PROSPECTUS
Concert
Social
Awareness
Fund
MAY 29, 1998
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
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Prospectus May 29, 1998
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Concert Social Awareness Fund
388 Greenwich Street
New York, New York 10013
800-451-2010
Concert Social Awareness Fund (the "Fund") seeks high total return
consisting of capital appreciation and current income by investing in a
combination of equity and fixed-income securities of issuers who demonstrate a
positive awareness of their impact on the society within which they operate.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Equity Funds (the "Trust"). The
Trust is an open-end management investment company commonly referred to as a
mutual fund.
This Prospectus sets forth concisely certain information about the Fund
and the Trust, including sales charges, distribution and service fees and
expenses, that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and retain
it for future reference. Shares of the other funds offered by the Trust are
described in separate prospectuses that may be obtained by calling the Trust at
the telephone number set forth above or by contacting a Smith Barney Financial
Consultant.
Additional information about the Fund and the Trust is contained in a
Statement of Additional Information dated May 29, 1998, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Trust at the telephone number or address set
forth above or by contacting a Smith Barney Financial Consultant. The Statement
of Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this Prospectus in
its entirety.
Smith Barney Inc.
Distributor
Smith Barney Strategy Advisers Inc.
Investment Adviser
Mutual Management Corp.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
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Table of Contents
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Prospectus Summary 3
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Financial Highlights 10
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Investment Objective and Management Policies 14
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Valuation of Shares 24
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Dividends, Distributions and Taxes 24
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Purchase of Shares 26
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Exchange Privilege 35
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Redemption of Shares 38
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Minimum Account Size 41
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Performance 41
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Management of the Trust and the Fund 42
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Distributor 44
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Additional Information 44
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No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust or the
distributor. This Prospectus does not constitute an offer by the Fund or the
distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such an offer or solicitation in such jurisdiction.
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2
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Prospectus Summary
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The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospectus.
See "Table of Contents."
Investment Objective The Fund is an open end, diversified management investment
company that seeks high total return consisting of capital appreciation and
current income by investing in a combination of equity and fixed-income
securities of issuers who demonstrate a positive awareness of their impact on
the society within which they operate. See "Investment Objective and Management
Policies."
Alternative Purchase Arrangements The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rates of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $15,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25% of
the value of the average daily net assets of the Class. The initial sales charge
may be reduced or waived for certain purchases. Purchases of Class A shares 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 0.75% of the value of the average daily net assets of the
Class. The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends
and distributions ("Class B Dividend Shares") will be converted at that time.
See "Purchase of Shares--Deferred Sales Charge Alternatives."
3
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Prospectus Summary (continued)
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Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the value of the average daily net assets of the
Class, and investors pay a CDSC of 1.00% if they redeem Class C shares within 12
months of purchase. The CDSC may be waived for certain redemptions. The Class C
shares' distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A shares. Purchases of Fund shares, which when
combined with current holdings of Class C shares of the Fund equal or exceed
$500,000 in the aggregate, should be made in Class A shares at net asset value
with no sales charge, and will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $15,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an investment
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of these Classes. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
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
4
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Prospectus Summary (continued)
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asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney Inc. ("Smith Barney") listed under "Exchange
Privilege." Other Class A share purchases may also be eligible for a reduced
initial sales charge. See "Purchase of Shares." Because the ongoing expenses of
Class A shares will be lower than those for Class B and Class C shares,
purchasers eligible to purchase Class A shares at net asset value or at a
reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Trust and the Fund" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes" and "Exchange Privilege" for other differences between the Classes of
shares.
Smith Barney 401(k) and ExecChoice(TM) Programs Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as other types of participant directed, tax-qualified employee benefit
plans. Other investors may be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without a sales
charge as investment alternatives under both of these programs. See "Purchase of
Shares--Smith Barney 401(k) and ExecChoice(TM) Programs."
Purchase of Shares Shares may be purchased through the Fund's distributor,
Smith Barney, a broker that clears securities transactions through Smith Barney
on a fully disclosed basis (an "Introducing Broker") or an investment dealer in
the selling group. In addition, certain investors, including qualified
retirement plans and certain other institutional investors may purchase shares
directly from the Fund through the Fund's transfer agent, First Data Investor
Services Group, Inc. ("First Data"). See "Purchase of Shares."
Investment Minimums Investors in Class A, Class B and Class C shares may open an
account by making an initial investment of at least $1,000 for each account, or
$250 for an individual retirement account ("IRA") or a Self-Employed Retirement
Plan. Investors in Class Y shares may open an account for an initial investment
of $15,000,000. 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
5
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Prospectus Summary (continued)
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for all Classes is $25. The minimum investment requirements for purchases of all
Classes through the Systematic Investment Plan are described below. See
"Purchase of Shares."
Systematic Investment Plan The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares. The minimum initial and subsequent
investment requirement for shareholders purchasing shares through the Systematic
Investment Plan on a monthly basis is $25 and on a quarterly basis is $50. See
"Purchase of Shares."
Redemption of Shares Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Redemption of Shares."
Management of the Trust and the Fund Smith Barney Strategy Advisers Inc.
("Strategy Advisers") serves as the Fund's investment adviser and is a wholly
owned subsidiary of Mutual Management Corp. ("MMC") (formerly known as Smith
Barney Mutual Funds Management Inc.). MMC provides investment advisory and
management services to investment companies affiliated with Smith Barney. MMC,
which also serves as the Fund's administrator, is a wholly owned subsidiary of
Salomon Smith Barney Holdings Inc. ("Holdings"), which in turn is a wholly owned
subsidiary of Travelers Group Inc. ("Travelers"), a diversified financial
services company engaged through its subsidiaries principally in four business
segments: Investment Services, including Assets Management, Consumer Finance
Services, Life Insurance Services, and Property & Casualty Insurance Services.
Exchange Privilege Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined. See "Exchange Privilege."
Valuation of Shares Net asset value of the Fund for the prior day is generally
quoted daily in the financial section of most newspapers and is also available
from any Smith Barney Financial Consultant. See "Valuation of Shares."
Dividends and Distributions Dividends from net investment income are paid
quarterly. Distributions of net realized capital gains, if any, are declared and
paid annually. See "Dividends, Distributions and Taxes."
Reinvestment of Dividends Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
6
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Prospectus Summary (continued)
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charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
Risk Factors and Special Considerations There can be no assurance that the
Fund's investment objective will be achieved. The foreign securities in which
the Fund may invest may be subject to certain risks in addition to those
inherent in domestic investments. The Fund may make certain investments and
employ certain investment techniques that involve other risks and special
considerations. The techniques presenting the Fund with risks or special
considerations are investing in restricted securities, warrants, convertible
securities, securities of unseasoned issuers, entering into transactions
involving options, entering into repurchase agreements and lending portfolio
securities. These risks and those associated with when-issued and
delayed-delivery transactions and covered option writing are described under
"Investment Objective and Management Policies -- Risk Factors and Special
Considerations."
The Fund's Expenses The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's operating expenses for its most
recent fiscal year:
<TABLE>
<CAPTION>
Concert Social Awareness Fund Class A Class B Class C Class Y
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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 0.75% 0.75% 0.75% 0.75%
12b-1 fees** 0.25 1.00 1.00 None
Other expenses 0.19 0.20 0.18 0.09
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TOTAL FUND OPERATING EXPENSES 1.19% 1.95% 1.93% 0.84%
==============================================================================================
</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.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee, but will be subject to the
applicable service fee. Class C shares do not have a conversion feature
and, therefore, are subject to an ongoing distribution fee. As a result,
long-term shareholders of Class C shares may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
7
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Prospectus Summary (continued)
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Class A shares of the Fund purchased through the Smith Barney AssetOne
Program will be subject to an annual asset-based fee, payable quarterly, in lieu
of the initial sales charge. The fee will vary to a maximum of 1.50%, depending
on the amount of assets held through the Program. For more information, please
call your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges, depending on the amount purchased and, in the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
or ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of the
average daily net assets of Class A shares. Smith Barney also receives, with
respect to Class B and Class C shares, an annual 12b-1 fee of 1.00% of the value
of the average daily net assets of the respective Class, consisting of a 0.75%
distribution fee and a 0.25% service fee. "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
Example The following example is intended to assist an investor in under-
standing 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."
Concert Social Awareness Fund 1 year 3 years 5 years 10 years*
================================================================================
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each
time period:
Class A............................ $62 $86 $112 $187
Class B............................ 70 91 120 208
Class C............................ 30 61 104 225
Class Y............................ 9 27 47 104
An investor would pay the following
expenses on the same investment,
assuming the same annual return and
no redemption:
Class A............................ 62 86 112 187
Class B............................ 20 61 105 208
Class C............................ 20 61 104 225
Class Y............................ 9 27 47 104
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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.
8
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Prospectus Summary (continued)
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The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may result in
an actual return greater or less than 5.00%. This example should not be
considered a representation of past or future expenses and actual expenses may
be greater or less than those shown.
9
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Financial Highlights
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The following information for each of the years in the three-year period
ended January 31, 1998 has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon appears in the Fund's Annual Report dated January
31, 1998. The following information for the fiscal years ended January 31, 1989
through January 31, 1995 has been audited by other independent auditors. The
information set out below should be read in conjunction with the financial
statements and related notes that also appear in the Fund's Annual Report which
is incorporated by reference into the Statement of Additional Information.
For a Class A share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
Concert Social Awareness Fund 1998 1997 1996 1995 1994(1) 1993(2)
============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $19.36 $19.00 $15.91 $17.72 $16.85 $16.80
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Income (Loss) From Operations:
Net investment income 0.48 0.57 0.61 0.57 0.52 0.13
Net realized and unrealized
gain (loss) 3.27 1.71 3.52 (1.25) 2.37 0.88
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Total Income (Loss) From Operations 3.75 2.28 4.13 (0.68) 2.89 1.01
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Less Distributions From:
Net investment income (0.55) (0.60) (0.52) (0.47) (0.56) (0.11)
Net realized gains (1.99) (1.32) (0.52) (0.66) (1.46) (0.85)
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Total Distributions (2.54) (1.92) (1.04) (1.13) (2.02) (0.96)
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Net Asset Value, End of Year $20.57 $19.36 $19.00 $15.91 $17.72 $16.85
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Total Return 19.89% 12.41% 26.47% (3.82)% 17.80% 6.12%++
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Net Assets, End of Year (millions) $202 $178 $175 $159 $6 $0.6
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Ratios to Average Net Assets:
Expenses 1.19% 1.28% 1.21% 1.33% 1.25% 1.25%+
Net investment income 2.34 2.98 3.10 2.89 2.85 3.61+
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Portfolio Turnover Rate 62% 68% 81% 103% 131% 93%
============================================================================================================
Average commissions per share
paid on equity transactions(3) $0.06 $0.06 $0.06 -- -- --
============================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(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.
10
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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>
Concert Social
Awareness Fund 1998 1997 1996 1995 1994(1) 1993 1992 1991 1990 1989
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $19.42 $19.05 $15.97 $17.79 $16.84 $17.26 $15.61 $15.57 $15.03 $13.62
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Income (Loss) From
Investment Operations
Net investment
income 0.33 0.43 0.49 0.39 0.38 0.51 0.52 0.54 0.53 0.52
Net realized and
unrealized
gain/(loss) 3.27 1.71 3.53 (1.20) 2.37 1.06 2.56 0.47 1.10 1.48
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Total Income (Loss)
From Operations 3.60 2.14 4.02 (0.81) 2.75 1.57 3.08 1.01 1.63 2.00
- -------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment
income (0.40) (0.45) (0.42) (0.35) (0.34) (0.50) (0.55) (0.51) (0.69) (0.48)
Net realized gains (1.99) (1.32) (0.52) (0.66) (1.46) (1.49) (0.88) (0.46) (0.38) (0.11)
Capital -- -- -- -- -- -- -- -- (0.02) --
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.39) (1.77) (0.94) (1.01) (1.80) (1.99) (1.43) (0.97) (1.09) (0.59)
===============================================================================================================================
Net Asset Value,
End of Year $20.63 $19.42 $19.05 $15.97 $17.79 $16.84 $17.26 $15.61 $15.57 $15.03
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Total Return 18.95% 11.60% 25.58% (4.54)% 16.88% 9.68% 19.96% 6.80% 10.76% 15.10%
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Net Assets, End of
Year (millions) $172 $203 $226 $216 $334 $288 $234 $197 $206 $147
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Ratios to Average
Net Assets:
Expenses 1.95% 2.03% 1.94% 2.00% 1.98% 2.02% 2.06% 2.09% 2.24% 2.29%
Net investment
income 1.62 2.23 2.37 2.21 2.11 2.84 3.02 3.43 3.46 3.59
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover
Rate 62% 68% 81% 103% 131% 93% 76% 56% 61% 42%
===============================================================================================================================
Average commissions
per share paid
on equity
transactions(2) $0.06 $0.06 $0.06 -- -- -- -- -- -- --
===============================================================================================================================
</TABLE>
(1) The per share amounts have been calculated using the monthly average
shares method rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
11
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Financial Highlights (continued)
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For a Class C share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
Concert Social Awareness Fund 1998 1997 1996 1995(1) 1994(2)(3)
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year 19.46 $19.08 $15.97 $17.79 $17.54
- -----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.34 0.44 0.45 0.38 0.32
Net realized and unrealized gain (loss) 3.27 1.71 3.60 (1.19) 1.67
- -----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.61 2.15 4.05 (0.81) 1.99
- -----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.40) (0.45) (0.42) (0.35) (0.28)
Net realized gains (1.99) (1.32) (0.52) (0.66) (1.46)
- -----------------------------------------------------------------------------------------------------------------
Total Distributions (2.39) (1.77) (0.94) (1.01) (1.74)
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.68 $19.46 $19.08 $15.97 $17.79
- -----------------------------------------------------------------------------------------------------------------
Total Return 18.97% 11.65% 25.77% (4.54)% 11.83%++
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Net Assets, End of Year (000s) $7,173 $4,000 $3,396 $1,972 $399
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.93% 2.01% 1.94% 1.98% 1.93%+
Net investment income 1.54 2.25 2.31 2.24 2.16+
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 68% 81% 103% 131%
=================================================================================================================
Average Commissions per share
paid on equity transactions(4) $0.06 $0.06 $0.06 -- --
=================================================================================================================
</TABLE>
(1) On November 7, 1994, the former Class D shares were renamed Class C
shares.
(2) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from May 5, 1993 (inception date) to January 31, 1994.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
12
<PAGE>
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Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a Class Y share of beneficial interest outstanding throughout each year:
Concert Social Awareness Fund 1998 1997(1)
================================================================================
Net Asset Value, Beginning of Year $19.39 $19.00
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.56 0.51
Net realized and unrealized loss 3.27 1.69
- --------------------------------------------------------------------------------
Total Loss From Operations 3.83 2.20
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.61) (0.49)
Net realized gains (1.99) (1.32)
- --------------------------------------------------------------------------------
Total Distributions (2.60) (1.81)
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $20.62 $19.39
- --------------------------------------------------------------------------------
Total Return 20.31% 11.94%++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $220 $143
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.84% 0.90%+
Net investment income 2.64% 3.31+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 68%
================================================================================
Average commissions per share
paid on equity transactions $0.06 $0.06
================================================================================
(1) For the period from March 28, 1996 (inception date)to January 31, 1997.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
13
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Investment Objective and Management Policies
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INVESTMENT OBJECTIVE
The investment objective of the Fund is high total return consisting of
capital appreciation and current income. The Fund's investment objective may be
changed only with the approval of a majority of the Fund's outstanding voting
securities. There can be no assurance the Fund's investment objective will be
achieved.
The Fund seeks to achieve its objective by investing in a variable
combination of equity and fixed-income securities of issuers who demonstrate a
positive awareness of their impact on the society within which they operate. The
percentages of the Fund's assets invested in each of these types of securities
are adjusted from time to time to conform to the asset allocation percentages
most recently determined by Strategy Advisers. Under normal market conditions,
the Fund will have between 65% and 85% of its assets invested in equity
securities and between 15% and 35% in fixed-income securities. The mix of the
Fund's investments may vary from time to time.
Strategy Advisers has responsibility for the selection of specific
securities on behalf of the Fund and for determining the allocation of the
Fund's assets. See "Management of the Trust and the Fund." Following the
variable asset allocation strategy may involve frequent shifts among classes of
investments and result in the Fund's having a relatively high portfolio turnover
rate.
The equity portion of the assets of the Fund will consist primarily of
common stocks of established companies traded on exchanges or over-the-counter
that represent an opportunity for total return on a long-term basis. In
evaluating companies for investment, Strategy Advisers selects securities of
companies that it believes are undervalued based on relevant indicators such as
price/earnings ratios, forecast growth, as well as balance sheet, profitability
and risk analysis. Equity investments may be made without regard to the size of
companies and generally will be made in a broad spectrum of industries. The Fund
may also invest in preferred stock, securities convertible into or exchangeable
for common stock and warrants. The fixed income portion of the Fund's assets
will be composed primarily of investment-grade corporate bonds, debentures and
notes, asset-backed and mortgage-backed securities and obligations of the United
States government or its agencies or instrumentalities ("U.S. government
securities"). The Fund's fixed-income assets may be short-, medium- or
long-term, as determined at the discretion of Strategy Advisers based upon an
evaluation of economic and market trends. When Strategy Advisers believes that a
defensive investment posture is warranted or when attractive investment
opportunities do not exist, the Fund may temporarily invest all or a portion of
its assets in short-term money market instruments. The money market securities
in which the Fund may invest include commercial paper, bank obligations
(possibly including community investments) and short-term U.S. government
securities. Up to 25% of the Fund's assets may be invested in equity
14
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Investment Objective and Management Policies (continued)
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and debt securities of foreign issuers. The Fund also may write covered call
options, lend its portfolio securities and invest in real estate investment
trusts. Risk factors and special considerations associated with the Fund's
investments are described under "Investment Strategies and Techniques" and "Risk
Factors and Special Considerations" below.
Strategy Advisers believes that there is a direct correlation between
companies that demonstrate an acute awareness of their impact on the society
within which they operate and companies which offer attractive long-term
investment potential. Strategy Advisers believes that addressing social issues
in a positive manner can translate into sound business. For example, by ensuring
a product or service does not negatively impact the environment, a company can
avoid costly litigation and clean-up costs; and by maintaining positive
standards for the workplace and a diverse employee population, a company can
better ensure access to quality management talent and improved productivity; or
by becoming more involved in the community, a company can enhance its consumer
franchise. Top quality management teams who successfully balance their
companies' business interests with their social influences can gain significant
competitive advantages over the long run, which may result in increased
shareholder values and, therefore, better investments. The Fund is designed to
incorporate both social and financial criteria in all of its investment
decisions.
The Fund will hold securities issued by companies which, in the opinion of
Strategy Advisers, meet the Fund's investment policies, and do not violate the
Fund's social awareness criteria. The primary social emphasis will be to
establish investments in companies that make a positive contribution to society
through their products and services or through the way that they do business.
These include companies known for fostering fair and progressive relations with
their employees, companies taking an active role in promoting worthwhile causes
or known to be good community citizens, companies committed to upholding human
rights in their domestic and international operations, and companies promoting
positive alternatives to unsafe, polluting or wasteful business activities or
products.
In addition, Strategy Advisers has identified specific areas of social and
financial concern and, thus, the Fund will not purchase the debt or equity
securities of any company that Strategy Advisers has significant reason to
believe is engaged at the time of investment by the Fund in any of the
following:
o Tobacco production;
o Manufacture of unsafe products;
o Engaging in irresponsible advertising or marketing practices;
o Engaging in activities that cause substantial environmental damage;
o Production of weapons;
o Ownership or design of nuclear facilities.
15
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Investment Objective and Management Policies (continued)
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These portfolio restrictions are based on the belief that a company will
benefit from its social awareness by enabling it to better position itself in
developing business opportunities while avoiding liabilities that may be
incurred when a product or service is determined to have a negative social
impact. These companies should be better prepared to respond to external demands
and ensure that over the longer term they will be viable to provide a positive
return to both investors and society as a whole.
Strategy Advisers will use its best efforts to assess a company's social
performance. This analysis will be based on present activities, and will not
preclude securities solely because of past activities. Strategy Advisers will
monitor the social progress or deterioration of each company in which the Fund
is invested and in the event a company is no longer in compliance with the
Fund's social criteria, the Fund will plan to sell the securities of such
company as soon as it is deemed prudent. The Fund's Trustees will monitor the
social awareness criteria used by the Fund and Strategy Advisers may, upon
approval of the Trustees, change the criteria used to rate the social
performance of an issuer without prior notice or shareholder approval.
While the application of the Fund's social awareness criteria may preclude
some securities with strong earnings and growth potential, Strategy Advisers
believes that there are sufficient investment opportunities among those
companies that satisfy the social awareness criteria to meet the Fund's
investment objectives.
INVESTMENT STRATEGIES AND TECHNIQUES
In attempting to achieve its investment objective, the Fund may employ,
among others, one or more of the strategies and techniques set forth below. The
Fund is under no obligation to use any of the strategies or techniques at any
given time or under any particular economic condition. More detailed information
concerning these strategies and techniques and their related risks is contained
in the Statement of Additional Information.
Repurchase Agreements. The Fund may enter into repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the Fund
and certain dealers on the Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period of time
(usually not more than seven days), subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will be monitored on an ongoing basis by Strategy Advisers to ensure
that the value is at least equal at all times to the total amount of the
repurchase obligation, including interest. Strategy Advisers, acting
16
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
under the supervision of the Trust's Board of Trustees, reviews on an ongoing
basis the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate
potential risks.
When-Issued Securities and Delayed-Delivery Transactions. In order to
secure yields or prices deemed advantageous at the time, the Fund may purchase
or sell securities on a when-issued or delayed-delivery basis. The Fund will
enter into a when-issued transaction for the purpose of acquiring portfolio
securities and not for the purpose of leverage. In such transactions delivery of
the securities occurs beyond the normal settlement periods, but no payment or
delivery is made by the Fund prior to the actual delivery or payment by the
other party to the transaction. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on those securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. The Fund will establish with its custodian a segregated account
consisting of cash or equity and debt securities of any grade provided such
securities have been determined by Strategy Advisers to be liquid and
unencumbered pursuant to guidelines established by the Trustees in an amount
equal to the amount of its when-issued and delayed-delivery commitments. Placing
securities rather than cash in the segregated account may have a leveraging
effect on the Fund's net assets.
Lending of Portfolio Securities. Consistent with applicable regulatory
require ments, the Fund may lend its portfolio securities to brokers, dealers
and other financial organizations. Loans of portfolio securities by the Fund
will be collateralized by cash, letters of credit or obligations of the United
States govern ment or its agencies and instrumentalities ("U.S. government
securities") which are maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. By lending its
portfolio securities, the Fund will seek to generate income by continuing to
receive interest on the loaned securities, by investing the cash collateral in
short-term instruments or by obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delays 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 the Fund to be
of good standing and will not be made unless, in the judgment of the Fund, the
consideration to be earned from such loans would justify the risk.
Covered Option Writing. The Fund may write covered call options on
portfolio securities and will realize fees (referred to as "premiums") for
granting the rights evidenced by the options. In return for a premium, the Fund
will forfeit the right to any appreciation in the value of the underlying
security for the life of the option (or until a closing purchase transaction can
be effected). The purchaser of a call option written by the Fund has the right
to purchase from the Fund an
17
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Investment Objective and Management Policies (continued)
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underlying security owned by the Fund at an agreed-upon price for a specified
time period. Upon the exercise of a call option written by the Fund, the Fund
may suffer a loss equal to the underlying security's market value at the time of
the option's exercise over the exercise price plus the premium received for
writing the option. Whenever the Fund writes a call option, it will (a) continue
to own or have the absolute and immediate right to acquire the underlying
security without additional cash consideration or (b) hold a call option at the
same or a lower exercise price for the same exercise period on the same
underlying security as the call option written, for as long as it remains
obligated as the writer of the option.
The Fund may engage in a closing purchase transaction to realize a profit,
to prevent an underlying security from being called or to unfreeze an underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). To effect a closing
purchase transaction, the Fund would purchase, prior to the holder's exercise of
an option the Fund has written, an option of the same series as that on which
the Fund desires to terminate its obligation. The obligation of the Fund under
an option it has written would be terminated by a closing purchase transaction,
but the Fund would not be deemed to own an option as the result of the
transaction. There can be no assurance that the Fund will be able to effect
closing purchase transactions at a time when it wishes to do so. To facilitate
closing purchase transactions, however, the Fund will ordinarily write options
only if a secondary market for the options exists on a domestic securities
exchange or in the over-the-counter market.
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may hold cash and invest in money
market instruments without limitation when deemed advantageous by Strategy
Advisers. Short-term instruments in which the Fund may invest include: U.S.
government securities; bank obligations (including community investments,
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loan associations and other banking institu-
tions having total assets in excess of $500 million); commercial paper rated no
lower than A-2 by Standard & Poor's Ratings Group ("S&P") or Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or the equivalent from another nationally
recognized statistical rating organization or, if unrated, of an issuer having
an outstanding,
unsecured debt issue then rated within the three highest rating categories. A
description of the commercial paper rating categories of Moody's and S&P is
contained in the Appendix to the Statement of Additional Information.
Mortgage and Asset-Backed Securities. The Fund may purchase fixed or
adjustable rate mortgage-backed securities issued by the Government National
Mortgage Association, Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation, and other asset-backed securities, including
securities backed by automobile loans, equipment leases or credit card
receivables.
18
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Investment Objective and Management Policies (continued)
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These securities directly or indirectly represent a participation in, or are
secured by and payable from, fixed or adjustable rate mortgage or other loans
which may be secured by real estate or other assets. Unlike traditional debt
instruments, payments on these securities include both interest and a partial
payment of principal. Prepayments of the principal of underlying loans may
shorten the effective maturities of these securities and may result in the Fund
having to reinvest proceeds at a lower interest rate. The Fund may also purchase
collateralized mortgage obligations which are a type of bond secured by an
underlying pool of mortgages or mortgage pass-through certificates that are
structured to direct payments on underlying collateral to different series or
classes of the obligations.
