As filed with the Securities and Exchange Commission on April 18, 1997
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Registration No. 33-2627
811-4551
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [X] Post-Effective Amendment No. 39
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended
Amendment No. 39 [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 LLP
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing become effective:
_____ Immediately upon filing pursuant to Rule 485(b)
X on April 21, 1997 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
_____ on -------------- pursuant to Rule 485(a)
SMITH BARNEY EQUITY FUNDS
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
SMITH BARNEY EQUITY FUNDS
FORM N-1A CROSS REFERENCE SHEET
Pursuant to Rule 495(a) Under the Securities Act of 1933, as 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
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Prospectus April 21, 1997
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Concert Social Awareness Fund
3100 Breckenridge Blvd., Bldg. 200
Duluth, Georgia 30199-0062
(800) 544-5445
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,
including sales charges, distribution and service fees and expenses, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated February 24, 1997, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Registered Representative of PFS Investment Inc.("PFS
Investments"). 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.
PFS DISTRIBUTORS, 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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Table of Contents
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Prospectus Summary 3
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Financial Highlights 9
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Investment Objective and Management Policies 11
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Valuation of Shares 20
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Dividends, Distributions and Taxes 21
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Purchase of Shares 23
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Exchange Privilege 28
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Redemption of Shares 29
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Minimum Account Size 31
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Performance 32
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Management of the Fund 32
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Distributor 34
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Additional Information 35
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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 and
representations must not be relied upon as having been authorized by the Fund or
the Distributor. This Prospectus does not constitute an offer by the Fund or the
Distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
================================================================================
2
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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 two classes of shares
("Classes") to investors purchasing through PFS Investments Registered
Representatives designed to provide them with the flexibility of selecting an
investment best suited to their needs --the two classes of shares available are:
Class A shares and Class B shares. See "Purchase of Shares" and "Redemption of
Shares." In addition to Class A and Class B shares, the Fund offers Class C and
Class Y shares to investors purchasing through Smith Barney Inc. ("Smith
Barney"), a distributor of the Fund. Those shares have different sales charges
and other expenses than Class A and Class B shares which may affect performance.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which when
combined with current holdings of Class A shares 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 bear an annual service fee of 0.25% and an annual distribution
fee of 0.75% of the average daily net assets of the Class. The Class B shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have
3
<PAGE>
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Prospectus Summary (continued)
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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."
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 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 this Class. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
The maximum purchase amount for Class A shares is $499,999 and for Class B
shares is $249,999.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share
purchases, which when combined with current holdings of Class A shares equal or
exceed $500,000 in the aggregate, will be made at net asset value with no
initial sales charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase. The $500,000 aggregate investment may be met by
adding the purchase to the net asset value of all Class A shares held in funds
sponsored by Smith Barney listed under "Exchange Privilege." Class A share
purchases may also be eligible for a reduced initial sales charge. See "Purchase
of Shares". Because the ongoing expenses of Class A shares may be lower than
those for Class B shares, purchasers eligible to purchase Class A shares at net
asset value or at a reduced sales charge should consider doing so.
PFS Investments Registered Representatives may receive different
compensation for selling different Classes of shares. Investors should
understand that the purpose of the CDSC on the Class B shares is the same as
that of the initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.
4
<PAGE>
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Prospectus Summary (continued)
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PURCHASE OF SHARES Shares may be purchased through the Fund's distributor, PFS
Distributors, Inc. ("PFS"). See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A and Class B 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.
Subsequent investments of at least $50 may be made for both Classes. For
participants in retirement plans qualified under Section 403(b)(7) or Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), the
minimum initial and subsequent investment requirement for both Classes is $25.
The minimum initial and subsequent investment requirement for both Classes
through the Systematic Investment Plan described below is $25. 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 for Fund shares in an amount of at least $25. 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 "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Strategy Advisers Inc. ("Strategy
Advisers") serves as the Fund's investment adviser and is a wholly owned
subsidiary of Smith Barney Mutual Funds Management Inc. ("SBMFM"). SBMFM
provides investment advisory and management services to investment companies
affiliated with Smith Barney. SBMFM, which also serves as the Fund's
administrator, is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"), which in turn is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial services company engaged through its
subsidiaries principally in four business segments: Investment Services,
Consumer Finance Services, Life Insurance Services, and Property & Casualty
Insurance Services.
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.
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from PFS Shareholder Services (the "Sub-Transfer Agent"). See "Valuation of
Shares."
5
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Prospectus Summary (continued)
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DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and
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."
6
<PAGE>
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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 the Fund's operating expenses for its most
recent fiscal year:
Concert Social Awareness Fund Class A Class B
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Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower) None* 5.00%
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Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.75% 0.75%
12b-1 fees** 0.25 1.00
Other expenses 0.28 0.28
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TOTAL FUND OPERATING EXPENSES 1.28% 2.03%
================================================================================
* 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.
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 and certain Class A shares, the length of time the shares are
held and whether the shares are held. See "Purchase of Shares" and "Redemption
of Shares." PFS receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. With respect to Class B shares, PFS
receives 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.
7
<PAGE>
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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."
<TABLE>
<CAPTION>
Concert Social Awareness Fund 1 year 3 years 5 years 10 years*
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<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and (2)
redemption at the end of each time
period:
Class A $62 $89 $117 $197
Class B 71 94 119 217
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A 62 89 117 197
Class B 21 64 109 217
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</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at the
end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may result in
an actual return greater or less than 5.00%. This example should not be
considered a representation of past or future expenses and actual expenses may
be greater or less than those shown.
8
<PAGE>
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Financial Highlights
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The following information for the fiscal years ended January 31, 1996
and 1997 has
been audited by KPMG Peat Marwick LLP, independent auditors, whose report
thereon appears in the Fund's Annual Report dated January 31, 1997. The
following information for the fiscal years ended January 31, 1988 through
January 31, 1995 has been audited by other independent auditors. 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. The financial
information set out below represents the financial history of the Fund prior to
implementing a social awareness criteria and the Fund's performance may have
been different if it had pursued a social awareness criteria since its
inception.
For a Class A share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
Year Ended January 31,
Concert Social Awareness Fund 1997 1996 1995 1994(1) 1993(2)
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 19.00 $ 15.91 $ 17.72 $ 16.85 $ 16.80
- ---------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.57 0.61 0.57 0.52 0.13
Net realized and unrealized gain (loss) 1.71 3.52 (1.25) 2.37 0.88
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Total Income (Loss) From Operations 2.28 4.13 (0.68) 2.89 1.01
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Less Distributions From:
Net investment income (0.60) (0.52) (0.47) (0.56) (0.11)
Net realized gains (1.32) (0.52) (0.66) (1.46) (0.85)
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Total Distributions (1.92) (1.04) (1.13) (2.02) (0.96)
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Net Asset Value, End of Period $ 19.36 $ 19.00 $ 15.91 $ 17.72 $ 16.85
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Total Return++ 12.41% 26.47% (3.82)% 17.80% 6.12%++
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Net Assets, End of Period (millions) $ 178 $ 175 $ 159 $ 6 $ 0.6
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Ratios to Average Net Assets:
Expenses 1.28% 1.21% 1.33% 1.25% 1.25%+
Net investment income 2.98 3.10 2.89 2.85 3.61+
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Portfolio Turnover Rate 68% 81% 103% 131% 93%
=========================================================================================================
Average Commissions Paid on
Equity Security Transactions(4) $ 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.
