As filed with the Securities and Exchange Commission on March 30,
1998
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Registration No. 33-2627
811-4551
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 43
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
as amended Amendment No. 43
SMITH BARNEY EQUITY FUNDS
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(800)-451-2010
(Registrant's Telephone Number, including Area Code:)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013(22nd Floor)
(Name and Address of Agent For Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Paragraph (b)
_____ On (date) pursuant to paragraph (b)
__x__ 60 days after filing pursuant to paragraph (a) (2)
_____ On (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a) (2)
_____ On (date) pursuant to paragraph of rule 485
If appropriate, check the following box:
_____ This post-effective amendment designates a new effective date
for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Common Stock
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
Item No. Statement of Additional
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 of Securities
being offered Purchase of Shares
Redemption of Securities 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
Part A
PROSPECTUS
SMITH BARNEY
Large Cap
Blend
Fund
MAY 31, 1997
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
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Prospectus
May 31, 1997
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Smith Barney Large Cap Blend Fund
388 Greenwich Street
New York, New York 10013
800-451-2010
Smith Barney Large Cap Blend Fund (the "Fund")
seeks long-term capital
growth by investing primarily in the common stock of
large capitalization
domestic companies.
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
Mutual Management Corp.
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
9
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Investment Objective and Management Policies
12
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Valuation of Shares
21
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Dividends, Distributions and Taxes
22
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Purchase of Shares
23
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Exchange Privilege
33
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Redemption of Shares
36
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Minimum Account Size
38
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Performance
39
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Management of the Trust and the Fund
39
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Distributor
40
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Additional Information
41
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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 by
investing primarily in the common
stock of large capitalization domestic companies. 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."
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
distribu-
3
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Prospectus Summary (continued)
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tion 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 Allocation 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 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.
4
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Prospectus Summary (continued)
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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 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."
5
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Prospectus Summary (continued)
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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 Mutual Management
Corp. ("MMC"), formerly
known as Smith Barney Mutual Funds Management Inc.,
serves as the Fund's
investment adviser. MMC provides investment advisory
and management services to
investment companies affiliated with Smith Barney. MMC
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.
MMC 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."
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."
6
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Prospectus Summary (continued)
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Risk Factors and Special Considerations There can be
no assurance that the
Fund's investment objective will be achieved. 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."
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 current
operating expenses for its
most recent fiscal year:
<TABLE>
<CAPTION>
Growth and Income Fund
Class A Class B Class C Class Y
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- -----------------------------------
<S>
<C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
5.00% None None None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower)
None* 5.00% 1.00% None
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- -----------------------------------
Annual Fund Operating Expenses
(as a percentage of 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
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TOTAL FUND OPERATING EXPENSES
1.12% 1.62% 1.61% 0.73%
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===================================
</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
7
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Prospectus Summary (continued)
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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(TM) 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.
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."
Growth and Income Fund 1 year 3 years
5 years 10 years*
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==========================
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return
and (2) redemption at the end of
each time period:
Class A $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
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==========================
* Ten-year figures assume conversion of Class B
shares to Class A shares at
the end of the eighth year following the date of
purchase.
The example also provides a means for the
investor to compare expense
levels of funds with different fee structures over
varying investment periods.
To facilitate such comparison, all funds are required
to utilize a 5.00% annual
return assumption. However, the Fund's actual return
will vary and may result in
an actual return greater or less than 5.00%. This
example should not be
considered a representation of past or future expenses
and actual expenses may
be greater or less than those shown.
8
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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>
Large Cap Blend Fund 1997
1996(1) 1995 1994(1) 1993(2)
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================================
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.16 $
9.62 $10.36 $ 9.58 $9.50
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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
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- --------------------------------
Total Income (Loss) From Operations 2.52
2.94 (0.41) 1.01 0.08
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- --------------------------------
Less Distributions From:
Net investment income (0.20)
(0.20) (0.19) (0.23) --
Net realized gains (0.18)
(0.20) (0.14) -- --
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- --------------------------------
Total Distributions (0.38)
(0.40) (0.33) (0.23) --
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Net Asset Value, End of Year $14.30
$12.16 $ 9.62 $10.36 $9.58
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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
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- --------------------------------
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+
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- --------------------------------
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.