Eurodollar or Yankee Obligations. The Fund may invest in Eurodollar and
Yankee obligations. Eurodollar bank obligations are dollar denominated debt
obligations issued outside the U.S. capital markets by foreign branches of U.S.
banks and by foreign banks. Yankee obligations are dollar denominated
obligations issued in the U.S. capital markets by foreign issuers. Eurodollar
(and to a limited extent, Yankee) obligations are subject to certain sovereign
risks. One such risk is the possibility that a foreign government might prevent
dollar denominated funds from flowing across its borders. Other risks include:
adverse political and economic developments in a foreign country; the extent and
quality of government regulation of financial markets and institutions; the
imposition of foreign withholding taxes; and expropriation or nationalization of
foreign issuers.
U.S. Government Securities. The Fund will invest in direct U.S. government
debt obligations since it is Strategy Advisers' experience that these
investments satisfy the social awareness criteria and are acceptable to most
social investors. The U.S. government securities in which the Fund may invest
include: direct obligations of the United States Treasury and obligations issued
or guaranteed by U.S. government agencies and instrumentalities, including
instruments supported by the full faith and credit of the United States;
securities supported by the right of the issuer to borrow from the United States
Treasury; and securities supported solely by the credit of the instrumentality.
Zero Coupon Securities. A zero coupon bond pays no interest in cash to its
holder during its life, although interest is accrued during that period. Its
value to an investor consists of the difference between its face value at the
time of maturity and the price for which it was acquired, which is generally an
amount significantly less than its face value (sometimes referred to as a "deep
discount" price). Because such securities usually trade at a deep discount, they
will be subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities which make
periodic distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, zero coupon
securities eliminate reinvestment risk and lock in a rate of return to maturity.
19
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Investment Objective and Management Policies (continued)
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Futures and Options on Futures. When deemed advisable by Strategy
Advisers, the Fund may enter into interest rate futures contracts, stock index
futures contracts and related options that are traded on a domestic exchange or
board of trade. These transactions will be made solely for the purpose of
hedging against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions, as the case may
be. All futures and options contracts will be entered into only when the
transactions are economically appropriate for the reduction of risks inherent in
the management of the Fund.
An interest rate futures contract provides for the future sale by the one
party and the purchase by the other party of a specified amount of a particular
financial instrument (debt security) at a specified price, date, time and place.
A stock index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally entered into.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the companies included in the indexes. An option on an
interest rate or stock index contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time prior to the expiration date of the
option.
In entering into transactions involving futures contracts and options on
futures contracts, the Fund will comply with applicable requirements of the
Commodities Futures Trading Commission (the "CFTC") which require that its
transactions in futures and options be engaged in for "bona fide hedging"
purposes or other permitted purposes, provided that aggregate initial margin
deposits and premiums required to establish positions, other than those
considered by the CFTC to be "bona fide hedging," will not exceed 5% of the
Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts.
The use of futures contracts and options on futures contracts as a hedging
device involves several risks. There can be no assurance that there will be a
correlation between price movements in the underlying securities or index on the
one hand, and price movements in the securities that are the subject of the
hedge, on the other hand. Positions in futures contracts and options on futures
contracts may be closed out only on the exchange or board of trade on which they
were entered into, and there can be no assurance that an active market will
exist for a particular contract or option at any particular time.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves special considerations, such as those
described below:
20
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Investment Objective and Management Policies (continued)
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Illiquid Securities. The Fund may invest up to 15% of its total assets in
illiquid securities, including repurchase agreements with maturities in excess
of seven days.
Warrants. Because a warrant does not carry with it the right to dividends
or voting rights with respect to the securities that the warrant holder is
entitled to purchase, and because a warrant does not represent any rights to the
assets of the issuer, a warrant may be considered more speculative than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying security and a warrant
ceases to have value if it is not exercised prior to its expiration date. The
investment in warrants, valued at the lower of cost or market, may not exceed 5%
of the value of the Fund's net assets. Included within that amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants that are not
listed on the NYSE or the American Stock Exchange. Warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
Securities of Unseasoned Issuers. Securities in which the Fund may invest
may have limited marketability and, therefore, may be subject to wide
fluctuations in market value. In addition, certain securities may be issued by
companies that lack a significant operating history and are dependent on
products or services without an established market share.
Options. Option writing for the Fund may be limited by position and
exercise limits established by national securities exchanges and by requirements
of the Code for qualification as a regulated investment company. See "Dividends,
Distributions and Taxes." In addition to writing covered call options to
generate current income, the Fund may enter into options transactions as hedges
to reduce investment risk, generally by making an investment expected to move in
the opposite direction of a portfolio position. A hedge is designed to offset a
loss on a portfolio position with a gain on the hedge position; at the same
time, however, a properly correlated hedge will result in a gain on the
portfolio position being offset by a loss on the hedge position. The Fund bears
the risk that the prices of the securities being hedged will not move in the
same amount as the hedge. The Fund will engage in hedging transactions only when
deemed advisable by Strategy Advisers. Successful use by the Fund of options
will be subject to Strategy Advisers' ability to predict correct movements in
the direction of the stock or index underlying the option used as a hedge.
Losses incurred in hedging transactions and the costs of these transactions will
affect the Fund's performance.
The ability of the Fund to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While the Fund
generally will write options only if a liquid secondary market appears to exist
for the options purchased or sold, for some options no such secondary market may
exist or the market may cease to exist. If the Fund cannot enter into a closing
purchase transaction with
21
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Investment Objective and Management Policies (continued)
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respect to a call option it has written, the Fund will continue to be subject to
the risk that its potential loss upon exercise of the option will increase as a
result of any increase in the value of the underlying security. The Fund could
also face higher transaction costs, including brokerage commissions, as a result
of its options transactions.
Repurchase Agreements. The Fund bears a risk of loss in the event that the
other party to a repurchase agreement defaults on its obligations and the Fund
is delayed or prevented from exercising its rights to dispose of the underlying
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert its
rights to them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or a part of the income from the agreement.
Foreign Securities. Certain risks are involved in investing in the
securities of companies and governments of foreign nations that go beyond the
usual risks inherent in U.S. investments. These risks include those resulting
from revaluation of currencies, future adverse political and economic
developments, the possible imposition of restrictions on the repatriation of
currencies or other foreign governmental laws or restrictions, reduced
availability of public information concerning issuers and the lack of uniform
accounting, auditing and financial reporting standards or of other regulatory
practices and requirements comparable to those applicable to domestic companies.
The value of the assets of the Fund invested in foreign securities may be
adversely affected by fluctuations in the value of one or more foreign
currencies relative to the dollar. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable domestic companies. In addition, the possibility exists
in certain foreign countries of expropriation, nationalization, confiscatory
taxation and limitations on the use or removal of funds or other assets of the
Fund, including the withholding of dividends. Foreign securities may be subject
to foreign govern ment taxes that could reduce the yield on such securities.
Because the Fund will invest in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates may
adversely affect the value of portfolio securities and the appreciation or
depreciation of investments. Investment in foreign securities may also result in
higher expenses due to the cost of converting foreign currency to U.S. dollars,
the payment of fixed brokerage commissions on foreign exchanges, which generally
are higher than commissions on domestic exchanges, and the expense of
maintaining securities with foreign custodians.
The Fund may also purchase American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
securities representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States and are
22
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Investment Objective and Management Policies (continued)
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issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR, and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Fund may invest in ADRs through both
sponsored and unsponsored arrangements.
Securities of Developing Countries. A developing country generally is
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income markets of
developing countries involves exposure to economic structures that are generally
less diverse and mature, and to political systems that can be expected to have
less stability than those of developed countries. Historical experience
indicates the markets of developing countries have been more volatile than the
markets of the more mature economies of developed countries; however, such
markets often have higher rates of return to investors.
Year 2000. The investment management services provided to the Fund by MMC,
Strategy Advisers and the services provided to shareholders by Smith Barney, the
Fund's Distributor, depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. MMC, Strategy Advisers and Smith Barney have advised the Fund that
they have been reviewing all of their computer systems and actively working on
necessary changes to their systems to prepare for the year 2000 and expect that
their systems will be compliant before that date. In addition, MMC has been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same goal.
There can, however, be no assurance that MMC, Smith Barney, Strategy Advisers or
any other service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time.
PORTFOLIO TRANSACTIONS AND TURNOVER
All orders for transactions in securities or options on behalf of the Fund
are placed by Strategy Advisers with broker-dealers that Strategy Advisers
selects, including Smith Barney and other affiliated brokers. The Fund may
utilize Smith Barney or a broker that is affiliated with Smith Barney in
connection with a purchase or sale of securities when Strategy Advisers believes
that the charges
23
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
for the transaction do not exceed usual and customary levels. The Fund also may
use Smith Barney as a commodities broker in connection with entering into
futures contracts and commodity options. Smith Barney has agreed to charge the
Fund commodity commissions at rates comparable to those charged by Smith Barney
to its most favored clients for comparable trades in comparable accounts. In
selecting a broker for a transaction, including Smith Barney or its affiliates,
the primary consideration is prompt and effective execution of orders at the
most favorable price. Subject to that primary consideration, dealers may be
selected for research, statistical or other services to enable Strategy Advisers
to supplement its own research and analysis with the views and information of
other securities firms.
Short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. In addition, higher portfolio turnover rates
can result in corresponding increases in brokerage commissions. The Fund will
not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its objective and policies.
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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 with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Trustees. Short-term
investments that mature in 60 days or less are valued at amortized cost whenever
the Trustees determine that amortized cost is fair value. Further information
regarding the Fund's valuation policies is contained in the Statement of
Additional Information.
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Dividends, Distributions and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to declare and pay quarterly dividends from its net
investment income. Dividends from net realized capital gains, if any, will
be distributed annually. The Fund may also pay additional dividends shortly
before December 31, from certain amounts of undistributed ordinary income
and capital gains realized, in order to avoid a Federal excise tax
liability. If a shareholder does not otherwise instruct, dividends and
capital gain distributions will be automatically reinvested in addit
The per share amount of dividends from net investment income on Class B
and C may be lower than that of Classes A and Y, mainly as a result of the
distribution
24
t Data should notify First Data in writing, requesting a change to this
reinvest option.
The per share amount of dividends from net investment income on Class B and
C may be lower than that of Classes A and Y, mainly as a result of the
distribution
24
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Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
fees applicable to Class B and C shares. Similarly, the per share amounts of
dividends from net investment income on Class A shares may be lower than that of
Class Y, as a result of the service fee attributable to Class A shares. Capital
gain distributions, if any, will be the same amount across all Classes of Fund
shares (A, B, C and Y).
TAXES
The following is a summary of the material federal tax considerations
affecting the Fund and Fund shareholders. Please refer to the Statement of
Additional Information for further discussion. In addition to the
considerations described below and in the Statement of Additional Information,
there may be other federal, state, local, and/or foreign tax applications to
consider. Because taxes are a complex matter, prospective shareholders are urged
to consult their tax advisors for more detailed information with respect to the
tax consequences of any investment.
The Fund will be treated as a separate entity of the Trust for Federal
Income Tax purposes. The Fund intends to qualify, as it has in prior years,
under Subchapter M of the Internal Revenue Code (the "Code") for tax treatment
as a regulated investment company. In each taxable year that the Fund qualifies,
so long as such qualification is in the best interests of its shareholders, the
Fund will pay no federal income tax on its net investment company taxable income
and long-term capital gain that is distributed to shareholders.
Dividends paid from net investment income and net realized short-term
securities gain, are subject to federal income tax as ordinary income.
Distributions, if any, from net realized long-term securities gains, derived
from the sale of securities held by the Fund for more than one year, are taxable
as long-term capital gains, regardless of the length of time a shareholder has
owned Fund shares.
Shareholders are required to pay tax on all taxable distributions, even if
those distributions are automatically reinvested in additional Fund shares. A
portion of the dividends paid by the Fund may qualify for the corporate
dividends received deduction. Dividends consisting of interest from U.S.
government securities may be exempt from state and local income taxes. The Fund
will inform shareholders of the source and tax status of all distributions
promptly after the close of each calendar year.
A shareholder's gain or loss on the disposition of Fund shares (whether by
redemption, sale or exchange), generally will be a long-term or short-term gain
or loss depending on the length of time the shares had been owned at
disposition. Losses realized by a shareholder on the disposition of Fund shares
owned for six months or less will be treated as a long-term capital loss to the
extent a capital gain dividend had been distributed on such shares.
25
<PAGE>
- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for
shareholders who do not provide the Fund with a correct taxpayer identification
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for
shareholders who otherwise are subject to backup withholding. Any tax withheld
as a result of backup withholding does not constitute an additional tax, and may
be claimed as a credit on the shareholder's federal income tax return.
- --------------------------------------------------------------------------------
Purchase of Shares
- --------------------------------------------------------------------------------
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC and
are available only to investors investing a minimum of $15,000,000. See
"Prospectus Summary -- Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group, except for investors purchasing shares of the Fund through a
qualified retirement plan who may do so directly through First Data. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class Y shares. 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 $15,000,000. 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
26
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
and Class C shares and the minimum subsequent investment requirement for all
Classes is $25. For shareholders purchasing shares of the Fund through the
Systematic Investment Plan on a quarterly basis, the minimum initial investment
requirement for Class A, Class B and Class C shares and the minimum subsequent
investment is $50. There are no minimum investment requirements for Class A
shares for employees of Travelers and its subsidiaries, including Smith Barney
Directors or Trustees of any of the Smith Barney Mutual Funds or other funds
affliated with Travelers 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 share holder's account by the Fund's transfer agent, First Data.
Share certificates are issued only upon a shareholder's written request to First
Data.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day. Orders
received by dealers or Introducing Brokers prior to the close of regular trading
on the NYSE on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day, provided the order is
received by the Fund or Smith Barney prior to Smith Barney's close of business
(the "trade date"). For shares purchased through Smith Barney or Introducing
Brokers purchasing through Smith Barney, payment for Fund shares is due on the
third business day after the trade date. In all other cases, payment must be
made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by
purchasing shares through a service known as the Systematic Investment Plan.
Under the Systematic Investment Plan, Smith Barney or First Data is authorized
through preauthorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis or more to charge the regular bank account or other
financial institution indicated by the shareholder, respectively, to provide
systematic additions to the shareholder's Fund account. A shareholder who has
insufficient funds to complete the transfer will be charged a fee of up to $25
by Smith Barney or First Data. The Systematic Investment Plan also authorizes
Smith Barney to apply cash held in the shareholder's Smith Barney brokerage
account or redeem the shareholder's shares of a Smith Barney money market fund
to make additions to the account. Additional information is available from the
Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are as follows:
27
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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.
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 any of the Smith Barney Mutual Funds or other
Travelers-affiliated 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 in connection with
the combination of such company with the Fund by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares by any client of a newly employed
Smith Barney Financial Consultant (for a period up to 90 days from the commence-
ment 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 share
holders who have redeemed Class A shares in the Fund (or Class A shares of
another fund of the Smith Barney
28
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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; and (f) direct
rollovers by plan participants 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; and (i) purchases of
Class A shares of the Fund by Section 403(b) or Section 401(a) or (k) accounts
associated with Copeland Retirement Programs. In order to obtain such
discounts, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net asset value of all Class
A shares of the Fund and of funds sponsored by Smith Barney that are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan must be open
to specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related
29
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
fiduciary accounts under such conditions that Smith Barney will realize
economies of sales efforts and sales related expenses. An individual who is a
member of a qualified group may also purchase Class A shares of the Fund at the
reduced sales charge applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
arrange for group meetings between representatives of the Fund and the members,
and must agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Fund and other funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13 month period based on the
total amount of intended purchases plus the value of all Class A shares
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 $5,000,000 in Class Y shares of the
Fund and agree to purchase a total of $15,000,000 of Class Y shares of the same
Fund within 13 months from the date of the Letter. If a total investment of
$15,000,000 is not
30
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
made within the 13 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 are subject to a CDSC of $500,000.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class C shares and Class A shares that are CDSC
Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
Class B shares held under the Smith Barney 401(k) Program, as described below.
See "Purchase of Shares -- Smith Barney 401(k) and ExecChoice(TM) Programs."
Year Since Purchase
Payment was Made CDSC
================================================================================
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
================================================================================
31
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
Class B shares automatically will convert to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There also will be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. See "Prospectus Summary -- Alternative Purchase Arrangements
- -- Class B Shares Conversion Feature."
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally other shares held by the shareholders for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption. The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of the investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares at
$12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1% per month of the
value of the shareholder's shares at the time the withdrawal plan commences (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
share holder'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
32
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
connection with qualified distributions from retirement plans or IRAs upon the
attainment of age 59 1/2; (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.
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
33
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
of the pending exchange in writing within 30 days after the fifth anniversary of
the enrollment date and, unless the exchange offer has been rejected in writing,
the exchange will occur on or about the 90th day after the fifth anniversary
date. If the Participating Plan does not qualify for the five year exchange to
Class A shares, a review of the Participating Plan's holdings will be performed
each quarter until either the Participating Plan qualifies or the end of the
eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if a Participat
ing Plan's total Class C holdings in all non-money market Smith Barney Mutual
Funds equal at least $500,000 as of the calendar year-end, the Participating
Plan will be offered the opportunity to exchange all of its Class C shares for
Class A shares of the Fund. Such Plans will be notified in writing within 30
days after the last business day of the calendar year and, unless the exchange
offer has been rejected in writing, the exchange will occur on or about the last
business day of the following March.
Any Participating Plan in the Smith Barney 401(k) Program that has not
previously qualified for an exchange into Class A shares will be offered the
opportunity to exchange all of its Class C shares for Class A shares of the
Fund, regardless of asset size, at the end of the eighth year after the date the
Participating Plan enrolled in the Smith Barney 401(k) Program. Such Plans will
be notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, the Participating Plan will not be eligible
to acquire additional Class C shares of the Fund but instead may acquire Class A
shares of the Fund. Any Class C shares not converted will continue to be subject
to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must
purchase such shares directly from First Data. For further information regarding
these Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any
Participating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to a
CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
34
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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 59 1/2 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.
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following Smith Barney Mutual Funds, to the extent shares are offered for sale
in the shareholder's state of residence. Exchanges of Class A, Class B and Class
C shares are subject to minimum investment requirements and all shares are
subject to the other requirements of the fund into which exchanges are made.
35
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Contrarian Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Natural Resources Fund, Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Large Cap Value Fund
Smith Barney Premium Total Return 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 Fund
Smith Barney Funds, Inc. -- U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
** Smith Barney Intermediate Maturity California Municipals Fund
** Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
** Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney Municipal High Income Fund
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
36
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Global -- International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
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. -- Global 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
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* Available for exchange with Class A and Class B shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares
of this fund.
** Available for exchange with Class A, Class C and Class Y shares of the
Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class A and Class Y shares of the Fund.
++ Available for exchange with Class B and Class C shares of the Fund.
+++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, participating plans opened prior to June 21, 1996 and investing
in Class C shares may exchange fund shares for Class C shares of this
fund.
Class B Exchanges. In the event a Class B shareholder wishes to exchange
all or a portion of his or her shares in any of the funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of the Fund
that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
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Exchange Privilege (continued)
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Class A and Class Y Exchanges. Class A and Class Y shareholders of the
Fund who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. Strategy Advisers
may determine that a pattern of frequent exchanges is excessive and contrary to
the best interests of the Fund's other shareholders. In this event, the Fund
may, at its discretion, decide to limit additional purchases and/or exchanges by
a shareholder. Upon such a determination, the Fund will provide notice in
writing or by telephone to the shareholder at least 15 days prior to suspending
the exchange privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the Fund or (b) remain invested in
the Fund or exchange into any of the funds of the Smith Barney Mutual Funds
ordinarily available, which position the shareholder would be expected to
maintain for a significant period of time. All relevant factors will be
considered in determining what constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares -- Telephone Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined. Redemption procedures
discussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging 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.
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Redemption of Shares
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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
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Redemption of Shares (continued)
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specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third business day following receipt
of proper tender, except on any days on which the NYSE is closed or as permitted
under the Investment Company Act of 1940, as amended (the "1940 Act") in
extraordinary circumstances. Generally, if the redemption proceeds are remitted
to a Smith Barney brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney will benefit
from the use of temporarily uninvested funds. Redemption proceeds for shares
purchased by check, other than a certified or official bank check, will be
remitted upon clearance of the check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Concert Social Awareness Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 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 redemption request in excess of $10,000, share
certificate or stock power must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $10,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request will not
be deemed properly received until First Data receives all required documents in
proper form.
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Redemption of Shares (continued)
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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. 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 1-800-451-2010. 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 1-800-451-2010. Such requests may be made between 9:00 a.m. and 4:00 p.m.
(Eastern Standard time) on any day the NYSE is open. Redemption requests
received after the close of regular trading on the NYSE are priced at the net
asset value next determined. Redemptions of shares (i) by retirement plans or
(ii) for which certificates have been issued are not permitted under this
program.
A shareholder will have the option of having the redemption proceeds
mailed to his/her address of record or wired to a bank account predesignated by
the shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In order
to use the wire procedures, the bank receiving the proceeds must be a member of
the Federal Reserve System or have a correspondent relationship with a member
bank. The Fund reserves the right to charge shareholders a nominal fee for each
wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a signature guarantee and
certain other documentation.
40
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Redemption of Shares (continued)
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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 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern Standard 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.
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Minimum Account Size
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The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
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Performance
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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
41
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Performance (continued)
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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.
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Management of the Trust and the Fund
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BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Fund rests with the Trust's Board of Trustees. The Trustees approve all
significant agreements between the Trust and the companies that furnish services
to the Fund, including agreements with the Trust's distributor, custodian and
transfer agent and the Fund's investment adviser and administrator. The
day-to-day operations of the Fund are delegated to the Fund's investment adviser
and administrator. The Statement of Additional Information contains background
information regarding each Trustee of the Trust and executive officer of the
Fund.
INVESTMENT ADVISER--STRATEGY ADVISERS
Strategy Advisers, located at 388 Greenwich Street, New York, New York
10013, serves as the Fund's investment adviser. Strategy Advisers provides
investment management, investment advisory and/or administrative services to
individual, institutional and investment company clients that had aggregate
assets under management, as of March 31, 1998, of approximately $4.7 billion.
Subject to the supervision and direction of the Board of Trustees,
Strategy Advisers manages the Fund's portfolio in accordance with the Fund's
stated investment objective and policies, makes investment decisions for the
Fund, places
42
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Management of the Trust and the Fund (continued)
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orders to purchase and sell securities and employs professional portfolio
managers and securities analysts who provide research services to the Fund. For
advisory services rendered to the Fund, the Fund pays Strategy Advisers a fee at
the annual rate of 0.55% of the value of the Fund's average daily net assets.
ADMINISTRATOR -- MMC
MMC serves as the Fund's administrator and generally assists in all
aspects of the Fund's administration and operation. MMC provides investment
management and administration services to a wide variety of individual,
institutional and investment companies that had aggregate assets under
management, as of April 30, 1998, of approximately $99.3 billion. For
administration services rendered, the Fund pays MMC a fee at the annual rate of
0.20% of the value of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
Robert J. Brady and Ellen S. Cammer, each a Managing Director of Smith
Barney, have served as portfolio managers of the Fund since June 15, 1995, and
manage the day-to-day operations of the Fund, including making all investment
decisions.
Management's discussion and analysis and additional performance
information regarding the Fund during the fiscal year ended January 31, 1998 is
included in the Annual Report dated January 31, 1998. 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.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also subject
to approval by the stockholders of each of Travelers and Citicorp. Upon consum-
mation of the merger, the surviving corporation would be a bank holding company
subject to regulation under the Holding Company Act of 1956 (the "BCHA"), the
requirements of the Glass-Steagall Act and certain other laws and regulations.
Although the effects of the merger of Travelers and Citicorp and compliance with
the requirements of the BCHA and the Glass-Steagall Act are still under review,
MMC does not believe that its compliance with applicable laws following the
merger of Travelers and Citicorp will have a material adverse effect on its
ability to continue to provide the Fund with the same level of investment
advisory services that it currently receives.
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Distributor
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Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A, Class B and Class C shares of the Fund at the annual rate of
0.25% of the value of the average daily net assets of the respective Class.
Smith Barney is also paid an annual distribution fee with respect to Class B and
Class C shares at the annual rate of 0.75% of the value of the average daily net
assets attributable to those Classes. Class B shares which automatically convert
to Class A shares eight years after the date of original purchase will no longer
be subject to distribution fees. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses; the cost
of printing and mailing prospec tuses to potential investors; payments to and
expenses of Smith Barney Financial Consultants and other persons who provide
support services in connection with the distribution of shares; interest and/or
carrying charges; and indirect and overhead costs of Smith Barney associated
with the sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actually
incurred by Smith Barney and the payments may exceed such expenses actually
incurred. The Trust's Board of Trustees will evaluate the appropriateness of the
Plan and its payment terms on a continuing basis and in so doing will consider
all relevant factors, including expenses borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
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Additional Information
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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
44
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Additional Information (continued)
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beneficial interest currently classified into four Classes -- A, B, C and Y.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (a) the designation of each Class; (b) the effect of the
respective sales charges, if any, for each Class; (c) the distribution and/or
service fees borne by each Class; (d) the expenses allocable exclusively to each
Class; (e) voting rights on matters exclusively affecting a single Class; (f)
the exchange privilege of each Class; and (g) the conversion feature of the
Class B shares. The Trust's Board of Trustees does not anticipate that there
will be any conflicts among the interests of the holders of the different
Classes. The Trustees, on an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will
be no meeting of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have been
elected by shareholders. The Trustees will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Trust's outstanding
shares and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. Share holders of record owning no less than two-thirds
of the outstanding shares of the Trust may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for that purpose.
