STATEMENT ON FORM N-1A
As filed with the Securities and Exchange
Commission on May 29, 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. 41
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended
Amendment No. 41 [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 May 31, 1997 pursuant to Rule 485(b)
60 days after filing pursuant to Rule
485(a)
_____ on -------------- pursuant to Rule 485(a)
The Registrant has previously filed a declaration of
indefinite registration of its shares pursuant to Rule
24f-2 under the Investment Company Act of 1940, as
amended. Registrant's Rule 24f-2 Notice for the fiscal
year ended January 31, 1997 was filed on April 7,1997
as accession number 0000091155-97-000182
To Register Additional Securities under Reg. 270.24e-2
Title of Share
securities Amount
being being
registered registered
Concert Social
Awareness Fund 1,428,640
During the fiscal year ended January 31, 1997 the
Concert Social Awareness Fund redeemed 4,861,345
shares.
During its current fiscal year, the fund used
3,432,705 shares it redeemed during its fiscal year
ended January 31, 1997, for a reduction pursuant to
rule 24f-2(c).
The fund is currently registering 1,428,640 shares.
During its current fiscal year, the fund filed no
other post effective amendments for the purpose of
reduction pursuant to Rule 24e-2(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
Prospectus
Smith Barney
Growth and
Income
Fund
May 31, 1997
Prospectus begins on page one
[LOGO] SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
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Prospectus May 31, 1997
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Smith Barney Growth and Income Fund
388 Greenwich Street
New York, New York 10013
800-451-2010
Smith Barney Growth and Income Fund (the "Fund") seeks long-term
capital
growth and income by investing in income producing equity securities,
including
dividend-paying common stocks, securities that are convertible into common
stocks and warrants.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Equity Funds (the "Trust").
The
Fund is an open-end management investment company commonly referred to
as a
mutual fund.
This Prospectus sets forth concisely certain information about the Fund and
the Trust, including sales charges, distribution and service fees and expenses,
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference. Shares of the other funds offered by the Trust are described
in separate prospectuses that may be obtained by calling the Trust at the
telephone number set forth above or by contacting a Smith Barney Financial
Consultant.
Additional information about the Fund and the Trust is contained in a
Statement of Additional Information dated May 31, 1997, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Trust at the telephone number or address set
forth above or by contacting a Smith Barney Financial Consultant. The
Statement
of Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this Prospectus
in
its entirety.
Smith Barney Inc.
Distributor
Smith Barney Mutual Funds Management Inc.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
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Table of Contents
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Prospectus Summary 3
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Financial Highlights 10
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Investment Objective and Management Policies 13
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Valuation of Shares 23
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Dividends, Distributions and Taxes 24
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Purchase of Shares 25
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Exchange Privilege 35
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Redemption of Shares 38
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Minimum Account Size 41
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Performance 41
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Management of the Trust and the Fund 42
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Distributor 43
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Additional Information 44
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No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust or the
distributor. This Prospectus does not constitute an offer by the Fund or the
distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such an offer or solicitation in such jurisdiction.
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2
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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 long-term capital growth and income by
investing
in income producing equity securities, including dividend-paying common
stocks,
securities that are convertible into common stocks and warrants. See
"Investment
Objective and Management Policies."
Alternative Purchase Arrangements The Fund offers several classes of
shares
("Classes") designed to provide investors with the flexibility of selecting an
investment best suited to their needs. The general public is offered three
Classes of shares: Class A shares, Class B shares and Class C shares which
differ principally in terms of the sales charges and rates of expenses to which
they are subject. A fourth Class of shares, Class Y shares, is offered only to
investors meeting an initial investment minimum of $5,000,000. See "Purchase
of
Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% 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 of
$500,000
or more will be made at net asset value with no initial sales charge, but will
be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary -
Reduced
or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each
year after
the date of purchase to zero. This CDSC may be waived for certain
redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.50% of the average daily net assets of the Class. The
Class B shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of
dividends
and distributions ("Class B Dividend Shares") will be converted at that time.
See "Purchase of Shares - Deferred Sales Charge Alternatives."
3
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Prospectus Summary (continued)
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Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.50% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12
months of
purchase. The CDSC may be waived for certain redemptions. The Class C
shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Fund shares, which when
combined
with current holdings of Class C shares of the Fund equal or exceed $500,000
in
the aggregate, should be made in Class A shares at net asset value with
no sales charge, and will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000 (except for purchases of Class Y
shares
by Smith Barney Concert Series Inc., for which there is no minimum purchase
amount). Class Y shares are sold at net asset value with no initial sales charge
or CDSC. They are not subject to any service or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of
regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an investment
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of these Classes. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than
Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than
Class
C shares to investors with longer term investment outlooks.
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
4
<PAGE>
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Prospectus Summary (continued)
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immediately invested in the Fund. In addition, Class A share purchases of
$500,000 or more 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 investment may be met by adding the purchase to the
net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney Inc. ("Smith Barney") listed under "Exchange
Privilege." Other Class A share purchases may also be eligible for a reduced
initial sales charge. See "Purchase of Shares." Because the ongoing expenses of
Class A shares will be lower than those for Class B and Class C shares,
purchasers eligible to purchase Class A shares at net asset value or at a
reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class C shares is the same as that of
the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Trust and the Fund" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes" and "Exchange Privilege" for other differences between the Classes of
shares.
Smith Barney 401(k) and ExecChoice(TM) Programs Investors may be eligible
to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation or operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as
well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without a
sales
charge as investment alternatives under both plans. See "Purchase of
Shares-Smith Barney 401(k) and ExecChoice(TM) Programs."
Purchase of Shares Shares may be purchased through the Fund's distributor,
Smith
Barney, a broker that clears securities transactions through Smith Barney on a
fully disclosed basis (an "Introducing Broker") or an investment dealer in the
selling group. Direct purchases by certain retirement plans may be made
through
the Fund's transfer agent, First Data Investor Services Group, Inc. ("First
Data"). See "Purchase of Shares."
Investment Minimums Investors in Class A, Class B and Class C shares may
open an
account by making an initial investment of at least $1,000 for each account, or
$250 for an individual retirement account ("IRA") or a self-employed
retirement
plan. Investors in Class Y shares may open an account for an initial
5<PAGE>
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Prospectus Summary (continued)
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investment of $5,000,000. Subsequent investments of at least $50 may be made
for
all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes is $25. The minimum initial investment
requirements for the purchases of Fund shares through the Systematic
Investment
Plan are described below. See "Purchase of Shares."
Systematic Investment Plan The Fund offers shareholders a Systematic
Investment
Plan under which they may authorize the automatic placement of a purchase
order
each month or quarter for Fund shares. The minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes for shareholders purchasing shares
through the Systematic Investment Plan on a monthly basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."
Redemption of Shares Shares may be redeemed on each day the New York
Stock
Exchange, Inc. ("NYSE") is open for business. See "Redemption of Shares."
Management of the Trust and the Fund Smith Barney Mutual Funds
Management Inc.
("SBMFM") serves as the Fund's investment adviser. SBMFM provides
investment
advisory and management services to investment companies affiliated with
Smith
Barney. SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"). Holdings 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. SBMFM also serves as the Fund's administrator. See
"Management of the Trust and the Fund."
Exchange Privilege Shares of a Class may be exchanged for shares of the same
class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined. See "Exchange Privilege Services."
Valuation of Shares Net asset value of the Fund for the prior day is generally
quoted daily in the financial section of most newspapers and is also available
from a Smith Barney Financial Consultant. See "Valuation of Shares."
Dividends and Distributions Dividends from net investment income are paid
quarterly. Distributions of net realized capital gains, if any, are declared and
paid annually. See "Dividends, Distributions and Taxes."
6
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Prospectus Summary (continued)
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Reinvestment of Dividends Dividends and distributions paid on shares of a
Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend reinvestments will not be subject to any sales charge or CDSC.
Class
B shares acquired through dividend and distribution reinvestments will become
eligible for conversion to Class A shares on a pro rata basis. See "Dividends,
Distributions and Taxes."
Risk Factors and Special Considerations There can be no assurance that the
Fund's investment objective will be achieved. The market value of fixed income
securities, which may constitute a part of the investments of the Fund, may vary
inversely in response to changes in prevailing interest rates. The mortgage
related securities in which the Fund may invest are sensitive to changes in
interest rates and to prepayment of mortgages. The Fund may make certain
investments and employ certain investment techniques that involve other risks,
including entering into repurchase agreements, purchasing foreign securities,
lending portfolio securities and entering into futures contracts and related
options as hedges. These risks and those associated with when-issued and
delayed-delivery transactions and covered option writing are described under
"Investment Objective and Management Policies - Risk Factors and Special
Considerations."
7
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Prospectus Summary (continued)
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The Fund's Expenses The following expense table lists the costs and expenses
and
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 current operating expenses for
its
most recent fiscal year:
<TABLE>
<CAPTION>
Growth and Income Fund Class A Class B Class C
Class Y
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None
None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower) None* 5.00% 1.00%
None
- --------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.65% 0.65% 0.65% 0.65%
12b-1 fees** 0.25 0.75 0.75 None
Other expenses 0.22 0.22 0.21 0.08
- --------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.12% 1.62%
1.61% 0.73%
========================================================
====================================
</TABLE>
* Purchases of Class A shares of $500,000 or more 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 of purchase.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
Class A shares of the Fund purchased through the Smith Barney AssetOne
Program will be subject to an annual asset-based fee, payable quarterly,
in lieu of the initial sales charge. The fee will vary to a maximum of 1.50%,
depending on the amount of assets held through the Program. For more
information, please call your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors
may actually pay lower or no charges, depending on the amount purchased and,
in the case of Class B, Class C and certain Class A shares, the length of
time the shares are held and whether the shares are held through the
Smith Barney 401(k) and ExecChoice Programs. See "Purchase of Shares"
and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of .25% of the value of
average daily net assets of Class A shares. Smith Barney also receives an
annual 12b-1 fee of .75% of the value of average daily net assets of
Class B and Class C shares, consisting of a .50% distribution fee and a
.25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees,
printing costs and registration fees.
8
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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>
Growth and Income Fund 1 year 3 years 5 years 10
years*
========================================================
========================================
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5.00% annual return and
(2) redemption at the end of each time period:
Class A $61 $84 $109 $180
Class B 66 81 98 178
Class C 27 51 88 191
Class Y 7 23 41 91
An investor would pay the following expenses on the
same investment, assuming the same annual return and
no redemption:
Class A 61 85 109 180
Class B 16 52 88 178
Class C 16 51 88 192
Class Y 7 23 41 91
========================================================
========================================
</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.
9
<PAGE> -----------------------------------
Financial Highlights
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The following information for the two years ended January 31, 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 information
for
the years ended January 31, 1993 through January 31, 1995, has been audited
by
other independent auditors. The information set forth below should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report, which is incorporated by reference into the
Statement
of Additional Information.
For a Class A share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
Growth and Income Fund 1997 1996(1) 1995 1994(1)
1993(2)
========================================================
=========================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.16 $ 9.62 $ 10.36 $ 9.58
$ 9.50
- -----------------------------------------------------------------------
- -
Income (Loss) From Operations:
Net investment income 0.19 0.20 0.20 0.20 0.01
Net realized and unrealized gain (loss) 2.33 2.74 (0.61)
0.81
0.07
- -------------------------------------------------------------------------------
- -
Total Income (Loss) From Operations 2.52 2.94 (0.41) 1.01
0.08
- ----------------------------------------------------------------------------
- -
Less Distributions From:
Net investment income (0.20) (0.20) (0.19) (0.23) --
Net realized gains (0.18) (0.20) (0.14) -- --
- ----------------------------------------------------------------------------
- -
Total Distributions (0.38) (0.40) (0.33) (0.23) --
- -- -------------------------------------------------------------------------
- -
Net Asset Value, End of Year $ 14.30 $ 12.16 $ 9.62 $ 10.36
$ 9.58
- --------------------------------------------------------------------------
- -
Total Return++ 20.97% 30.97% (3.93)% 10.70%
0.84%++
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- -
Net Assets, End of Year (In millions)$133 $ 110 $ 95 $ 4
3
- ---------------------------------------------------------------------------
- -
Ratios to Average Net Assets:
Expenses 1.12% 1.16% 1.41% 1.54%
1.41%+
Net investment income 1.48 1.77 1.86 2.00
0.28+
- --------------------------------------------------------------------------
- -
Portfolio Turnover Rate 9% 15% 127% 79%
1%
========================================================
=========================================
Average Commissions Paid on
Equity Security Transactions(3)$ 0.06 $ 0.06 -- --
--
========================================================
=========================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year,
since use of the undistributed net investment income method did 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 is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
++ 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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Financial Highlights (continued)
- ---------------------------------------------------------------------------
For a Class B share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
Growth and Income Fund 1997 1996(1) 1995 1994(1)
1993(2)
========================================================
=========================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $ 12.19 $ 9.65 $ 10.38 $ 9.58 $ 9.50
- ---------------------------------------------------------------------------
- -
Income (Loss) From Operations
Net
investment income 0.13 0.14 0.17 0.15 (0.01)
Net realized
and unrealized gain (loss) 2.34 2.75 (0.62) 0.80 0.09
- -----------------------------------------------------------------------------
Total Income
(Loss) From Operations 2.47 2.89 (0.45) 0.95 0.08
- ----------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.15) (0.15) (0.14) (0.15) --
Net realized gains (0.18) (0.20) (0.14) -- --
- ----------------------------------------------------------------------------
Total Distributions (0.33) (0.35) (0.28) (0.15) --
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
End of Year $ 14.33 $ 12.19 $ 9.65 $ 10.38 $ 9.58
- -----------------------------------------------------------------------------
Total Return++ 20.43% 30.23% (4.33)% 10.01% 0.84%++
- -----------------------------------------------------------------------------
Net Assets,
End of Year
(In millions) $ 137 $ 112 $ 92 $ 68 $ 35
- -----------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 1.62% 1.65% 1.90% 1.99% 1.91%+
Net
investment income 0.98 1.27 1.38 1.55 (0.22)+
- --------------------------------------------------------------------------
Portfolio
Turnover Rate 9% 15% 127% 79% 1%
========================================================
=========================================
Average Commissions
Paid on Equity
Security Transactions(3) $ 0.06 $ 0.06 -- -- --
========================================================
=========================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this year,
since use of the undistributed net investment income method did 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 is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
++ Total return represents the aggregate total return for the period indicated
and does not reflect any applicable sales charge.