9
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Financial Highlights (continued)
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For a Class B share of beneficial interest outstanding
throughout each year:
<TABLE>
<CAPTION>
Large Cap Blend 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
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- --------------------------------
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) -- --
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- --------------------------------
Total Distributions (0.33)
(0.35) (0.28) (0.15) --
- ------------------------------------------------------
- --------------------------------
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.
10
<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
-----------
- -------------- --------------------
Large Cap Blend 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.
11
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
- ------------------------------------------------------
- --------------------------
Investment Objective
The investment objective of the Fund is to seek
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 primarily
in the common stock of large capitalization companies
that exhibit growth and/or
value attributes. The Fund may hold securities of
companies that are
characterized by earnings growth greater than that of
the S&P 500. When
selecting stocks with growth potential, MMC will
evaluate the specific financial
characteristics of the issuer such as historical
earnings growth, sales growth,
profitability and return on equity. At the same time,
the Fund may hold the
securities of companies whose prices are undervalued
in the marketplace at the
time of purchase. When selecting stocks with value
potential MMC may select
securities characterized as having below average price
to earnings or price to
book ratios. The Fund expects to invest primarily in
large capitalization
companies, generally the 1,000 largest domestic
companies as measured by market
capitalization. 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 common stock. The
Fund may invest the remainder
of its assets in securities that are convertible into
common stock, warrants,
high grade money market instruments, as well as in
corporate bonds and in United
States government securities, in furtherance of its
objective. 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 MMC 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 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
12
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
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 of
Additional Information.
U.S. Government Securities. The U.S. government
securities in which the
Fund may invest include: direct obligations of the
United States Treasury (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. 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, 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
13
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
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 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
MMC 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 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. MMC, 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
14
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
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 331/3% 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 MMC
to be of good standing and will not be made unless, in
the judgment of MMC the
consideration to be earned from such loans would
justify the risk.
Futures and Options on Futures. When deemed
advisable by MMC, the Fund may
enter into interest rate futures contracts, stock
index futures contracts and
related options that are traded on a domestic exchange
or board of trade. These
transactions will be made solely for the purpose of
hedging against the effects
of changes in the value of portfolio securities due to
anticipated changes in
interest rates, market conditions and currency values,
as the case may be. Stock
index futures contracts may also be used to maintain
the Fund's desired equity
exposure, in lieu of direct stock purchases. 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.
15
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
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 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 MMC to be
liquid
16
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
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 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
17
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
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 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
18
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
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
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.
19
<PAGE>
- ------------------------------------------------------
- --------------------------
Investment Objective and Management Policies
(continued)
- ------------------------------------------------------
- --------------------------
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.
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 MMC 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 MMC 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
100%. An annual turnover
rate of 100% would occur if all of the securities held
by the Fund were replaced
once during a period of one year. MMC will not
consider turnover rate a limiting
factor in making investment decisions consistent with
the Fund's investment
objective and policies.
20
<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 MMC
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.
21
<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.
22
<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.
23
<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 is
$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.
24
<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.
25
<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
26
<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
investments over a 13 month period, provided that the
investor refers to such
27
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
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.
28
<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
29
<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.
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.
30
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
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 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
31
<PAGE>
- ------------------------------------------------------
- --------------------------
Purchase of Shares (continued)
- ------------------------------------------------------
- --------------------------
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 of an employee in the
Participating Plan; (d) the attainment
of age 591/2 by an employee in the Participating Plan;
(e) hardship of an
employee in the Participating Plan to the extent
permitted under Section 401(k)
of the Code; or (f) redemptions of shares in
connection with a loan made by the
Participating Plan to an employee.
32
<PAGE>
- ------------------------------------------------------
- --------------------------
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.
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
33
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
**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
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
34
<PAGE>
- ------------------------------------------------------
- --------------------------
Exchange Privilege (continued)
- ------------------------------------------------------
- --------------------------
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. MMC 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, MMC will notify Smith
Barney, and the Fund may, at its discretion, decide to
limit additional
purchases and/or exchanges by a shareholder. Upon such
a determination, the Fund
will provide notice in writing or by telephone to the
shareholder at least 15
days prior to suspending the exchange privilege and
during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the Fund or (b)
remain invested in the Fund or exchange into any of
the funds of the Smith
Barney Mutual Funds ordinarily available, which
position the shareholder would
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.