When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate,
fractional vote for any fractional share held of that Class. Generally, shares
of the Trust will be voted on a Trust-wide basis on all matters except matters
affecting only the interests of one or more funds or Classes.
PNC Bank, National Association, is located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and serves as custodian of the Fund's
investments.
First Data is located at Exchange Place, Boston, Massachusetts 02109, and
serves as the Trust's transfer agent.
The Trust sends shareholders of the Fund a semi-annual report and an
audited annual report, which include listings of the investment securities held
by the Fund at the end of the reporting period. In an effort to reduce the
Fund's printing and mailing costs, the Trust plans to consolidate the mailing of
the Fund's semi-annual and annual reports by household. This consolidation means
that a household having multiple accounts with the identical address of record
will receive a single copy of each report. In addition, the Trust also plans to
consolidate the mailing of the Fund's Prospectus so that a shareholder having
multiple accounts (that is, individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a single Prospectus annually. Shareholders who do not
want this consolidation to apply to their accounts should contact a Smith Barney
Financial Consultant or First Data.
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SMITH BARNEY
A Member of TravelersGroup[LOGO]
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Prospectus May 29, 1998
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Concert Social Awareness Fund
3100 Breckenridge Blvd., Bldg. 200
Duluth, Georgia 30099-0062
(800) 544-5445
Concert Social Awareness Fund (the "Fund") seeks high total return
consisting of capital appreciation and current income by investing in a
combination of equity and fixed-income securities of issuers who demonstrate a
positive awareness of their impact on the society within which they operate.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up Smith Barney Equity Funds (the "Trust"). The
Trust is an open-end management investment company commonly referred to as a
mutual fund.
This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated May 29, 1998, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writing
the Fund at the telephone number or address set forth above or by contacting a
Registered Representative of PFS Investments Inc. ("PFS Investments"). The
Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
PFS DISTRIBUTORS, INC.
Distributor
SMITH BARNEY STRATEGY ADVISERS INC.
Investment Adviser
MUTUAL MANAGEMENT CORP.
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
1
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Table of Contents
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Prospectus Summary 3
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Financial Highlights 9
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Investment Objective and Management Policies 11
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Valuation of Shares 21
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Dividends, Distributions and Taxes 22
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Purchase of Shares 23
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Exchange Privilege 28
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Redemption of Shares 30
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Minimum Account Size 32
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Performance 32
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Management of the Trust and the Fund 33
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Distributor 35
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Additional Information 36
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No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
the Distributor. This Prospectus does not constitute an offer by the Fund or the
Distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
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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 high total return consisting of capital appreciation and
current income by investing in a combination of equity and fixed-income
securities of issuers who demonstrate a positive awareness of their impact on
the society within which they operate. See "Investment Objective and Management
Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers two classes of shares
("Classes") to investors purchasing through PFS Investments Registered
Representatives designed to provide them with the flexibility of selecting an
investment best suited to their needs -- the two classes of shares available
are: Class A shares and Class B shares. See "Purchase of Shares" and "Redemption
of Shares." In addition to Class A and Class B shares, the Fund offers Class C
and Class Y shares to investors purchasing through Smith Barney Inc. ("Smith
Barney"), a distributor of the Fund. Those shares have different sales charges
and other expenses than Class A and Class B shares which may affect performance.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares 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 bear an annual service fee of 0.25% and an annual distribution
fee of 0.75% of the average daily net assets of the Class. The Class B shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends
and distributions ("Class B
3
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Prospectus Summary (continued)
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Dividend Shares") will be converted at that time. See "Purchase of
Shares-Deferred Sales Charge Alternatives."
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an investment
alternative, Class B shares are sold without any initial sales charge so the
entire purchase price is immediately invested in the Fund. Any investment return
on these additional invested amounts may partially or wholly offset the higher
annual expenses of this Class. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
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 held in funds sponsored by Smith
Barney listed under "Exchange Privilege." Class A share purchases may also be
eligible for a reduced initial sales charge. See "Purchase of Shares." Because
the ongoing expenses of Class A shares may be lower than those for Class B
shares, purchasers eligible to purchase Class A shares at net asset value or at
a reduced sales charge should consider doing so.
PFS Investments Registered Representatives may receive different
compensation for selling different Classes of shares. Investors should
understand that the purpose of the CDSC on the Class B shares is the same as
that of the initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the 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.
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor, PFS
Distributors, Inc. ("PFS"). See "Purchase of Shares."
4
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
INVESTMENT MINIMUMS Investors in Class A and Class B shares may open an account
by making an initial investment of at least $1,000 for each account, or $250 for
an individual retirement account ("IRA") or a Self-Employed Retirement Plan.
Subsequent investments of at least $50 may be made for both Classes. For
participants in retirement plans qualified under Section 403(b)(7) or Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), the
minimum initial and subsequent investment requirement for both Classes is $25.
The minimum initial and subsequent investment requirements for purchases of both
Classes through the Systematic Investment Plan are described below.
See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month for Fund shares in an amount of at least $25. See "Purchase of
Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE TRUST AND THE FUND Smith Barney Strategy Advisers Inc.
("Strategy
Advisers") serves as the Fund's investment adviser and is a wholly owned
subsidiary of Mutual Management Corp. ("MMC")(formerly known as Smith Barney
Mutual Funds Management Inc.). MMC provides investment advisory and management
services to investment companies affiliated with Smith Barney. MMC, which also
serves as the Fund's administrator, is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc. ("Holdings"), which in turn is a wholly owned
subsidiary of Travelers Group Inc. ("Travelers"), a diversified financial
services company engaged through its subsidiaries principally in four business
segments: Investment Services, including Asset Management, Consumer Finance
Services, Life Insurance Services, and Property & Casualty Insurance Services.
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 value next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from PFS Shareholder Services (the "Sub-Transfer Agent"). See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are
5
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are
paid quarterly. Distributions of net realized capital gains, if any, are
declared and paid annually. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund's investment objective will be achieved. The foreign securities in which
the Fund may invest may be subject to certain risks in addition to those
inherent in domestic investments. The Fund may make certain investments and
employ certain investment techniques that involve other risks and special
considerations. The techniques presenting the Fund with risks or special
considerations are investing in restricted securities, warrants, convertible
securities, securities of unseasoned issuers, entering into transactions
involving options, entering into repurchase agreements and lending portfolio
securities. These risks and those associated with when-issued and
delayed-delivery transactions and covered option writing are described under
"Investment Objective and Management Policies--Risk Factors and Special
Considerations."
6
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
The Fund's Expenses The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's operating expenses for its most
recent fiscal year:
Concert Social Awareness Fund Class A Class B
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is lower) None* 5.00%
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.75% 0.75%
12b-1 fees** 0.25 1.00
Other expenses 0.19 0.20
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.19% 1.95%
================================================================================
* 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.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges, depending on the amount purchased and, in the
case of Class B and certain Class A shares, the length of time the shares are
held and whether the shares are held. See "Purchase of Shares" and "Redemption
of Shares." PFS receives an annual 12b-1 service fee of 0.25% of the value of
the average daily net assets of Class A shares. With respect to Class B shares,
PFS receives an annual 12b-1 fee of 1.00% of the value of the average daily net
assets of the respective Class, consisting of a 0.75% distribution fee and a
0.25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.
7
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
EXAMPLE
The following example is intended to assist an investor in understanding
the various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Trust and the Fund."
<TABLE>
<CAPTION>
Concert Social Awareness Fund 1 year 3 years 5 years 10 years*
=========================================================================================================
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:
<S> <C> <C> <C> <C>
Class A .................................... $ 62 $ 86 $112 $187
Class B .................................... 70 91 120 208
An investor would pay the following expenses on the
same investment, assuming the same annual return and
no redemption:
Class A .................................... 62 86 112 187
Class B .................................... 20 61 105 208
=========================================================================================================
</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may result in
an actual return greater or less than 5.00%. This example should not be
considered a representation of past or future expenses and actual expenses may
be greater or less than those shown.
8
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The following information for each of the years in the three year period
ended January 31, 1998 has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon appears in the Fund's Annual Report dated January
31, 1998. The following information for the fiscal years ended January 31, 1989
through January 31, 1995 has been audited by other independent auditors. The
information set out below should be read in conjunction with the financial
statements and related notes that also appear in the Fund's Annual Report which
is incorporated by reference into the Statement of Additional Information. For a
Class A share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
Concert Social Awareness Fund 1998 1997 1996 1995 1994(1) 1993(2)
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 19.36 $ 19.00 $ 15.91 $ 17.72 $ 16.85 $ 16.80
- --------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.48 0.57 0.61 0.57 0.52 0.13
Net realized and unrealized gain (loss) 3.27 1.71 3.52 (1.25) 2.37 0.88
- --------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.75 2.28 4.13 (0.68) 2.89 1.01
- --------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.55) (0.60) (0.52) (0.47) (0.56) (0.11)
Net realized gains (1.99) (1.32) (0.52) (0.66) (1.46) (0.85)
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.54) (1.92) (1.04) (1.13) (2.02) (0.96)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 20.57 $ 19.36 $ 19.00 $ 15.91 $ 17.72 $ 16.85
- --------------------------------------------------------------------------------------------------------------------------
Total Return 19.89% 12.41% 26.47% (3.82)% 17.80% 6.12%++
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 202 $ 178 $ 175 $ 159 $ 6 $ 0.6
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.19% 1.28% 1.21% 1.33% 1.25% 1.25%+
Net investment income 2.34 2.98 3.10 2.89 2.85 3.61+
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 68% 81% 103% 131% 93%
==========================================================================================================================
Average commissions paid per share
on equity transactions(3) $ 0.06 $ 0.06 $ 0.06 -- -- --
==========================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(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.
+ Annualized
++ Total return is not annualized, as it may not be representative for the
total year.
9
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a Class B share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
CONCERT SOCIAL Year Ended January 31,
AWARENESS FUND 1998 1997 1996 1995 1994(1)
==========================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $19.42 $19.05 $15.97 $17.79 $16.84
- ------------------------------------------------------------------------------------------
Income (Loss) From
Investment Operations
Net investment income 0.33 0.43 0.49 0.39 0.38
Net realized and unrealized
gain/(loss) 3.27 1.71 3.53 (1.20) 2.37
- ------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 3.60 2.14 4.02 (0.81) 2.75
- ------------------------------------------------------------------------------------------
Less Distributions
From:
Net investment income (0.40) (0.45) (0.42) (0.35) (0.34)
Net realized gains (1.99) (1.32) (0.52) (0.66) (1.46)
Capital -- -- -- -- --
- ------------------------------------------------------------------------------------------
Total Distributions (2.39) (1.77) (0.94) (1.01) (1.80)
==========================================================================================
Net Asset Value,
End of Year $20.63 $19.42 $19.05 $15.97 $17.79
- ------------------------------------------------------------------------------------------
Total Return 18.95% 11.60% 25.58% (4.54%) 16.88%
- ------------------------------------------------------------------------------------------
Net Assets, End of
Year (millions) $172 $203 $226 $216 $334
- ------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 1.95% 2.03% 1.94% 2.00% 1.98%
Net investment income 1.62 2.23 2.37 2.21 2.11
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 68% 81% 103% 131%
==========================================================================================
Average commissions
paid per share on equity
transactions(2) $0.06 $0.06 $0.06 -- --
==========================================================================================
<CAPTION>
CONCERT SOCIAL Year Ended January 31,
AWARENESS FUND 1993 1992 1991 1990 1989
==========================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $17.26 $15.61 $15.57 $15.03 $13.62
- ------------------------------------------------------------------------------------------
Income (Loss) From
Investment Operations
Net investment income 0.51 0.52 0.54 0.53 0.52
Net realized and unrealized
gain/(loss) 1.06 2.56 0.47 1.10 1.48
- ------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 1.57 3.08 1.01 1.63 2.00
- ------------------------------------------------------------------------------------------
Less Distributions
From:
Net investment income (0.50) (0.55) (0.51) (0.69) (0.48)
Net realized gains (1.49) (0.88) (0.46) (0.38) (0.11)
Capital -- -- -- 0.02 --
- ------------------------------------------------------------------------------------------
Total Distributions (1.99) (1.43) (0.97) (1.09) (0.59)
==========================================================================================
Net Asset Value,
End of Year $16.84 $17.26 $15.61 $15.57 $15.03
- ------------------------------------------------------------------------------------------
Total Return 9.68% 19.96% 6.80% 10.76% 15.10%
- ------------------------------------------------------------------------------------------
Net Assets, End of
Year (millions) $288 $234 $197 $206 $147
- ------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 2.02% 2.06% 2.09% 2.24% 2.29%
Net investment income 2.84 3.02 3.43 3.46 3.59
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 93% 76% 56% 61% 42%
==========================================================================================
Average commissions
paid per share on equity
transactions(2) -- -- -- -- --
==========================================================================================
</TABLE>
(1) The per share amounts have been calculated using the monthly average
shares method rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
10
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is high total return consisting of
capital appreciation and current income. The Fund's investment objective may be
changed only with the approval of a majority of the Fund's outstanding voting
securities. There can be no assurance the Fund's investment objective will be
achieved.
The Fund seeks to achieve its objective by investing in a variable
combination of equity and fixed-income securities of issuers who demonstrate a
positive awareness of their impact on the society within which they operate. The
percentages of the Fund's assets invested in each of these types of securities
are adjusted from time to time to conform to the asset allocation percentages
most recently determined by Strategy Advisers. Under normal market conditions,
the Fund will have between 65% and 85% of its assets invested in equity
securities and between 15% and 35% in fixed-income securities. The mix of the
Fund's investments may vary from time to time.
Strategy Advisers has responsibility for the selection of specific
securities on behalf of the Fund and for determining the allocation of the
Fund's assets. See "Management of the Trust and the Fund." Following the
variable asset allocation strategy may involve frequent shifts among classes of
investments and result in the Fund's having a relatively high portfolio turnover
rate.
The equity portion of the assets of the Fund will consist primarily of
common stocks of established companies traded on exchanges or over-the-counter
that represent an opportunity for total return on a long-term basis. In
evaluating companies for investment, Strategy Advisers selects securities of
companies that it believes are undervalued based on relevant indicators such as
price/earnings ratios, forecast growth, as well as balance sheet, profitability
and risk analysis. Equity investments may be made without regard to the size of
companies and generally will be made in a broad spectrum of industries. The Fund
may also invest in preferred stock, securities convertible into or exchangeable
for common stock and warrants. The fixed income portion of the Fund's assets
will be composed primarily of investment-grade corporate bonds, debentures and
notes, asset-backed and mortgage-backed securities and obligations of the United
States government or its agencies or instrumentalities ("U.S. government
securities"). The Fund's fixed-income assets may be short-, medium- or
long-term, as determined at the discretion of Strategy Advisers based upon an
evaluation of economic and market trends. When Strategy Advisers believes that a
defensive investment posture is warranted or when attractive investment
opportunities do not exist, the Fund may temporarily invest all or a portion of
its assets in short-term money market instruments. The money market securities
in which the Fund may invest include commercial paper, bank obligations
(possibly including community investments) and short-term U.S. government
securities. Up to 25% of the Fund's assets may be invested in equity
11
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
and debt securities of foreign issuers. The Fund also may write covered call
options, lend its portfolio securities and invest in real estate investment
trusts. Risk factors and special considerations associated with the Fund's
investments are described under "Investment Strategies and Techniques" and "Risk
Factors and Special Considerations" below.
Strategy Advisers believes that there is a direct correlation between
companies that demonstrate an acute awareness of their impact on the society
within which they operate and companies which offer attractive long-term
investment potential. Strategy Advisers believes that addressing social issues
in a positive manner can translate into sound business. For example, by ensuring
a product or service does not negatively impact the environment, a company can
avoid costly litigation and clean-up costs; and by maintaining positive
standards for the workplace and a diverse employee population, a company can
better ensure access to quality management talent and improved productivity; or
by becoming more involved in the community, a company can enhance its consumer
franchise. Top quality management teams who successfully balance their
companies' business interests with their social influences can gain significant
competitive advantages over the long run, which may result in increased
shareholder values and, therefore, better investments. The Fund is designed to
incorporate both social and financial criteria in all of its investment
decisions.
The Fund will hold securities issued by companies which, in the opinion of
Strategy Advisers, meet the Fund's investment policies, and do not violate the
Fund's social awareness criteria. The primary social emphasis will be to
establish investments in companies that make a positive contribution to society
through their products and services or through the way that they do business.
These include companies known for fostering fair and progressive relations with
their employees, companies taking an active role in promoting worthwhile causes
or known to be good community citizens, companies committed to upholding human
rights in their domestic and international operations, and companies promoting
positive alternatives to unsafe, polluting or wasteful business activities or
products.
In addition, Strategy Advisers has identified specific areas of social and
financial concern and, thus, the Fund will not purchase the debt or equity
securities of any company that Strategy Advisers has significant reason to
believe is engaged at the time of investment by the Fund in any of the
following:
o Tobacco production;
o Manufacture of unsafe products;
o Engaging in irresponsible advertising or marketing practices;
o Engaging in activities that cause substantial environmental damage;
o Production of weapons;
o Ownership or design of nuclear facilities.
12
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
These portfolio restrictions are based on the belief that a company will
benefit from its social awareness by enabling it to better position itself in
developing business opportunities while avoiding liabilities that may be
incurred when a product or service is determined to have a negative social
impact. These companies should be better prepared to respond to external demands
and ensure that over the longer term they will be viable to provide a positive
return to both investors and society as a whole.
Strategy Advisers will use its best efforts to assess a company's social
performance. This analysis will be based on present activities, and will not
preclude securities solely because of past activities. Strategy Advisers will
monitor the social progress or deterioration of each company in which the Fund
is invested and in the event a company is no longer in compliance with the
Fund's social criteria, the Fund will plan to sell the securities of such
company as soon as it is deemed prudent. The Fund's Trustees will monitor the
social awareness criteria used by the Fund and Strategy Advisers may, upon
approval of the Trustees, change the criteria used to rate the social
performance of an issuer without prior notice or shareholder approval.
While the application of the Fund's social awareness criteria may preclude
The purchase of some securities with strong earnings and growth potential,
Strategy Advisers
believes that there are sufficient investment opportunities among those
companies that satisfy the social awareness criteria to meet the Fund's
investment objectives.
INVESTMENT STRATEGIES AND TECHNIQUES
In attempting to achieve its investment objective, the Fund may employ,
among others, one or more of the strategies and techniques set forth below. The
Fund is under no obligation to use any of the strategies or techniques at any
given time or under any particular economic condition. More detailed information
concerning these strategies and techniques and their related risks is contained
in the Statement of Additional Information.
Repurchase Agreements. The Fund may enter into repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the Fund
and certain dealers on the Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period of time
(usually not more than seven days), subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will be monitored on an ongoing basis by Strategy Advisers to ensure
that the value is at least equal at all times to the total amount of the
repurchase obligation, including interest. Strategy Advisers, acting
13
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
under the supervision of the Trust's Board of Trustees, reviews on an ongoing
basis the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate
potential risks.
When-Issued Securities and Delayed-Delivery Transactions. In order to
secure yields or prices deemed advantageous at the time, the Fund may purchase
or sell securities on a when-issued or delayed-delivery basis. The Fund will
enter into a when-issued transaction for the purpose of acquiring portfolio
securities and not for the purpose of leverage. In such transactions delivery of
the securities occurs beyond the normal settlement periods, but no payment or
delivery is made by the Fund prior to the actual delivery or payment by the
other party to the transaction. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on those securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. The Fund will establish with its custodian a segregated account
consisting of cash or equity and debt securities of any grade provided such
securities have been determined by Strategy Advisers to be liquid and
unencumbered pursuant to guidelines established by the Trustees in an amount
equal to the amount of its when-issued and delayed-delivery commitments. Placing
securities rather than cash in the segregated account may have a leveraging
effect on the Fund's net assets.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial organizations. Loans of portfolio securities by the Fund will be
collateralized by cash, letters of credit or obligations of the United States
government or its agencies and instrumentalities ("U.S. government securities")
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. By lending its portfolio
securities, the Fund will seek to generate income by continuing to receive
interest on the loaned securities, by investing the cash collateral in
short-term instruments or by obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delays 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 the Fund to be
of good standing and will not be made unless, in the judgment of the Fund, the
consideration to be earned from such loans would justify the risk.
Covered Option Writing. The Fund may write covered call options on
portfolio securities and will realize fees (referred to as "premiums") for
granting the rights evidenced by the options. In return for a premium, the Fund
will forfeit the right to any appreciation in the value of the underlying
security for the life of the option (or until a closing purchase transaction can
be effected). The purchaser of a
14
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
call option written by the Fund has the right to purchase from the Fund an
underlying security owned by the Fund at an agreed-upon price for a specified
time period. Upon the exercise of a call option written by the Fund, the Fund
may suffer a loss equal to the underlying security's market value at the time of
the option's exercise over the exercise price plus the premium received for
writing the option. Whenever the Fund writes a call option, it will (a) continue
to own or have the absolute and immediate right to acquire the underlying
security without additional cash consideration or (b) hold a call option at the
same or a lower exercise price for the same exercise period on the same
underlying security as the call option written, for as long as it remains
obligated as the writer of the option.
The Fund may engage in a closing purchase transaction to realize a profit,
to prevent an underlying security from being called or to unfreeze an underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). To effect a closing
purchase transaction, the Fund would purchase, prior to the holder's exercise of
an option the Fund has written, an option of the same series as that on which
the Fund desires to terminate its obligation. The obligation of the Fund under
an option it has written would be terminated by a closing purchase transaction,
but the Fund would not be deemed to own an option as the result of the
transaction. There can be no assurance that the Fund will be able to effect
closing purchase transactions at a time when it wishes to do so. To facilitate
closing purchase transactions, however, the Fund will ordinarily write options
only if a secondary market for the options exists on a domestic securities
exchange or in the over-the-counter market.
ADDITIONAL INVESTMENTS
Money Market Instruments. The Fund may hold cash and invest in money
market instruments without limitation when deemed advantageous by Strategy
Advisers. Short-term instruments in which the Fund may invest include: U.S.
government securities; bank obligations (including community investments,
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loan associations and other banking
institutions having total assets in excess of $500 million); commercial paper
rated no lower than A-2 by Standard & Poor's Ratings Group ("S&P") or Prime-2 by
Moody's Investors Service, Inc. ("Moody's") or the equivalent from another
nationally recognized statistical rating organization or, if unrated, of an
issuer having an
outstanding, unsecured debt issue then rated within the three highest rating
categories. A description of the commercial paper rating categories of Moody's
and S&P is contained in the Appendix to the Statement of Additional Information.
Mortgage and Asset-Backed Securities. The Fund may purchase fixed or
adjustable rate mortgage-backed securities issued by the Government National
Mortgage Association, Federal National Mortgage Association or the Federal Home
15
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
Loan Mortgage Corporation, and other asset-backed securities, including
securities backed by automobile loans, equipment leases or credit card
receivables. These securities directly or indirectly represent a participation
in, or are secured by and payable from, fixed or adjustable rate mortgage or
other loans which may be secured by real estate or other assets. Unlike
traditional debt instruments, payments on these securities include both interest
and a partial payment of principal. Prepayments of the principal of underlying
loans may shorten the effective maturities of these securities and may result in
the Fund having to reinvest proceeds at a lower interest rate. The Fund may also
purchase collateralized mortgage obligations which are a type of bond secured by
an underlying pool of mortgages or mortgage pass-through certificates that are
structured to direct payments on underlying collateral to different series or
classes of the obligations.
Eurodollar or Yankee Obligations. The Fund may invest in Eurodollar and
Yankee obligations. Eurodollar bank obligations are dollar denominated debt
obligations issued outside the U.S. capital markets by foreign branches of U.S.
banks and by foreign banks. Yankee obligations are dollar denominated
obligations issued in the U.S. capital markets by foreign issuers. Eurodollar
(and to a limited extent, Yankee) obligations are subject to certain sovereign
risks. One such risk is the possibility that a foreign government might prevent
dollar denominated funds from flowing across its borders. Other risks include:
adverse political and economic developments in a foreign country; the extent and
quality of government regulation of financial markets and institutions; the
imposition of foreign withholding taxes; and expropriation or nationalization of
foreign issuers.
U.S. Government Securities. The Fund will invest in direct U.S. government
debt obligations since it is Strategy Advisers' experience that these
investments satisfy the social awareness criteria and are acceptable to most
social investors. The U.S. government securities in which the Fund may invest
include: direct obligations of the United States Treasury and obligations issued
or guaranteed by U.S. government agencies and instrumentalities, including
instruments supported by the full faith and credit of the United States;
securities supported by the right of the issuer to borrow from the United States
Treasury; and securities supported solely by the credit of the instrumentality.
Zero Coupon Securities. A zero coupon bond pays no interest in cash to its
holder during its life, although interest is accrued during that period. Its
value to an investor consists of the difference between its face value at the
time of maturity and the price for which it was acquired, which is generally an
amount significantly less than its face value (sometimes referred to as a "deep
discount" price). Because such securities usually trade at a deep discount, they
will be subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities which make
periodic distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested
16
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
prior to maturity, zero coupon securities eliminate reinvestment risk and lock
in a rate of return to maturity.
Futures and Options on Futures. When deemed advisable by Strategy
Advisers, the Fund may enter into interest rate futures contracts, stock index
futures contracts and related options that are traded on a domestic exchange or
board of trade. These transactions will be made solely for the purpose of
hedging against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions, as the case may
be. All futures and options contracts will be entered into only when the
transactions are economically appropriate for the reduction of risks inherent in
the management of the Fund.
An interest rate futures contract provides for the future sale by the one
party and the purchase by the other party of a specified amount of a particular
financial instrument (debt security) at a specified price, date, time and place.
A stock index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally entered into.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the companies included in the indexes. An option on an
interest rate or stock index contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time prior to the expiration date of the
option.
