SMITH BARNEY SHEARSON INVESTMENT FUNDS INC, 485APOS, 1995-02-14

SMITH BARNEY SHEARSON INVESTMENT FUNDS INC
485APOS, 1995-02-14

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Registration No. 2-74288
811-3275

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No. ____

Post-Effective Amendment No. 38 X

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended X

Amendment No. 40
X

SMITH BARNEY INVESTMENT FUNDS INC.
(formerly known as Smith Barney Shearson Investment Funds Inc.)
(Exact name of Registrant as Specified in Charter)

388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code:
(212) 723-9218

Christina T. Sydor
Secretary

SMITH BARNEY INVESTMENT FUNDS INC.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.

It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
__ on _____________ pursuant to Rule 485(b)
_ X_ 75 days after filing pursuant to Rule 485(a)(2)
__ on _____________ pursuant to Rule 485(a)

The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ended December 31, 1994 will be filed on or about
February 28, 1995.

SMITH BARNEY INVESTMENT FUNDS INC.

FORM N-1A

CROSS REFERENCE SHEET

PURSUANT TO RULE 495(b)

Part A
Item No.

Prospectus Caption

1. Cover Page

Cover Page

2. Synopsis

Prospectus Summary

3. Financial Highlights

Financial Highlights

4. General Description of
Registrant

Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Additional
Information

5. Management of the Fund

Management of the Fund;
Distributor; Additional
Information; Annual Report

6. Capital Stock and Other
Securities

Investment Objective and
Management Policies; Dividends,
Distributions and Taxes;
Additional Information

7. Purchase of Securities Being
Offered

Valuation of Shares; Purchase of
Shares; Exchange Privilege;
Redemption of Shares; Minimum
Account Size; Distributor;
Additional Information

8 Redemption or Repurchase

Purchase of Shares; Redemption of
Shares; Exchange Privilege

9. Pending Legal Proceedings

Not Applicable

Part B
Item No.
Statement of
Additional Information Caption

10. Cover Page

Cover page

11. Table of Contents

Contents

12. General Information and
History

Distributor; Additional
Information

13. Investment Objectives and
Policies

Investment Objective and
Management Policies

14. Management of the Fund

Management of the Company;
Distributor

15. Control Persons and Principal
Holders
of Securities

Management of the Company

16. Investment Advisory and Other
Services

Management of the Company;
Distributor

17. Brokerage Allocation and
Other Services

Investment Objective and
Management Policies; Distributor

18. Capital Stock and Other
Securities

Investment Objective and
Management Policies; Purchase of
Shares; Redemption of Shares;
Taxes

19. Purchase, Redemption and
Pricing
of Securities Being
Offered

Purchase of Shares; Redemption of
Shares; Valuation of Shares;
Distributor; Exchange Privilege

20. Tax Status

Taxes

21. Underwriters

Distributor

22. Calculation of Performance
Data

Performance Data

23. Financial Statements

Financial Statements

<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS APRIL [ ], 1995

388 Greenwich Street
New York, New York 10013
(212) 723-9218

The Smith Barney Growth Opportunity Fund (the "Fund") seeks capital apprecia-
tion through investments in securities believed to have above average poten-
tial for capital appreciation.

The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up the Smith Barney Investment Funds Inc (the "Com-
pany"). 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 Company
and 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 Addi-
tional Information dated [ ], 1995, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement of Additional Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference into this Prospectus in its entirety.

SMITH BARNEY INC.
Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

TABLE OF CONTENTS

<TABLE>
<S> <C>
PROSPECTUS SUMMARY
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
- -------------------------------------------------
VALUATION OF SHARES
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -------------------------------------------------
PURCHASE OF SHARES
- -------------------------------------------------
EXCHANGE PRIVILEGE
- -------------------------------------------------
REDEMPTION OF SHARES
- -------------------------------------------------
MINIMUM ACCOUNT SIZE
- -------------------------------------------------
PERFORMANCE
- -------------------------------------------------
MANAGEMENT OF THE FUND
- -------------------------------------------------
DISTRIBUTOR
- -------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------
</TABLE>

2
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

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 Prospec-
tus. See "Table of Contents."

INVESTMENT OBJECTIVE The Fund is an open-end, management investment company
whose investment objective is to seek capital appreciation through investments
in securities believed to have above average potential for capital apprecia-
tion. 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 rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."

Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which
when combined with current holdings of Class A shares equal or exceed $500,000
in the aggregate, will be made at net asset value with no 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 redemp-
tions. Class B shares bear an annual service fee of 0.25% and an annual distri-
bution 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

3
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

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 dis-
tributions ("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 bear an annual service fee of 0.25% and an annual distribu-
tion fee of 0.75% 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' distribu-
tion fee may cause that Class to have higher expenses and pay lower dividends
than Class A shares. Purchases of Class C shares, which when combined with cur-
rent holdings of Class C shares of the Fund equal or exceed $500,000 in the
aggregate, should be made in Class A shares at net asset value with no sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.

Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.

In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:

Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject
to lower ongoing expenses over the term of the investment. As an alternative,
Class B shares 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 can-
not be predicted, however, there can be no assurance that this would be the
case.

4
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

Finally investors should consider the effect of the CDSC period and any con-
version 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.

Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fee. The maximum purchase amount for Class A shares is $4,999,999, Class B
shares is $249,999 and Class C shares is $499,999. There is no maximum purchase
amount for Class Y shares.

Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share pur-
chases, which when combined with current holdings of Class A shares equal or
exceed $500,000 in the aggregate, will be made at net asset value with no ini-
tial sales charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase. The $500,000 aggregate investment may be met by
adding the purchase to the net asset value of all Class A shares held in funds
sponsored by Smith Barney Inc. ("Smith Barney") listed under "Exchange Privi-
lege." 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 and Class C shares, purchasers eli-
gible 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 each Class 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 Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.

5
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

SMITH BARNEY 401(K) PROGRAM Investors may be eligible to participate in the
Smith Barney 401(k) Program, which is generally designed to assist plan spon-
sors 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 (collec-
tively, the "Participating Plans"). Class A, Class B, Class C and Class Y
shares are available as investment alternatives for Participating Plans. See
"Purchase of Shares--Smith Barney 401(k) Program."

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, The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation. 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 Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes is $25. The minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes through the Systematic Investment Plan
described below is $100. 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 in an amount of at least $100. See "Pur-
chase 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 "Re-
demption of Shares."

6
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc (the "Manager")
serves as the Fund's investment adviser. The Manager provides investment advi-
sory and management services to investment companies affiliated with Smith Bar-
ney. The Manager is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc.
("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries principally in four business segments: Investment
Services, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. The Manager also serves as the Fund's administra-
tor. See "Management of 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, plus any applicable sales charge differen-
tial. 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 Smith Barney Financial Consultants. See "Valuation of Shares."

DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions 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 rein-
vestments will become eligible for conversion to Class A shares on a pro-rata
basis. See "Dividends, Distributions and Taxes."

RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund invests principally in common
stocks. The prices of common stocks and other securities fluctuate and, there-
fore, the value of an investment in the Fund will vary based upon the Fund's
investment performance. Any income from these investments will be incidental to
the goal of capital appreciation. The Fund may use management techniques and
strategies involving options, futures contracts and options on futures. The
utilization of these techniques may involve greater than ordi-

7
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

nary investment risks and the likelihood of more volatile price fluctuation.
See "Investment Objective and Management Policies."

THE FUND'S EXPENSES The following expense table lists the costs and expenses
that 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:

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price)..... 5.00% None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever
is lower)............................... None* 5.00% 1.00% None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management Fees........................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees**.............................. 0.25% 1.00% 1.00% None
Other Expenses***......................... [ ] [ ] [ ] [ ]
- -------------------------------------------------------------------------------
Total Fund Operating Expenses............ [ %] [ %] [ %] [ %]
</TABLE>
- --------------------------------------------------------------------------------

** 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.

*** "Other Expenses" are estimated based on anticipated expenses of the Fund
for the fiscal year ending December 31, 1995.

8
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges, depending on the amount purchased and, in the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held and whether the shares are held through the Smith Barney 401(k)
Program. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
receives an annual 12b-1 service fee of 0.25% of the value of average daily net
assets of Class A shares. Smith Barney also receives with respect to Class B
shares and Class C shares, an annual 12b-1 fee of 1.00% of the value of average
daily net assets of the respective Classes, consisting of a 0.25% distribution
fee and a 0.75% 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 Fund."

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A...................................... $ $ $ $
Class B...................................... $ $ $ $
Class C...................................... $ $ $ $
Class Y...................................... $ $ $ $
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A...................................... $ $ $ $
Class B...................................... $ $ $ $
Class C...................................... $ $ $ $
Class Y...................................... $ $ $ $
- ------------------------------------------------------------------------------
</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.

9
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

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 be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN ABOVE.

