued based on
relevant indicators such as
price/earnings ratios, return on assets and ratios of
market value to book
value, or that are trading at depressed prices because of
perceived current
problems or industry conditions. Equity investments may be
made without regard
to the size of companies and generally will be made in a
broad spectrum of
industries. The Fund also may invest in preferred stock,
securities convertible
into or exchangeable for common stock and warrants. The
fixed-income portion of
the Fund's assets will be composed primarily of investment-
grade corporate
bonds, debentures and notes and obligations of the United
States government or
its agencies or instrumentalities ("U.S. government
securities"). The Fund's
fixed-income assets may be short-, medium- or long-term,
as determined at the
discretion of Strategy Advisers based upon an evaluation
of economic and market
trends. The money market securities in which the Fund may
invest include
commercial paper, bank obligations and short-term U.S.
government securities. Up
to 10% of the Fund's assets may be invested in equity and
debt securities of
foreign issuers. The Fund also may write covered call
options and lend its
portfolio securities. Risk factors and special
considerations associated with
the Fund's investments are described under "Investment
Strategies and
Techniques" and "Risk Factors and Special Considerations"
below.
INVESTMENT STRATEGIES AND TECHNIQUES
In attempting to achieve its investment objective,
the Fund may employ,
among others, one or more of the strategies and techniques
set forth below. The
Fund is under no obligation to use any of the strategies
or techniques at any
given time or under any particular economic condition.
More detailed information
concerning these strategies and techniques and their
related risks is contained
in the Statement of Additional Information.
Repurchase Agreements. The Fund may enter into
repurchase agreements with
14
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------
- ----------------------
banks which are the issuers of instruments acceptable for
purchase by the Fund
and certain dealers on the Federal Reserve Bank of New
York's list of reporting
dealers. Under the terms of a typical repurchase
agreement, the Fund would
acquire an underlying debt obligation for a relatively
short period of time
(usually not more than seven days), subject to an
obligation of the seller to
repurchase, and the Fund to resell, the obligation at an
agreed-upon price and
time, thereby determining the yield during the Fund's
holding period. This
arrangement results in a fixed rate of return that is not
subject to market
fluctuations during the Fund's holding period. The value
of the underlying
securities will be monitored on an ongoing basis by
Strategy Advisers to ensure
that the value is at least equal at all times to the total
amount of the
repurchase obligation, including interest. Strategy
Advisers, acting under the
supervision of the Trust's Board of Trustees, reviews on
an ongoing basis the
value of the collateral and the creditworthiness of those
banks and dealers with
which the Fund enters into repurchase agreements to
evaluate potential risks.
Lending of Portfolio Securities. The Fund has the
ability to lend portfolio
securities to brokers, dealers and other financial
organizations. Loans, if and
when made, may not exceed 20% of the Fund's net asset
value. Loans of portfolio
securities by the Fund will be collateralized by cash,
letters of credit or U.S.
government securities that are maintained at all times in
a segregated account
in an amount at least equal to the current market value of
the loaned
securities.
Covered Option Writing. The Fund may write covered
call options on
portfolio securities and will realize fees (referred to as
"premiums") for
granting the rights evidenced by the options. In return
for a premium, the Fund
will forfeit the right to any appreciation in the value of
the underlying
security for the life of the option (or until a closing
purchase transaction can
be effected). The purchaser of a call option written by
the Fund has the right
to purchase from the Fund an underlying security owned by
the Fund at an
agreed-upon price for a specified time period. Upon the
exercise of a call
option written by the Fund, the Fund may suffer a loss
equal to the underlying
security's market value at the time of the option's
exercise over the exercise
price plus the premium received for writing the option.
Whenever the Fund writes
a call option, it will (a) continue to own or have the
absolute and immediate
right to acquire the underlying security without
additional cash consideration
or (b) hold a call option at the same or a lower exercise
price for the same
exercise period on the same underlying security as the
call option written, for
as long as it remains obligated as the writer of the
option.
The Fund may engage in a closing purchase transaction
to realize a profit,
to prevent an underlying security from being called or to
unfreeze an underlying
security (thereby permitting its sale or the writing of a
new option on the
security prior to the outstanding option's expiration). To
effect a closing
15
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------
- ----------------------
purchase transaction, the Fund would purchase, prior to
the holder's exercise of
an option the Fund has written, an option of the same
series as that on which
the Fund desires to terminate its obligation. The
obligation of the Fund under
an option it has written would be terminated by a closing
purchase transaction,
but the Fund would not be deemed to own an option as the
result of the
transaction. There can be no assurance that the Fund will
be able to effect
closing purchase transactions at a time when it wishes to
do so. To facilitate
closing purchase transactions, however, the Fund will
ordinarily write options
only if a secondary market for the options exists on a
domestic securities
exchange or in the over-the-counter market.
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may hold cash and
invest in money market
instruments without limitation when deemed advantageous by
Strategy Advisers and
SBMFM. Short-term instruments in which the Fund may invest
include: U.S.
government securities; bank obligations (including
certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign
banks, domestic savings
and loan associations and other banking institutions
having total assets in
excess of $500 million); commercial paper rated no lower
than A-2 by Standard &
Poor's Corporation ("S&P") or Prime-2 by Moody's Investors
Service, Inc.
("Moody's") or the equivalent from another nationally
recognized rating service
or, if unrated, of an issuer having an outstanding,
unsecured debt issue then
rated within the three highest rating categories. A
description of the
commercial paper rating categories of Moody's and S&P is
contained in the
Appendix to the Statement of Additional Information.
U.S. Government Securities. The U.S. government
securities in which the
Fund may invest include: direct obligations of the United
States Treasury and
obligations issued or guaranteed by U.S. government
agencies and
instrumentalities, including instruments supported by the
full faith and credit
of the United States; securities supported by the right of
the issuer to borrow
from the United States Treasury; and securities supported
solely by the credit
of the instrumentality.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves special
considerations, such as those
described below:
Restricted Securities. The Fund may not be able to
dispose of restricted
securities at a time when, or at a price which, it desires
to do so and may have
to bear expenses associated with registering the
securities.
16
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------
- ----------------------
Warrants. Because a warrant does not carry with it
the right to dividends
or voting rights with respect to the securities that the
warrant holder is
entitled to purchase, and because a warrant does not
represent any rights to the
assets of the issuer, a warrant may be considered more
speculative than certain
other types of investments. In addition, the value of a
warrant does not
necessarily change with the value of the underlying
security and a warrant
ceases to have value if it is not exercised prior to its
expiration date. The
investment in warrants, valued at the lower of cost or
market, may not exceed
5.00% of the value of the Fund's net assets. Included
within that amount, but
not to exceed 2.00% of the value of the Fund's net assets,
may be warrants that
are not listed on the NYSE or the American Stock Exchange.
Warrants acquired by
the Fund in units or attached to securities may be deemed
to be without value.
Securities of Unseasoned Issuers. Securities in which
the Fund may invest
may have limited marketability and, therefore, may be
subject to wide
fluctuations in market value. In addition, certain
securities may be issued by
companies that lack a significant operating history and
are dependent on
products or services without an established market share.
Options. Option writing for the Fund may be limited
by position and
exercise limits established by national securities
exchanges and by requirements
of the Code for qualification as a regulated investment
company. See "Dividends,
Distributions and Taxes." In addition to writing covered
call options to
generate current income, the Fund may enter into options
transactions as hedges
to reduce investment risk, generally by making an
investment expected to move in
the opposite direction of a portfolio position. A hedge is
designed to offset a
loss on a portfolio position with a gain on the hedge
position; at the same
time, however, a properly correlated hedge will result in
a gain on the
portfolio position being offset by a loss on the hedge
position. The Fund bears
the risk that the prices of the securities being hedged
will not move in the
same amount as the hedge. The Fund will engage in hedging
transactions only when
deemed advisable by Strategy Advisers. Successful use by
the Fund of options
will be subject to Strategy Advisers' ability to predict
correctly movements in
the direction of the stock or index underlying the option
used as a hedge.
Losses incurred in hedging transactions and the costs of
these transactions will
affect the Fund's performance.
The ability of the Fund to engage in closing
transactions with respect to
options depends on the existence of a liquid secondary
market. While the Fund
generally will write options only if a liquid secondary
market appears to exist
for the options purchased or sold, for some options no
such secondary market may
exist or the market may cease to exist. If the Fund cannot
enter into a closing
purchase transaction with respect to a call option it has
written, the Fund will
17
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------
- ----------------------
continue to be subject to the risk that its potential loss
upon exercise of the
option will increase as a result of any increase in the
value of the underlying
security. The Fund could also face higher transaction
costs, including brokerage
commissions, as a result of its options transactions.
Repurchase Agreements. The Fund bears a risk of loss
in the event that the
other party to a repurchase agreement defaults on its
obligations and the Fund
is delayed or prevented from exercising its rights to
dispose of the underlying
securities, including the risk of a possible decline in
the value of the
underlying securities during the period in which the Fund
seeks to assert its
rights to them, the risk of incurring expenses associated
with asserting those
rights and the risk of losing all or a part of the income
from the agreement.
Foreign Securities. Certain risks are involved in
investing in the
securities of companies and governments of foreign nations
that go beyond the
usual risks inherent in U.S. investments. These risks
include those resulting
from revaluation of currencies, future adverse political
and economic
developments, the possible imposition of restrictions on
the repatriation of
currencies or other foreign governmental laws or
restrictions, reduced
availability of public information concerning issuers and
the lack of uniform
accounting, auditing and financial reporting standards or
of other regulatory
practices and requirements comparable to those applicable
to domestic companies.
The value of the assets of the Fund invested in foreign
securities may be
adversely affected by fluctuations in value of one or more
foreign currencies
relative to the dollar. Moreover, securities of many
foreign companies may be
less liquid and their prices more volatile than those of
securities of
comparable domestic companies. In addition, the
possibility exists in certain
foreign countries of expropriation, nationalization,
confiscatory taxation and
limitations on the use or removal of funds or other assets
of the Fund,
including the withholding of dividends. Foreign securities
may be subject to
foreign government taxes that could reduce the yield on
such securities. Because
the Fund will invest in securities denominated or quoted
in currencies other
than the U.S. dollar, changes in foreign currency exchange
rates may adversely
affect the value of portfolio securities and the
appreciation or depreciation of
investments. Investment in foreign securities may also
result in higher expenses
due to the cost of converting foreign currency to U.S.
dollars, the payment of
fixed brokerage commissions on foreign exchanges, which
generally are higher
than commissions on domestic exchanges, and the expense of
maintaining
securities with foreign custodians.
Securities of Developing Countries. A developing
country generally is
considered to be a country that is in the initial stages
of its
industrialization cycle. Investing in the equity and fixed-
income markets of
developing countries involves exposure to economic
structures that are generally
18
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------
- ----------------------
less diverse and mature, and to political systems that can
be expected to have
less stability than those of developed countries.
Historical experience
indicates the markets of developing countries have been
more volatile than the
markets of the more mature economies of developed
countries; however, such
markets often have higher rates of return to investors.
Gold Securities. Historically, stock prices of
companies involved in
gold-related industries have been volatile. Economic and
political conditions
prevailing in the countries that are the largest producers
of gold, particularly
the Republic of South Africa and the former Soviet Union,
may adversely affect
the value of the Gold Securities held by the Fund. In
addition, issuers of
securities in gold-related industries are often located
outside the United
States, which presents risks described above that are not
present in domestic
investments.
PORTFOLIO TRANSACTIONS AND TURNOVER
All orders for transactions in securities or options
on behalf of the Fund
are placed by Strategy Advisers with broker-dealers that
Strategy Advisers
selects, including Smith Barney and other affiliated
brokers. The Fund may
utilize Smith Barney or a broker that is affiliated with
Smith Barney in
connection with a purchase or sale of securities when
Strategy Advisers believes
that the charges for the transaction do not exceed usual
and customary levels.
The Fund also may use Smith Barney as a commodities broker
in connection with
entering into futures contracts and commodity options.
Smith Barney has agreed
to charge the Fund commodity commissions at rates
comparable to those charged by
Smith Barney to its most favored clients for comparable
trades in comparable
accounts. In selecting a broker for a transaction,
including Smith Barney or its
affiliates, the primary consideration is prompt and
effective execution of
orders at the most favorable price. Subject to that
primary consideration,
dealers may be selected for research, statistical or other
services to enable
SBMFM to supplement its own research and analysis with the
views and information
of other securities firms.
Short-term gains realized from portfolio transactions
are taxable to
shareholders as ordinary income. In addition, higher
portfolio turnover rates
can result in corresponding increases in brokerage
commissions. The Fund will
not consider portfolio turnover rate a limiting factor in
making investment
decisions consistent with its objective and policies.
19
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------
- ----------------------
The Fund's net asset value per share is determined as
of the close of
regular trading on the NYSE on each day that the NYSE is
open, by dividing the
value of the Fund's net assets attributable to each Class
by the total number of
shares of the Class outstanding.
Generally, the Fund's investments are valued at
market value or, in the
absence of a market value with respect to any securities,
at fair value as
determined by or under the direction of the Fund's Board
of Trustees. Short-term
investments that mature in 60 days or less are valued at
amortized cost whenever
the Trustees determine that amortized cost is fair value.
Further information
regarding the Fund's valuation policies is contained in
the Statement of
Additional Information.
- ----------------------------------------------------------
- ----------------------
Dividends, Distributions and Taxes
- ----------------------------------------------------------
- ----------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all
of its net investment
income (that is, its income other than its net realized
capital gains)
quarterly, and to declare and pay its net realized capital
gains, if any, once a
year, normally at the end of the year in which earned or
at the beginning of the
next year.
If a shareholder does not otherwise instruct,
dividends and capital gains
distributions will be reinvested automatically in
additional shares of the same
Class at net asset value, subject to no sales charge or
CDSC. In order to avoid
the application of a 4.00% nondeductible excise tax on
certain undistributed
amounts of ordinary income and capital gains, the Fund may
make an additional
distribution shortly before December 31 in each year of
any undistributed
ordinary income or capital gains and expects to pay any
other dividends and
distributions necessary to avoid the application of this
tax.
The per share dividends on Class B and Class C shares
of the Fund may be
lower than the per share dividends on Class A and Class Y
shares principally as
a result of the distribution fee applicable with respect
to Class B and Class C
shares. The per share dividends on Class A shares of the
Fund may be lower than
the per share dividends on Class Y shares principally as a
result of the service
fee applicable to Class A shares. Distributions of capital
gains, if any, will
be in the same amount for Class A, Class B, Class C and
Class Y shares.
TAXES
The Fund has qualified and intends to continue to
qualify each year as a
regulated investment company under the Code. Dividends
paid from net investment
income and distributions of net realized short-term
capital gains are taxable to
20
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Dividends, Distributions and Taxes (continued)
- ----------------------------------------------------------
- ----------------------
shareholders as ordinary income, regardless of how long
shareholders have held
their Fund shares and whether such dividends and
distributions are received in
cash or reinvested in additional Fund shares.
Distributions of net realized
long-term capital gains will be taxable to shareholders as
long-term capital
gains, regardless of how long shareholders have held Fund
shares and whether
such distributions are received in cash or are reinvested
in additional Fund
shares. Furthermore, as a general rule, a shareholder's
gain or loss on a sale
or redemption of Fund shares will be a long-term capital
gain or loss if the
shareholder has held the shares for more than one year and
will be a short-term
capital gain or loss if the shareholder has held the
shares for one year or
less. Some of the Fund's dividends declared from net
investment income may
qualify for the Federal dividends-received deduction for
corporations.
Statements as to the tax status of each shareholder's
dividends and
distributions are mailed annually. Each shareholder also
will receive, if
appropriate, various written notices after the close of
the Fund's prior taxable
year as to the Federal income tax status of his or her
dividends and
distributions which were received from the Fund during the
Fund's prior taxable
year. Shareholders should consult their tax advisors about
the status of the
Fund's dividends and distributions for state and local tax
liabilities.