35
<PAGE>
- ------------------------------------------------------
- --------------------------
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.
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
36
<PAGE>
- ------------------------------------------------------
- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
redemption proceeds are to be sent to an address other
than the address of
record. Unless otherwise directed, redemption proceeds
will be mailed to an
investor's address of record. First Data may require
additional supporting
documents for redemptions made by corporations,
executors, administrators,
trustees or guardians. A redemption request will not
be deemed properly received
until First Data receives all required documents in
proper form.
Automatic Cash Withdrawal Plan
The Fund offers shareholders an automatic cash
withdrawal plan, under
which shareholders who own shares with a value of at
least $10,000 may elect to
receive cash payments of at least $50 monthly or
quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the
shareholder is eligible to receive qualified
distributions and has an account
value of at least $5,000. The withdrawal plan will be
carried over on exchanges
between funds or Classes of the Fund. Any applicable
CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00%
per month of the value of
the shareholder's shares subject to the CDSC at the
time the withdrawal plan
commences. (With respect to withdrawal plans in effect
prior to November 7,
1994, any applicable CDSC will be waived on amounts
withdrawn that do not exceed
2.00% per month of the value of the shareholder's
shares subject to the CDSC.)
For further information regarding the automatic cash
withdrawal plan,
shareholders should contact a Smith Barney Financial
Consultant.
Telephone Redemption and Exchange Program
Shareholders who do not have a Smith Barney
brokerage account may be
eligible to redeem and exchange Fund shares by
telephone. To determine if a
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,
37
<PAGE>
- ------------------------------------------------------
- --------------------------
Redemption of Shares (continued)
- ------------------------------------------------------
- --------------------------
on the next business day following the redemption
request. In order to use the
wire procedures, the bank receiving the proceeds must
be a member of the Federal
Reserve System or have a correspondent relationship
with a member bank. The Fund
reserves the right to charge shareholders a nominal
fee for each wire
redemption. Such charges, if any, will be assessed
against the shareholder's
account from which shares were redeemed. In order to
change the bank account
designated to receive redemption proceeds, a
shareholder must complete a new
Telephone/Wire Authorization Form and, for the
protection of the shareholder's
assets, will be required to provide a signature
guarantee and certain other
documentation.
Exchanges. Eligible shareholders may make
exchanges by telephone if the
account registration of the shares of the fund being
acquired is identical to
the registration of the shares of the fund exchanged.
Such exchange requests may
be made by calling First Data at 1-800-331-1710
between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day on which the NYSE is
open. Exchange requests
received after the close of regular trading on the
NYSE are processed at the net
asset value next determined.
Additional Information regarding Telephone
Redemption and Exchange
Program. Neither the Fund nor its agents will be
liable for following
instructions communicated by telephone that are
reasonably believed to be
genuine. The Fund and its agents will employ
procedures designed to verify the
identity of the caller 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.
38
<PAGE>
- ------------------------------------------------------
- --------------------------
Performance
- ------------------------------------------------------
- --------------------------
Total Return
From time to time, the Fund may include its
total return, average annual
total return and current dividend return in
advertisements and/or other types of
sales literature. These figures are computed
separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures
are based on historical
earnings and are not intended to indicate future
performance. Total return is
computed for a specified period of time assuming
deduction of the maximum sales
charge, if any, from the initial amount invested and
reinvestment of all income
dividends and capital gains distributions on the
reinvestment dates at prices
calculated as stated in this Prospectus, then dividing
the value of the
investment at the end of the period so calculated by
the initial amount invested
and subtracting 100%. The standard average annual
total return, as prescribed by
the SEC, is derived from this total return, which
provides the ending redeemable
value. Such standard total return information may also
be accompanied by
nonstandard total return information for differing
periods computed in the same
manner but without annualizing the total return or
taking sales charges into
account. The Fund calculates current dividend return
for each Class by
annualizing the most recent monthly distribution and
dividing by the net asset
value or the maximum public offering price (including
sales 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.