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES

The Fund has an investment objective of achieving capital appreciation. It
seeks to achieve this objective by investing in securities believed to have
above average potential for capital appreciation. There can be no assurance
that the Fund will achieve its investment objective.

The Fund invests principally in common stocks and the Manager uses a flexible
management style to select what it believes to be unusually attractive growth
investments on an individual company basis. Such securities will typically be
issued by small capitalization companies, larger companies with established
records of growth in sales or earnings, and companies with new products, new
services, or new processes. The Fund may also invest in companies in cyclical
industries during periods when their securities appear overly depressed and
therefore attractive for capital appreciation. In addition to common stocks of
companies, the Fund may invest in securities convertible into or exchangeable
for common stocks, such as convertible preferred stocks or convertible deben-
tures, and warrants.

The Fund generally holds a portion of its assets in investment grade short-
term debt securities, investment grade corporate or government bonds, cash and
cash equivalents in order to provide liquidity. Such investments may be
increased when deemed appropriate by the Manager for temporary defensive pur-
poses. Under such circumstances, the Fund may invest up to 100% of its assets
in short-term investments which may include repurchase agreements with domestic
banks or broker-dealers. The Fund may invest up to 35% of its total assets in
securities of foreign issuers. The Fund may also engage in portfolio management
strategies and techniques involving options, futures contracts and options on
futures.

10
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

Investments in smaller capitalized companies may offer greater opportunities
for growth of capital than larger, more established companies, but may also
involve certain risks because smaller capitalized companies often have limited
product use, market or financial resources and may be dependent on one or two
people for management. The Fund may also purchase restricted securities (sub-
ject to a limit on all illiquid securities of 15% of total assets), invest in
money market instruments, enter into repurchase agreements for temporary defen-
sive purposes, lend its portfolio securities and enter into forward contracts.

In making purchases of securities consistent with the above policies, the
Fund will be subject to the applicable restrictions referred to under "Invest-
ment Restrictions" in the Statement of Additional Information. These restric-
tions and the Fund's investment objective are fundamental policies, which may
not be changed without the "vote of a majority of the outstanding voting secu-
rities", as defined in the Investment Company of 1940, as amended (the "1940
Act"). Except for the objective and those restrictions specifically identified
as fundamental, all investment policies and practices described in this Pro-
spectus and in the Statement of Additional Information are non-fundamental,
which may be changed by the Board of Directors, without shareholder approval.

Repurchase Agreements. The Fund may enter into repurchase agreement transac-
tions with domestic banks or broker-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 one week) subject to an obli-
gation 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. Under each
repurchase agreement, the selling institution will be required to maintain the
value of the securities subject to the repurchase agreement at not less than
their repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the Fund's ability to dispose of the underlying securi-
ties, 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 part of the income from the agreement. The Manager, acting
under the supervision of the

11
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

Board of Directors, reviews on an ongoing basis to evaluate potential risks,
the value of the collateral and the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements.

Options, Futures Contracts and Related Options. The Fund expects to utilize
options, futures contracts and options thereon in several different ways,
depending upon the status of the Fund's portfolio and the Manager's expecta-
tions concerning the securities markets. The purchase and sale of options and
futures contracts involve risks different from those involved with direct
investments in securities. If the Manager is not successful in utilizing
options, futures contracts and similar instruments, which may be advantageous
to the Fund, the Fund's performance will be worse than if the Fund did not make
such investments. The Fund may write or purchase options in privately negoti-
ated transactions ("OTC Options") as well as listed options. OTC Options can be
closed out only by agreement with the other party to the transaction. Any OTC
Option purchased by the Fund will be considered an illiquid security. Any OTC
Option written by the Fund will be with a qualified dealer pursuant to an
agreement under which the Fund may repurchase the option at a formula price.
Such options will be considered illiquid to the extent that the formula price
exceeds the intrinsic value of the option. The Fund may not purchase or sell
futures contracts or related options for which the aggregate initial margin and
premiums exceed 5.00% of the fair market value of the Fund's assets. In order
to prevent leverage in connection with the purchase of futures contracts
thereon by the Fund, an amount of cash, cash equivalents of liquid high grade
debt securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Fund's custodian. The Fund may not invest more than 15% of its
net assets in illiquid securities and repurchase agreements which have a matu-
rity of longer than seven days. A more complete discussion of the potential
risks involved in transactions involving options or futures contracts and
related options, is contained in the Statement of Additional Information. The
Fund may not purchase or sell futures contracts or related options for which
the aggregate initial margin and premiums exceed 5.00% of the fair market value
of the Fund's assets.