9
<PAGE>
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Financial Highlights (continued)
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For a Class B share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
CONCERT SOCIAL Year Ended January 31,
AWARENESS FUND 1997 1996 1995 1994(1) 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $19.05 $15.97 $17.79 $16.84 $17.26
- -----------------------------------------------------------------------------------------
Income (Loss) From
Investment Operations
Net investment
income 0.43 0.49 0.39 0.38 0.51
Net realized
and unrealized
gain/(loss) 1.71 3.53 (1.20) 2.37 1.06
- -----------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 2.14 4.02 (0.81) 2.75 1.57
- -----------------------------------------------------------------------------------------
Less Distributions From:
Net investment
income (0.45) (0.42) (0.35) (0.34) (0.50)
Net realized gains (1.32) (0.52) (0.66) (1.46) (1.49)
Capital -- -- -- -- --
- -----------------------------------------------------------------------------------------
Total Distributions (1.77) (0.94) (1.01) (1.80) (1.99)
- -----------------------------------------------------------------------------------------
Net Asset Value,
End of Period $19.42 $19.05 $15.97 $17.79 $16.84
- -----------------------------------------------------------------------------------------
Total Return++ 11.60% 25.58% (4.54%) 16.88% 9.68%
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Net Assets, End of
Period (millions) $202 $226 $216 $334 $288
- -----------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 2.03% 1.94% 2.00% 1.98% 2.02%
Net investment
income 2.23 2.37 2.21 2.11 2.84
- -----------------------------------------------------------------------------------------
Portfolio Turnover
Rate 68% 81% 103% 131% 93%
- -----------------------------------------------------------------------------------------
Average Commissions
Paid on Equity
Security
Transactions(3) $0.06 $0.06 -- -- --
- -----------------------------------------------------------------------------------------
<CAPTION>
CONCERT SOCIAL
AWARENESS FUND 1992 1991 1990 1989 1988(23)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $15.61 $15.57 $15.03 $13.62 $14.00
- -----------------------------------------------------------------------------------------
Income (Loss) From
Investment Operations
Net investment
income 0.52 0.54 0.53 0.52 0.36
Net realized
and unrealized
gain/(loss) 2.56 0.47 1.10 1.48 (0.44)
- -----------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 3.08 1.01 1.63 2.00 (0.08)
- -----------------------------------------------------------------------------------------
Less Distributions From:
Net investment
income (0.55) (0.51) (0.69) (0.48) (0.23)
Net realized gains (0.88) (0.46) (0.38) (0.11) (0.07)
Capital -- -- (0.02) -- --
- -----------------------------------------------------------------------------------------
Total Distributions (1.43) (0.97) (1.09) (0.59) (0.30)
- -----------------------------------------------------------------------------------------
Net Asset Value,
End of Period $17.26 $15.61 $15.57 $15.03 $13.62
- -----------------------------------------------------------------------------------------
Total Return++ 19.96% 6.80% 10.76% 15.10% (0.57%)++
- -----------------------------------------------------------------------------------------
Net Assets, End of
Period (millions) $234 $197 $206 $147 $151
- -----------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 2.06% 2.09% 2.24% 2.29% 2.14%+
Net investment
income 3.02 3.43 3.46 3.59 2.83+
- -----------------------------------------------------------------------------------------
Portfolio Turnover
Rate 76% 56% 61% 42% 56%
- -----------------------------------------------------------------------------------------
Average Commissions
Paid on Equity
Security
Transactions(3) -- -- -- -- --
- -----------------------------------------------------------------------------------------
</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.
10
<PAGE>
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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 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 35% and 15% 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 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
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Investment Objective and Management Policies (continued)
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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 improved 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 may result 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:
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.
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Investment Objective and Management Policies (continued)
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These portfolio restrictions are based on the belief that a company will
benefit from its social awareness by enabling it to better position itself in
developing business 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 use its best efforts to assess a company's social
performance. 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.
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
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Investment Objective and Management Policies (continued)
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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 and
unencumbered pursuant to guidelines established by the Trustees 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.
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Investment Objective and Management Policies (continued)
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The Fund may engage in a closing purchase transaction to realize a profit,
to prevent an underlying security from being called or to unfreeze an underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). To effect a closing
purchase transaction, the Fund would purchase, prior to the holder's exercise of
an option the Fund has written, an option of the same series as that on which
the Fund desires to terminate its obligation. The obligation of the Fund under
an option it has written would be terminated by a closing purchase transaction,
but the Fund would not be deemed to own an option as the result of the
transaction. There can be no assurance that the Fund will be able to effect
closing purchase transactions at a time when it wishes to do so. To facilitate
closing purchase transactions, however, the Fund will ordinarily write options
only if a secondary market for the options exists on a domestic securities
exchange or in the over-the-counter market.
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may hold cash and invest in money
market instruments without limitation when deemed advantageous by 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 Ratings Group ("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
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Investment Objective and Management Policies (continued)
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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 debt
obligations issued outside the U.S. capital markets by foreign branches of U.S.
banks and by foreign banks. Yankee obligations are dollar denominated
obligations issued in the U.S. capital markets by foreign issuers. Eurodollar
(and to a limited extent, Yankee) 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 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 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. 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.
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Investment Objective and Management Policies (continued)
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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 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:
Illiquid Securities. The Fund may invest up to 15% of its total assets in
illiquid securities, including repurchase agreements with maturities in excess
of seven days.
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
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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.
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
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Investment Objective and Management Policies (continued)
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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
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.
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Investment Objective and Management Policies (continued)
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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.
Effect of Implementing Social Awareness Criteria. Beginning February 24,
1997, the Fund began using the social awareness criteria described herein to
determine which securities should be held by the Fund. Certain securities held
by the Fund prior to this date which did not meet the social awareness criteria
will be sold in a prudent manner. It is anticipated that this process will be
completed within six months.
PORTFOLIO TRANSACTIONS AND TURNOVER
SBMFM arranges for the purchase and sale of the Fund's securities and
selects brokers and dealers (including Smith Barney), which in its best judgment
provide prompt and reliable execution at favorable prices and reasonable
commission rates. SBMFM may select brokers and dealers which provide it with
research services and may cause the Fund to pay such brokers and dealers
commissions which exceed those other brokers and dealers may have charged, if it
views the commissions as reasonable in relation to the value of the brokerage
and/or research services.
It is anticipated that the annual portfolio turnover rate of the Fund
normally will be less than 100%. The Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of the Fund's
securities, with money market instruments with less than one year to maturity
excluded. A 100% portfolio turnover rate would occur, for example, if all
included securities were replaced once during the year.
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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.
Securities listed on an exchange are valued on the basis of the last sale prior
to the time the
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Valuation of Shares (continued
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valuation is made. If there has been no sale since the immediately previous
valuation, then the current bid price is used. Quotations are taken from the
exchange where the security is primarily traded. Portfolio securities which are
primarily traded on foreign exchanges may be valued with the assistance of a
pricing service and are generally valued at the preceding closing values of such
securities on their respective exchange, except that when an occurrence
subsequent to the time a foreign security is valued is likely to have changed
such value, then the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Trustees. Over-the-counter securities are valued on the basis of the bid price
at the close of business on each day. Unlisted foreign securities are valued at
the mean between the last available bid and offer price prior to the time of
valuation. Any assets or liabilities initially expressed in terms of foreign
currencies will be converted into U.S. dollar values at the mean between the bid
and offered quotations of such currencies against U.S. dollars as last quoted by
any recognized dealer. Securities for which market quotations are not readily
available are valued at fair value. Notwithstanding the above, bonds and other
fixed-income securities are valued by using market quotations and may be valued
on the basis of prices provided by a pricing service approved by the Board of
Trustees.
