As filed with the Securities and Exchange Commission on December 27,
1996
Registration No. 33-2627
811-4551
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. 36
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended
Amendment No. 37 [X]
SMITH BARNEY EQUITY FUNDS
(Exact name of Registrant as Specified in Charter)
Area Code and Telephone Number: (212) 723-9218
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Christina T. Sydor
Secretary
388 Greenwich Street New York, New York 10013
(Name and Address of Agent for Service)
copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
It is proposed that this filing become effective:
____ Immediately upon filing pursuant to Rule 485(b)
on _______ 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 was filed on March 29, 1996.
SMITH BARNEY EQUITY FUNDS
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
SMITH BARNEY EQUITY FUNDS
FORM N-1A CROSS REFERENCE SHEET
Pursuant to Rule 495(a) Under the Securities Act of 1933, as
amended
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
SMITH BARNEY EQUITY FUNDS
PART A
PROSPECTUS
Concert Social
Awareness
Fund
FEBRUARY
__, 1997
Prospectus begins on
page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Concert Social Awareness Fund
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Prospectus February
__, 1997
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388 Greenwich Street
New York, New York 10013
(212) 723-9218
Concert Social Awareness Fund (the "Fund") seeks high total return
consisting of capital appreciation and current income by investing in a
combination of equity and fixed-income securities of issuers who
demonstrate a
positive awareness of their impact on the society within which they
operate.
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 February __, 1997, as amended
or
supplemented from time to time, that is available upon request and
without
charge by calling or writing the Trust at the telephone number or
address set
forth above or by contacting a Smith Barney Financial Consultant. The
Statement
of Additional Information has been filed with the Securities and
Exchange
Commission (the "SEC") and is incorporated by reference into this
Prospectus in
its entirety.
Smith Barney Inc.
Distributor
Smith Barney Strategy Advisers Inc.
Investment Adviser
Smith Barney Mutual Funds Management Inc.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
1
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Concert Social Awareness 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
14
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Valuation of Shares
25
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Dividends, Distributions and Taxes
25
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Purchase of Shares
26
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Exchange Privilege
37
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Redemption of Shares
40
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Minimum Account Size
43
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Performance
43
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Management of the Trust and the Fund
44
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Distributor
45
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Additional Information
46
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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.
========================================================================
========
2
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Concert Social Awareness 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 capital appreciation
and
current income by investing in a combination of equity and fixed-income
securities of issuers who demonstrate a positive awareness of their
impact on
the society within which they operate. 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
3
<PAGE>
Concert Social Awareness Fund
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Prospectus Summary (continued)
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the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain
portion
of Class B shares that have been acquired through the reinvestment of
dividends
and distributions ("Class B Dividend Shares") will be converted at that
time.
See "Purchase of Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no
initial
sales charge. They are subject to an annual service fee of 0.25% and an
annual
distribution fee of 0.75% 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
4
<PAGE>
Concert Social Awareness Fund
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Prospectus Summary (continued)
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distribution fee. Thus, Class B shares may be more attractive than Class
C
shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y
shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fee. The maximum purchase amount for Class A shares is
$4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no
maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on
Class A
shares may be waived for certain eligible purchasers, and the entire
purchase
price will be immediately invested in the Fund. In addition, Class A
share
purchases, which when combined with current holdings of Class A shares
offered
with a sales charge equal or exceed $500,000 in the aggregate, will be
made at
net asset value with no initial sales charge, but will be subject to a
CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000
aggregate
investment will be met by adding the purchase to the net asset value of
all
Class A shares offered with a sales charge held in funds sponsored by
Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Other
Class A
share purchases may also be eligible for a reduced initial sales charge.
See
"Purchase of Shares." Because the ongoing expenses of Class A shares
will be
lower than those for Class B and Class C shares, purchasers eligible to
purchase
Class A shares at net asset value or at a reduced sales charge should
consider
doing so.
Smith Barney Financial Consultants may receive different
compensation for
selling different Classes 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 Trust and 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) and ExecChoice(TM) Programs 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 . Other investors may be eligible to participate in the Smith
Barney
ExecChoice(TM) Program. Class A, Class B, Class C and Class Y shares are
5
<PAGE>
Concert Social Awareness Fund
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Prospectus Summary (continued)
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- --------
available without a sales charge as investment alternatives under both
of these
programs. See "Purchase of Shares--Smith Barney 401(k) and
ExecChoice(TM)
Programs."
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. In addition, certain investors, including qualified
retirement
plans and certain other institutional investors may purchase shares
directly
from the Fund through the Fund's transfer agent, First Data Investor
Services
Group, Inc. ("First Data"). See "Purchase of Shares."
Investment Minimums Investors in Class A, Class B and Class C shares may
open an
account by making an initial investment of at least $1,000 for each
account, or
$250 for an individual retirement account ("IRA") or a Self- Employed
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. For minimum investment requirements for all
Classes
through the Systematic Investment Plan, see below. 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. The minimum initial and
subsequent
investment requirement for shareholders purchasing shares through the
Systematic
Investment Plan on a monthly basis is $25 and on a quarterly basis is
$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 Trust and 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
6
<PAGE>
Concert Social Awareness Fund
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Prospectus Summary (continued)
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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.
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. 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, entering into transactions
involving options, 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
<PAGE>
Concert Social Awareness Fund
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Prospectus Summary (continued)
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THE FUND'S EXPENSES The following expense table lists the costs and
expenses an
investor will incur either directly or indirectly as a shareholder of
the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred
at the
time of purchase or redemption and, unless otherwise noted, the Fund's
operating
expenses for its most recent fiscal year:
Class A Class B Class C
Class Y
========================================================================
========
Shareholder Transaction Expenses
Maximum sales charge imposed
on purchases (as a percentage
of offering price) 5.00% None None
None
Maximum CDSC
(as a percentage of original cost
or redemption proceeds,
whichever is lower) None* 5.00% 1.00%
None
========================================================================
========
Annual Fund Operating Expenses
(as a percentage of average
net assets)
Management fees 0.75% 0.75% 0.75%
0.75%
12b-1 fees** 0.25 1.00 1.00
None
Other expenses*** 0.21 0.19 0.19
0.21
========================================================================
========
TOTAL FUND OPERATING EXPENSES 1.21% 1.94% 1.94%
0.96%
========================================================================
========
* Purchases of Class A shares, which when combined with current
holdings of
Class A shares offered with a sales charge equal or exceed $500,000
in the
aggregate, will be made at net asset value with no sales charge, but
will
be subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares
will no
longer be subject to a distribution fee. Class C shares do not have
a
conversion feature and, therefore, are subject to an ongoing
distribution
fee. As a result, long-term shareholders of Class C shares may pay
more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
*** For Class Y shares "other expenses" have been estimated based on
expenses
incurred by the Class A shares because there were no Class Y shares
outstanding during 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
<PAGE>
Concert Social Awareness 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 Trust and the Fund."
1 year 3 years 5 years
10 years*
========================================================================
========
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 $62 $86 $113
$189
Class B 70 91 115
208
Class C 30 61 105
226
Class Y 10 31 53
118
An investor would pay the following
expenses on the same investment,
assuming the same annual return
and no redemption:
Class A 62 86 113
189
Class B 20 61 105
208
Class C 20 61 105
226
Class Y 10 31 53
118
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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
<PAGE>
Concert Social Awareness 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 auditors, 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
for the six-month period ended July 31, 1996 has not been audited. 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 of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Six Months Year
Year Year Year
Ended Ended
Ended Ended Ended
7/31/96 1/31/96
1/31/95 1/31/94(1) 1/31/93(2)
========================================================================
================================
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 19.00 $ 15.91 $
17.72 $16.85 $16.80
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- --------------------------------
Income (Loss) From Operations:
Net investment income 0.28 0.61
0.57 0.52 0.13
Net realized and unrealized gain (loss) (0.32) 3.52
(1.25) 2.37 0.88
- ------------------------------------------------------------------------
- --------------------------------
Total Income (Loss) From Operations (0.04) 4.13
(0.68) 2.89 1.01
- ------------------------------------------------------------------------
- --------------------------------
Less Distributions From:
Net investment income (0.29) (0.52)
(0.47) (0.56) (0.11)
Net realized gains -- (0.52)
(0.66) (1.46) (0.85)
- ------------------------------------------------------------------------
- --------------------------------
Total Distributions (0.29) (1.04)
(1.13) (2.02) (0.96)
- ------------------------------------------------------------------------
- --------------------------------
Net Asset Value, End of Period $ 18.67 $ 19.00 $
15.91 $17.72 $16.85
- ------------------------------------------------------------------------
- --------------------------------
Total Return** (0.24)%++ 26.47%
(3.82)% 17.80% 6.12%++
- ------------------------------------------------------------------------
- --------------------------------
Net Assets, End of Period (000s) $170,081 $175,007
$159,247 $6,216 $ 693
- ------------------------------------------------------------------------
- --------------------------------
Ratios to Average Net Assets:
Expenses 1.24%+ 1.21%
1.33% 1.25% 1.25%+
Net investment income 3.02+ 3.10
2.89 2.85 3.61+
- ------------------------------------------------------------------------
- --------------------------------
Portfolio Turnover Rate 37% 81%
103% 131% 93%
========================================================================
================================
Average Commissions Paid on
Equity Security Transactions(3) $ 0.06 $ 0.06
- -- -- --
========================================================================
================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average
shares
method, which more appropriately presents per share data for this
period
since use of the undistributed net investment income method does not
accord
with results of operations.
(2) For the period from November 6, 1992 (inception date) to January 31,
1993.
(3) As of September 1995, the SEC instituted new guidelines requiring
the
disclosure of average commissions per share.
** Total return represents the aggregate total return for the period
indicated
and does not reflect any applicable sales charge.
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
+ Annualized.
10
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Financial Highlights (continued)
- ------------------------------------------------------------------------
- --------
For a Class B share of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Six Months Year Year Year Year
Year Year Year Year Year
Ended Ended Ended Ended
Ended Ended Ended Ended Ended Ended
7/31/96 1/31/96 1/31/95 1/31/94(1)
1/31/93 1/31/92 1/31/91 1/31/90 1/31/89 1/31/88(2)
========================================================================
===========================================================
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 19.05 $ 15.97 $ 17.79 $ 16.84 $
17.26 $ 15.61 $ 15.57 $ 15.03 $ 13.62 $ 14.00
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Income (Loss) From
Investment Operations
Net investment
income 0.21 0.49 0.39 0.38
0.51 0.52 0.54 0.53 0.52 0.36
Net realized
and unrealized
gain/(loss) (0.32) 3.53 (1.20) 2.37
1.06 2.56 0.47 1.10 1.48 (0.44)
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Total Income (Loss)
From Operations (0.11) 4.02 (0.81) 2.75
1.57 3.08 1.01 1.63 2.00 (0.08)
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Less Distributions From:
Net investment
income (0.22) (0.42) (0.35) (0.34)
(0.50) (0.55) (0.51) (0.69) (0.48) (0.23)
Net realized gains (0.52) (0.66) (1.46) (1.49)
(0.88) (0.46) (0.38) (0.11) (0.07)
Capital -- -- -- -- --
- -- -- (0.02) -- --
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Total Distributions (0.22) (0.94) (1.01) (1.80)
(1.99) (1.43) (0.97) (1.09) (0.59) (0.30)
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Net Asset Value,
End of Period $ 18.72 $ 19.05 $ 15.97 $ 17.79 $
16.84 $ 17.26 $ 15.61 $ 15.57 $ 15.03 $ 13.62
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Total Return** (0.60)%++ 25.58% (4.54%) 16.88%
9.68% 19.96% 6.80% 10.76% 15.10% (0.57%)++
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Net Assets, End of
Period (000s) $202,027 $226,360 $216,035 $334,408
$287,983 $234,321 $197,170 $206,385 $146,987 $151,223
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 1.99%+ 1.94% 2.00% 1.98%
2.02% 2.06% 2.09% 2.24% 2.29% 2.14%+
Net investment
income 2.28+ 2.37 2.21 2.11
2.84 3.02 3.43 3.46 3.59 2.83+
- ------------------------------------------------------------------------
- -----------------------------------------------------------
Portfolio Turnover
Rate 37% 81% 103% 131%
93% 76% 56% 61% 42% 56%
========================================================================
===========================================================
Average Commissions
Paid on Equity
Security
Transactions(3) $ 0.06 $ 0.06 -- -- --
- -- -- -- -- --
========================================================================
===========================================================
</TABLE>
(1) 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.
(2) The Fund commenced operations on February 2, 1987. On November 6,
1992, the
Fund commenced selling Class B shares. Any shares outstanding prior
to
November 6, 1992 were designated as Class B shares.
(3) As of September 1995, the SEC instituted new guidelines requiring
the
disclosure of average commissions per share.
** Total return represents the aggregate total return for the period
indicated
and does not reflect any applicable sales charge.
+ Annualized.
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
11
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Financial Highlights (continued)
- ------------------------------------------------------------------------
- --------
For a Class C share of beneficial interest outstanding throughout each
period:
Six
Year
Months Year Year
Ended
Ended Ended Ended
1/31/94
7/31/96 1/31/96 1/31/95
(1)(2)(3)
========================================================================
========
Net Asset Value, Beginning of Period $19.08 $15.97 $17.79
$17.54
- ------------------------------------------------------------------------
- --------
Income (Loss) From Operations:
Net investment income 0.21 0.45 0.38
0.32
Net realized and unrealized gain (loss) (0.32) 3.60 (1.19)
1.67
- ------------------------------------------------------------------------
- --------
Total Income (Loss) From Operations (0.11) 4.05 (0.81)
1.99
- ------------------------------------------------------------------------
- --------
Less Distributions From:
Net investment income (0.22) (0.42) (0.35)
(0.28)
Net realized gains -- (0.52) (0.66)
(1.46)
- ------------------------------------------------------------------------
- --------
Total Distributions (0.22) (0.94) (1.01)
(1.74)
- ------------------------------------------------------------------------
- --------
Net Asset Value, End of Period $18.75 $19.08 $15.97
$17.79
- ------------------------------------------------------------------------
- --------
Total Return (0.60)%++ 25.77% (4.54)%
11.83%++
- ------------------------------------------------------------------------
- --------
Net Assets, End of Period (000s) $3,772 $3,396 $1,972 $
399
- ------------------------------------------------------------------------
- --------
Ratios to Average Net Assets:
Expenses 1.95%+ 1.94% 1.98%
1.93%+
Net investment income 2.31+ 2.31 2.24
2.16+
- ------------------------------------------------------------------------
- --------
Portfolio Turnover Rate 37% 81% 103%
131%
========================================================================
========
Average Commissions Paid on
Equity Security Transactions(4) $ 0.06 $ 0.06 --
- --
========================================================================
========
(1) On November 7, 1994, the former Class D shares were renamed Class C
shares.