12
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

teed by foreign government, political subdivisions or instrumentalities there-
of. The Fund will limit its investment in foreign securities to 35% of its
total assets. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investments, including fluctuations in foreign exchange rates, future
foreign political and economic developments and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.

The Fund may also purchase foreign securities in the form of American Deposi-
tary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other secu-
rities 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 arrange-
ment, 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.

Foreign Currency Transactions. The value of the Fund's portfolio securities
that are traded in foreign markets may be affected by changes in currency
exchange rates and exchange control regulations. In addition, the Fund will
incur costs in connection with the conversions between various currencies. The
Fund's foreign currency exchange transactions generally will be conducted on a
spot basis (that is, cash basis) at the spot rate for purchasing or selling
currency prevailing in the foreign currency exchange market. The Fund purchases
and sells foreign currency on a spot basis in connection with the settlement of
transactions in securities traded in such foreign currency. The Fund does not
purchase and sell foreign currencies as an investment.

The Fund may also enter contracts with banks or other foreign currency bro-
kers and dealers in which the Fund purchases or sells foreign currencies at a
future date ("future contracts") and purchase and sell foreign currency futures
contracts to hedge against changes in foreign currency exchange rates. A for-
eign

13
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

currency forward contract is a negotiated agreement between the contracting
parties to exchange a specified amount of currency at a specified future time
at a specified rate. The rate can be higher or lower than the spot rate between
the currencies that are the subject of the contract.

The Fund may attempt to hedge against changes in the value of the U.S. dollar
in relation to a foreign currency by entering into a forward contract for the
purchase or sale of the amount of foreign currency invested or to be invested,
or by buying or selling a foreign currency futures contract for such amount.
Such hedging strategies may be employed before the Fund purchases a foreign
security traded in the hedged currency which the Fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on
which payment therefore is made or received. Hedging against a change in the
value of a foreign currency in the foregoing manner does not eliminate fluctua-
tions in the price of portfolio securities or prevent losses if the prices of
such securities decline. Furthermore, such hedging transactions reduce or pre-
clude the opportunity for gain if the value of the hedged currency should move
in the direction opposite to the hedged position. The Fund will not speculate
in foreign currency forward or futures contracts or through the purchase and
sale of foreign currencies.

Forward Commitments. The Fund may purchase or sell debt securities on a
"when-issued" or "delayed delivery" basis ("Forward Commitments"). These trans-
actions occur when securities are purchased or sold by the Fund with payment
and delivery taking place in the future (after a month or more after such
transactions). The price is fixed on the date of the commitment and the seller
continues to accrue interest on the securities covered by the Forward Commit-
ment until delivery and payment take place. At the time of settlement, the mar-
ket value of the securities may be more or less than the purchase or sale
price.

Loans of Portfolio Securities. The Fund may lend its portfolio securities
provided: (a) the loan is secured continuously by collateral consisting of U.S.
government securities or cash or cash equivalents maintained on a daily marked-
to-market basis in an amount at least equal to the current market value of the
securities loaned; (b) the Fund may at any time call the loan and obtain the
return of the securities loaned; (c) the Fund will receive any interest or div-
idend paid on the loaned securities; and (d) the aggregate market value of
securities loaned will not at any time exceed 33 1/3% of the total assets of
the Fund.

14
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

Restricted Securities. The Fund may invest in restricted securities.
Restricted securities are securities subject to legal or contractual restric-
tions on their resale. Such restrictions might prevent the sale of restricted
securities at a time when such sale would otherwise be desirable. Restricted
securities and securities for which there is no readily available market ("il-
liquid assets") will not be acquired if, notwithstanding the foregoing, due to
various state regulations, the total amount would exceed 15% of the Fund's
total assets.

PORTFOLIO TRANSACTIONS AND TURNOVER

The Manager arranges for the purchase and sale of the Fund's securities and
selects brokers and dealers (including Smith Barney), which in its best judg-
ment provide prompt and reliable execution at favorable prices and reasonable
commission rates. The Manager may select brokers and dealers which provide it
with research services and may cause the Fund to pay such brokers and dealers
commissions which exceed those other brokers and dealers may have charged, if
it views the commissions as reasonable in relation to the value of the broker-
age and/or research services.

It is anticipated that the annual portfolio turnover rate of the Fund nor-
mally 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.