- ----------------------------------------------------------
- ----------------------
Purchase of Shares
- ----------------------------------------------------------
- ----------------------
GENERAL
The Fund offers five Classes of shares. Class A
shares are sold to
investors with an initial sales charge and Class B and
Class C shares are sold
without an initial sales charge but are subject to a CDSC
payable upon certain
redemptions. Class Y shares are sold without an initial
sales charge or CDSC and
are available only to investors investing a minimum of
$5,000,000. See
"Prospectus Summary--Alternative Purchase Arrangements"
for a discussion of
factors to consider in selecting which Class of shares to
purchase.
Purchases of Fund shares must be made through a
brokerage account
maintained with Smith Barney, an Introducing Broker or an
investment dealer in
the selling group, except for investors purchasing shares
of the Fund through a
qualified retirement plan who may do so directly through
First Data. When
purchasing shares of the Fund, investors must specify
whether the purchase is
for Class A, Class B, Class C or Class Y shares. No
maintenance fee will be
21
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
charged by the Fund in connection with a brokerage account
through which an
investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may
open an account by
making an initial investment of at least $1,000 for each
account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Fund.
Investors in Class Y shares
may open an account by making an initial investment of
$5,000,000. Subsequent
investments of at least $50 may be made for all Classes.
For participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(a) of the
Code, the minimum initial investment requirement for Class
A, Class B and Class
C shares and the subsequent investment requirement for all
Classes in the Fund
is $25. For the Fund's Systematic Investment Plan, the
minimum initial
investment requirement for Class A, Class B and Class C
shares and the minimum
subsequent investment is $50. There are no minimum
investment requirements for
Class A shares for employees of Travelers and its
subsidiaries, including Smith
Barney, and Trustees of the Trust and their spouses and
children. The Fund
reserves the right to waive or change minimums, to decline
any order to purchase
its shares and to suspend the offering of shares from time
to time. Shares
purchased will be held in the shareholder's account by the
Fund's transfer
agent, First Data. Share certificates are issued only upon
a shareholder'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 value,
are priced according to the net asset value determined on
that day. Orders
received by dealers or Introducing Brokers prior to the
close of regular trading
on the 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
(the "trade date"). Payment for Fund shares is due on the
third business day
after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at
any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the
Systematic Investment Plan, Smith Barney or 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 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
22
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
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:
Sales Charge as Sales
Charge as Dealers
% of % of
Amount Reallowance as
Amount of Investment Offering Price Invested %
of Offering Price
==========================================================
======================
Less than $25,000 5.00% 5.26%
4.50%
$25,000-$49,999 4.00 4.17
3.60
$50,000-$99,999 3.50 3.63
3.15
$100,000-$249,999 3.00 3.09
2.70
$250,000-$499,999 2.00 2.04
1.80
$500,000 and more * *
*
==========================================================
======================
* 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 asset value of
all Class A shares offered with a sales charge held in
funds sponsored by Smith
Barney listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset
value without a sales
charge in the following circumstances: (a) sales of Class
A shares to Trustees
of the Trust and employees of Travelers and its
subsidiaries, or the spouses and
children of such persons (including the surviving spouse
of a deceased Trustee
or employee, and retired Trustees or employees) and
employees of members of the
National Association of Securities Dealers, Inc., or sales
to any trust,
23
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
pension, profit-sharing or other benefit plan for such
persons provided such
sales are made upon the assurance of the purchaser that
the purchase is made for
investment purposes and that the securities will not be re-
sold except through
redemption or repurchase; (b) offers of Class A shares to
any other investment
company in connection with the combination of such company
with the Fund by
merger, acquisition of assets or otherwise; (c) purchases
of Class A shares by
any client of a newly employed Smith Barney Financial
Consultant (for a period
up to 90 days from the commencement of the Financial
Consultant's employment
with Smith Barney), on the condition the purchase of Class
A shares is made with
the proceeds of the redemption of shares of a mutual fund
which (i) was
sponsored by the Financial Consultant's prior employer,
(ii) was sold to the
client by the Financial Consultant and (iii) was subject
to a sales charge; (d)
shareholders who have redeemed Class A shares in the Fund
(or Class A shares of
another fund of the Smith Barney Mutual Funds that are
offered with a sales
charge equal to or greater than the maximum sales charge
of the Fund) and who
wish to reinvest their redemption proceeds in the Fund,
provided the
reinvestment is made within 60 calendar days of the
redemption; and (e) accounts
managed by registered investment advisory subsidiaries of
Travelers. In order to
obtain such discounts, the purchaser must provide
sufficient information at the
time of purchase to permit verification that the purchase
would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any
person" (as defined
above) at a reduced sales charge or at net asset value
determined by aggregating
the dollar amount of the new purchase and the total net
asset value of all Class
A shares of the Fund and of funds sponsored by Smith
Barney that are offered
with a sales charge listed under "Exchange Privilege" then
held by such person
and applying the sales charge applicable to such
aggregate. In order to obtain
such discount, the purchaser must provide sufficient
information at the time of
purchase to permit verification that the purchase
qualifies for the reduced
sales charge. The right of accumulation is subject to
modification or
discontinuance at any time with respect to all shares
purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a
reduced sales charge or
purchase at net asset value will also be available to
employees (and partners)
of the same employer purchasing as a group, provided each
participant makes the
minimum initial investment required. The sales charge
applicable to purchases by
24
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
each member of such a group will be determined by the
table set forth above
under "Initial Sales Charge Alternative -- Class A
Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney
Mutual Funds offered
with a sales charge to, and share holdings of, all members
of the group. To be
eligible for such reduced sales charges or to purchase at
net asset value, all
purchases must be pursuant to an employer- or partnership-
sanctioned plan
meeting certain requirements. One such requirement is that
the plan must be open
to specified partners or employees of the employer and its
subsidiaries, if any.
Such plan may, but is not required to, provide for payroll
deductions, IRAs or
investments pursuant to retirement plans under Sections
401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net
asset value purchase
for aggregating related fiduciary accounts under such
conditions that Smith
Barney will realize economies of sales efforts and sales
related expenses. An
individual who is a member of a qualified group may also
purchase Class A shares
of the Fund at the reduced sales charge applicable to the
group as a whole. The
sales charge is based upon the aggregate dollar value of
Class A shares offered
with a sales charge that have been previously purchased
and are still owned by
the group, plus the amount of the current purchase. A
"qualified group" is one
which (a) has been in existence for more than six months,
(b) has a purpose
other than acquiring Fund shares at a discount and (c)
satisfies uniform
criteria which enable Smith Barney to realize economies of
scale in its costs of
distributing shares. A qualified group must have more than
10 members, must be
available to arrange for group meetings between
representatives of the Fund and
the members, and must agree to include sales and other
materials related to the
Fund in its publications and mailings to members at no
cost to Smith Barney. In
order to obtain such reduced sales charge or to purchase
at net asset value, the
purchaser must provide sufficient information at the time
of purchase to permit
verification that the purchase qualifies for the reduced
sales charge. Approval
of group purchase reduced sales charge plans is subject to
the discretion of
Smith Barney.
LETTER OF INTENT
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
investments over a 13 month period, provided that the
investor refers to such
Letter when placing orders. For purposes of a Letter of
Intent, the "Amount of
Investment" as referred to in the preceding sales charge
table includes
purchases of all Class A shares of the Fund and other
funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13 month
period based on the
total amount of intended purchases plus the value of all
Class A shares
25
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
previously purchased and still owned. An alternative is to
compute the 13 month
period starting up to 90 days before the date of execution
of a Letter of
Intent. Each investment made during the period receives
the reduced sales charge
applicable to the total amount of the investment goal. If
the goal is not
achieved within the period, the investor must pay the
difference between the
sales charges applicable to the purchases made and the
charges previously paid,
or an appropriate number of escrowed shares will be
redeemed. Please contact a
Smith Barney Financial Consultant or 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 purchased
to date will be transferred to Class A shares, where they
will be subject 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%. The
Fund expects that such
transfer will not be subject to Federal income taxes.
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 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 original 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.
26
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
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."
Year Since Purchase
Payment was Made
CDSC
==========================================================
======================
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth
0.00
Seventh
0.00
Eighth
0.00
==========================================================
======================
Class B shares automatically will convert to Class A
shares eight years
after the date on which they were purchased and thereafter
will no longer be
subject to any distribution fees. There also will be
converted at that time such
proportion of Class B Dividend Shares owned by the
shareholder as the total
number of his or her Class B shares converting at the time
bears to the total
number of outstanding Class B shares (other than Class B
Dividend Shares) owned
by the shareholder. Shareholders who held Class B shares
of Smith Barney
Shearson Short-Term World Income Fund (the "Short-Term
World Income Fund") that
were held on July 15, 1994 and who subsequently exchange
those shares for Class
B shares of the Fund will be offered the opportunity to
exchange all such Class
B shares for Class A shares of the Fund four years after
the date on which those
shares were deemed to have been purchased. Holders of such
Class B shares will
be notified of the pending exchange in writing
approximately 30 days before the
fourth anniversary of the purchase date and, unless the
exchange has been
rejected in writing, the exchange will occur on or about
the fourth anniversary
date. See "Prospectus Summary -- Alternative Purchase
Arrangements -- Class B
Shares Conversion Feature."
27
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
The length of time that CDSC Shares acquired through
an exchange have been
held will be calculated from the date that the shares
exchanged were initially
acquired in one of the other Smith Barney Mutual Funds,
and Fund shares being
redeemed will be considered to represent, as applicable,
capital appreciation or
dividend and capital gain distribution reinvestments in
such other funds. For
Federal income tax purposes, the amount of the CDSC will
reduce the gain or
increase the loss, as the case may be, on the amount
realized on redemption. The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased
100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the
investor acquired 5
additional shares through dividend reinvestment. During
the fifteenth month
after the purchase, the investor decided to redeem $500 of
his or her
investment. Assuming at the time of the redemption the net
asset value had
appreciated to $12 per share, the value of the investor's
shares would be $1,260
(105 shares at $12 per share). The CDSC would not be
applied to the amount which
represents appreciation ($200) and the value of the
reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds
($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for
Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see
"Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less
than 1% per month of the
value of the shareholder's shares at the time the
withdrawal plan commences (see
"Automatic Cash Withdrawal Plan"), provided, however, that
automatic cash
withdrawals in amounts equal to or less than 2% per month
of the value of the
shareholder's shares will be permitted for withdrawal
plans that were
established prior to November 7, 1994; (c) redemptions of
shares within 12
months following the death or disability of the
shareholder; (d) redemption of
shares made in connection with qualified distributions
from retirement plans or
IRAs upon the attainment of age 591/2; (e) involuntary
redemptions; and (f)
redemptions of shares in connection with a combination of
the Fund with any
investment company by merger, acquisition of assets or
otherwise. In addition, a
shareholder who has redeemed shares from other funds of
the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or
part of the redemption
proceeds within 60 days and receive pro rata credit for
any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to confirmation
(by Smith Barney in
the case of shareholders who are also Smith Barney clients
or by First Data in
the case of all other shareholders) of the shareholder's
status or holdings, as
the case may be.
28
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the Smith
Barney 401(k)
Program, which is generally designed to assist plan
sponsors in the creation and
operation of retirement plans under Section 401(a) of the
Code. To the extent
applicable, the same terms and conditions are offered to
all Participating Plans
in the Smith Barney 401(k) Program.
The Fund offers to Participating Plans Class A, Class
B, Class C and Class
Y shares, as investment alternatives under the Smith
Barney 401(k) Program.
Class A, Class B and Class C shares acquired through the
Smith Barney 401(k)
Program are subject to the same service and/or
distribution fees as, but
different sales charge and CDSC schedules than, the Class
A, Class B and Class C
shares acquired by other investors. Similar to those
available to other
investors, Class Y shares acquired through the Smith
Barney 401(k) Program are
not subject to any initial sales charge, CDSC or service
or distribution fees.
Once a Participating Plan has made an initial investment
in the Fund, all of its
subsequent investments in the Fund must be in the same
Class of shares, except
as otherwise described below.
Class A Shares. Class A shares of the Fund are
offered without any initial
sales charge to any Participating Plan that purchases from
$500,000 to
$4,999,999 of Class A shares of one or more funds of the
Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney
401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of
redemption proceeds, if the
Participating Plan terminates within four years of the
date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
Class B Shares. Class B shares of the Fund are
offered to any Participating
Plan that purchases less than $250,000 of one or more
funds of the Smith Barney
Mutual Funds. Class B shares acquired through the Smith
Barney 401(k) Program
are subject to a CDSC of 3.00% of redemption proceeds, if
the Participating Plan
terminates within eight years of the date the
Participating Plan first enrolled
in the Smith Barney 401(k) Program.
Eight years after the date the Participating Plan
enrolled in the Smith
Barney 401(k) Program, it will be offered the opportunity
to exchange all of its
Class B shares for Class A shares of the Fund. Such Plans
will be notified of
the pending exchange in writing approximately 60 days
before the eighth
anniversary of the enrollment date and, unless the
exchange has been rejected in
writing, the exchange will occur on or about the eighth
anniversary date. Once
the exchange has occurred, a Participating Plan will not
be eligible to acquire
additional Class B shares of the Fund but instead may
acquire Class A shares of
the Fund. If the Participating Plan elects not to exchange
all of its Class B
29
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
shares at that time, each Class B share held by the
Participating Plan will have
the same conversion feature as Class B shares held by
other investors. See
"Purchase of Shares -- Deferred Sales Charge
Alternatives."
Class C Shares. Class C shares of the Fund are
offered to any Participating
Plan that purchases from $250,000 to $499,999 of one or
more funds of the Smith
Barney Mutual Funds. Class C shares acquired through the
Smith Barney 401(k)
Program after November 7, 1994 are subject to a CDSC of
1.00% of redemption
proceeds, if the Participating Plan terminates within four
years of the date the
Participating Plan first enrolled in the Smith Barney
401(k) Program. In any
year after the date a Participating Plan enrolled in the
Smith Barney 401(k)
Program if its total Class C holdings equal at least
$500,000 as of the calendar
year-end, the Participating Plan will be offered the
opportunity to exchange all
of its Class C shares for Class A shares of the Fund. Such
Plans will be
notified in writing within 30 days after the last business
day of the calendar
year, and unless the exchange offer has been rejected in
writing, the exchange
will occur on or about the last business day of the
following March. Once the
exchange has occurred, a Participating Plan will not be
eligible to acquire
Class C shares of the Fund but instead may acquire Class A
shares of the Fund.
Class C shares not converted will continue to be subject
to the distribution
fee.
Class Y Shares. Class Y shares of the Fund are
offered without any service
or distribution fees, sales charge or CDSC to any
Participating Plan that
purchases $5,000,000 or more of Class Y shares of one or
more funds of the Smith
Barney Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to
the extent that the net
asset value of the shares redeemed does not exceed the
current net asset value
of the shares purchased through reinvestment of dividends
or capital gain
distributions, plus (a) with respect to Class A and Class
C shares, the current
net asset value of such shares purchased more than one
year prior to redemption
and, with respect to Class B shares, the current net asset
value of Class B
shares purchased more than eight years prior to the
redemption, plus (b) with
respect to Class A and Class C shares, increases in the
net asset value of the
shareholder's Class A or Class C shares above the purchase
payments made during
the preceding year and, with respect to Class B shares,
increases in the net
asset value of the shareholder's Class B shares above the
purchase payments made
during the preceding eight years. Whether or not the CDSC
applies to a
Participating Plan depends on the number of years since
the Participating Plan
first became enrolled in the Smith Barney 401(k) Program,
unlike the
applicability of the CDSC to other shareholders, which
depends on the number of
30
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Purchase of Shares (continued)
- ----------------------------------------------------------
- ----------------------
years since those shareholders made the purchase payment
from which the amount
is being redeemed.