11
<PAGE>
- ----------------------------------------------------------------------------
Financial Highlights (continued)
- ----------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year:
<TABLE>
<CAPTION>
Class C Shares Class Y Shares
-------------------------- --------------
Growth
and Income Fund 1997 1996(1) 1995(2) 1997 1996(1)(3)
========================================================
======================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $12.19 $ 9.65 $ 9.91 $ 12.16 $12.08
- -----------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income 0.14 0.13 0.07 0.22 --
Net realized
and unrealized gain (loss) 2.33 2.76 (0.13) 2.36 0.08
- ----------------------------------------------------------------------------
Total Income
(Loss) From Operations 2.47 2.89 (0.06) 2.58 0.08
- ----------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.15) (0.15) (0.06) (0.22) --
Net realized gains (0.18) (0.20) (0.14) (0.18) --
- ----------------------------------------------------------------------------
Total Distributions (0.33) (0.35) (0.20) (0.40) --
- ----------------------------------------------------------------------------
Net Asset Value,
End of Year $14.33 $12.19 $ 9.65 $ 14.34 $12.16
- -----------------------------------------------------------------------------
Total Return++ 20.43% 30.23% (0.58)%++ 21.48% N/A*
- -----------------------------------------------------------------------------
Net Assets,
End of Year (000s) $2,958 $ 961 $ 85 $78,192 $ 5
- ----------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 1.61% 1.62% 1.83%+ 0.73% N/A*
Net investment income 0.94 1.11 1.44+ 1.73 N/A*
- ----------------------------------------------------------------------------
Portfolio Turnover Rate 9% 15% 127% 9% 15%
============================================================================
Average Commissions
Paid on Equity Security
Transactions(4) $ 0.06 $ 0.06 -- $ 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 year,
since use of the undistributed net investment income method did not accord
with results of operations.
(2) For the period from August 15, 1994 (inception date) to January 31, 1995.
(3) Inception date is January 31, 1996.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* Information is not meaningful since the class was only open for 1 day.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
++ Total return represents the aggregate total return for the period indicated
and does not reflect any applicable sales charge.
12
<PAGE>
- ----------------------------------------------------------------------
Investment Objective and Management Policies
- ----------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek income and long-term
capital growth. The Fund's investment objective may be changed only with the
approval of a majority of the Fund's outstanding shares. There can be no
assurance that the Fund's investment objective will be achieved.
The Fund seeks to achieve its investment objective by investing in income
producing equity securities, including dividend-paying common stocks,
securities
that are convertible into common stocks and warrants. SBMFM has developed
quantitative investment criteria against which prospective investments will be
evaluated and will make buy and sell decisions based on those criteria. Those
criteria establish parameters for suitable investments and deal with such
matters as market capitalization, credit quality, dividend growth, historic
earnings, current yield and industry concentration. The criteria, which may be
changed by SBMFM in light of its experience in managing the Fund or in
response
to changing market or economic conditions, are designed to identify companies
with consistent dividend paying histories, relatively high levels of dividends,
the capacity to raise dividends in the future and the potential for capital
appreciation. Consistent with the data used in developing and maintaining the
quantitative investment criteria, the Fund expects to invest primarily in
domestic companies of varying sizes, generally with capitalizations exceeding
$250 million in a wide range of industries. The Fund may also invest up to
20%
in the securities of foreign issuers, including American Depositary Receipts or
European Depositary Receipts. Under normal market conditions, the Fund will
invest substantially all - but not less than 65% - of its assets in equity
securities. The Fund may invest the remainder of its assets in high grade money
market instruments in order to develop income, as well as in corporate bonds
and
mortgage related securities that are rated investment grade or are deemed by
SBMFM to be of comparable quality and in United States government
securities, in
furtherance of its objective of income and long-term capital growth. The Fund
also may enter into repurchase agreements, invest in real estate investment
trusts, lend portfolio securities, enter into interest rate and stock index
futures and related options, purchase or sell securities on a when-issued or
delayed-delivery basis and write covered options.
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may, as a cash management tool,
hold up
to 20% of the value of its assets in cash and invest in short-term instruments
and, when SBMFM believes that market conditions warrant, the Fund may
adopt a
temporary defensive posture and may hold cash and invest in short-term
instruments without limitation. Short-term instruments in which the Fund may
invest include securities issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. government securities");
obligations of banks
13
<PAGE>
- -----------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- -----------------------------------------------------------------------------
having at least $1 billion in assets (including certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign banks, domestic
savings
and loan associations and similar institutions); commercial paper rated no
lower
than A-2 by Standard & Poor's Ratings Group ("S&P") or Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or the equivalent from another nationally
recognized statistical rating organization ("NRSRO") or, if unrated, of an
issuer having an outstanding, unsecured debt issue then rated within the two
highest rating categories; and repurchase agreements with respect to any of the
foregoing entered into with banks and non-bank dealers approved by the Trust's
Board of Trustees. The NRSROs currently designated as such by the SEC are
S&P,
Moody's, Fitch Investors Service, Inc., Duff & Phelps Credit Rating Co., IBCA
Limited and its affiliate, IBCA, Inc. and Thomson BankWatch. A more
detailed
discussion of the ratings of NRSROs is contained in the Statement ofAdditional
Information.
U.S. Government Securities. The U.S. government securities in which the
Fund may invest include: direct obligations of the United States Treasury (such
as Treasury Bills, Treasury Notes and Treasury Bonds), and obligations issued
by
U.S. government agencies and instrumentalities, including securities that are
supported by the full faith and credit of the United States (such as
certificates issued by the Government National Mortgage Association);
securities
that are supported by the right of the issuer to borrow from the United States
Treasury (such as securities of Federal Home Loan Banks); and securities that
are supported only by the credit of the instrumentality (such as bonds
issued by Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation). Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to ten years and Treasury Bonds
generally have maturities of greater than ten years at the date of issuance.
Convertible Securities. Convertible securities are fixed-income securities
that may be converted at either a stated price or stated rate into underlying
shares of common stock and therefore are deemed to be equity securities for
purposes of the Fund's investment objective and techniques. Convertible
securities have general characteristics similar to both fixed-income and equity
securities Although to a lesser extent than with fixed-income securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In 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 so may
not experience market value declines to the same extent as the underlying
common
stock. When the market price of the underlying common stock increases,
14
<PAGE>
- -----------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- -----------------------------------------------------------------------------
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 stocks of the same issuer.
As fixed-income securities, convertible securities provide for a stable
stream of income with generally higher yields than common stocks. Of course,
like all fixed-income securities, convertible securities offer no assurance of
current income because the issuers of the securities may default on their
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.
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 with certain dealers on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, the Fund
would acquire an underlying debt obligation for a relatively short period
(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 SBMFM to ensure that the
value is at least equal at all times to the total amount of the repurchase
obligation, including interest. The Fund bears a risk of loss in the
15
<PAGE>
- -----------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- -----------------------------------------------------------------------------
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 collateral securities, including the risk of
a possible decline in the value of the underlying securities during
the period in which the Fund seeks to assert these rights. SBMFM,
acting under the supervision of the Trust's Board of
Trustees, reviews on an ongoing basis the value of the collateral and the
creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements to evaluate potential risks.
Zero Coupon Securities. The Fund may purchase zero coupon bonds which
are
bonds that pay no interest in cash to their holder during their life, although
interest is accrued during that period. A zero coupon bond's 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.
Lending of Securities. The Fund has the ability to lend portfolio
securities to brokers, dealers and other financial organizations. By lending
its securities, the Fund can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in the form of
interest paid by the borrower when U.S. government securities are used as
collateral. Loans of portfolio securities, if and when made, by the Fund may
not exceed 331 1/43% of the Fund's total assets, taken at value.
Loans of portfolio securities will be collateralized by cash, letters of
credit or U.S. government securities, which are maintained at all times in
an amount equal to the current market value of
the loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund. The risks in lending portfolio securities, as with other extensions
of secured credit, consist of possible delay in receiving additional
collateral or in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. Loans will
be made to firms deemed by SBMFM to be of good standing and will not be
made unless, in the judgment of SBMFM the consideration to be earned from
such loans would justify the risk.
Futures and Options on Futures. When deemed advisable by SBMFM, the
Fund
may enter into interest rate futures contracts, stock index futures contracts
and related options that are traded on a domestic exchange or board of trade.
These transactions will be made solely for the purpose of hedging against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest
16
<PAGE>
- -----------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- -----------------------------------------------------------------------------
rates, market conditions and currency values, as the case may be. All futures
and options contracts will be entered into only when the transactions are
economically appropriate to the reduction of risks inherent in the management
of
the Fund.
An interest rate futures contract provides for the future sale by one party
and the purchase by the other party of a specified amount of a particular
financial instrument (debt security) at a specified price, date, time and
place. Similarly, a foreign currency futures contract provides for the
future sale by one party and the purchase by another party of a certain
amount of a particular currency at a specified price, date, time and place
Stock index futures contracts are based on indexes that reflect the market
value of common stock of the companies included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree
to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the
last trading day of the contract and the price at which the index contract was
originally entered into. An option on an interest rate, stock index or currency
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put) at a specified exercise price
at any time prior to the expiration date of the option.
The use of futures contracts and options on futures contracts as a hedging
device involves several risks. There can be no assurance that there will be a
correlation between price movements in the underlying securities, index or
currency, 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.
With respect to long positions in futures or options on futures, the Fund
will set aside cash, short-term U.S. debt obligations or other U.S. dollar
denominated high quality short-term money market instruments in an amount
equal
to the underlying commodity value of those positions.
When-Issued Securities and Delayed-Delivery Transactions. The Fund may
purchase and sell securities on a when-issued basis, which calls for the
purchase (or sale) of securities at an agreed-upon price on a specified future
date The Fund will enter into a when-issued transaction for the purpose of
acquiring portfolio securities and not for the purpose of leverage. In such
transactions, delivery of the securities occurs beyond the normal settlement
periods, but no payment or delivery is made by, and no interest accrues to, the
Fund prior to the actual delivery or payment by the other party to the
transaction. Due to fluctuations in the value of securities purchased or sold
on a when-issued or delayed-delivery basis, the returns obtained on such
securities may be higher or lower than the returns available in the market
17
<PAGE>
- -----------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- -----------------------------------------------------------------------------
on the dates when the investments are actually delivered to the buyers. The
Fund
will establish a segregated account consisting of cash debt securities of any
grade or equity securities, having a value equal to or greater than the Fund's
purchase commitments, provided such securities have been determined by
SBMFM to
be liquid and unencumbered, and are marked to market daily pursuant to
guidelines established by the Trustees ("eligible segregate assets"). Placing
securities rather than cash in the segregated account may have a leveraging
effect on the Fund's net assets. The Fund will not accrue income with
respect to a when-issued security prior to its stated delivery date.
Covered Option Writing. The Fund may write put and call options on
securities. The Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the options. A put option embodies the right of its
purchaser to compel the writer of the option to purchase from the option holder
an underlying security at a specified price at any time during the option
period. In contrast, a call option embodies the right of its purchaser to
compel the writer of the option to sell to the option holder an underlying
security at a specified price at any time during the option period. Thus,
the purchaser of a put option written by the Fund has the right to compel
the Fund to purchase from it the underlying security at the agreed-upon
price for a specified time period, while the purchaser of a call option
written by the Fund has the right to purchase from the Fund the underlying
security owned by the Fund at the agreed-upon price for a specified time
period.
Upon the exercise of a put option written by the Fund, the Fund may suffer
a loss equal to the difference between the price at which the Fund is required
to purchase the underlying security plus the premium received for writing the
option and its market value at the time of the option exercise. Upon the
exercise of a call option written by the Fund, the Fund may suffer a loss equal
to the difference between the security's market value at the time of the option
exercise less the premium received for writing the option and the Fund's
acquisition cost of the security.
The Fund will write only covered options. Accordingly, whenever the Fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option. To support its obligation to purchase the underlying
security if a put option is exercised, the Fund will either (a) deposit with
PNC Bank, National Association ("PNC"), the Trust's custodian, in a segregated
account, eligible segregate assets having a value at least equal to the
exercise price of the underlying securities or (b) continue to own an
equivalent number of puts of the same "series" (that is, puts on the same
underlying security having the same exercise prices and expiration dates as
those written by the Fund) or an equivalent number of puts of the same
"class" (that is, puts on the same underlying security) with exercise prices
greater than
18
<PAGE>
- ------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- ------------------------------------------------------------------------------
those that it has written (or, if the exercise prices of the puts that it holds
are less than the exercise prices of those that it has written, it will deposit
the difference with PNC in a segregated account).
The Fund may engage in a closing purchase transaction to realize a profit,
to prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an
option of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written
would be terminated by a closing purchase transaction, but the Fund would
not be deemed to own an option as the result of the transaction. There can
be no assurance that the Fund will be able to effect closing purchase
transactions at a time when it wishes to do so. To facilitate closing
purchase transactions, however, the Fund ordinarily will write options only
if a secondary market for the options exists on a domestic securities
exchange or in the over-the-counter market.
The staff of the SEC considers most over-the-counter options to be
illiquid. The ability to terminate option positions established in the
over-the-counter market may be more limited than in the case of exchange-
traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the Fund.
Reverse Repurchase Agreements. In order to generate additional income,
the
Fund may engage in reverse repurchase agreement transactions with banks,
broker-dealers and other financial intermediaries. Reverse repurchase
agreements
are the same as repurchase agreements except that, in this instance, the Fund
would assume the role of seller/borrower in the transaction. The Fund will
maintain segregated accounts with PNC consisting of U.S. government
securities,
cash or money market instruments that at all time are in an amount equal to
their obligations under reverse repurchase agreements. The Fund will invest the
proceeds in other money market instruments or repurchase agreements
maturing not
later than the expiration of the reverse repurchase agreement. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of the securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves special considerations, such as those
described below:
Foreign Securities. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in
addition
to the usual
19
<PAGE>
- ----------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------------------------
risks inherent in domestic investments. These risks include those resulting
from revaluation of currencies, future adverse political and economical
developments and the possible imposition of currency exchange blockages or
other foreign governmental laws or restrictions, reduced availability of
public information concerning issuers and the lack of uniform accounting,
auditing and financial reporting standards or of other regulatory practices
and requirements comparable to those applicable to domestic companies.