(2) Per share amounts have been calculated using the monthly average
shares
method, which more appropriately presents per share data for this
period
since use of the undistributed net investment income method does not
accord
with results of operations.
(3) For the period from May 5, 1993 (inception date) to January 31,
1994.
(4) As of September 1995, the SEC instituted new guidelines requiring
the
disclosure of average commissions per share.
** Total return represents the aggregate total return for the period
indicated
and does not reflect any applicable sales charge.
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
+ Annualized.
12
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Financial Highlights (continued)
- ------------------------------------------------------------------------
- --------
For a Class Y share of beneficial interest outstanding throughout each
period:
Period
Ended
7/31/96
========================================================================
========
Net Asset Value, Beginning of Period
$19.00
- ------------------------------------------------------------------------
- --------
Income (Loss) From Operations:
Net investment income
0.22
Net realized and unrealized loss
(0.37)
- ------------------------------------------------------------------------
- --------
Total Loss From Operations
(0.15)
- ------------------------------------------------------------------------
- --------
Less Distributions From:
Net investment income
(0.16)
- ------------------------------------------------------------------------
- --------
Total Distributions
(0.16)
- ------------------------------------------------------------------------
- --------
Net Asset Value, End of Period
$18.69
- ------------------------------------------------------------------------
- --------
Total Return++
(0.83)%
- ------------------------------------------------------------------------
- --------
Net Assets, End of Period (000s)
$ 99
- ------------------------------------------------------------------------
- --------
Ratios to Average Net Assets+:
Expenses
0.88+
Net investment income
3.29
- ------------------------------------------------------------------------
- --------
Portfolio Turnover Rate
37%
========================================================================
========
Average Commissions Per Share
Paid on Equity Transactions
$ 0.06
========================================================================
========
(1) For the period from March 28, 1996 (inception date)to July 31, 1996
(unaudited).
++ Total return is not annualized, as it may not be representative of
the
total return for the year.
+ Annualized.
13
<PAGE>
Concert Social Awareness 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 and fixed-income securities of issuers who
demonstrate a
positive awareness of their impact on the society within which they
operate. The
percentages of the Fund's assets invested in each of these three types
of
securities are adjusted from time to time to conform to the asset
allocation
percentages most recently determined by Strategy Advisers. Under normal
market
conditions, the Fund will have between 65% and 85% of its assets
invested in
equity securities and between 15% and 35% in fixed-income securities.
The mix of
the Fund's investments may vary from time to time.
Strategy Advisers has responsibility for the selection of specific
securities on behalf of the Fund and for determining the allocation of
the
Fund's assets. See "Management of the Trust and the Fund." Following the
variable 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 primarily
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, forecast growth, as well as balance sheet,
profitability
and risk analysis. 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
may also 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, asset-backed and mortgage-backed securities 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. When Strategy Advisers
believes that a
defensive investment posture is warranted or when attractive investment
opportunities do not exist, the Fund may temporarily invest all or a
portion of
its assets in short-term money market instruments. The
14
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
money market securities in which the Fund may invest include commercial
paper,
bank obligations (possibly including community investments) and short-
term U.S.
government securities. Up to 25% of the Fund's assets may be invested in
equity
and debt securities of foreign issuers. The Fund also may write covered
call
options, lend its portfolio securities and invest in real estate
investment
trusts. 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.
Strategy Advisers believes that there is a direct correlation
between
companies that demonstrate an acute awareness of their impact on the
society
within which they operate and companies which offer attractive long-term
investment potential. Strategy Advisers believes that addressing social
issues
in a positive manner can translate into sound business. For example, by
ensuring
a product or service does not negatively impact the environment, a
company can
avoid costly litigation and clean-up costs; and by maintaining positive
standards for the workplace and a diverse employee population, a company
can
better ensure access to quality management talent and improve
productivity; or
by becoming more involved in the community, a company can enhance its
consumer
franchise. Top quality management teams who successfully balance their
companies' business interests with their social influences can gain
significant
competitive advantages over the long run, which reflect in increased
shareholder
values and, therefore, better investments. The Fund is designed to
incorporate
both social and financial criteria in all of its investment decisions.
The Fund will hold securities issued by companies which, in the
opinion of
Strategy Advisers, meet the Fund's investment policies, and do not
violate the
Fund's social awareness criteria. The primary social emphasis will be to
establish investments in companies that make a positive contribution to
society
through their products and services or through the way that they do
business.
These include companies known for fostering fair and progressive
relations with
their employees, companies taking an active role in promoting worthwhile
causes
or known to be good community citizens, companies committed to upholding
human
rights in their domestic and international operations, and companies
promoting
positive alternatives to unsafe, polluting or wasteful business
activities or
products.
In addition, Strategy Advisers has identified specific areas of
social and
financial concern and, thus, the Fund will not purchase the debt or
equity
securities of any company that Strategy Advisers has significant reason
to
believe is engaged at the time of investment by the Fund in any of the
following:
15
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
o Tobacco production;
o Manufacture of unsafe products;
o Engaging in irresponsible advertising or marketing practices;
o Engaging in activities that cause substantial environmental
damage;
o Production of weapons;
o Ownership or design of nuclear facilities.
The Fund will invest in direct U.S. government debt obligations
since it is
Strategy Advisers' experience that these investments satisfy the social
awareness criteria and are acceptable to most social investors. These
portfolio
restrictions are based on the belief that a company will benefit from
its social
awareness and should enable a company to better position itself in
developing
opportunities, while avoiding liabilities that may be incurred when a
product or
service is determined to have a negative social impact. These companies
should
be better prepared to respond to external demands and ensure that over
the
longer term they will be viable to provide a positive return to both
investors
and society as a whole.
Strategy Advisers will apply the investment criteria described
above and,
in addition will analyze a company's social impact, eliminating those
securities
that fail either test. Strategy Advisers will use its best efforts and
will
direct special research efforts to assess a company's social
performance.
Assessment by Strategy Advisers of the social performance of companies
which
have been identified as suitable investments for the Fund on the basis
of their
potential growth or current income, involves subjective judgments by
Strategy
Advisers since the standards by which a company's social impact may be
measured
cannot be reduced to a strict objective formula. This analysis will be
based on
present activities, and will not preclude securities solely because of
past
activities.
Strategy Advisers will monitor the social progress or deterioration
of each
company in which the Fund is invested and in the event a company is no
longer in
compliance with the Fund's social criteria, the Fund will plan to sell
the
securities of such company as soon as it is deemed prudent. The Fund's
Trustees
will monitor the social awareness criteria used by the Fund and Strategy
Advisers may, upon approval of the Trustees, change the criteria used to
rate
the social performance of an issuer without prior notice or shareholder
approval.
While the application of the Fund's social awareness criteria may
preclude
some securities with strong earnings and growth potential, Strategy
Advisers
believes that there are sufficient investment opportunities among those
companies that satisfy the social awareness criteria to meet the Fund's
investment objectives and permit the Fund to be fully invested.
16
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
Strategy Advisers has responsibility for the selection of specific
securities on behalf of the Fund. See "Management of the Trust and the
Fund."
INVESTMENT STRATEGIES AND TECHNIQUES
In attempting to achieve its investment objective, the Fund may
employ,
among others, one or more of the strategies and techniques set forth
below. The
Fund is under no obligation to use any of the strategies or techniques
at any
given time or under any particular economic condition. More detailed
information
concerning these strategies and techniques and their related risks is
contained
in the Statement of Additional Information.
Repurchase Agreements. The Fund may enter into repurchase
agreements with
banks which are the issuers of instruments acceptable for purchase by
the Fund
and certain dealers on the Federal Reserve Bank of New York's list of
reporting
dealers. Under the terms of a typical repurchase agreement, the Fund
would
acquire an underlying debt obligation for a relatively short period 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.
When-Issued Securities and Delayed-Delivery Transactions. In order
to
secure yields or prices deemed advantageous at the time, the Fund may
purchase
or sell securities on a when-issued or delayed-delivery basis. The Fund
will
enter into a when-issued transaction for the purpose of acquiring
portfolio
securities and not for the purpose of leverage. In such transactions
delivery of
the securities occurs beyond the normal settlement periods, but no
payment or
delivery is made by the Fund prior to the actual delivery or payment by
the
other party to the transaction. Due to fluctuations in the value of
securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on those securities may be higher or lower than the yields
available in
the market on the dates when the investments are actually delivered to
the
buyers. The Fund will establish with its custodian a segregated account
consisting of cash or equity and debt securities of any grade provided
such
securities have been determined by Strategy Advisers to be liquid
17
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
and unencumbered pursuant to guidelines established by the Trustees
("eligible
segregated assets") in an amount equal to the amount of its when-issued
and
delayed-delivery commitments. Placing securities rather than cash in the
segregated account may have a leveraging effect on the Fund's net
assets.
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
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.
18
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may hold cash and invest in
money market
instruments without limitation when deemed advantageous by Strategy
Advisers.
Short-term instruments in which the Fund may invest include: U.S.
government
securities; bank obligations (including community investments,
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.
Mortgage and Asset-Backed Securities. The Fund may purchase fixed
or
adjustable rate mortgage-backed securities issued by the Government
National
Mortgage Association, Federal National Mortgage Association or the
Federal Home
Loan Mortgage Corporation, and other asset-backed securities, including
securities backed by automobile loans, equipment leases or credit card
receivables. These securities directly or indirectly represent a
participation
in, or are secured by and payable from, fixed or adjustable rate
mortgage or
other loans which may be secured by real estate or other assets. Unlike
traditional debt instruments, payments on these securities include both
interest
and a partial payment of principal. Prepayments of the principal of
underlying
loans may shorten the effective maturities of these securities and may
result in
the Fund having to reinvest proceeds at a lower interest rate. The Fund
may also
purchase collateralized mortgage obligations which are a type of bond
secured by
an underlying pool of mortgages or mortgage pass-through certificates
that are
structured to direct payments on underlying collateral to different
series or
classes of the obligations.
Eurodollar or Yankee Obligations. The Fund may invest in Eurodollar
and
Yankee obligations. Eurodollar bank obligations are dollar denominated
certificates of deposit or time deposits issued outside the U.S. capital
markets
by foreign branches of U.S. banks and by foreign banks. Yankee bank
obligations
are dollar denominated obligations issued in the U.S. capital markets by
foreign
banks. Eurodollar (and to a limited extent, Yankee) bank obligations are
subject
to certain sovereign risks. One such risk is the possibility that a
foreign
government might prevent dollar denominated funds from flowing across
its
borders. Other risks include: adverse political and economic
developments in a
foreign country; the
19
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes;
and
expropriation or nationalization of foreign issuers.
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.
Zero Coupon Securities. A zero coupon bond pays no interest in cash
to its
holder during its life, although interest is accrued during that period.
Its
value to an investor consists of the difference between its face value
at the
time of maturity and the price for which it was acquired, which is
generally an
amount significantly less than its face value (sometimes referred to as
a "deep
discount" price). Because such securities usually trade at a deep
discount, they
will be subject to greater fluctuations of market value in response to
changing
interest rates than debt obligations of comparable maturities which make
periodic distributions of interest. On the other hand, because there are
no
periodic interest payments to be reinvested prior to maturity, zero
coupon
securities eliminate reinvestment risk and lock in a rate of return to
maturity.
Futures and Options on Futures. When deemed advisable by Strategy
Advisers,
the Fund may enter into interest rate futures contracts, stock index
futures
contracts and related options that are traded on a domestic exchange or
board of
trade. These transactions will be made solely for the purpose of hedging
against
the effects of changes in the value of portfolio securities due to
anticipated
changes in interest rates and market conditions, as the case may be. All
futures
and options contracts will be entered into only when the transactions
are
economically appropriate for the reduction of risks inherent in the
management
of the Fund.
An interest rate futures contract provides for the future sale by
the one
party and the purchase by the other party of a specified amount of a
particular
financial instrument (debt security) at a specified price, date, time
and place.
A stock index futures contract is an agreement pursuant to which two
parties
agree to take or make delivery of an amount of cash equal to the
difference
between the value of the index at the close of the last trading day of
the
contract and the price at which the index contract was originally
entered into.
Stock index futures contracts are based on indexes that reflect the
market value
of common stock of the companies included in the indexes. An option on
an
interest rate or stock index contract gives the purchaser the right, in
return
for the premium paid, to assume a position in a
20
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------
- --------
futures contract (a long position if the option is a call and a short
position
if the option is a put) at a specified exercise price at any time prior
to the
expiration date of the option.
In entering into transactions involving futures contracts and
options on
futures contracts, the Fund will comply with applicable requirements of
the
Commodities Futures Trading Commission (the "CFTC") which require that
its
transactions in futures and options be engaged in for "bona fide
hedging"
purposes or other permitted purposes, provided that aggregate initial
margin
deposits and premiums required to establish positions, other than those
considered by the CFTC to be "bona fide hedging," will not exceed 5% of
the
Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts.
The use of futures contracts and options on futures contracts as a
hedging
device involves several risks. There can be no assurance that there will
be a
correlation between price movements in the underlying securities or
index on the
one hand, and price movements in the securities that are the subject of
the
hedge, on the other hand. Positions in futures contracts and options on
futures
contracts may be closed out only on the exchange or board of trade on
which they
were entered into, and there can be no assurance that an active market
will
exist for a particular contract or option at any particular time.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves special considerations, such as
those
described below:
Restricted Securities. The Fund may invest up to 15% of its total
assets in
securities restricted as to their disposition and illiquid securities,
including
repurchase agreements with maturities in excess of seven days.
Securities
subject to Rule 144A of the Securities Act of 1933, as amended (the
"1933 Act")
which are determined by Strategy Advisers to be liquid and certain
privately
issued commercial paper eligible for resale without registration
pursuant to
Section 4(2) of the 1933 Act will not be subject to this limitation. The
Fund
may not be able to dispose of restricted securities at a time when, or
at a
price which, it desires to do so and may have to bear expenses
associated with
registering the securities.
Warrants. Because a warrant does not carry with it the right to
dividends
or voting rights with respect to the securities that the warrant holder
is
entitled to purchase, and because a warrant does not represent any
rights to the
assets of the issuer, a warrant may be considered more speculative than
certain
other types of investments. In addition, the value of a warrant does not
necessarily change with
21
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Concert Social Awareness Fund
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Investment Objective and Management Policies (continued)
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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
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.