In entering into transactions involving futures contracts and options on
futures contracts, the Fund will comply with applicable requirements of the
Commodities Futures Trading Commission (the "CFTC") which require that its
transactions in futures and options be engaged in for "bona fide hedging"
purposes or other permitted purposes, provided that aggregate initial margin
deposits and premiums required to establish positions, other than those
considered by the CFTC to be "bona fide hedging," will not exceed 5% of the
Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts.
The use of futures contracts and options on futures contracts as a hedging
device involves several risks. There can be no assurance that there will be a
correlation between price movements in the underlying securities or index on the
one hand, and price movements in the securities that are the subject of the
hedge, on the other hand. Positions in futures contracts and options on futures
contracts may be closed out only on the exchange or board of trade on which they
were entered into, and there can be no assurance that an active market will
exist for a particular contract or option at any particular time.
17
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Investment Objective and Management Policies (continued)
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RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves special considerations, such as those
described below:
Illiquid Securities. The Fund may invest up to 15% of its total assets in
illiquid securities, including repurchase agreements with maturities in excess
of seven days.
Warrants. Because a warrant does not carry with it the right to dividends
or voting rights with respect to the securities that the warrant holder is
entitled to purchase, and because a warrant does not represent any rights to the
assets of the issuer, a warrant may be considered more speculative than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying security and a warrant
ceases to have value if it is not exercised prior to its expiration date. The
investment in warrants, valued at the lower of cost or market, may not exceed 5%
of the value of the Fund's net assets. Included within that amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants that are not
listed on the NYSE or the American Stock Exchange. Warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
Securities of Unseasoned Issuers. Securities in which the Fund may invest
may have limited marketability and, therefore, may be subject to wide
fluctuations in market value. In addition, certain securities may be issued by
companies that lack a significant operating history and are dependent on
products or services without an established market share.
Options. Option writing for the Fund may be limited by position and
exercise limits established by national securities exchanges and by requirements
of the Code for qualification as a regulated investment company. See "Dividends,
Distributions and Taxes." In addition to writing covered call options to
generate current income, the Fund may enter into options transactions as hedges
to reduce investment risk, generally by making an investment expected to move in
the opposite direction of a portfolio position. A hedge is designed to offset a
loss on a portfolio position with a gain on the hedge position; at the same
time, however, a properly correlated hedge will result in a gain on the
portfolio position being offset by a loss on the hedge position. The Fund bears
the risk that the prices of the securities being hedged will not move in the
same amount as the hedge. The Fund will engage in hedging transactions only when
deemed advisable by Strategy Advisers. Successful use by the Fund of options
will be subject to Strategy Advisers' ability to predict correctly movements in
the direction of the stock or index underlying the option used as a hedge.
Losses incurred in hedging transactions and the costs of these transactions will
affect the Fund's performance.
The ability of the Fund to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While the Fund
generally
18
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
will write options only if a liquid secondary market appears to exist for the
options purchased or sold, for some options no such secondary market may exist
or the market may cease to exist. If the Fund cannot enter into a closing
purchase transaction with respect to a call option it has written, the Fund will
continue to be subject to the risk that its potential loss upon exercise of the
option will increase as a result of any increase in the value of the underlying
security. The Fund could also face higher transaction costs, including brokerage
commissions, as a result of its options transactions.
Repurchase Agreements. The Fund bears a risk of loss in the event that the
other party to a repurchase agreement defaults on its obligations and the Fund
is delayed or prevented from exercising its rights to dispose of the underlying
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert its
rights to them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or a part of the income from the agreement.
Foreign Securities. Certain risks are involved in investing in the
securities of companies and governments of foreign nations that go beyond the
usual risks inherent in U.S. investments. These risks include those resulting
from revaluation of currencies, future adverse political and economic
developments, the possible imposition of restrictions on the repatriation of
currencies or other foreign governmental laws or restrictions, reduced
availability of public information concerning issuers and the lack of uniform
accounting, auditing and financial reporting standards or of other regulatory
practices and requirements comparable to those applicable to domestic companies.
The value of the assets of the Fund invested in foreign securities may be
adversely affected by fluctuations in the value of one or more foreign
currencies relative to the dollar. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable domestic companies. In addition, the possibility exists
in certain foreign countries of expropriation, nationalization, confiscatory
taxation and limitations on the use or removal of funds or other assets of the
Fund, including the withholding of dividends. Foreign securities may be subject
to foreign government taxes that could reduce the yield on such securities.
Because the Fund will invest in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates may
adversely affect the value of portfolio securities and the appreciation or
depreciation of investments. Investment in foreign securities may also result in
higher expenses due to the cost of converting foreign currency to U.S. dollars,
the payment of fixed brokerage commissions on foreign exchanges, which generally
are higher than commissions on domestic exchanges, and the expense of
maintaining securities with foreign custodians.
The Fund may also purchase American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs")
19
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
or other securities representing underlying shares of foreign companies. ADRs
are publicly traded on exchanges or over-the-counter in the United States and
are issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR, and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. The Fund may invest in ADRs through both
sponsored and unsponsored arrangements.
Securities of Developing Countries. A developing country generally is
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income markets of
developing countries involves exposure to economic structures that are generally
less diverse and mature, and to political systems that can be expected to have
less stability than those of developed countries. Historical experience
indicates the markets of developing countries have been more volatile than the
markets of the more mature economies of developed countries; however, such
markets often have higher rates of return to investors.
Year 2000. The investment management services provided to the Fund by MMC,
Strategy Advisers and the services provided to shareholders by PFS, the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. MMC Strategy Advisers and PFS have advised the Fund that they have
been reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, MMC and Strategy
Advisers has been advised by the Fund's custodian, transfer agent and accounting
service agent that they are also in the process of modifying their systems with
the same goal. There can, however, be no assurance that MMC, Strategy Advisers
and PFS or any other service provider will be successful, or that interaction
with other non-complying computer systems will not impair Fund services at that
time.
PORTFOLIO TRANSACTIONS AND TURNOVER
MMC arranges for the purchase and sale of the Fund's securities and
selects brokers and dealers (including Smith Barney), which in its best judgment
provide prompt and reliable execution at favorable prices and reasonable
commission rates. MMC may select brokers and dealers which provide it with
research services and
20
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
may cause the Fund to pay such brokers and dealers commissions which exceed
those other brokers and dealers may have charged, if it views the commissions as
reasonable in relation to the value of the brokerage and/or research services.
It is anticipated that the annual portfolio turnover rate of the Fund
normally will be less than 100%. The Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of the Fund's
securities, with money market instruments with less than one year to maturity
excluded. A 100% portfolio turnover rate would occur, for example, if all
included securities were replaced once during the year.
- --------------------------------------------------------------------------------
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 with respect to any securities, at fair value.
Securities listed on an exchange are valued on the basis of the last sale prior
to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used. Quotations
are taken from the exchange where the security is primarily traded. Portfolio
securities which are primarily traded on foreign exchanges may be valued with
the assistance of a pricing service and are generally valued at the preceding
closing values of such securities on their respective exchange, except that when
an occurrence subsequent to the time a foreign security is valued is likely to
have changed such value, then the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Trustees. Over-the-counter securities are valued on the basis of the
bid price at the close of business on each day. Unlisted foreign securities are
valued at the mean between the last available bid and offer price prior to the
time of valuation. Any assets or liabilities initially expressed in terms of
foreign currencies will be converted into U.S. dollar values at the mean between
the bid and offered quotations of such currencies against U.S. dollars as last
quoted by any recognized dealer. Securities for which market quotations are not
readily available are valued at fair value. Notwithstanding the above, bonds and
other fixed-income securities are valued by using market quotations and may be
valued on the basis of prices provided by a pricing service approved by the
Board of Trustees.
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Dividends, Distributions and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to declare and pay quarterly dividends from its net
investment income. Dividends from net realized capital gains, if any, will be
distributed annually. The Fund may also pay additional dividends shortly before
December 31 from certain amounts of undistributed ordinary income and capital
gains realized, in order to avoid a Federal excise tax liability. If a
shareholder does not otherwise instruct, dividends and capital gain
distributions will be automatically reinvested in additional same Class shares
at net asset value, with no additional sales charge or CDSC.
The per share amount of dividends from net investment income on Class B
may be lower than that of Class A, mainly as a result of the distribution fees
applicable to Class B shares. Capital gain distributions, if any, will be the
same amount for both Classes of Fund shares (A and B).
TAXES
The following is a summary of the material federal tax considerations
affecting the Fund and Fund shareholders. Please refer to the Statement of
Additional Information for further discussion. In addition to the considerations
described below and in the Statement of Additional Information, there may be
other federal, state, local, and/or foreign tax applications to consider.
Because taxes are a complex matter, prospective shareholders are urged to
consult their tax advisors for more detailed information with respect to the tax
consequences of any investment.
The Fund will be treated as a separate entity of the Trust for Federal
Income Tax purposes. The Fund intends to qualify, as it has in prior years,
under Subchapter M of the Internal Revenue Code (the "Code") for tax treatment
as a regulated investment company. In each taxable year that the Fund qualifies,
so long as such qualification is in the best interests of its shareholders, the
Fund will pay no federal income tax on its net investment company taxable income
and long-term capital gain that is distributed to shareholders.
Dividends paid from net investment income and net realized short-term
securities gain, are subject to federal income tax as ordinary income.
Distributions, if any, from net realized long-term securities gains, derived
from the sale of securities held by the Fund for more than one year, are taxable
as long-term capital gains, regardless of the length of time a shareholder has
owned Fund shares.
Shareholders are required to pay tax on all taxable distributions, even if
those distributions are automatically reinvested in additional Fund shares. A
portion of the dividends paid by the Fund may qualify for the corporate
dividends received deduction. Dividends consisting of interest from U.S.
government securities may be exempt from state and local income taxes. The Fund
will inform shareholders
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Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
of the source and tax status of all distributions promptly after the close of
each calendar year.
A shareholder's gain or loss on the disposition of Fund shares (whether by
redemption, sale or exchange), generally will be a long-term or short-term gain
or loss depending on the length of time the shares had been owned at
disposition. Losses realized by a shareholder on the disposition of Fund shares
owned for six months or less will be treated as a long-term capital loss to the
extent a capital gain dividend had been distributed on such shares.
The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for
shareholders who do not provide the Fund with a correct taxpayer identification
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for
shareholders who otherwise are subject to backup withholding. Any tax withheld
as a result of backup withholding does not constitute an additional tax, and may
be claimed as a credit on the shareholder's federal income tax return.
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Purchase of Shares
- --------------------------------------------------------------------------------
GENERAL
The Fund offers two Classes of shares to investors purchasing through PFS
Investments Registered Representatives. Class A shares are sold to investors
with an initial sales charge and Class B shares are sold without an initial
sales charge but are subject to a CDSC payable upon certain redemptions. See
"Prospectus Summary--Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.
Initial purchases of Fund shares must be made through a PFS Investments
Registered Representative by completing the appropriate application found in
this prospectus. The completed application should be forwarded to the
Sub-Transfer Agent, 3100 Breckinridge Blvd., Bldg 200, Duluth, Georgia
30099-0062. Checks drawn on foreign banks must be payable in U.S. dollars and
have the routing number of the U.S. bank encoded on the check. Subsequent
investments may be sent directly to the Sub-Transfer Agent.
Investors in Class A and Class B shares may open an account by making an
initial investment of at least $1,000 for each account, or $250 for an IRA or a
Self-Employed Retirement Plan in the Fund. The initial investment amount will be
waived for accounts establishing a Systematic Investment Plan. Subsequent
23
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Purchase of Shares (continued)
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investments of at least $50 may be made for both Classes. For participants in
retirement plans qualified under Section 403(b)(7) or 401(a) of the Code, the
minimum initial and subsequent investment requirement for both Classes in the
Fund is $25. For the Fund's Systematic Investment Plan, the minimum initial and
subsequent investment requirement for both Classes is $25. There are no minimum
investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors or Trustees of any of the Smith
Barney Mutual Funds or other funds affiliated with Travelers and their spouses
and children. The Fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the shareholder's account by
the Sub-Transfer Agent. Share certificates are issued only upon a shareholder's
written request to the Sub-Transfer Agent. A shareholder who has insufficient
funds to complete any purchase, will be charged a fee by PFS or the Sub-Transfer
Agent of $25 per returned purchased.
Purchase orders received by the Sub-Transfer Agent prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by
purchasing shares through a service known as the Systematic Investment Plan.
Under the Systematic Investment Plan, the Sub-Transfer Agent is authorized
through preauthorized transfers of at least $25 or more to charge the regular
bank account or other financial institution indicated by the shareholder on a
monthly basis to provide systematic additions to the shareholder's Fund account.
A shareholder who has insufficient funds to complete the transfer will be
charged a fee of up to $25 by PFS or the Sub-Transfer Agent. A shareholder who
places a stop payment on a transfer or the transfer is returned because the
account has been closed, will also be charged a fee of $25 by PFS or the
Sub-Transfer Agent.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are as follows:
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Purchase of Shares (continued)
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Dealers'
Sales Charge Sales Charge Reallowance
% of as % of as % of
Amount of Investment Offering Price Amount Invested 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 over * * *
================================================================================
* 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 PFS, which in turn, pays PFS Investments to
compensate its Investments Representatives whose clients make purchases of
$500,000 or more. The CDSC is waived in the same circumstances in which
the CDSC applicable to Class B shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries and any of the Smith Barney Mutual
Funds or other Travelers-affiliated funds (including retired Board Members and
employess); the immediate families of such persons; and to a pension,
profit-sharing or other benefit plan for such persons (including the surviving
spouse of a deceased Board Member or employee) and (ii) employees of members of
the National Association of Securities Dealers, Inc., provided such sales are
made upon the assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to any other investment
company in connection with the combination of such company with the Fund by
merger, acquisition of assets or otherwise; (c) purchases by shareholders who
have redeemed Class A shares in the Fund (or Class A shares of another fund in
the Smith Barney Mutual Funds that are offered with a sales charge equal to or
greater than the maximum sales charge of the Fund) and who wish to reinvest
their redemption proceeds in the Fund, provided the reinvestment is made within
60 calendar days of the redemption; (d) purchases by accounts managed by
registered investment advisory subsidiaries of Travelers; and (e) sales through
PFS Investments Registered Representatives where the amounts invested represent
the redemption proceeds from investment companies distributed by an entity other
than PFS, on the condition that (i) the redemption has occurred no more than 60
days prior to the purchase of the shares, (ii) the shareholder paid an initial
sales charge on such redeemed shares and (iii) the shares redeemed were not
subject to a deferred sales charge. PFS Investments may pay its Investments
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Purchase of Shares (continued)
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Representatives an amount equal to 0.40% of the amount invested if the purchase
represents redemption proceeds from an investment company distributed by an
entity other than PFS. In order to obtain such discounts, the purchaser must
provide sufficient information at the time of purchase to permit verification
that the purchase would qualify for the elimination of the sales charge.
VOLUME DISCOUNTS
The "Amount of Investment" referred to in the sales charge table set forth
above under "Initial Sales Charge Alternative--Class A Shares" includes the
purchase of Class A shares in the Fund and of other funds sponsored by Smith
Barney that are offered with a sales charge listed under "Exchange Privilege." A
person eligible for a volume discount includes an individual; members of a
family unit comprising a husband, wife and minor children; a trustee or other
fiduciary purchasing for a single fiduciary account including pension,
profit-sharing and other employee benefit trusts qualified under Section 401(a)
of the Code, or multiple custodial accounts where more than one beneficiary is
involved if purchases are made by salary reduction and/or payroll deduction for
qualified and nonqualified accounts and transmitted by a common employer entity.
Employer entity for payroll deduction accounts may include trade and craft
associations and any other similar organizations.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charge by aggregating the investments
over a 13-month period, provided that the investor refers to such Letter when
placing orders. For purposes of a Letter of Intent, the "Amount of Investment"
as referred to in the preceding sales charge table includes purchases of all
Class A shares of the Fund and other funds of the Smith Barney Mutual Funds that
are offered with a sales charge listed under "Exchange Privilege" over a
13-month period based on the total amount of intended purchases plus the value
of all Class A shares previously purchased and still owned. An alternative is to
compute the 13-month period starting up to 90 days before the date of execution
of a Letter of Intent. Each investment made during the period receives the
reduced sales charge applicable to the total amount of the investment goal. If
the goal is not achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the charges
previously paid, or an appropriate number of escrowed shares will be redeemed.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be
26
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; and (b)
Class A shares that were purchased without an initial sales charge are 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 A shares that are CDSC Shares, shares
redeemed more than 12 months after their purchase.
Class A shares that are CDSC Shares are subject to a 1.00% CDSC if
redeemed within 12 months of purchase. In circumstances in which the CDSC is
imposed on Class B shares, the amount of the charge will depend on the number of
years since the shareholder made the purchase payment from which the amount is
being redeemed. Solely for purposes of determining the number of years since a
purchase payment, all purchase payments made during a month will be aggregated
and deemed to have been made on the last day of the preceding Smith Barney
statement month. The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders.
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 will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fee. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder.
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally of other shares held by the shareholder for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of
27
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
the other Smith Barney Mutual Funds, and Fund shares being redeemed will be
considered to represent, as applicable, capital appreciation or dividend and
capital gain distribution reinvestments in such other funds. For Federal income
tax purposes, the amount of the CDSC will reduce the gain or increase the loss,
as the case may be, on the amount realized on redemption. The amount of any CDSC
will be paid to PFS.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 -$260) would be
charged at a rate of 4% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Redemption of Shares--Automatic Cash Withdrawal Plan"); (c) redemption of
shares within 12 months following the death or disability of the shareholder;
(d) redemption of shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 59 1/2; (e) involuntary
redemptions; and (f) redemption of shares to effect a combination of the Fund
with any investment company by merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from other funds of the Smith
Barney Mutual Funds may, under certain circumstances, reinvest all or part of
the redemption proceeds within 60 days and receive pro rata credit for any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation by PFS of the
shareholder's status or holdings, as the case may be.
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following funds of the Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence. Exchanges of Class A
and Class B shares are
28
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
subject to minimum investment requirements and all shares are subject to the
other requirements of the fund into which exchanges are made.
FUND NAME
Concert Investment Series - Emerging Growth Fund
Concert Investment Series - Government Fund
Concert Investment Series - Growth Fund
Concert Investment Series - Growth & Income Fund
Concert Investment Series - International Equity Fund
Concert Investment Series - Municipal Bond Fund
* Smith Barney Concert Allocation Series Inc.- Balanced Portfolio
* Smith Barney Concert Allocation Series Inc.- Conservative Portfolio
Smith Barney Concert Allocation Series Inc.- Global 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
Concert Peachtree Growth Fund
* Smith Barney Appreciation Fund Inc.
* Smith Barney Investment Grade Bond Fund
** Smith Barney Money Funds, Inc.- Cash Portfolio
** Smith Barney Exchange Reserve Fund
================================================================================
* Available for exchange with Class A shares of the Fund
** Available for exchange with Class B shares of the Fund
Class B Exchanges. In the event a Class B shareholder wishes to exchange
all or a portion of his or her shares in any of the funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of the Fund
that have been exchanged.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. Strategy Advisers
may determine that a pattern of frequent exchanges is excessive and contrary to
the best interests of the Fund's other shareholders. In this event, the Fund
may, at its discretion, decide to limit additional purchases and/or exchanges by
the shareholder. Upon such a determination by the Fund, PFS will provide notice
in writing or by telephone to the shareholder at least 15 days prior to
suspending the exchange privilege and during the 15-day period the shareholder
will be required to (a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the Smith Barney Mutual Funds
listed under "Exchange
29
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Privilege", which position the shareholder would be expected to maintain for a
significant period of time. All relevant factors will be considered in
determining what constitutes an abusive pattern of exchanges.
Exchanges will be processed at the net asset value next determined.
Redemption procedures discussed below are also applicable for exchanging shares,
and exchanges will be made upon receipt of all supporting documents in proper
form. If the account registration of the shares of the fund being acquired is
identical to the registration of the shares of the fund exchanged, no signature
guarantee is required. A capital gain or loss for tax purposes will be realized
upon the exchange, depending upon the cost or other basis of shares redeemed.
Before exchanging shares, investors should read the current prospectus
describing the shares to be acquired. The Fund reserves the right to modify or
discontinue exchange privileges upon 60 days' prior notice to shareholders.
- --------------------------------------------------------------------------------
Redemption of Shares
- --------------------------------------------------------------------------------
Shareholders may redeem for cash some or all of their shares of the Fund
at any time by sending a written request in proper form directly to the
Sub-Transfer Agent, PFS Shareholder Services, at 3100 Breckinridge Blvd., Bldg.
200, Duluth, Georgia 30099-0062. If you should have any questions concerning how
to redeem your account after reviewing the information below, please contact the
Sub-Transfer Agent at (800) 544-5445, Spanish-speaking representatives (800)
544-7278 or TDD Line for the Hearing Impaired (800) 824-1721.
As described under "Purchase of Shares," redemptions of Class B shares are
subject to a contingent deferred sales charge.
The request for redemption must be signed by all persons in whose names
the shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or are not to be
paid to the record owner(s) at the record address, or if the shareholder(s) has
had an address change in the past 45 days, or if the shareholder(s) is a
corporation, sole proprietor, partnership, trust or fiduciary, the signature(s)
must be guaranteed by one of the following: a bank or trust company; a
broker-dealer; a credit union; a national securities exchange, registered
securities association or clearing agency; a savings and loan association; or a
federal savings bank.
Generally, a properly completed Redemption Form with any required
signature guarantee is all that is required for a redemption. In some cases,
however, other documents may be necessary. For example, in the case of
shareholders holding certificates, the certificates for the shares being
redeemed must accompany the redemption request. Additional documentary evidence
of authority is also required by the Sub-Transfer Agent in the event redemption
is requested by a corporation,
30
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
partnership, trust, fiduciary, executor or administrator. Additionally, if a
shareholder requests a redemption from a Retirement Plan account (IRA, SEP or
403(b)(7) ), such request must state whether or not federal income tax is to be
withheld from the proceeds of the redemption check.
Shareholders may utilize the Sub-Transfer Agent's fax to redeem their
account as long as a signature guarantee or other documentary evidence is not
required. Redemption requests should be properly signed by all owners of the
account and faxed to the Sub-Transfer Agent at (800) 554-2374. Facsimile
redemptions may not be available if the shareholder cannot reach the
Sub-Transfer Agent by fax, whether because all telephone lines are busy or for
any other reason; in such case, a shareholder would have to use the Fund's
regular redemption procedure described above. Facsimile redemptions received by
the Sub-Transfer Agent prior to 4:00 p.m. Eastern time on a regular business day
will be processed at the net asset value per share determined that day.
In all cases, the redemption price is the net asset value per share of the
Fund next determined after the request for redemption is received in proper form
by the Sub-Transfer Agent. Payment for shares redeemed will be made by check
mailed within three days after acceptance by the Sub-Transfer Agent of the
request and any other necessary documents in proper order. Such payment may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check or
draft, the Sub-Transfer Agent may hold the payment of the proceeds until the
purchase check or draft has cleared, usually a period of up to 15 days. Any
taxable gain or loss will be recognized by the shareholder upon redemption of
shares.
After following the above-stated redemption guidelines, a shareholder(s)
may elect to have the redemption proceeds wire-transferred directly to the
shareholder's bank account of record (defined as a currently established
pre-authorized draft on the shareholder's account with no changes within the
previous 45 days), as long as the bank account is registered in the same name(s)
as the account with the Fund. If the proceeds are not to be wired to the bank
account of record, or mailed to the registered owner(s), a signature guarantee
will be required from all shareholder(s). A $25 service fee will be charged by
the Sub-Transfer Agent to help defray the administrative expense of executing a
wire redemption. Redemption proceeds will normally be wired to the designated
bank account on the next business day following the redemption, and should
ordinarily be credited to your bank account by your bank within 48 to 72 hours.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may elect to
receive
31
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
periodic cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. For further information regarding the automatic cash withdrawal plan,
shareholders should contact the Sub-Transfer Agent.
- --------------------------------------------------------------------------------
Minimum Account Size
- --------------------------------------------------------------------------------
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size). The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
From time to time the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A and Class B
shares of the Fund. These figures are based on historical earnings and are not
intended to indicate future performance. Total return is computed for a
specified period of time assuming deduction of the maximum sales charge, if any,
from the initial amount invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the value of the investment at the end
of the period so calculated by the initial amount invested and subtracting 100%.
The standard average annual total return, as prescribed by the SEC is derived
from this total return, which provides the ending redeemable value. Such
standard total return information may also be accompanied with nonstandard total
return information for differing periods computed in the same manner but without
annualizing the total return or taking sales charges into account. The Fund
calculates current dividend return for each Class by annualizing the most recent
monthly distribution and dividing by the net asset value or the maximum public
offering price (including sales charge) on the last day of the
32
<PAGE>
- --------------------------------------------------------------------------------
Performance (continued)
- --------------------------------------------------------------------------------
period for which current dividend return is presented. The current dividend
return for each Class may vary from time to time depending on market conditions,
the composition of its investment portfolio and operating expenses. These
factors and possible differences in the methods used in calculating current
dividend return should be considered when comparing a Class' current return to
yields published for other investment companies and other investment vehicles.
The Fund may also include comparative performance information in advertising or
marketing its shares. Such performance information may include data from Lipper
Analytical Services, Inc. and other financial publications. The Fund will
include performance data for Class A and Class B shares in any advertisement or
information including performance data of the Fund.
The Fund may from time to time illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans and the Fund may illustrate in graph or chart form, or
otherwise, the benefits of the Systematic Investment Plan by comparing
investments made pursuant to a systematic investment plan to investments made in
a rising market.
- --------------------------------------------------------------------------------
Management of the Trust and the Fund
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Fund rests with the Trust's Board of Trustees. The Trustees approve all
significant agreements between the Fund and the companies that furnish services
to the Fund, including agreements with its distributors, custodian and transfer
agent and the Fund's investment adviser and administrator. The day-to-day
operations of the Fund are delegated to the Fund's investment adviser and
administrator. The Statement of Additional Information contains background
information regarding each Trustee of the Trust and executive officer of the
Fund.