The yield of the Fund may be adversely affected by fluctuations in value of
one or more foreign currencies relative to the U.S. dollar. Moreover,
securities of many foreign companies and their markets may be less liquid
and their prices more volatile than those of securities of comparable
domestic companies. In addition, with respect to
certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Fund, including the withholding of dividends.
Foreign securities may be subject to foreign government taxes that could reduce
the yield on such securities. Because the Fund may invest in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates may adversely affect the value of portfolio
securities and the appreciation or depreciation of investments. Investment in
foreign securities also may result in higher expenses due to the cost of
converting foreign currency to U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than
commissions on
domestic exchanges, and the expense of maintaining securities with foreign
custodians, and the imposition of transfer taxes or transaction charges
associated with foreign exchanges.
Fixed-Income Securities. The market value of the Fund's fixed-income
obligations can be expected to vary inversely in relation to changes in
prevailing interest rates and also may be affected by other market and credit
factors. Investors also should recognize that in periods of declining interest
rates the yield of an income-oriented fund such as the Fund may be somewhat
higher than prevailing market rates, and in periods of rising interest rates
the Fund's yield may be somewhat lower. In addition, when interest rates are
falling, the inflow of net new money to the Fund from the continuous sale of
its shares probably will be invested in instruments producing lower yields
than the balance of its holdings, thereby reducing the Fund's current yield.
In periods of rising interest rates the opposite can be expected to occur.
In addition, fixed-income securities in which the Fund may invest may not
yield as high a level of current income as might be achieved by investing in
securities with less liquidity and safety and longer maturities.
To the extent the Fund purchases mortgage related securities at a premium,
mortgage foreclosures and prepayments of principal by mortgagors (which may
be
20
<PAGE>
- ----------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------------------------
made at any time without penalty) may result in some loss of the Fund's
principal investment to the extent of the premium paid. The yield of a fund
that invests in mortgage related securities may be affected by reinvestment of
prepayments at higher or lower rates than the original investment. In addition,
like those of other debt securities, the values of mortgage related securities,
including government and government-related mortgage pools, generally will
fluctuate in relation to interest rates.
CERTAIN INVESTMENT GUIDELINES
Up to 15% of the assets of the Fund may be invested in securities and other
instruments that are illiquid ("illiquid securities"), although the Fund has no
present intention to invest more than 10% of its assets in the aggregate in
illiquid securities, including (a) repurchase agreements with maturities
greater than seven days, (b) futures contracts and options thereon for which
a liquid secondary market does not exist, (c) time deposits maturing in more
than seven calendar days and (d) securities of new and early stage companies
whose securities are not publicly traded. In addition, the Fund may invest up
to 5% of its assets in the securities of issuers that have been in continuous
operation for less than three years.
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with
respect to the Fund that may not be changed without approval of a majority of
the Fund's outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended ("1940 Act"). Included among those fundamental
restrictions are the following that prohibit the Fund from:
1. With respect to 75% of the value of its total assets, investing more
than 5% of its total assets in securities of any one issuer, except
securities issued or guaranteed by the U.S. government, or purchase
more than 10% of the outstanding voting securities of such issuer.
2. Borrowing money, except that (a) the Fund may borrow from banks for
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 exceeding 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 and (b) the Fund may enter into
reverse repurchase agreements. Whenever borrowings, including reverse
repurchase agreements, exceed 5% of the value of the total assets of
the Fund, the Fund will not make any additional investments.
21
<PAGE>
- ----------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- ----------------------------------------------------------------------------
3. Making loans of its funds or securities. This restriction does not
apply to: (a) the purchase of debt obligations in which the Fund may
invest consistent with its investment objective, (b) the entering into
repurchase agreements, and (c) the making of loans of its portfolio
securities.
4. Investing more than 25% of its total assets in securities, the issuers
of which are in the same industry. For purposes of this limitation,
U.S. government securities and securities of state or municipal
governments and their political subdivisions are not considered
members of any industry.
A complete list of investment restrictions that the Trust has adopted with
respect to the Fund identifying additional restrictions that cannot be changed
without the approval of a majority of the Fund's outstanding shares is
contained in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND TURNOVER
Securities held by the Fund ordinarily are purchased from and sold to
parties acting as either principal or agent. Newly-issued securities ordinarily
are purchased directly from the issuer or from an underwriter; other purchases
and sales usually are placed with those dealers from which it appears that the
best price or execution will be obtained. Usually no brokerage commissions, as
such, are paid by the Fund for purchases and sales undertaken through
principal
transactions, although the price paid usually includes an undisclosed
compensation to the dealer acting as principal. The prices paid to underwriters
of newly-issued securities usually include a concession paid by the issuer to
the underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price.
Transactions on behalf of the Fund are allocated to various brokers and
dealers by SBMFM in its best judgment. The primary consideration is prompt
and
effective execution of orders at the most favorable price. Subject to that
primary consideration, brokers and dealers, including Smith Barney, may be
selected for research, statistical or other services to enable SBMFM to
supplement its own research and analysis with the views and information of
other
securities firms. The Fund may, from time to time, in accordance with an
exemptive order granted by the SEC, enter into principal transactions involving
certain money market instruments with Smith Barney and certain Smith
Barney
affiliated dealers.
The Fund cannot accurately predict its portfolio turnover rate, but
anticipates that its annual turnover will not exceed 50%. An annual turnover
rate of 50% would occur if half of the securities held by the Fund are replaced
once during a period of one year. SBMFM will not consider turnover rate a
limiting factor in making investment decisions consistent with the Fund's
investment objective and policies.
22
<PAGE>
- -----------------------------------------------------------------------------
Valuation of Shares
- ----------------------------------------------------------------------------
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE on each day that the NYSE is open, by dividing
the
value of the Fund's net assets attributable to each Class by the total number
of shares of the Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined by or under the
direction of the Trust's Board of Trustees. Portfolio securities that are
primarily traded on foreign exchanges are generally valued at the preceding
closing values of such securities on their respective exchanges, except that
when an occurrence subsequent to the time a value was so established is
likely to have changed such value, then the fair market value of those
securities will be determined by consideration of other factors by or under
the direction of the Trustees or its delegates. A security that is traded
primarily on a domestic or foreign stock exchange is valued at the last sale
price on that exchange or, if there were no sales during the day, at the
current quoted bid price. Debt securities (other than U.S. government
securities and short-term obligations) are valued by SBMFM
after consultation with independent pricing services approved by the Trustees.
Investments in U.S. government securities (other than short-term securities)
are valued at the average of the quoted bid and asked prices in the
over-the-counter market. Short-term investments that mature in 60 days or
less are valued at amortized cost (which involves valuing an investment
instrument at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the instrument) whenever the Trustees
determine that amortized cost reflects fair value of those investments.
An option written by the Fund is generally valued at the last sale price or,
in the absence of the last sale price, the last offer price. An option
purchased by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. Short sales of
securities, which are not traded on a national securities
exchange, are valued at the last asked price. Alternatively, long positions are
valued at the last bid price. The value of a futures contract equals the
unrealized gain or loss on the contract that is determined by marking the
contract to the current settlement price for a like contract on the valuation
date of the futures contract. A settlement price may not be used if the market
makes a limit move with respect to a particular futures contract or if the
securities underlying the futures contract experience significant price
fluctuations after the determination of the settlement price. In such event,
the futures contract will be valued at a fair market price as determined by
or under the direction of the Board of Trustees. Further information
regarding the Fund's valuation policies is contained in the Statement of
Additional Information.
23
<PAGE>
- ----------------------------------------------------------------------------
Dividends, Distributions, and Taxes
- ----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute its net investment income (that is, its
income other than its net realized capital gains) quarterly, and to declare and
pay its net realized capital gains, if any, once a year, normally at the end of
the year in which earned or at the beginning of the next year.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an
additional
distribution shortly before December 31 in each year of any undistributed
ordinary income or capital gains and expects to pay any other dividends and
distributions necessary to avoid the application of this tax.
The per share dividends on Class B and Class C shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally
as
a result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower
than
the per share dividends on Class Y shares principally as a result of the
service
fee applicable to Class A shares. Distributions of capital gains, if any, will
be in the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
Federal income tax purposes, the amount of its net investment income and
capital
gains earned will be determined without regard to the earnings on distributions
of the other funds of the Trust. The Trust intends for the Fund to qualify each
year as a regulated investment company under the Code. Dividends paid from
the
Fund's net investment income and distributions of the Fund's net realized
short-term capital gains are taxable to shareholders (other than IRAs,
self-employed retirement plans and other tax-exempt investors) as ordinary
income, regardless of how long shareholders have held their Fund shares and
whether the dividends or distributions are received in cash or reinvested in
additional Fund shares. Distributions of the Fund's net realized long-term
capital gains will be taxable to shareholders as long-term capital gains,
regardless of how long shareholders have held Fund shares and whether the
distributions are received in cash or reinvested in additional Fund shares. In
addition, as a general rule, a shareholder's gain or loss on a sale or
redemption of shares of the Fund will be a long-term capital gain or loss if
the shareholder has held the shares for more than one year and will be a
short-term capital gain or loss if the shareholder has held the shares for
one year or less. Some of the Fund's dividends declared from net investment
income may qualify for the Federal dividends-received deduction for
corporations.
24
<PAGE>
- -----------------------------------------------------------------------------
Dividends, Distributions, and Taxes (continued)
- ----------------------------------------------------------------------------
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of such taxes will
reduce the amount of dividends and distributions paid to the Fund's
shareholders. If (a) the Fund qualifies as a regulated investment company, (b)
certain distribution requirements are satisfied and (c) more than 50% of the
value of the Fund's assets at the close of the taxable year consist of
securities of foreign corporations, the Trust may elect, for Federal income tax
purposes, to treat foreign income taxes paid by the Fund that can be treated as
income taxes under Federal income tax principles as paid by the Fund's
shareholders. The Fund may qualify for, and the Trust may make, this election
in
some, but not necessarily all, of the Fund's taxable years. If the Trust were
to make an election, an amount equal to the foreign income taxes paid by the
Fund would be included in the income of its shareholders and the
shareholders would be entitled to credit their portions of this amount
against their Federal tax liabilities, if any, or to deduct such portions
from their Federal taxable income, if any. Shortly after any year for which
the Trust makes such an
election, the Trust will report to the Fund's shareholders, in writing, the
amount per share of such foreign tax that must be included in each
shareholder's
gross income and the amount that will be available for deduction or credit. No
deduction for foreign taxes may be claimed by a shareholder who does not
itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder also will receive, if
appropriate, various written notices after the close of the Fund's prior
taxable year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior
taxable
year. Shareholders should consult their tax advisors about the status of the
Fund's dividends and distributions for Federal, state and local tax
liabilities.
- -----------------------------------------------------------------------------
Purchase of Shares
- ----------------------------------------------------------------------------
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but with higher ongoing expenses and a CDSC
payable upon certain redemptions. Class Y shares are sold without an initial
sales charge or CDSC, and are available only to investors investing a minimum
of
$5,000,000 (except for purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum purchase amount). See
"Prospectus Summary - Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.
25
<PAGE>
- ----------------------------------------------------------------------------
Purchase of Shares (continued)
- ----------------------------------------------------------------------------
Purchases of shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the
selling
group, except for investors purchasing shares of the Fund through a qualified
retirement plan who may do so directly through First Data. When purchasing
shares of the Fund, investors must specify whether the purchase is for Class A,
Class B, Class C or Class Y shares. Smith Barney and other broker/dealers may
charge their customers an annual account maintenance fee in connection with a
brokerage account through which an investor purchases or holds shares.
Accounts
held directly at First Data are not subject to a maintenance fee.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or $250
for an
IRA or a self-employed retirement plan, in the Fund. Investors in Class Y
shares
may open an account by making an initial investment of $5,000,000.
Subsequent
investments of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and
Class
C shares and the subsequent investment requirement for all Classes in the Fund
is $25. For shareholders purchasing shares of the Fund through the Systematic
Investment Plan, on a monthly basis the minimum initial investment
requirement
for Class A, Class B and Class C shares and the subsequent investment
requirement for all Classes is $25. For shareholders purchasing shares of the
Fund through the Systematic Investment Plan on a quarterly basis, the
minimum
initial investment requirement for Class A, Class B, and Class Cshares and the
subsequent investment requirement for all Classes if $50. There are no
minimum
investment requirements for Class A shares, for employees of Travelers and its
subsidiaries, including Smith Barney or Trustees of the Trust and their spouses
and children. The Fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the shareholder's account
by
the Trust's transfer agent, First Data. Share certificates are issued only upon
a shareholder's written request to First Data.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day on which the Fund calculates its net
asset value, are priced according to the net asset value determined on that
day.
Orders received by dealers or Introducing Brokers, prior to the close of
regular trading on the NYSE on any day the Fund calculates its net asset
value, are priced according to the net asset value determined on that day,
provided the order is received by the Fund or Smith Barney prior to Smith
Barney's close of business (the "trade date"). For shares
purchased through Smith Barney or
Introducing Brokers purchasing through Smith Barney, payment for Fund
shares is due on the third business day after the trade date. In all other
cases, payment must be made with the purchase order.
26
<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, Smith Barney or First Data is authorized through
preauthorized transfers of at least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the regular bank account or other financial
institution indicated by the shareholder on a monthly or quarterly basis to
provide systematic additions to the shareholder's Fund account. A shareholder
who has insufficient funds to complete the transfer will be charged a fee of up
to $25 by Smith Barney or First Data. The Systematic Investment Plan also
authorizes Smith Barney to apply cash held in the shareholder's Smith Barney
brokerage account or redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional information is
available from the Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE - CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
Sales Charge as Sales Charge as Dealers
% of % of Amount Reallowance as
Amount of Investment Offering Price Invested % of Offering Price
- -----------------------------------------------------------------------------
Less than $25,000 5.00% 5.26% 4.50%
$25,000-$49,999 4.00 4.17 3.60
$50,000-$99,999 3.50 3.63 3.15
$100,000-$249,999 3.00 3.09 2.70
$250,000-$499,999 2.00 2.04 1.80
$500,000 and more * * *
========================================================
========================
* Purchases of Class A shares of $500,000 or more will be made at net asset
value without any initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The CDSC on
Class A
shares is payable to Smith Barney, which compensates Smith Barney
Financial
Consultants and other dealers whose clients make purchases of $500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class C shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Fund made at one time by "any person," which
includes
an individual and his or her immediate family, or a trustee or other fiduciary
of a single trust estate or single fiduciary account.