22
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Concert Social Awareness Fund
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Investment Objective and Management Policies (continued)
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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.
The Fund may also purchase American Depositary Receipts ("ADRs"),
European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or
other
securities representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States
and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored
ADR
arrangement, the foreign issuer assumes the obligation to pay some or
all of the
depositary's transaction fees, whereas under an unsponsored arrangement,
the
23
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Concert Social Awareness Fund
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Investment Objective and Management Policies (continued)
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foreign issuer assumes no obligation and the depositary's transaction
fees are
paid by the ADR holders. In addition, less information is available in
the
United States about an unsponsored ADR than about a sponsored ADR, and
the
financial information about a company may not be as reliable for an
unsponsored
ADR as it is for a sponsored ADR. The Fund may invest in ADRs through
both
sponsored and unsponsored arrangements.
Securities of Developing Countries. A developing country generally
is
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income
markets of
developing countries involves exposure to economic structures that are
generally
less diverse and mature, and to political systems that can be expected
to have
less stability than those of developed countries. Historical experience
indicates the markets of developing countries have been more volatile
than the
markets of the more mature economies of developed countries; however,
such
markets often have higher rates of return to investors.
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
Strategy Advisers 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.
24
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Concert Social Awareness Fund
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Valuation of Shares
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- --------
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
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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
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Concert Social Awareness Fund
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Dividends, Distributions and Taxes (continued)
- ------------------------------------------------------------------------
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income and distributions of net realized short-term capital gains are
taxable to
shareholders as ordinary income, regardless of how long shareholders
have held
their Fund shares and whether such dividends and distributions are
received in
cash or reinvested in additional Fund shares. Distributions of net
realized
long-term capital gains will be taxable to shareholders as long-term
capital
gains, regardless of how long shareholders have held Fund shares and
whether
such distributions are received in cash or are reinvested in additional
Fund
shares. Furthermore, as a general rule, a shareholder's gain or loss on
a sale
or redemption of Fund shares will be a long-term capital gain or loss if
the
shareholder has held the shares for more than one year and will be a
short-term
capital gain or loss if the shareholder has held the shares for one year
or
less. Some of the Fund's dividends declared from net investment income
may
qualify for the Federal dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder also will receive,
if
appropriate, various written notices after the close of the Fund's prior
taxable
year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior
taxable
year. Shareholders should consult their tax advisors about the status of
the
Fund's dividends and distributions for state and local tax liabilities.
- ------------------------------------------------------------------------
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Purchase of Shares
- ------------------------------------------------------------------------
- --------
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares
are sold
without an initial sales charge but are subject to a CDSC payable upon
certain
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
charged by the Fund in
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Concert Social Awareness Fund
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Purchase of Shares (continued)
- ------------------------------------------------------------------------
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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 shareholders purchasing shares of the Fund through the
Systematic
Investment Plan on a monthly basis, the minimum initial investment
requirement
for Class A, Class B and Class C shares and the minimum subsequent
investment
requirement for all Classes is $25. For shareholders purchasing shares
of the
Fund through the Systematic Investment Plan on a quarterly basis, 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"). For shares purchased through Smith Barney or
Introducing
Brokers purchasing through Smith Barney, payment for Fund shares is due
on the
third business day after the trade date. In all other cases, payment
must be
made with the purchase order.
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
27
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Concert Social Awareness Fund
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Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
preauthorized transfers of $25 or $50 or more to charge the regular bank
account
or other financial institution indicated by the shareholder on a monthly
or
quarterly basis, respectively, 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 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."
28
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Concert Social Awareness Fund
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Purchase of Shares (continued)
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- --------
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without
a sales
charge in the following circumstances: (a) sales to (i) Board Members of
any of
the Smith Barney Mutual Funds and employees of Travelers and its
subsidiaries
and to the immediate families of such persons (including the surviving
spouse of
a deceased Board Member or employee and retired Board Members or
employees) or
the pension, profit-sharing or other benefit plan for such persons and
(ii)
employees of members of the National Association of Securities Dealers,
Inc.,
provided such sales are made upon the assurance of the purchaser that
the
purchase is made for investment purposes and that the securities will
not be
resold 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; (e)
accounts
managed by registered investment advisory subsidiaries of Travelers; and
(f)
purchases of Class A shares of the Fund by Section 403(b) or Section
401(a) or
(k) accounts associated with Copeland Retirement Programs. 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.
Purchases of Class A shares also may be made at net asset value
without a
sales charge in the following circumstances: (i) direct rollovers by
plan
participants of distributions from a 401(k) plan enrolled in the Smith
Barney
401(k) Program (Note: Subsequent investments will be subject to the
applicable
sales charge); (ii) purchases by separate accounts used to fund certain
unregistered variable annuity contracts; and (iii) purchases by
investors
participating in a Smith Barney fee based arrangement.
29
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Concert Social Awareness Fund
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Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as
defined
above) at a reduced sales charge or at net asset value determined by
aggregating
the dollar amount of the new purchase and the total net asset value of
all Class
A shares of the Fund and of funds sponsored by Smith Barney that are
offered
with a sales charge listed under "Exchange Privilege" then held by such
person
and applying the sales charge applicable to such aggregate. In order to
obtain
such discount, the purchaser must provide sufficient information at the
time of
purchase to permit verification that the purchase qualifies for the
reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased
thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales
charge or
purchase at net asset value will also be available to employees (and
partners)
of the same employer purchasing as a group, provided each participant
makes the
minimum initial investment required. The sales charge applicable to
purchases by
each member of such a group will be determined by the table set forth
above
under "Initial Sales Charge Alternative -- Class A Shares," and will be
based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds
offered
with a sales charge to, and share holdings of, all members of the group.
To be
eligible for such reduced sales charges or to purchase at net asset
value, all
purchases must be pursuant to an employer- or partnership-sanctioned
plan
meeting certain requirements. One such requirement is that the plan must
be open
to specified partners or employees of the employer and its subsidiaries,
if any.
Such plan may, but is not required to, provide for payroll deductions,
IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of
the Code.
Smith Barney may also offer a reduced sales charge or net asset value
purchase
for aggregating related fiduciary accounts under such conditions that
Smith
Barney will realize economies of sales efforts and sales related
expenses. An
individual who is a member of a qualified group may also purchase Class
A shares
of the Fund at the reduced sales charge applicable to the group as a
whole. The
sales charge is based upon the aggregate dollar value of Class A shares
offered
with a sales charge that have been previously purchased and are still
owned by
the group, plus the amount of the current purchase. A "qualified group"
is one
which (a) has been in existence for more than six months, (b) has a
purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform
criteria which enable Smith Barney to realize economies of scale in its
costs of
distributing shares. A qualified group must have more
30
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Concert Social Awareness Fund
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Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
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
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.
31
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Concert Social Awareness Fund
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- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
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.
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) and ExecChoice(TM) Programs."
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
========================================================================
========
32
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
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") on
July 15, 1994 and who subsequently exchanged those shares for Class B
shares of
the Fund will be offered the opportunity to exchange all such Class B
shares for
Class A shares of the Fund four years after the date on which those
shares were
deemed to have been purchased. Holders of such Class B shares will be
notified
of the pending exchange in writing approximately 30 days before the
fourth
anniversary of the purchase date and, unless the exchange has been
rejected in
writing, the exchange will occur on or about the fourth anniversary
date. See
"Prospectus Summary -- Alternative Purchase Arrangements -- Class B
Shares
Conversion Feature."
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 the
investment.
Assuming at the time of the redemption the net asset value had
appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105
shares at
$12 per share). The CDSC would not be applied to the amount which
represents
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
33
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
(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.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k)
Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable,
the same
terms and conditions, which are outlined below, are offered to all plans
participating ("Participating Plans") in these programs.
The Fund offers to Participating Plans Class A and Class C shares
as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM)
Programs. Class A and Class C shares acquired through the Participating
Plans
are subject to the same service and/or distribution fees as the Class A
and
Class C shares acquired by other investors; however, they are not
subject to any
initial sales charge or CDSC. 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
sales
charge or CDSC to any Participating Plan that purchases $1,000,000 or
more of
Class A shares of one or more funds of the Smith Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are offered without any
sales
charge or CDSC to any Participating Plan that purchases less than
$1,000,000 of
Class C shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996.
If at the
end of the fifth year after the date the Participating Plan enrolled in
the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program,
a
Participat-
34
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
ing Plan's total Class C holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the Participating Plan will be
offered
the opportunity to exchange all of its Class C shares for Class A shares
of the
Fund. (For Participating Plans that were originally established through
a Smith
Barney retail brokerage account, the five year period will be calculated
from
the date the retail brokerage account was opened.) Such Participating
Plans will
be notified of the pending exchange in writing within 30 days after the
fifth
anniversary of the enrollment date and, unless the exchange offer has
been
rejected in writing, the exchange will occur on or about the 90th day
after the
fifth anniversary date. If the Participating Plan does not qualify for
the five
year exchange to Class A shares, a review of the Participating Plan's
holdings
will be performed each quarter until either the Participating Plan
qualifies or
the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the
date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if a
Participating Plan's total Class C holdings in all non-money market
Smith Barney
Mutual Funds 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.
Any Participating Plan in the Smith Barney 401(k) Program that has
not
previously qualified for an exchange into Class A shares will be offered
the
opportunity to exchange all of its Class C shares for Class A shares of
the
Fund, regardless of asset size, at the end of the eighth year after the
date the
Participating Plan enrolled in the Smith Barney 401(k) Program. 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 an exchange has occurred, the Participating Plan will not be
eligible
to acquire additional Class C shares of the Fund but instead may acquire
Class A
shares of the Fund. Any Class C shares not converted will continue to be
subject
to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through
the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must
purchase
such shares directly from First Data. For further information regarding
these
Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares
of the
35
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Purchase of Shares (continued)
- ------------------------------------------------------------------------
- --------
Smith Barney Mutual Funds are not available for purchase by
Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by
any
Participating Plan in the Smith Barney 401(k) Program opened prior to
such date
and originally investing in such Class. Class B shares acquired 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.
At the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program, the Participating Plan will
be
offered the opportunity to exchange all of its Class B shares for Class
A shares
of the Fund. Such Participating Plan will be notified of the pending
exchange in
writing approximately 60 days before the eighth anniversary of the
enrollment
date and, unless the exchange has been rejected in writing, the exchange
will
occur on or about the eighth anniversary date. Once the exchange has
occurred, a
Participating Plan will not be eligible to acquire additional Class B
shares of
the Fund but instead may acquire Class A shares of the Fund. If the
Participating Plan elects not to exchange all of its Class B shares at
that
time, each Class B share held by the Participating Plan will have the
same
conversion feature as Class B shares held by other investors. See
"Purchase of
Shares -- Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B 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 the current net asset value of Class B shares
purchased more
than eight years prior to the redemption, plus 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 the redemption
by 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 redemptions by other shareholders, which
depends on
the number of years since those shareholders made the purchase payment
from
which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in
connection with
lump-sum or other distributions made by a Participating Plan as a result
of: (a)
the retirement of an employee in the Participating Plan; (b) the
termination of
employment of an employee in the Participating Plan; (c) the death or
disability
of an employee in the Participating Plan; (d) the attainment of age
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.
36
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Exchange Privilege
- ------------------------------------------------------------------------
- --------
Except as otherwise noted below, shares of each Class may be
exchanged at
the net asset value next determined for shares of the same Class in the
following 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.
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, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney 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. -- 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
37
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Exchange Privilege (continued)
- ------------------------------------------------------------------------
- --------
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
** Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Series
Smith Barney Concert Series Inc. -- Balanced Portfolio
Smith Barney Concert Series Inc. -- Conservative Portfolio
Smith Barney Concert Series Inc. -- Growth Portfolio
Smith Barney Concert Series Inc. -- High Growth Portfolio
Smith Barney Concert Series Inc. -- Income Portfolio
Money Market Funds
++ Smith Barney Exchange Reserve Fund
+++ Smith Barney Money Funds, Inc. -- Cash Portfolio
+++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
+ Smith Barney Municipal Money Market Fund, Inc.
+ Smith Barney Muni Funds--California Money Market Portfolio
+ Smith Barney Muni Funds--New York Money Market Portfolio
========================================================================
========
* Available for exchange with Class A, Class B and Class Y shares of
the
Fund. In addition, shareholders who own Class C shares of the Fund
through
the Smith Barney 401(k) Program may exchange those shares for Class
C
shares of this fund.
** Available for exchange with Class A, Class C and Class Y shares of
the
Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class A and Class Y shares of the Fund.
++ Available for exchange with Class B and Class C shares of the Fund.
+++ Available for exchange with Class A and Class Y shares of the Fund.
In
addition, shareholders who own Class C shares of the Fund through
the Smith
Barney 401(k) Program may exchange those shares for Class C shares
of this
fund.
38
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Exchange Privilege (continued)
- ------------------------------------------------------------------------
- --------
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 A and Class Y Exchanges. Class A and Class Y shareholders of
the Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class 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, 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. Redemption
procedures
discussed below are also applicable for exchanging shares, and exchanges
will be
made upon receipt of all supporting documents in proper form. If the
account
registration of the shares of the fund being acquired is identical to
the
registration of the shares of the fund exchanged, no signature guarantee
is
required. A capital gain or loss for tax purposes will be realized upon
the
exchange, depending upon the cost or other basis of shares redeemed.
Before
exchanging
39
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Exchange Privilege (continued)
- ------------------------------------------------------------------------
- --------
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 business 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
Financial Consultant, Introducing Broker or dealer in the selling group
or by
submitting a written request for redemption to:
Concert Social Awareness Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
40
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
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
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
share-
41
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
holder 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 relationship with a
member bank.
The Fund reserves the right to charge shareholders a nominal fee for
each wire
redemption. Such charges, if any, will be assessed against the
shareholder's
account from which shares were redeemed. In order to change the bank
account
designated to receive redemption proceeds, a shareholder must 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
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
42
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Redemption of Shares (continued)
- ------------------------------------------------------------------------
- --------
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
the SEC, is derived from this total return, which provides the ending
redeemable
value. Such standard total return information may also be accompanied by
nonstandard total return information for differing periods 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
43
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Performance (continued)
- ------------------------------------------------------------------------
- --------
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
Fund.
INVESTMENT ADVISER--STRATEGY ADVISERS
Strategy Advisers, located at 388 Greenwich Street, New York, New
York
10013, serves as the Fund's investment adviser. 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 January 31, 1996, in excess of $3.3
billion.