15
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

VALUATION OF SHARES (CONTINUED)

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 con-
sideration of other factors by or under the direction of the Board of Direc-
tors. 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 Directors.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

The Fund's policy is to distribute its investment income (that is, its income
other than its net realized capital gains) and net realized capital gains, if
any, once a year, normally at the end of the year in which earned or at the
beginning of the next year.

If a shareholder does not otherwise instruct, dividends and capital gain dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4.00% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed ordi-
nary income or capital gains and expects to pay any other dividends and distri-
butions necessary to avoid the application of this tax.

16
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)

The per share dividends on Class B and Class C shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally as
a result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice fee applicable to Class A shares. Distributions of capital gains, if any,
will be in the same amount for Class A, Class B, Class C and Class Y shares.

TAXES

The Fund has qualified and intends to continue to qualify as a "regulated
investment company" under the Code. To qualify, the Fund must first meet cer-
tain requirements, including the distribution of at least 90% of its investment
company taxable income (which includes, among other items, dividends, interest
and the excess of any net short-term capital gains over net long-term capital
losses).

Distributions of any investment company taxable income are taxable to share-
holders as ordinary income. Distributions of any net capital gains designated
by the Fund as capital gains dividends are taxable to shareholders as long-term
capital gains regardless of the length of time a shareholder may have held
shares of the Fund.

Dividends (including capital gain dividends) declared by the Fund in October,
November or December of any calendar year to shareholders of record on a date
in such a month will be deemed to have been received by shareholders on Decem-
ber 31 of that calendar year, provided that the dividend is actually paid by
the Fund during January of the following calendar year.

Upon the disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder generally will realize a taxable gain or loss. Such
gain or loss generally will be a capital gain or loss if the shares are capital
assets in the shareholder's hands, and generally will be long-term or short-
term depending upon the shareholder's holding period for the shares. Any loss
realized by a shareholder on disposition of Fund shares held by the shareholder
for six months or less will be treated as long-term capital loss to the extent
of any distributions of capital gains dividends received by the shareholder
with respect to such shares.

17
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)

Shareholders will be notified annually about the amounts of dividends and
distributions, including the amounts (if any) for that year which have been
designated as capital gain dividends. Dividends and distributions and gains
realized upon a disposition of Fund shares may also be subject to state, local
or foreign taxes depending on each shareholder's particular situation. Divi-
dends consisting of interest from U.S. government securities may be exempt from
all state and local income taxes. Shareholders should consult their tax advi-
sors for specific information on the tax consequences of particular types of
distributions.

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 redemp-
tions. Class Y shares are sold without an initial sales charge or a CDSC and
are available only to investors investing a minimum of $5,000,000. See "Pro-
spectus Summary -- Alternative Purchase Arrangements" for a discussion of fac-
tors 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 TSSG. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A, Class B,
Class C or Class Y shares. No maintenance fee will be charged by the Fund in
connection with a brokerage account through which an investor purchases or
holds shares.

Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Fund. Investors in Class Y shares
may open an account by making an initial investment of $5,000,000. Subsequent
investments of at least $50 may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or Section 401(a) of the
Code, the minimum initial investment requirement for Class A, Class B and Class
C shares and the subsequent investment requirement for all Classes in the

18
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

Fund is $25. For the Fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A, Class B and Class C shares and the subse-
quent investment requirement for all Classes is $100. There are no minimum
investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors of the Company and their
spouses and children. The Fund reserves the right to waive or change minimums,
to decline any order to purchase its shares and to suspend the offering of
shares from time to time. Shares purchased will be held in the shareholder's
account by the Company's transfer agent, TSSG. Share certificates are issued
only upon a shareholder's written request to TSSG.

Purchase orders received by Smith Barney prior to the close of regular trad-
ing 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 (the "trade date").
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 Smith Barney prior to Smith Barney's close of business.
Currently payment for Fund shares is due on the fifth business day after the
trade date (the "settlement date"). The Fund anticipates that, in accordance
with regulatory changes, beginning on or about June 1, 1995, the settlement
date will be the third business day after the trade date.

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 TSSG is authorized through preau-
thorized transfers of $100 or more 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 TSSG. 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 avail-
able from the Fund or a Smith Barney Financial Consultant.

19
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

The sales charges applicable to purchases of Class A shares of the Fund are
as follows:

<TABLE>
<CAPTION>
SALES CHARGE
------------------------------ DEALERS'
% OF % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$ 25,000 - 49,999 4.00 4.17 3.60
50,000 - 99,999 3.50 3.63 3.15
100,000 - 249,999 3.00 3.09 2.70
250,000 - 499,999 2.00 2.04 1.80
500,000 and over * * *
- ------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months
of purchase. The CDSC on Class A shares is payable to 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 who receive at least 90% of the sales charge may
be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.