27
<PAGE>
- ----------------------------------------------------------------------------
Purchase of Shares (continued)
- ---------------------------------------------------------------------------
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries and any of the Smith Barney Mutual
Funds (including retired Board Members and employees); the immediate
families of
such persons (including the surviving spouse of a deceased Board Member or
employee); 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) offers of Class A
shares to any other investment company to effect the combination of such
company
with the Fund by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Smith Barney Financial
Consultant (for a period up to 90 days from the commencement of the Financial
Consultant's employment with Smith Barney), on the condition the purchase of
Class A shares is made with the proceeds of the redemption of shares of a
mutual
fund which (i) was sponsored by the Financial Consultant's prior employer, (ii)
was sold to the client by the Financial Consultant and (iii) was subject to a
sales charge; (d) purchases by shareholders who have redeemed Class A shares
in
the Fund (or Class A shares of another fund of the Smith Barney Mutual Funds
that are offered with a sales charge) and who wish to reinvest their redemption
proceeds in the Fund provided the reinvestment is made within 60 calendar
days
of the redemption; (e) purchases by accounts managed by registered investment
advisory subsidiaries of Travelers; (f) direct rollovers by plan participants
of distributions from a 401(k) plan offered to employees of Travelers or its
subsidiaries or a 401(k)plan enrolled in the Smith Barney 401(k) Program
(Note:subsequent investments will be subject to the applicable sales charge);
(g) purchases by separate accounts used to fund certain unregistered variable
annuity contracts; and (h) purchases by investors participating in a Smith
Barney fee-based arrangement. In order to obtain such discounts, the purchaser
must provide sufficient information at the time of purchase to permit
verification that the purchaser would qualify for the elimination of the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and the total net asset
value of all Class A shares of the Fund and of funds sponsored by
Smith Barney that are offered with a sales charge listed under
"Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit
28
<PAGE>
- -----------------------------------------------------------------------------
Purchase of Shares (continued)
- -----------------------------------------------------------------------------
verification that the purchase qualifies for the reduced sales charge.
The right of accumulation is subject to modification or discontinuance at
any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes
the
minimum initial investment required. The sales charge applicable to purchases
by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative - Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds
offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan must be
open
to specified partners or employees of the employer and its subsidiaries, if
any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the
Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales related expenses. An individual who is a
member of a qualified group may also purchase Class A shares of the Fund at
the
reduced sales charge applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available
to
arrange for group meetings between representatives of the Fund and the
members,
and must agree to include sales and other materials related to the Fund in its
publications and mailing to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
29
<PAGE>
- ----------------------------------------------------------------------------
Purchase of Shares (continued)
- ----------------------------------------------------------------------------
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Fund and other funds of the Smith
Barney
Mutual Funds offered with a sales charge over the 13 month period based on
the
total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13
month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales
charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or First Data to obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may also be used as a way for investors
to meet the minimum investment requirement for Class Y shares. Such
investors
must make an initial minimum purchase of $1,000,000 of Class Y shares of the
Fund and agree to purchase a total of $5,000,000 of Class Y shares of the same
Fund within six months from the date of the Letter. If a total investment of
$5,000,000 is not made within the six-month period, all Class Y shares
purchased
to date will be transferred to Class A shares, where they will be subject to
all fees (including a service fee of 0.25%) and expenses applicable to the
Fund's Class A shares, which may include a CDSC of 1.00%. The Fund expects that
such
transfer will not be subject to Federal income taxes. Please contact a Smith
Barney Financial Consultant or First Data for further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, may be imposed
on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares that were purchased without an initial
sales charge but subject to a CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a
CDSC
to the extent that the value of such shares represents: (a) capital
appreciation of Fund assets; (b) reinvestment of dividends or capital gain
distributions; (c)
with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
30
<PAGE>
- ----------------------------------------------------------------------------
Purchase of Shares (continued)
- ----------------------------------------------------------------------------
Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in
which
the CDSC is imposed on Class B shares, the amount of the charge will depend
on
the number of years since the shareholder made the purchase payment from
which
the amount is being redeemed. Solely for purposes of determining the number
of
years since a purchase payment, all purchase payments made during a month
will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
Class B shares held under the Smith Barney 401(k) Program, as described
below.
See "Purchase of Shares - Smith Barney 401(k) and Exec Choice(TM)
Programs."
Year Since Purchase
Payment was Made CDSC
========================================================
========================
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
========================================================
========================
Class B shares automatically will convert to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There also will be converted at that time
such proportion of Class B Dividend Shares owned by the shareholder as the
total number of his or her Class B shares converting at the time bears to
the total number of outstanding Class B shares (other than Class B Dividend
Shares) owned by the shareholder. See "Prospectus Summary - Alternative
Purchase Arrangements
- - Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have
been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares
being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
For Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired five
additional shares through dividend reinvestment. During the 15th month after
the
purchase, the investor decided to redeem $500 of the investment. Assuming at
the
time of the redemption the net asset value had appreciated to $12 per share,
the
value of the investor's shares would be $1,260 (105 shares at $12 per share).
The
31
<PAGE>
- ----------------------------------------------------------------------------
Purchase of Shares (continued)
- ----------------------------------------------------------------------------
CDSC would not be applied to the amount which represents appreciation
($200) and
the value of the reinvested dividend shares ($60). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged at a rate of 4.00%
(the
applicable rate for Class B shares) for a total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1% per month of
the
value of the shareholder's shares at the time the withdrawal plan commences
(see
"Automatic Cash Withdrawal Plan") provided, however, that automatic cash
withdrawals in amounts equal to or less than 2% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994; (c) redemptions of shares within 12
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 591/2; (e) involuntary redemptions; and (f)
redemptions of shares 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 Smith Barney in
the case of shareholders who are also Smith Barney clients or by First Data in
the case of all other shareholders) of the shareholder's status or holdings, as
the case may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable, the
same
terms and conditions, which are outlined below, are offered to all plans
participating ("Participating Plans") in these programs.
The Fund offers to Participating Plans Class A and Class C shares as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM)
Programs. Class A and Class C shares acquired through the Participating Plans
are subject to the same service and/or distribution fees as the Class A and
Class C shares acquired by other investors; however, they are not subject to
any initial sales charge or CDSC. Once a Participating Plan has made an initial
investment in the Fund, all of its subsequent investments in the Fund must be
in
the same Class of shares, except as otherwise described below.
32
<PAGE>
- -----------------------------------------------------------------------------
Purchase of Shares (continued)
- -----------------------------------------------------------------------------
Class A Shares. Class A shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith Barney Mutual Funds.
Class C Shares. Class C shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000
of
Class C shares of one or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. If, at
the end of the fifth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program,
a
Participating Plan's total Class C holdings in all non-money market Smith
Barney
Mutual Funds equal at least $1,000,000, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares of the
Fund. (For Participating Plans that were originally established through a Smith
Barney retail brokerage account, the five year period will be calculated from
the date the retail brokerage account was opened.) Such Participating Plans
will be notified of the pending exchange in writing within 30 days after the
fifth anniversary of the enrollment date and, unless the exchange offer has
been rejected in writing, the exchange will occur on or about the 90th day
after the fifth anniversary date. If the Participating Plan does not qualify
for the five year exchange to Class A shares, a review of the Participating
Plan's holdings will be performed each quarter until either the
Participating Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal
at
least $500,000 as of the calendar year-end, the Participating Plan will be
offered the opportunity to exchange all of its Class C shares for Class A
shares of the Fund. Such Plans will be notified in writing within 30 days
after the
last business day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) or ExecChoice(TM)
Program, whether opened before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be offered the opportunity
to exchange all of its Class C shares for Class A shares of the Fund
regardless of asset size, at the end of the eighth year after the date the
Participating Plan enrolled in the Smith Barney 401(k) or ExecChoice(TM)
Program. Such Plans will be notified of the pending exchange in writing
approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be eligible
to acquire additional Class C shares of the
33
<PAGE>
- ----------------------------------------------------------------------------
Purchase of Shares (continued)
- ----------------------------------------------------------------------------
Fund but instead may acquire Class A shares of the Fund. Any Class C shares
not
converted will continue to be subject to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must
purchase
such shares directly from First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Fund are not available for purchase by Participating Plans opened on or after
June 21, 1996, but may continue to be purchased by any Participating Plan in
the
Smith Barney 401(k) Program opened prior to such date and originally
investing
in such Class. Class B shares acquired are subject to a CDSC of 3.00% of
redemption proceeds, if the Participating Plan terminates within eight years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program.
At the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program, the Participating Plan will be
offered the opportunity to exchange all of its Class B shares for Class A
shares
of the Fund. Such Participating Plan will be notified of the pending exchange
in
writing approximately 60 days before the eighth anniversary of the enrollment
date and, unless the exchange has been rejected in writing, the exchange will
occur on or about the eighth anniversary date. Once the exchange has occurred,
a
Participating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the
Participating Plan elects not to exchange all of its Class B shares at that
time, each Class B share held by the Participating Plan will have the same
conversion feature as Class B shares held by other investors. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases in the net
asset value of the shareholder's Class B shares above the purchase payments
made during the preceding eight years. Whether or not the CDSC applies to the
redemption by a Participating Plan depends on the number of years since the
Participating Plan first became enrolled in the Smith Barney 401(k) Program,
unlike the applicability of the CDSC to redemptions by other shareholders,
which depends on the number of years since those shareholders made the
purchase payment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection
with
lump-sum or other distributions made by a Participating Plan as a result of:
(a)
the retirement of an employee in the Participating Plan; (b) the termination of
employment of an employee in the Participating Plan; (c) the death or
disability
34
<PAGE>
- -----------------------------------------------------------------------------
Purchase of Shares (continued)
----------------------------------------------------------------------------
of an employee in the Participating Plan; (d) the attainment of age 591 1/42 by
an employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan made by the Participating
Plan to an employee.
- ------------------------------------------------------------------------------
Exchange Privilege
- ------------------------------------------------------------------------------
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following funds of the Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence. Exchanges of Class A,
Class B and Class C shares are subject to minimum investment requirements
and
all shares are subject to the other requirements of the fund into which
exchanges are made.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
* Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++ Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
35
<PAGE>
- ----------------------------------------------------------------------------
Exchange Privilege (continued)
- ----------------------------------------------------------------------------
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
** Smith Barney Intermediate Maturity California Municipals Fund
** Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
** Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Allocation Series, Inc.
Smith Barney Concert Allocation Series, Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series, Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series, Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series, Inc. -- High Growth Portfolio
Smith Barney Concert Allocation Series, Inc. -- Income Portfolio
36
<PAGE>
- -----------------------------------------------------------------------------
Exchange Privilege (continued)
- ----------------------------------------------------------------------------
Money Market Funds
++ Smith Barney Exchange Reserve Fund
+++ Smith Barney Money Funds, Inc.--Cash Portfolio
+++ Smith Barney Money Funds, Inc.--Government Portfolio
*** Smith Barney Money Funds, Inc.--Retirement Portfolio
+ Smith Barney Municipal Money Market Fund, Inc.
+ Smith Barney Muni Funds--California Money Market Portfolio
+ Smith Barney Muni Funds--New York Money Market Portfolio
========================================================
========================
* Available for exchange with Class A and Class B shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the
Smith
Barney 401(k) Program may exchange those shares for Class C shares of
this
fund.
** Available for exchange with Class A, Class C and Class Y shares of the
Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class A and Class Y shares of the Fund.
++ Available for exchange with Class B and Class C shares of the Fund.
+++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class C shares may exchange Fund shares for Class C shares of this
fund.
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.
Class C Exchanges. Upon an exchange, the new Class C shares will be
deemed
to have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y shareholders of the
Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. SBMFM 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, SBMFM will
notify Smith Barney, and the Fund may, at its discretion, decide to limit
additional purchases and/or exchanges by a shareholder. Upon such a
determination, the Fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to
37
<PAGE>
- ----------------------------------------------------------------------------
Exchange Privilege (continued)
- ----------------------------------------------------------------------------
suspending the exchange privilege and during the 15 day period the
shareholder
will be required to (a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds of the Smith Barney
Mutual Funds ordinarily available, which position the shareholder would
expect
to maintain for a significant period of time. All relevant factors will be
considered in determining what constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares -- Telephone Redemption and Exchange Program."
Exchanges
will be processed at the net asset value next determined. Redemption
procedures
discussed below are also applicable for exchanging shares, and exchanges will
be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
- ----------------------------------------------------------------------------
Redemption of Shares
- ----------------------------------------------------------------------------
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close
of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The
redemption
proceeds will be remitted on or before the third business day following receipt
of proper tender, except on any days on which the NYSE is closed or as
permitted
under the 1940 Act in extraordinary circumstances. Generally, if the
redemption
proceeds are remitted to a Smith Barney brokerage account, these funds will
not
be invested for the shareholder's benefit without specific instruction and
Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.
38
<PAGE>
- ------------------------------------------------------------------------------
Redemption of Shares (continued)
- ------------------------------------------------------------------------------
Shares held by Smith Barney as custodian must be redeemed by submitting
a
written request to a Smith Barney Financial Consultant. Shares other than
those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Growth and Income Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are
registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power)
and
must be submitted to First Data together with the redemption request. Any
signature appearing on a share certificate, stock power or written redemption
request in excess of $2,000 must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $2,000 or less do
not require a signature guarantee unless more than one such redemption
request
is made in any 10-day period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request will not
be deemed properly received until First Data receives all required documents in
proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived
on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value
of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not
exceed
2.00% per month of the value of
39
<PAGE>
- ----------------------------------------------------------------------------
Redemption of Shares (continued)
- ----------------------------------------------------------------------------
the shareholder's shares subject to the CDSC.) For further information
regarding
the automatic cash withdrawal plan, shareholders should contact a Smith
Barney
Financial Consultant.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should
contact
First Data at 1-800-331-1710. Once eligibility is confirmed, the shareholder
must complete and return a Telephone/Wire Authorization Form, along with a
signature guarantee that will be provided by First Data upon request.