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Dividends, Distributions and Taxes
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DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute its investment income (that is, its
income other than its net realized capital gains) and net realized capital
gains, if any, once a year, normally at the end of the year in which earned or
at the beginning of the next year.
If a shareholder does not otherwise instruct, dividends and capital gain
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% non-deductible 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 shares of the Fund may be lower than
the per share dividends on Class A shares principally as a result of the
distribution fee applicable with respect to Class B shares. Distributions of
capital gains, if any, will be in the same amount for Class A and Class B
shares.
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Dividends, Distributions and Taxes (continued)
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TAXES
The Fund has qualified and intends to continue to qualify as a "regulated
investment company" under the Code. To qualify, the Fund must first meet certain
tests, including the distribution of at least 90% of its investment company
taxable income (which includes, among other items, dividends, interest and the
excess of any net short-term capital gains over net long-term capital losses).
Distributions of any investment company taxable income are taxable to
shareholders as ordinary income. Distributions of any net capital gains
designated by the Fund as capital gains dividends are taxable to shareholders as
long-term capital gains regardless of the length of time a shareholder may have
held shares of the Fund.
Dividends (including capital gain dividends) declared by the Fund in
October, November or December of any calendar year to shareholders of record on
a date in such a month will be deemed to have been received by shareholders on
December 31 of that calendar year, provided that the dividend is actually paid
by the Fund during January of the following calendar year.
Upon the disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder generally will realize a taxable gain or loss. Such
gain or loss generally will be a capital gain or loss if the shares are capital
assets in the shareholder's hands, and generally will be long-term or short-term
depending upon the shareholder's holding period for the shares. Any loss
realized by a shareholder on disposition of Fund shares held by the shareholder
for six months or less will be treated as long-term capital loss to the extent
of any distributions of capital gains dividends received by the shareholder with
respect to such shares.
Shareholders will be notified annually about the amounts of dividends and
distributions, including the amounts (if any) for that year which have been
designated as capital gain dividends. Dividends and distributions and gains
realized upon a disposition of Fund shares may also be subject to state, local
or foreign taxes depending on each shareholder's particular situation. Dividends
consisting of interest from U.S. government securities may be exempt from all
state and local income taxes. Shareholders should consult their tax advisors for
specific information on the tax consequences of particular types of
distributions.
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Purchase of Shares
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GENERAL
The Fund offers two Classes of shares to investors purchasing through PFS
Investments Representatives. Class A shares are sold to investors with an
initial sales charge and Class B shares are sold without an initial sales charge
but are subject to a CDSC payable upon certain redemptions. See "Prospectus
Summary--Alternative Purchase Arrangements" for a discussion of factors to
consider in selecting which Class of shares to purchase.
Initial purchases of Fund shares must be made through a PFS Investments
Registered Representative by completing the appropriate application found in the
prospectus. The completed application should be forwarded to the Sub-Transfer
Agent, 3100 Breckinridge Blvd., Bldg 200, Duluth, Georgia 30199-0062. Checks
drawn on foreign banks must be payable in U.S. dollars and have the routing
number of the U.S. bank encoded on the check. Subsequent investments may be sent
directly to the Sub-Transfer Agent.
Investors in Class A and Class B 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. The initial investment amount will be
waived for accounts establishing a Systematic Investment Plan. Subsequent
investments of at least $50 may be made for both Classes. For participants in
retirement plans qualified under Section 403(b)(7) or 401(a) of the Code, the
minimum initial and subsequent investment requirement for both Classes in the
Fund is $25. For the Fund's Systematic Investment Plan, the minimum initial and
subsequent investment requirement for both Classes is $25. There are no minimum
investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors or Trustees of any of the Smith
Barney Mutual Funds, the Company 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 Sub-Transfer Agent.
Share certificates are issued only upon a shareholder's written request to the
Sub-Transfer Agent. A shareholder who has insufficient funds to complete any
purchase, will be charged a fee by PFS or the Sub-Transfer Agent of $25 per
returned purchased.
Purchase orders received by the Sub-Transfer Agent 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.
23
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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, the Sub-Transfer Agent is authorized
through preauthorized transfers of $25 or more to charge the regular bank
account or other financial institution indicated by the shareholder on a monthly
basis to provide systematic additions to the shareholder's Fund account. A
shareholder who has insufficient funds to complete the transfer will be charged
a fee of up to $25 by PFS or the Sub-Transfer Agent. A shareholder who places a
stop payment on a transfer or the transfer is returned because the account has
been closed, will also be charged a fee of $25 by PFS or the Sub-Transfer Agent.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are as follows:
<TABLE>
<CAPTION>
Dealers'
Sales Charge Sales Charge Reallowance
% of as % of as % of
Amount of Investment Offering Price Amount Invested Offering Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 25,000 5.00% 5.26% 4.50%
$ 25,000 - 49,999 4.00 4.17 3.60
50,000 - 99,999 3.50 3.63 3.15
100,000 - 249,999 3.00 3.09 2.70
250,000 - 499,999 2.00 2.04 1.80
500,000 and over * * *
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales
charge, but will be subject to a CDSC of 1.00% on redemptions made within
12 months of purchase. The CDSC on Class A shares is payable to PFS, which
in turn, pays PFS Investments to compensate its Investments
Representatives 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 shares is waived. See "Deferred Sales Charge Alternatives" and "Waivers
of CDSC."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Directors, Trustees and
employees of Travelers and its subsidiaries and any of the Smith Barney Mutual
Funds; the immediate families of such persons; and to a pension, 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)
24
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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) shareholders who have redeemed Class A shares in the Fund (or
Class A shares of another fund in the Smith Barney Mutual Funds that are offered
with a sales charge equal to or greater than the maximum sales charge of the
Fund) and who wish to reinvest their redemption proceeds in the Fund, provided
the reinvestment is made within 60 calendar days of the redemption; (d) accounts
managed by registered investment advisory subsidiaries of Travelers; and (e)
sales through PFS Investments Representatives where the amounts invested
represent the redemption proceeds from investment companies distributed by an
entity other than PFS, on the condition that (i) the redemption has occurred no
more than 60 days prior to the purchase of the shares, (ii) the shareholder paid
an initial sales charge on such redeemed shares and (iii) the shares redeemed
were not subject to a deferred sales charge. PFS Investments may pay its
Investments Representatives an amount equal to 0.40% of the amount invested if
the purchase represents redemption proceeds from an investment company
distributed by an entity other than PFS. 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.
VOLUME DISCOUNTS
The "Amount of Investment" referred to in the sales charge table set forth
above under "Initial Sales Charge Alternative--Class A Shares" includes the
purchase of Class A shares in the Fund and of other funds sponsored by Smith
Barney that are offered with a sales charge listed under "Exchange Privilege." A
person eligible for a volume discount includes an individual; members of a
family unit comprising a husband, wife and minor children; a trustee or other
fiduciary purchasing for a single fiduciary account including pension,
profit-sharing and other employee benefit trusts qualified under Section 401(a)
of the Code, or multiple custodial accounts where more than one beneficiary is
involved if purchases are made by salary reduction and/or payroll deduction for
qualified and nonqualified accounts and transmitted by a common employer entity.