The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual, his or her spouse and children, or a trustee or other fiduciary of
a single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value
of all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney that are offered with a sales charge listed under
"Exchange Privilege."

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 of Class A shares to Directors
of the Company and employees of Travelers and its subsidiaries, or the spouses
and children of such persons (including the surviving spouse of a deceased
Director or employee, and retired Directors or employees), or sales to any
trust, pen-

20
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

sion, profit-sharing or other benefit plan for such persons provided such sales
are made upon the assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to any other investment
company in connection with the combination of such company with the Fund by
merger, acquisition of assets or otherwise; (c) purchases of Class A shares by
any client of a newly employed Smith Barney Financial Consultant (for a period
up to 90 days from the commencement of the Financial Consultant's employment
with Smith Barney), on the condition the purchase of Class A shares is made
with the proceeds of the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer, (ii) was sold to the
client by the Financial Consultant and (iii) was subject to a sales charge; (d)
shareholders who have redeemed Class A shares in the Fund (or Class A shares of
another fund 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 reinvest-
ment is made within 60 calendar days of the redemption; and (e) accounts man-
aged by registered investment advisory subsidiaries of Travelers. 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 aggregat-
ing 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 pur-
chase at net asset value will also be available to employees (and partners) of
the

21
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

same employer purchasing as a group, provided each participant makes the mini-
mum 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 meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares 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 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 crite-
ria 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 discre-
tion of Smith Barney.

LETTER OF INTENT

22
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

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 applica-
ble 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 TSSG to obtain a Letter of Intent application.

DEFERRED SALES CHARGE ALTERNATIVES

"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares which when combined with Class A shares offered
with a sales charge currently held by an investor equal or exceed $500,000 in
the aggregate.

Any applicable CDSC will be assessed on an amount equal to the lesser of the
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

23
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

during a month will be aggregated and deemed to have been made on the last day
of the preceding Smith Barney statement month. The following table sets forth
the rates of the charge for redemptions of Class B shares by shareholders,
except in the case of purchases by Participating Plans, as described below. See
"Purchase of Shares--Smith Barney 401(k) Program:"

<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- --------------------------------
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 0.00
Seventh 0.00
Eighth 0.00
- --------------------------------
</TABLE>

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 propor-
tion of Class B Dividend Shares owned by the shareholder as the total number of
his or her Class B shares converting at the time bears to the total number of
outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") on July 15,
1994 and who subsequently exchange those shares for Class B shares of the Fund
will be offered the opportunity to exchange all such Class B shares for Class A
shares of the Fund four years after the date on which those shares were deemed
to have been purchased. Holders of such Class B shares will be notified of the
pending exchange in writing approximately 30 days before the fourth anniversary
of the purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the fourth anniversary date. See "Prospectus
Summary--Alternative Purchase Arrangements--Class B Shares Conversion Feature."

24
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

been held will be calculated from the date that the shares exchanged were ini-
tially acquired in one of the other Smith Barney Mutual Funds, and Fund shares
being redeemed will be considered to represent, as applicable, capital appreci-
ation 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 addi-
tional 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 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 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see below) (provided, however, that automatic cash withdrawals in amounts
equal to or less than 2.00% 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) redemption of shares within 12 months following the death or dis-
ability 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 in con-
nection with a combination of the Fund with any investment company by merger,
acquisition of assets or otherwise. In addition, a shareholder who has redeemed
shares from other funds of the Smith Barney Mutual Funds may, under certain
circumstances, reinvest all or part of the redemption proceeds within 60 days
and receive pro rata credit for any CDSC imposed on the prior redemption.

25
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by TSSG in the case
of all other shareholders) of the shareholder's status or holdings, as the case
may be.

SMITH BARNEY 401(K) PROGRAM

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 opera-
tion of retirement plans under Section 401(a) of the Code. To the extent appli-
cable, the same terms and conditions are offered to all Participating Plans in
the Smith Barney 401(k) Program.

The Fund offers to Participating Plans Class A, Class B, Class C and Class Y
shares as investment alternatives under the Smith Barney 401(k) Program. Class
A, Class B and Class C shares acquired through the Smith Barney 401(k) Program
are subject to the same service and/or distribution fees as, but different
sales charge and CDSC schedules than, the Class A, Class B and Class C shares
acquired by other investors. Similar to those available to other investors,
Class Y shares acquired through the Smith Barney 401(k) Program are not subject
to any initial sales charge, CDSC or service or distribution fee. Once a Par-
ticipating Plan has made an initial investment in the Fund, all of its subse-
quent 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 initial
sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.