(Alternatively, an investor may authorize telephone redemption on the new
account application with the applicant's signature guarantee when making
his/her
initial investment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any class or classes
of the Fund's shares may be made by eligible shareholders by calling First Data
at 1-800-331-1710. Such requests may be made between 9:00 a.m. and 5:00
p.m.
(New York City time) on any day the NYSE is open. Redemption requests
received
after the close of regular trading on the NYSE are priced at the net asset
value
next determined. Redemptions of shares (i) by retirement plans or (ii) for
which
certificates have been issued are not permitted under this program.
A shareholder will have the option of having the redemption proceeds
mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case
may be, on the next business day following the redemption request. In order to
use the wire procedures, the bank receiving the proceeds must be a member of
the
Federal Reserve System or have a correspondent relationship with a member
bank.
The Fund reserves the right to charge shareholders a nominal fee for each wire
redemption. Such charges, if any, will be assessed against the shareholder's
account from which shares were redeemed. In order to change the bank account
designated to receive redemption proceeds, a shareholder must complete a new
Telephone/Wire Authorization Form and, for the protection of the shareholder's
assets, will be required to provide a signature guarantee and certain other
documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests
may
be made by calling First Data at 1-800-331-1710 between 9:00 a.m. and 5:00
p.m.
(New York City time) on any day on which the NYSE is open. Exchange
requests
received after the close of regular trading on the NYSE are processed at the
net
asset value next determined.
40
<PAGE>
- ------------------------------------------------------------------------------
Redemption of Shares (continued)
- -----------------------------------------------------------------------------
Additional Information regarding Telephone Redemption and Exchange
Program.
Neither the Fund nor its agents will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. The
Fund
and its agents will employ procedures designed to verify the identity of the
caller and legitimacy of instructions (for example, a shareholder's name and
account number will be required and phone calls may be recorded). The Fund
reserves the right to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service at any time
following at least seven (7) days' prior notice to shareholders.
- -----------------------------------------------------------------------------
Minimum Account Size
- -----------------------------------------------------------------------------
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size). The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
- ------------------------------------------------------------------------------
Performance
- ------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum
sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gains distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested
and subtracting 100%. The standard average annual total return, as prescribed
by
the SEC, is derived from this total return, which provides the ending
redeemable
value. Such standard total return information may also be accompanied by
nonstandard total return information for differing periods computed in the
same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and
41
<PAGE>
- -----------------------------------------------------------------------------
Performance (continued)
- -------------------------------------------------------------------------------
dividing by the net asset value or the maximum public offering price (including
sales charge) on the last day of the period for which current dividend return
is presented. The current dividend return for each Class may vary from time to
time
depending on market conditions, the composition of its investment portfolio
and
operating expenses. These factors and possible differences in the methods used
in calculating current dividend return should be considered when comparing a
Class' current return to yields published for other investment companies and
other investment vehicles. The Fund may also include comparative
performance
information in advertising or marketing its shares. Such performance
information
may include data from Lipper Analytical Services, Inc. and other financial
publications.
- -----------------------------------------------------------------------------
Management of the Trust and the Fund
- -----------------------------------------------------------------------------
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Fund rests
with the Trust's Board of Trustees. The Trustees approve all significant
agreements between the Trust and the companies that furnish services to the
Fund, including agreements with the Trust's distributor, custodian and transfer
agent and the Fund's investment adviser and administrator. The day-to-day
operations of the Fund are delegated to the Fund's investment adviser and
administrator. The Statement of Additional Information contains background
information regarding each Trustee of the Trust and the executive officers of
the Fund.
INVESTMENT ADVISER -- SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013,
serves as
the Fund's investment adviser pursuant to a transfer of the investment advisory
agreement effective November 7, 1994, from its affiliate, Mutual Management
Corp., also a wholly owned subsidiary of Holdings. SBMFM renders
investment
advice to investment companies that had aggregate assets under management
as of
January 31, 1997 in excess of $80 billion.
Subject to the supervision and direction of the Trust's Board of Trustees,
SBMFM manages the Fund's portfolio in accordance with the Fund's
investment
objective and policies and makes investment decisions for the Fund, places
orders to purchase and sell securities and employs professional portfolio
managers and securities analysts who provide research services to the Fund.
For
investment advisory services rendered, the Fund pays SBMFM a fee at the
annual
rate of .45% of the value of the Fund's average daily net assets.
42
<PAGE>
- -----------------------------------------------------------------------------
Management of the Trust and the Fund (continued)
- -----------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
R. Jay Gerken, Managing Director of Smith Barney, has served as
Investment
Officer of the Fund since it commenced operations and manages the day-to-day
operations of the Fund, including making all investment decisions.
Management's discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended January 31, 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.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of
the Fund's administration. For administration services rendered, the Fund pays
SBMFM a fee at an annual rate of .20% of the value of the Fund's average daily
net assets.
- ----------------------------------------------------------------------------
Distributor
- ----------------------------------------------------------------------------
Smith Barney is located at 388 Greenwich Street, New York, New York
10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A, Class B and Class C shares of the Fund at the annual rate
of
0.25% of the value of the average daily net assets of the respective Class.
Smith Barney is also paid an annual distribution fee with respect to Class B
and Class C shares at the annual rate of 0.50% of the value of the average
daily netassets attributable to those Classes. Class B shares which
automatically convert to Class A shares eight years after the date of
original purchase will no longer be subject to distribution fees. The fees
are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses; the
cost
of printing and mailing prospectuses to potential investors; payments to and
expenses of Smith Barney Financial Consultants and other persons who provide
support services in connection with the distribution of shares; interest and/or
carrying charges; and indirect and overhead costs of Smith Barney associated
with the sale of Fund shares, including lease, utility, communications and sale
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
43
<PAGE>
- ----------------------------------------------------------------------------
Distributor (continued)
- ----------------------------------------------------------------------------
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may
receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the
payments
may exceed distribution expenses actually incurred. The Trust's Board of
Trustees will evaluate the appropriateness of the Plan and its payment terms on
a continuing basis and in so doing will consider all relevant factors,
including expenses borne by Smith Barney, amounts received under the Plan and
proceeds of
the CDSC.
- -----------------------------------------------------------------------------
Additional Information
- -----------------------------------------------------------------------------
The Trust was organized on January 8, 1986 under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as
a
"Massachusetts business trust." The Trust offers shares of beneficial interest
of separate funds with a par value of $.001 per share. The Fund offers
shares of beneficial interest currently classified into four Classes - A, B,
C and Y. Each
Class represents an identical interest in the Fund's investment portfolio. As a
result, the Classes have the same rights, privileges and preferences, except
with respect to: (a) the designation of each Class; (b) the effect of the
respective sales charges, if any, for each Class; (c) the distribution and/or
service fees borne by each Class; (d) the expenses allocable exclusively to
each Class; (e) voting rights on matters exclusively affecting a single
Class; (f)
the exchange privilege of each Class; and (g) the conversion feature of the
Class B shares. The Trust's Board of Trustees does not anticipate that there
will be any conflicts among the interests of the holders of the different
Classes. The Trustees, on an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will
be
no meeting of shareholders for the purpose of electing Trustees unless and
until
such time as less than a majority of the Trustees holding office have been
elected by shareholders. The Trustees will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Trust's outstanding
shares and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. Shareholders of record owning no less than two-
thirds
of the outstanding shares of the Trust may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting
called
for that purpose.
When matters are submitted for shareholder vote, shareholders of each Class
44
<PAGE>
- -----------------------------------------------------------------------------
Additional Information (continued)
- ----------------------------------------------------------------------------
will have one vote for each full share owned and a proportionate, fractional
vote for any fractional share held of that Class. Generally, shares of the
Trust
vote by individual fund on all matters except (a) matters affecting only the
interests of one or more of the funds, in which case only shares of the
affected
fund or funds would be entitled to vote or (b) when the 1940 Act requires that
shares of the funds be voted in the aggregate. Similarly, shares of the Fund
will be voted generally on a Fund-wide basis except for matters affecting the
interests of one Class of shares.
PNC is located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, and serves as custodian of the Fund's investments.
First Data is located at PO Box 5128 Westborough, MA 01581-5128, and
serves
as the Trust's transfer agent.
The Trust sends shareholders of the Fund a semi-annual report and an
audited annual report, which include listings of the investment securities held
by the Fund at the end of the reporting period. In an effort to reduce the
Fund's printing and mailing costs, the Trust plans to consolidate the mailing
of
its semi-annual and annual reports by household. This consolidation means that
a
household having multiple accounts with the identical address of record will
receive a single copy of each report. Shareholders who do not want this
consolidation to apply to their accounts should contact a Smith Barney
Financial
Consultant or First Data.
45
<PAGE>
SMITH BARNEY
A Member of Travelers Group[LOGO]
Smith Barney
Growth and
Income
Fund
388 Greenwich Street
New York, New York 10013
FD 0250 5/97
CONCERT SOCIAL AWARENESS FUND (THE "FUND")
A SERIES OF SMITH BARNEY EQUITY FUNDS (THE "TRUST")
Amendment dated May 31, 1997 to Prospectus dated February 24, 1997
The following information amends the information contained in the Fund's
prospectus dated February 24, 1997 (the "Prospectus").
------------------------
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:
<TABLE>
<CAPTION>
CONCERT SOCIAL AWARENESS FUND CLASS A CLASS B
CLASS C CLASS Y
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None None
Maximum CDSC (as a percentage of redemption
proceeds, whichever is lower) None* 5.00% 1.00% None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees 0.75% 0.75% 0.75% 0.75%
12b-1 fees** 0.25 1.00 1.00 None
Other expenses 0.28 0.28 0.26 0.15
- -------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.28% 2.03% 2.01%
0.90%
- -------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more 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 of purchase.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee, but will be subject to the
applicable service fee. Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing distribution fee. As a result, long-
term shareholders of Class C shares may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
Class A shares of the Fund purchased through the Smith Barney AssetOne
Program will be subject to an annual asset-based fee, payable quarterly, in
lieu of the initial sales charge. The fee will vary to a maximum of 1.50%,
depending on the amount of assets held through the Program. For more
information, please call your Smith Barney Financial Consultant.
<PAGE>
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" in the Prospectus.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption
at the end of each time period:
Class A................................. $62 $89 $117 $197
Class B................................. 71 94 119 217
Class C................................. 31 63 108 234
Class Y................................. 9 29 50 111
An investor would pay the following ex-
penses on the same investment, assuming
the same annual return and no redemption:
Class A................................. $62 $89 $117 $197
Class B................................. 21 64 109 217
Class C................................. 20 63 108 234
Class Y................................. 9 29 50 111
- ------------------------------------------------------------------------------
</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 fa-
cilitate such comparison, all funds are required to utilize a 5.00% annual re-
turn 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 CONSID-
ERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the two years ended January 31, 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 information
for
the 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 YEAR:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994(1) 1993(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $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
- -------------------------------------------------------------------------------
Total Income (Loss) From Opera-
tions 2.28 4.13 (0.68) 2.89 1.01
- -------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------
Total Distributions (1.92) (1.04) (1.13) (2.02) (0.96)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $19.36 $19.00 $15.91 $17.72
$16.85
- -------------------------------------------------------------------------------
TOTAL RETURN+++ 12.41% 26.47% (3.82)% 17.80%
6.12%+++
- -------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS) $178 $175 $159 $6
$0.6
- -------------------------------------------------------------------------------
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+
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 68% 81% 103% 131%
93%
- -------------------------------------------------------------------------------
AVERAGE COMMISSIONS PAID ON
EQUITY SECURITY TRANSACTIONS(3) $0.06 $0.06 -- -- --
- -------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for this pe-
riod 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 dis-
closure of average commissions per share.
++ Total return represents the aggregate total return for the period indicated
and does not reflect any applicable sales charge.
+++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
3
<PAGE>
FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
1997 1996 1995 1994(1) 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $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 YEAR $19.42 $19.05 $15.97 $17.79 $16.84
- ------------------------------------------------------------------------------
TOTAL RETURN+++ 11.60% 25.58% (4.54%) 16.88%
9.68%
- ------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (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 -- -- --
- ------------------------------------------------------------------------------
</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 dis-
closure of average commissions per share.
++ Total return represents the aggregate total return for the period indi-
cated and does not reflect any applicable sales charge.
+ Annualized.
+++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
4
<PAGE>
<TABLE>
<CAPTION>
1992(2) 1991 1990 1989 1988
- ----------------------------------------------------------------------------
- -----
<S> <C> <C> <C> <C>
$15.61 $15.57 $15.03 $13.62 $14.00
- ---------------------------------------------------------------------------
- -----
0.52 0.54 0.53 0.52 0.36
2.56 0.47 1.10 1.48 (0.44)
- ----------------------------------------------------------------------------
- -----
3.08 1.01 1.63 2.00 (0.08)
- ----------------------------------------------------------------------------
- -----
(0.55) (0.51) (0.69) (0.48) (0.23)
(0.88) (0.46) (0.38) (0.11) (0.07)
-- -- (0.02) -- --
- -------------------------------------------------------------------------
- -----
(1.43) ( 0.97) (1.09) (0.59) (0.30)
- --------------------------------------------------------------------------
- -----
$17.26 $15.61 $15.57 $15.03 $13.62
- --------------------------------------------------------------------------
- -----
19.96%
6.80% 10.76% 15.10%
(0.57%)+++
- -----------------------------------------------------------------------------
- -----
$234 $197 $206 $147
$151
--------------------------------------------------------------------------
- -----
2.06% 2.09% 2.24% 2.29%
2.14%+
3.02 3.43 3.46 3.59 2.83+
- ----------------------------------------------------------------------
- -----
76% 56% 61% 42% 56%
- --------------------------------------------------------------------------
- -----
-- -- -- -- --
- ---------------------------------------------------------------------------
- -----
</TABLE>
5
<PAGE>
FOR A CLASS C SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995(1) 1994(2)(3)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $19.08 $15.97 $17.79 $17.54
- ------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.44 0.45 0.38 0.32
Net realized and unrealized gain (loss) 1.71 3.60 (1.19) 1.67
- ------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.15 4.05 (0.81) 1.99
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.45) (0.42) (0.35) (0.28)
Net realized gains (1.32) (0.52) (0.66) (1.46)
- ------------------------------------------------------------------------------
Total Distributions (1.77) (0.94) (1.01) (1.74)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $19.46 $19.08 $15.97
$17.79
- ------------------------------------------------------------------------------
TOTAL RETURN+++ 11.65% 25.77% (4.54)%
11.83%+++
- ------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $4,000 $3,396 $1,972 $399
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.01% 1.94% 1.98% 1.93%+
Net investment income 2.25 2.31 2.24 2.16+
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 68% 81% 103%
131%
- ------------------------------------------------------------------------------
AVERAGE COMMISSIONS PAID ON
EQUITY SECURITY TRANSACTIONS(4) $ 0.06 $ 0.06 -- --
- ------------------------------------------------------------------------------
</TABLE>
(1) On November 7, 1994, the former Class D shares were renamed Class C
shares.