Employer entity for payroll deduction accounts may include trade and craft
associations and any other similar organizations.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charge by aggregating the investments
over a 13-month period, provided that the investor refers to such Letter when
placing orders. For purposes of a Letter of Intent, the "Amount of Investment"
as referred to in the preceding sales charge table includes purchases of all
Class A shares of the Fund and other funds of the Smith Barney Mutual Funds that
are offered with a
25
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
sales charge listed under "Exchange Privilege" over a 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.
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; and
(b) 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 A shares that are CDSC Shares, shares
redeemed more than 12 months after their purchase.
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.
26
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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
Eight 0.00
- --------------------------------------------------------------------------------
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fee. There will also be converted at that time such
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.
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally of other shares held by the shareholder for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption. The
amount of any CDSC will be paid to PFS.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 -$260) would be
charged at a rate of 4% (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)
27
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Redemption of Shares--Automatic Cash Withdrawal Plan"); (c) redemption of
shares within 12 months following the death or disability of the shareholder;
(d) redemption of shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 591 1/42; (e) involuntary
redemptions; and (f) redemption of shares to effect 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 PFS of the
shareholder's status or holdings, as the case may be.
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following funds of the Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence. Exchanges of Class A
and Class B 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
* Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
* Smith Barney Concert Allocation Series Inc.--Growth Portfolio
* Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
* Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
* Smith Barney Concert Allocation Series Inc.--Income Portfolio
* Smith Barney Appreciation Fund Inc.
* Smith Barney Growth Opportunity Fund
* Smith Barney Investment Grade Bond Fund
** Smith Barney Money Funds, Inc.--Cash Portfolio
** Smith Barney Exchange Reserve Fund
- --------------------------------------------------------------------------------
* Available for exchange with Class A shares of the Fund
** Available for exchange with Class B shares of the Fund
28
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Class B Exchanges. In the event a Class B shareholder 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.
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
the shareholder. Upon such a determination by the Fund, PFS 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 Smith Barney Mutual Funds
listed under "Exchange Privilege", which position the shareholder would be
expected to maintain for a significant period of time. All relevant factors will
be considered in determining what constitutes an abusive pattern of exchanges.
Exchanges will be processed at the net asset value next determined.
Redemption procedures discussed below are also applicable for exchanging shares,
and exchanges will be made upon receipt of all supporting documents in proper
form. If the account registration of the shares of the fund being acquired is
identical to the registration of the shares of the fund exchanged, no signature
guarantee is required. A capital gain or loss for tax purposes will be realized
upon the exchange, depending upon the cost or other basis of shares redeemed.
Before exchanging shares, investors should read the current prospectus
describing the shares to be acquired. The Fund reserves the right to modify or
discontinue exchange privileges upon 60 days' prior notice to shareholders.
- --------------------------------------------------------------------------------
Redemption of Shares
- --------------------------------------------------------------------------------
Shareholders may redeem for cash some or all of their shares of the Fund
at any time by sending a written request in proper form directly to the
Sub-Transfer Agent, PFS Shareholder Services, at 3100 Breckinridge Blvd., Bldg.
200, Duluth, Georgia 30199-0062. If you should have any questions concerning how
to redeem your account after reviewing the information below, please contact the
Sub-Transfer Agent at (800) 544-5445, Spanish-speaking representatives (800)
544-7278 or TDD Line for the Hearing Impaired (800) 824-1721.
29
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
As described under "Purchase of Shares," redemptions of Class B shares are
subject to a contingent deferred sales charge.
The request for redemption must be signed by all persons in whose names
the shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner(s) at the record address, or if
the shareholder(s) has had an address change in the past 45 days, or it the
shareholder(s) is a corporation, sole proprietor, partnership, trust or
fiduciary, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly completed Redemption Form with any required
signature guarantee is all that is required for a redemption. In some cases,
however, other documents may be necessary. For example, in the case of
shareholders holding certificates, the certificates for the shares being
redeemed must accompany the redemption request. Additional documentary evidence
of authority is also required by the Sub-Transfer Agent in the event redemption
is requested by a corporation, partnership, trust, fiduciary, executor or
administrator. Additionally, if a shareholder requests a redemption from a
Retirement Plan account (IRA, SEP or 403(b)(7) ), such request must state
whether or not federal income tax is to be withheld from the proceeds of the
redemption check.
Shareholders may utilize the Sub-Transfer Agent's FAX to redeem their
account as long as a signature guarantee or other documentary evidence is not
required. Redemption requests should be properly signed by all owners of the
account and faxed to the Sub-Transfer Agent at (800) 554-2374. Facsimile
redemptions may not be available if the shareholder cannot reach the
Sub-Transfer Agent by FAX, whether because all telephone lines are busy or for
any other reason; in such case, a shareholder would have to use the Fund's
regular redemption procedure described above. Facsimile redemptions received by
the Sub-Transfer Agent prior to 4:00 p.m. Eastern time on a regular business day
will be processed at the net asset value per share determined that day.
In all cases, the redemption price is the net asset value per share of the
Fund next determined after the request for redemption is received in proper form
by the Sub-Transfer Agent. Payment for shares redeemed will be made by check
mailed within three days after acceptance by the Sub-Transfer Agent of the
request and any other necessary documents in proper order. Such payment may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check or
draft, the Sub-Transfer Agent may hold the payment of the proceeds until the
purchase check or draft has cleared, usually a period of up to 15 days. Any
taxable gain or loss will be recognized by the shareholder upon redemption of
shares.
30
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
After following the above-stated redemption guidelines, a shareholder(s)
may elect to have the redemption proceeds wire-transferred directly to the
shareholder's bank account of record (defined as a currently established
pre-authorized draft on the shareholder's account with no changes within the
previous 45 days), as long as the bank account is registered in the same name(s)
as the account with the Fund. If the proceeds are not to be wired to the bank
account of record, or mailed to the registered owner(s), a signature guarantee
will be required from all shareholder(s). A $25 service fee will be charged by
the Sub-Transfer Agent to help defray the administrative expense of executing a
wire redemption. Redemption proceeds will normally be wired to the designated
bank account on the next business day following the redemption, and should
ordinarily be credited to your bank account by your bank within 48 to 72 hours.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may elect to
receive periodic cash payments of at least $50 monthly or quarterly. 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. For further information regarding the automatic cash withdrawal plan,
shareholders should contact the Sub-Transfer Agent.
- --------------------------------------------------------------------------------
Minimum Account Size
- --------------------------------------------------------------------------------
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size). The Fund,
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.
31
<PAGE>
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
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 and Class B
shares of the Fund. These figures are based on historical earnings and are not
intended to indicate future performance. Total return is computed for a
specified period of time assuming deduction of the maximum sales charge, if any,
from the initial amount invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the value of the investment at the end
of the period so calculated by the initial amount invested and subtracting 100%.
The standard average annual total return, as prescribed by the SEC is derived
from this total return, which provides the ending redeemable value. Such
standard total return information may also be accompanied with nonstandard total
return information for differing periods computed in the same manner but without
annualizing the total return or taking sales charges into account. The Fund
calculates current dividend return for each Class by annualizing the most recent
monthly distribution and dividing by the net asset value or the maximum public
offering price (including sales charge) on the last day of the period for which
current dividend return is presented. The current dividend return for each Class
may vary from time to time depending on market conditions, the composition of
its investment portfolio and operating expenses. These factors and possible
differences in the methods used in calculating current dividend return should be
considered when comparing a Class' current return to yields published for other
investment companies and other investment vehicles. The Fund may also include
comparative performance information in advertising or marketing its shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and other financial publications. The Fund will include performance data for
Class A and Class B shares in any advertisement or information including
performance data of the Fund.