The CDSC will be waived on redemptions of CDSC Shares
in connection with
lump-sum or other distributions made by a Participating
Plan as a result of: (a)
the retirement of an employee in the Participating Plan;
(b) the termination of
employment of an employee in the Participating Plan; (c)
the death or disability
of an employee in the Participating Plan; (d) the
attainment of age 591/2 by an
employee in the Participating Plan; (e) hardship of an
employee in the
Participating Plan to the extent permitted under Section
401(k) of the Code; or
(f) redemptions of shares in connection with a loan made
by the Participating
Plan to an employee.
Participating Plans wishing to acquire shares of the
Fund through the Smith
Barney 401(k) Program must purchase such shares directly
from 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
31
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Exchange Priviege (continued)
- ----------------------------------------------------------
- ----------------------
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth
Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
* Smith Barney Adjustable Rate Government Income
Fund
Smith Barney Diversified Strategic Income Fund
** Smith Barney Funds, Inc.--Income Return Account
Portfolio
Smith Barney Funds, Inc.--Monthly Payment
Government Portfolio
+++ Smith Barney Funds, Inc.--Short-Term U.S.
Treasury Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government
Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
** Smith Barney 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
32
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Exchange Privilege (continued)
- ----------------------------------------------------------
- ----------------------
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
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 B and Class C shares
of the Fund.
++ Available for exchange with Class A and Class Y shares
of the Fund. In
addition, shareholders who own Class C shares of the
Fund through the Smith
Barney 401(k) Program may exchange those shares for
Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y shares
of the Fund.
Class A Exchanges. Class A shares of the Smith Barney
Mutual Funds sold
without a sales charge or with a maximum sales charge of
less than the maximum
charged by other Smith Barney Mutual Funds will be subject
to the appropriate
"sales charge differential" upon the exchange of such
shares for Class A shares
of a fund sold with a higher sales charge. The "sales
charge differential" is
limited to a percentage rate no greater than the excess of
the sales charge rate
applicable to purchases of shares of the mutual fund being
acquired in the
exchange over the sales charge rate(s) actually paid on
the mutual fund shares
relinquished in the exchange and on any predecessor of
those shares. For
purposes of the exchange privilege, shares obtained
through automatic
reinvestment of dividends and capital gain distributions
are treated as having
33
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Exchange Privilege (continued)
- ----------------------------------------------------------
- ----------------------
paid the same sales charges applicable to the shares on
which the dividends or
distributions were paid; however, except in the case of
the Smith Barney 401(k)
Program, if no sales charge was imposed upon the initial
purchase of the shares,
any shares obtained through automatic reinvestment will be
subject to a sales
charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder
(unless such
shareholder was a Class B shareholder of the Short-Term
World Income Fund on
July 15, 1994) wishes to exchange all or a portion of his
or her shares in any
of the funds imposing a higher CDSC than that imposed by
the Fund, the exchanged
Class B shares will be subject to the higher applicable
CDSC. Upon an exchange,
the new Class B shares will be deemed to have been
purchased on the same date as
the Class B shares of the Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C
shares will be deemed
to have been purchased on the same date as the Class C
shares of the Fund that
have been exchanged.
Class Y Exchanges. Class Y shareholders of the Fund
who wish to exchange
all or a portion of their Class Y shares for Class Y
shares in any of the funds
identified above may do so without imposition of any
charge.
Additional Information Regarding the Exchange
Privilege. Although the
exchange privilege is an important benefit, excessive
exchange transactions can
be detrimental to the Fund's performance and its
shareholders. Strategy Advisers
may determine that a pattern of frequent exchanges is
excessive and contrary to
the best interests of the Fund's other shareholders. In
this event, Strategy
Advisers will notify Smith Barney and the Fund may, at its
discretion, decide to
limit additional purchases and/or exchanges by a
shareholder. Upon such a
determination, the Fund will provide notice in writing or
by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and
during the 15 day period the shareholder will be required
to (a) redeem his or
her shares in the Fund or (b) remain invested in the Fund
or exchange into any
of the funds of the Smith Barney Mutual Funds ordinarily
available, which
position the shareholder would be expected to maintain for
a significant period
of time. All relevant factors will be considered in
determining what constitutes
an abusive pattern of exchanges.
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
after the redemption
proceeds are available. Redemption procedures discussed
below are also
34
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Exchange Privilege (continued)
- ----------------------------------------------------------
- ----------------------
applicable for exchanging shares, and exchanges will be
made upon receipt of all
supporting documents in proper form. If the account
registration of the shares
of the fund being acquired is identical to the
registration of the shares of the
fund exchanged, no signature guarantee is required. A
capital gain or loss for
tax purposes will be realized upon the exchange, depending
upon the cost or
other basis of shares redeemed. Before exchanging shares,
investors should read
the current prospectus describing the shares to be
acquired. The Fund reserves
the right to modify or discontinue exchange privileges
upon 60 days' prior
notice to shareholders.
- ----------------------------------------------------------
- ----------------------
Redemption of Shares
- ----------------------------------------------------------
- ----------------------
The Fund is required to redeem the shares of the Fund
tendered to it, as
described below, at a redemption price equal to their net
asset value per share
next determined after receipt of a written request in
proper form at no charge
other than any applicable CDSC. Redemption requests
received after the close of
regular trading on the NYSE are priced at the net asset
value next determined.
If a shareholder holds shares in more than one Class,
any request for
redemption must specify the Class being redeemed. In the
event of a failure to
specify which Class, or if the investor owns fewer shares
of the Class than
specified, the redemption request will be delayed until
the Fund's transfer
agent receives further instructions from Smith Barney, or
if the shareholder's
account is not with Smith Barney, from the shareholder
directly. The redemption
proceeds will be remitted on or before the third day
following receipt of proper
tender, except on any days on which the NYSE is closed or
as permitted under the
Investment Company Act of 1940, as amended (the "1940
Act") in extraordinary
circumstances. Generally, if the redemption proceeds are
remitted to a Smith
Barney brokerage account, these funds will not be invested
for the shareholder's
benefit without specific instruction and Smith Barney will
benefit from the use
of temporarily uninvested funds. Redemption proceeds for
shares purchased by
check, other than a certified or official bank check, will
be remitted upon
clearance of the check, which may take up to ten days or
more.
Shares held by Smith Barney as custodian must be
redeemed by submitting a
written request to a Smith Barney Financial Consultant.
Shares other than those
held by Smith Barney as custodian may be redeemed through
an investor's
35
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Redemption of Shares (continued)
- ----------------------------------------------------------
- ----------------------
Financial Consultant, Introducing Broker or dealer in the
selling group or by
submitting a written request for redemption to:
Smith Barney Strategic Investors Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class
and number or dollar
amount of shares to be redeemed, (b) identify the
shareholder's account number
and (c) be signed by each registered owner exactly as the
shares are registered.
If the shares to be redeemed were issued in certificate
form, the certificates
must be endorsed for transfer (or be accompanied by an
endorsed stock power) and
must be submitted to First Data together with the
redemption request. Any
signature appearing on a redemption request in excess of
$2,000, 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. Written redemption requests
of $2,000 or less do
not require a signature guarantee unless more than one
such redemption request
is made in any 10-day period or the redemption proceeds
are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption
proceeds will be mailed to an investor's address of
record. First Data may
require additional supporting documents for redemptions
made by corporations,
executors, administrators, trustees or guardians. A
redemption request will not
be deemed 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 cash payments of at least $50 monthly or
quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans
only where the
shareholder is eligible to receive qualified distributions
and has an account
value of at least $5,000. The withdrawal plan will be
carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC
will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per
month of the value of
the shareholder's shares subject to the CDSC at the time
the withdrawal plan
commences. (With respect to withdrawal plans in effect
prior to November 7,
1994, any applicable CDSC will be waived on amounts
withdrawn that do not exceed
36
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Redemption of Shares (continued)
- ----------------------------------------------------------
- ----------------------
2.00% per month of the value of the shareholder's shares
subject to the CDSC.)
For further information regarding the automatic cash
withdrawal plan,
shareholders should contact a Smith Barney Financial
Consultant.
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 guarantee 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 under this
program.
A shareholder will have the option of having the
redemption proceeds mailed
to his/her address of record or wired to a bank account
predesignated by the
shareholder. Generally, redemption proceeds will be mailed
or wired, as the case
may be, on the next business day following the redemption
request. In order to
use the wire procedures, the bank receiving the proceeds
must be a member of the
Federal Reserve System or have a correspondent with a
member bank. The Fund
reserves the right to charge shareholders a nominal fee
for each wire
redemption. Such charges, if any, will be assessed against
the shareholder's
account from which shares were redeemed. In order to
change the bank account
designated to receive redemption proceeds, a shareholder
must complete a new
Telephone/Wire Authorization Form and, for the protection
of the shareholder's
assets, will be required to provide a signature guarantee
and certain other
documentation.
Exchanges. Eligible shareholders may make exchanges
by telephone if the
account registration of the shares of the fund being
acquired is identical to
the registration of the shares of the fund exchanged. Such
exchange requests may
37
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Redemption of Shares (continued)
- ----------------------------------------------------------
- ----------------------
37
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 instructions
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
following at least seven (7) days prior notice to
shareholders.
- ----------------------------------------------------------
- ----------------------
Minimum Account Size
- ----------------------------------------------------------
- ----------------------
The Fund reserves the right to involuntarily
liquidate any shareholder's
account in the Fund if the aggregate net asset value of
the shares held in the
Fund account is less than $500. (If a shareholder has more
than one account in
this Fund, each account must satisfy the minimum account
size.) The Fund,
however, will not redeem shares based solely on market
reductions in net asset
value. Before the Fund exercises such right, shareholders
will receive written
notice and will be permitted 60 days to bring accounts up
to the minimum to
avoid automatic redemption.
- ----------------------------------------------------------
- ----------------------
Performance
- ----------------------------------------------------------
- ----------------------
TOTAL RETURN
From time to time, the Fund may include its total
return, average annual
total return and current dividend return in advertisements
and/or other types of
sales literature. These figures are computed separately
for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are
based on historical
earnings and are not intended to indicate future
performance. Total return is
computed for a specified period of time assuming deduction
of the maximum sales
charge, if any, from the initial amount invested and
reinvestment of all income
dividends and capital gains distributions on the
reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the
value of the
investment at the end of the period so calculated by the
initial amount invested
and subtracting 100%. The standard average annual total
return, as prescribed by
38
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Performance (continued)
- ----------------------------------------------------------
- ----------------------
the SEC, is derived from this total return, which provides
the ending redeemable
value. Such standard total return information may also be
accompanied with
nonstandard total return information for differing periods
computed in the same
manner but without annualizing the total return or taking
sales charges into
account. The Fund calculates current dividend return for
each Class by
annualizing the most recent monthly distribution and
dividing by the net asset
value or the maximum public offering price (including
sales charge) on the last
day of the period for which current dividend return is
presented. The current
dividend return for each Class may vary from time to time
depending on market
conditions, the composition of its investment portfolio
and operating expenses.
These factors and possible differences in the methods used
in calculating
current dividend return should be considered when
comparing a Class' current
return to yields published for other investment companies
and other investment
vehicles. The Fund may also include comparative
performance information in
advertising or marketing its shares. Such performance
information may include
data from Lipper Analytical Services, Inc. and other
financial publications.
- ----------------------------------------------------------
- ----------------------
Management of the Trust and the Fund
- ----------------------------------------------------------
- ----------------------
BOARD OF TRUSTEES
Overall responsibility for management and supervision
of the Trust and the
Fund rests with the Trust's Board of Trustees. The
Trustees approve all
significant agreements between the Trust and the companies
that furnish services
to the Fund, including agreements with the Trust's
distributor, custodian and
transfer agent and the Fund's investment adviser and
administrator. The
day-to-day operations of the Fund are delegated to the
Fund's investment adviser
and administrator. The Statement of Additional Information
contains background
information regarding each Trustee of the Trust and
executive officer of the
Trust.
INVESTMENT ADVISER--STRATEGY ADVISERS
Strategy Advisers, located at 388 Greenwich Street,
New York, New York
10013, serves as the Fund's investment adviser. As
investment adviser, Strategy
Advisers, subject to the supervision and direction of the
Trust's Board of
Trustees, is generally responsible for furnishing, or
causing to be furnished to
the Fund, investment management services. Included among
the specific services
provided by Strategy Advisers as investment adviser are:
the review of all
purchases and sales of portfolio instruments made by the
Fund to assess
39
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Management of the Trust and the Fund (continued)
- ----------------------------------------------------------
- ----------------------
compliance with its stated investment objectives and
policies; the monitoring of
the selection of brokers and dealers effecting investment
transactions on behalf
of the Fund; and the payment of reasonable salaries and
expenses of those of the
Fund's officers and employees, and the fees and expenses
of those members of the
Trust's Board of Trustees, who are directors, officers or
employees of Strategy
Advisers. Strategy Advisers provides investment
management, investment advisory
and/or administrative services to individual,
institutional and investment
company clients that had aggregate assets under
management, as of ________,
1995, in excess of $____ billion. For advisory services
rendered to the Fund,
under an Advisory Agreement dated August 14, 1995, the
Fund pays Strategy
Advisers a fee at the annual rate of 0.55% of the value of
the Fund's average
daily net assets.
ADMINISTRATOR--SBMFM
SBMFM serves as the Fund's administrator and
generally assists in all
aspects of the Fund's administration and operation. SBMFM
provides investment
management and administration services to a wide variety
of individual,
institutional and investment companies that had aggregate
assets under
management, as of __________, 1995, in excess of $____
billion. For
administration services rendered, the Fund pays SBMFM a
fee at the annual rate
of 0.20% of the value of the Fund's average daily net
assets.
PORTFOLIO MANAGEMENT
Robert J. Brady and Ellen S. Cammer, each a Managing
Director of Smith
Barney, have served as portfolio managers of the Fund
since June 15, 1995, and
manage the day-to-day operations of the Fund, including
making all investment
decisions.
Management's discussion and analysis and additional
performance information
regarding the Fund during the fiscal year ended January
31, 1996 is included in
the Annual Report dated January 31, 1996. A copy of the
Annual Report may be
obtained upon request and without charge from a Smith
Barney Financial
Consultant or by writing or calling the Fund at the
address or phone number
listed on page one of this prospectus.
ASSET ALLOCATION CONSULTANT
Smith Barney, located at 388 Greenwich Street, New
York, New York 10013,
serves without compensation as asset allocation consultant
to the Fund. As asset
allocation consultant, Smith Barney provides the asset
allocation mix that may
be a primary determinant of the Fund's investment
performance.
40
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Distributor
- ----------------------------------------------------------
- ----------------------
Smith Barney is located at 388 Greenwich Street, New
York, New York 10013.
Smith Barney distributes shares of the Fund as principal
underwriter and as such
conducts a continuous offering pursuant to a "best
efforts" arrangement
requiring Smith Barney to take and pay for only such
securities as may be sold
to the public. Pursuant to a plan of distribution adopted
by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is
paid a service fee with
respect to Class A, Class B and Class C shares of the Fund
at the annual rate of
0.25% of the value of the average daily net assets of the
respective Class.
Smith Barney is also paid an annual distribution fee with
respect to Class B and
Class C shares at the annual rate of 0.75% of the value of
the average daily net
assets attributable to those Classes. Class B shares which
automatically convert
to Class A shares eight years after the date of original
purchase will no longer
be subject to distribution fees. The fees are used by
Smith Barney to pay its
Financial Consultants for servicing shareholder accounts
and, in the case of
Class B and Class C shares, to cover expenses primarily
intended to result in
the sale of those shares. These expenses include:
advertising expenses; the cost
of printing and mailing prospectuses to potential
investors; payments to and
expenses of Smith Barney Financial Consultants and other
persons who provide
support services in connection with the distribution of
shares; interest and/or
carrying charges; and indirect and overhead costs of Smith
Barney associated
with the sale of Fund shares, including lease, utility,
communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants
for selling shares of a
Class include a commission or fee paid by the investor or
Smith Barney at the
time of sale and, with respect to Class A, Class B and
Class C shares, a
continuing fee for servicing shareholder accounts for as
long as a shareholder
remains a holder of that Class. Smith Barney Financial
Consultants may receive
different levels of compensation for selling different
Classes of shares.