INVESTMENT ADVISER
Strategy Advisers, located at 388 Greenwich Street, New York, New York
10013, serves as the Fund's investment adviser. Strategy Advisers provides
investment management, investment advisory and/or administrative services to
individual, institutional and investment company clients that had aggregate
assets under management, as of April 30, 1998, of approximately $4.7 billion.
Subject to the supervision and direction of the Board of Trustees,
Strategy Advisers manages the Fund's portfolio in accordance with the Fund's
stated investment objective and policies, makes investment decisions for the
Fund, places orders to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research services to the
Fund. For advisory
33
<PAGE>
- --------------------------------------------------------------------------------
Management of the Trust and the Fund (continued)
- --------------------------------------------------------------------------------
services rendered to the Fund, under an Advisory Agreement dated August 14,
1995, the Fund pays Strategy Advisers a fee at the annual rate of 0.55% of the
value of the Fund's average daily net assets.
ADMINISTRATOR-MMC
MMC serves as the Fund's administrator and generally assists in all
aspects of the Fund's administration and operation. MMC provides investment
management and administration services to a wide variety of individual,
institutional and investment companies that had aggregate assets under
management, as of April 30, 1998, of approximately $99.3 billion. For
administration services rendered, the Fund pays MMC a fee at the annual rate of
0.20% of the value of the Fund's average daily net assets.
PORTFOLIO MANAGEMENT
Robert J. Brady and Ellen S. Cammer, each a Managing Director of Smith
Barney, have served as portfolio managers of the Fund since June 15, 1995, and
manage the day-to-day operations of the Fund, including making all investment
decisions.
Management's discussion and analysis and additional performance
information regarding the Fund during the fiscal year ended January 31, 1998 is
included in the Annual Report dated January 31, 1998. 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.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also subject
to approval by the stockholders of each of Travelers and Citicorp. Upon
consummation of the merger, the surviving corporation would be a bank holding
company subject to regulation under the Holding Company Act of 1956 (the
"BCHA"), the requirements of the Glass-Steagall Act and certain other laws and
regulations. Although the effects of the merger of Travelers and Citicorp and
compliance with the requirements of the BCHA and the Glass-Steagall Act are
still under review, MMC does not believe that its compliance with applicable
laws
following the merger of Travelers and Citicorp will have a material adverse
effect on its ability to continue to provide the Fund with the same level of
investment advisory services that it currently receives.
34
<PAGE>
- --------------------------------------------------------------------------------
Distributor
- --------------------------------------------------------------------------------
PFS is located at 3100 Breckinridge Boulevard, Duluth, Georgia 30099-0001.
PFS distributes shares of the Fund as an underwriter and as such conducts a
continuous offering pursuant to a "best efforts" arrangement requiring PFS to
take and pay for only such securities as may be sold to the public. Pursuant to
a plan of distribution adopted by the Fund under Rule 12b-1 under the 1940 Act
(the "Plan"), PFS is paid an annual service fee with respect to Class A and
Class B shares of the Fund at the annual rate of 0.25% of the average daily net
assets of the respective Class. PFS is also paid an annual distribution fee with
respect to Class B shares at the annual rate of 0.75% of the average daily net
assets attributable to that Class. Class B shares that automatically convert to
Class A shares eight years after the date of original purchase will no longer be
subject to distribution fees. The fees are paid to PFS which, in turn pays PFS
Investments to pay its Registered Representatives for servicing shareholder
accounts and, in the case of Class B shares, to cover expenses primarily
intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to potential
investors; payments to and expenses of Registered Representatives and other
persons who provide support services in connection with the distribution of
shares; interest and/or carrying charges; and indirect and overhead costs of PFS
Investments associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
The payments to PFS Investments Registered Representatives for selling
shares of a Class include a commission or fee paid by the investor or PFS at the
time of sale and a continuing fee for servicing shareholder accounts for as long
as a shareholder remains a holder of that Class.
Registered Representatives may receive different levels of compensation
for selling different Classes of shares.
PFS Investments may be deemed to be an underwriter for purposes of the
Securities Act of 1933 as amended. From time to time, PFS or its affiliates may
also pay
for certain non-cash sales incentives provided to PFS Investments Registered
Representatives. Such incentives do not have any effect on the net amount
invested. In addition to the reallowances from the applicable public offering
price described above, PFS may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation to PFS Investments Registered Representatives that sell shares of
the Fund.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by PFS and the payments may
exceed distribution expenses actually incurred. The Fund's Board of Directors
will evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors, including
expenses borne by PFS, amounts received under the Plan and proceeds of the CDSC.
35
<PAGE>
- --------------------------------------------------------------------------------
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 Fund offers shares of beneficial interest of
separate funds with a par value of $.001 per share. The Fund offers shares of
beneficial interest currently classified into two Classes -- A and B. Each Class
represents an identical interest in the Fund's investment portfolio. As a
result, the Classes have the same rights, privileges and preferences, except
with respect to: (a) the designation of each Class; (b) the effect of the
respective sales charges, if any, for each Class; (c) the distribution and/or
service fees borne by each Class; (d) the expenses allocable exclusively to each
Class; (e) voting rights on matters exclusively affecting a single Class; (f)
the exchange privilege of each Class; and (g) the conversion feature of the
Class B shares. The Board of 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 Fund 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 Fund's outstanding
shares and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. Shareholders of record owning no less than two-thirds
of the outstanding shares of the Fund may remove a Trustee through a declaration
in writing or by vote cast in person or by proxy at a meeting called for that
purpose.
When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate,
fractional vote for any fractional share held of that Class. Generally, shares
of the Fund will be voted on a Fund-wide basis on all matters except matters
affecting only the interests of one or more funds or Classes.
PNC Bank, National Association, is located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and serves as custodian of the Fund's
investments.
PFS Shareholder Services is located at 3100 Breckenridge Blvd., Bldg. 200,
Duluth, Georgia 30099-0062, and serves as the Trust's Sub-Transfer Agent.
The Fund sends shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the reporting period. In an effort to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of the Fund's
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. In addition, the Fund also plans to
consolidate the mailing of the
36
<PAGE>
- --------------------------------------------------------------------------------
Additional Information (continued)
- --------------------------------------------------------------------------------
Fund's Prospectus so that a shareholder having multiple accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not want this consolidation to
apply to their accounts should contact the Fund's Sub-Transfer Agent.
ACCOUNT STATEMENTS/REPORTS
A client will receive several statements and reports as a Smith Barney
Mutual Fund shareholder. Each time a financial transaction occurs, a
confirmation statement identifying the shares bought or sold will be mailed. On
an annual basis, each January, a year-end statement detailing the previous
year's transactions will be provided. Information required for income-tax
reporting will also be distributed to shareholders, usually in January.
Also available at the shareholder's request, is an Account Transcript
identifying every financial transaction in an account since it was opened. To
defray adminstrative expenses involved with providing multiple years worth of
information, there is a $15 charge for each Account Transcript requested.
Additional copies of tax forms are available at the Shareholder's request.
A $10 charge for each tax form will be assessed.
Additional information regarding the Fund's services may be obtained by
contacting the Client Services Department at (800) 544-5445.
37
Concert Social
Awareness
Fund
Because we care about the environment
this prospectus has been printed with
soy based inks on 20% post-consumer
recycled paper, deinked using a 388 Greenwich Street
non-chlorine bleach process. New York, New York 10013
[RECYCLE LOGO] [LOGO OMITTED]
printed on recycled paper
FD0225 5/98
PROSPECTUS
Smith Barney
Large Cap
Blend
Fund
MAY 29, 1998
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
<PAGE>
- --------------------------------------------------------------------------------
Prospectus May 29, 1998
- --------------------------------------------------------------------------------
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 equity securities of large capitalization
domestic companies with market capitalization greater than $5 billion at the
time of the investment that exhibit growth and/or value atributes.
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 29, 1998, 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
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Prospectus Summary 3
- --------------------------------------------------------------------------------
Financial Highlights 9
- --------------------------------------------------------------------------------
Investment Objective and Management Policies 12
- --------------------------------------------------------------------------------
Valuation of Shares 19
- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes 20
- --------------------------------------------------------------------------------
Purchase of Shares 22
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Exchange Privilege 31
- --------------------------------------------------------------------------------
Redemption of Shares 34
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Minimum Account Size 37
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Performance 37
- --------------------------------------------------------------------------------
Management of the Trust and the Fund 38
- --------------------------------------------------------------------------------
Distributor 39
- --------------------------------------------------------------------------------
Additional Information 40
- --------------------------------------------------------------------------------
================================================================================
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust or the
distributor. This Prospectus does not constitute an offer by the Fund or the
distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such an offer or solicitation in such jurisdiction.
================================================================================
2
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary
- --------------------------------------------------------------------------------
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 $15,000,000. 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
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
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 $15,000,000 (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
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
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 $15,000,000. 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
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
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 Salomon 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 including Asset Management, 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."
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
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
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:
Large Cap Blend Fund Class A Class B Class C Class Y
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None None
Maximum CDSC
(as a percentage of original cost or
redemption proceeds, whichever is lower) None* 5.00% 1.00% None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.65% 0.65% 0.65% 0.65%
12b-1 fees** 0.25 0.75 0.75 None
Other expenses 0.19 0.19 0.17 0.04
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.09% 1.59% 1.57% 0.69%
================================================================================
* 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
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
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."
Large Cap Blend Fund 1 year 3 years 5 years 10 years*
- --------------------------------------------------------------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A $61 $83 $107 $176
Class B 66 80 97 176
Class C 26 50 86 187
Class Y 7 22 38 86
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A 61 83 107 176
Class B 16 50 87 176
Class C 16 50 86 187
Class Y 7 22 38 86
- --------------------------------------------------------------------------------
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may result in
an actual return greater or less than 5.00%. This example should not be
considered a representation of past or future expenses and actual expenses may
be greater or less than those shown.
8
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The following information for each of the years in the three-year period
ended January 31, 1998 has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon appears in the Fund's Annual Report dated January
31, 1998. 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 1998 1997 1996(1) 1995 1994(1) 1993(2)
=========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $14.30 $12.16 $ 9.62 $10.36 $ 9.58 $9.50
- -----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.21 0.19 0.20 0.20 0.20 0.01
Net realized and unrealized
gain (loss) 2.10 2.33 2.74 (0.61) 0.81 0.07
- -----------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.31 2.52 2.94 (0.41) 1.01 0.08
- -----------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.19) (0.20) (0.20) (0.19) (0.23) --
Net realized gains (0.70) (0.18) (0.20) (0.14) -- --
- -----------------------------------------------------------------------------------------
Total Distributions (0.89) (0.38) (0.40) (0.33) (0.23) --
- -----------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.72 $14.30 $12.16 $ 9.62 $10.36 $9.58
- -----------------------------------------------------------------------------------------
Total Return 16.30% 20.97% 30.97% (3.93)% 10.70% 0.84%++
- -----------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 152 $ 133 $ 110 $ 95 $ 4 $ 3
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.09% 1.12% 1.16% 1.41% 1.54% 1.41%+
Net investment income 1.35 1.48 1.77 1.86 2.00 0.28+
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 17% 9% 15% 127% 79% 1%
=========================================================================================
Average commissions per share
paid on equity transactions(3) $ 0.06 $ 0.06 $ 0.06 -- -- --
=========================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(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.
9
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a Class B share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
Large Cap Blend Fund 1998 1997 1996(1) 1995 1994(1) 1993(2)
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $14.33 $12.19 $ 9.65 $10.38 $ 9.58 $ 9.50
- ------------------------------------------------------------------------------------------
Income (Loss) From Operations
Net investment income 0.13 0.13 0.14 0.17 0.15 (0.01)
Net realized and unrealized
gain (loss) 2.10 2.34 2.75 (0.62) 0.80 0.09
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.23 2.47 2.89 (0.45) 0.95 0.08
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.14) (0.15) (0.15) (0.14) (0.15) --
Net realized gains (0.70) (0.18) (0.20) (0.14) -- --
- ------------------------------------------------------------------------------------------
Total Distributions (0.84) (0.33) (0.35) (0.28) (0.15) --
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.72 $14.33 $12.19 $ 9.65 $10.38 $ 9.58
- ------------------------------------------------------------------------------------------
Total Return 15.65% 20.43% 30.23% (4.33)% 10.01% 0.84%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 154 $ 137 $ 112 $ 92 $ 68 $ 35
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.59% 1.62% 1.65% 1.90% 1.99% 1.91%+
Net investment income 0.86 0.98 1.27 1.38 1.55 (0.22)+
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 17% 9% 15% 127% 79% 1%
==========================================================================================
Average commissions per share
paid on equity transactions(3) $ 0.06 $ 0.06 $ 0.06 -- -- --
==========================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(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.
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 1998 1997 1996(1) 1995(2) 1998 1997 1996(1)(3)
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $14.33 $12.19 $ 9.65 $ 9.91 $ 14.34 $ 12.16 $12.08
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.13 0.14 0.13 0.07 0.27 0.22 --
Net realized and
unrealized gain (loss) 2.10 2.33 2.76 (0.13) 2.10 2.36 0.08
- -------------------------------------------------------------------------------------------------------
Total Income (Loss)
from Operations 2.23 2.47 2.89 (0.06) 2.37 2.58 0.08
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.14) (0.15) (0.15) (0.06) (0.28) (0.22) --
Net realized gains (0.70) (0.18) (0.20) (0.14) (0.70) (0.18) --
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.84) (0.33) (0.35) (0.20) (0.98) (0.40) --
- -------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Year $15.72 $14.33 $12.19 $ 9.65 $ 15.73 $ 14.34 $12.16
- -------------------------------------------------------------------------------------------------------
Total Return 15.65% 20.43% 30.23% (0.58)%++ 16.76% 21.48% N/A*
- -------------------------------------------------------------------------------------------------------
Net Assets,
End of Year (000s) $5,007 $2,958 $ 961 $ 85 $119,258 $78,192 $ 5
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.57% 1.61% 1.62% 1.83%+ 0.69% 0.73% N/A*
Net investment income 0.86 0.94 1.11 1.44+ 1.73 1.73 N/A*
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 9% 15% 127% 17% 9% 15%
=======================================================================================================
Average commissions per share
paid on equity transactions(4) $ 0.06 $ 0.06 $ 0.06 -- $ 0.06 $ 0.06 $ 0.06
=======================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(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 only was open for 1 day.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
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 attempts to achieve its investment objective by investing, under
normal market conditions, substantially all of its assets in equity securities
and at least 65% of its total assets in equity securities of large
capitalization companies with market capitalizations greater than $5 billion at
the time of investment. In selecting the Fund's equity investments, MMC seeks to
identify companies that exhibit growth and/or value characteristics. When
selecting stocks with growth potential, MMC will evaluate the specific financial
characteristics of the issuer such as historical and forecasted earnings growth,
sales growth, profitability and return on equity. When selecting stocks with
value characteristics, MMC will typically be looking at companies that are
perhaps growing more slowly but whose valuation may be below average relative to
earnings and/or assets.
The Fund will normally invest in all types of equity securities, including
common stocks, preferred stocks, securities that are convertible into common or
preferred stocks, such as warrants and convertible bonds and depository receipts
for those securities. The Fund may maintain a portion of its assets, which will
usually not exceed 10%, in U.S. Government securities, money market obligations
and in cash to provide for payment of the Fund's expenses and to meet redemption
requests. It is the policy of the Fund to be as fully invested in equity
securities as practicable at all times. The Fund reserves the right, as a
defensive measure, to hold money market securities, including repurchase
agreements or cash, in such proportions as, in the opinion of management,
prevailing market or economic conditions warrant.
Consistent with its investment objective and policies described above, the
Fund may invest 20% of its assets in the securities of foreign issuers,
including direct investments and investments made through American Depository
Receipts or European Depository Receipts. The Fund may also 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. 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
12
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
associations and similar institutions); commercial paper rated no lower than A-2
by Standard & Poor's Ratings Group ("S&P") or Prime-2 by Moody's Investors
Service, Inc. ("Moody's") or the equivalent from another nationally recognized
statistical rating organization ("NRSRO") or, if unrated, of an issuer having an
outstanding, unsecured debt issue then rated within the two highest rating
categories; and repurchase agreements with respect to any of the foregoing
entered into with banks and non-bank dealers approved by the Trust's Board of
Trustees. The NRSROs currently designated as such by the SEC are S&P, Moody's,
Fitch IBCA, Duff & Phelps Credit Rating Co. 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.
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.
13
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
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 dealers with which the Fund enters into
repurchase agreements to evaluate potential risks.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial organizations. Loans of portfolio securities by the Fund will be
collateralized by cash, letters of credit or obligations of the United States
government or its agencies and instrumentalities ("U.S. government securities")
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. By lending its portfolio
securities, the Fund will seek to generate income by continuing to receive
interest on the loaned securities, by investing the cash collateral in
short-term instruments or by obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delays 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 the Fund to be
of good standing and will not be made unless, in the judgment of the Fund, 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.
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
14
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
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 and unencumbered, and are marked to market daily pursuant to guidelines
established by the Trustees ("eligible segregated 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.
15
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
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 segregated 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 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
16
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
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 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
17
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
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.
Year 2000. The investment management services provided to the Fund by MMC
and the services provided to shareholders by Smith Barney, the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. MMC and Smith Barney have advised the Fund that they have been
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, MMC has been advised by
the Fund's custodian, transfer agent and accounting service agent that they are
also in the process of modifying their systems with the same goal. There can,
however, be no assurance that MMC, Smith Barney or any other service provider
will be successful, or that interaction with other non-complying computer
systems will not impair Fund services at that time.
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.
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
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.
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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
19
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Valuation of Shares (continued)
- --------------------------------------------------------------------------------
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
their 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.
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Dividends, Distributions and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to declare and pay quarterly dividends from its net
investment income. Dividends from net realized capital gains, if any, will be
distributed annually. The Fund may also pay additional dividends shortly before
December 31 from certain amounts of undistributed ordinary income and capital
gains realized, in order to avoid a Federal excise tax liability. If a
shareholder does not otherwise instruct, dividends and capital gain
distributions will be automatically reinvested in additional same Class shares
at net asset value, with no additional sales charge or CDSC. A shareholder may
change the option at any time by notifying his or her
20
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Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
Smith Barney Financial Consultant. Shareholders whose accounts are held directly
by First Data should notify First Data in writing requesting a change to the
reinvest option.
The per share amounts of dividends from net investment income on Classes B
and C may be lower than that of Classes A and Y, mainly as a result of the
distribution fees applicable to Class B and C shares. Similarly, the per share
amounts of dividends from net investment income on Class A shares may be lower
than that of Class Y, as a result of the service fee attributable to Class A
shares. Capital gain distributions, if any, will be the same amount across all
Classes of Fund shares (A, B, C and Y).
TAXES
The following is a summary of the material federal tax considerations
affecting the Fund and Fund shareholders. Please refer to the Statement of
Additional Information for further discussion. In addition to the considerations
described below and in the Statement of Additional Information, there may be
other federal, state, local, and/or foreign tax applications to consider.
Because taxes are a complex matter, prospective shareholders are urged to
consult their tax advisors for more detailed information with respect to the tax
consequences of any investment.
The Fund will be treated as a separate entity of the Trust for Federal
Income Tax purposes. The Fund intends to qualify, as it has in prior years,
under Subchapter M of the Internal Revenue Code (the "Code") for tax treatment
as a regulated investment company. In each taxable year that the Fund qualifies,
so long as such qualification is in the best interests of its shareholders, the
Fund will pay no federal income tax on its net investment company taxable income
and long-term capital gain that is distributed to shareholders.
Dividends paid from net investment income and net realized short-term
securities gain, are subject to federal income tax as ordinary income.
Distributions, if any, from net realized long-term securities gains, derived
from the sale of securities held by the Fund for more than one year, are taxable
as long-term capital gains, regardless of the length of time a shareholder has
owned Fund shares.
Shareholders are required to pay tax on all taxable distributions, even if
those distributions are automatically reinvested in additional Fund shares. A
portion of the dividends paid by the Fund may qualify for the corporate
dividends received deduction. Dividends consisting of interest from U.S.
government securities may be exempt from state and local income taxes. The Fund
will inform shareholders of the source and tax status of all distributions
promptly after the close of each calendar year.
A shareholder's gain or loss on the disposition of Fund shares (whether by
redemption, sale or exchange), generally will be a long-term or short-term gain
or
21
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Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
loss depending on the length of time the shares had been owned at disposition.
Losses realized by a shareholder on the disposition of Fund shares owned for six
months or less will be treated as a long-term capital loss to the extent a
capital gain dividend had been distributed on such shares.
The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for
shareholders who do not provide the Fund with a correct taxpayer identification
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for
shareholders who otherwise are subject to backup withholding. Any tax withheld
as a result of backup withholding does not constitute an additional tax, and may
be claimed as a credit on the shareholder's federal income tax return.
- --------------------------------------------------------------------------------
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
$15,000,000 (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.
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 $15,000,000. Subsequent
22
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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, Directors or Trustees of any of the Smith
Barney Mutual Funds or other Funds affiliated with Travelers 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.
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
23
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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.
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 any of the Smith Barney Mutual
Funds or other Travelers -affiliated 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
24
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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 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;
(h) purchases by investors participating in a Smith Barney fee-based
arrangement; and (i) purchases of Class A shares of the Fund by Section 403(b)
or 401(a) or (k) accounts associated with Copeland Retirement Programs. In order
to obtain such discounts, the purchaser must provide sufficient information at
the time of purchase to permit verification that the 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 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
25
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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 members at no cost to Smith Barney. In order to obtain
such reduced sales charge or to purchase at net asset value, the purchaser must
provide sufficient information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge. Approval of group
purchase reduced sales charge plans is subject to the discretion of Smith
Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the Fund and other funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13 month period based on the
total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be
26
<PAGE>
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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 $5,000,000 of Class Y shares of the
Fund and agree to purchase a total of $15,000,000 of Class Y shares of the same
Fund within 13 months from the date of the Letter. If a total investment of
$15,000,000 is not made within the 13-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.
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."
27
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
Year Since Purchase
Payment was Made CDSC
- --------------------------------------------------------------------------------
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 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.
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distribution
and finally of other shares held by the shareholders for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption. The
amount of any CDSC will be paid to 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 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
28
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
(see "Automatic Cash Withdrawal Plan") provided, however, that automatic cash
withdrawals in amounts equal to or less than 2% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994; (c) redemptions of shares within 12
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 591/2; (e) involuntary redemptions; and (f)
redemptions of shares 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.
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
29
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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 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.
30
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Contrarian Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Capitalization Growth Fund
Smith Barney Natural Resources Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.-- Large Cap Value Fund
Smith Barney Premium Total Return 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 Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
** Smith Barney Intermediate Maturity California Municipals Fund
** Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
** Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney Municipal High Income Fund
32
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
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. -- Global 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 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
33
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
34
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
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 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 Large Cap Blend 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 $10,000 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 $10,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's
35
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
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. 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 4:00 p.m.
(Eastern Standard time) on any day the NYSE is open. Redemption requests
received after the close of regular trading on the NYSE are priced at the net
asset value next determined. Redemptions of shares (i) by retirement plans or
(ii) for which certificates have been issued are not permitted under this
program.
A shareholder will have the option of having the redemption proceeds
mailed to his/her address of record or wired to a bank account predesignated by
the shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In order
to use the wire procedures, the bank receiving the proceeds must be a member of
the Federal Reserve System or have a correspondent relationship with a member
bank. The Fund reserves the right to charge shareholders a nominal fee for each
wire redemption. Such charges, if any, will be assessed against the
shareholder's account from
36
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
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 4:00 p.m.
(Eastern Standard 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
the Fund, each account must satisfy the minimum account size). The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the
37
<PAGE>
- --------------------------------------------------------------------------------
Performance (continued)
- --------------------------------------------------------------------------------
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.
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 entered into by MMC and the Fund. MMC renders investment advice to
investment companies that had aggregate assets under management as of April 30,
1998 of approximately $99.3 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
38
<PAGE>
- --------------------------------------------------------------------------------
Management of the Trust and the Fund (continued)
- --------------------------------------------------------------------------------
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, 1998 is
included in the Annual Report dated January 31, 1998. 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.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also subject
to approval by the stockholders of each of Travelers and Citicorp. Upon
consummation of the merger, the surviving corporation would be a bank holding
company subject to regulation under the Holding Company Act of 1956 (the
"BCHA"), the requirements of the Glass-Steagall Act and certain other laws and
regulations. Although the effects of the merger of Travelers and Citicorp and
compliance with the requirements of the BCHA and the Glass-Steagall Act are
still under review, MMC does not believe that its compliance with applicable
laws
following the merger of Travelers and Citicorp will have a material adverse
effect on its ability to continue to provide the Fund with the same level of
investment advisory services that it currently receives.
- --------------------------------------------------------------------------------
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
39
<PAGE>
- --------------------------------------------------------------------------------
Distributor (continued)
- --------------------------------------------------------------------------------
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A, Class B and Class C shares of the Fund at the annual rate of
0.25% of the value of the average daily net assets of the respective Class.
Smith Barney is also paid an annual distribution fee with respect to Class B and
Class C shares at the annual rate of 0.50% of the value of the average daily 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
40
<PAGE>
- --------------------------------------------------------------------------------
Additional Information (continued)
- --------------------------------------------------------------------------------
Classes have the same rights, privileges and preferences, except with respect
to: (a) the designation of each Class; (b) the effect of the respective sales
charges, if any, for each Class; (c) the distribution and/or service fees borne
by each Class; (d) the expenses allocable exclusively to each Class; (e) voting
rights on matters exclusively affecting a single Class; (f) the exchange
privilege of each Class; and (g) the conversion feature of the Class B shares.
The Trust's Board of Trustees does not anticipate that there will be any
conflicts among the interests of the holders of the different Classes. The
Trustees, on an ongoing basis, will consider whether any such conflict exists
and, if so, take appropriate action.