The Fund may from time to time illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans and the Fund may illustrate in graph or chart form, or
otherwise, the benefits of the Systematic Investment Plan by comparing
investments made pursuant to a systematic investment plan to investments made in
a rising market.
- --------------------------------------------------------------------------------
Management of 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 Fund and the companies that furnish services
to the Fund,
32
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
including agreements with its distributors, 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, 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, 1997, in excess of $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.
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 January 31, 1997, in excess of $80 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, 1997 is
included in the Annual Report dated January 31, 1997. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this prospectus.
33
<PAGE>
- --------------------------------------------------------------------------------
Distributor
- --------------------------------------------------------------------------------
PFS is located at 3100 Breckinridge Boulevard, Duluth, Georgia 30199-0001.
PFS distributes shares of the Fund as an underwriter and as such conducts a
continuous offering pursuant to a "best efforts" arrangement requiring PFS 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"), PFS is paid an annual service fee with respect to Class A and
Class B shares of the Fund at the annual rate of 0.25% of the average daily net
assets of the respective Class. PFS is also paid an annual distribution fee with
respect to Class B shares at the annual rate of 0.75% of the average daily net
assets attributable to that Class. Class B shares that 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 paid to PFS which, in turn pays PFS
Investments to pay its Registered Representatives for servicing shareholder
accounts and, in the case of Class B shares, to cover expenses primarily
intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to potential
investors; payments to and expenses of Registered Representatives 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 PFS
Investments associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
The payments to PFS Investments Registered Representatives for selling
shares of a Class include a commission or fee paid by the investor or PFS at the
time of sale and a continuing fee for servicing shareholder accounts for as long
as a shareholder remains a holder of that Class.
Registered Representatives may receive different levels of compensation
for selling different Classes of shares.
PFS Investments may be deemed to be an underwriter for purposes of the
Securities Act of 1933. From time to time, PFS or its affiliates may also pay
for certain non-cash sales incentives provided to PFS Investments Registered
Representatives. Such incentives do not have any effect on the net amount
invested. In addition to the reallowances from the applicable public offering
price described above, PFS may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation to PFS Investments Registered Representatives that sell shares of
the Fund.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by PFS and the payments may
exceed distribution expenses actually incurred. The Fund's Board of Directors
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 PFS, amounts received under the Plan and proceeds of the CDSC.
34
<PAGE>
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
The Fund 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 Fund 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 two Classes -- A and B. 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 Board of Directors does not anticipate that there will be
any conflicts among the interests of the holders of the different Classes. The
Directors, on an ongoing basis, will consider whether any such conflict exists
and, if so, take appropriate action.
The Fund does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any purpose
upon written request of shareholders holding at least 10% of the Fund'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 Fund 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 Fund will be voted on a Fund-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.
PFS is located at 3100 Breckenridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062, and serves as the Trust's Sub-Transfer Agent.
The Fund sends shareholders 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 Fund 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
35
<PAGE>
- --------------------------------------------------------------------------------
Additional Information (continued)
- --------------------------------------------------------------------------------
each report. In addition, the Fund 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 the Fund's Sub-Transfer Agent.
ACCOUNT STATEMENTS/REPORTS
A client will receive several statements and reports as a Smith Barney
Mutual Fund shareholder. Each time a financial transaction occurs, a
confirmation statement identifying the shares bought or sold will be mailed. On
an annual basis, each January, a year-end statement detailing the previous
year's transactions will be provided. Information required for income-tax
reporting will also be distributed to shareholders, usually in January.
Also available at the shareholder's request, is an Account Transcript
identifying every financial transaction in an account since it was opened. To
defray adminstrative expenses involved with providing multiple years worth of
information, there is a $15 charge for each Account Transcript requested.
Additional copies of tax forms are available at the Shareholder's request.
A $10 charge for each tax form will be assessed.
Additional information regarding the Fund's services may be obtained by
contacting the Client Services Department at (800) 544-5445.
36
Smith Barney
EQUITY FUNDS
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION April 21, 1997
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectuses, dated April 22, 1996,
February 24, 1997 and April 21,1997, respectively, as amended or supplemented
from time to time, of Smith Barney Growth and Income Fund ("Growth and
Income Fund") and Concert Social Awareness Fund ("Social Awareness Fund")
(Growth and Income Fund and Social Awareness 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................................................... 14
Redemption of Shares................................................. 15
Distributor.................................... ..................... 16
Valuation of Shares.................................................. 19
Exchange Privilege................................................... 19
Performance Data (See in each Prospectus "Performance")..... ........ 19
Taxes (See in each Prospectus "Dividends, Distributions and Taxes").... 22
Additional Information............................................... 26
Financial Statements................................................ 26
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 the Social Awareness Fund
Smith Barney Mutual Funds Management Inc.
("SBMFM").........................Investment Adviser and Administrator to
Growth and Income Fund and 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")..........................................Transfer Agent
PFS................... ...............................Sub-Transfer Agent
These organizations and the services they perform for the Trust and the
Funds are discussed in the Prospectuses and in this Statement of Additional
Information.
Trustees and Executive Officers of The Trust
The names of the Trustees and the executive officers of the Trust, together
with information as to their principal business occupations, are set forth
below. Each Trustee who is an "interested person"
of the Trust, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), is indicated by an asterisk.
Lee Abraham, Trustee (Age 67). Retired; formerly Chairman and Chief Executive
Officer of Associated Merchandising Corporation, a major retail merchandising
and sourcing organization.
His address is 35 Old Forge Road, Wilton, Connecticut 06897.
Antoinette C. Bentley, Trustee (Age 57). Retired; formerly Senior Vice
President and Associate General Counsel of Crum and Foster, Inc., an
insurance holding company. Her address is 24 Fowler Road, Far Hills,
New Jersey 07931.
Allan J. Bloostein, Trustee (Age 65). Consultant; formerly Vice Chairman of
the Board of and Consultant to The May Department Stores Company; Director of
Crystal Brands, Inc., Melville Corp. and R.G. Barry Corp. His address is 27
West 67th Street, New York, New York 10023.
Richard E. Hanson, Jr., Trustee (Age 55). Head of School, The New Atlanta
Jewish Community High School, Atlanta Georgia; prior to July 1,1994,
Headmaster, Lawrence County Day School-Woodmere Academy, Woodmere, New York;
prior to July 1, 1990, Headmaster of the Woodmere Academy.His address is 2865
Lenox Road, N.E., Apt. 507, Atlanta, GA 30324-2855.
*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.
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 January 31, 1997, 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 totaled $2,599.
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).................................... $12,600 $44,500
Antoinette C. Bentley(9)#...................... 12,500 44,350
Allan J. Bloostein(15)............................ 12,600 83,150
Richard E. Hanson, Jr.(9)...................... 12,500 44,550
Madelon Devoe Talley(10)## ................ 6,300 45,343
(*) Number of directorships/trusteeships held with other mutual funds in
the Smith Barney Mutual Funds.
** The aggregate remuneration paid to the Trustees by the Trust for the
fiscal year ended January 31, 1997,
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.
Mutual Management Corp. and SBMFM are both wholly owned subsidiaries of
Smith Barney Holdings Inc. ("Holdings"), which in turn is a wholly owned
subsidiary of Travelers Group Inc. ("Travelers"). The Advisory Agreement
(the "Advisory Agreement") is dated August 31, 1994.
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.