Payments under the Plan with respect to Class B and
Class C shares are not
tied exclusively to the distribution and shareholder
services expenses actually
incurred by Smith Barney and the payments may exceed such
expenses actually
incurred. The Trust's Board of Trustees will evaluate the
appropriateness of the
Plan and its payment terms on a continuing basis and in so
doing will consider
all relevant factors, including expenses borne by Smith
Barney, amounts received
under the Plan and proceeds of the CDSC.
41
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Additional Information
- ----------------------------------------------------------
- ----------------------
The Trust was organized on January 8, 1986 under the
laws of the
Commonwealth of Massachusetts and is a business entity
commonly known as a
"Massachusetts business trust." The Trust offers shares of
beneficial interest
of separate funds with a par value of $.001 per share. The
Fund offers shares of
beneficial interest currently classified into four Classes
- -- A, B, C and Y.
Each Class represents an identical interest in the Fund's
investment portfolio.
As a result, the Classes have the same rights, privileges
and preferences,
except with respect to: (a) the designation of each Class;
(b) the effect of the
respective sales charges, if any, for each Class; (c) the
distribution and/or
service fees borne by each Class; (d) the expenses
allocable exclusively to each
Class; (e) voting rights on matters exclusively affecting
a single Class; (f)
the exchange privilege of each Class; and (g) the
conversion feature of the
Class B shares. The Trust's Board of Trustees does not
anticipate that there
will be any conflicts among the interests of the holders
of the different
Classes. The Trustees, on an ongoing basis, will consider
whether any such
conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings.
There normally will be
no meeting of shareholders for the purpose of electing
Trustees unless and until
such time as less than a majority of the Trustees holding
office have been
elected by shareholders. The Trustees will call a meeting
for any purpose upon
written request of shareholders holding at least 10% of
the Trust's outstanding
shares and the Fund will assist shareholders in calling
such a meeting as
required by the 1940 Act. Shareholders of record owning no
less than two-thirds
of the outstanding shares of the Trust may remove a
Trustee through a
declaration in writing or by vote cast in person or by
proxy at a meeting called
for that purpose.
When matters are submitted for shareholder vote,
shareholders of each Class
will have one vote for each full share owned and a
proportionate, fractional
vote for any fractional share held of that Class.
Generally, shares of the Trust
vote by individual fund on all matters except (a) matters
affecting only the
interests of one or more of the funds, in which case only
shares of the affected
fund or funds would be entitled to vote or (b) when the
1940 Act requires that
shares of the funds be voted in the aggregate. Similarly,
shares of the Fund
will be voted generally on a Fund-wide basis except with
respect to matters
affecting the interests of one Class of shares.
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 Trust's transfer agent.
42
<PAGE>
Smith Barney Strategic Investors Fund
- ----------------------------------------------------------
- ----------------------
Additional Information (continued)
- ----------------------------------------------------------
- ----------------------
The Trust sends shareholders of the Fund a semi-
annual report and an
audited annual report, which include listings of the
investment securities held
by the Fund at the end of the reporting period. In an
effort to reduce the
Fund's printing and mailing costs, the Trust plans to
consolidate the mailing of
the Fund's semi-annual and annual reports by household.
This consolidation means
that a household having multiple accounts with the
identical address of record
will receive a single copy of each report. In addition,
the Trust also plans to
consolidate the mailing of the Fund's Prospectus so that a
shareholder having
multiple accounts (that is, individual, IRA and/or Self-
Employed Retirement Plan
accounts) will receive a single Prospectus annually.
Shareholders who do not
want this consolidation to apply to their accounts should
contact a Smith Barney
Financial Consultant or First Data.
43
<PAGE>
SMITH BARNEY
- ------------
A Member of
Travelers Group [LOGO]
Smith Barney
Strategic
Investors
Fund
388 Greenwich Street
New York, New York 10013
FD 4/96
Smith Barney
EQUITY FUNDS
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
March ---, 1996
This Statement of Additional Information expands upon
and supplements the information contained in the
current Prospectuses, each dated March ---, 1996, as
amended or supplemented from time to time, of Smith
Barney Equity Funds (the "Trust") relating to Smith Barney
Strategic Investors Fund ("Strategic Investors Fund") and
Smith Barney Growth and Income Fund ("Growth and Income
Fund") (each, a "Fund" and collectively, the "Funds"),
each a series of the Trust, and should be read in
conjunction with the Prospectuses. The Prospectuses may be
obtained from a Smith Barney Financial Consultant or by
writing or calling the Trust at the address or telephone
number set forth above. This Statement of Additional
Information, although not in itself a prospectus, is
incorporated by reference into the Prospectuses in its
entirety.
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....................................................
.. ................................... 16
Redemption of
Shares....................................................
.. .............................. 17
Distributor...............................................
.. ....................................................
18 Valuation of
Shares....................................................
.. .................................. 21
Exchange
Privilege.................................................
.. ..................................... 22
Performance Data (See in each Prospectus
"Performance")............................ 23
Taxes (See in each Prospectus "Dividends, Distributions
and Taxes")............ 26
Additional
Information...............................................
.. ................................. 29
Financial
Statements................................................
.. ................................... 30
Appendix..................................................
.. ...................................................
31
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
("SBMFM").................................................
.. .........and Administrator
Smith Barney Strategy Advisers Inc.
("Strategy
Advisers")...............................................I
nv 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.
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. 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 41 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.
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.
Robert J. Brady, Investment Officer (Age ---). 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 ---). Managing
Director of Smith Barney. Her address is 388 Greenwich
Street, New York, New York 10013.
Each Trustee also serves as a trustee, director
and/or general partner of certain other mutual funds
for which Smith Barney serves as distributor. As of ------
- ----, 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 $-------
- -----.
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)....................................
Antoinette C. Bentley(9)........................
Allan J. Bloostein(15)............................ Richard
E. Hanson, Jr.(9)....................... Madelon Devoe
Talley(10).....................
(*) Number of director/trusteeships held with other mutual
funds of the Smith Barney Mutual Funds.
** The aggregate remunueration paid to the Trustees by
the
Trust for the fiscal year ended January 31, 1996 amounted
to $ (including reimbursement for travel and out-of-pocket
expenses)
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, from its affiliate, Mutual
Management Corp. Mutual Management Corp. and SBMFM are both
wholly owned subsidiaries of Smith Barney Holdings Inc.
("Holdings"), which in turn is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers"). The Advisory Agreement
(the "Advisory Agreement") is dated August 31, 1994, and
was first approved by the Trust's Board of Trustees,
including a majority of the Trustees who are not
"interested persons" of the Trust or SBMFM ("Independent
Trustees") on April 6, 1993. The Advisory Agreement was
most recently approved by the Board of trustees,
including a majority of the Independent Trustees of the
Trust, on August 9, 1995. The services provided by
SBMFM under the Advisory Agreement are described in the
Prospectus under "Management of the Trust and the Fund."
SBMFM bears all expenses in connection with the
performance of its services and pays the salary of any
officer and employee who is employed by both it and the
Trust. As compensation for investment advisory services
rendered to Growth and Income Fund, the Fund pays a fee
computed daily and paid monthly at the annual rate of 0.45%
of the value of the average daily net assets of the Fund.
SBMFM also serves as administrator to the Funds
pursuant to a written agreement (the "Administration
Agreement") dated August 31, 1994, which was most recently
approved by the Trust's Board of Trustees, including a
majority of the Independent Trustees, on August 9, 1995.
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, maintain office facilities
for each Fund, furnish each Fund with statistical and
research data, clerical help and accounting, data
processing, bookkeeping, internal auditing and legal
services and certain other services required by the Funds,
prepare reports to the Funds' shareholders and prepare tax
returns, reports to and filings with the Securities and
Exchange Commission (the "SEC") and state Blue Sky
authorities. SBMFM bears all expenses in connection with
the performance of their services.
Strategy Advisers serves as investment adviser to
Strategic Investors Fund pursuant to a written agreement
(the "Strategy Advisory Agreement"), which was approved
most recently by the Trust's Board of Trustees,
including a majority of the Independent Trustees, on August
9, 1995. 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
administrator as follows:
Growth and Income Fund
Fiscal Year Ended January 31,
1994 1995 1996
Investment Advisory
fees...........................................$264,363
$847,149 $
Administration
fees.....................................................11
7 ,495 376,511
Strategic Investors Fund
Fiscal Year Ended January 31,
1994 1995 1996
Investment Advisory
fees...........................................$1,702,756
$2,013,080 $
Administration
fees.......................................................
. 609,031 732,029
Each Adviser and administrator has agreed that if in
any fiscal year the aggregate expenses of the Fund it
serves (including fees payable pursuant to its agreement
with respect to the Fund, but excluding interest, taxes,
brokerage, fees paid pursuant to the Trust's services and
distribution plan, and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over
the Fund, the Adviser and administrator, to the extent
required by state law, will reduce their fees to the Fund
by the amount of such excess expense, such amount to be
allocated between or among them in the same proportion as
their respective fees bear to 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, independent accountants, 345
Park Avenue, New York, New York 10154, serve as auditors of
the Trust and will render an opinion on each fund's
financial statements annually. Prior to October 19, 1994,
Coopers & Lybrand L.L.P., independent auditors, served as
auditors of the Trust and rendered an opinion on each
Fund's financial statements for the fiscal year ended
January 31, 1996.
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% of a Fund's total assets taken at
value. A Fund will not lend portfolio securities to Smith
Barney unless it has applied for and received specific
authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of
credit
or U.S. government securities that are maintained at all
times in a segregated account in an amount equal to 100% of
the current market value of the loaned securities. From
time to time, a Fund may pay a part of the interest earned
from the investment of collateral received for securities
loaned to the borrower and/or a third party that is
unaffiliated with the Fund and that is acting as a
"finder."
By lending its securities, a Fund can increase its
income by continuing to receive interest on the loaned
securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when U.S.
government securities are used as collateral. A Fund will
comply with the following conditions whenever its portfolio
securities are loaned: (a) the Fund must receive at least
100% cash collateral or equivalent securities from the
borrower; (b) the borrower must increase such collateral
whenever the market value of the securities loaned rises
above the level of such collateral; (c) the Fund must be
able to terminate the loan at any time; (d) the Fund must
receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the Fund
may pay only reasonable custodian fees in connection with
the loan; and (f) voting rights on the loaned securities
may pass to the borrower, provided, however, that if a
material event adversely affecting the investment in the
loaned securities occurs, the Trust's Board of Trustees
must terminate the loan and regain the right to vote the
securities. The risks in lending portfolio securities, as
with other extensions of secured credit, consist of a
possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans
will be made to firms deemed by each Fund's Adviser to be
of good standing and will not be made unless, in its
judgment, the consideration to be earned from such loans
would justify the risk.
Options on Securities. The Funds may write covered
call options and enter into closing transactions with
respect thereto. The principal reason for writing covered
call options on securities is to attempt to realize,
through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a
premium, the writer of a covered call option forfeits the
right to any appreciation in the value of the underlying
security above the strike price for the life of the option
(or until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a decline
in the price of the underlying 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 Corporation
("S&P") or Prime-2 or Prime-1 by Moody's Investors Service,
Inc. ("Moody's") or, if unrated, are issued by companies
having an outstanding unsecured debt issue currently rated
within the two highest ratings of S&P or Moody's. A
discussion of S&P and Moody's rating categories appears in
the Appendix to this Statement of Additional Information.
A Fund also may invest in variable rate master demand
notes, which typically are issued by large corporate
borrowers providing for variable amounts of principal
indebtedness and periodic adjustments in the interest rate
according to the terms of the instrument. Demand notes are
direct lending arrangements between the Fund and an issuer,
and are not normally traded in a secondary market. A Fund,
however, may demand payment of principal and accrued
interest at any time. In addition, while demand notes
generally are not rated, their issuers must satisfy the
same criteria as those set forth above for issuers of
commercial paper. Each Fund's Adviser will consider the
earning power, cash flow and other liquidity ratios of
issuers of demand notes and continually will monitor their
financial ability to meet payment on demand.
Convertible Securities. The Funds may invest in
convertible securities. Convertible securities are fixed
income securities that may be converted at either a stated
price or stated rate into underlying shares of common
stock. Convertible securities have general characteristics
similar to both fixed-income and equity securities.
Although to a lesser extent than with fixed-income
securities generally, the market value of convertible
securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market
value of convertible securities tends to vary with
fluctuations in the market value of the underlying common
stocks and, therefore, also will react to variations in the
general market for equity securities. A unique feature of
convertible securities is that as the market price of the
underlying common stock declines, convertible securities
tend to trade increasingly on a yield basis, and thus may
not experience market value declines to the same extent as
the underlying common stock. When the market price of the
underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the
value of the underlying common stock. While no securities
investments are without risk, investments in convertible
securities generally entail less risk than investments in
common stock of the same issuer.
As fixed-income securities, convertible securities are
investments that provide for a stable stream of income with
generally higher yields than common stocks. Of course, like
all fixed-income securities, there can be no assurance of
current income because the issuers of the convertible
securities may default on their obligations. Convertible
securities, however, generally offer lower interest or
dividend yields than non-convertible securities of similar
quality because of the potential for capital appreciation.
A convertible security, in addition to providing fixed
income, offers the potential for capital appreciation
through the conversion feature, which enables the holder to
benefit from increases in the market price of the
underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices
fluctuate.
Convertible securities generally are subordinated to
other similar but non-convertible securities of the same
issuer, although convertible bonds, as corporate debt
obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is
senior to common stock, of the same issuer. Because of the
subordination feature, however, convertible securities
typically have lower ratings than similar non-convertible
securities.
Preferred Stock. The Funds may invest in preferred
stocks. Preferred stocks, like debt obligations, are
generally fixed-income securities. Shareholders of
preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the
issuer's board of directors, but do not participate in
other amounts available for distribution by the issuing
corporation. Dividends on the preferred stock may be
cumulative, and all cumulative dividends usually must be
paid prior to common stockholders receiving any dividends.
Preferred stock dividends must be paid before common stock
dividends and for that reason preferred stocks generally
entail less risk than common stocks. Upon liquidation,
preferred stocks are entitled to a specified liquidation
preference, which is generally the same as the par or
stated value, and are senior in right of payment to common
stock. Preferred stocks are, however, equity securities in
the sense that they do not represent a liability of the
issuer and therefore do not offer as great a degree of
protection of capital or assurance of continued income as
investments in corporate debt securities. In addition,
preferred stocks are subordinated in right of payment to
all debt obligations and creditors of the issuer, and
convertible preferred stocks may be subordinated to other
preferred stock of the same issuer.
American, European and Continental Depositary
Receipts. The assets of Strategic Investors Fund may be
invested in the securities of foreign issuers in the form
of American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). These securities may not
necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are U.S.
dollardenominated 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 upon 60
days' notice given to its shareholders, Strategic
Investors Fund may engage in hedging transactions
involving futures contracts and related options,
including foreign and domestic stock index futures
contracts and financial futures contracts.
7. Making loans to others, except through the
purchase of qualified debt obligations, loans of
portfolio securities and the entry into repurchase
agreements.
8. Purchasing any securities (other than U.S.
government securities) which would cause more than 25%
of the value of the Fund's total assets at the time of
purchase to be invested in the securities of issuers
conducting their principal business activities in the
same industry.