39
<PAGE>
- ------------------------------------------------------
- --------------------------
Management of the Trust and the Fund (continued)
- ------------------------------------------------------
- --------------------------
Investment Adviser -- MMC
MMC, 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. MMC
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,
MMC 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
MMC a fee at the annual
rate of .45% of the value of the Fund's average daily
net assets.
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
MMC also serves as the Fund's administrator and
oversees all aspects of
the Fund's administration. For administration services
rendered, the Fund pays
MMC 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,
40
<PAGE>
- ------------------------------------------------------
- --------------------------
Distributor (continued)
- ------------------------------------------------------
- --------------------------
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 net assets
attributable to those Classes. Class B shares which
automatically convert to
Class A shares eight years after the date of original
purchase will no longer be
subject to distribution fees. The fees are used by
Smith Barney to pay its
Financial Consultants for servicing shareholder
accounts and, in the case of
Class B and Class C shares, to cover expenses
primarily intended to result in
the sale of those shares. These expenses include:
advertising expenses; the cost
of printing and mailing prospectuses to potential
investors; payments to and
expenses of Smith Barney Financial Consultants and
other persons who provide
support services in connection with the distribution
of shares; interest and/or
carrying charges; and indirect and overhead costs of
Smith Barney associated
with the sale of Fund shares, including lease,
utility, communications and sale
promotion expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the investor
or Smith Barney at the
time of sale and, with respect to Class A, Class B and
Class C shares, a
continuing fee for servicing shareholder accounts for
as long as a shareholder
remains a holder of that Class. Smith Barney Financial
Consultants may receive
different levels of compensation for selling different
Classes of shares.
Payments under the Plan 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
41
<PAGE>
- ------------------------------------------------------
- --------------------------
Additional Information (continued)
- ------------------------------------------------------
- --------------------------
exclusively affecting a single Class; (f) the exchange
privilege of each Class;
and (g) the conversion feature of the Class B shares.
The Trust's Board of
Trustees does not anticipate that there will be any
conflicts among the
interests of the holders of the different Classes. The
Trustees, on an ongoing
basis, will consider whether any such conflict exists
and, if so, take
appropriate action.
The Trust does not hold annual shareholder
meetings. There normally will
be no meeting of shareholders for the purpose of
electing Trustees unless and
until such time as less than a majority of the
Trustees holding office have been
elected by shareholders. The Trustees will call a
meeting for any purpose upon
written request of shareholders holding at least 10%
of the Trust's outstanding
shares and the Fund will assist shareholders in
calling such a meeting as
required by the 1940 Act. Shareholders of record
owning no less than two-thirds
of the outstanding shares of the Trust may remove a
Trustee through a
declaration in writing or by vote cast in person or by
proxy at a meeting called
for that purpose.
When matters are submitted for shareholder vote,
shareholders of each
Class will have one vote for each full share owned and
a proportionate,
fractional vote for any fractional share held of that
Class. Generally, shares
of the Trust vote by individual fund on all matters
except (a) matters affecting
only the interests of one or more of the funds, in
which case only shares of the
affected fund or funds would be entitled to vote or
(b) when the 1940 Act
requires that shares of the funds be voted in the
aggregate. Similarly, shares
of the Fund will be voted generally on a Fund-wide
basis except 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 Exchange Place, Boston,
Massachusetts 02109, and
serves as the Trust's transfer agent.
The Trust sends shareholders of the Fund a semi-
annual report and an
audited annual report, which include listings of the
investment securities held
by the Fund at the end of the reporting period. In an
effort to reduce the
Fund's printing and mailing costs, the Trust plans to
consolidate the mailing of
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.
42
<PAGE>
Smith Barney
A
Member of TravelersGroup{LOGO]
Smith Barney
Large Cap
Blend
Fund
388 Greenwich Street
New York, New York 10013
FD 0250 5/97
Part B
The Statement of Additional Information filed on May 29, 1997 with
Post-Effective Amendment No. 41 to the Fund's Registration Statement
(Accession No. 0000091155-97-000258), is incorporated by reference in
its entirety.
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:
(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
ncorporated by reference to Post-Effective Amendment
No. 31.