SBMFM also serves as administrator to the Funds pursuant to a written
agreement (the "Administration Agreement") dated August 31, 1996. For
administration services rendered, the Funds 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 0.55% 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 inconnection 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 $1,256,354
Administration fees.......... ............. 376,511 408,049 558,380
Social Awareness Fund
Fiscal Year Ended January 31,
1995 1996 1997
Investment Advisory fees. ................ $2,013,080 $2,095,050 $2,146,284
Administration fees................... 732,029 761,836 780,467
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, broker
age, 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 LLP, 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, 1998.
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% 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 thats
unaffiliated with the Fund and that is acting as a "finder."
By lending its securities, a Fund can increase its income by continuing to
receive interest on the loaned securities as well as by either investing the
cash collateral in short-term instruments or obtaining yield in the form of
interest paid by the borrower when U.S. government securities are used as
collateral. A Fund will comply with the following conditions whenever its
portfolio securities are loaned: (a) the Fund must receive at least 100%
cash collateral or equivalent securities from the borrower; (b) the borrower
must increase such collateral whenever the market value of the securities
loaned rises above the level of such collateral; (c) the Fund must be able
to terminate the loan at any time; (d) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value;
(e) the Fund may pay only reasonable custodian fees in connection with the
loan; and (f) voting rights on the loaned securities may pass to the
borrower, provided, however, that if a material event adversely affecting
the investment in the loaned securities occurs, the Trust's Board of
Trustees must terminate the loan and regain the right to vote the securities.
The risks in lending portfolio securities, as with other extensions of
secured credit, consist of a possible delay in receiving additional
collateral or in the recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. Loans will be made to
firms deemed by each Fund's Adviser to be of good standing and
will not be made unless, in its judgment, the consideration to be earned
from such loans would justify the risk.
Options on Securities. The Funds may write covered call options and enter
into closing transactions with respect thereto. The principal reason for
writing covered call options on securities is to attempt to realize, through
the receipt of premiums, a greater return than would be realized on the
securities alone. In return for a premium, the writer of a covered call
option forfeits the right to any appreciation in the value of the underlying
security above the strike price for the life of the option
(or until a closing purchase transaction can be effected). Nevertheless, the
call writer retains the risk of a decline in the price of the underlying
security. The size of the premiums a Fund may receive may
be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing activities.
Options written by the Funds normally will have expiration dates between one
and nine months from the date they are written. The exercise price of the
options may be below ("in-the-money"), equal to ("at-the-money"), or above
("out-of-the-money") the market values of the underlying securities at the
times the options are written. A Fund may write (a) in-the-money call
options when its Adviser expects that the price of the underlying security
will remain flat or decline moderately during the option period, (b) at-the-
money call options when its Adviser expects that the price of the underlying
security will remain flat or advance moderately during the option period and
(c) out-of-the-money call options when its Adviser expects that the price of
the underlying security may increase but not above a price equal to the sum
of the exercise price plus the premiums received from writing the call
option. In any of the preceding situations, if the market price of the
underlying security declines and the security is sold at this lower price,
the amount of any realized loss will be offset wholly or in part by the
premium received.
So long as the obligation of a Fund as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through
which the option was sold requiring the Fund to deliver the underlying
security against payment of the exercise price. This obligation terminates
when the option expires or the Fund effects a closing purchase transaction.
A Fund can no longer effect a closing purchase transaction with respect to
an option once it has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it writes a call
option,a Fund will be required to deposit in escrow the underlying security
or other assets in accordance With the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the domestic
securities exchange on which the option is written.
An option position may be closed out only where there exists a secondary
market for an option of the same series on a securities exchange or in the
over-the-counter market. 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 l
oan 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 Depository 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 Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") and Global
Depository 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 Depository 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.
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 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% 68%
Growth and Income Fund 15% 9%
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 1995 541,403 567,988
1996 232,581 95,978
1997 215,689 130,854
Commissions paid to 1995 117,328 53,370
Smith Barney 1996 16,210 3,690
1997 6,276 8,046
% of Total Brokerage
Commissions paid to
Smith Barney 1997 3% 6.14%
% of Total Transactions
involving Commissions paid
to Smith Barney 1997 2% 5.75%
The total brokerage commissions paid by the Funds for each fiscal year vary
primarily due to increases or decreases in the Funds' volume of securities
transactions on which brokerage commissions are charged.
In selecting brokers or dealers to execute portfolio transactions on behalf
of a Fund, the Fund's Adviser seeks the best overall terms available. In
assessing the best overall terms available for any transaction, each Adviser
will consider the factors the Adviser deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and the execution capability of the broker or dealer and
the reasonableness of the commission, if any, for the specific transaction
and on a continuing basis. In addition, each advisory agreement between the
Trust and an Adviser relating to a Fund authorizes the Adviser, in selecting
brokers or dealers to execute a particular transaction and in evaluating the
best overall terms available, to consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) provided to the Fund, the other Funds and/or other
accounts over which the Adviser or its affiliates exercise investment
discretion. The fees under the advisory agreements relating to the Funds
between the Trust and the Advisers are not reduced by reason of their
receiving such brokerage and research services. The Trust's Board of Trustees
periodically will review the commissions paid by the Funds to determine if
the commissions paid over representative periods of time were reasonable in
relation to the benefits inuring to the Funds.
To the extent consistent with applicable provisions of the 1940 Act and the
rules and exemptions adopted by the SEC thereunder, the Board of Trustees has
determined that transactions for a Fund may be executed through Smith Barney
and other affiliated broker-dealers if, in the judgment of the Fund's
Adviser, the use of such broker-dealer is likely to result in price and
execution at least as favorable as those of other qualified broker-dealers,
and if, in the transaction, such broker-dealer charges the Fund a rate
consistent with that charged to comparable unaffiliated customers in
similar transactions. Smith Barney may directly execute such transactions for
the Funds on the floor of any national securities exchange, provided (a) the
Board of Trustees has expressly authorized
Smith Barney to effect such transactions, and (b) Smith Barney annually
advises the Trust of the aggregate compensation it earned on such
transactions. Over-the-counter purchases and sales are
transacted directly with principal market makers except in those cases in
which better prices and executions may be obtained elsewhere.
The Funds will not purchase any security, including U.S. government
securities, during the existence of any underwriting or selling group
relating thereto of which Smith Barney is a member,except to the extent
permitted by the SEC.
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares described in the
Prospectuses applies to purchases made by any "purchaser," which is defined
to include the following: (a) an individual; (b) an individual's spouse and
his or her children purchasing shares for his or her own account; (c) a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account; (d)a pension, profit-sharing or other employee
benefit plan qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and qualified
employee benefit plans of employers who are "affiliated persons" of each
other within the meaning of the 1940 Act; (e) Tax-Exempt
organizations numerated in Section 501(c)(3) or (13) of the Code; and (f)
a trustee or other professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the Investment Advisers Act
of 1940, as amended) purchasing shares of a Fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to combine purchase
orders to take advantage of
volume discounts on Class A shares should contact a Smith Barney Financial
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedules in the Prospectuses,
apply to any purchase of Class A shares if the aggregate investment in
Class A shares of any Fund and in Class A shares of other funds of the Smith
Barney Mutual Funds that are offered with a sales charge,including the
purchase being made, of any purchaser is $25,000 or more. The reduced sales
charge is subject to confirmation of the shareholder's holdings through a
check of appropriate records. The Trust reserves the right to terminate or
amend the combined right of accumulation at any time after written notice to
shareholders. For further information regarding the combined right of
accumulation,
shareholders should contact a Smith Barney Financial Consultant.