The Trust does not hold annual shareholder meetings. There normally will
be no meeting of shareholders for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have been
elected by shareholders. The Trustees will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Trust's outstanding
shares and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. Shareholders of record owning no less than two-thirds
of the outstanding shares of the Trust may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for that purpose.
When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate,
fractional vote for any fractional share held of that Class. Generally, shares
of the Trust vote by individual fund on all matters except (a) matters affecting
only the interests of one or more of the funds, in which case only shares of the
affected fund or funds would be entitled to vote or (b) when the 1940 Act
requires that shares of the funds be voted in the aggregate. Similarly, shares
of the Fund will be voted generally on a Fund-wide basis except 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.
41
Smith Barney
EQUITY FUNDS
388 Greenwich Street
New York, New York 10013
800-451-2010
STATEMENT OF ADDITIONAL INFORMATION May 29, 1998
This Statement of Additional Information expands
upon and supplements the information contained in the
current Prospectuses, dated May 29, 1998, as amended
or supplemented from time to time, of Smith Barney
Large Cap Blend Fund ("Large Cap Blend Fund")
(formerly the Smith Barney Growth and Income Fund) and
Concert Social Awareness Fund ("Social Awareness
Fund") (Large Cap Blend Fund and Social Awareness Fund
each a "Fund" and collectively, the "Funds"). Each
Fund is a series of Smith Barney Equity Funds (the
"Trust"). This Statement of Additional Information
should be read in conjunction with the Fund's
Prospectuses. The Prospectuses may be obtained from a
Smith Barney Financial Consultant, a PFS Investments
Inc. Registered Representative or by writing or
calling the Trust at the address or telephone number
set forth above. This Statement of Additional
Information, although not in itself a prospectus, is
incorporated by reference into the Prospectuses in its
entirety.
CONTENTS
For ease of reference, the same section headings
are used in the Prospectuses and in this Statement of
Additional Information, except where shown below:
Management of the Trust
2
Investment Objectives and Management Policies
5
Purchase of Shares
14
Redemption of Shares
15
Distributor
16
Valuation of Shares
18
Exchange Privilege
18
Performance Data (See in Prospectus "Performance")
19
Taxes (See in Prospectus "Dividends, Distributions and
Taxes")
22
Additional Information
25
Financial Statements
26
Appendix
A-1
MANAGEMENT OF THE TRUST
The executive officers of the Trust are employees of
certain of the organizations that provide services to
the Trust. These organizations are the following:
Name
Service
Smith Barney Inc.
("Smith Barney")
Distributor of each Fund
PFS Distributors Inc. (PFS)
Co-Distributor of the Social Awareness Fund
Mutual Management Corp. ("MMC")
(formerly Smith Barney Mutual Funds Management Inc.)
Investment Adviser and Administrator of Large Cap
Blend Fund and Administrator of the Social Awareness
Fund
Smith Barney Strategy Advisers Inc.
("Strategy Advisers")
Investment Adviser of Social Awareness Fund
PNC Bank, National Association
("PNC")
Custodian
First Data Investor Services Group, Inc.
("First Data")
Transfer Agent
These organizations and the services they
perform for the Trust and the Funds are discussed in
the Prospectuses and in this Statement of Additional
Information.
Trustees and Executive Officers of The Trust
The names of the Trustees and the executive officers
of the Trust, together with information as to their
principal business occupations, are set forth below.
Each Trustee who is an "interested person" of the
Trust, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), is indicated by
an asterisk.
Lee Abraham, Trustee (Age 68). Retired; formerly
Chairman and Chief Executive Officer of Associated
Merchandising Corporation, a major retail
merchandising and sourcing organization. His address
is 35 Old Forge Road, Wilton, Connecticut 06897.
Allan J. Bloostein, Trustee (Age 66). Consultant;
formerly Vice Chairman of the Board of and Consultant
to The May Department Stores Company; Director of
Crystal Brands, Inc., Melville Corp. and R.G. Barry
Corp. His address is 27 West 67th Street, New York,
New York 10023.
Richard E. Hanson, Jr., Trustee (Age 56). Head of
School, The New Atlanta Jewish Community High School,
Atlanta Georgia; prior to July 1,1994, Headmaster,
Lawrence County Day School-Woodmere Academy, Woodmere,
New York; prior to July 1, 1990, Headmaster of the
Woodmere Academy. His address is 2865 Lenox Road,
N.E., Apt. 507, Atlanta, GA 30324-2855.
*Heath B. McLendon, Chairman of the Board and
Investment Officer (Age 64). Managing Director of
Smith Barney and Chairman of the Board of Strategy
Advisers; prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers"); Vice Chairman of Shearson Asset
Management, a Director of PanAgora Asset Management,
Inc. and PanAgora Asset Management Limited. Mr.
McLendon also serves as Chairman of the Board of 42
other mutual funds of the Smith Barney Mutual Funds.
His address is 388 Greenwich Street, New York, New
York 10013.
R. Jay Gerken, Investment Officer (Age 44). Managing
Director of Smith Barney; prior to July 1993 Managing
Director of Shearson Lehman Advisors. His address is
388 Greenwich Street, New York, New York 10013.
Robert J. Brady, Investment Officer (Age 57).
Managing Director of Smith Barney. Mr. Brady was
previously Director of Investment Strategy at EF
Hutton and Special Situations Analyst for Forbes Inc.
His address is 388 Greenwich Street, New York, New
York 10013.
Ellen S. Cammer, Investment Officer (Age 42). Managing
Director of Smith Barney. Her address is 388 Greenwich
Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 40). Managing Director of Smith Barney; Director
and Senior Vice President of MMC. Mr. Daidone also
serves as Senior Vice President and Treasurer of 42
other funds of the Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York
10013.
Christina T. Sydor, Secretary (Age 47). Managing
Director of Smith Barney; General Counsel and
Secretary of MMC. Ms. Sydor also serves as Secretary
of 42 other funds of the Smith Barney Mutual Funds.
Her address is 388 Greenwich Street, New York, New
York 10013.
As of January 31, 1998, the Trust's Trustees and
officers of the Funds as a group owned less than 1.00%
of the outstanding shares of the Trust.
As of May 19, 1998 to the knowledge of the Funds and
the Board of Trustees, no single shareholder or group
(as the term is used in Section 13(d) of the
Securities Act of 1934) beneficially owned more than
5% of the outstanding shares of the Fund with the
exception of the following:
FUND
CLASS
PERCENT
NAME
ADDRESS
Large Cap Blend Fund
Y
54.2576
Smith Barney
Concert Series, Inc.
Growth Portfolio, PNC Bank NA
ATTN: Beverly Timson
200 Stevens Drive Suite 440
Lester PA 19113
Large Cap Blend Fund
Y
21.9859
Smith Barney
Concert Series, Inc.
High Growth Port, PNC Bank NA
ATTN: Beverly Timson
200 Stevens Drive Suite 440
Lester PA 19113
Large Cap Blend Fund
Y
15.5520
Smith Barney
Concert Series, Inc.
Balanced Portfolio, PNC Bank NA
ATTN: Beverly Timson
200 Stevens Drive Suite 440
Lester PA 19113
No officer, director or employee of Smith
Barney, or of any parent or subsidiary receives any
compensation from the Trust for serving as an officer
or Trustee of the Trust. The Trust pays each Trustee
who is not an officer, director or employee of Smith
Barney or any of its affiliates a fee of $6,000 per
annum plus $1,000 per meeting attended and reimburses
each Trustee for travel and out-of-pocket expenses.
For the fiscal year ended January 31, 1998, such
expenses totaled $4,496.
For the fiscal year ended January 31, 1998, the
Trustees of the Trust were paid the following
compensation:
Director*
Aggregate Compensation
From the Fund**
Pension Or Retirement Benefits
Accrued As Part of the Fund Expenses
Aggregate Compensation
From the Smith Barney Mutual Funds
Lee Abraham (2)
$9,200
$0
$38,650
Allan Bloostein (8)
11,200
0
85,850
Richard Hanson Jr. (2)
11,200
0
47,350
Heath B. McLendon (42)
- ---
0
- ---
* Total number of Funds for which Trustee serves
within Fund complex.
** The aggregate remuneration paid to the Trustees by
the Trust for the fiscal year ended January 31, 1998,
which includes reimbursement for travel and out-of-
pocket expenses.
Upon attainment of age 80, Trustees are required to
change to emeritus status. Trustees Emeritus are
entitled to serve in emeritus status for a maximum of
10 years during which time they are paid 50% of the
annual retainer fee and meeting fees otherwise
applicable to the Trust's Trustees together with
reasonable out-of-pocket expenses for each meeting
attended.
Investment Advisers and Administrator
MMC serves as investment adviser to Large Cap Blend
Fund pursuant to a transfer of the investment advisory
agreement effective November 7, 1994 (the "Smith
Barney Growth and Income Fund Advisory Agreement"),
from its affiliate, Mutual Management Corp. Mutual
Management Corp. and MMC are both wholly owned
subsidiaries of Salomon Smith Barney Holdings Inc.
("Holdings"), which in turn is a wholly owned
subsidiary of Travelers Group Inc. ("Travelers"). The
Growth and Income Advisory Agreement was most recently
approved on August 6, 1997. The services provided by
MMC under the Advisory Agreements are described in the
Prospectuses under "Management of the Trust and the
Fund."
MMC bears all expenses in connection with the
performance of its services and pays the salary of any
officer and employee who is employed by both it and
the Trust. As compensation for investment advisory
services rendered to Large Cap Blend Fund, the Fund
pays a fee computed daily and paid monthly at the
annual rate of 0.45% of the value of the average daily
net assets of the Fund.
MMC also serves as administrator to the Funds
pursuant to written agreements (each an
"Administration Agreement") dated August 31, 1996
which was most recently approved on August 6, 1997.
For administration services rendered, the Funds pay
MMC a fee at the annual rate of 0.20% of the value of
the respective Funds' average daily net assets.
Certain of the services provided to the Funds by
MMC are described in the Prospectuses under
"Management of the Trust and the Fund." In addition to
those services, MMC pays the salaries of all officers
and employees who are employed by MMC and the Fund,
maintains office facilities for each Fund, furnishes
each Fund with statistical and research data, clerical
help and accounting, data processing, bookkeeping,
internal auditing and legal services and certain other
services required by the Funds, prepares reports to
the Funds' shareholders and prepares tax returns,
reports to and filings with the Securities and
Exchange Commission (the "SEC") and state Blue Sky
authorities. MMC bears all expenses in connection with
the performance of its services.
Strategy Advisers serves as investment adviser
to Social Awareness Fund pursuant to a written
agreement (the "Social Awareness Advisory Agreement"),
dated August 31, 1996. Strategy Advisers is a wholly
owned subsidiary of Holdings. Certain of the services
provided by Strategy Advisers under the Strategy
Advisory Agreement are described in the Prospectus
under "Management of the Trust and the Fund." As
compensation for Strategy Advisers' services rendered
to Social Awareness Fund, the Fund pays a fee computed
daily and paid monthly at the annual rate of 0.55% of
the value of the Fund's average daily net assets.
Each of MMC and Strategy Advisers (each, an
"Adviser" and collectively, the "Advisers") pays the
salaries of all officers and employees who are
employed by both it and the Trust, and maintains
office facilities for the Funds. Each of the service
providers also bears all expenses in connection with
the performance of its services under its agreement
relating to a Fund.
For the fiscal years ended January 31, 1996,
1997 and 1998, the Funds paid investment advisory
and/or administration fees to their respective
Advisers and the administrator as follows:
Large Cap Blend Fund
1996
1997
1998
Investment Advisory fees
$918,110
$1,256,354
$1,796,197
Administration fees
408,049
558,380
798,309
Social Awareness Fund
1996
1997
1998
Investment Advisory fees
$2,095,050
$2,146,284
$2,036,365
Administration fees
761,836
780,467
740,496
Each Adviser and the administrator has agreed
that if in any fiscal year the aggregate expenses of
the Fund it serves (including fees payable pursuant to
its agreement with respect to the Fund, but excluding
interest, taxes, brokerage, fees paid pursuant to the
Trust's services and distribution plan, and, if
permitted by the relevant state securities
commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction
over the Fund, the Adviser and administrator, to the
extent required by state law, will reduce their fees
to the Fund by the amount of such excess expense, such
amount to be allocated between them in the same
proportion as their respective fees bear to the
combined fees for investment advice and
administration. Such fee reduction, if any, will be
estimated and reconciled on a monthly basis. The most
restrictive state expense limitation currently
applicable to any Fund requires a reduction of fees in
any year that such expenses exceed 2.50% of the Fund's
first $30 million of average net assets, 2.00% of the
next $70 million of average net assets and 1.50% of
the remaining average net assets.
Counsel and Auditors
Willkie Farr & Gallagher LLP, serves as legal
counsel to the Trust. Stroock & Stroock & Lavan LLP
serves as counsel to the Independent Trustees of the
Funds.
KPMG Peat Marwick LLP, 345 Park Avenue, New
York, New York 10154, has been selected as the Trust's
independent auditor to examine and report on the
Trust's financial statements and financial highlights
for the fiscal year ending January 31, 1999.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Prospectuses discuss the investment
objectives of the Funds and the policies employed to
achieve those objectives. This section contains
supplemental information concerning the types of
securities and other instruments in which the Funds
may invest, the investment policies and portfolio
strategies the Funds may utilize and certain risks
attendant to such investments, policies and
strategies. There can be no assurance that the
respective investment objectives of the Funds will be
achieved.
United States Government Securities. United
States government securities include debt obligations
of varying maturities issued or guaranteed by the
United States government or its agencies or
instrumentalities ("U.S. government securities").
Direct obligations of the United States Treasury
include a variety of securities that differ in their
interest rates, maturities and dates of issuance.
U.S. government securities include not only
direct obligations of the United States Treasury, but
also include securities issued or guaranteed by the
Federal Housing Administration, Federal Financing
Bank, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage
Association, General Services Administration, Federal
Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association,
Maritime Administration, Resolution Trust Corporation,
Tennessee Valley Authority, District of Columbia
Armory Board, Student Loan Marketing Association and
various institutions that previously were or currently
are part of the Farm Credit System (which has been
undergoing a reorganization since 1987). Because the
United States government is not obligated by law to
provide support to an instrumentality that it
sponsors, a Fund will invest in obligations issued by
such an instrumentality only if the Fund's Adviser
determines that the credit risk with respect to the
instrumentality does not make its securities
unsuitable for investment by the Fund.
Venture Capital Investments (Social Awareness
Fund). Social Awareness Fund may invest up to 5% of
its total assets in venture capital investments, that
is, new and early stage companies whose securities are
not publicly traded. Venture capital investments may
present significant opportunities for capital
appreciation but involve a high degree of business and
financial risk that can result in substantial losses.
The disposition of U.S. venture capital investments,
which may include limited partnership interests,
normally would be restricted under Federal securities
laws. Generally, restricted securities may be sold
only in privately negotiated transactions or in public
offerings registered under the Securities Act of 1933,
as amended. The Fund also may be subject to
restrictions contained in the securities laws of other
countries in disposing of portfolio securities. As a
result of these restrictions, the Fund may be unable
to dispose of such investments at times when disposal
is deemed appropriate due to investment or liquidity
considerations; alternatively, the Fund may be forced
to dispose of such investments at less than fair
market value. Where registration is required, the Fund
may be obligated to pay part or all of the expenses of
such registration.
Lending of Portfolio Securities. Consistent
with applicable regulatory requirements each Fund has
the ability to lend portfolio securities to brokers,
dealers and other financial organizations. A Fund
will not lend portfolio securities to Smith Barney
unless it has applied for and received specific
authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of
credit or U.S. government securities that are
maintained at all times in a segregated account in an
amount equal to 100% of the current market value of
the loaned securities. From time to time, a Fund may
pay a part of the interest earned from the investment
of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated
with the Fund and that is acting as a "finder."
By lending its securities, a Fund can increase
its income by continuing to receive interest on the
loaned securities as well as by either investing the
cash collateral in short-term instruments or obtaining
yield in the form of interest paid by the borrower
when U.S. government securities are used as
collateral. A Fund will comply with the following
conditions whenever its portfolio securities are
loaned: (a) the Fund must receive at least 100% cash
collateral or equivalent securities from the borrower;
(b) the borrower must increase such collateral
whenever the market value of the securities loaned
rises above the level of such collateral; (c) the Fund
must be able to terminate the loan at any time; (d)
the Fund must receive reasonable interest on the loan,
as well as any dividends, interest or other
distributions on the loaned securities, and any
increase in market value; (e) the Fund may pay only
reasonable custodian fees in connection with the loan;
and (f) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a
material event adversely affecting the investment in
the loaned securities occurs, the Trust's Board of
Trustees must terminate the loan and regain the right
to vote the securities. The risks in lending portfolio
securities, as with other extensions of secured
credit, consist of a possible delay in receiving
additional collateral or in the recovery of the
securities or possible loss of rights in the
collateral should the borrower fail financially. Loans
will be made to firms deemed by each Fund's Adviser to
be of good standing and will not be made unless, in
its judgment, the consideration to be earned from such
loans would justify the risk.
Options on Securities. The Funds may write
covered call options and enter into closing
transactions with respect thereto. The principal
reason for writing covered call options on securities
is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on
the securities alone. In return for a premium, the
writer of a covered call option forfeits the right to
any appreciation in the value of the underlying
security above the strike price for the life of the
option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the
risk of a decline in the price of the underlying
security. The size of the premiums a Fund may receive
may be adversely affected as new or existing
institutions, including other investment companies,
engage in or increase their option-writing activities.
Options written by the Funds normally will have
expiration dates between one and nine months from the
date they are written. The exercise price of the
options may be below ("in-the-money"), equal to ("at-
the-money"), or above ("out-of-the-money") the market
values of the underlying securities at the times the
options are written. A Fund may write (a) in-the-money
call options when its Adviser expects that the price
of the underlying security will remain flat or decline
moderately during the option period, (b) at-the-money
call options when its Adviser expects that the price
of the underlying security will remain flat or advance
moderately during the option period and (c) out-of-
the-money call options when its Adviser expects that
the price of the underlying security may increase but
not above a price equal to the sum of the exercise
price plus the premiums received from writing the call
option. In any of the preceding situations, if the
market price of the underlying security declines and
the security is sold at this lower price, the amount
of any realized loss will be offset wholly or in part
by the premium received.
So long as the obligation of a Fund as the
writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer
through which the option was sold requiring the Fund
to deliver the underlying security against payment of
the exercise price. This obligation terminates when
the option expires or the Fund effects a closing
purchase transaction. A Fund can no longer effect a
closing purchase transaction with respect to an option
once it has been assigned an exercise notice. To
secure its obligation to deliver the underlying
security when it writes a call option, a Fund will be
required to deposit in escrow the underlying security
or other assets in accordance with the rules of the
Options Clearing Corporation (the "Clearing
Corporation") and of the domestic securities exchange
on which the option is written.
An option position may be closed out only where
there exists a secondary market for an option of the
same series on a securities exchange or in the over-
the-counter market. Social Awareness Fund expects to
write options only on domestic securities exchanges. A
Fund may realize a profit or loss upon entering into a
closing transaction. In cases in which a Fund has
written an option, it will realize a profit if the
cost of the closing purchase transaction is less than
the premium received upon writing the original option
and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon
writing the original option.
Although Social Awareness Fund generally will
write only those options for which the Fund's Adviser
believes there is an active secondary market so as to
facilitate closing transactions, there is no assurance
that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist
for any particular option or at any particular time,
and for some options no such secondary market may
exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past,
for example, higher than anticipated trading activity
or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the
Clearing Corporation and the domestic securities
exchanges inadequate and resulted in the institution
of special procedures, such as trading rotations,
restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can
be no assurance that similar events, or events that
otherwise may interfere with the timely execution of
customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions
in particular options. If, as a covered call option
writer, a Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able
to sell the underlying security until the option
expires or it delivers the underlying security upon
exercise.
Securities exchanges have established
limitations governing the maximum number of calls and
puts of each class that may be held or written, or
exercised within certain time periods, by an investor
or group of investors acting in concert (regardless of
whether the options are written on the same or
different national securities exchanges or are held,
written or exercised in one or more accounts or
through one or more brokers). It is possible that the
Funds and other clients of their respective Advisers
and certain of their affiliates may be considered to
be such a group. A securities exchange may order the
liquidation of positions found to be in violation of
these limits and it may impose certain other
sanctions.
In the case of options written by a Fund that
are deemed covered by virtue of the Fund's holding
convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange
and obtain physical delivery of the underlying common
stocks with respect to which the Fund has written
options may exceed the time within which the Fund must
make delivery in accordance with an exercise notice.
In these instances, a Fund may purchase or temporarily
borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear
any market risk because the Fund will have the
absolute right to receive from the issuer of the
underlying securities an equal number of shares to
replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expense in
connection with any such purchase or borrowing.
Money Market Instruments. Subject to the
restrictions noted in the Prospectuses, the money
market instruments in which the Funds may invest are:
U.S. government securities; certificates of deposit
("CDs"), time deposits ("TDs") and bankers'
acceptances issued by domestic banks (including their
branches located outside the United States and
subsidiaries located in Canada), domestic branches of
foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and
repurchase agreements with respect to the foregoing
types of instruments. The following is a more detailed
description of such money market instruments.
Bank Obligations. CDs are short-term,
negotiable obligations of commercial banks; TDs are
non-negotiable deposits maintained in banking
institutions for specified periods of time at stated
interest rates; and bankers' acceptances are time
drafts drawn on commercial banks by borrowers usually
in connection with international transactions.
Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the
Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic
banks organized under state law are supervised and
examined by state banking authorities but are members
of the Federal Reserve System only if they elect to
join. Most state banks are insured by the FDIC
(although such insurance may not be of material
benefit to a Fund, depending upon the principal amount
of CDs of each bank held by the Fund) and are subject
to federal examination and to a substantial body of
Federal law and regulation. As a result of
governmental regulations, domestic branches of
domestic banks, among other things, generally are
required to maintain specified levels of reserves, and
are subject to other supervision and regulation
designed to promote financial soundness.
Obligations of foreign branches of domestic
banks, such as CDs and TDs, may be general obligations
of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific
obligation and governmental regulations. Such
obligations are subject to different risks than are
those of domestic banks or domestic branches of
foreign banks. These risks include foreign economic
and political developments, foreign governmental
restrictions that may adversely affect payment of
principal and interest on the obligations, foreign
exchange controls and foreign withholding and other
taxes on interest income. Foreign branches of domestic
banks are not necessarily subject to the same or
similar regulatory requirements that apply to domestic
banks, such as mandatory reserve requirements, loan
limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less
information may be publicly available about a foreign
branch of a domestic bank than about a domestic bank.
CDs issued by wholly owned Canadian subsidiaries of
domestic banks are guaranteed as to repayment of
principal and interest (but not as to sovereign risk)
by the domestic parent bank.
Obligations of domestic branches of foreign
banks may be general obligations of the parent bank in
addition to the issuing branch, or may be limited by
the terms of a specific obligation and by Federal and
state regulation as well as governmental action in the
country in which the foreign bank has its head office.
A domestic branch of a foreign bank with assets in
excess of $1 billion may or may not be subject to
reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located
if the branch is licensed in that state. In addition,
branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State
Branches") may or may not be required to: (a) pledge
to the regulator by depositing assets with a
designated bank within the state, an amount of its
assets equal to 5% of its total liabilities; and (b)
maintain assets within the state in an amount equal to
a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be
insured by the FDIC. In addition, there may be less
publicly available information about a domestic branch
of a foreign bank than about a domestic bank.
In view of the foregoing factors associated with
the purchase of CDs and TDs issued by foreign branches
of domestic banks or by domestic branches of foreign
banks, each Fund's Adviser will carefully evaluate
such investments on a case-by-case basis. Savings and
loan associations, the CDs of which may be purchased
by the Funds, are supervised by the Office of Thrift
Supervision and are insured by the Savings Association
and Insurance Fund. As a result, such savings and loan
associations are subject to regulation and
examination.
Commercial Paper. Commercial paper is a short-
term, unsecured negotiable promissory note of a
domestic or foreign company. A Fund may invest in
short-term debt obligations of issuers that at the
time of purchase are rated A-2, A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P") or Prime-2 or
Prime-1 by Moody's Investors Service, Inc. ("Moody's")
or, if unrated, are issued by companies having an
outstanding unsecured debt issue currently rated
within the two highest ratings of S&P or Moody's. A
discussion of S&P and Moody's rating categories
appears in the Appendix to this Statement of
Additional Information.
A Fund also may invest in variable rate master
demand notes, which typically are issued by large
corporate borrowers providing for variable amounts of
principal indebtedness and periodic adjustments in the
interest rate according to the terms of the
instrument. Demand notes are direct lending
arrangements between the Fund and an issuer, and are
not normally traded in a secondary market. A Fund,
however, may demand payment of principal and accrued
interest at any time. In addition, while demand notes
generally are not rated, their issuers must satisfy
the same criteria as those set forth above for issuers
of commercial paper. Each Fund's Adviser will consider
the earning power, cash flow and other liquidity
ratios of issuers of demand notes and continually will
monitor their financial ability to meet payment on
demand.
Convertible Securities. The Funds may invest in
convertible securities. Convertible securities are
fixed-income securities that may be converted at
either a stated price or stated rate into underlying
shares of common stock. Convertible securities have
general characteristics similar to both fixed-income
and equity securities. Although to a lesser extent
than with fixed-income securities generally, the
market value of convertible securities tends to
decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In
addition, because of the conversion feature, the
market value of convertible securities tends to vary
with fluctuations in the market value of the
underlying common stocks and, therefore, also will
react to variations in the general market for equity
securities. A unique feature of convertible securities
is that as the market price of the underlying common
stock declines, convertible securities tend to trade
increasingly on a yield basis, and thus may not
experience market value declines to the same extent as
the underlying common stock. When the market price of
the underlying common stock increases, the prices of
the convertible securities tend to rise as a
reflection of the value of the underlying common
stock. While no securities investments are without
risk, investments in convertible securities generally
entail less risk than investments in common stock of
the same issuer.