Subject to the supervision and direction of the Board of Trustees,
Strategy
Advisers manages the Fund's portfolio in accordance with the Fund's
stated
investment objective and policies, makes investment decisions for the
Fund,
places orders to purchase and sell securities and employs professional
portfolio
managers and securities analysts who provide research services to the
Fund. 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.
44
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Management of the Trust and the Fund (continued)
- ------------------------------------------------------------------------
- --------
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 November 30, 1996, in excess of $79 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.
- ------------------------------------------------------------------------
- --------
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
45
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Distributor (continued)
- ------------------------------------------------------------------------
- --------
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.
- ------------------------------------------------------------------------
- --------
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.
46
<PAGE>
Concert Social Awareness Fund
- ------------------------------------------------------------------------
- --------
Additional Information (continued)
- ------------------------------------------------------------------------
- --------
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
will be voted on a Trust-wide basis on all matters except matters
affecting only
the interests of one or more funds or Classes.
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.
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.
47
<PAGE>
SMITH BARNEY
----
- --------
A Member of
TravelersGroup [LOGO]
Smith Barney
Concert Social
Awareness
Fund
388
Greenwich Street
New York, New
York 10013
FD____ _/97
SMITH BARNEY EQUITY FUNDS
PART B
Smith Barney
EQUITY FUNDS
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION -------------, 1996
This Statement of Additional Information expands upon and
supplements the information contained in the current Prospectuses, dated
April 22, 1996, February [ ], 1997, and February [ ], 1997,
respectively, as amended or supplemented from time to time, of Smith
Barney Growth and Income Fund ("Growth and Income Fund"), Concert Social
Awareness Fund ("Social Awareness Fund") and [Disciplined Growth Fund]
("Growth Fund") (Growth and Income Fund, Social Awareness Fund and
Growth Fund each, a "Fund" and collectively, the "Funds"). Each Fund is
a series of Smith Barney Equity Funds (the "Trust"). This Statement of
Additional Information should be read in conjunction with the
Prospectuses. The Prospectuses may be obtained from a Smith Barney
Financial Consultant or by writing or calling the Trust at the address
or telephone number set forth above. This Statement of Additional
Information, although not in itself a prospectus, is incorporated by
reference into the Prospectuses in its entirety.
CONTENTS
For ease of reference, the same section headings are used in the
Prospectuses and in this Statement of Additional Information, except
where shown below:
Management of the
Trust...................................................................
............. 2
Investment Objectives and Management
Policies............................................ 6
Purchase of
Shares..................................................................
....................... 15
Redemption of
Shares..................................................................
.................. 15
Distributor.............................................................
........................................ 16
Valuation of
Shares..................................................................
...................... 19
Exchange
Privilege...............................................................
......................... 20
Performance Data (See in each Prospectus
"Performance")............................ 21
Taxes (See in each Prospectus "Dividends, Distributions and
Taxes")............ 23
Additional
Information.............................................................
..................... 27
Financial
Statements..............................................................
....................... 27
Appendix................................................................
....................................... A-1
MANAGEMENT OF THE TRUST
The executive officers of the Trust are employees of certain of the
organizations that provide services to the Trust. These organizations
are the following:
Name Service
Smith Barney Inc.
("Smith
Barney")....................................................Distributor
of each Fund
PFS Distributors, Inc.
("PFS").................................................................
..Distributor of Growth Fund and Social Awareness
Fund
Smith Barney Mutual Funds Management Inc.
("SBMFM")............................................................Inv
estment Adviser and Administrator to Growth
and Income Fund and Growth Fund;
Administrator to Social Awareness
Fund
Smith Barney Strategy Advisers Inc.
("Strategy
Advisers")..............................................Investment
Adviser to Social Awareness Fund
PNC Bank, National Association
("PNC").................................................................
..Custodian
First Data Investor Services Group, Inc.
("First
Data")...........................................................Transfe
r Agent
These organizations and the services they perform for the Trust
and the Funds are discussed in the Prospectuses and in this Statement of
Additional Information.
Trustees and Executive Officers of The Trust
The names of the Trustees and the executive officers of the Trust,
together with information as to their principal business occupations,
are set forth below. Each Trustee who is an "interested person" of the
Trust, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), is indicated by
an asterisk.
Lee Abraham, Trustee (Age 67). Retired; formerly Chairman and Chief
Executive Officer of Associated Merchandising Corporation, a major
retail merchandising and sourcing organization. His address is 35 Old
Forge Road, Wilton, Connecticut 06897.
Antoinette C. Bentley, Trustee (Age 57). Retired; formerly Senior Vice
President and Associate General Counsel of Crum and Foster, Inc., an
insurance holding company. Her address is 24 Fowler Road, Far Hills, New
Jersey 07931.
Allan J. Bloostein, Trustee (Age 65). Consultant; formerly Vice Chairman
of the Board of and Consultant to The May Department Stores Company;
Director of Crystal Brands, Inc., Melville Corp. and R.G. Barry Corp.
His address is 27 West 67th Street, New York, New York 10023.
Richard E. Hanson, Jr., Trustee (Age 53). Headmaster, The Peck School,
Morristown, NJ; prior to July 1, 1994, Headmaster, Lawrence Country Day
School--Woodmere Academy, Woodmere, New York. His address is 247 South
Street, Morristown, NJ 07960.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age
61). Managing Director of Smith Barney and Chairman of the Board of
Strategy Advisers; prior to July 1993, Senior Executive Vice President
of Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"); Vice
Chairman of Shearson Asset Management, a Director of PanAgora Asset
Management, Inc. and PanAgora Asset Management Limited. Mr. McLendon
also serves as Chairman of the Board of 41 other mutual funds of the
Smith Barney Mutual Funds. His address is 388 Greenwich Street, New
York, New York 10013.
Madelon DeVoe Talley, Trustee (Age 62). Author; Governor at Large of the
National Association of Securities Dealers, Inc.; Commissioner of Port
Authority of New York and New Jersey as of 1996. Her address is 876 Park
Avenue, New York, New York 10021.
Jessica M. Bibliowicz, President (Age 35). Executive Vice President of
Smith Barney; prior to 1994, Director of Sales and Marketing for
Prudential Mutual Funds. Ms. Bibliowicz also serves as President of 39
other mutual funds of the Smith Barney Mutual Funds. Her address is 388
Greenwich Street, New York, New York, 10013.
R. Jay Gerken, Investment Officer (Age 43). Managing Director of Smith
Barney; prior to July 1993 Managing Director of Shearson Lehman
Advisors. His address is 388 Greenwich Street, New York, New York 10013.
George V. Novello, Investment Officer (Age 52). Managing Director of
Smith Barney; prior to July 1993, Managing Director of Shearson Lehman
Advisors. His address is 388 Greenwich Street, New York, New York 10013.
Robert J. Brady, Investment Officer (Age 56). Managing Director of
Smith Barney. Mr. Brady was previously Director of Investment Strategy
at EF Hutton and Special Situations Analyst for Forbes Inc. His address
is 388 Greenwich Street, New York, New York 10013.
Ellen S. Cammer, Investment Officer (Age 41). Managing Director of Smith
Barney. Her address is 388 Greenwich Street, New York, New York 10013.
Dennis A. Johnson, Investment Officer (Age ). Managing Director of
Smith Barney and President and Chief Investment Officer of Peachtree
Asset Management, a division of SBMFM; prior to 1994, Vice President and
Portfolio Manager of Trusco Capital. His address is One Peachtree
Center, Suite 4500, 303 Peachtree Street, NE, Atlanta, Georgia 30308.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 37). Managing
Director of Smith Barney; Director and Senior Vice President of SBMFM.
Mr. Daidone also serves as Senior Vice President and Treasurer of 41
other funds of the Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 44). Managing Director of Smith
Barney; General Counsel and Secretary of SBMFM. Ms. Sydor also serves as
Secretary of 41 other funds of the Smith Barney Mutual Funds. Her
address is 388 Greenwich Street, New York, New York 10013.
As of [ ], 1996, the Trust's Trustees and officers of the
Funds as a group owned less than 1.00% of the outstanding shares of the
Trust.
No officer, director or employee of Smith Barney, or of any parent
or subsidiary receives any compensation from the Trust for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee who is not
an officer, director or employee of Smith Barney or any of its
affiliates a fee of $6,000 per annum plus $1,000 per meeting attended
and reimburses each Trustee for travel and out-of-pocket expenses. For
the fiscal year ended January 31, 1997, such fees and expenses totalled
[$ ].
For the fiscal year ended January 31, 1997, the Trustees of the
Trust were paid the following compensation:
Aggregate Compensation
Aggregate Compensation from the Smith Barney
Trustee(*) from the Fund** Mutual
Funds
Lee Abraham(9).................................... $52,700
$52,700
Antoinette C. Bentley(9)#...................... 48,750
48,750
Allan J. Bloostein(15)............................ 52,800
91,300
Richard E. Hanson, Jr.(9)...................... 52,800
52,800
Madelon Devoe Talley(10)## ................ 48,050
67,550
(*) Number of directorships/trusteeships held with other mutual funds
in the Smith Barney Mutual Funds.
** The aggregate remunueration paid to the Trustees by the Trust for
the fiscal year ended January 31, 1996, which includes reimbursement for
travel and out-of-pocket expenses.
# 1997 fees 100% deferred
## 1997 fees 50% deferred
Investment Advisers and Administrator
SBMFM (formerly known as Smith, Barney Advisers, Inc.) serves as
investment adviser to Growth and Income Fund pursuant to a transfer of
the investment advisory agreement effective November 7, 1994 (the
"Growth and Income Advisory Agreement"), from its affiliate, Mutual
Management Corp. SBMFM also serves as investment advisor and
administrator to the Growth Fund pursuant to an Investment Advisory and
Administration Agreement dated [ ], 1996 (the "Growth Fund Advisory
Agreement"). Mutual Management Corp. and SBMFM are both wholly owned
subsidiaries of Smith Barney Holdings Inc. ("Holdings"), which in turn
is a wholly owned subsidiary of Travelers Group Inc. ("Travelers"). The
Growth and Income Advisory Agreement and the Growth Fund Advisory
Agreement each an "Advisory Agreement" and collectively the "Advisory
Agreements"). The Growth and Income Advisory Agreement is dated August
31, 1994. The services provided by SBMFM under the Advisory Agreements
are described in the Prospectuses under "Management of the Trust and the
Fund."
SBMFM bears all expenses in connection with the performance of its
services and pays the salary of any officer and employee who is employed
by both it and the Trust. As compensation for investment advisory
services rendered to Growth and Income Fund, the Fund pays a fee
computed daily and paid monthly at the annual rate of 0.45% of the value
of the average daily net assets of the Fund. As compensation for
investment advisory and administration services rendered to the Growth
Fund, the Fund pays a fee, computed daily and paid monthly, at the
annual rate of 0.75% of the value of the average daily net assets of the
Fund.
SBMFM also serves as administrator to the Growth and Income Fund
and the Social Awareness Fund pursuant to a written agreement (the
"Administration Agreement") dated August 31, 1996. For administration
services rendered, the Growth and Income Fund and the Social Awareness
Fund pay SBMFM a fee at the annual rate of 0.20% of the value of the
respective Funds' average daily net assets.
Certain of the services provided to the Funds by SBMFM are
described in the Prospectuses under "Management of the Trust and the
Fund." In addition to those services, SBMFM pays the salaries of all
officers and employees who are employed by SBMFM and the Fund, maintains
office facilities for each Fund, furnishes each Fund with statistical
and research data, clerical help and accounting, data processing,
bookkeeping, internal auditing and legal services and certain other
services required by the Funds, prepares reports to the Funds'
shareholders and prepares tax returns, reports to and filings with the
Securities and Exchange Commission (the "SEC") and state Blue Sky
authorities. SBMFM bears all expenses in connection with the performance
of its services.
Strategy Advisers serves as investment adviser to Social Awareness
Fund pursuant to a written agreement (the "Strategy Advisory
Agreement"), dated August 31, 1996. Strategy Advisers is a wholly owned
subsidiary of Holdings. Certain of the services provided by Strategy
Advisers under the Strategy Advisory Agreement are described in the
Prospectus under "Management of the Trust and the Fund." As compensation
for Strategy Advisers' services rendered to Social Awareness 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, 1995, 1996 and 1997, the
Funds paid investment advisory and/or administration fees to their
respective Advisers and the administrator as follows:
Growth and Income Fund
Fiscal Year Ended January 31,
1995 1996 1997
Investment Advisory
fees...........................................$847,149 $918,110
$
Administration
fees.....................................................376,511
408,049
Social Awareness Fund
Fiscal Year Ended January 31,
1995 1996 1997
Investment Advisory
fees...........................................$2,013,080 $2,095,050
$
Administration
fees........................................................732,029
761,836
Each Adviser and the administrator has agreed that if in any
fiscal year the aggregate expenses of the Fund it serves (including fees
payable pursuant to its agreement with respect to the Fund, but
excluding interest, taxes, brokerage, fees paid pursuant to the Trust's
services and distribution plan, and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Fund, the Adviser
and administrator, to the extent required by state law, will reduce
their fees to the Fund by the amount of such excess expense, such amount
to be allocated between them in the same proportion as their respective
fees bear to the combined fees for investment advice and administration.
Such fee reduction, if any, will be estimated and reconciled on a
monthly basis. The most restrictive state expense limitation currently
applicable to any Fund requires a reduction of fees in any year that
such expenses exceed 2.50% of the Fund's first $30 million of average
net assets, 2.00% of the next $70 million of average net assets and
1.50% of the remaining average net assets.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the Trust.
Stroock & Stroock & Lavan serves as counsel to the Independent Trustees
of the Funds.
KMPG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154,
has been selected as the Trust's independent auditor to examine and
report on the Trust's financial statements and highlights for the fiscal
year ending January 31, 1997.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectuses discuss the investment objectives of the Funds and the
policies employed to achieve those objectives. This section contains
supplemental information concerning the types of securities and other
instruments in which the Funds may invest, the investment policies and
portfolio strategies the Funds may utilize and certain risks attendant
to such investments, policies and strategies. There can be no assurance
that the respective investment objectives of the Funds will be achieved.
United States Government Securities. United States government
securities include debt obligations of varying maturities issued or
guaranteed by the United States government or its agencies or
instrumentalities ("U.S. government securities"). Direct obligations of
the United States Treasury include a variety of securities that differ
in their interest rates, maturities and dates of issuance.