(2) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents per share data for this period
since use of the undistributed net investment income method does not accord
with results of operations.
(3) For the period from May 5, 1993 (inception date) to January 31, 1994.
(4) As of September 1995, the SEC instituted new guidelines requiring the dis-
closure of average commissions per share.
++ Total return represents the aggregate total return for the period indicated
and does not reflect any applicable sales charge.
+++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
6
<PAGE>
FOR A CLASS Y SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
1997(1)
- ---------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.00
- ---------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.51
Net realized and unrealized gain 1.69
- ---------------------------------------------
Total Income From Operations 2.20
- ---------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.49)
Net realized gains (1.32)
- ---------------------------------------------
Total Distributions (1.81)
- ---------------------------------------------
NET ASSET VALUE, END OF PERIOD $19.39
- ---------------------------------------------
TOTAL RETURN+++ 11.94%
- ---------------------------------------------
NET ASSETS, END OF PERIOD (000S) $143
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses 0.90%
Net investment income 3.31
- ---------------------------------------------
PORTFOLIO TURNOVER RATE 68%
- ---------------------------------------------
AVERAGE COMMISSIONS PER SHARE
PAID ON EQUITY TRANSACTIONS $0.06
- ---------------------------------------------
</TABLE>
(1) For the period from March 28, 1996 (inception date) to January 31, 1997.
+++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
FD 01301
7
Smith Barney
EQUITY FUNDS
388 Greenwich Street
New York, New York 10013
800-451-2010
STATEMENT OF ADDITIONAL INFORMATION May 31, 1997
This Statement of Additional Information expands
upon and supplements the information contained in the
current Prospectuses, dated May 31, 1997, and February
24, 1997, as amended May 31, 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, a
PFS Investments Inc. Registered Representative 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")............................ 20
Taxes (See in each Prospectus "Dividends,
Distributions and Taxes")............ 23
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.(PFS)....................................
...........Co. Distributor of the Social Awareness
Fund
Smith Barney Mutual Funds Management Inc.
("SBMFM").............................................
...............Investment Adviser and Administrator of
Growth and
Income Fund and Administrator of Social
Awareness Fund
Smith Barney Strategy Advisers Inc.
("Strategy
Advisers")............................................
..Investment Adviser of Social Awareness Fund
PNC Bank, National Association
("PNC")...............................................
....................Custodian
First Data Investor Services Group, Inc.
("First
Data")................................................
...........Transfer Agent
These organizations and the services they
perform for the Trust and the Funds are discussed in
the Prospectuses and in this Statement of Additional
Information.
Trustees and Executive Officers of The Trust
The names of the Trustees and the executive officers
of the Trust, together with information as to their
principal business occupations, are set forth below.
Each Trustee who is an "interested person" of the
Trust, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), is indicated by
an asterisk.
Lee Abraham, Trustee (Age 67). Retired; formerly
Chairman and Chief Executive Officer of Associated
Merchandising Corporation, a major retail
merchandising and sourcing organization. His address
is 35 Old Forge Road, Wilton, Connecticut 06897.
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 36). 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 40
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.
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 39). 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 46). 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 $52,899.
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
Allan J. Bloostein(15)............................
12,600 83,150
Richard E. Hanson, Jr.(9)......................
12,500 44,550
Madelon Devoe Talley(10)# ................
12,600 45,343
Heath B. McLendon.....................................
N/A N\A
(*) 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.
# Ms. Talley has deferred $6,300 of compensation
from the Trust for the fiscal year ended January 31,
1997.
Upon attainment of age 80 Trustees are required to
change to emeritus status. Trustees Emeritus are
entitled to serve in emeritus status for a maximum of
10 years during which time they are paid 50% of the
annual retainer fee and meeting fees otherwise
applicable to the Funds Trustees together with
reasonable out-of-pocket expenses for each meeting
attended.
Investment Advisers and Administrator
SBMFM 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 Growth and Income Advisory
Agreement was most recently approved on August 31,
1996. 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 written agreements (each an
"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 "Social Awareness 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 in connection with
the performance of its services under its agreement
relating to a Fund.
For the fiscal years ended January 31, 1995,
1996 and 1997, the Funds paid investment advisory
and/or administration fees to their respective
Advisers and the administrator as follows:
Growth and Income
Fund
Fiscal Year
Ended January 31,
1995
1996 1997
Investment Advisory fees...........................
$847,149 $918,110 $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, brokerage, fees paid pursuant to the
Trust's services and distribution plan, and, if
permitted by the relevant state securities
commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction
over the Fund, the Adviser and administrator, to the
extent required by state law, will reduce their fees
to the Fund by the amount of such excess expense, such
amount to be allocated between them in the same
proportion as their respective fees bear to the
combined fees for investment advice and
administration. Such fee reduction, if any, will be
estimated and reconciled on a monthly basis. The most
restrictive state expense limitation currently
applicable to any Fund requires a reduction of fees in
any year that such expenses exceed 2.50% of the Fund's
first $30 million of average net assets, 2.00% of the
next $70 million of average net assets and 1.50% of
the remaining average net assets.
Counsel and Auditors
Willkie Farr & Gallagher LLP, serves as legal
counsel to the Trust. Stroock & Stroock & Lavan LLP
serves as counsel to the Independent Trustees of the
Funds.
KPMG 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 financial 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 that is unaffiliated with the Fund and
that is acting as a "finder."
By lending its securities, a Fund can increase
its income by continuing to receive interest on the
loaned securities as well as by either investing the
cash collateral in short-term instruments or obtaining
yield in the form of interest paid by the borrower
when U.S. government securities are used as
collateral. A Fund will comply with the following
conditions whenever its portfolio securities are
loaned: (a) the Fund must receive at least 100% cash
collateral or equivalent securities from the borrower;
(b) the borrower must increase such collateral
whenever the market value of the securities loaned
rises above the level of such collateral; (c) the Fund
must be able to terminate the loan at any time; (d)
the Fund must receive reasonable interest on the loan,
as well as any dividends, interest or other
distributions on the loaned securities, and any
increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan;
and (f) voting rights on the loaned securities may
pass to the borrower, provided, however, that if a
material event adversely affecting the investment in
the loaned securities occurs, the Trust's Board of
Trustees must terminate the loan and regain the right
to vote the securities. The risks in lending portfolio
securities, as with other extensions of secured
credit, consist of a possible delay in receiving
additional collateral or in the recovery of the
securities or possible loss of rights in the
collateral should the borrower fail financially. Loans
will be made to firms deemed by each Fund's Adviser to
be of good standing and will not be made unless, in
its judgment, the consideration to be earned from such
loans would justify the risk.
Options on Securities. The Funds may write
covered call options and enter into closing
transactions with respect thereto. The principal
reason for writing covered call options on securities
is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on
the securities alone. In return for a premium, the
writer of a covered call option forfeits the right to
any appreciation in the value of the underlying
security above the strike price for the life of the
option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the
risk of a decline in the price of the underlying
security. The size of the premiums a Fund may receive
may be adversely affected as new or existing
institutions, including other investment companies,
engage in or increase their option-writing activities.
Options written by the Funds normally will have
expiration dates between one and nine months from the
date they are written. The exercise price of the
options may be below ("in-the-money"), equal to ("at-
the-money"), or above ("out-of-the-money") the market
values of the underlying securities at the times the
options are written. A Fund may write (a) in-the-money
call options when its Adviser expects that the price
of the underlying security will remain flat or decline
moderately during the option period, (b) at-the-money
call options when its Adviser expects that the price
of the underlying security will remain flat or advance
moderately during the option period and (c) out-of-
the-money call options when its Adviser expects that
the price of the underlying security may increase but
not above a price equal to the sum of the exercise
price plus the premiums received from writing the call
option. In any of the preceding situations, if the
market price of the underlying security declines and
the security is sold at this lower price, the amount
of any realized loss will be offset wholly or in part
by the premium received.
So long as the obligation of a Fund as the
writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer
through which the option was sold requiring the Fund
to deliver the underlying security against payment of
the exercise price. This obligation terminates when
the option expires or the Fund effects a closing
purchase transaction. A Fund can no longer effect a
closing purchase transaction with respect to an option
once it has been assigned an exercise notice. To
secure its obligation to deliver the underlying
security when it writes a call option, a Fund will be
required to deposit in escrow the underlying security
or other assets in accordance with the rules of the
Options Clearing Corporation (the "Clearing
Corporation") and of the domestic securities exchange
on which the option is written.
An option position may be closed out only where
there exists a secondary market for an option of the
same series on a securities exchange or in the over-
the-counter market. Social Awareness Fund expects to
write options only on domestic securities exchanges. A
Fund may realize a profit or loss upon entering into a
closing transaction. In cases in which a Fund has
written an option, it will realize a profit if the
cost of the closing purchase transaction is less than
the premium received upon writing the original option
and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon
writing the original option.
Although Social Awareness Fund generally will
write only those options for which the Fund's Adviser
believes there is an active secondary market so as to
facilitate closing transactions, there is no assurance
that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist
for any particular option or at any particular time,
and for some options no such secondary market may
exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past,
for example, higher than anticipated trading activity
or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the
Clearing Corporation and the domestic securities
exchanges inadequate and resulted in the institution
of special procedures, such as trading rotations,
restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can
be no assurance that similar events, or events that
otherwise may interfere with the timely execution of
customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions
in particular options. If, as a covered call option
writer, a Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able
to sell the underlying security until the option
expires or it delivers the underlying security upon
exercise.
Securities exchanges have established
limitations governing the maximum number of calls and
puts of each class that may be held or written, or
exercised within certain time periods, by an investor
or group of investors acting in concert (regardless of
whether the options are written on the same or
different national securities exchanges or are held,
written or exercised in one or more accounts or
through one or more brokers). It is possible that the
Funds and other clients of their respective Advisers
and certain of their affiliates may be considered to
be such a group. A securities exchange may order the
liquidation of positions found to be in violation of
these limits and it may impose certain other
sanctions.
In the case of options written by a Fund that
are deemed covered by virtue of the Fund's holding
convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange
and obtain physical delivery of the underlying common
stocks with respect to which the Fund has written
options may exceed the time within which the Fund must
make delivery in accordance with an exercise notice.
In these instances, a Fund may purchase or temporarily
borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear
any market risk because the Fund will have the
absolute right to receive from the issuer of the
underlying securities an equal number of shares to
replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expense in
connection with any such purchase or borrowing.
Money Market Instruments. Subject to the
restrictions noted in the Prospectuses, the money
market instruments in which the Funds may invest are:
U.S. government securities; certificates of deposit
("CDs"), time deposits ("TDs") and bankers'
acceptances issued by domestic banks (including their
branches located outside the United States and
subsidiaries located in Canada), domestic branches of
foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and
repurchase agreements with respect to the foregoing
types of instruments. The following is a more detailed
description of such money market instruments.
Bank Obligations. CDs are short-term,
negotiable obligations of commercial banks; TDs are
non-negotiable deposits maintained in banking
institutions for specified periods of time at stated
interest rates; and bankers' acceptances are time
drafts drawn on commercial banks by borrowers usually
in connection with international transactions.
Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the
Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic
banks organized under state law are supervised and
examined by state banking authorities but are members
of the Federal Reserve System only if they elect to
join. Most state banks are insured by the FDIC
(although such insurance may not be of material
benefit to a Fund, depending upon the principal amount
of CDs of each bank held by the Fund) and are subject
to federal examination and to a substantial body of
Federal law and regulation. As a result of
governmental regulations, domestic branches of
domestic banks, among other things, generally are
required to maintain specified levels of reserves, and
are subject to other supervision and regulation
designed to promote financial soundness.
Obligations of foreign branches of domestic
banks, such as CDs and TDs, may be general obligations
of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific
obligation and governmental regulations. Such
obligations are subject to different risks than are
those of domestic banks or domestic branches of
foreign banks. These risks include foreign economic
and political developments, foreign governmental
restrictions that may adversely affect payment of
principal and interest on the obligations, foreign
exchange controls and foreign withholding and other
taxes on interest income. Foreign branches of domestic
banks are not necessarily subject to the same or
similar regulatory requirements that apply to domestic
banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less
information may be publicly available about a foreign
branch of a domestic bank than about a domestic bank.
CDs issued by wholly owned Canadian subsidiaries of
domestic banks are guaranteed as to repayment of
principal and interest (but not as to sovereign risk)
by the domestic parent bank.
Obligations of domestic branches of foreign
banks may be general obligations of the parent bank in
addition to the issuing branch, or may be limited by
the terms of a specific obligation and by Federal and
state regulation as well as governmental action in the
country in which the foreign bank has its head office.
A domestic branch of a foreign bank with assets in
excess of $1 billion may or may not be subject to
reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located
if the branch is licensed in that state. In addition,
branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State
Branches") may or may not be required to: (a) pledge
to the regulator by depositing assets with a
designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (b)
maintain assets within the state in an amount equal to
a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be
insured by the FDIC. In addition, there may be less
publicly available information about a domestic branch
of a foreign bank than about a domestic bank.
In view of the foregoing factors associated with
the purchase of CDs and TDs issued by foreign branches
of domestic banks or by domestic branches of foreign
banks, each Fund's Adviser will carefully evaluate
such investments on a case-by-case basis. Savings and
loan associations, the CDs of which may be purchased
by the Funds, are supervised by the Office of Thrift
Supervision and are insured by the Savings Association
and Insurance Fund. As a result, such savings and loan
associations are subject to regulation and
examination.
Commercial Paper. Commercial paper is a short-
term, unsecured negotiable promissory note of a
domestic or foreign company. A Fund may invest in
short-term debt obligations of issuers that at the
time of purchase are rated A-2, A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P") or Prime-2 or
Prime-1 by Moody's Investors Service, Inc. ("Moody's")
or, if unrated, are issued by companies having an
outstanding unsecured debt issue currently rated
within the two highest ratings of S&P or Moody's. A
discussion of S&P and Moody's rating categories
appears in the Appendix to this Statement of
Additional Information.