9. Purchasing securities on margin. For purposes of
this restriction, the deposit or payment of initial or
variation margin in connection with futures contracts
or related options will not be deemed to be a purchase
of securities on margin by any Fund permitted to
engage in transactions in futures contracts or related
options.
10. Making short sales of securities or maintaining a
short position.
11. Pledging, hypothecating, mortgaging or otherwise
encumbering more than 10% of the value of the Fund's
total assets. For purposes of this restriction, (a)
the deposit of assets in escrow in connection with the
writing of covered call options and (b) collateral
arrangements with respect to (i) the purchase and sale
of options on stock indices and (ii) initial or
variation margin for futures contracts, will not be
deemed to be pledges of a Fund's assets.
12. Investing in oil, gas or other mineral
exploration
or development programs, except that the Fund may
invest in the securities of companies that invest in
or sponsor those programs.
13. Investing in securities of other investment
companies registered or required to be registered
under the 1940 Act, except as they may be acquired as
part of a merger, consolidation, reorganization or
acquisition of assets or an offer of exchange.
14. Writing or selling puts, calls, straddles,
spreads
or combinations thereof, except that (a) Strategic
Investors Fund may write covered call options.
15. Purchasing restricted securities, illiquid
securities (such as repurchase agreements with
maturities in excess of seven days) or other
securities that are not readily marketable if more
than 10% of the total assets of the Fund would be
invested in such securities.
16. Purchasing any security if as a result the Fund
would then have more than 10% of its total assets
invested in securities of companies (including
predecessors) that have been in continuous operation
for fewer than three years.
17. Making investments for the purpose of exercising
control or management.
18. Purchasing or retaining securities of any company
if, to the knowledge of the Trust, any of a Fund's
officers or Trustees of the Trust or any officer or
director of an Adviser individually owns more than 1/2
of 1% of the outstanding securities of such company
and together they own beneficially more than 5% of
such securities.
The Trust may make commitments more restrictive than
the restrictions listed above with respect to a Fund so as
to permit the sale of shares of the Fund in certain states.
Should the Trust determine that any such commitment is no
longer in the best interests of a Fund and its
shareholders, the Trust will revoke the commitment by
terminating the sale of shares of the Fund in the relevant
state. The percentage limitations contained in the
restrictions listed above apply at the time of purchases of
securities.
Portfolio Turnover
The Funds do not intend to seek profits through short-term
trading. Nevertheless, the Funds will not consider turnover
rate a limiting factor in making investment decisions.
Under certain market conditions, a Fund may experience
increased portfolio turnover as a result of its options
activities. For instance, the exercise of a substantial
number of options written by a Fund (due to appreciation of
the underlying security in the case of call options or
depreciation of the underlying security in the case of put
options) could result in a turnover rate in excess of 100%.
In addition, Strategic Investors Fund may experience
increased portfolio turnover as a result of the asset
allocation strategy that it employs. The portfolio turnover
rate of a Fund is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by
the monthly average value of portfolio securities.
Securities with remaining maturities of one year or less on
the date of acquisition are excluded from the calculation.
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 %
%
Growth and Income Fund 127 %
%
Portfolio Transactions
Most of the purchases and sales of securities for a Fund,
whether transacted on a securities exchange or on the over
the-counter market, will be effected in the primary trading
market for the securities. The primary trading market for a
given security generally is located in the country in which
the issuer has its principal office. Decisions to buy and
sell securities for a Fund are made by its Adviser or sub
investment adviser, which also is responsible for placing
these transactions, subject to the overall review of the
Trust's Trustees.
Although investment decisions for each Fund are made
independently from those of the other accounts managed by
its Adviser, investments of the type the Fund may make also
may be made by those other accounts. When a Fund and one or
more other accounts managed by its Adviser are prepared to
invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be
allocated in a manner believed by the Adviser to be
equitable to each. In some cases, this procedure may
adversely affect the price paid or received by a Fund or
the size of the position obtained or disposed of by the
Fund.
Transactions on domestic stock exchanges and some
foreign stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions
are negotiated, the cost of transactions may vary among
different brokers. On most foreign exchanges, commissions
are generally fixed. There is generally no stated
commission
in the case of securities traded in domestic or foreign
overthe-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 each Fund's payment of brokerage commissions:
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
Commissions paid to 1994 106,879
19,650
Smith Barney or 1995 117,328
53,370
Shearson Lehman Brothers 1996
% of Total Brokerage
Commissions paid to
Smith Barney 1996 %
%
% of Total Transactions
involving Commissions paid
to Smith Barney 1996 %
%
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. In
addition, under rules recently adopted by the SEC, Smith
Barney may directly execute such transactions for the
Funds on the floor of any national securities exchange,
provided (a) the Board of Trustees has expressly
authorized Smith Barney to effect such transactions, and
(b) Smith Barney annually advises the Trust of the
aggregate compensation it earned on such transactions.
Over-the-counter purchases and sales are transacted
directly with principal market makers except in those
cases in which better prices and executions may be
obtained elsewhere.
The Funds will not purchase any security, including
U.S. government securities, during the existence of any
underwriting or selling group relating thereto of which
Smith Barney is a member, except to the extent permitted
by the SEC.
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares described
in the Prospectuses applies to purchases made by any
"purchaser," which is defined to include the following:
(a) an individual; (b) an individual's spouse and his or
her children purchasing shares for his or her own account;
(c) a trustee or other fiduciary purchasing shares for a
single trust estate or single fiduciary account; (d) a
pension, profit-sharing or other employee benefit plan
qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and qualified
employee benefit plans of employers who are "affiliated
persons" of each other within the meaning of the 1940 Act;
(e) tax-exempt organizations 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. (With respect to
Withdrawal Plans in effect prior to November 7, 1994, any
applicable CDSC will be waived on amounts withdrawn that
do not exceed 2.00% per month of the value of a
shareholder's shares at the time the Withdrawal Plan
commences.) To the extent withdrawals exceed dividends,
distributions and appreciation of the shareholder's
investment in a Fund, there will be a reduction in the
value of the shareholder's investment, and continued
withdrawal payments will reduce the shareholder's
investment and may ultimately exhaust it. Withdrawal
payments should not be considered as income from
investment in a Fund. Furthermore, as it would not
generally be advantageous to a shareholder to make
additional investments in a Fund at the same 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 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
$
Growth and Income 51,877 39,518
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
$
Class B
Fiscal Year Fiscal Year
Fiscal Year
Name of Fund Ended 1/31/94 Ended 1/31/95
Ended 1/31/96
Growth and Income $131,421 $ 271,979
$
Class C
(formerly Class D Shares)
Fiscal Year Fiscal Year
Ended 1/31/95 Ended 1/31/96
Name of Fund
Strategic Investors $55 $
As of the fiscal year ended January 31, 1996, no
Growth and Income Fund Class C shares had been redeemed.
Service Fees
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 $
Growth and Income 9,731 97,689
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
$
Class B
Fiscal Year Fiscal Year
Fiscal Year
Name of Fund Ended 1/31/94 Ended 1/31/95
Ended 1/31/96
Growth and Income $135,701 $372,877
$
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
$
___________________________
* 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 $
____________________________
* Class C Shares were first purchased by the public on
August 15, 1994.
Distribution Fees
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
$
Class B
Fiscal Year Fiscal Year
Fiscal Year
Name of Fund Ended 1/31/94 Ended 1/31/95
Ended 1/31/96
Growth and Income $ 271,401 $ 745,754
$
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 $
_________________________________
* 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 $
_____________________________
* 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 approximately $-------------
.
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 Classspecific 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 pplied.
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. The Fund
may include comparative performance information in
advertising or marketing the Fund's shares. Such
performance information may include the following industry
and financial publications: Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes,
Fortune,
Institutional Investor, Investors Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA
Today and The Wall Street Journal. To the extent any
advertisement or sales literature of the Funds describes
the expenses or performance of Class A, Class B, Class C
or Class Y, it will also disclose such information for the
other Classes.
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:
Class A Shares:
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 (-----)% --
- --
%
Growth and Income (-----) --
- --
______________________________
*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:
Class B Shares:
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) (----)% -----%
- ----%
Growth and Income(2) (----)% -----
- ----
________________________________
(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:
Class C Shares:
One Year Per Annum for
Period Ended the Period Ended
1/31/96 1/31/96
Name of Fund
Strategic Investors (----)% ----%
Growth and Income (----)% (----)
______________________________
*The Funds commenced selling Class C shares (previously
Class D shares) on January 29, 1993.
Strategic Investors Fund shares were first sold to the
public on May 5, 1993. Growth and Income Fund shares were
first sold to the public on August 15, 1994.
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) of the
Class B shares were as follows for
the periods indicated:
No Load Load
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**
Name of Fund
Strategic Investors(1) -----% ----% ----%
- ----% ----% ----%
Growth and Income(2) -----% ----% ----%
- --
- --% ----% ----%
_____________________________________
* Figures do not include the effect of the maximum
sales
charge or maximum applicable CDSC. If
they had been included, it would have had the effect
of lowering the returns shown.
** Figures include the effect of the maximum sales
charge
or maximum applicable CDSC.
(1) The Fund commenced selling Class B shares on February
2, 1987.
(2) The Fund commenced selling Class B shares on November
6, 1992.
The aggregate total returns (with fees waived) of the
Class A and Class C shares of the Funds were as follows
for the periods indicated:
No Load Load
Period from
Period from
No Load Load Commencement
Commencement
One Year One Year` of Operations*
of Operations*
Period Ended Period Ended
through through
1/31/96* 1/31/96** 1/31/96*
1/31/96**
Strategic Investors
Class A+ ----% ----% ----%
- ----%
Class C++ ----% ----% ----%
- ----%
Growth and Income
Class A+ ----% ----% ----%
- ----%
Class C+++ ----% ----% -
- --
- -% ----%
_____________________________________
* Figures do not include the effect of the maximum
sales charge or maximum applicable CDSC. If
they had been included, it would have had the effect
of lowering the returns shown.
** Figures include the effect of the maximum sales charge
or maximum applicable CDSC.
+ The Fund commenced selling Class A shares on
November 6, 1992.
++ The Fund commenced selling Class C shares (previously
Class D shares) on January 29, 1993.
Shares were first sold to the public on May 5, 1993.
+++ The Fund commenced selling Class C shares (previously
Class D shares) on January 29, 1993.
Shares were first sold to the public on August 15,
1994.
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 mayaffect 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 continue to qualify in subsequent
years as a regulated investment company within the meaning
of Section 851 of the Code. The Trust will monitor each
Fund's investments so as to meet the requirements for
qualification on a continuing basis.
As a regulated investment company, a Fund will not be
subject to Federal income tax on the net investment income
and net capital gains, if any, that it distributes to its
shareholders, provided that at least 90% of the sum of
investment income and short-term capital gains is
distributed to its shareholders. All net investment income
and net capital gains earned by a Fund will be reinvested
automatically in additional shares of the Fund, unless the
shareholder elects to receive dividends and distributions
in
cash. Amounts reinvested in additional shares will be
considered to have been distributed to shareholders.
To qualify as a regulated investment company, each
Fund must meet certain requirements set forth in the Code.
One requirement is that each Fund must earn at least 90%
of its gross income from (a) interest, (b) dividends, (c)
payments with respect to securities loans, (d) gains from
the sale or other disposition of stock or securities or
foreign currencies and (e) other income (including but not
limited to gains from options, futures, or forward
contracts) derived with respect to its business of
investing in such stock, securities, or currencies (the
"90% Test"). An additional requirement is that each Fund
must earn less than 30% of its gross income from the sale
or other disposition of stock or securities held for less
than three months (the "30% Test"). Legislation currently
pending before the U.S. Congress would repeal the 30%
Test. However, it is impractical at this time to predict
whether this legislation will become law and, if it is so
enacted, what form it will eventually take.
Each Fund will invest in a combination of common
stock, preferred stock, notes and bonds and will earn
interest and dividend income, gains from the sale of such
securities, and income from repurchase agreements entered
into with respect to such securities, all of which
generally would be considered to be qualified income under
the 90% Test. Each Fund generally will hold its
investments longer than three months and therefore should
not risk disqualification under the 30% Test. Depending
upon the circumstances, however, a Fund may be limited in
the extent to which it may: (a) sell securities held for
less than three months; (b) effect short sales of
securities that are identical (or substantially identical)
to securities held by it for less than three months; (c)
write options that expire in less than three months; and
(d) effect closing transactions with respect to call or
put options that have been written or purchased within the
preceding three months. A Fund's gain or loss from the
sale (including open short sales) or other dispositions of
stock or securities (with the term "securities" defined to
include put and call options) held for less than three
months will be netted against its gain or loss on
positions that are part of a "designated hedge" with
respect to such three-month investments.
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 effected straddle positions will be
determined under rules that will vary according to the
type of election made.
ADDITIONAL INFORMATION
The Trust was organized as an unincorporated business
trust under the laws of The Commonwealth of Massachusetts
pursuant to a Master Trust Agreement dated January 8,
1986, as amended from time to time (the "Trust
Agreement"). The Trust commenced business as an investment
company on March 3, 1986, under the name Shearson Lehman
Special Equity Portfolios. On December 6, 1988, August 27,
1990, November 5, 1992, July 30, 1993 and October 14,
1994, the Trust changed its name to SLH Equity Portfolios,
Shearson Lehman Brothers Equity Portfolios, Shearson
Lehman Brothers Equity Funds, Smith Barney Shearson Equity
Funds and Smith Barney Equity Funds, respectively.
PNC is located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and serves as custodian
for the Funds. Under its custodial agreement with the
Trust, PNC is authorized to appoint one or more foreign or
domestic banking institutions as sub-custodians of assets
owned by a Fund. For its custody services, PNC receives
monthly fees charged to each Fund based upon the month-
end, aggregate net asset value of the Fund, plus certain
charges for securities transactions. The assets of the
Trust are held under bank custodianship in accordance with
the 1940 Act.
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 Funds' Annual Reports 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
A-6
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.
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 indicated 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+ indicated 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
Statement of
Additional Information
March ---, 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:
Financial Highlights
Included in Part B:
The Registrant's Annual Reports
for
the fiscal year ended January 31, 1996
and the Report of Independent Accountants
will be filed by amendment, pursuant to
Rule 485(b) of the 1933 Act
Included in Part C:
Consent of Auditors to be filed by amendment
(b) Exhibits
All references are to the Registrant's
registration statement on Form N-1A (the "Registration
Statement") as filed with the Securities and
Exchange Commission (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 will be filed by amendment.
(5)(a) Investment Advisory Agreement between
Registrant and Smith Barney Strategy Advisers Inc., with
respect to Strategic Investors Fund, is filed
herewith.
(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.
(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 filed
herewith.
(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) Not applicable.
(15) Amended Services and Distribution Plans pursuant to
Rule 12b-1 between the Registrant on behalf of Smith Barney
Growth and Income Fund and Smith Barney Strategic Investors
Fund are incorporated by reference to PostEffective Amendment
No. 29.
(16) Performance information is incorporated by
reference to Post-Effective Amendments No. 9 and 10.
(17) Financial Data Schedule will be filed
by amendment.
(18) Plan pursuant to Rule 18f-3 is filed herewith
Item 25 Persons Controlled by or Under Common
Control
with
Registrant
None.
Item 26 Number of Holders of Securities
Number of Record
Holders by Class
Title of Class as of
December
31, 1995
Beneficial Interest par value
$.001 per share Class A Class
B
Class C Class Y
Smith Barney Strategic Investors Fund
21,427
21,760 170 0
Smith Barney Growth and Income Fund
12,815
11,200 100 0
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.