U.S. government securities include not only direct obligations of
the United States Treasury, but also include securities issued or
guaranteed by the Federal Housing Administration, Federal Financing
Bank, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General
Services Administration, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association, Maritime
Administration, Resolution Trust Corporation, Tennessee Valley
Authority, District of Columbia Armory Board, Student Loan Marketing
Association and various institutions that previously were or currently
are part of the Farm Credit System (which has been undergoing a
reorganization since 1987). Because the United States government is not
obligated by law to provide support to an instrumentality that it
sponsors, a Fund will invest in obligations issued by such an
instrumentality only if the Fund's Adviser determines that the credit
risk with respect to the instrumentality does not make its securities
unsuitable for investment by the Fund.
Venture Capital Investments (Social Awareness Fund). Social
Awareness Fund may invest up to 5% of its total assets in venture
capital investments, that is, new and early stage companies whose
securities are not publicly traded. Venture capital investments may
present significant opportunities for capital appreciation but involve a
high degree of business and financial risk that can result in
substantial losses. The disposition of U.S. venture capital investments,
which may include limited partnership interests, normally would be
restricted under Federal securities laws. Generally, restricted
securities may be sold only in privately negotiated transactions or in
public offerings registered under the Securities Act of 1933, as
amended. The Fund also may be subject to restrictions contained in the
securities laws of other countries in disposing of portfolio securities.
As a result of these restrictions, the Fund may be unable to dispose of
such investments at times when disposal is deemed appropriate due to
investment or liquidity considerations; alternatively, the Fund may be
forced to dispose of such investments at less than fair market value.
Where registration is required, the Fund may be obligated to pay part or
all of the expenses of such registration.
Lending of Portfolio Securities. Each Fund has the ability to
lend portfolio securities to brokers, dealers and other financial
organizations. These loans, if and when made, may not exceed 20% (33
1/3% in the case of the Growth Fund) of a Fund's total assets taken at
value. A Fund will not lend portfolio securities to Smith Barney unless
it has applied for and received specific authority to do so from the
SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. government securities that are maintained at
all times in a segregated account in an amount equal to 100% of the
current market value of the loaned securities. From time to time, a Fund
may pay a part of the interest earned from the investment of collateral
received for securities loaned to the borrower and/or a third party that
is unaffiliated with the Fund and that is acting as a "finder."
By lending its securities, a Fund can increase its income by
continuing to receive interest on the loaned securities as well as by
either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
government securities are used as collateral. A Fund will comply with
the following conditions whenever its portfolio securities are loaned:
(a) the Fund must receive at least 100% cash collateral or equivalent
securities from the borrower; (b) the borrower must increase such
collateral whenever the market value of the securities loaned rises
above the level of such collateral; (c) the Fund must be able to
terminate the loan at any time; (d) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market
value; (e) the Fund may pay only reasonable custodian fees in connection
with the loan; and (f) voting rights on the loaned securities may pass
to the borrower, provided, however, that if a material event adversely
affecting the investment in the loaned securities occurs, the Trust's
Board of Trustees must terminate the loan and regain the right to vote
the securities. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of a possible delay in receiving
additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially.
Loans will be made to firms deemed by each Fund's Adviser to be of good
standing and will not be made unless, in its judgment, the consideration
to be earned from such loans would justify the risk.
Options on Securities. The Growth and Income Fund and the Social
Awareness Fund may write covered call options and enter into closing
transactions with respect thereto. The principal reason for writing
covered call options on securities is to attempt to realize, through the
receipt of premiums, a greater return than would be realized on the
securities alone. In return for a premium, the writer of a covered call
option forfeits the right to any appreciation in the value of the
underlying security above the strike price for the life of the option
(or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the
underlying security. The size of the premiums a Fund may receive may be
adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing
activities.
Options written by the Funds normally will have expiration dates
between one and nine months from the date they are written. The exercise
price of the options may be below ("in-the-money"), equal to ("at-the-
money"), or above ("out-of-the-money") the market values of the
underlying securities at the times the options are written. A Fund may
write (a) in-the-money call options when its Adviser expects that the
price of the underlying security will remain flat or decline moderately
during the option period, (b) at-the-money call options when its Adviser
expects that the price of the underlying security will remain flat or
advance moderately during the option period and (c) out-of-the-money
call options when its Adviser expects that the price of the underlying
security may increase but not above a price equal to the sum of the
exercise price plus the premiums received from writing the call option.
In any of the preceding situations, if the market price of the
underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part
by the premium received.
So long as the obligation of a Fund as the writer of an option
continues, the Fund may be assigned an exercise notice by the broker-
dealer through which the option was sold requiring the Fund to deliver
the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Fund effects a
closing purchase transaction. A Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned
an exercise notice. To secure its obligation to deliver the underlying
security when it writes a call option, a Fund will be required to
deposit in escrow the underlying security or other assets in accordance
with the rules of the Options Clearing Corporation (the "Clearing
Corporation") and of the domestic securities exchange on which the
option is written.
An option position may be closed out only where there exists a
secondary market for an option of the same series on a securities
exchange or in the over-the-counter market. Social Awareness 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 Social Awareness Fund generally will write only those
options for which the Fund's Adviser believes there is an active
secondary market so as to facilitate closing transactions, there is no
assurance that sufficient trading interest to create a liquid secondary
market on a securities exchange will exist for any particular option or
at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for
a variety of reasons. In the past, for example, higher than anticipated
trading activity or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the Clearing Corporation and
the domestic securities exchanges inadequate and resulted in the
institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions
in one or more options. There can be no assurance that similar events,
or events that otherwise may interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be
possible to effect closing transactions in particular options. If, as a
covered call option writer, a Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the
underlying security upon exercise.
Securities exchanges have established limitations governing the
maximum number of calls and puts of each class that may be held or
written, or exercised within certain time periods, by an investor or
group of investors acting in concert (regardless of whether the options
are written on the same or different national securities exchanges or
are held, written or exercised in one or more accounts or through one or
more brokers). It is possible that the Funds and other clients of their
respective Advisers and certain of their affiliates may be considered to
be such a group. A securities exchange may order the liquidation of
positions found to be in violation of these limits and it may impose
certain other sanctions.
In the case of options written by a Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stocks with respect to
which the Fund has written options may exceed the time within which the
Fund must make delivery in accordance with an exercise notice. In these
instances, a Fund may purchase or temporarily borrow the underlying
securities for purposes of physical delivery. By so doing, the Fund will
not bear any market risk because the Fund will have the absolute right
to receive from the issuer of the underlying securities an equal number
of shares to replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expense in connection with any
such purchase or borrowing.
Money Market Instruments. Subject to the restrictions noted in
the Prospectuses, the money market instruments in which the Funds may
invest are: U.S. government securities; certificates of deposit ("CDs"),
time deposits ("TDs") and bankers' acceptances issued by domestic banks
(including their branches located outside the United States and
subsidiaries located in Canada), domestic branches of foreign banks,
savings and loan associations and similar institutions; high grade
commercial paper; and repurchase agreements with respect to the
foregoing types of instruments. The following is a more detailed
description of such money market instruments.
Bank Obligations. CDs are short-term, negotiable obligations of
commercial banks; TDs are non-negotiable deposits maintained in banking
institutions for specified periods of time at stated interest rates; and
bankers' acceptances are time drafts drawn on commercial banks by
borrowers usually in connection with international transactions.
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be
members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized
under state law are supervised and examined by state banking authorities
but are members of the Federal Reserve System only if they elect to
join. Most state banks are insured by the FDIC (although such insurance
may not be of material benefit to a Fund, depending upon the principal
amount of CDs of each bank held by the Fund) and are subject to federal
examination and to a substantial body of Federal law and regulation. As
a result of governmental regulations, domestic branches of domestic
banks, among other things, generally are required to maintain specified
levels of reserves, and are subject to other supervision and regulation
designed to promote financial soundness.
Obligations of foreign branches of domestic banks, such as CDs and
TDs, may be general obligations of the parent bank in addition to the
issuing branch, or may be limited by the terms of a specific obligation
and governmental regulations. Such obligations are subject to different
risks than are those of domestic banks or domestic branches of foreign
banks. These risks include foreign economic and political developments,
foreign governmental restrictions that may adversely affect payment of
principal and interest on the obligations, foreign exchange controls and
foreign withholding and other taxes on interest income. Foreign branches
of domestic banks are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory
reserve requirements, loan limitations, and accounting, auditing and
financial recordkeeping requirements. In addition, less information may
be publicly available about a foreign branch of a domestic bank than
about a domestic bank. CDs issued by wholly owned Canadian subsidiaries
of domestic banks are guaranteed as to repayment of principal and
interest (but not as to sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may
be limited by the terms of a specific obligation and by Federal and
state regulation as well as governmental action in the country in which
the foreign bank has its head office. A domestic branch of a foreign
bank with assets in excess of $1 billion may or may not be subject to
reserve requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed in that
state. In addition, branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State Branches") may or may
not be required to: (a) pledge to the regulator by depositing assets
with a designated bank within the state, an amount of its assets equal
to 5% of its total liabilities; and (b) maintain assets within the state
in an amount equal to a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through all of its
agencies or branches within the state. The deposits of State Branches
may not necessarily be insured by the FDIC. In addition, there may be
less publicly available information about a domestic branch of a foreign
bank than about a domestic bank.
In view of the foregoing factors associated with the purchase of
CDs and TDs issued by foreign branches of domestic banks or by domestic
branches of foreign banks, each Fund's Adviser will carefully evaluate
such investments on a case-by-case basis. Savings and loan associations,
the CDs of which may be purchased by the Funds, are supervised by the
Office of Thrift Supervision and are insured by the Savings Association
and Insurance Fund. As a result, such savings and loan associations are
subject to regulation and examination.
Commercial Paper. Commercial paper is a short-term, unsecured
negotiable promissory note of a domestic or foreign company. A Fund may
invest in short-term debt obligations of issuers that at the time of
purchase are rated A-2, A-1 or A-1+ by Standard & Poor's Ratings Group
("S&P") or Prime-2 or Prime-1 by Moody's Investors Service, Inc.
("Moody's") or, if unrated, are issued by companies having an
outstanding unsecured debt issue currently rated within the two highest
ratings of S&P or Moody's. A discussion of S&P and Moody's rating
categories appears in the Appendix to this Statement of Additional
Information.
A Fund also may invest in variable rate master demand notes, which
typically are issued by large corporate borrowers providing for variable
amounts of principal indebtedness and periodic adjustments in the
interest rate according to the terms of the instrument. Demand notes are
direct lending arrangements between the Fund and an issuer, and are not
normally traded in a secondary market. A Fund, however, may demand
payment of principal and accrued interest at any time. In addition,
while demand notes generally are not rated, their issuers must satisfy
the same criteria as those set forth above for issuers of commercial
paper. Each Fund's Adviser will consider the earning power, cash flow
and other liquidity ratios of issuers of demand notes and continually
will monitor their financial ability to meet payment on demand.
Convertible Securities. The Funds may invest in convertible
securities. Convertible securities are fixed-income securities that may
be converted at either a stated price or stated rate into underlying
shares of common stock. Convertible securities have general
characteristics similar to both fixed-income and equity securities.
Although to a lesser extent than with fixed-income securities generally,
the market value of convertible securities tends to decline as interest
rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market
value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stocks and, therefore, also will
react to variations in the general market for equity securities. A
unique feature of convertible securities is that as the market price of
the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and thus may not experience market
value declines to the same extent as the underlying common stock. When
the market price of the underlying common stock increases, the prices of
the convertible securities tend to rise as a reflection of the value of
the underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are investments
that provide for a stable stream of income with generally higher yields
than common stocks. Of course, like all fixed-income securities, there
can be no assurance of current income because the issuers of the
convertible securities may default on their obligations. Convertible
securities, however, generally offer lower interest or dividend yields
than non-convertible securities of similar quality because of the
potential for capital appreciation. A convertible security, in addition
to providing fixed income, offers the potential for capital appreciation
through the conversion feature, which enables the holder to benefit from
increases in the market price of the underlying common stock. There can
be no assurance of capital appreciation, however, because securities
prices fluctuate.
Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is
senior to common stock, of the same issuer. Because of the subordination
feature, however, convertible securities typically have lower ratings
than similar non-convertible securities.
Preferred Stock. The Funds may invest in preferred stocks.
Preferred stocks, like debt obligations, are generally fixed-income
securities. Shareholders of preferred stocks normally have the right to
receive dividends at a fixed rate when and as declared by the issuer's
board of directors, but do not participate in other amounts available
for distribution by the issuing corporation. Dividends on the preferred
stock may be cumulative, and all cumulative dividends usually must be
paid prior to common stockholders receiving any dividends. Preferred
stock dividends must be paid before common stock dividends and for that
reason preferred stocks generally entail less risk than common stocks.
Upon liquidation, preferred stocks are entitled to a specified
liquidation preference, which is generally the same as the par or stated
value, and are senior in right of payment to common stock. Preferred
stocks are, however, equity securities in the sense that they do not
represent a liability of the issuer and therefore do not offer as great
a degree of protection of capital or assurance of continued income as
investments in corporate debt securities. In addition, preferred stocks
are subordinated in right of payment to all debt obligations and
creditors of the issuer, and convertible preferred stocks may be
subordinated to other preferred stock of the same issuer.
American, European, Global and Continental Depositary Receipts.
The assets of Social Awareness Fund and the Growth Fund may be invested
in the securities of foreign issuers in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs"). These securities may not necessarily be
denominated in the same currency as the securities into which they may
be converted. ADRs are U.S. dollar-denominated receipts typically issued
by a domestic bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe typically by non-U.S. banks and trust
companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in
U.S. securities markets and EDRs and CDRs in bearer form are designed
for use in European securities markets.
Investment Restrictions
The Trust has adopted the following investment restrictions for the
protection of shareholders. Restrictions 1 through 8 below have been
adopted by the Trust with respect to each Fund as fundamental policies.
Under the 1940 Act, a fundamental policy of a Fund may not be changed
without the vote of a majority, as defined in the 1940 Act, of the
outstanding voting securities of the Fund. Such majority is defined as
the lesser of (a) 67% or more of the shares present at the meeting, if
the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (b) more than 50% of the outstanding
shares. Investment restrictions 9 through 17 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 each Fund may invest
in futures contracts and options on futures contracts as described
in each Fund's Prospectus.
7. Making loans to others, except through the purchase of
qualified debt obligations, loans of portfolio securities and the
entry into repurchase agreements.