A Fund also may invest in variable rate master
demand notes, which typically are issued by large
corporate borrowers providing for variable amounts of
principal indebtedness and periodic adjustments in the
interest rate according to the terms of the
instrument. Demand notes are direct lending
arrangements between the Fund and an issuer, and are
not normally traded in a secondary market. A Fund,
however, may demand payment of principal and accrued
interest at any time. In addition, while demand notes
generally are not rated, their issuers must satisfy
the same criteria as those set forth above for issuers
of commercial paper. Each Fund's Adviser will consider
the earning power, cash flow and other liquidity
ratios of issuers of demand notes and continually will
monitor their financial ability to meet payment on
demand.
Convertible Securities. The Funds may invest in
convertible securities. Convertible securities are
fixed-income securities that may be converted at
either a stated price or stated rate into underlying
shares of common stock. Convertible securities have
general characteristics similar to both fixed-income
and equity securities. Although to a lesser extent
than with fixed-income securities generally, the
market value of convertible securities tends to
decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In
addition, because of the conversion feature, the
market value of convertible securities tends to vary
with fluctuations in the market value of the
underlying common stocks and, therefore, also will
react to variations in the general market for equity
securities. A unique feature of convertible securities
is that as the market price of the underlying common
stock declines, convertible securities tend to trade
increasingly on a yield basis, and thus may not
experience market value declines to the same extent as
the underlying common stock. When the market price of
the underlying common stock increases, the prices of
the convertible securities tend to rise as a
reflection of the value of the underlying common
stock. While no securities investments are without
risk, investments in convertible securities generally
entail less risk than investments in common stock of
the same issuer.
As fixed-income securities, convertible
securities are investments that provide for a stable
stream of income with generally higher yields than
common stocks. Of course, like all fixed-income
securities, there can be no assurance of current
income because the issuers of the convertible
securities may default on their obligations.
Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible
securities of similar quality because of the potential
for capital appreciation. A convertible security, in
addition to providing fixed income, offers the
potential for capital appreciation through the
conversion feature, which enables the holder to
benefit from increases in the market price of the
underlying common stock. There can be no assurance of
capital appreciation, however, because securities
prices fluctuate.
Convertible securities generally are
subordinated to other similar but non-convertible
securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority
in right of payment to all equity securities, and
convertible preferred stock is senior to common stock,
of the same issuer. Because of the subordination
feature, however, convertible securities typically
have lower ratings than similar non-convertible
securities.
Preferred Stock. The Funds may invest in
preferred stocks. Preferred stocks, like debt
obligations, are generally fixed-income securities.
Shareholders of preferred stocks normally have the
right to receive dividends at a fixed rate when and as
declared by the issuer's board of directors, but do
not participate in other amounts available for
distribution by the issuing corporation. Dividends on
the preferred stock may be cumulative, and all
cumulative dividends usually must be paid prior to
common stockholders receiving any dividends. Preferred
stock dividends must be paid before common stock
dividends and for that reason preferred stocks
generally entail less risk than common stocks. Upon
liquidation, preferred stocks are entitled to a
specified liquidation preference, which is generally
the same as the par or stated value, and are senior in
right of payment to common stock. Preferred stocks
are, however, equity securities in the sense that they
do not represent a liability of the issuer and
therefore do not offer as great a degree of protection
of capital or assurance of continued income as
investments in corporate debt securities. In addition,
preferred stocks are subordinated in right of payment
to all debt obligations and creditors of the issuer,
and convertible preferred stocks may be subordinated
to other preferred stock of the same issuer.
American, European, Global and Continental
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 enumerated in
Section 501(c)(3) or (13) of the Code; and (f) a
trustee or other professional fiduciary (including a
bank, or an investment adviser registered with the SEC
under the Investment Advisers Act of 1940, as amended)
purchasing shares of a Fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to
combine purchase orders to take advantage of volume
discounts on Class A shares should contact a Smith
Barney Financial Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the
schedules in the Prospectuses, apply to any purchase
of Class A shares if the aggregate investment in Class
A shares of any Fund and in Class A shares of other
funds of the Smith Barney Mutual Funds that are
offered with a sales charge, including the purchase
being made, of any purchaser is $25,000 or more. The
reduced sales charge is subject to confirmation of the
shareholder's holdings through a check of appropriate
records. The Trust reserves the right to terminate or
amend the combined right of accumulation at any time
after written notice to shareholders. For further
information regarding the combined right of
accumulation, shareholders should contact a Smith
Barney Financial Consultant or a PFS Investment
Registered Representative.
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
Smith Barney serves as the Trust's distributor
on a best efforts basis pursuant to a distribution
agreement (the "Smith Barney Distribution Agreement")
which was most recently approved by the Trust's Board
of Trustees on March 31, 1997.
PFS serves as one of the Trust's distributors
with respect to the Concert Social Awareness Fund
pursuant to a distribution agreement (the "PFS
Distribution Agreement") which was most recently
approved by the Trust's Board of Trustees.(the Smith
Barney Distribution Agreements and the PFS
Distribution Agreements a "Distribution Agreement" and
collectively the "Distribution Agreements")
When payment is made by the investor before
settlement date, unless otherwise noted by the
investor, the funds will be held as a free credit
balance in the investor's brokerage account and Smith
Barney 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.
For the fiscal year ended January 31, 1997, Smith
Barney incurred distribution expenses totaling
approximately $3,615,355 consisting of approximately
$156,719 for advertising, $34,098 for printing and
mailing of Prospectuses, $1,649,706 for support
services, $1,726,208 to Smith Barney Financial
Consultants, $49,624 in accruals for interest on
the excess of Smith Barney expenses incurred in
distributing the Fund's shares over the sum of the
distribution fees and CDSC received by Smith Barney
from the Fund.
Distribution Arrangements
To compensate Smith Barney or PFS, as the case
may be, for the services they provide and for the
expense they bear under the Distribution Agreements,
the Trust has adopted a services and distribution plan
(the "Plan") pursuant to Rule 12b-1 under the 1940
Act. Under the Plan, the Trust pays Smith Barney and,
with respect to Class A and Class B shares of the
Concert Social Awareness Fund, PFS, 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 and with respect to Class B
shares of Concert Social Awareness Fund, PFS, a
distribution fee with respect to each Fund's Class B
and Class C shares primarily intended to compensate
Smith Barney and/or PFS for its initial expense of
paying its Financial Consultants and/or PFS
Investments Registered Representatives a commission
upon sales of those shares. The Class B and Class C
distribution fees are calculated at the annual rate of
0.75% for the Social Awareness Fund and 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
609,219
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 Agreements. The
Plan may not be amended to increase the amount of the
service and distribution fees without shareholder
approval, and all material amendments to 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
and PFS will provide the Trust's Board of Trustees
with periodic reports of amounts expended under the
Plan and the purpose for which such expenditures were
made.
VALUATION OF SHARES
Each Class' net asset value per share is
calculated on each day, Monday through Friday, except
days on which the NYSE is closed. The NYSE currently
is scheduled to be closed on New Year's Day,
Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday
or Sunday, respectively. Because of the differences in
distribution fees and Class-specific expenses, the per
share net asset value of each Class may differ. The
following is a description of the procedures used by
the Trust in valuing assets of the Funds.
A security that is listed or traded on more than
one exchange is valued at the quotation on the
exchange determined to be the primary market for such
security. All assets and liabilities initially
expressed in foreign currency values will be converted
into U.S. dollar values at the mean between the bid
and offered quotations of such currencies against U.S.
dollars as last quoted by any recognized dealer. If
such quotations are not available, the rate of
exchange will be determined in good faith by the
Trust's Board of Trustees. In carrying out the Board's
valuation policies, SBMFM, as administrator, may
consult with an independent pricing service (the
"Pricing Service") retained by the Trust.
Debt securities of domestic issuers (other than
U.S. government securities and short-term investments)
are valued by SBMFM, as administrator, after
consultation with the Pricing Service approved by the
Trust's Board of Trustees. When, in the judgment of
the Pricing Service, quoted bid prices for investments
are readily available and are representative of the
bid side of the market, these investments are valued
at the mean between the quoted bid prices and asked
prices. Investments for which, in the judgment of the
Pricing Service, there are no readily obtainable
market quotations are carried at fair value as
determined by the Pricing Service. The procedures of
the Pricing Service are reviewed periodically by the
officers of the Funds under the general supervision
and responsibility of the Trust's Board of Trustees.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund
of the Smith Barney Mutual Funds may exchange all or
part of their shares for shares of the same class of
other funds of the Smith Barney Mutual Funds, to the
extent such shares are offered for sale in the
shareholder's state of residence, on the basis of
relative net asset value per share at the time of
exchange, except that Class B shares of any fund may
be exchanged without a sales charge. Class B shares of
a Fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the
two funds and, for purposes of calculating CDSC rates
and conversion periods, will be deemed to have been
held since the date the shares being exchanged were
deemed to be purchased.
The exchange privilege enables shareholders to
acquire shares of the same Class in a fund with
different investment objectives when they believe that
a shift between funds is an appropriate investment
decision. This privilege is available to shareholders
residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange,
the shareholder should obtain and review a copy of the
current prospectus of each fund into which an exchange
is being considered. Prospectuses may be obtained from
a Smith Barney Financial Consultant or, with respect
to Social Awareness Fund only, Registered
Representative of PFS Investments Inc.
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 either Fund 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:
Per
Annum
for
the period
One Year from the
Commencement of
Period Ended
Operations* through
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**
Social Awareness
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 either 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"). Depending upon
the circumstances, the 30% Test may limit the extent
to which the Fund may: (a) sell securities held for
less than three months; (b) effect short sales of
securities that are identical (or substantially
identical) to securities held by it for less than
three months; (c) write options that expire in less
than three months; and (d) effect closing transactions
with respect to call or put options that have been
written or purchased within the preceding three
months. A Fund's gain or loss from the sale (including
open short sales) or other dispositions of stock or
securities (with the term "securities" defined to
include put and call options) held for less than three
months will be netted against its gain or loss on
positions that are part of a "designated hedge" with
respect to such three-month investments.
Taxation of Fund Investments
Gain or loss on the sale of a security by a Fund
generally will be long-term capital gain or loss if
the Fund has held the security for more than one year.
Gain or loss on the sale of a security held for not
more than one year generally will be short-term
capital gain or loss. If a Fund acquires a debt
security at a substantial discount, a portion of any
gain upon sale or redemption of such debt security
will be taxed as ordinary income rather than capital
gain to the extent it reflects accrued market
discount.
Options Transactions. The tax consequences of
options transactions entered into by a Fund will vary
depending on whether the underlying security is held
as a capital asset, whether the Fund is writing or
purchasing the option and whether the "straddle"
rules, discussed separately below, apply to the
transaction.
A Fund may write a call option on an equity or
convertible debt security. If the option expires
unexercised or if the Fund enters into a closing
purchase transaction, the Fund will realize a gain or
loss without regard to any unrealized gain or loss on
the underlying security. Generally, any such gain or
loss will be short-term capital gain or loss, except
that any loss on certain covered call stock options
will be treated as long-term capital loss. If a call
option written by a Fund is exercised, the Fund will
treat the premium received for writing such call
option as additional sales proceeds and will recognize
a capital gain or loss from the sale of the underlying
security. Whether the gain or loss will be long-term
or short-term will depend on the Fund's holding period
for the underlying security.
If a Fund purchases a put option on an equity or
convertible debt security and it expires unexercised,
the Fund will realize a capital loss equal to the cost
of the option. If a Fund enters into a closing sale
transaction with respect to the option, it will
realize a capital gain or loss and such gain or loss
will be short-term or long-term depending on the
Fund's holding period for the option. If a Fund
exercises such a put option, it will realize a short-
term or long-term capital gain or loss (depending on
the Fund's holding period for the underlying security)
from the sale of the underlying security. The amount
realized on such sale will be the sales proceeds
reduced by the premium paid.
Mark-to-Market. The Code imposes a special
"mark-to-market" system for taxing "Section 1256
contracts" including options on nonconvertible debt
securities (including U.S. government securities),
options on certain stock indexes and certain foreign
currency contracts. In general, gain or loss on
Section 1256 contracts will be taken into account for
tax purposes when actually realized (by a closing
transaction, by exercise, by taking delivery or by
other termination). In addition, any Section 1256
contracts held at the end of the taxable year will be
treated as though they were sold at their year-end
fair market value (that is, "marked to market"), and
the resulting gain or loss will be recognized for tax
purposes. Provided that a Fund holds its Section 1256
contracts as capital assets and they are not part of a
straddle, both the realized and the unrealized year-
end gains or losses from these investment positions
(including premiums on options that expire
unexercised) will be treated as 60% long-term and 40%
short-term capital gain or loss, regardless of the
period of time particular positions have actually been
held by a Fund.
A portion of the mark-to-market gain on
instruments held for less than three months at the
close of a Fund's taxable year may represent a gain on
securities held for less than three months for
purposes of the 30% Test discussed above. Accordingly,
the Funds may restrict their fourth-quarter
transactions in Section 1256 contracts.
Straddles. The Code contains rules applicable
to "straddles," which are "offsetting positions in
actively traded personal property," including equity
securities and options of the type in which a Fund may
invest. If applicable, the "straddle" rules generally
override the other provisions of the Code. In general,
investment positions will be offsetting if there is a
substantial diminution in the risk of loss from
holding one position by reason of holding one or more
other positions. The Funds generally are authorized to
enter into put, call, and covered put and call
positions. Depending on what other investments are
held by a Fund at the time it enters into one of the
above transactions, a Fund may create a straddle for
Federal income tax purposes.
If two (or more) positions constitute a
straddle, recognition of a realized loss from one
position (including a mark-to-market loss) must be
deferred to the extent of unrecognized gain in an
offsetting position. Interest and other carrying
charges allocable to personal property that is part of
a straddle must be capitalized. In addition, "wash
sale" rules apply to straddle transactions to prevent
the recognition of loss from the sale of a position at
a loss when a new offsetting position is or has been
acquired within a prescribed period. To the extent the
straddle rules apply to positions established by a
Fund, losses realized by the Fund may be deferred or
recharacterized as long-term losses, and long-term
gains realized by the Fund may be converted to short-
term gains.