(9)(a) Administration Agreements between
Registrant and MMC (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) Not Applicable
(12) Not Applicable.
(13) Not Applicable
(14)(a) Prototype Defined Contribution Plan
relating to 401(k) program is incorporated by
reference to Post-Effective Amendment No. 33.
(b) Form of Individual Retirement
Account Disclosure Statement is incorporated by
reference to Post-Effective Amendment No. 33.
(15) Amended Services and Distribution Plans
pursuant to Rule 12b-1 between the Registrant on
behalf of Smith Barney Growth and Income Fund and
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) Not Applicable
(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 Not Applicable
Item 27 Indemnification
The response to this item is incorporated by reference
to Registrant's Pre-Effective Amendment No. 1 to the
Registration Statement.
Item 28(a) Business and Other Connections of
Investment Adviser
Investment Adviser - - Mutual Management Corp. ("MMC")
(formerly known as Smith Barney Mutual Funds
Management Inc.),
was incorporated in December 1968 under the laws of
the State of Delaware. MMC is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings")
(formerly known as Smith Barney Holdings
Inc.), which in turn is a wholly owned subsidiary of
Travelers Group Inc. (formerly known as Primerica
Corporation) ("Travelers"). MMC 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 MMC 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 MMC pursuant to the Advisers Act (SEC
File No. 801-8314).
Item 29. Principal Underwriters
(a) Smith Barney Inc. ("Smith Barney ") acts as principal underwriter for
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Greenwich Street California Municipal Fund Inc.
Greenwich Street Municipal Fund Inc.
Greenwich Street Series Fund
High Income Opportunity Fund Inc.
The Italy Fund Inc.
Managed High Income Portfolio Inc.
Managed Municipals Portfolio II Inc.
Managed Municipals Portfolio Inc.
Municipal High Income Fund Inc.
Puerto Rico Daily Liquidity Fund Inc.
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc.
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Intermediate Municipal Fund, Inc.
Smith Barney Investment Funds Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Fund, Inc.
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Smith Barney Worldwide Special Fund N.V. (Netherlands Antilles)
Travelers Series Fund Inc.
The USA High Yield Fund N.V.(Netherlands Antilles)
Worldwide Securities Limited (Bermuda)
Zenix Income Fund Inc. and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings.
On June 1, 1994, Smith Barney changed its name from
Smith Barney Shearson Inc. to its current name. The
information required by this Item 29 with respect to
each director, officer and partner of Smith Barney is
incorporated by reference to Schedule A of FORM BD
filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 812-8510).
Item 30 . Location of Accounts and Records
(1) Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Equity Funds
388 Greenwich Street
New York, New York 10013
(3) Mutual Management Corp.
388 Greenwich Street
New York, New York 10013
(4) Smith Barney Strategy Advisers Inc.
388 Greenwich Street
New York, New York 10013
(5) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA 19103
(6) First Data Investor Services Group
One Exchange Place
Boston, Massachusetts 02109
Item 31 Management Services
Not Applicable.
Item 32 Undertakings
(a) The Registrant hereby undertakes to call a
meeting of its shareholders for the
purpose of voting upon the question of
removal of a trustee or trustees of
Registrant when requested in to do so by
the holders of at least 10% of
Registrant's outstanding shares.
Registrant undertakes further, in
connection with the meeting, to comply
with the provisions of Section 16(c) of
+the 1940 Act relating to communications
with the shareholders of certain common-
law trusts.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the Registrant, SMITH BARNEY
EQUITY FUNDS, has duly caused this Amendment to the
Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the
City of New York, State of New York on the 30th day of
March, 1998.
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
Heath B. McLendon the Board 3/30/98
Chief Executive
Officer
/s/ Lewis E. Daidone Senior Vice
Lewis E. Daidone President and 3/30/98
Treasurer
Chief Financial
and Accounting Officer
/s/ Lee Abraham* Trustee 3/30/98
Lee Abraham
/s/ Allan J. Bloostein* Trustee 3/30/98
Allan J. Bloostein
/s/ Richard E. Hanson* Trustee 3/30/98
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
Description of Exhibits
Cover Letter to SEC