8. Purchasing any securities (other than U.S. government
securities) which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business
activities in the same industry.
9. Purchasing securities on margin. For purposes of this
restriction, the deposit or payment of initial or variation margin
in connection with futures contracts or related options will not
be deemed to be a purchase of securities on margin by any Fund
permitted to engage in transactions in futures contracts or
related options.
10. Making short sales of securities or maintaining a short
position, except that the Growth Fund may sell securities short
"against the box".
11. Pledging, hypothecating, mortgaging or otherwise encumbering
more than 10% of the value of the Fund's total assets. For
purposes of this restriction, (a) the deposit of assets in escrow
in connection with the writing of covered call options and (b)
collateral arrangements with respect to (i) the purchase and sale
of options on stock indices and (ii) initial or variation margin
for futures contracts, will not be deemed to be pledges of a
Fund's assets.
12. Investing in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the
securities of companies that invest in or sponsor those programs.
13. Investing in securities of other investment companies
registered or required to be registered under the 1940 Act, except
as they may be acquired as part of a merger, consolidation,
reorganization or acquisition of assets or an offer of exchange.
14. Writing or selling puts, calls, straddles, spreads or
combinations thereof, except that Social Awareness Fund may write
covered call options.
15. Purchasing restricted securities (excluding (i) securities
subject to Rule 144A of the Securities Act of 1933, as amended,
(the "1933 Act") determined by the Trustees to be liquid and (ii)
certain privately issued commercial paper eligible for resale to
institutional investors without registration pursuant to Section
4(2) of the 1933 Act), illiquid securities (such as repurchase
agreements with maturities in excess of seven days) or other
securities that are not readily marketable if more than 15% of the
total assets of the Fund would be invested in such securities.
16. Making investments for the purpose of exercising control or
management.
17. 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, Social
Awareness Fund may experience increased portfolio turnover as a result
of the asset allocation strategy that it employs and the Growth Fund's
disciplined sell strategy may result in an increased portfolio turnover.
The portfolio turnover rate of a Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the year by the
monthly average value of portfolio securities. Securities with remaining
maturities of one year or less on the date of acquisition are excluded
from the calculation.
For the fiscal years ended January 31, 1996 and 1997, the
portfolio turnover rates of the Funds were as follows:
1996 1997
Social Awareness Fund 81%
Growth and Income Fund 15%
Growth Fund N\A N\A
Portfolio Transactions
Most of the purchases and sales of securities for a Fund, whether
transacted on a securities exchange or in the over-the-counter market,
will be effected in the primary trading market for the securities. The
primary trading market for a given security generally is located in the
country in which the issuer has its principal office. Decisions to buy
and sell securities for a Fund are made by its Adviser, which also is
responsible for placing these transactions, subject to the overall
review of the Trust's Trustees.
Although investment decisions for each Fund are made independently
from those of the other accounts managed by its Adviser, investments of
the type the Fund may make also may be made by those other accounts.
When a Fund and one or more other accounts managed by its Adviser are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by the Adviser to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or disposed of by the Fund.
Transactions on domestic stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On
exchanges on which commissions are negotiated, the cost of transactions
may vary among different brokers. On most foreign exchanges, commissions
are generally fixed. There is generally no stated commission in the case
of securities traded in domestic or foreign over-the-counter markets,
but the prices of those securities include undisclosed commissions or
mark-ups. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down. U.S. government securities are generally purchased
from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the United States
Treasury or from the issuing agency or instrumentality, respectively.
The following table sets forth certain information regarding the
payment of brokerage commissions by the Social Awareness Fund and the
Growth and Income Fund:
Fiscal Year Social
Ended Awareness Growth and
January 31, Fund Income Fund
Total Brokerage Commissions 1996 232,581
95,978
1997 [ ] [
]
Commissions paid to 1995 117,328
53,370
Smith Barney 1996 16,210
3,690
1997
% of Total Brokerage
Commissions paid to
Smith Barney 1997 [ %]
[ ]%
% of Total Transactions
involving Commissions paid
to Smith Barney 1997 [ ]%
[ ]%
The total brokerage commissions paid by the Funds for each fiscal
year vary primarily due to increases or decreases in the Funds' volume
of securities transactions on which brokerage commissions are charged.
In selecting brokers or dealers to execute portfolio transactions
on behalf of a Fund, the Fund's Adviser seeks the best overall terms
available. In assessing the best overall terms available for any
transaction, each Adviser will consider the factors the Adviser deems
relevant, including the breadth of the market in the security, the price
of the security, the financial condition and the execution capability of
the broker or dealer and the reasonableness of the commission, if any,
for the specific transaction and on a continuing basis. In addition,
each advisory agreement between the Trust and an Adviser relating to a
Fund authorizes the Adviser, in selecting brokers or dealers to execute
a particular transaction and in evaluating the best overall terms
available, to consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Fund, the other Funds and/or other accounts over
which the Adviser or its affiliates exercise investment discretion. The
fees under the advisory agreements relating to the Funds between the
Trust and the Advisers are not reduced by reason of their receiving such
brokerage and research services. The Trust's Board of Trustees
periodically will review the commissions paid by the Funds to determine
if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
To the extent consistent with applicable provisions of the 1940
Act and the rules and exemptions adopted by the SEC thereunder, the
Board of Trustees has determined that transactions for a Fund may be
executed through Smith Barney and other affiliated broker-dealers if, in
the judgment of the Fund's Adviser, the use of such broker-dealer is
likely to result in price and execution at least as favorable as those
of other qualified broker-dealers, and if, in the transaction, such
broker-dealer charges the Fund a rate consistent with that charged to
comparable unaffiliated customers in similar transactions. Smith Barney
may directly execute such transactions for the Funds on the floor of any
national securities exchange, provided (a) the Board of Trustees has
expressly authorized Smith Barney to effect such transactions, and (b)
Smith Barney annually advises the Trust of the aggregate compensation it
earned on such transactions. Over-the-counter purchases and sales are
transacted directly with principal market makers except in those cases
in which better prices and executions may be obtained elsewhere.
The Funds will not purchase any security, including U.S.
government securities, during the existence of any underwriting or
selling group relating thereto of which Smith Barney is a member, except
to the extent permitted by the SEC.
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares described in the
Prospectuses applies to purchases made by any "purchaser," which is
defined to include the following: (a) an individual; (b) an individual's
spouse and his or her children purchasing shares for his or her own
account; (c) a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and qualified
employee benefit plans of employers who are "affiliated persons" of each
other within the meaning of the 1940 Act; (e) tax-exempt organizations
numerated in Section 501(c)(3) or (13) of the Code; and (f) a trustee or
other professional fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, as
amended) purchasing shares of a Fund for one or more trust estates or
fiduciary accounts. Purchasers who wish to combine purchase orders to
take advantage of volume discounts on Class A shares should contact a
Smith Barney Financial Consultant or PFS.
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 or PFS.
Determination of Public Offering Price
The Trust offers shares of the Funds to the public on a continuous
basis. The public offering price for Class A shares of the Funds is
equal to the net asset value per share at the time of purchase, plus a
sales charge based on the aggregate amount of the investment. The public
offering price for Class B, Class C, Class Y and Class Z shares of a
Fund (and Class A share purchases, including applicable right of
accumulation, equalling or exceeding $500,000) is equal to the net asset
value per share at the time of purchase and no sales charge is imposed
at the time of purchase. A contingent deferred sales charge ("CDSC"),
however, is imposed on certain redemptions of Class B and Class C shares
and of Class A shares when purchased in amounts equalling or exceeding
$500,000. The method of computation of the public offering price is
shown in the Funds' financial statements, which are incorporated by
reference in their entirety into this Statement of Additional
Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment
postponed (a) for any period during which the New York Stock Exchange,
Inc. ("NYSE") is closed (other than for customary weekend and holiday
closings), (b) when trading in markets the Fund normally utilizes is
restricted, or an emergency exists, as determined by the SEC, so that
disposal of the Fund's investments or determination of its net asset
value is not reasonably practicable or (c) for such other periods as the
SEC by order may permit for protection of the Fund's shareholders.
Distributions in Kind
If the Board of Trustees of the Trust determines that it would be
detrimental to the best interests of the remaining shareholders to make
a redemption payment wholly in cash, the Fund may pay, in accordance
with rules adopted by the SEC, any portion of a redemption in excess of
the lesser of $250,000 or 1.00% of its net assets by distribution in
kind of portfolio securities in lieu of cash. Securities issued as a
distribution in kind may incur brokerage commissions when shareholders
subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders who own shares with a value of at least
$10,000 and who wish to receive specific amounts of cash monthly or
quarterly. Withdrawals of at least $50 monthly may be made under the
Withdrawal Plan by redeeming as many shares of the Funds as may be
necessary to cover the stipulated withdrawal payment. Any applicable
CDSC will not be waived on amounts withdrawn by shareholders that exceed
1.00% per month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. To the extent withdrawals exceed dividends,
distributions and appreciation of the shareholder's investment in a
Fund, there will be a reduction in the value of the shareholder's
investment, and continued withdrawal payments will reduce the
shareholder's investment and may ultimately exhaust it. Withdrawal
payments should not be considered as income from investment in a Fund.
Furthermore, as it would not generally be advantageous to a shareholder
to make additional investments in a Fund at the same time he or she is
participating in the Withdrawal Plan, purchases by such shareholders in
amounts of less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and
who hold their shares in certificate form must deposit their share
certificates with First Data 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. 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.
DISTRIBUTORS
Shares of the Trust are distributed on a best efforts basis by
Smith Barney as sales agent of the Trust pursuant to a written agreement
(the "Smith Barney Distribution Agreement"). Class A and Class B Shares
of the Social Awareness Fund and the Growth Fund are distributed on a
best efforts basis by PFS as sales agent pursuant to a written agreement
(the "PFS Distribution Agreement" and together with the Smith Barney
Distribution Agreement the "Distribution Agreements").
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 or
PFS 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 and PFS for the services they provide
and for the expense they bear under the Distribution Agreements, 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 and PFS with respect to each Fund they distribute 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 sold by either Smith Barney
or PFS. In addition, the Trust pays Smith Barney or PFS a distribution
fee with respect to each Fund's Class B and Class C shares sold by
either Smith Barney or PFS primarily intended to compensate Smith Barney
for its initial expense of paying its Financial Consultants and PFS
which, in turn, pays PFS Investments, Inc. to pay its Investments
Representatives, 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 Social Awareness Fund and the Growth Fund and 0.50% for the
Growth and Income Fund of the value of a Fund's average daily net assets
attributable to the shares of that Class.
The following expenses were incurred during the periods indicated:
Sales Charges (paid to Smith Barney).
Class A
Fiscal Year Fiscal Year Fiscal Year
Name of Fund Ended 1/31/95 Ended 1/31/96
Ended 1/31/97
Social Awareness $13,735 $47,000
$
Growth and Income 39,518 69,000
CDSC (paid to Smith Barney)
Class B
Fiscal Year Fiscal Year Fiscal Year
Name of Fund Ended 1/31/95 Ended 1/31/96
Ended 1/31/97
Social Awareness $ 311,572 $382,000 $
Growth and Income 271,979 216,000
Class C
(formerly Class D Shares)
Fiscal Year Fiscal Year Fiscal Year
Ended 1/31/95 Ended 1/31/96 Ended
1/31/97
Name of Fund
Social Awareness $55 $1,000 $
Growth and Income $ $ $
Service Fees (paid to Smith Barney)
Class A
Fiscal Year Fiscal Year Fiscal Year
Name of Fund Ended 1/31/95 Ended 1/31/96
Ended 1/31/97
Social Awareness $148,061 $401,114 $
Growth and Income 97,689 256,112
Class B
Fiscal Year Fiscal Year Fiscal Year
Name of Fund Ended 1/31/95 Ended 1/31/96
Ended 1/31/97
Social Awareness $ 764,217 $544,656 $
Growth and Income 372,877 252,848
Class C
(formerly Class D Shares)
Fiscal Year Fiscal Year Fiscal Year
Ended 1/31/95 Ended 1/31/96 Ended
1/31/97
Name of Fund
Social Awareness $2,759 $6,110
$
Growth and Income* $1,100 $ $
____________________________
* Class C Shares were first purchased by the public on August 15, 1994.
Distribution Fees (paid to Smith Barney)
Class B
Fiscal Year Fiscal Year Fiscal Year
Name of Fund Ended 1/31/95 Ended 1/31/96
Ended 1/31/97
Social Awareness $2,292,652 $1,633,968 $
Growth and Income 745,754 505,697
Class C
(formerly Class D Shares)
Fiscal Year Fiscal Year Fiscal Year
Ended 1/31/95 Ended 1/31/96 Ended
1/31/97
Name of Fund
Social Awareness $8,277 $18,328
$
Growth and Income* 78 2,200
_____________________________
* Class C Shares were first purchased by the public on August 15, 1994.
For the fiscal year ended January 31, 1997, the distribution
expenses incurred by Smith Barney on Class B and Class C shares totaled
[$ ].
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 Agreements. The Plan may not be amended to increase the
amount of the service and distribution fees without shareholder
approval, and all material amendments of the Plan also must be approved
by the Trustees and such Independent Trustees in the manner described
above. The Plan may be terminated with respect to a Class at any time,
without penalty, by vote of a majority of such Independent Trustees or
by a vote of a majority of the outstanding voting securities of the
Class (as defined in the 1940 Act). Pursuant to the Plan, Smith Barney
will provide the Trust's Board of Trustees with periodic reports of
amounts expended under the Plan and the purpose for which such
expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day,
Monday through Friday, except days on which the NYSE is closed. The NYSE
currently is scheduled to be closed on New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. Because of
the differences in distribution fees and Class-specific expenses, the
per share net asset value of each Class may differ. The following is a
description of the procedures used by the Trust in valuing assets of the
Funds.
A security that is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary
market for such security. All assets and liabilities initially expressed
in foreign currency values will be converted into U.S. dollar values at
the mean between the bid and offered quotations of such currencies
against U.S. dollars as last quoted by any recognized dealer. If such
quotations are not available, the rate of exchange will be determined in
good faith by the Trust's Board of Trustees. In carrying out the Board's
valuation policies, SBMFM, as administrator, may consult with an
independent pricing service (the "Pricing Service") retained by the
Trust.
Debt securities of domestic issuers (other than U.S. government
securities and short-term investments) are valued by SBMFM, as
administrator, after consultation with the Pricing Service approved by
the Trust's Board of Trustees. When, in the judgment of the Pricing
Service, quoted bid prices for investments are readily available and are
representative of the bid side of the market, these investments are
valued at the mean between the quoted bid prices and asked prices.