Determination of Public Offering Price
The Trust offers shares of the Funds to the public on a continuous basis.
The public offering price for Class A shares of the Funds is equal to the net
asset value per share at the time of purchase, plus a sales charge based on
the aggregate amount of the investment. The public offering price for
Class B, Class C, Class Y and Class Z shares of a Fund (and Class A share
purchases, including applicable right of accumulation, equaling 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
equaling 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.
DISTRIBUTOR
Shares of the Trust are distributed on a best efforts basis by Smith Barney
and PFS as sales agents of the Trust pursuant to a written agreement
(the "Distribution Agreement").
When payment is made by the investor before settlement date, unless
otherwise noted by the investor, the funds will be held as a free credit
balance in the investor's brokerage account and Smith Barney may benefit
from the temporary use of the Funds. The investor may designate another use
for the funds prior to settlement date, such as an investment in a money
market fund (other than Smith Barney Exchange Reserve Fund) of the Smith
Barney Mutual Funds. If the investor instructs
Smith Barney to invest the funds in a Fund of the Smith Barney money market
fund, the amount of the investment will be included as part of the average
daily net assets of both the Fund and the Smith Barney money market fund, and
affiliates of Smith Barney that serve the funds in an investment advisory or
administrative capacity will benefit from the fact they are receiving
investment management fees from both such investment companies for managing
these assets computed on the basis of their average daily net assets. The
Trust's Board of Trustees has been advised of the benefits
to Smith Barney resulting from these settlement procedures and will take such
benefits into consideration when reviewing the Advisory, Administration and
Distribution Agreements for continuance.
Distribution Arrangements
To compensate Smith Barney and PFS for the services they provide and for the
expense they bear under the Distribution Agreement, the Trust has adopted a
services and distribution plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, the Trust pays Smith Barney
with respect to each Fund a service fee, accrued daily and paid monthly,
calculated at the annual rate of 0.25% of the value of the Fund's average
daily net assets attributable to the Fund's Class A,Class B
and Class C shares. In addition, the Trust pays Smith Barney a distribution
fee with respect to each Fund's Class B and Class C shares primarily
intended to compensate Smith Barney for its initial expense of paying its
Financial Consultants, a commission upon sales of those shares. The Class B
and Class C distribution fees are calculated at the annual rate of 0.75% for
the 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
$49,000
Growth and Income 39,518 69,000 105,014
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 $261,000
Growth and Income 271,979 216,000 165,000
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 $2,000
Growth and Income N/A N/A 1,000
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 $440,493
Growth and Income 97,689 256,112 296,444
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 $525,603
Growth and Income 372,877 252,848 304,609
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 $9,603
Growth and Income* $1,100 $1,100 4,573
____________________________
* 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 $2,100,943
Growth and Income 745,754 505,697 609,218
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 $38,410
Growth and Income* 78 2,200 9,146
_____________________________
* 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 $618,364.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Trust's Board of Trustees,
including a majority of the Independent Trustees
who have no direct or indirect financial interest in the operation of the
Plan or in the Distribution Agreement. The Plan may not be amended to
increase the amount of the service and distribution fees
without shareholder approval, and all material amendments of the Plan also
must be approved by the Trustees and such Independent Trustees in the manner
described above. The Plan may be terminated
with respect to a Class at any time, without penalty, by vote of a majority
of such Independent Trustees or by a vote of a majority of the outstanding
voting securities of the Class (as defined in the 1940 Act). Pursuant to the
Plan, Smith Barney will provide the Trust's Board of Trustees with
periodic reports of amounts expended under the Plan and the purpose for which
such expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday,except days on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Because of the differences in distribution
fees and Class-specific expenses, the per share net asset value of each
Class may differ. The following is a description of the procedures used by
the Trust in valuing assets of the Funds.
A security that is listed or traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary market for such
security. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar
values at the mean between the bid and offered quotations of such currencies
against U.S. dollars as last quoted by any recognized dealer. If such
quotations are not available, the rate of exchange will be determined in
good faith by the Trust's Board of Trustees. In carrying out the Board's
valuation policies, SBMFM, as administrator, may consult with an independent
pricing service (the "Pricing Service") retained by the Trust.
Debt securities of domestic issuers (other than U.S. government securities
and short-term investments) are valued by SBMFM, as administrator, after
consultation with the Pricing Service approved by the Trust's Board of
Trustees. When, in the judgment of the Pricing Service, quoted bid prices for
investments are readily available and are representative of the bid side of
the market,these investments are valued at the mean between the quoted bid
prices and asked prices. Investments for which, in the judgment of the
Pricing Service, there are no readily obtainable market quotations are
carried at fair value as determined by the Pricing Service. The procedures of
the Pricing Service are reviewed periodically by the officers of the Funds
under the general supervision and responsibility of the Trust's Board of
Trustees.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney Mutual
Funds may exchange all or part of their shares for shares of the same class
of other funds of the Smith Barney Mutual Funds, to the extent such shares
are offered for sale in the shareholder's state of residence,
on the basis of relative net asset value per share at the time of exchange,
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.
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 1/31/97 1/31/97
Name of Fund
Social Awareness Fund 6.80% 12.13%
Growth and Income Fund 14.92 11.96
______________________________
*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
1/31/97 1/31/97 1/31/97
Name of Fund
Social Awareness Fund(1) 6.60% 11.26% 10.78%
Growth and Income Fund(2) 15.43 12.62
________________________________
(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
1/31/97 1/31/97
Name of Fund
Social Awareness Fund 10.65% 11.41%
Growth and Income Fund 19.43 19.73
______________________________
*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
through
1/31/97* 1/31/97* 1/31/97* |1/31/97** 1/31/97**
1/31/97**
Strategic Investors
Class A+ 12.42 70.93 6.80
62.43
Class B (1) 11.60 71.48 178.50 6.60 70.48
178.50
Class C++ 11.65 49.90 10.65
49.90
Growth and Income
Class A+ 20.97 13.32 14.92
11.96
Class B (2) 20.43 12.78 15.43
12.62
Class C++ 20.43 19.73 19.43
19.73
* 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.
PFS Shareholder Services is locate at 3100 Breckinridge Blvd, Blg 200,
Duluth, Georgia 30199-0062 and serves as the Funds Sub-Transfer Agent.
FINANCIAL STATEMENTS
The Annual Reports of the Social Awareness Fund and the Growth and Income
Fund for the fiscal year ended January 31, 1997 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, -2or -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. Duff1 - 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
April 21,1997
Smith Barney
Equity Funds
388 Greenwich Street
New York, New York 10013 SMITH
BARNEY
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SMITH BARNEY EQUITY FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Reports for the fiscal year ended January 31,
1997 and
the Report of Independent Accountants was filed pursuant to Rule 30b-2 of the
1933 Act, on April 18, 1997 as accession number 91155-96-000161.
Included in Part C:
Consent of Auditors (filed herewith)
(b) Exhibits
All references are to the Registrant's registration statement on Form N-1A
(the "Registration Statement") as filed with the Securities and Exchange
Commission (the "SEC") on January 9, 1986
(File
Nos. 33-2627 and 811-4551).
(1)(a) Amended and Restated Master Trust Agreement and all Amendments are
incorporated by reference to Post-Effective Amendment No. 26 to the
Registration Statement filed on January 31, 1994
("Post-Effective Amendment No. 26").