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 30th day of
January, 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 1/30/96
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President
and 1/30/96
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Lee Abraham*
Trustee
1/30/96
Lee Abraham
/s/ Antoinette C. Bentley*
Trustee 1/30/96
Antoinette C. Bentley
/s/ Allan J. Bloostein*
Trustee
1/30/96
Allan J. Bloostein
/s/ Madelon Devoe-Talley*
Trustee
1/30/96
Madelon Devoe-Talley
/s/ Richard E. Hanson*
Trustee
1/30/96
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
EXHIBITS
Exhibit No. Description of Exhibits
5(b) Form of
Investment Advisory
Agreement among the Registrant
and Smith Barney Strategy Advisers
Inc. with respect to Smith
Barney Strategic Investors Fund
8(a) Form of Custodial Agreement
between the Registrant and PNC
Bank, National Association
18 Plan pursuant to Rule
18f-
3
Cover Letter to SEC
</TABLE>
FORM OF INVESTMENT ADVISORY
AGREEMENT
[Date]
Smith Barney Strategy Advisers, Inc.
388 Greenwich Street
New York, NY 10013
Dear Sirs:
Smith Barney Equity Funds (the Company), a
trust organized under the laws of the Commonwealth
of
Massachusetts, on behalf of Smith Barney Strategic
Investors Fund (the "Fund"), confirms its agreement with
Smith Barney Strategy Advisers Inc. (the Adviser), as
follows:
1. Investment Description; Appointment
The Company desires to employ its capital relating
to the Fund by investing and reinvesting in
investments of the kind and in accordance with
the investment
objective(s), policies and limitations specified in
its Master Trust Agreement, as amended from time to
time (the "Master Trust Agreement"), in the
Prospectus
relating to the Fund (the "Prospectus") and
the
Statement of Additional Information relating to
the
Company (the "Statement") filed with the Securities
and Exchange Commission (the "SEC") as part of the
Fund's Registration Statement on Form N-lA, as
amended from time to time, and in such manner and to
such extent as may from time to time be approved
by the Board of
Trustees of the Company (the "Board"). Copies of
the
Fund's Prospectus, the Statement and the Master
Trust Agreement have been or will be submitted to the
Adviser The Company desires to employ and hereby
appoints the Adviser to act as the Funds investment
adviser. The
Adviser accepts the appointment and agrees to
furnish the services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision, direction and approval
of the Board of the Company, the Adviser will: (a)
manage the Fund's portfolio in accordance with the
Fund's investment objective and policies as stated
in the
Prospectus and the Statement; (b) make
investment
decisions for the Fund; (c) place purchase and
sale orders for portfolio transactions for the Fund;
and (d) employ
professional portfolio managers and securities
analysts to provide research services to the Fund.
In
providing those services, the Adviser will conduct
a continual program of investment, evaluation and,
if
appropriate, sale and reinvestment of the
Fund's
assets. The Adviser may, with the approval of the
Board and the shareholders of the Fund (to
the extent
required by applicable law), from time to time,
subcontract with one or more sub-investment
advisers to
provide some or all of the services required under
this agreement.
3. Brokerage
In selecting brokers or dealers to execute
transactions
on behalf of the Fund, the Adviser will seek the
best overall terms available. In assessing the
best overall
terms available for any transaction, the Adviser
will
consider factors it deems relevant, including,
but not
limited to, the breadth of the market in the
security, the price of the security, the financial
condition and execution capability of the broker or
dealer and the
reasonableness of the commission, if any, for
the
specific transaction and on a continuing basis.
In
selecting brokers or dealers to execute a
particular
transaction, and in evaluating the best overall
terms available, the Adviser is authorized to
consider the
brokerage and research services (as those terms
are
defined in Section 28(e) of the Securities Exchange
Act
of 1934, as amended) provided to the Fund and/or
other
accounts over which the Adviser or its
affiliates
exercise investment discretion.
4. Information Provided to the Fund
The Adviser will keep the Company informed
of
developments materially affecting the Fund's
portfolio, and will, on its own initiative, furnish
the Company
from time to time with whatever information the
Adviser
believes is appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment
in
rendering the services listed in paragraphs 2
and 3
above. The Adviser shall not be liable for any
error
of judgment or mistake of law or for any loss
suffered
by the Company in connection with the matters to
which this Agreement relates, provided that nothing
in this
Agreement shall be deemed to protect or purport
to
protect the Adviser against any liability
to the
Company or to the shareholders of the Fund to which
the Adviser would otherwise be subject by reason of
willful
malfeasance, bad faith or gross negligence on its
part
in the performance of its duties or by reason
of the
Adviser's reckless disregard of its obligations
and
duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant
to
this Agreement, the Fund will pay the Adviser,
on the
first business day of each month, a fee for
the
previous month at the annual rate of 0.55% of 1.00%
of
the Fund's average daily net assets. The fee
for the
period from the Effective Date (defined below)
of the
Agreement to the end of the month during which
the
Effective Date occurs shall be pro-rated according
to
the proportion that such period bears to the
full
monthly period. Upon any termination of this
Agreement
before the end of any month, the fee for such
part of
that month shall be pro-rated according
to the
proportion that such period bears to the full
monthly
period and shall be payable upon the
date of
termination of this Agreement. For the purpose
of
determining fees payable to the Adviser, the value
of
the Fund's net assets shall be computed at the
times
and in the manner specified in the Fund's
Prospectus
and/or the Statement, as from time to time in effect.
7. Expenses
The Adviser will bear all expenses in connection
with
the performance of its services under this
Agreement and will pay to any sub-investment adviser
or advisers
retained by the Adviser to provide advisory services
to
the Fund (a Sub-Adviser) the fees required to
be paid
to each Sub-Adviser. The Fund will bear certain
other
expenses to be incurred in its operation,
including:
investment advisory, sub-investment advisory
and
administration fees, other than those payable to
a Sub-
Adviser or any additional or substitute sub-
investment
adviser;; fees for necessary professional and
brokerage
services; fees for any pricing service; the costs
of
regulatory compliance; and cost associated
with
maintaining the Companys legal existence
and
shareholder relations.
8. Reduction of Fee
If in any fiscal year the aggregate expenses
of the
Fund (including fees pursuant to this Agreement
and the
Funds sub-investment advisory and
administration
agreements, but excluding interest, taxes,
brokerage
and extraordinary expenses) exceed the
expense
limitation of any state having jurisdiction over
the
Fund, the Adviser will reduce its fee to the
Fund by
the proportion of such excess expense equal
to the
proportion that its fee thereunder bears
to the
aggregate of fees paid by the Fund for
investment
advice and administration in that year, to the
extent
required by state law. A fee reduction pursuant
to this
paragraph 8, if any, will be estimated, reconciled
and
paid on a monthly basis.
9. Services to Other Companies or Accounts
The Company understands that the Adviser now acts,
will
continue to act and may act in the future
as:
investment adviser to fiduciary and other
managed
accounts, as well as investment adviser to
other
investment companies; and the Company has no
objection
to the Adviser's so acting, provided that whenever
the Fund and one or more other investment companies
advised
by the Adviser have available funds for
investment,
investments suitable and appropriate for each
will be
allocated in accordance with a formula believed to
be
equitable to each company. The Fund recognizes
that in
some cases this procedure may adversely affect the
size
of the position obtainable for the Fund. In
addition,
the Fund understands that the persons employed
by the
Adviser to assist in the performance of the
Adviser's
duties under this Agreement will not devote their
full
time to such service and nothing contained in
this
Agreement shall be deemed to limit or restrict
the
right of the Adviser or any affiliate of the Adviser
to
engage in and devote time and attention to
other
businesses or to render services of whatever kind
or
nature.
l0. Term of Agreement
This Agreement shall become
effective
__________________, 1995 (the Effective Date)
and
shall continue for an initial two-year term and
shall
continue thereafter so long as such continuance
is
specifically approved at least annually by (i)
the
Board of the Company or (ii) a vote of a "majority"
(as defined in the Investment Company Act of 1940,
as
amended (the "1940 Act") of the Fund's
outstanding
voting securities, provided that in either event
the
continuance is also approved by a majority of the
Board who are not "interested persons" (as defined
in the 1940 Act) of any party to this Agreement, by
vote cast in person or by proxy at a meeting
called for the
purpose of voting on such approval. This Agreement
is
terminable, without penalty, on 60 days'
written
notice, by the Board of the Company or by vote
of
holders of a majority of the Fund's shares, or upon
90
days' written notice, by the Adviser. This
Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
11. Representation by the Fund
The Company represents that a copy of the Master
Trust Agreement is on file with the
Secretary of the
Commonwealth of Massachusetts and with the City
of
Boston.
12. Limitation of Liability
The Company and the Adviser agree that the
obligations of the Company under this Agreement
shall not be
binding upon any of the Board members,
shareholders, nominees, officers, employees or
agents, whether past,
present or future, of the Company individually, but
are
binding only upon the assets and property of
the
Company, as provided in the Master Trust
Agreement.
The execution and delivery of this Agreement have
been duly authorized by the Board and a
majority of the
holders of the Funds outstanding voting
securities, are signed by an authorized
officer of the Company,
acting as such, and neither such authorization by
such
Board members and shareholders, nor the execution
and delivery by the officer shall be deemed to have
been made by any of them individually or to
impose any
liability on any of them personally, but shall
bind only the assets and property of the Company as
provided
in the Master Trust Agreement.
If the foregoing is in accordance with
your
understanding, kindly indicate your acceptance of t
his
Agreement by signing and returning the enclosed copy
of
this Agreement.
Very truly yours,
SMITH BARNEY EQUITY FUNDS
on behalf of SMITH BARNEY
STRATEGIC INVESTORS FUND
By:________________________________
Title:
Accepted:
SMITH BARNEY STRATEGY ADVISERS INC.
By:_____________________________
Title:
FORM OF CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of
[ ] by and between SMITH BARNEY EQUITY FUNDS, a
Massachusetts business trust (the "Fund") and
PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC Bank").
The Fund is registered as an open-end
investment
company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund wishes to retain PNC
Bank to provide custodian services and PNC Bank wishes
to furnish such services, either directly or through an
affiliate or affiliates, as more fully described
herein. In
consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term
"Authorized Person" shall mean any officer of the Fund
and any other person, who is duly authorized by the
Fund's Governing
Board, to give Oral and Written Instructions on behalf
of the Fund. Such persons are listed in the
Certificate
attached hereto as the Authorized Persons Appendix, as
such Appendix may be amended in writing by the Fund's
Governing
Board from time to time.
(b) "Book-Entry System". The term "Book-
Entry
System" means Federal Reserve Treasury book-entry system
for United States and federal agency securities, its
successor
or successors, and its nominee or nominees and
any
book-entry system maintained by an exchange registered
with
the SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean
the
Commodities Futures Trading Commission.
(d) "Governing Board". The term
"Governing
Board" shall mean the Fund's Board of Directors if the
Fund
is a corporation or the Fund's Board of Trustees if the
Fund
is a trust, or, where duly authorized, a competent
committee
thereof.
(e) "Oral Instructions". The term
"Oral
Instructions" shall mean oral instructions received by
PNC Bank from an Authorized Person or from a person
reasonably
believed by PNC Bank to be an Authorized Person.
(f) "SEC". The term "SEC" shall mean
the
Securities and Exchange Commission.
(g) "Securities and Commodities Laws". The
term
"Securities and Commodities Laws" shall mean the "1933
Act"
which shall mean the Securities Act of 1933, the "1934
Act"
which shall mean the Securities Exchange Act of 1934,
the 1940 Act, and the "CEA" which shall mean the
Commodities
Exchange Act, as amended.
(h) "Shares". The term "Shares" shall mean
the
shares of stock of any series or class of the Fund,
or,
where appropriate, units of beneficial interest in a
trust
where the Fund is organized as a Trust.
(i) "Property". The term "Property" shall mean:
(i) any and all
securities and other investment items
which the
Fund may from time to time deposit,
or cause to be deposited, with PNC
Bank or which PNC Bank may from time
to time hold for the Fund;
(ii) all income in respect of
any
of such securities or other investment items;
(iii) all proceeds of the sale
of
any of such securities or investment
items; and
(iv) all proceeds of the sale
of securities issued by the Fund, which
are
received by PNC Bank from time to time,
from or on behalf of the Fund.
(j) "Written Instructions". The term
"Written Instructions" shall mean written instructions
signed by one Authorized Person and received by
PNC Bank. The
instructions may be delivered by hand, mail,
tested
telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank
to
provide custodian services to the Fund, and PNC Bank
accepts such appointment and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided
or,
where applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of
the
resolutions of the Fund's Governing Board, approving
the
appointment of PNC Bank or its affiliates to
provide
services;
(b) a copy of the Fund's most recent
effective registration statement;
(c) a copy of the Fund's advisory agreement
or agreements;
(d) a copy of the Fund's distribution
agreement
or agreements;
(e) a copy of the Fund's
administration
agreements if PNC Bank is not providing the Fund with
such services;
(f) copies of any shareholder
servicing
agreements made in respect of the Fund; and
(g) certified or authenticated copies of any
and
all amendments or supplements to the foregoing.
4. Compliance with Government Rules and
Regulations.
PNC Bank undertakes to comply with all
applicable
requirements of the Securities and Commodities Laws and
any laws, rules and regulations of governmental
authorities
having jurisdiction with respect to all duties to
be
performed by PNC Bank hereunder. Except as specifically
set forth herein, PNC Bank assumes no responsibility for
such compliance by the Fund.
5. Instructions. Unless otherwise provided in
this
Agreement, PNC Bank shall act only upon Oral and
Written
Instructions. PNC Bank shall be entitled to rely upon
any
Oral and Written Instructions it receives from an
Authorized Person (or from a person reasonably believed by
PNC Bank to
be an Authorized Person) pursuant to this Agreement.
PNC
Bank may assume that any Oral or Written
Instructions
received hereunder are not in any way inconsistent with
the provisions of organizational documents or this
Agreement or of any vote, resolution or proceeding of
the Fund's
Governing Board or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank
Written
Instructions confirming Oral Instructions so that PNC
Bank receives the Written Instructions by the close of
business on the same day that such Oral Instructions are
received. The fact that such confirming Written
Instructions are not
received by PNC Bank shall in no way invalidate the
transactions or enforceability of the
transactions
authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur
no liability to the Fund in acting upon Oral or
Written
Instructions provided such instructions reasonably appear
to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in
doubt
as to any action it should or should not take, PNC Bank
may request directions or advice, including Oral or
Written
Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be
in
doubt as to any questions of law pertaining to any action
it should or should not take, PNC Bank may request
advice at its own cost from such counsel of its own
choosing (who may be counsel for the Fund, the Fund's
advisor or PNC Bank, at
the option of PNC Bank).
(c) Conflicting Advice. In the event
of a
conflict between directions, advice or Oral or
Written
Instructions PNC Bank receives from the Fund, and the
advice it receives from counsel, PNC Bank shall be entitled
to rely upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall
be
protected in any action it takes or does not
take in
reliance upon directions, advice or Oral or
Written
Instructions it receives from the Fund or from counsel
and
which PNC Bank believes, in good faith, to be
consistent
with those directions, advice or Oral or
Written
Instructions.
Nothing in this paragraph shall be construed so as
to impose an obligation upon PNC Bank (i) to seek
such
directions, advice or Oral or Written Instructions, or
(ii)
to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms
of other
provisions of this Agreement, the same is a condition of
PNC Bank's properly taking or not taking such action.
7. Records. The books and records pertaining to
the
Fund which are in the possession of PNC Bank, shall be
the property of the Fund. Such books and records
shall be
prepared and maintained as required by the 1940 Act and
other applicable securities laws, rules and
regulations.
The Fund, or the Fund's Authorized Persons, shall
have
access to such books and records at all time during
PNC
Bank's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records
shall be provided by PNC Bank to the Fund or to an
Authorized Person
of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to
keep
confidential all records of the Fund and
information
relative to the Fund and its shareholders (past, present
and
potential), unless the release of such records
or
information is otherwise consented to, in writing, by
the
Fund. The Fund agrees that such consent shall not
be
unreasonably withheld and may not be withheld where PNC
Bank may be exposed to civil or criminal contempt
proceedings or when required to divulge. The Fund
further agrees that, should PNC Bank be required to
provide such information or
records to duly constituted authorities (who may
institute civil or criminal contempt proceedings
for failure to
comply), PNC Bank shall not be required to seek the
Fund's
consent prior to disclosing such information.