Investments for which, in the judgment of the Pricing Service, there are
no readily obtainable market quotations are carried at fair value as
determined by the Pricing Service. The procedures of the Pricing Service
are reviewed periodically by the officers of the Funds under the general
supervision and responsibility of the Trust's Board of Trustees.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith
Barney Mutual Funds may exchange all or part of their shares for shares
of the same class of other funds of the Smith Barney Mutual Funds, to
the extent such shares are offered for sale in the shareholder's state
of residence, on the basis of relative net asset value per share at the
time of exchange, except that 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.
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 or PFS.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-
current net asset value and, subject to any applicable CDSC, the
proceeds are immediately invested, at a price as described above, in
shares of the fund being acquired. Smith Barney reserves the right to
reject any exchange request. The exchange privilege may be modified or
terminated at any time after written notice to shareholders.
PERFORMANCE DATA
From time to time, the Trust may quote total return of the Classes
of the various Funds in advertisements or in reports and other
communications to shareholders. A Fund may include comparative
performance information in advertising or marketing the Fund's shares.
Such performance information may include the following industry and
financial publications: Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values, The
New York Times, USA Today and The Wall Street Journal. To the extent any
advertisement or sales literature of the Funds describes the expenses or
performance of Class A, Class B, Class C or Class Y, it will also
disclose such information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made
at the beginning of the 1-, 5- or 10-year period
at the
end of the 1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all dividends and
distributions.
The average annual total returns of the Funds' Class A shares were
as follows for the periods indicated:
Per Annum
for the Period
from the Commencement
of
One Year Period Operations* through
Ended 1/31/96 1/31/96
Name of Fund
Strategic Investors 20.14% 12.05%
Growth and Income 24.38 9.32
______________________________
*The Funds commenced selling Class A shares on November 6, 1992.
The average annual total returns of the Funds' Class B shares were
as follows for the
periods indicated:
Per Annum Per Annum
for the for the
Period
One Year Five Year from the Commencement of
Period Ended Period Ended
Operations* through
1/31/96 1/31/96
1/31/96
Name of Fund
Strategic Investors(1) 20.58% 12.89% 10.70%
Growth and Income(2) 25.23 N/A
10.03
________________________________
(1) The Fund commenced selling Class B shares on February 2, 1987.
(2) The Fund commenced selling Class B shares on November 6, 1992.
The average annual total returns of the Funds' Class C shares were
as follows for the
periods indicated:
One Year Per Annum for
Period Ended the Period Ended
1/31/96 1/31/96
Name of Fund
Strategic Investors 24.77% 11.34%
Growth and Income 29.23 19.31
______________________________
*The Funds commenced selling Class C shares (previously Class D shares)
on January 29, 1993.
Average annual total return figures calculated in accordance with
the above formula assume that the maximum 5% sales charge or maximum
CDSC, as the case may be, has been deducted from the hypothetical
investment. A Fund's net investment income changes in response to
fluctuations in interest rates and the expenses of the Fund.
Aggregate Total Return
"Aggregate total return" figures represent the cumulative change in the
value of an investment in the Class for the specified period and are
computed by the following formula:
ERV-P
- -----
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at
the beginning of the 1-, 5- or 10-year period at the
end of the 1-, 5- or
10-year period (or fractional portion thereof),
assuming reinvestment of
all dividends and distributions.
The aggregate total returns (with fees waived) for the following
classes, were as follows for the periods indicated:
Without Sales Charge With Sales Charge
Period from | Period from
One Year Five Year Commencement |One Year Five Year
Commencement
Period Period of Operations |Period Period
of Operations
Ended Ended through |Ended Ended tbrough
1/31/96* 1/31/96* 1/31/96* |1/31/96** 1/31/96**
1/31/96**
Strategic Investors
Class A+ 26.47% ----- 52.05% 20.14% ----
44.49%
Class B (1) 25.58% 84.33% 149.55 20.58 83.33%
149.55
Class C++ 25.77 ----- 34.26 24.77 ----
34.26
Growth and Income
Class A+ 30.97% ----- 40.46% 24.38% ----
33.44%
Class B (2) 30.23 ----- 38.22 25.23 ----
36.22
Class C++ 30.23 ----- 29.47 29.23
- ---- 29.47
_____________________________________
* Figures do not include the effect of the maximum sales charge or
maximum applicable CDSC. If
they had been included, it would have had the effect of lowering
the returns shown.
** Figures include the effect of the maximum sales charge or maximum
applicable CDSC.
+ The Fund commenced selling Class A shares on November 6, 1992.
++ The Fund commenced selling Class C shares (previously Class D
shares) on January 29, 1993.
(1) The Fund commenced selling Class B shares on February 2, 1987.
(2) The Fund commenced selling Class B shares on November 6, 1992.
It is important to note that the total return figures set forth
above are based on historical earnings and are not intended to indicate
future performance.
A Class' performance will vary from time to time depending on
market conditions, the composition of the relevant Fund's portfolio and
operating expenses and the expenses exclusively attributable to that
Class. Consequently, any given performance quotation should not be
considered representative of the Class' performance for any specified
period in the future. Because performance will vary, it may not provide
a basis for comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for a stated period
of time. Investors comparing the Class' performance with that of other
mutual funds should give consideration to the quality and maturity of
the respective investment companies' portfolio securities.
TAXES
The following is a summary of certain Federal income tax considerations
that may affect the Funds and their shareholders. This summary is not
intended as a substitute for individual tax advice, and investors are
urged to consult their own tax advisors as to the tax consequences of an
investment in any Fund of the
Trust.
Tax Status of the Funds
Each Fund will be treated as a separate taxable entity for Federal
income tax purposes with the result that: (a) each Fund must meet
separately the income and distribution requirements for qualification as
a regulated investment company and (b) the amounts of investment income
and capital gains earned will be determined on a Fund-by-Fund (rather
than on a Trust-wide) basis.
Taxation of Shareholders
Dividends paid by a Fund from investment income and distributions of
short-term capital gains will be taxable to shareholders as ordinary
income for Federal income tax purposes, whether received in cash or
reinvested in additional shares. Distributions of long-term capital
gains will be taxable to shareholders as long-term capital gains,
whether paid in cash or reinvested in additional shares, and regardless
of the length of time the investor has held his or her shares of the
Fund.
Dividends of investment income (but not capital gains) from any
Fund generally will qualify for the Federal dividends-received deduction
for corporate shareholders to the extent such dividends do not exceed
the aggregate amount of dividends received by the Fund from domestic
corporations. If securities held by a Fund are considered to be "debt-
financed" (generally, acquired with borrowed funds), are held by the
Fund for less than 46 days (91 days in the case of certain preferred
stock), or are subject to certain forms of hedges or short sales, the
portion of the dividends paid by the Fund that corresponds to the
dividends paid with respect to such securities will not be eligible for
the corporate dividends-received deduction.
If a shareholder (a) incurs a sales charge in acquiring shares of
a Fund, (b) disposes of those shares within 90 days and (c) acquires
shares in a mutual fund for which the otherwise applicable sales charge
is reduced by reason of a reinvestment right (that is, an exchange
privilege), the sales charge increases the shareholder's tax basis in
the original shares only to the extent the otherwise applicable sales
charge for the second acquisition is not reduced. The portion of the
original sales charge that does not increase the shareholder's tax basis
in the original shares would be treated as incurred with respect to the
second acquisition and, as a general rule, would increase the
shareholder's tax basis in the newly acquired shares. Furthermore, the
same rule also applies to a disposition of the newly acquired or
redeemed shares made within 90 days of the second acquisition. This
provision prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment in a family of mutual funds.
Capital Gains Distribution. In general, a shareholder who redeems
or exchanges his or her shares will recognize long-term capital gain or
loss if the shares have been held for more than one year, and will
recognize short-term capital gain or loss if the shares have been held
for one year or less. If a shareholder receives a distribution taxable
as long-term capital gain with respect to shares of a Fund and redeems
or exchanges the shares before he or she has held them for more than six
months, any loss on such redemption or exchange that is less than or
equal to the amount of the distribution will be treated as
long-term capital loss.
Backup Withholding. If a shareholder fails to furnish a correct
taxpayer identification number, fails to fully report dividend and
interest income, or fails to certify that he or she has provided a
correct taxpayer identification number and that he or she is not subject
to withholding, then the shareholder may be subject to a 31% Federal
backup withholding tax with respect to (a) any dividends and
distributions and (b) any proceeds of any redemptions or exchanges. An
individual's taxpayer identification number is his or her social
security number. The backup withholding tax is not an additional tax and
may be credited against a shareholder's regular Federal income tax
liability.
Regulated Investment Company Status
Each Fund intends to qualify or continue to qualify in subsequent years,
as applicable, as a regulated investment company within the meaning of
Section 851 of the Code. The Trust will monitor each Fund's investments
so as to meet the requirements for qualification on a continuing basis.
As a regulated investment company, a Fund will not be subject to
Federal income tax on the net investment income and net capital gains,
if any, that it distributes to its shareholders, provided that at least
90% of the sum of investment income and short-term capital gains is
distributed to its shareholders. All net investment income and net
capital gains earned by a Fund will be reinvested automatically in
additional shares of the Fund, unless the shareholder elects to receive
dividends and distributions in cash. Amounts reinvested in additional
shares will be considered to have been distributed to shareholders.
To qualify as a regulated investment company, each Fund must meet
certain requirements set forth in the Code. One requirement is that each
Fund must earn at least 90% of its gross income from (a) interest, (b)
dividends, (c) payments with respect to securities loans, (d) gains from
the sale or other disposition of stock or securities or foreign
currencies and (e) other income (including but not limited to gains from
options, futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies (the "90%
Test"). An additional requirement is that each Fund must earn less than
30% of its gross income from the sale or other disposition of stock or
securities held for less than three months (the "30% Test"). Legislation
currently pending before the U.S. Congress would repeal the 30% Test.
However, it is impossible at this time to predict whether this
legislation will become law and, if it is so enacted, what form it will
eventually take. Depending upon the circumstances, the 30% Test may
limit the extent to which the Fund may: (a) sell securities held for
less than three months; (b) effect short sales of securities that are
identical (or substantially identical) to securities held by it for less
than three months; (c) write options that expire in less than three
months; and (d) effect closing transactions with respect to call or put
options that have been written or purchased within the preceding three
months. A Fund's gain or loss from the sale (including open short sales)
or other dispositions of stock or securities (with the term "securities"
defined to include put and call options) held for less than three months
will be netted against its gain or loss on positions that are part of a
"designated hedge" with respect to such three-month investments.
Taxation of Fund Investments
Gain or loss on the sale of a security by a Fund generally will be long-
term capital gain or loss if the Fund has held the security for more
than one year. Gain or loss on the sale of a security held for not more
than one year generally will be short-term capital gain or loss. If a
Fund acquires a debt security at a substantial discount, a portion of
any gain upon sale or redemption of such debt security will be taxed as
ordinary income rather than capital gain to the extent it reflects
accrued market discount.
Options Transactions. The tax consequences of options
transactions entered into by a Fund will vary depending on whether the
underlying security is held as a capital asset, whether the Fund is
writing or purchasing the option and whether the "straddle" rules,
discussed separately below, apply to the transaction.
A Fund may write a call option on an equity or convertible debt
security. If the option expires unexercised or if the Fund enters into a
closing purchase transaction, the Fund will realize a gain or loss
without regard to any unrealized gain or loss on the underlying
security. Generally, any such gain or loss will be short-term capital
gain or loss, except that any loss on certain covered call stock options
will be treated as long-term capital loss. If a call option written by a
Fund is exercised, the Fund will treat the premium received for writing
such call option as additional sales proceeds and will recognize a
capital gain or loss from the sale of the underlying security. Whether
the gain or loss will be long-term or short-term will depend on the
Fund's holding period for the underlying security.
If a Fund purchases a put option on an equity or convertible debt
security and it expires unexercised, the Fund will realize a capital
loss equal to the cost of the option. If a Fund enters into a closing
sale transaction with respect to the option, it will realize a capital
gain or loss and such gain or loss will be short-term or long-term
depending on the Fund's holding period for the option. If a Fund
exercises such a put option, it will realize a short-term or long-term
capital gain or loss (depending on the Fund's holding period for the
underlying security) from the sale of the underlying security. The
amount realized on such sale will be the sales proceeds reduced by the
premium paid.
Mark-to-Market. The Code imposes a special "mark-to-market"
system for taxing "Section 1256 contracts" including options on
nonconvertible debt securities (including U.S. government securities),
options on certain stock indexes and certain foreign currency contracts.
In general, gain or loss on Section 1256 contracts will be taken into
account for tax purposes when actually realized (by a closing
transaction, by exercise, by taking delivery or by other termination).
In addition, any Section 1256 contracts held at the end of the taxable
year will be treated as though they were sold at their year-end fair
market value (that is, "marked to market"), and the resulting gain or
loss will be recognized for tax purposes. Provided that a Fund holds its
Section 1256 contracts as capital assets and they are not part of a
straddle, both the realized and the unrealized year-end gains or losses
from these investment positions (including premiums on options that
expire unexercised) will be treated as 60% long-term and 40% short-term
capital gain or loss, regardless of the period of time particular
positions have actually been held by a Fund.
A portion of the mark-to-market gain on instruments held for less
than three months at the close of a Fund's taxable year may represent a
gain on securities held for less than three months for purposes of the
30% Test discussed above. Accordingly, the Funds may restrict their
fourth-quarter transactions in Section 1256 contracts.
Straddles. The Code contains rules applicable to "straddles,"
which are "offsetting positions in actively traded personal property,"
including equity securities and options of the type in which a Fund may
invest. If applicable, the "straddle" rules generally override the other
provisions of the Code. In general, investment positions will be
offsetting if there is a substantial diminution in the risk of loss from
holding one position by reason of holding one or more other positions.
The Funds generally are authorized to enter into put, call, and covered
put and call positions. Depending on what other investments are held by
a Fund at the time it enters into one of the above transactions, a Fund
may create a straddle for Federal income tax purposes.
If two (or more) positions constitute a straddle, recognition of a
realized loss from one position (including a mark-to-market loss) must
be deferred to the extent of unrecognized gain in an offsetting
position. Interest and other carrying charges allocable to personal
property that is part of a straddle must be capitalized. In addition,
"wash sale" rules apply to straddle transactions to prevent the
recognition of loss from the sale of a position at a loss when a new
offsetting position is or has been acquired within a prescribed period.