If a Fund chooses to identify a particular
offsetting position as being one component of a
straddle, a realized loss on any component of that
straddle will be recognized no earlier than upon the
liquidation of all components of that straddle.
Special rules apply to "mixed" straddles (that is,
straddles consisting of a Section 1256 contract and an
offsetting position that is not a Section 1256
contract). If the Trust makes certain elections, all
or a portion of the Section 1256 contract components
of such mixed straddles of a Fund will not be subject
to the 60%/40% mark-to-market rules. If any such
election is made, the amount, the nature (as long-term
or short-term) and the timing of the recognition of
the Fund's gains or losses from the affected straddle
positions will be determined under rules that will
vary according to the type of election made.
ADDITIONAL INFORMATION
The Trust was organized as an unincorporated business
trust under the laws of The Commonwealth of
Massachusetts pursuant to a Master Trust Agreement
dated January 8, 1986, as amended from time to time
(the "Trust Agreement"). The Trust commenced business
as an investment company on March 3, 1986, under the
name Shearson Lehman Special Equity Portfolios. On
December 6, 1988, August 27, 1990, November 5, 1992,
July 30, 1993 and October 14, 1994, the Trust changed
its name to SLH Equity Portfolios, Shearson Lehman
Brothers Equity Portfolios, Shearson Lehman Brothers
Equity Funds, Smith Barney Shearson Equity Funds and
Smith Barney Equity Funds, respectively.
PNC is located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and serves as
custodian for the Funds. Under its custodial agreement
with the Trust, PNC is authorized to appoint one or
more foreign or domestic banking institutions as sub-
custodians of assets owned by a Fund. For its custody
services, PNC receives monthly fees charged to each
Fund based upon the month-end, aggregate net asset
value of the Fund, plus certain charges for securities
transactions. The assets of the Trust are held under
bank custodianship in accordance with the 1940 Act.
First Data is located at Exchange Place, Boston,
Massachusetts 02109, and serves as the Trust's
transfer agent. For its services as transfer agent,
First Data receives fees charged to the Funds at an
annual rate based upon the number of shareholder
accounts maintained during the year. First Data also
is reimbursed by the Funds for its out-of-pocket
expenses.
FINANCIAL STATEMENTS
The Annual Reports of the Social Awareness Fund and
the Growth and Income Fund for the fiscal year ended
January 31, 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, -2 or
- -3) to distinguish more clearly the credit quality of
notes as compared to bonds. Notes rated SP-1 have a
very strong or strong capacity to pay principal and
interest. Those issues determined to possess
overwhelming safety characteristics are given the
designation of SP-1+. Notes rated SP-2 have
satisfactory capacity to pay principal and interest.
A-4
Description of Moody's Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be the
best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or
by an exceptionally stable margin and principal is
secure. While the various protective elements are
likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong
position of such issues.
Aa
Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as
in Aaa securities, or fluctuation of protective
elements may be of greater amplitude, or there may be
other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper medium grade obligations. Factors giving
security to principal and interest are considered
adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as
medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present
but certain protective elements may be lacking or may
be characteristically unreliable over any great length
of time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba
Bonds which are rated Ba are judged to have
speculative elements; their future cannot be
considered as well assured. Often the protection of
interest and principal payments may be very moderate
and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position
characterize bonds in this class.
B
Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance
of other terms of the contract over any long period of
time may be small.
A-5
Caa
Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present
elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues
are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in
each generic rating classification from Aa through B.
The modifier 1 indicates that the security ranks in
the higher end of its generic ratings category; the
modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower
end of its generic ratings category.
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and
other short-term loans are designated Moody's
Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment
Grade (VMIG). This distinction recognizes the
differences between short- and long-term credit risk.
Loans bearing the designation MIG 1/VMIG 1 are the
best quality, enjoying strong protection from
established cash flows of funds for their servicing or
from established and broad-based access to the market
for refinancing, or both. Loans bearing the
designation MIG 2/VMIG 2 are of high quality, with
margins of protection ample, although not as large as
the preceding group. Loans bearing the designation MIG
3/VMIG 3 are of favorable quality, with all security
elements accounted for but lacking the undeniable
strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well
established. Loans bearing the designation MIG 4/VMIG
4 are of adequate quality. Protection commonly
regarded as required of an investment security is
present and although not distinctly or predominantly
speculative, there is specific risk.
Description of Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second
highest, commercial paper rating assigned by S&P.
Paper rated A-1+ must have either the direct credit
support of an issuer or guarantor that possesses
excellent long-term operating and financial strength
combined with strong liquidity characteristics
(typically, such issuers or guarantors would display
credit quality characteristics which would warrant a
senior bond rating of A\- or higher) or the direct
credit support of an issuer or guarantor that
possesses above average long-term fundamental
operating and financing capabilities combined with
ongoing excellent liquidity characteristics. Paper
rated A-1 must have the following characteristics:
liquidity ratios are adequate to meet cash
requirements; long-term senior debt is rated A or
better; the issuer has access to at least two
additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowance made for
unusual circumstances; typically, the issuer's
industry is well established and the issuer has a
strong position within the industry; and the
reliability and quality of management are
unquestioned.
A-6
The rating Prime-1 is the highest commercial
paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the
following: (a) evaluation of the management of the
issuer; (b) economic evaluation of the issuer's
industry or industries and an appraisal of
speculative-type risks which may be inherent in
certain areas; (c) evaluation of the issuer's products
in relation to competition and customer acceptance;
(d) liquidity; (e) amount and quality of long-term
debt; (f) trend of earnings over a period of ten
years; (g) financial strength of parent company and
the relationships which exist with the issue; and (h)
recognition by the management of obligations which may
be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Short-Term obligations, including commercial
paper, rated A-1+ by IBCA Limited or its affiliate
IBCA Inc. are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1
have a very strong capacity for timely repayment.
Obligations rated A-2 have a strong capacity for
timely repayment, although such capacity may be
susceptible to adverse changes in business, economic
and financial conditions.
Thomson BankWatch employs the rating "TBW-1" as
its highest category, which indicates that the degree
of safety regarding timely repayment of principal and
interest is very strong. "TBW-2" is its second highest
rating category. While the degree of safety regarding
timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for
issues rated "TBW-1".
Fitch Investors Services, Inc. employs the
rating F-1+ to indicate issues regarded as having the
strongest degree of assurance of timely payment. The
rating F-1 reflects an assurance of timely payment
only slightly less in degree than issues rated F-1+,
while the rating F-2 indicates a satisfactory degree
of assurance of timely payment although the margin of
safety is not as great as indicated by the F-1+ and
F-1 categories.
Duff & Phelps Inc. employs the designation of
Duff 1 with respect to top grade commercial paper and
bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: short-term liquidity is
clearly outstanding and safety is just below risk-free
U.S. Treasury short-term obligations. Duff 1 -
indicates high certainty of timely payment. Duff 2
indicates good certainty of timely payment: liquidity
factors and company fundamentals are sound.
Various NRSROs utilize rankings within ratings
categories indicated by a + or -. The Funds, in
accordance with industry practice, recognize such
ratings within categories as gradations, viewing for
example S&P's rating of A-1+ and A-1 as being in S&P's
highest rating category.
A-7
Smith
Barney
EQUITY
FUNDS
Growth and
Income Fund
Social
Awareness Fund
Statement of
Additional Information
May
31, 1997
Smith Barney
Equity Funds
388 Greenwich Street
New York, New York 10013
SMITH BARNEY
SMITH BARNEY EQUITY FUNDS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Reports for
the fiscal year ended January 31,
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 Registration Statement filed
on January 30, 1996 ("Post-Effective Amendment No.
31").
(b) Investment Advisory Agreement
between Registrant and Greenwich Street Advisors
(relating to the Growth and Income Fund) dated May 22,
1993 is incorporated by reference to Post-Effective
Amendment No. 26.
(6) Distribution Agreement between Registrant
and Smith Barney Shearson dated July 30, 1993 is
incorporated by reference to Post-Effective Amendment
No. 26.
(7) Not applicable.
(8) Custodian Agreement between Registrant and
PNC Bank, National Association ("PNC Bank") is
incorporated by reference to Post-Effective Amendment
No. 31.
(9)(a) Administration Agreements between
Registrant and SBMFM (relating to the Growth and
Income Fund and Strategic Investors Fund) dated May 4,
1994 are incorporated by reference to Post-
Effective Amendment No. 29
(b) Transfer Agency Agreement between
Registrant and First Data Investor Services Group
(formerly The Shareholder Services Group, Inc.) dated
August 5, 1993 is incorporated by reference to Post-
Effective Amendment No. 26.
(10) Opinion of Robert A. Vegliante, Deputy
General Counsel of Smith Barney Mutual
Funds Management Inc. filed with the
Registrant's rule 24-f2 (Accession No.
000091155-97-000182) is incorporated by
reference.
(11) Consent of KPMG Peat Marwick LLP is filed
herewith.
(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
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
May 16,1997
Beneficial Interest par value
$.001 per share Class A
Class B Class C Class Y
Concert Social Awareness Fund 18,492
15,436 336 2
Smith Barney Growth and Income Fund 11,790
10,943 295 6
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.,
was incorporated in December 1968 under the laws of
the State of Delaware. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings Inc. ("Holdings")
(formerly known as Smith Barney Shearson Holdings
Inc.), which in turn is a wholly owned subsidiary of
Travelers Group Inc. (formerly known as Primerica
Corporation) ("Travelers"). SBMFM is registered as an
investment adviser under the Investment Advisers Act
of 1940 (the "Advisers Act").
The list required by this Item 28 of officers and
directors of SBMFM together with information as to any
other business, profession, vocation or employment of
a substantial nature engaged in by such officers and
directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of FORM
ADV filed by SBMFM pursuant to the Advisers Act (SEC
File No. 801-8314).
Item 28(a) Business and Other Connections of
Investment Adviser
Investment Adviser - Smith Barney Strategy Advisers
Inc. ("Strategy Advisers")
Strategy Advisers was incorporated on October 22, 1986
under the laws of the State of Delaware. Strategy
Advisers is a wholly owned subsidiary of SBMFM.
Strategy Advisers is registered as an investment
adviser under the Investment Advisers Act of 1940 (the
"Advisers Act"). Strategy Advisers is also registered
with the Commodity Futures Trading Commission (the
"CFTC") as a commodity pool operator under the
Commodity Exchange Act (the "CEA"), and is a member of
the National Futures Association (the "NFA").
The list required by this Item 28 of officers and
directors of SBMFM and Strategy Advisers, together
with information as to any other business, profession,
vocation or employment of a substantial nature engaged
in by such officers and directors during the past two
years, in incorporated b reference to Schedules A and
D of FORM ADV filed by SBMFM on behalf of Strategy
Advisers pursuant to the Advisers Act (SEC File No.
801-8314).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney ")
also acts as principal underwriter for
the Smith Barney Money Funds, Inc.;
Smith Barney Municipal Money Market
Fund, Inc.; Smith Barney Muni Funds;
Smith Barney Funds, Inc.; Smith Barney
World Funds, Inc.; Smith Barney
Variable Account Funds; Travelers
Series Fund Inc.; Smith Barney
Intermediate Municipal Fund, Inc.;
Smith Barney Municipal Fund, Inc.; High
Income Opportunity Fund Inc.; Greenwich
Street California Municipal Fund Inc.;
Greenwich Street Municipal fund Inc.;
The Inefficient-Market Fund Inc.; Smith
Barney Investment Funds, Inc.; Smith
Barney Adjustable Rate Government
Income Fund; Smith Barney Income Funds;
Smith Barney Massachusetts Municipals
Fund; Zenix Income Fund Inc.; Smith
Barney Arizona Municipals Fund Inc.;
Smith Barney Principal Return Fund;
Municipal High Income Fund Inc.;
Consulting Group Capital Markets Fund;
Smith Barney Series Fund; Smith Barney
Investment Trust; Smith Barney
Aggressive Growth Fund Inc.; Smith
Barney Appreciation Fund Inc.; Smith
Barney California Municipals Fund Inc.;
Smith Barney Fundamental Value Fund
Inc.; Smith Barney Managed Governments
Fund Inc.; Smith Barney Managed
Municipals Fund Inc.; Smith Barney New
Jersey Municipals Fund Inc.; Smith
Barney Natural Resources Fund Inc.;
Smith Barney Investment Funds Inc.; The
Italy Fund Inc.; Smith Barney
Telecommunications Trust; Managed
Municipals Portfolio Inc.; Managed
Municipals Portfolio II Inc.; Managed
High Income Portfolio Inc. Smith Barney
Institutional Cash Management Fund
Inc.; Smith Barney Concert Allocation
Series Inc.
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 29th day of
May, 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 5/29/97
Heath B. McLendon (Chief Executive
Officer)
/s/ Lewis E. Daidone Senior Vice
President and 5/29/97
Lewis E. Daidone Treasurer (Chief
Financial
and Accounting Officer)
/s/ Lee Abraham* Trustee
5/29/97
Lee Abraham
/s/ Allan J. Bloostein* Trustee
5/29/97
Allan J. Bloostein
/s/ Madelon Devoe-Talley* Trustee
5/29/97
Madelon Devoe-Talley
/s/ Richard E. Hanson* Trustee
5/29/97
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
17 Financial Data Schedule
Auditor's Consent
Cover Letter to SEC
g:\funds\slep\1997\sai497.doc 105
u:\legal\funds\slep\1997\secdocs\sai41
U:\LEGAL\INCOME95.SAI
U:\LEGAL\INCOME95.SAI
U:\LEGAL\INCOME95.SAI
U:\LEGAL\INCOME95.SAI
U:\LEGAL\INCOME95.SAI
U:\LEGAL\INCOME95.SAI
U:\LEGAL\INCOME95.SAI
U:\funds\slep\1997\edgar\pea.#41
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), incorporated herein by reference and to the
references to our Firm under the heading "Financial
Highlights" in the Supplement dated May 30, 1997 to
the Prospectus dated February 24, 1997.
KPMG
Peat Marwick LLP
New York, New York
May 28, 1997
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 12,
1997, with respect to the Smith Barney Growth and
Income Fund, 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
May 28, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> SMITH BARNEY EQUITY FUNDS
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<NAME> SMITH BARNEY STRATEGIC INVESTORS CLASS Y
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