9. Cooperation with Accountants. PNC Bank
shall
cooperate with the Fund's independent public accountants
and shall take all reasonable action in the performance
of its obligations under this Agreement
to ensure that the
necessary information is made available to such
accountants
for the expression of their opinion, as required
by the
Fund.
10. Disaster Recovery. PNC Bank shall enter
into and
shall maintain in effect with appropriate parties one
or
more agreements making reasonable provision for
emergency
use of electronic data processing equipment to the
extent appropriate equipment is available. In
the event of
equipment failures, PNC Bank shall, at no additional
expense
to the Fund, take reasonable steps to minimize
service
interruptions but shall have no liability with
respect
thereto.
11. Compensation. As compensation for
custody
services rendered by PNC Bank during the
term of this
Agreement, the Fund will pay to PNC Bank a fee or fees
as
may be agreed to in writing from time to time by the
Fund and PNC Bank.
12. Indemnification. The Fund agrees to indemnify
and
hold harmless PNC Bank and its nominees from all
taxes,
charges, expenses, assessment, claims and
liabilities
(including, without limitation, liabilities arising
under
the Securities and Commodities Laws and any
state and
foreign securities and blue sky laws, and
amendments
thereto, and expenses, including (without
limitation)
attorneys' fees and disbursements, arising directly
or
indirectly from any action which PNC Bank takes or does
not
take (i) at the request or on the direction of
or in
reliance on the advice of the Fund or (ii) upon Oral
or
Written Instructions. Neither PNC Bank, nor any of
its
nominees, shall be indemnified against any liability
to the
Fund or to its shareholders (or any expenses incident
to
such liability) arising out of PNC Bank's own
willful
misfeasance, bad faith, negligence or reckless disregard
of
its duties and obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank
shall be
under no duty to take any action on behalf of the
Fund
except as specifically set forth herein or as
may be
specifically agreed to by PNC Bank, in writing.
PNC Bank
shall be obligated to exercise care and diligence in
the performance of its duties hereunder, to act in good
faith
and to use its best effort, within reasonable limits,
in
performing services provided for under this Agreement.
PNC
Bank shall be responsible for its own negligent failure
to
perform its duties under this Agreement. Notwithstanding
the
foregoing, PNC Bank shall not be responsible for
losses
beyond its control, provided that PNC Bank has acted
in
accordance with the standard of care set forth above;
and provided further that PNC Bank shall only be
responsible for that portion of losses or damages suffered
by the Fund that are attributable to the negligence of PNC
Bank.
Without limiting the generality of the foregoing or
of
any other provision of this Agreement, PNC
Bank, in
connection with its duties under this Agreement, shall
not be under any duty or obligation to inquire into and
shall not be liable for (a) the validity or
invalidity or
authority or lack thereof of any Oral or
Written
Instruction, notice or other instrument which conforms
to
the applicable requirements of this Agreement, and which
PNC Bank reasonably believes to be genuine; or (b)
delays or
errors or loss of data occurring by reason of
circumstances beyond PNC Bank's control, including
acts of civil or
military authority, national emergencies,
labor
difficulties, fire, flood or catastrophe, acts
of God,
insurrection, war, riots or failure of the
mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to
the
contrary, PNC Bank shall have no liability to the Fund
for any consequential, special or indirect losses or
damages
which the Fund may incur or suffer by or as a consequence
of
PNC Bank's performance of the services provided
hereunder, whether or not the likelihood of such losses or
damages was known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund
will
deliver or arrange for delivery to PNC Bank, all
the
property owned by the Fund, including cash received as
a result of the distribution of its Shares, during
the period
that is set forth in this Agreement. PNC Bank will not
be
responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC
Bank,
acting upon Written Instructions, shall open and
maintain separate account(s) in the Fund's name
using all cash
received from or for the account of the Fund, subject to
the terms of this Agreement. In addition,
upon Written
Instructions, PNC Bank shall open separate
custodial
accounts for each separate series, class or portfolio of
the Fund and shall hold in such account(s) all cash
received from or for the accounts of the Fund specifically
designated to each separate series, class or portfolio. PNC
Bank shall make cash payments from or for the account of
the Fund only
for:
(i) purchases of
securities
in the name of the Fund or PNC Bank
or
PNC Bank's nominee as provided
in
sub-paragraph j and for which PNC
Bank
has received a copy of the broker's
or
dealer's confirmation or
payee's
invoice, as appropriate;
(ii) purchase or redemption
of
Shares of the Fund delivered to PNC Bank; (iii)
payment of, subject to Written
Instructions, interest, taxes,
administration, accounting, distribution,
advisory, management fees or similar expenses
which are to be borne by the Fund;
(iv) payment to, subject to receipt
of Written Instructions, the Fund's transfer
agent, as agent for the shareholders,
an
amount equal to the amount of dividends and
distributions stated in the Written
Instructions to be distributed in cash by the
transfer agent to shareholders, or, in lieu
of paying the Fund's transfer agent, PNC Bank
may arrange for the direct payment of cash
dividends and distributions to shareholders
in accordance with procedures mutually agreed
upon from time to time by and among the Fund,
PNC Bank and the Fund's transfer agent;
(v) payments, upon receipt
of
Written Instructions, in connection with
the conversion, exchange or surrender
of
securities owned or subscribed to by the
Fund and held by or delivered to
PNC
Bank;
(vi) payments of the amounts
of
dividends received with respect
to
securities sold short; payments made to
a
sub-custodian pursuant to provisions
in
sub-paragraph c of this Paragraph; and
(viii) payments, upon Written
Instructions made for other proper Fund
purposes. PNC Bank is hereby authorized
to
endorse and collect all checks, drafts
or
other orders for the payment of money
received as custodian for the account of the
Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all
securities received by it for the
account of the Fund in a
separate
account that physically segregates such
securities from those of any other
persons, firms or corporations, except
for securities held in a Book-Entry
System. All such securities shall
be
held or disposed of only upon Written
Instructions of the Fund pursuant
to
the terms of this Agreement. PNC
Bank
shall have no power or authority
to
assign, hypothecate, pledge or otherwise
dispose of any such securities
or
investment, except upon the
express
terms of this Agreement and upon Written
Instructions, accompanied by a
certified
resolution of the Fund's
Governing
Board, authorizing the transaction.
In
no case may any member of the Fund's
Governing Board, or any
officer,
employee or agent of the Fund withdraw
any securities. At PNC Bank's own
expense and for its own convenience, PNC
Bank may enter into sub-custodian
agreements with other banks or trust
companies to perform duties described in
this sub-paragraph c. Such bank
or
trust company shall have an
aggregate
capital, surplus and undivided
profits,
according to its last published
report,
of at least one million
dollars
($1,000,000), if it is a subsidiary
or
affiliate of PNC Bank, or at least
twenty million dollars ($20,000,000)
if
such bank or trust company is
not a
subsidiary or affiliate of PNC Bank.
In addition, such bank or trust company
must agree to comply with the relevant
provisions of the 1940 Act and other
applicable rules and regulations.
PNC
Bank shall remain responsible for
the
performance of all of its duties
as
described in this Agreement and shall
hold the Fund harmless from PNC Bank's
own (or any sub-custodian chosen by PNC
Bank under the terms of
this
sub-paragraph c) acts or omissions,
under the standards of care provided for
herein.
(d) Transactions Requiring Instructions. Upon
receipt of Oral or Written Instructions and not otherwise,
PNC Bank, directly or through the use of the Book-Entry
System, shall:
(i) deliver any securities
held for the Fund against the receipt of
payment for the sale of such securities;
(ii) execute and deliver to
such
persons as may be designated in such Oral or
Written Instructions, proxies,
consents,
authorizations, and any other instruments
whereby the authority of the Fund as owner
of
any securities may be exercised;
(iii) deliver any securities to the
issuer thereof, or its agent, when such
securities are called, redeemed, retired
or
otherwise become payable; provided that,
in
any such case, the cash or other
consideration is to be delivered to PNC Bank; (iv)
deliver any securities held
for the Fund against receipt of other
securities or cash issued or paid
in
connection with the liquidation,
reorganization, refinancing, tender
offer,
merger, consolidation or recapitalization
of
any corporation, or the exercise of
any
conversion privilege;
(v) deliver any securities
held for the Fund to any protective
committee, reorganization committee
or
other person in connection with
the
reorganization, refinancing,
merger,
consolidation, recapitalization or sale
of assets of any corporation,
and
receive and hold under the terms of
this
Agreement such certificates of
deposit,
interim receipts or other instruments
or
documents as may be issued to it
to
evidence such delivery;
(vi) make such transfer
or
exchanges of the assets of the Fund and take
such other steps as shall be stated in
said
Oral or Written Instructions to be for
the
purpose of effectuating a duly authorized
plan of liquidation, reorganization, merger,
consolidation or recapitalization of
the
Fund;
(vii) release securities belonging
to the Fund to any bank or trust company for
the purpose of a pledge or hypothecation
to
secure any loan incurred by the Fund;
provided, however, that securities shall
be
released only upon payment to PNC Bank of the
monies borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made subject to proper
prior authorization, further securities
may
be released for that purpose; and repay such
loan upon redelivery to it of the securities
pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the
loan;
(viii) release and deliver securities
owned by the Fund in connection with
any
repurchase agreement entered into on behalf
of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund
in
connection with such repurchase agreements,
but only upon the delivery of the securities; (ix)
release and deliver or
exchange securities owned by the Fund
in
connection with any conversion of
such
securities, pursuant to their terms, into
other securities;
(x) release and
deliver
securities owned by the Fund for
the
purpose of redeeming in kind shares
of
the Fund upon delivery thereof to
PNC
Bank; and
(xi) release and deliver
or
exchange securities owned by the Fund
for
other corporate purposes. PNC Bank must also
receive a certified resolution describing the
nature of the corporate purpose and the name
and address of the person(s) to whom delivery
shall be made when such action is pursuant
to
sub-paragraph d above.
(e) Use of Book-Entry System. The Fund shall deliver
to PNC Bank certified resolutions of the Fund's Governing
Board approving, authorizing and instructing PNC Bank on a
continuous and on-going basis, to deposit in the Book-Entry
System all securities belonging to the Fund eligible
for
deposit therein and to utilize the Book-Entry System to the
extent possible in connection with settlements of purchases
and sales of securities by the Fund, and deliveries and
returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties
until it receives Written or Oral Instructions authorizing
contrary actions(s).
To administer the Book-Entry System properly,
the
following provisions shall apply:
(i) With respect
to
securities of the Fund which
are
maintained in the Book-Entry system,
established pursuant to this
sub-paragraph e hereof, the records
of
PNC Bank shall identify by Book-Entry
or
otherwise those securities belonging
to
the Fund. PNC Bank shall furnish
the
Fund a detailed statement of
the
Property held for the Fund under this
Agreement at least monthly and from time
to time and upon written request.
(ii) Securities and any cash of the
Fund deposited in the Book-Entry System will
at all times be segregated from any assets
and cash controlled by PNC Bank in other than
a fiduciary or custodian capacity but may be
commingled with other assets held in such
capacities. PNC Bank and its sub-custodian,
if any, will pay out money only upon receipt
of securities and will deliver securities
only upon the receipt of money.
(iii) All books and records
maintained by PNC Bank which relate to the
Fund's participation in the Book-Entry System
will at all times during PNC Bank's regular
business hours be open to the inspection of
the Fund's duly authorized employees
or
agents, and the Fund will be furnished with
all information in respect of the services
rendered to it as it may require.
(iv) PNC Bank will provide the Fund
with copies of any report obtained by
PNC
Bank on the system of internal accounting
control of the Book-Entry System promptly
after receipt of such a report by PNC Bank.
PNC Bank will also provide the Fund with such
reports on its own system of internal control
as the Fund may reasonably request from time
to time.
(f) Registration of Securities. All Securities
held for the Fund which are issued or issuable only
in
bearer form, except such securities held in the Book-Entry
System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the
name
of the Fund; PNC Bank; the Book-Entry System;
a
sub-custodian; or any duly appointed nominee(s) of the Fund,
PNC Bank, Book-Entry system or sub-custodian. The
Fund
reserves the right to instruct PNC Bank as to the method
of
registration and safekeeping of the securities of the Fund.
The Fund agrees to furnish to PNC Bank appropriate
instruments to enable PNC Bank to hold or deliver in proper
form for transfer, or to register its registered nominee
or
in the name of the Book-Entry System, any securities which
it may hold for the account of the Fund and which may
from
time to time be registered in the name of the Fund.
PNC
Bank shall hold all such securities which are not held
in
the Book-Entry System in a separate account for the Fund
in
the name of the Fund physically segregated at all times from
those of any other person or persons.
(g) Voting and Other Action. Neither PNC
Bank
nor its nominee shall vote any of the securities
held
pursuant to this Agreement by or for the account of
the
Fund, except in accordance with Written Instructions.
PNC
Bank, directly or through the use of the Book-Entry System,
shall execute in blank and promptly deliver all
notice,
proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is
not
the Fund then Written or Oral Instructions must
designate
the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions.
In
the absence of contrary Written Instructions, PNC Bank
is
authorized to take the following actions:
(i) Collection of Income
and
Other Payments.
(A) collect and
receive for the account of the
Fund, all income, dividends,
distributions, coupons, option
premiums, other payments and
similar items, included or to be
included in the Property, and, in
addition, promptly advise the Fund
of such receipt and credit such
income, as collected, to the Fund's
custodian account;
(B) endorse and
deposit for collection, in the name
of the Fund, checks, drafts, or
other orders for the payment of
money;
(C) receive and
hold for the account of the Fund
all securities received as a
distribution on the Fund's
portfolio securities as a result of
a stock dividend, share split-up or
reorganization, recapitalization,
readjustment or other rearrangement
or distribution of rights or
similar securities issued with
respect to any portfolio securities
belonging to the Fund held by PNC
Bank hereunder;
(D) present for
payment and collect the amount
payable upon all securities which
may mature or be called, redeemed,
or retired, or otherwise become
payable on the date such securities
become payable; and
(E) take any action
which may be necessary and proper
in connection with the collection
and receipt of such income and
other payments and the endorsement
for collection of checks, drafts,
and other negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is
authorized to deliver or cause to
be delivered Property against
payment or other consideration or
written receipt therefor in the
following cases:
(1) for
examination by a broker or
dealer selling for the account
of the Fund in accordance with
street delivery custom;
(2) for
the exchange of interim
receipts or temporary
securities for definitive
securities; and
(3) for
transfer of securities into
the name of the Fund or PNC
Bank or nominee of either, or
for exchange of securities for
a different number of
bonds,certificates, or other
evidence, representing the
same aggregate face amount or
number of units bearing the
same interest rate, maturity
date and call provisions, if
any; provided that, in any
such case, the new securities
are to be delivered to PNC
Bank.
(B) Unless and
until PNC Bank receives Oral or
Written Instructions to the
contrary, PNC Bank shall:
(1) pay
all income items held by it
which call for payment upon
presentation and hold the cash
received by it upon such
payment for the account of the
Fund;
(2)
collect interest and cash
dividends received, with
notice to the Fund, to the
Fund's account;
(3) hold
for the account of the Fund
all stock dividends, rights
and similar securities issued
with respect to any securities
held by PNC Bank; and
(4)
execute as agent on behalf of
the Fund all necessary
ownership certificates
required by the Internal
Revenue Code or the Income Tax
Regulations of the United
States Treasury Department or
under the laws of any State
now or hereafter in effect,
inserting the Fund's name, on
such certificate as the owner
of the securities covered
thereby, to the extent it may
lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon
receipt of Written or Oral Instructions
establish and maintain segregated
account(s) on its records for and on
behalf of the Fund. Such account(s) may
be used to transfer cash and securities,
including securities in the Book-Entry
System:
(A) for the
purposes of compliance by the Fund
with the procedures required by a
securities or option exchange,
providing such procedures comply
with the 1940 Act and any releases
of the SEC relating to the
maintenance of segregated accounts
by registered investment companies;
and
(B) Upon receipt of
Written Instructions, for other
proper corporate purposes.