To the extent the straddle rules apply to positions established by a
Fund, losses realized by the Fund may be deferred or recharacterized as
long-term losses, and long-term gains realized by the Fund may be
converted to short-term gains.
If a Fund chooses to identify a particular offsetting position as
being one component of a straddle, a realized loss on any component of
that straddle will be recognized no earlier than upon the liquidation of
all components of that straddle. Special rules apply to "mixed"
straddles (that is, straddles consisting of a Section 1256 contract and
an offsetting position that is not a Section 1256 contract). If the
Trust makes certain elections, all or a portion of the Section 1256
contract components of such mixed straddles of a Fund will not be
subject to the 60%/40% mark-to-market rules. If any such election is
made, the amount, the nature (as long-term or short-term) and the timing
of the recognition of the Fund's gains or losses from the affected
straddle positions will be determined under rules that will vary
according to the type of election made.
ADDITIONAL INFORMATION
The Trust was organized as an unincorporated business trust under the
laws of The Commonwealth of Massachusetts pursuant to a Master Trust
Agreement dated January 8, 1986, as amended from time to time (the
"Trust Agreement"). The Trust commenced business as an investment
company on March 3, 1986, under the name Shearson Lehman Special Equity
Portfolios. On December 6, 1988, August 27, 1990, November 5, 1992, July
30, 1993 and October 14, 1994, the Trust changed its name to SLH Equity
Portfolios, Shearson Lehman Brothers Equity Portfolios, Shearson Lehman
Brothers Equity Funds, Smith Barney Shearson Equity Funds and Smith
Barney Equity Funds, respectively.
PNC is located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, and serves as custodian for the Funds. Under its
custodial agreement with the Trust, PNC is authorized to appoint one or
more foreign or domestic banking institutions as sub-custodians of
assets owned by a Fund. For its custody services, PNC receives monthly
fees charged to each Fund based upon the month-end, aggregate net asset
value of the Fund, plus certain charges for securities transactions. The
assets of the Trust are held under bank custodianship in accordance with
the 1940 Act.
First Data is located at Exchange Place, Boston, Massachusetts
02109, and serves as the Trust's transfer agent. For its services as
transfer agent, First Data receives fees charged to the Funds at an
annual rate based upon the number of shareholder accounts maintained
during the year. First Data also is reimbursed by the Funds for its out-
of-pocket expenses.
FINANCIAL STATEMENTS
The Annual Reports of the Social Awareness Fund and the Growth and
Income Fund for the fiscal year ended January 31, 1996 are incorporated
into this Statement of Additional Information by reference in their
entirety.
APPENDIX
Description of Ratings
Description of S&P Corporate Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely
strong.
AA
Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
BB, B and CCC
Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B and CCC, the highest degrees of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
Description of Moody's Corporate Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt-edge". Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
A-1
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa
Bonds that are rated Caa are of poor standing. These issues may be
in default or present elements of danger may exist with respect to
principal or interest.
Moody's applies the numerical modifier 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
A-2
Description of S&P Municipal Bond Ratings
AAA
Prime -- These are obligations of the highest quality. They have
the strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the
issuers will suffer the smallest declines in income and will be least
susceptible to autonomous decline. Debt burden is moderate. A strong
revenue structure appears more than adequate to meet future expenditure
requirements. Quality of management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected
to remain, substantial. Stability of the pledged revenues is also
exceptionally strong due to the competitive position of the municipal
enterprise or to the nature of the revenues. Basic security provisions
(including rate covenant, earnings test for issuance of additional
bonds, debt service reserve requirements) are rigorous. There is
evidence of superior management.
AA
High Grade -- The investment characteristics of bonds in this
group are only slightly less marked than those of the prime quality
issues. Bonds rated AA have the second strongest capacity for payment of
debt service.
A
Good Grade -- Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more
susceptible to the adverse affects of changes in circumstances and
economic conditions than bonds in higher rated categories. This rating
describes the third strongest capacity for payment of debt service.
Regarding municipal bonds, the ratings differ from the two higher
ratings because:
General Obligation Bonds -- There is some weakness, either in the
local economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show some
variations because of increased competition or economic influences on
revenues. Basic security provisions, while satisfactory, are less
stringent. Management performance appears adequate.
A-3
BBB
Medium Grade -- Of the investment grade ratings, this is the
lowest. Bonds in this group are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
General Obligation Bonds -- Under certain adverse conditions,
several of the above factors could contribute to a lesser capacity for
payment of debt service. The difference between A and BBB ratings is
that the latter shows more than one fundamental weakness, or one very
substantial fundamental weakness, whereas the former shows only one
deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the
pledged revenues could show substantial variations, with the revenue
flow possibly being subject to erosion over time. Basic security
provisions are no more than adequate. Management performance could be
stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
includes the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
C
The rating C is reserved for income bonds on which no interest is
being paid.
D
Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or
a minus sign, which is used to show relative standing within the major
rating categories, except in the AAA-Prime Grade category.
Description of S&P Municipal Note Ratings
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) to distinguish more clearly the
credit quality of notes as compared to bonds. Notes rated SP-1 have a
very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are
given the designation of SP-1+. Notes rated SP-2 have satisfactory
capacity to pay principal and interest.
A-4
Description of Moody's Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
or fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterize bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
A-5
Caa
Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that
the security ranks in the higher end of its generic ratings category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic ratings
category.
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate
demand obligations are designated Variable Moody's Investment Grade
(VMIG). This distinction recognizes the differences between short- and
long-term credit risk. Loans bearing the designation MIG 1/VMIG 1 are
the best quality, enjoying strong protection from established cash flows
of funds for their servicing or from established and broad-based access
to the market for refinancing, or both. Loans bearing the designation
MIG 2/VMIG 2 are of high quality, with margins of protection ample,
although not as large as the preceding group. Loans bearing the
designation MIG 3/VMIG 3 are of favorable quality, with all security
elements accounted for but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular, is
likely to be less well established. Loans bearing the designation MIG
4/VMIG 4 are of adequate quality. Protection commonly regarded as
required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
Description of Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the
direct credit support of an issuer or guarantor that possesses excellent
long-term operating and financial strength combined with strong
liquidity characteristics (typically, such issuers or guarantors would
display credit quality characteristics which would warrant a senior bond
rating of A\- or higher) or the direct credit support of an issuer or
guarantor that possesses above average long-term fundamental operating
and financing capabilities combined with ongoing excellent liquidity
characteristics. Paper rated A-1 must have the following
characteristics: liquidity ratios are adequate to meet cash
requirements; long-term senior debt is rated A or better; the issuer has
access to at least two additional channels of borrowing; basic earnings
and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and
the issuer has a strong position within the industry; and the
reliability and quality of management are unquestioned.
A-6
The rating Prime-1 is the highest commercial paper rating assigned
by Moody's. Among the factors considered by Moody's in assigning ratings
are the following: (a) evaluation of the management of the issuer; (b)
economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas; (c) evaluation of the issuer's products in relation to
competition and customer acceptance; (d) liquidity; (e) amount and
quality of long-term debt; (f) trend of earnings over a period of ten
years; (g) financial strength of parent company and the relationships
which exist with the issue; and (h) recognition by the management of
obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations.
Short-term obligations, including commercial paper, rated A-1+ by
IBCA Limited or its affiliate IBCA Inc. are obligations supported by the
highest capacity for timely repayment. Obligations rated A-1 have a very
strong capacity for timely repayment. Obligations rated A-2 have a
strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic and financial
conditions.
Thomson BankWatch employs the rating "TBW-1" as its highest
category, which indicates that the degree of safety regarding timely
repayment of principal and interest is very strong. "TBW-2" is its
second highest rating category. While the degree of safety regarding
timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance of timely
payment. The rating F-1 reflects an assurance of timely payment only
slightly less in degree than issues rated F-1+, while the rating F-2
indicates a satisfactory degree of assurance of timely payment although
the margin of safety is not as great as indicated by the F-1+ and F-1
categories.
Duff & Phelps Inc. employs the designation of Duff 1 with respect
to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: short-term liquidity
is clearly outstanding and safety is just below risk-free U.S. Treasury
short-term obligations. Duff 1 - indicates high certainty of timely
payment. Duff 2 indicates good certainty of timely payment: liquidity
factors and company fundamentals are sound.
Various NRSROs utilize rankings within ratings categories
indicated by a + or -. The Funds, in accordance with industry practice,
recognize such ratings within categories as gradations, viewing for
example S&P's rating of A-1+ and A-1 as being in S&P's highest rating
category.
A-7
Smith Barney
EQUITY FUNDS
Growth and Income Fund
Social Awareness Fund
Peachtree Growth Fund
Statement of
Additional Information
[ ], 1996
Smith Barney
Equity Funds
388 Greenwich Street
New York, New York 10013 SMITH
BARNEY
SMITH BARNEY EQUITY FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Annual Reports of the Strategic Investors Fund and
the Growth and Income Fund for the fiscal year ended
January 31, 1996 and the Report of Independent
Accountants were filed pursuant to Rule 30b-2 of the
1933 Act, on April 16, 1996 as accession number 91155-
96-000161.
The Semi-Annual Report of the Strategic Investors Fund
for the six-month period ended July 31, 1996 was filed
on September 30, 1996 as accession number 91155-96-
387.
Included in Part C:
Not applicable.
(b) Exhibits
All references are to the Registrant's registration statement on
Form N-1A (the "Registration Statement") as filed with the SEC on
January 9, 1986 (File Nos. 33-2627 and 811-4551).
(1)(a) Amended and Restated Master Trust Agreement and all
Amendments are incorporated by reference to Post-Effective Amendment No.
26 to the Registration Statement filed on January 31, 1994 ("Post-
Effective Amendment No. 26").
(b) Amendment dated October 14, 1994 and Form of Amendment
to Amended and Restated Master Trust Agreement are incorporated by
reference to Post-Effective Amendment No. 29 to the Registration
Statement filed on November 7, 1994 ("Post-Effective Amendment No. 29").
(2) Registrant's By-Laws are incorporated by reference to Pre-
Effective Amendment No. 1 to the Registration Statement filed on
February 25, 1986 ("Pre-Effective Amendment No. 1").
(3) Not applicable.
(4) Form of share certificate for Class A, B, C and Y shares to
be filed by amendment.
(5)(a) Investment Advisory Agreement between Registrant and
Smith Barney Strategy Advisers Inc., with respect to Strategic Investors
Fund, is incorporated by reference to Post-Effective Amendment No. 31 to
the Registration Statement filed on January 30, 1996 ("Post-Effective
Amendment No. 31").
(b) Investment Advisory Agreement between Registrant and
Greenwich Street Advisors (relating to the Growth and Income Fund) dated
May 22, 1993 is incorporated by reference to Post-Effective Amendment
No. 26.
(c) Asset Allocation Consulting Agreement between
Registrant and Shearson Lehman Hutton Inc. (relating to the Strategic
Investors Portfolio) is incorporated by reference to Post-Effective
Amendment No. 4.
(d) Investment Advisory and Administration Agreement
between Registrant and SBMFM ( relating to Peachtree Growth Fund)
to be filed by Amendment.
(6) Distribution Agreement between Registrant and Smith Barney
Shearson dated July 30, 1993 is incorporated by reference to Post-
Effective Amendment No. 26.
(7) Not applicable.
(8) Custodian Agreement between Registrant and PNC Bank,
National Association ("PNC Bank") is incorporated by reference to Post-
Effective Amendment No. 31.
(9)(a) Administration Agreements between Registrant and SBMFM
(relating to the Growth and Income Fund and Strategic Investors Fund)
dated May 4, 1994 are incorporated by reference to Post-
Effective Amendment No. 29
(b) Transfer Agency Agreement between Registrant and First
Data Investor Services Group (formerly The Shareholder Services Group,
Inc.) dated August 5, 1993 is incorporated by reference to Post-
Effective Amendment No. 26.
(10) Opinion of Robert A. Vegliante, Assistant Secretary to the
Registrant filed with the Registrant's Rule 24f-2 Notice filed on March
29, 1996.
(11) Not Applicable
(12) Not applicable.
(13) Not Applicable
(14) (a) Prototype Defined Contribution Plan relating to 401(k)
program is incorporated by reference to Post-Effective Amendment No. 33
to the Registration Statement filed with the SEC on April 18, 1996.
(b) Form of Individual Retirement Account Disclosure
Statement is incorporated by reference to Post-Effective Amendment No.
33 to the Registration Statement filed with the SEC on April 18, 1996.
(15)(a) Amended Services and Distribution Plans pursuant to
Rule 12b-1 between the Registrant on behalf of Smith Barney Growth and
Income Fund and Smith Barney Strategic Investors Fund are incorporated
by reference to Post-Effective Amendment No. 29.
(15)(b) Services and Distribution Agreement pursuant to 12b-1
between Registrant on behalf of Peachtree Growth Fund and Smith Barney
Inc. will be filed by amendment.
(16) Performance information is incorporated by reference to
Post-Effective Amendments No. 9 and 10.
(17) Financial Data Schedule is incorporated by reference to
Post-Effective Amendment No. 33 to the Registration Statement filed with
the SEC on April 18, 1996.
(18) Plan pursuant to Rule 18f-3 is incorporated by reference to
Post-Effective Amendment No. 31.
Item 25 Persons Controlled by or Under Common Control with
Registrant
None.
Item 26 Number of Holders of Securities
Number of Record Holders by
Class
Title of Class as of December 26, 1996
Beneficial Interest par value
$.001 per share Class A Class B
Class C Class Y
Smith Barney Strategic Investors Fund 19,856 17,945
240 2
Smith Barney Growth and Income Fund 11,966 10,772
216 3
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
Investment Advisers Act of 1940 (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 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
Natural Resources 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 Investment 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 27th day of December, 1996.
SMITH BARNEY EQUITY FUNDS
By: /s/ Heath B. McLendon
Heath B. McLendon,
Chairman of the
Board and
Chief Executive
Officer
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
12/27/96
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President and
12/27/96
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Lee Abraham* Trustee 12/27/96
Lee Abraham
/s/ Antoinette C. Bentley* Trustee
12/27/96
Antoinette C. Bentley
/s/ Allan J. Bloostein* Trustee
12/27/96
Allan J. Bloostein
/s/ Madelon Devoe-Talley* Trustee
12/27/96
Madelon Devoe-Talley
/s/ Richard E. Hanson* Trustee
12/27/96
Richard E. Hanson
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated October 27, 1992.
/s/ Heath B. McLendon 12/27/96
Heath B. McLendon
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