As fixed-income securities, convertible
securities are investments that provide for a stable
stream of income with generally higher yields than
common stocks. Of course, like all fixed-income
securities, there can be no assurance of current
income because the issuers of the convertible
securities may default on their obligations.
Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible
securities of similar quality because of the potential
for capital appreciation. A convertible security, in
addition to providing fixed income, offers the
potential for capital appreciation through the
conversion feature, which enables the holder to
benefit from increases in the market price of the
underlying common stock. There can be no assurance of
capital appreciation, however, because securities
prices fluctuate.
Convertible securities generally are
subordinated to other similar but non-convertible
securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority
in right of payment to all equity securities, and
convertible preferred stock is senior to common stock,
of the same issuer. Because of the subordination
feature, however, convertible securities typically
have lower ratings than similar non-convertible
securities.
Preferred Stock. The Funds may invest in
preferred stocks. Preferred stocks, like debt
obligations, are generally fixed-income securities.
Shareholders of preferred stocks normally have the
right to receive dividends at a fixed rate when and as
declared by the issuer's board of directors, but do
not participate in other amounts available for
distribution by the issuing corporation. Dividends on
the preferred stock may be cumulative, and all
cumulative dividends usually must be paid prior to
common stockholders receiving any dividends. Preferred
stock dividends must be paid before common stock
dividends and for that reason preferred stocks
generally entail less risk than common stocks. Upon
liquidation, preferred stocks are entitled to a
specified liquidation preference, which is generally
the same as the par or stated value, and are senior in
right of payment to common stock. Preferred stocks
are, however, equity securities in the sense that they
do not represent a liability of the issuer and
therefore do not offer as great a degree of protection
of capital or assurance of continued income as
investments in corporate debt securities. In addition,
preferred stocks are subordinated in right of payment
to all debt obligations and creditors of the issuer,
and convertible preferred stocks may be subordinated
to other preferred stock of the same issuer.
American, European, Global and Continental
Depository Receipts. The assets of Social Awareness
Fund and the Growth Fund may be invested in the
securities of foreign issuers in the form of American
Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") and Global Depository Receipts
("GDRs"). These securities may not necessarily be
denominated in the same currency as the securities
into which they may be converted. ADRs are U.S.
dollar-denominated receipts typically issued by a
domestic bank or trust company that evidence ownership
of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as
Continental Depository Receipts ("CDRs"), are receipts
issued in Europe typically by non-U.S. banks and trust
companies that evidence ownership of either foreign or
domestic securities. Generally, ADRs in registered
form are designed for use in U.S. securities markets
and EDRs and CDRs in bearer form are designed for use
in European securities markets.
Investment Restrictions
The Trust has adopted the following investment
restrictions for the protection of shareholders.
Restrictions 1 through 6 below have been adopted by
the Trust with respect to each Fund as fundamental
policies. Under the 1940 Act, a fundamental policy of
a Fund may not be changed without the vote of a
majority, as defined in the 1940 Act, of the
outstanding voting securities of the Fund. Such
majority is defined as the lesser of (a) 67% or more
of the shares present at the meeting, if the holders
of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (b) more than
50% of the outstanding shares. Investment restrictions
7 through 14 may be changed by vote of a majority of
the Trust's Board of Trustees at any time.
The investment policies adopted by the Trust
prohibit a Fund from:
1. Invest in a manner that would cause it to fail
to be a "diversified company" under the 1940 Act
and the rules, regulations and orders
thereunder.
2. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
principal business activities in the same
industry. For purposes of this limitation,
securities of the U.S. government (including its
agencies and instrumentalities) and securities
of state or municipal governments and their
political subdivisions are not considered to be
issued by members of any industry.
3. Borrow money, except that (a) the Fund may
borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting
of redemption requests which might otherwise
require the untimely disposition of securities,
and (b) the Fund may, to the extent consistent
with its investment policies, enter into reverse
repurchase agreements, forward roll transactions
and similar investment strategies and
techniques. To the extent that it engages in
transactions described in (a) and (b), the Fund
will be limited so that no more than 331/3% of
the value of its total assets (including the
amount borrowed), valued at the lesser of cost
or market, less liabilities (not including the
amount borrowed) valued at the time the
borrowing is made, is derived from such
transactions.
4. Make loans. This restriction does not apply to:
(a) the purchase of debt obligations in which
the Fund may invest consistent with its
investment objectives and policies; (b)
repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts,
but this restriction shall not prevent the Fund
from (a) investing in securities of issuers
engaged in the real estate business or the
business of investing in real estate (including
interests in limited partnerships owning or
otherwise engaging in the real estate business
or the business of investing in real estate) and
securities which are secured by real estate or
interests therein; (b) holding or selling real
estate received in connection with securities it
holds or held; (c) trading in futures contracts
and options on futures contracts (including
options on currencies to the extent consistent
with the Funds' investment objective and
policies); or (d) investing in real estate
investment trust securities.
6. Engage in the business of underwriting
securities issued by other persons, except to
the extent that the Fund may technically be
deemed to be an underwriter under the Securities
Act of 1933, as amended, in disposing of
portfolio securities.
7. Purchasing securities on margin. For purposes of
this restriction, the deposit or payment of
initial or variation margin in connection with
futures contracts or related options will not be
deemed to be a purchase of securities on margin
by any Fund permitted to engage in transactions
in futures contracts or related options.
8. Making short sales of securities or maintaining
a short position.
9. Pledging, hypothecating, mortgaging or otherwise
encumbering more than 10% of the value of the
Fund's total assets. For purposes of this
restriction, (a) the deposit of assets in escrow
in connection with the writing of covered call
options and (b) collateral arrangements with
respect to (i) the purchase and sale of options
on stock indices and (ii) initial or variation
margin for futures contracts, will not be deemed
to be pledges of a Fund's assets.
10. Investing in oil, gas or other mineral
exploration or development programs, except that
the Fund may invest in the securities of
companies that invest in or sponsor those
programs.
11. Writing or selling puts, calls, straddles,
spreads or combinations thereof, except that
Social Awareness Fund may write covered call
options.
12. Purchasing illiquid securities (such as
repurchase agreements with maturities in excess
of seven days) or other securities that are not
readily marketable if more than 15% of the total
assets of the Fund would be invested in such
securities.
13. Making investments for the purpose of exercising
control or management.
14. Purchasing or retaining securities of any
company if, to the knowledge of the Trust, any
of a Fund's officers or Trustees of the Trust or
any officer or director of an Adviser
individually owns more than 1/2 of 1% of the
outstanding securities of such company and
together they own beneficially more than 5% of
such securities.
The Trust may make commitments more restrictive
than the restrictions listed above with respect to a
Fund so as to permit the sale of shares of the Fund in
certain states. Should the Trust determine that any
such commitment is no longer in the best interests of
a Fund and its shareholders, the Trust will revoke the
commitment by terminating the sale of shares of the
Fund in the relevant state. The percentage limitations
contained in the restrictions listed above apply at
the time of purchases of securities.
Portfolio Turnover
The Funds do not intend to seek profits through short-
term trading. Nevertheless, the Funds will not
consider turnover rate a limiting factor in making
investment decisions.
Under certain market conditions, a Fund may
experience increased portfolio turnover as a result of
its options activities. For instance, the exercise of
a substantial number of options written by a Fund (due
to appreciation of the underlying security in the case
of call options or depreciation of the underlying
security in the case of put options) could result in a
turnover rate in excess of 100%. In addition, Social
Awareness Fund may experience increased portfolio
turnover as a result of the asset allocation strategy
that it employs and the Large Cap Blend Fund's
disciplined sell strategy may result in an increased
portfolio turnover. The portfolio turnover rate of a
Fund is calculated by dividing the lesser of purchases
or sales of portfolio securities for the year by the
monthly average value of portfolio securities.
Securities with remaining maturities of one year or
less on the date of acquisition are excluded from the
calculation.
For the fiscal years ended January 31, 1997 and
1998, the portfolio turnover rates of the Funds were
as follows:
Fund
1997
1998
Social Awareness Fund
68%
62%
Large Cap Blend Fund
9
17
Portfolio Transactions
Most of the purchases and sales of securities
for a Fund, whether transacted on a securities
exchange or in the over-the-counter market, will be
effected in the primary trading market for the
securities. The primary trading market for a given
security generally is located in the country in which
the issuer has its principal office. Decisions to buy
and sell securities for a Fund are made by its
Adviser, which also is responsible for placing these
transactions, subject to the overall review of the
Trust's Trustees.
Although investment decisions for each Fund are
made independently from those of the other accounts
managed by its Adviser, investments of the type the
Fund may make also may be made by those other
accounts. When a Fund and one or more other accounts
managed by its Adviser are prepared to invest in, or
desire to dispose of, the same security, available
investments or opportunities for sales will be
allocated in a manner believed by the Adviser to be
equitable to each. In some cases, this procedure may
adversely affect the price paid or received by a Fund
or the size of the position obtained or disposed of by
the Fund.
Transactions on domestic stock exchanges and
some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on
which commissions are negotiated, the cost of
transactions may vary among different brokers. On most
foreign exchanges, commissions are generally fixed.
There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-
counter markets, but the prices of those securities
include undisclosed commissions or mark-ups. The cost
of securities purchased from underwriters includes an
underwriting commission or concession, and the prices
at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S.
government securities are generally purchased from
underwriters or dealers, although certain newly issued
U.S. government securities may be purchased directly
from the United States Treasury or from the issuing
agency or instrumentality, respectively.
The following table sets forth certain
information regarding the payment of brokerage
commissions by the Social Awareness Fund and the Large
Cap Blend Fund:
Fiscal Year Ended January 31
Social Awareness Fund
Large Cap Blend Fund
Total Brokerage Commissions
1996
$232,581
$95,978
1997
215,689
$130,854
1998
218,633
$169,715
Commissions paid to Smith Barney
1996
$16,210
$3,690
1997
6,276
8,046
1998
7,578
1,500
% of Total Brokerage Commissions paid to Smith Barney
1998
3.47%
0.88%
% of Total Transactions involving Commissions paid to
Smith Barney
1998
2.85%
1.29%
The total brokerage commissions paid by the
Funds for each fiscal year vary primarily due to
increases or decreases in the Funds' volume of
securities transactions on which brokerage commissions
are charged.
In selecting brokers or dealers to execute
portfolio transactions on behalf of a Fund, the Fund's
Adviser seeks the best overall terms available. In
assessing the best overall terms available for any
transaction, each Adviser will consider the factors
the Adviser deems relevant, including the breadth of
the market in the security, the price of the security,
the financial condition and the execution capability
of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and
on a continuing basis. In addition, each advisory
agreement between the Trust and an Adviser relating to
a Fund authorizes the Adviser, in selecting brokers or
dealers to execute a particular transaction and in
evaluating the best overall terms available, to
consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) provided to the Fund, the other
Funds and/or other accounts over which the Adviser or
its affiliates exercise investment discretion. The
fees under the advisory agreements relating to the
Funds between the Trust and the Advisers are not
reduced by reason of their receiving such brokerage
and research services. The Trust's Board of Trustees
periodically will review the commissions paid by the
Funds to determine if the commissions paid over
representative periods of time were reasonable in
relation to the benefits inuring to the Funds.
To the extent consistent with applicable
provisions of the 1940 Act and the rules and
exemptions adopted by the SEC thereunder, the Board of
Trustees has determined that transactions for a Fund
may be executed through Smith Barney and other
affiliated broker-dealers if, in the judgment of the
Fund's Adviser, the use of such broker-dealer is
likely to result in price and execution at least as
favorable as those of other qualified broker-dealers,
and if, in the transaction, such broker-dealer charges
the Fund a rate consistent with that charged to
comparable unaffiliated customers in similar
transactions. Smith Barney may directly execute such
transactions for the Funds on the floor of any
national securities exchange, provided (a) the Board
of Trustees has expressly authorized Smith Barney to
effect such transactions, and (b) Smith Barney
annually advises the Trust of the aggregate
compensation it earned on such transactions. Over-the-
counter purchases and sales are transacted directly
with principal market makers except in those cases in
which better prices and executions may be obtained
elsewhere.
The Funds will not purchase any security,
including U.S. government securities, during the
existence of any underwriting or selling group
relating thereto of which Smith Barney is a member,
except to the extent permitted by the SEC.
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares
described in the Prospectuses applies to purchases
made by any "purchaser," which is defined to include
the following: (a) an individual; (b) an individual's
spouse and his or her children purchasing shares for
his or her own account; (c) a trustee or other
fiduciary purchasing shares for a single trust estate
or single fiduciary account; (d) a pension, profit-
sharing or other employee benefit plan qualified under
Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), and qualified employee
benefit plans of employers who are "affiliated
persons" of each other within the meaning of the 1940
Act; (e) Tax-Exempt organizations enumerated in
Section 501(c)(3) or (13) of the Code; and (f) a
trustee or other professional fiduciary (including a
bank, or an investment adviser registered with the SEC
under the Investment Advisers Act of 1940, as amended)
purchasing shares of a Fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to
combine purchase orders to take advantage of volume
discounts on Class A shares should contact a Smith
Barney Financial Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the
schedules in the Prospectuses, apply to any purchase
of Class A shares if the aggregate investment in Class
A shares of any Fund and in Class A shares of other
funds of the Smith Barney Mutual Funds that are
offered with a sales charge, including the purchase
being made, of any purchaser is $25,000 or more. The
reduced sales charge is subject to confirmation of the
shareholder's holdings through a check of appropriate
records. The Trust reserves the right to terminate or
amend the combined right of accumulation at any time
after written notice to shareholders. For further
information regarding the combined right of
accumulation, shareholders should contact a Smith
Barney Financial Consultant or a PFS Investment
Registered Representative.
Determination of Public Offering Price
The Trust offers shares of the Funds to the
public on a continuous basis. The public offering
price for Class A shares of the Funds is equal to the
net asset value per share at the time of purchase,
plus a sales charge based on the aggregate amount of
the investment. The public offering price for Class B,
Class C and Class Y shares of a Fund (and Class A
share purchases, including applicable right of
accumulation, equaling or exceeding $500,000) is equal
to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of
purchase. A contingent deferred sales charge ("CDSC"),
however, is imposed on certain redemptions of Class B
and Class C shares and of Class A shares when
purchased in amounts equaling or exceeding $500,000.
The method of computation of the public offering price
is shown in the Funds' financial statements, which are
incorporated by reference in their entirety into this
Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the
date of payment postponed (a) for any period during
which the New York Stock Exchange, Inc. ("NYSE") is
closed (other than for customary weekend and holiday
closings), (b) when trading in markets the Fund
normally utilizes is restricted, or an emergency
exists, as determined by the SEC, so that disposal of
the Fund's investments or determination of its net
asset value is not reasonably practicable or (c) for
such other periods as the SEC by order may permit for
protection of the Fund's shareholders.
Distributions in Kind
If the Board of Trustees of the Trust determines
that it would be detrimental to the best interests of
the remaining shareholders to make a redemption
payment wholly in cash, the Fund may pay, in
accordance with rules adopted by the SEC, any portion
of a redemption in excess of the lesser of $250,000 or
1.00% of its net assets by distribution in kind of
portfolio securities in lieu of cash. Securities
issued as a distribution in kind may incur brokerage
commissions when shareholders subsequently sell those
securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the
"Withdrawal Plan") is available to shareholders who
own shares with a value of at least $10,000 and who
wish to receive specific amounts of cash monthly or
quarterly. Withdrawals of at least $50 monthly may be
made under the Withdrawal Plan by redeeming as many
shares of the Funds as may be necessary to cover the
stipulated withdrawal payment. Any applicable CDSC
will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value
of a shareholder's shares at the time the Withdrawal
Plan commences. To the extent withdrawals exceed
dividends, distributions and appreciation of the
shareholder's investment in a Fund, there will be a
reduction in the value of the shareholder's
investment, and continued withdrawal payments will
reduce the shareholder's investment and may ultimately
exhaust it. Withdrawal payments should not be
considered as income from investment in a Fund.
Furthermore, as it would not generally be advantageous
to a shareholder to make additional investments in a
Fund at the same time he or she is participating in
the Withdrawal Plan, purchases by such shareholders in
amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the
Withdrawal Plan and who hold their shares in
certificate form must deposit their share certificates
with First Data as agent for Withdrawal Plan members.
All dividends and distributions on shares in the
Withdrawal Plan are automatically reinvested at net
asset value in additional shares of a Fund.
Withdrawal Plans should be set up with any Smith
Barney Financial Consultant. A shareholder who
purchases shares directly through First Data may
continue to do so and applications for participation
in the Withdrawal Plan must be received by First Data
no later than the eighth day of the month to be
eligible for participation beginning with that month's
withdrawal. For additional information, shareholders
should contact a Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Trust's distributor
on a best efforts basis pursuant to a distribution
agreement (the "Smith Barney Distribution Agreement")
which was most recently approved by the Trust's Board
of Trustees on August 6, 1997.
PFS serves as one of the Trust's distributors
with respect to the Concert Social Awareness Fund
pursuant to a distribution agreement (the "PFS
Distribution Agreement") which was most recently
approved by the Trust's Board of Trustees.(the Smith
Barney Distribution Agreement and the PFS Distribution
Agreements, each, a "Distribution Agreement" and
collectively, the "Distribution Agreements") which was
most recently approved by the Trust's Board of
Trustees on August 6, 1997.
When payment is made by the investor before
settlement date, unless otherwise noted by the
investor, the funds will be held as a free credit
balance in the investor's brokerage account and Smith
Barney may benefit from the temporary use of the
Funds. The investor may designate another use for the
funds prior to settlement date, such as an investment
in a money market fund (other than Smith Barney
Exchange Reserve Fund) of the Smith Barney Mutual
Funds. If the investor instructs Smith Barney to
invest the funds in a Fund of the Smith Barney money
market fund, the amount of the investment will be
included as part of the average daily net assets of
both the Fund and the Smith Barney money market fund,
and affiliates of Smith Barney that serve the funds in
an investment advisory or administrative capacity will
benefit from the fact they are receiving investment
management fees from both such investment companies
for managing these assets computed on the basis of
their average daily net assets. The Trust's Board of
Trustees has been advised of the benefits to Smith
Barney resulting from these settlement procedures and
will take such benefits into consideration when
reviewing the Advisory, Administration and
Distribution Agreements for continuance.
For the fiscal year ended January 31, 1998, Smith
Barney incurred distribution expenses totaling
approximately $3,714,528 consisting of approximately $158,366
for advertising, $22,585 for printing and mailing
of Prospectuses, $1,574,969 for support services, $1,907,325
to Smith Barney Financial Consultants, and $51,283
in accruals for interest on the excess of Smith Barney
expenses incurred in distributing the Fund's shares
over the sum of the distribution fees and CDSC
received by Smith Barney from the Fund.
Distribution Arrangements
To compensate Smith Barney or PFS, as the case
may be, for the services they provide and for the
expense they bear under the Distribution Agreements,
the Trust has adopted a services and distribution plan
(the "Plan") pursuant to Rule 12b-1 under the 1940
Act. Under the Plan, the Trust pays Smith Barney and,
with respect to Class A and Class B shares of the
Concert Social Awareness Fund, PFS, a service fee,
accrued daily and paid monthly, calculated at the
annual rate of 0.25% of the value of the Fund's
average daily net assets attributable to the Fund's
Class A, Class B and Class C shares. In addition, the
Trust pays Smith Barney and with respect to Class B
shares of Concert Social Awareness Fund, PFS, a
distribution fee with respect to each Fund's Class B
and Class C shares primarily intended to compensate
Smith Barney and/or PFS for its initial expense of
paying its Financial Consultants and/or PFS
Investments Registered Representatives a commission
upon sales of those shares. The Class B and Class C
distribution fees are calculated at the annual rate of
0.75% for the Social Awareness Fund and 0.50% for the
Large Cap Blend Fund of the value of a Fund's average
daily net assets attributable to the shares of that
Class.
The following expenses were incurred during the
periods indicated:
Sales Charges (paid to Smith Barney)
Class A
Name of Fund
Fiscal Year
Ended 1/31/96
Fiscal Year
Ended 1/31/97
Fiscal Year
Ended 1/31/98
Social Awareness Fund
$47,000
$49,000
$241,000
Large Cap Blend Fund
69,000
105,014
117,000
CDSC (paid to Smith Barney)
Class B
Name of Fund
Fiscal Year
Ended 1/31/96
Fiscal Year
Ended 1/31/97
Fiscal Year
Ended 1/31/98
Social Awareness Fund
$382,000
$261,000
$281,000
Large Cap Blend Fund (1)
216,000
165,000
45,000
(1) Class A shares paid a CDSC of $ 1,000 for the year
ended January 31, 1998
Class C
(formerly Class D shares)
Name of Fund
Fiscal Year
Ended 1/31/96
Fiscal Year
Ended 1/31/97
Fiscal Year
Ended 1/31/98
Social Awareness Fund
$1,000
$2,000
0
Large Cap Blend Fund
N/A
1,000
0
Distribution and Service Fees (paid to Smith
Barney)
Class A
Name of Fund
Fiscal Year
Ended 1/31/96
Fiscal Year
Ended 1/31/97
Fiscal Year
Ended 1/31/98
Social Awareness Fund
$401,114
$440,493
$467,786
Large Cap Blend Fund
256,112
296,444
360,865
Class B
Name of Fund
Fiscal Year
Ended 1/31/96
Fiscal Year
Ended 1/31/97
Fiscal Year
Ended 1/31/98
Social Awareness Fund
$2,178,624
$2,626,546
$1,779,212
Large Cap Blend Fund
758,545
913,828
1,100,095
Class C
(formerly Class D shares)
Name of Fund
Fiscal Year
Ended 1/31/96
Fiscal Year
Ended 1/31/97
Fiscal Year
Ended 1/31/98
Social Awareness Fund
$24,438
$48,013
$52,820
Large Cap Blend Fund
3,300
13,719
30,280
Under its terms, the Plan continues from year to
year, provided such continuance is approved annually
by vote of the Trust's Board of Trustees, including a
majority of the Independent Trustees who have no
direct or indirect financial interest in the operation
of the Plan or in the Distribution Agreements. The
Plan may not be amended to increase the amount of the
service and distribution fees without shareholder
approval, and all material amendments to the Plan also
must be approved by the Trustees and such Independent
Trustees in the manner described above. The Plan may
be terminated with respect to a Class at any time,
without penalty, by vote of a majority of such
Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Class (as defined
in the 1940 Act). Pursuant to the Plan, Smith Barney
and PFS will provide the Trust's Board of Trustees
with periodic reports of amounts expended under the
Plan and the purpose for which such expenditures were
made.
VALUATION OF SHARES
Each Class' net asset value per share is
calculated on each day, Monday through Friday, except
days on which the NYSE is closed. The NYSE currently
is scheduled to be closed on New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding
Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Because
of the differences in distribution fees and Class-
specific expenses, the per share net asset value of
each Class may differ. The following is a description
of the procedures used by the Trust in valuing assets
of the Funds.
A security that is listed or traded on more than
one exchange is valued at the quotation on the
exchange determined to be the primary market for such
security. All assets and liabilities initially
expressed in foreign currency values will be converted
into U.S. dollar values at the mean between the bid
and offered quotations of such currencies against U.S.
dollars as last quoted by any recognized dealer. If
such quotations are not available, the rate of
exchange will be determined in good faith by the
Trust's Board of Trustees. In carrying out the Board's
valuation policies, MMC, as administrator, may consult
with an independent pricing service (the "Pricing
Service") retained by the Trust.
Debt securities of domestic issuers (other than
U.S. government securities and short-term investments)
are valued by MMC, as administrator, after
consultation with the Pricing Service approved by the
Trust's Board of Trustees. When, in the judgment of
the Pricing Service, quoted bid prices for investments
are readily available and are representative of the
bid side of the market, these investments are valued
at the mean between the quoted bid prices and asked
prices. Investments for which, in the judgment of the
Pricing Service, there are no readily obtainable
market quotations are carried at fair value as
determined by the Pricing Service. The procedures of
the Pricing Service are reviewed periodically by the
officers of the Funds under the general supervision
and responsibility of the Trust's Board of Trustees.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund
of the Smith Barney Mutual Funds may exchange all or
part of their shares for shares of the same class of
other funds of the Smith Barney Mutual Funds, to the
extent such shares are offered for sale in the
shareholder's state of residence, on the basis of
relative net asset value per share at the time of
exchange, except that Class B shares of any fund may
be exchanged without a sales charge. Class B shares of
a Fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the
two funds and, for purposes of calculating CDSC rates
and conversion periods, will be deemed to have been
held since the date the shares being exchanged were
deemed to be purchased.
The exchange privilege enables shareholders to
acquire shares of the same Class in a fund with
different investment objectives when they believe that
a shift between funds is an appropriate investment
decision. This privilege is available to shareholders
residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange,
the shareholder should obtain and review a copy of the
current prospectus of each fund into which an exchange
is being considered. Prospectuses may be obtained from
a Smith Barney Financial Consultant or, with respect
to Social Awareness Fund only, a Registered
Representative of PFS Investments Inc.
Upon receipt of proper instructions and all
necessary supporting documents, shares submitted for
exchange are redeemed at the then-current net asset
value and, subject to any applicable CDSC, the
proceeds are immediately invested, at a price as
described above, in shares of the fund being acquired.
Smith Barney reserves the right to reject any exchange
request. The exchange privilege may be modified or
terminated at any time after written notice to
shareholders.
PERFORMANCE DATA
From time to time, the Trust may quote total
return of the Classes of the either Fund in
advertisements or in reports and other communications
to shareholders. A Fund may include comparative
performance information in advertising or marketing
the Fund's shares. Such performance information may
include the following industry and financial
publications: Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money,
Morningstar Mutual Fund Values, The New York Times,
USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of the Funds
describes the expenses or performance of Class A,
Class B, Class C or Class Y, it will also disclose
such information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are
computed according to a formula prescribed by the SEC.