(b) Amendment dated October 14, 1994 and Form of Amendment to Amended and
Restated Master Trust Agreement are incorporated by reference to
Post-Effective Amendment No. 29 to the Registration Statement filed on
November 7, 1994 ("Post-Effective Amendment No. 29").
(2) Registrant's By-Laws are incorporated by reference to Pre-Effective
Amendment No. 1 to the Registration Statement filed on February 25, 1986
("Pre-Effective Amendment No. 1").
(3) Not applicable.
(4) Form of share certificate for Class A, B, C and Y shares will be filed
by amendment.
(5)(a) Investment Advisory Agreement between Registrant and Smith Barney
Strategy Advisers Inc., with respect to Concert Social Awareness Fund,
is incorporated by reference to Post-Effective Amendment No. 31 to the
Registation 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.
(6) Distribution Agreement between Registrant and Smith Barney Shearson
dated July30,1993 is incorporated by reference to Post-Effective Amendment
No. 26.
(7) Not applicable.
(8)(a) Custodian Agreement between Registrant and PNC Bank, National
Association ("PNC Bank") is incorporated by reference to Post-Effective
Amendment No. 31.
(9)(a) Administration Agreements between Registrant and SBMFM (relating to the
Growth and Income Fund and Strategic Investors Fund) dated May 4, 1994 are
incorporated by reference to Post-Effective Amendment No. 29
(b) Transfer Agency Agreement between Registrant and First Data Investor
Services Group(formerly The Shareholder Services Group, Inc.) dated August 5,
1993 is incorporated by reference to Post-Effective Amendment No. 26.
(10) Not applicable.
(11) Not Applicable
(12) Not applicable.
(13) Not Applicable
(14) (a) Prototype Defined Contribution Plan relating to 401(k) program is
incorporated
by reference to Post-Effective Amendment No. 33.
(b) Form of Individual Retirement Account Disclosure Statement is
incorporated
by reference to Post-Effective Amendment No. 33.
(15) Amended Services and Distribution Plans pursuant to Rule 12b-1 between the
Registrant on behalf of Smith Barney Growth and Income Fund and Smith Barney
Concert Social Awareness Fund are incorporated by reference to Post-Effective
Amendment No. 29.
(16) Performance information is incorporated by reference to Post-Effective
Amendments No. 9 and 10.
(17) Financial Data Schedule (filed herewith).
(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 April 15,1997
Beneficial Interest par value
$.001 per share Class A Class B Class C Class Y
Smith Barney
Concert Social Awareness Fund 18,707 15,846 291 2
Smith Barney Growth and Income Fund 11,849 10,896 288 2
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"AdvisersAct").
The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two fiscal years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SBMFM pursuant to the Advisers Act
(SEC File No. 801-8314).
Item 28(a) Business and Other Connections of Investment Adviser
Investment Adviser - Smith Barney Strategy Advisers Inc. ("Strategy Advisers")
Strategy Advisers was incorporated on October 22, 1986 under the laws of the
State of Delaware.Strategy Advisers is a wholly owned subsidiary of SBMFM.
Strategy Advisers is registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Advisers Act").
Strategy Advisers is also registered with the Commodity Futures Trading
Commission (the "CFTC") as a commodity pool operator
under the Commodity Exchange Act (the "CEA"), and is a member of the
National Futures Association
(the "NFA").
The list required by this Item 28 of officers and directors of SBMFM and
Strategy Advisers, together with
information as to any other business, profession, vocation or employment of
a substantial nature engaged
in by such officers and directors during the past two years, in incorporated
b reference to Schedules A and
D of FORM ADV filed by SBMFM on behalf of Strategy Advisers pursuant to the
Advisers Act
(SEC File
No. 801-8314).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Aggressive Growth Fund Inc.,
Smith Barney Appreciation Fund Inc., Smith Barney Principal Return Fund,
Smith Barney Managed Governments Fund Inc., Smith Barney Income Funds, Smith
Barney Equity Funds, Smith Barney Investment Funds Inc., Smith Barney
Precious Metals and Minerals Fund Inc., Smith Barney
Telecommunications Trust, Smith Barney Arizona Municipals Fund Inc.,
Smith Barney New Jersey Municipals Fund Inc., The USA High Yield Fund N.V.,
Garzarelli Sector Analysis Portfolio N.V., Smith
Barney Fundamental Value Fund Inc., Smith Barney Series Fund, Consulting
Group CapitalMarkets Funds, Smith Barney Income Trust, Smith Barney
Adjustable Rate Government Income Fund,Smith
Barney Florida Municipals Fund, Smith Barney Oregon Municipals Fund, Smith
Barney Funds,Inc.,Smith Barney Muni Funds, Smith Barney World Funds, Inc.,
Smith Barney Money Funds, Inc.,Smith Barney Tax Free Money Fund, Inc., Smith
Barney Variable Account Funds, Smith Barney U.S.Dollar
Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide Securities
Limited,(Bermuda), Smith Barney International Fund (Luxembourg) and various
series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings. On June 1, 1994,
Smith Barney changed its name from Smith Barney Shearson Inc. to its current
name. The information required by this Item 29
with respect to each director, officer and partner of Smith Barney is
incorporated by reference to Schedule A of
FORM BD filed by Smith Barney pursuant to the Securities Exchange Act of
1934 (SEC File No.
812-8510).
Item 30 . Location of Accounts and Records
(1) Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Equity Funds
388 Greenwich Street
New York, New York 10013
(3) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(4) Smith Barney Strategy Advisers Inc.
388 Greenwich Street
New York, New York 10013
(5) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(6) First Data Investor Services Group
One Exchange Place
Boston, Massachusetts 02109
Item 31 Management Services
Not Applicable.
Item 32 Undertakings
(a) The Registrant hereby undertakes to call a meeting of its shareholders
for the purpose of voting upon the question of removal of a trustee or
trustees of Registrant when requested in to do so by the holders of at least
10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to communications with
the shareholders of certain common-law trusts.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant, SMITH BARNEY
EQUITY FUNDS, has duly caused
this Amendment to the Registration Statement to be signed on its behalf by
the undersigned,thereunto duly authorized, all in the City of New York,
State of New York on the 18th day of April, 1997.
SMITH BARNEY EQUITY FUNDS
By: /s/ Heath B. McLendon*
Heath B. McLendon, Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective
Amendment to the Registration Statement has been signed below by the
following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board 4/18/97
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone Senior Vice President and 4/18/97
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Lee Abraham* Trustee 4/18/97
Lee Abraham
/s/ Allan J. Bloostein* Trustee 4/18/97
Allan J. Bloostein
/s/ Madelon Devoe-Talley* Trustee 4/18/97
Madelon Devoe-Talley
/s/ Richard E. Hanson* Trustee 4/18/97
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
Heath B Mclendon
EXHIBITS
Exhibit No. Description of Exhibits
14 (a) Prototype Defined Contribution Plan
(b) Individual Retirement Account Disclosure Statement
17 Financial Data Schedule
Auditor's Consent
Cover Letter to SEC
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Independent Auditors' Consent
To the Shareholders and Board of Trustees of
the Smith Barney Equity Funds:
We consent to the use of our report dated March 14, 1997 with respect to the
Concert Social Awareness Fund (formerly, Smith Barney Strategic Investors
Fund) of the Smith Barney Equity Funds incorporated herein by reference and
to the references to our Firm under the headings "Financial Highlights" in
the Prospectus and "Counsel and Auditors" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
New York, New York
April 17, 1997