(ii) PNC Bank may enter into
separate custodial agreements with various
futures commission merchants ("FCMs") that
the Fund uses ("FCM Agreement"). Pursuant to
an FCM Agreement, the Fund's margin deposits
in any transactions involving futures
contracts and options on futures contracts
will be held by PNC Bank in accounts ("FCM
Account") subject to the disposition by the
FCM involved in such contracts and in
accordance with the customer contract between
FCM and the Fund ("FCM Contract"), SEC rules
and the rules of the applicable commodities
exchange. Such FCM Agreements shall only be
entered into upon receipt of Written
Instructions from the Fund which state that:
(A) a customer
agreement between the FCM and the
Fund has been entered into; and
(B) the Fund is in
compliance with all the rules and
regulations of the CFTC. Transfers
of initial margin shall be made
into a FCM Account only upon
Written Instructions; transfers of
premium and variation margin may be
made into a FCM Account pursuant
to Oral Instructions.
Transfers of
funds from a FCM Account to the FCM
for which PNC Bank holds such an
account may only occur upon
certification by the FCM to PNC
Bank that pursuant to the FCM
Agreement and the FCM Contract, all
conditions precedent to its right
to give PNC Bank such instructions
have been satisfied.
(iii) PNC Bank shall arrange for the
establishment of IRA custodian accounts for
such share- holders holding Shares through
IRA accounts, in accordance with the Fund's
prospectuses, the Internal Revenue Code
(including regulations), and with such other
procedures as are mutually agreed upon from
time to time by and among the Fund, PNC Bank
and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall
settle purchased securities upon receipt of Oral or Written
Instructions from the Fund or its investment advisor(s) that
specify:
(i) the name of the issuer
and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the
principal amount purchased and accrued
interest, if any;
(iii) the date of purchase and
settlement;
(iv) the purchase price per unit;
(v) the total amount payable
upon such purchase; and
(vi) the name of the person from
whom or the broker through whom the purchase
was made. PNC Bank shall upon receipt of
securities purchased by or for the Fund pay
out of the moneys held for the account of the
Fund the total amount payable to the person
from whom or the broker through whom the
purchase was made, provided that the same
conforms to the total amount payable as set
forth in such Oral or Written Instructions.
(k) Sales of Securities. PNC Bank shall settle
sold securities upon receipt of Oral or Written Instructions
from the Fund that specify:
(i) the name of the issuer and the
title of the security, including CUSIP
number if applicable;
(ii) the number of shares or
principal amount sold, and accrued interest,
if any;
(iii) the date of trade, settlement
and sale;
(iv) the sale price per unit;
(v) the total amount payable
to the Fund upon such sale;
(vi) the name of the broker through
whom or the person to whom the sale was made;
and
(vii) the location to which the
security must be delivered and delivery
deadline, if any. PNC Bank shall deliver the
securities upon receipt of the total amount
payable to the Fund upon such sale, provided
that the total amount payable is the same as
was set forth in the Oral or
Written
Instructions. Subject to the foregoing, PNC
Bank may accept payment in such form as shall
be satisfactory to it, and may
deliver
securities and arrange for payment
in
accordance with the customs prevailing among
dealers in securities.
(l) Reports.
(i) PNC Bank shall
furnish
the Fund the following reports:
(A) such periodic
and special reports as the Fund may
reasonably request;
(B) a
monthly
statement summarizing
all
transactions and entries for the
account of the Fund, listing the
portfolio securities belonging
to
the Fund with the adjusted
average
cost of each issue and the market
value at the end of such month, and
stating the cash account of the
Fund including disbursement;
(C) the reports
to
be furnished to the Fund pursuant
to Rule 17f-4; and
(D) such
other
information as may be agreed upon
from time to time between the Fund
and PNC Bank.
(ii) PNC Bank shall transmit
promptly to the Fund any proxy statement,
proxy material, notice of a call
or
conversion or similar communication
received
by it as custodian of the Property. PNC Bank
shall be under no other obligation to inform
the Fund as to such actions or events.
(m) Collections. All collections of monies
or
other property, in respect, or which are to become part of
the Property (but not the safekeeping thereof upon
receipt
by PNC Bank) shall be at the sole risk of the Fund.
If
payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank shall
notify
the Fund in writing, including copies of all demand letters,
any written responses, memoranda of all oral responses
and
telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal
action
for collection unless and until reasonably indemnified
to
its satisfaction. PNC Bank shall also notify the
Fund as
soon as reasonably practicable whenever income due
on
securities is not collected in due course.
15. Duration and Termination. This Agreement shall
continue until terminated by the Fund or by PNC
Bank on
sixty (60) days' prior written notice to the other
party.
In the event this Agreement is terminated
(pending
appointment of a successor to PNC Bank or vote of
the
shareholders of the Fund to dissolve or to function without
a custodian of its cash, securities or other property), PNC
Bank shall not deliver cash, securities or other property of
the Fund to the Fund. It may deliver them to a bank or
trust company of PNC Bank's choice, having an aggregate
capital, surplus and undivided profits, as shown by
its last
published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under
terms similar to those of this Agreement. PNC Bank shall
not be required to make any such delivery or payment
until
full payment shall have been made to PNC Bank of all of its
fees, compensation, costs and expenses. PNC Bank shall have
a security interest in and shall have a right of
setoff
against Property in the Fund's possession as security for
the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications,
including Written Instructions, shall be in writing
or by
confirming telegram, cable, telex or facsimile
sending
device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International
Court
2, 200 Stevens Drive, Lester, Pennsylvania 19113, marked for
the attention of the Custodian Services Department (or its
successor) (b) if to the Fund, at the address of the
Fund;
or (c) if to neither of the foregoing, at such other address
as shall have been notified to the sender of any such
notice
or other communication. If notice is sent by
confirming
telegram, cable, telex or facsimile sending device, it
shall
be deemed to have been given immediately. If notice is sent
by first-class mail, it shall be deemed to have been
given
five days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day
it is delivered.
17. Amendments. This Agreement, or any term hereof,
may be changed or waived only by a written amendment,
signed
by the party against whom enforcement of such change
or
waiver is sought. 18. Delegation. PNC
Bank may
assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC
Bank,
National Association or PNC Bank Corp., provided that (i)
PNC Bank gives the Fund thirty (30) days prior
written
notice; (ii) the delegate agrees with PNC Bank to
comply
with all relevant provisions of the 1940 Act; and (iii)
PNC
Bank and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the
Fund may ask, relative to the assignment, including (without
limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
20. Further Actions. Each party agrees to perform
such further acts and execute such further documents as are
necessary to effectuate the purposes hereof.
21. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties and
supersedes all prior agreements and understandings relating
to the subject matter hereof, provided that the parties may
embody in one or more separate documents their agreement, if
any, with respect to delegated duties and/or Oral
Instructions. The captions in this Agreement are included
for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law. If any provision
of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below
on the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
SMITH BARNEY EQUITY FUNDS
By:
Title:
EXHIBIT 18
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual
Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d)
of the Investment Company Act of 1940, as amended (the "1940
Act"). The purpose of the Plan is to restate the existing
arrangements previously approved by the Boards of Directors
and Trustees of certain of the open-end investment companies
set forth on Schedule A (the "Funds" and each a "Fund")
distributed by Smith Barney Inc. ("Smith Barney") under the
Funds' existing order of exemption (Investment Company Act
Release Nos. 20042 (January 28, 1994) (notice) and 20090
(February 23, 1994)). Shares of the Funds are distributed
pursuant to a system (the "Multiple Class System") in which
each class of shares (a "Class") of a Fund represents a pro
rata interest in the same portfolio of investments of the
Fund and differs only to the extent outlined below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered
for purchase by investors with the following sales load
structure. In addition, pursuant to Rule 12b-1 under the
1940 Act (the "Rule"), the Funds have each adopted a plan
(the "Services and Distribution Plan") under which shares of
the Classes are subject to the services and distribution fees
described below.
1. Class A Shares
Class A shares are offered with a front-end sales load
and under the Services and Distribution Plan are subject
to a service fee of up to 0.25% of average daily net
assets. In addition, the Funds are permitted to asses a
contingent deferred sales charge ("CDSC") on certain
redemptions of Class A shares sold pursuant to a
complete waiver of front-end sales loads applicable to
large purchases, if the shares are redeemed within one
year of the date of purchase. This waiver applies
to sales of Class A shares where the amount of purchase
is equal to or exceeds $500,000 although this amount may
be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales
load, but are subject to a five-year declining CDSC and
under the Services and Distribution Plan are subject to
a service fee at an annual rate of up to 0.25% of
average daily net assets and a distribution fee at an
annual rate of up to 0.75% of average daily net assets.
3. Class C Shares
Class C shares are offered without a front-end load, but
are subject to a one-year CDSC and under the Services
and Distribution Plan are subject to a service fee at an
annual rate of up to 0.25% of average daily net assets
and a distribution fee at an annual rate of up to 0.75%
of average daily net assets. Unlike Class B shares,
Class C shares do not have the conversion feature as
discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period
of time. The Funds reserve the right to impose these
fees at such higher rates as may be determined.
4. Class Y Shares
Class Y shares are offered without impositions of either
a sales charge or a service or distribution fee for
investments where the amount of purchase is equal to or
exceeds $5 million.
5. Class Z Shares
Class Z shares are offered without imposition of either
a sales charge or a service or distribution fee for
purchase (i) by employee benefit and retirement plans of
Smith Barney and its affiliates, (ii) by certain unit
investment trusts sponsored by Smith Barney and its
affiliates, and (iii) although not currently authorized
by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its
affiliates and (y) by directors, general partners or
trustees of any investment company for which Smith
Barney serves as a distributor and, for each of (x) and
(y), their spouses and minor children.
6. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have
the authority to create additional classes, or change
existing Classes, from time to time, in accordance with
Rule 18f-3 of the 1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred
by a Fund are allocated among the various Classes of shares
based on the net assets of the Fund attributable to each
Class, except that each Class's net assets value and expenses
reflect the expenses associated with that Class under the
Fund's Services and Distribution Plan, including any costs
associated with obtaining shareholder approval of
the Services and Distribution Plan (or an amendment thereto)
and any expenses specific to that Class. Such expenses are
limited to the following:
(i) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing
and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a
Class of shares;
(iv) Securities and Exchange Commission registration
fees incurred by a Class of shares;
(v) the expense of administrative personnel and
services as required to support the shareholders of a
specific Class;
(vi) litigation or other legal expenses relating solely
to one Class of shares; and
(vii) fees of members of the governing boards of
the funds incurred as a result of issues relating to one
Class of shares.
Pursuant to the Multiple Class System, expenses of a
Fund allocated to a particular Class of shares of that Fund
are borne on a pro rata basis by each outstanding share of
that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically
convert to Class A shares after a certain holding period,
expected to be, in most cases, approximately eight years but
may be shorter. Upon the expiration of the holding period,
Class B shares (except those purchases through the
reinvestment of dividends and other distributions paid in
respect of Class B shares) will automatically convert to
Class A shares of the Fund at the relative net asset value of
each of the Classes, and will, as a result, thereafter be
subject to the lower fee under the Services and Distribution
Plan. For purposes of calculating the holding period
required for conversion, newly created Class B shares issued
after the date of implementation of the Multiple Class System
are deemed to have been issued on (i) the date on which the
issuance of the Class B shares occurred or (ii) for Class B
shares obtained through an exchange, or a series of
exchanges, the date on which the issuance of the original
Class B shares occurred.
Shares purchased through the reinvestment of dividends
and other distributions paid in respect of Class B shares are
also Class B shares. However, for purposes of conversion to
Class A, all Class B shares in a shareholder's Fund account
that were purchased through the reinvestment of dividends and
other distributions paid in respect of Class B shares (and
that have not converted to Class A shares as provided in the
following sentence) are considered to be held in a separate
sub-account. Each time any Class B shares in the
shareholder's Fund account (other than those in the sub-
account referred to in the preceding sentence) convert to
Class A, a pro rata portion of the Class B shares
then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's
Class B shares converting to Class A bears to the
shareholder's total Class B shares not acquired through
dividends and distributions.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of a ruling of the
Internal Revenue Service that payment of different dividends
on Class A and Class B shares does not result in the Fund's
dividends or distributions constituting "preferential
dividends" under the Internal Revenue Code of 1986, as
amended (the "Code"), and the continuing availability of an
opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event under the Code.
The conversion of Class B shares to Class A shares may be
suspended if this opinion is no longer available, In the
event that conversion of Class B shares of not occur, Class B
shares would continue to be subject to the distribution fee
and any incrementally higher transfer agency costs attending
the Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net
asset value for shares of the same Class in certain other of
the Smith Barney Mutual Funds as set forth in the prospectus
for such Fund. Class A shareholders who wish to exchange all
or part of their shares for Class A shares of a Fund sold
subject to a sales charge equal to or lower that that
assessed with respect to the shares of the Fund being
exchanged may do so without paying a sales charge. Class A
shareholders of a Fund who wish to exchange all or part of
their shares for Class A shares of a Fund sold subject to a
sales charge higher than that assessed with respect to the
shares of the Fund being exchanged are charged the
appropriate "sales charge differential." Funds only permit
exchanges into shares of money market funds having a plan
under the Rule if, as permitted by paragraph (b) (5) of Rule
11a-3 under the 1940 Act, either (i) the time period during
which the shares of the money market funds are held is
included in the calculations of the CDSC or (ii) the time
period is not included but the amount of the CDSC is reduced
by the amount of any payments made under a plan adopted
pursuant to the Rule by the money market funds with respects
to those shares. Currently, the Funds include the time
period during which shares of the money market fund are held
in the CDSC period. The exchange privileges applicable to
all Classes of shares must comply with Rule 11a-3 under the
1940 Act.
Smith Barney Sponsored Investment Companies Operating under
Rule 18f-3 -
Schedule A
(as of August 25, 1995)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc. Smith Barney
Arizona Municipals Fund Inc. Smith Barney
California Municipals Fund Smith Barney Equity
Funds -
Smith Barney Strategic Investors Fund Smith
Barney Growth and Income Fund
Smith Barney Florida Municipals Fund Smith Barney
Fundamental Value Fund Inc. Smith Barney Funds,
Inc. -
Income and Growth Portfolio Utilities
Portfolio
Income Return Account Portfolio Monthly
Payment Government Portfolio
Short-Term U.S. Treasury Securities Portfolio U.S.
Government Securities Portfolio
Smith Barney Income Funds -
Smith Barney Premium Total Return Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney High Income Fund
Smith Barney Tax-Exempt Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney Utilities Fund
Smith Barney Income Trust -
Smith Barney Limited Maturity Municipals Fund
Smith Barney Limited Maturity Treasury Fund
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity
New York Municipals Fund
Smith Barney Investment Funds Inc. -
Smith Barney Special Equities Fund
Smith Barney Government Securities Fund Smith
Barney Investment Grade Bond Fund Smith Barney
Growth Opportunity Fund Smith Barney Managed
Growth Fund
Smith Barney Institutional Cash Management Fund Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc. Smith
Barney Massachusetts Municipals Fund Smith
Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Portfolio
California Limited Portfolio
California Money Market Portfolio Florida
Portfolio
Florida Limited Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New Jersey Portfolio
New York Portfolio
New York Money Market Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Growth Fund
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