The formula can be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial
payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a
hypothetical $1,000 payment made
at the beginning of the 1-, 5-
or 10-year period at the
end of the 1-, 5- or 10-year
period (or fractional portion thereof),
assuming reinvestment of all
dividends and distributions.
The average annual total returns of the Funds'
Class A shares were as follows for the periods
indicated:
Class A average annual total returns were as
follows for the periods indicated:
Name of Fund
Year Ended
January 31 1998
Five Years Ended
January 31 1998
Inception*
Through
January 31
1998
Social Awareness Fund
13.89%
12.90%
13.57%
Large Cap Blend Fund
10.51
13.24
12.78
*The Funds commenced selling Class A shares on
November 6, 1992.
The average annual total returns of the Funds'
Class B shares were as follows for the
periods indicated:
Name of Fund
Year Ended
January 31, 1998
Five Years Ended
January 31, 1998
Ten Years
Ended
January 31,
1998
Inception Through January 31, 1998
Social Awareness Fund(1)
13.95%
13.09%
12.79%
11.50%
Large Cap Blend Fund(2)
10.65
13.69
N/A
13.32
(1) The Fund commenced selling Class B shares February
2, 1987.
(2) The Fund commenced selling Class B shares on
November 6, 1992.
The average annual total returns of the Funds'
Class C shares were as follows for the
periods indicated:
Name of Fund
Year Ended
January 31, 1998
Inception
Through January 31, 1998
Social Awareness Fund (1)
17.97%
12.96%
Large Cap Blend Fund (2)
14.65
18.54
(1) The Fund commenced selling Class C shares on May
5, 1993.
(2) The Fund commenced selling Class C shares on
August 15, 1994.
The average annual total returns of the Funds'
Class Y shares were as follows for the
periods indicated:
Name of Fund
Year Ended
January 31, 1998
Inception
Through January 31, 1998
Social Awareness Fund (1)
20.31%
17.49%
Large Cap Blend Fund (2)
16.76
19.43
(1) The Fund commenced selling Class Y shares on March
28, 1996.
(2) The Fund commenced selling Class Y shares on
January 31, 1996.
Average annual total return figures calculated
in accordance with the above formula assume that the
maximum 5% sales charge or maximum CDSC, as the case
may be, has been deducted from the hypothetical
investment. A Fund's net investment income changes in
response to fluctuations in interest rates and the
expenses of the Fund.
Aggregate Total Return
"Aggregate total return" figures represent the
cumulative change in the value of an investment in the
Class for the specified period and are computed by the
following formula:
ERV-P
- -----
P
Where: P = a hypothetical initial payment
of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000 investment made at
the beginning of the 1-, 5- or 10-
year period at the end of the 1-, 5- or
10-year period (or fractional
portion thereof), assuming reinvestment of
all dividends and distributions.
The aggregate total returns (with fees waived)
for the following classes, were as follows for the
periods indicated:
Class A Shares
Name of Fund
One Year
Period
Ended
Jan. 31,
1998*
Five Year
Period
Ended
Jan. 31,
1998*
Inception through
Jan. 31,
1998*
One Year
Period
Ended
Jan. 31,
1998**
Five Year
Period
Ended
Jan. 31,
1998**
Inception
Through
Jan. 31,
1998**
Social Awareness Fund (1)
19.89%
93.12%
104.93%
13.89%
83.43%
94.73%
Large Cap Blend Fund (2)
16.30
95.96
97.61
10.51
86.24
87.73
(1) The Fund commenced selling Class A Shares on November 6,
1992.
(2) The Fund commenced selling Class A Shares on November 6,
1992.
* Figures do not include the effect of the maximum sales
charge.
** Figures include the maximum applicable CDSC, if any.
Class B Shares
Name of Fund
One Year
Period
Ended
Jan. 31,
1998*
Five Year
Period
Ended
Jan. 31,
1998*
Ten Year
Period
Ended
Jan. 31,
1998*
One Year
Period
Ended
Jan. 31,
1998**
Five Year
Period
Ended
Jan. 31,
1998**
Ten Year
Period
Ended
Jan. 31,
1998**
Period from
Inception
Through
Jan. 31,
1998**
Social Awareness Fund (1)
18.95%
85.99%
233.16%
13.95%
84.99%
233.16%
231.28%
Large Cap Blend Fund (2)
15.65
90.91
92.56
10.65
89.91
- --
92.51
(1) The Fund commenced selling Class B shares on
February 2, 1997.
(2) The Fund commenced selling Class B shares on
November 6, 1992.
* Figures do not include the effect of the maximum sales
charge.
** Figures include the maximum applicable CDSC, if any.
Since inception.
Class C Shares
Name of Fund
One Year
Period
Ended
Jan. 31,
1998*
Period from Inception Through
Jan. 31,
1998*
One Year
Period
Ended
Jan. 31,
1998**
Period from
Inception
Through
Jan. 31,
1998**
Social Awareness Fund (1)
18.97%
78.31%
17.97%
78.31%
Large Cap Blend Fund (2)
15.65
80.31
14.65
80.31
(1) The Fund commenced selling Class C shares on May
5, 1993.
(2) The Fund commenced selling Class C shares on
August 15, 1994.
* Figures do not include the effect of the maximum sales
charge.
** Figures include the maximum applicable CDSC, if any.
Class Y Shares
Name of Fund
One Year
Period
Ended
Jan. 31,
1998*
Period from Inception Through
Jan. 31,
1998*
One Year
Period
Ended
Jan. 31,
1998**
Period from
Inception
Through
Jan. 31,
1998**
Social Awareness Fund (1)
20.31%
34.68%
20.31%
34.68%
Large Cap Blend Fund (2)
16.76
42.78
16.76
42.78
(1) The Fund commenced selling Class Y shares on March
28, 1996.
(2) The Fund commenced selling Class Y shares on
January 31, 1996.
* Figures do not include the effect of the maximum sales
charge.
** Figures include the maximum applicable CDSC, if any.
It is important to note that the total return
figures set forth above are based on historical
earnings and are not intended to indicate future
performance.
A Class' performance will vary from time to time
depending on market conditions, the composition of the
relevant Fund's portfolio and operating expenses and
the expenses exclusively attributable to that Class.
Consequently, any given performance quotation should
not be considered representative of the Class'
performance for any specified period in the future.
Because performance will vary, it may not provide a
basis for comparing an investment in the Class with
certain bank deposits or other investments that pay a
fixed yield for a stated period of time. Investors
comparing the Class' performance with that of other
mutual funds should give consideration to the quality
and maturity of the respective investment companies'
portfolio securities.
TAXES
The following is a summary of certain Federal income
tax considerations that may affect the Funds and their
shareholders. This summary is not intended as a
substitute for individual tax advice, and investors
are urged to consult their own tax advisors as to the
tax consequences of an investment in either Fund of
the Trust.
Tax Status of the Funds
Each Fund will be treated as a separate taxable entity
for Federal income tax purposes with the result that:
(a) each Fund must meet separately the income and
distribution requirements for qualification as a
regulated investment company and (b) the amounts of
investment income and capital gains earned will be
determined on a Fund-by-Fund (rather than on a Trust-
wide) basis.
Taxation of Shareholders
Dividends paid by a Fund from investment income and
distributions of short-term capital gains will be
taxable to shareholders as ordinary income for Federal
income tax purposes, whether received in cash or
reinvested in additional shares. Distributions of
long-term capital gains will be taxable to
shareholders as long-term capital gains, whether paid
in cash or reinvested in additional shares, and
regardless of the length of time the investor has held
his or her shares of the Fund.
Dividends of investment income (but not capital
gains) from any Fund generally will qualify for the
Federal dividends-received deduction for corporate
shareholders to the extent such dividends do not
exceed the aggregate amount of dividends received by
the Fund from domestic corporations. If securities
held by a Fund are considered to be "debt-financed"
(generally, acquired with borrowed funds), are held by
the Fund for less than 46 days (91 days in the case of
certain preferred stock), or are subject to certain
forms of hedges or short sales, the portion of the
dividends paid by the Fund that corresponds to the
dividends paid with respect to such securities will
not be eligible for the corporate dividends-received
deduction.
If a shareholder (a) incurs a sales charge in
acquiring shares of a Fund, (b) disposes of those
shares within 90 days and (c) acquires shares in a
mutual fund for which the otherwise applicable sales
charge is reduced by reason of a reinvestment right
(that is, an exchange privilege), the sales charge
increases the shareholder's tax basis in the original
shares only to the extent the otherwise applicable
sales charge for the second acquisition is not
reduced. The portion of the original sales charge that
does not increase the shareholder's tax basis in the
original shares would be treated as incurred with
respect to the second acquisition and, as a general
rule, would increase the shareholder's tax basis in
the newly acquired shares. Furthermore, the same rule
also applies to a disposition of the newly acquired
shares made within 90 days of the second acquisition.
This provision prevents a shareholder from immediately
deducting the sales charge by shifting his or her
investment in a family of mutual funds.
Capital Gains Distribution. In general, a
shareholder who redeems or exchanges his or her shares
will recognize long-term capital gain or loss if the
shares have been held for more than one year, and will
recognize short-term capital gain or loss if the
shares have been held for one year or less. If a
shareholder receives a distribution taxable as long-
term capital gain with respect to shares of a Fund and
redeems or exchanges the shares before he or she has
held them for more than six months, any loss on such
redemption or exchange that is less than or equal to
the amount of the distribution will be treated as
long-term capital loss.
Backup Withholding. If a shareholder fails to
furnish a correct taxpayer identification number,
fails to fully report dividend and interest income, or
fails to certify that he or she has provided a correct
taxpayer identification number and that he or she is
not subject to withholding, then the shareholder may
be subject to a 31% Federal backup withholding tax
with respect to (a) any dividends and distributions
and (b) any proceeds of any redemptions or exchanges.
An individual's taxpayer identification number is his
or her social security number. The backup withholding
tax is not an additional tax and may be credited
against a shareholder's regular Federal income tax
liability.
Regulated Investment Company Status
Each Fund intends to qualify or continue to qualify in
subsequent years, as applicable, as a regulated
investment company within the meaning of Section 851
of the Code. The Trust will monitor each Fund's
investments so as to meet the requirements for
qualification on a continuing basis.
As a regulated investment company, a Fund will
not be subject to Federal income tax on the net
investment income and net capital gains, if any, that
it distributes to its shareholders, provided that at
least 90% of the sum of investment income and short-
term capital gains is distributed to its shareholders.
All net investment income and net capital gains earned
by a Fund will be reinvested automatically in
additional shares of the Fund, unless the shareholder
elects to receive dividends and distributions in cash.
Amounts reinvested in additional shares will be
considered to have been distributed to shareholders.
To qualify as a regulated investment company,
each Fund must meet certain requirements set forth in
the Code. One requirement is that each Fund must earn
at least 90% of its gross income from (a) interest,
(b) dividends, (c) payments with respect to securities
loans, (d) gains from the sale or other disposition of
stock or securities or foreign currencies and (e)
other income (including but not limited to gains from
options, futures, or forward contracts) derived with
respect to its business of investing in such stock,
securities, or currencies.
Taxation of Fund Investments
Gain or loss on the sale of a security by a Fund
generally will be long-term capital gain or loss if
the Fund has held the security for more than one year.
Gain or loss on the sale of a security held for not
more than one year generally will be short-term
capital gain or loss. If a Fund acquires a debt
security at a substantial discount, a portion of any
gain upon sale or redemption of such debt security
will be taxed as ordinary income rather than capital
gain to the extent it reflects accrued market
discount.
Options Transactions. The tax consequences of
options transactions entered into by a Fund will vary
depending on whether the underlying security is held
as a capital asset, whether the Fund is writing or
purchasing the option and whether the "straddle"
rules, discussed separately below, apply to the
transaction.
A Fund may write a call option on an equity or
convertible debt security. If the option expires
unexercised or if the Fund enters into a closing
purchase transaction, the Fund will realize a gain or
loss without regard to any unrealized gain or loss on
the underlying security. Generally, any such gain or
loss will be short-term capital gain or loss, except
that any loss on certain covered call stock options
will be treated as long-term capital loss. If a call
option written by a Fund is exercised, the Fund will
treat the premium received for writing such call
option as additional sales proceeds and will recognize
a capital gain or loss from the sale of the underlying
security. Whether the gain or loss will be long-term
or short-term will depend on the Fund's holding period
for the underlying security.
If a Fund purchases a put option on an equity or
convertible debt security and it expires unexercised,
the Fund will realize a capital loss equal to the cost
of the option. If a Fund enters into a closing sale
transaction with respect to the option, it will
realize a capital gain or loss and such gain or loss
will be short-term or long-term depending on the
Fund's holding period for the option. If a Fund
exercises such a put option, it will realize a short-
term or long-term capital gain or loss (depending on
the Fund's holding period for the underlying security)
from the sale of the underlying security. The amount
realized on such sale will be the sales proceeds
reduced by the premium paid.
Mark-to-Market. The Code imposes a special
"mark-to-market" system for taxing "Section 1256
contracts" including options on nonconvertible debt
securities (including U.S. government securities),
options on certain stock indexes and certain foreign
currency contracts. In general, gain or loss on
Section 1256 contracts will be taken into account for
tax purposes when actually realized (by a closing
transaction, by exercise, by taking delivery or by
other termination). In addition, any Section 1256
contracts held at the end of the taxable year will be
treated as though they were sold at their year-end
fair market value (that is, "marked to market"), and
the resulting gain or loss will be recognized for tax
purposes. Provided that a Fund holds its Section 1256
contracts as capital assets and they are not part of a
straddle, both the realized and the unrealized year-
end gains or losses from these investment positions
(including premiums on options that expire
unexercised) will be treated as 60% long-term and 40%
short-term capital gain or loss, regardless of the
period of time particular positions have actually been
held by a Fund.
Straddles. The Code contains rules applicable
to "straddles," which are "offsetting positions in
actively traded personal property," including equity
securities and options of the type in which a Fund may
invest. If applicable, the "straddle" rules generally
override the other provisions of the Code. In general,
investment positions will be offsetting if there is a
substantial diminution in the risk of loss from
holding one position by reason of holding one or more
other positions. The Funds generally are authorized to
enter into put, call, and covered put and call
positions. Depending on what other investments are
held by a Fund at the time it enters into one of the
above transactions, a Fund may create a straddle for
Federal income tax purposes.
If two (or more) positions constitute a
straddle, recognition of a realized loss from one
position (including a mark-to-market loss) must be
deferred to the extent of unrecognized gain in an
offsetting position. Interest and other carrying
charges allocable to personal property that is part of
a straddle must be capitalized. In addition, "wash
sale" rules apply to straddle transactions to prevent
the recognition of loss from the sale of a position at
a loss when a new offsetting position is or has been
acquired within a prescribed period. To the extent the
straddle rules apply to positions established by a
Fund, losses realized by the Fund may be deferred or
re-characterized as long-term losses, and long-term
gains realized by the Fund may be converted to short-
term gains.
If a Fund chooses to identify a particular
offsetting position as being one component of a
straddle, a realized loss on any component of that
straddle will be recognized no earlier than upon the
liquidation of all components of that straddle.
Special rules apply to "mixed" straddles (that is,
straddles consisting of a Section 1256 contract and an
offsetting position that is not a Section 1256
contract). If the Trust makes certain elections, all
or a portion of the Section 1256 contract components
of such mixed straddles of a Fund will not be subject
to the 60%/40% mark-to-market rules. If any such
election is made, the amount, the nature (as long-term
or short-term) and the timing of the recognition of
the Fund's gains or losses from the affected straddle
positions will be determined under rules that will
vary according to the type of election made.
ADDITIONAL INFORMATION
The Trust was organized as an unincorporated business
trust under the laws of The Commonwealth of
Massachusetts pursuant to a Master Trust Agreement
dated January 8, 1986, as amended from time to time
(the "Trust Agreement"). The Trust commenced business
as an investment company on March 3, 1986, under the
name Shearson Lehman Special Equity Portfolios. On
December 6, 1988, August 27, 1990, November 5, 1992,
July 30, 1993 and October 14, 1994, the Trust changed
its name to SLH Equity Portfolios, Shearson Lehman
Brothers Equity Portfolios, Shearson Lehman Brothers
Equity Funds, Smith Barney Shearson Equity Funds and
Smith Barney Equity Funds, respectively.
On March 25, 1998 shareholders of the Fund
approved changing the Fund's investment objective to
long-term capital growth. In conjunction with this
change , the Fund changed its name to Smith Barney
Large Cap Blend Fund to better reflect its asset class
and investment strategy of buying large cap stocks.
PNC is located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and serves as
custodian for the Funds. Under its custodial agreement
with the Trust, PNC is authorized to appoint one or
more foreign or domestic banking institutions as sub-
custodians of assets owned by a Fund. For its custody
services, PNC receives monthly fees charged to each
Fund based upon the month-end, aggregate net asset
value of the Fund, plus certain charges for securities
transactions. The assets of the Trust are held under
bank custodianship in accordance with the 1940 Act.
First Data is located at Exchange Place, Boston,
Massachusetts 02109, and serves as the Trust's
transfer agent. For its services as transfer agent,
First Data receives fees charged to the Funds at an
annual rate based upon the number of shareholder
accounts maintained during the year. First Data also
is reimbursed by the Funds for its out-of-pocket
expenses.
FINANCIAL STATEMENTS
The Annual Reports of the Social Awareness Fund and
the Large Cap Blend Fund for the fiscal year ended
January 31, 1998 are incorporated into this Statement
of Additional Information by reference in their
entirety.
APPENDIX
Description of Ratings
Description of S&P Corporate Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned
by S&P to a debt obligation. Capacity to pay interest
and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to
pay interest and repay principal and differ from the
highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay
interest and repay principal although they are somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in
higher rated categories.
BBB
Bonds rated BBB are regarded as having an
adequate capacity to pay interest and repay principal.
Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds
in this category than for bonds in higher rated
categories.
BB, B and CCC
Bonds rated BB and B are regarded, on balance,
as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with
the terms of the obligation. BB represents a lower
degree of speculation than B and CCC, the highest
degrees of speculation. While such bonds will likely
have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Description of Moody's Corporate Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be the
best quality. They carry the smallest degree of
investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large
or exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa
Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in
Aaa securities, or fluctuation of protective elements
may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A
Bonds which are rated A possess favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate but
elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba
Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered
as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds
in this class.
B
Bonds which are rated B generally lack
characteristics of desirable investments. Assurance of
interest and principal payments or of maintenance of
other terms of the contract over any long period of
time may be small.
Caa
Bonds that are rated Caa are of poor standing.
These issues may be in default or present elements of
danger may exist with respect to principal or interest.
Moody's applies the numerical modifier 1, 2 and 3 to
each generic rating classification from Aa through B.
The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its
generic rating category.
Description of S&P Municipal Bond Ratings
AAA
Prime -- These are obligations of the highest
quality. They have the strongest capacity for timely
payment of debt service.
General Obligation Bonds -- In a period of
economic stress, the issuers will suffer the smallest
declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong
revenue structure appears more than adequate to meet
future expenditure requirements. Quality of management
appears superior.
Revenue Bonds -- Debt service coverage has been,
and is expected to remain, substantial. Stability of
the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise
or to the nature of the revenues. Basic security
provisions (including rate covenant, earnings test for
issuance of additional bonds, debt service reserve
requirements) are rigorous. There is evidence of
superior management.
AA
High Grade -- The investment characteristics of
bonds in this group are only slightly less marked than
those of the prime quality issues. Bonds rated AA have
the second strongest capacity for payment of debt
service.
A
Good Grade -- Principal and interest payments on
bonds in this category are regarded as safe although
the bonds are somewhat more susceptible to the adverse
affects of changes in circumstances and economic
conditions than bonds in higher rated categories. This
rating describes the third strongest capacity for
payment of debt service. Regarding municipal bonds, the
ratings differ from the two higher ratings because:
General Obligation Bonds -- There is some
weakness, either in the local economic base, in debt
burden, in the balance between revenues and
expenditures, or in quality of management. Under
certain adverse circumstances, any one such weakness
might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds -- Debt service coverage is good,
but not exceptional. Stability of the pledged revenues
could show some variations because of increased
competition or economic influences on revenues. Basic
security provisions, while satisfactory, are less
stringent. Management performance appears adequate.
BBB
Medium Grade -- Of the investment grade ratings,
this is the lowest. Bonds in this group are regarded as
having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher
rated categories.
General Obligation Bonds -- Under certain
adverse conditions, several of the above factors could
contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is
that the latter shows more than one fundamental
weakness, or one very substantial fundamental weakness,
whereas the former shows only one deficiency among the
factors considered.
Revenue Bonds -- Debt coverage is only fair.
Stability of the pledged revenues could show
substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security
provisions are no more than adequate. Management
performance could be stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominately speculative with respect to
capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB
includes the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on
which no interest is being paid.
D
Bonds rated D are in default, and payment of
interest and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the
addition of a plus or a minus sign, which is used to
show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
Description of S&P Municipal Note Ratings
Municipal notes with maturities of three years or less
are usually given note ratings (designated SP-1, -2 or
- -3) to distinguish more clearly the credit quality of
notes as compared to bonds. Notes rated SP-1 have a
very strong or strong capacity to pay principal and
interest. Those issues determined to possess
overwhelming safety characteristics are given the
designation of SP-1+. Notes rated SP-2 have
satisfactory capacity to pay principal and interest.
Description of Moody's Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be the
best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa
Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in
Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba
Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered
as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over
the future. Uncertainty of position characterize bonds
in this class.
B
Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of
other terms of the contract over any long period of
time may be small.
Caa
Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present
elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in
each generic rating classification from Aa through B.
The modifier 1 indicates that the security ranks in the
higher end of its generic ratings category; the
modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower
end of its generic ratings category.
Description of Moody's Municipal Note Ratings
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment
Grade (MIG) and for variable rate demand obligations
are designated Variable Moody's Investment Grade
(VMIG). This distinction recognizes the differences
between short- and long-term credit risk. Loans bearing
the designation MIG 1/VMIG 1 are the best quality,
enjoying strong protection from established cash flows
of funds for their servicing or from established and
broad-based access to the market for refinancing, or
both. Loans bearing the designation MIG 2/VMIG 2 are of
high quality, with margins of protection ample,
although not as large as the preceding group. Loans
bearing the designation MIG 3/VMIG 3 are of favorable
quality, with all security elements accounted for but
lacking the undeniable strength of the preceding
grades. Market access for refinancing, in particular,
is likely to be less well established. Loans bearing
the designation MIG 4/VMIG 4 are of adequate quality.
Protection commonly regarded as required of an
investment security is present and although not
distinctly or predominantly speculative, there is
specific risk.
Description of Commercial Paper Ratings
The rating A-1+ is the highest, and A-1 the second
highest, commercial paper rating assigned by S&P. Paper
rated A-1+ must have either the direct credit support
of an issuer or guarantor that possesses excellent
long-term operating and financial strength combined
with strong liquidity characteristics (typically, such
issuers or guarantors would display credit quality
characteristics which would warrant a senior bond
rating of A\- or higher) or the direct credit support
of an issuer or guarantor that possesses above average
long-term fundamental operating and financing
capabilities combined with ongoing excellent liquidity
characteristics. Paper rated A-1 must have the
following characteristics: liquidity ratios are
adequate to meet cash requirements; long-term senior
debt is rated A or better; the issuer has access to at
least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with
allowance made for unusual circumstances; typically,
the issuer's industry is well established and the
issuer has a strong position within the industry; and
the reliability and quality of management are
unquestioned.
The rating Prime-1 is the highest commercial
paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the
following: (a) evaluation of the management of the
issuer; (b) economic evaluation of the issuer's
industry or industries and an appraisal of
speculative-type risks which may be inherent in certain
areas; (c) evaluation of the issuer's products in
relation to competition and customer acceptance; (d)
liquidity; (e) amount and quality of long-term debt;
(f) trend of earnings over a period of ten years; (g)
financial strength of parent company and the
relationships which exist with the issue; and (h)
recognition by the management of obligations which may
be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Short-Term obligations, including commercial
paper, rated A-1+ by IBCA Limited or its affiliate IBCA
Inc. are obligations supported by the highest capacity
for timely repayment. Obligations rated A-1 have a very
strong capacity for timely repayment. Obligations rated
A-2 have a strong capacity for timely repayment,
although such capacity may be susceptible to adverse
changes in business, economic and financial conditions.
Thomson BankWatch employs the rating "TBW-1" as
its highest category, which indicates that the degree
of safety regarding timely repayment of principal and
interest is very strong. "TBW-2" is its second highest
rating category. While the degree of safety regarding
timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for
issues rated "TBW-1".
Fitch Investors Services, Inc. employs the
rating F-1+ to indicate issues regarded as having the
strongest degree of assurance of timely payment. The
rating F-1 reflects an assurance of timely payment only
slightly less in degree than issues rated F-1+, while
the rating F-2 indicates a satisfactory degree of
assurance of timely payment although the margin of
safety is not as great as indicated by the F-1+ and F-1
categories.
Duff & Phelps Inc. employs the designation of
Duff 1 with respect to top grade commercial paper and
bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: short-term liquidity is
clearly outstanding and safety is just below risk-free
U.S. Treasury short-term obligations. Duff 1 -
indicates high certainty of timely payment. Duff 2
indicates good certainty of timely payment: liquidity
factors and company fundamentals are sound.
Various NRSROs utilize rankings within ratings
categories indicated by a + or -. The Funds, in
accordance with industry practice, recognize such
ratings within categories as gradations, viewing for
example S&P's rating of A-1+ and A-1 as being in S&P's
highest rating category.
Smith
Barney
EQUITY
FUNDS
Smith Barney
Large Cap Blend Fund
Concert
Social Awareness Fund
Statement of
Additional Information
May
29, 1998
Smith Barney
Equity Funds
388 Greenwich Street
New York, New York 10013
SMITH BARNEY