Class B Shares. Class B shares of the Fund are offered to any Participating
Plan that purchases less than $250,000 of one or more funds of the Smith Barney
Mutual Funds. Class B shares acquired through the Smith Barney 401(k) Program
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.

26
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

Eight years after the date the Participating Plan enrolled in the Smith Bar-
ney 401(k) Program, it will be offered the opportunity to exchange all of its
Class B shares for Class A shares of the Fund. Such Plans will be notified of
the pending exchange in writing approximately 60 days before the eighth anni-
versary 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."

Class C Shares. Class C shares of the Fund are offered to any Participating
Plan that purchases from $250,000 to $499,999 of one or more funds of the Smith
Barney Mutual Funds. Class C shares acquired through the Smith Barney 401(k)
Program after November 7, 1994 will be subject to a CDSC of 1.00% of redemption
proceeds, if the Participating Plan terminates within four years of the date
the Participating Plan first enrolled in the Smith Barney 401(k) Program. Each
year after the date a Participating Plan enrolled in the Smith Barney 401(k)
Program if its total Class C holdings equal at least $500,000 as of the calen-
dar 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 following March. Once
the exchange has occurred, a Participating Plan will not be eligible to acquire
Class C shares of the Fund but instead may acquire Class A shares of the Fund.
Class C shares not converted will continue to be subject to the distribution
fee.

Class Y Shares. Class Y shares of the Fund are offered without any service or
distribution fee, sales charge or CDSC to any Participating Plan that purchases
$5,000,000 or more of Class Y shares of one or more funds of the Smith Barney
Mutual Funds.

No CDSC is imposed on redemptions of CDSC Shares to the extent that the net
asset value of the shares redeemed does not exceed the current net asset

27
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

value of the shares purchased through reinvestment of dividends or capital
gains distributions, plus (a) with respect to Class A and Class C shares, the
current net asset value of such shares purchased more than one year prior to
redemption and, with respect to Class B shares, the current net asset value of
Class B shares purchased more than eight years prior to the redemption, plus
(b) with respect to Class A and Class C shares, increases in the net asset
value of the shareholder's Class A or Class C shares above the purchase pay-
ments made during the preceding year and, with respect to Class B shares,
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 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 other Class B shareholders, which
depends on the number of years since those shareholders made the purchase pay-
ment from which the amount is being redeemed.

The CDSC will be waived on redemptions of CDSC 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 termina-
tion 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 Par-
ticipating Plan to an employee.

Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program must purchase such shares directly from TSSG. For further
information regarding the Smith Barney 401(k) Program, investors should contact
a Smith Barney Financial Consultant.

EXCHANGE PRIVILEGE

Except as otherwise noted below and provided your investment dealer is an
authorized distributor of the fund, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the follow-
ing 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

28
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

EXCHANGE PRIVILEGE (CONTINUED)

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 and a sales charge differential may apply.

FUND NAME

Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Managed Growth Fund
Smith Barney Telecommunications Growth Fund
Smith Barney Special Equities Fund

Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth Portfolio
Smith Barney Funds, Inc.--Utilities Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund

Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc.--Income Return Account Portfolio
Smith Barney Funds, Inc.--Monthly Payment Government Portfolio
+++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities
Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.

29
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

EXCHANGE PRIVILEGE (CONTINUED)

Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
*Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--California Portfolio
*Smith Barney Muni Funds--Florida Limited Term Portfolio
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 Jersey Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund

International Funds
Smith Barney Precious Metals and Minerals
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

30
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

EXCHANGE PRIVILEGE (CONTINUED)

+++Smith Barney Muni Funds--California Money Market Portfolio
+++Smith Barney Muni Funds--New York Money Market Portfolio.
+++Smith Barney Municipal Money Market Fund, Inc.
- --------------------------------------------------------------------------------
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A, Class B and Class Y shares of the
Fund. In addition, shareholders who own Class C shares of the Fund through
the Smith Barney 401(k) Program may exchange those shares for Class C
shares of this Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the Smith
Barney 401(k) Program may exchange those shares for Class C shares of this
Fund.
+++Available for exchange with Class A and Class Y shares of the Fund.

Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without a
sales charge or with a maximum sales charge of less than the maximum charged by
other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of their shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is lim-
ited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic reinvestment
of dividends and capital gains distributions, are treated as having paid the
same sales charges applicable to the shares on which the dividends or distribu-
tions were paid; however, except in the case of the Smith Barney 401(k) Pro-
gram, if no sales charge was imposed upon the initial purchase of the shares,
any shares obtained through automatic reinvestment will be subject to a sales
charge differential upon exchange.

Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Fund on July 15, 1994)
wishes to exchange all or a portion of his or her shares in any of the funds
imposing a higher CDSC than that imposed by the Fund, the exchanged Class B
shares will be subject to the higher applicable CDSC. Upon an exchange, the new
Class B shares will be deemed to have been purchased on the same date as the
Class B shares of the Fund that have been exchanged.

31
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

EXCHANGE PRIVILEGE (CONTINUED)

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 Y Exchanges. Class Y shareholders of the Fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares 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. The Manager 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 Manager
will notify Smith Barney and Smith Barney may, at its discretion, decide to
limit additional purchases and/or exchanges by the shareholder. Upon such a
determination, Smith Barney 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 posi-
tion 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, plus any
applicable sales charge differential. 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 privi-
leges upon 60 days' prior notice to shareholders.

32
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

REDEMPTION OF SHARES

The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.

If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, 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 seventh day following receipt of
proper tender, except on a days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. The Fund anticipates that,
in accordance with regulatory changes, beginning on or about June 1, 1995, pay-
ment will be made on the third business day after receipt of proper tender.
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 Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:

Smith Barney Growth Opportunity Fund Class A, B, C or Y (please specify)
c/o The Shareholders Services Group, Inc. P.O. Box 9134 Boston, Massachu-
setts 02205-9134

33
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

REDEMPTION OF SHARES (CONTINUED)

A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to TSSG together with the redemption request. Any
signature appearing on a redemption request, 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. TSSG
may require additional supporting documents for redemptions made by corpora-
tions, executors, administrators, trustees or guardians. A redemption request
will not be deemed properly received until TSSG 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 periodic cash payments of at least $100 monthly or quarterly. Retire-
ment 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 with-
drawal plan commences. (With respect to withdrawal plans in effect prior to
November 7, 1994, any applicable CDSC will be waived on amounts withdrawn that
do not exceed 2.00% per month of the value of the shareholder's shares subject
to the CDSC.) For further information regarding the automatic cash withdrawal
plan, shareholders should contact a Smith Barney Financial Consultant.

MINIMUM ACCOUNT SIZE

34
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

MINIMUM ACCOUNT SIZE (CONTINUED)

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, 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 gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the invest-
ment 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 redeem-
able value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the last
day of the period for which current dividend return is presented. The current
dividend return for each Class may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating cur-
rent 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, Class B, Class C and Class
Y shares in any advertisement or information including performance data of the
Fund.

35
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

Overall responsibility for management and supervision of the Company rests
with the Company's Board of Directors. The Directors approve all significant
agreements between the Company and the companies that furnish services to the
Fund and the Company, including agreements with its distributor, investment
adviser, custodian and transfer agent. The day-to-day operations of the Fund
are delegated to the Fund's investment manager. The Statement of Additional
Information contains background information regarding each Director of the Fund
and executive officer of the Company.

MANAGER

The Manager, located at 388 Greenwich Street, New York, New York 10013,
serves as the Fund's investment adviser and manages the day-to-day operations
of the Fund pursuant to a management agreement entered into by the Company, on
behalf of the Fund. The Manager (through its predecessors) has been in the
investment counseling business since 1934 and is a registered investment advis-
er. The Manager renders investment advice to investment companies that had
aggregate assets under management as of December 31, 1994, in excess of $50
billion.

Subject to the supervision and direction of the Company's Board of Directors,
the Manager 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 portfo-
lio managers and securities analysts who provide research services to the Fund.
For investment advisory services rendered, the Fund pays the Manager a monthly
fee at the annual rate of 1.00% of the value of its average daily net assets.

PORTFOLIO MANAGEMENT

Harvey Eisen, Vice President of Smith Barney Advisers, Inc., a subsidiary of
the Manager, and Senior Vice President of Investment Operations for Travelers,
will serve as Vice President of the Fund and will be responsible for managing
the day-to-day investment operations of the Fund, including the making of
investment decisions.

36
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

MANAGEMENT OF THE FUND (CONTINUED)

Management's discussion and analysis, and additional performance information
regarding the Fund during the fiscal year ending December 31, 1995 will be
included in the Annual Report dated December 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.

DISTRIBUTOR

Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid an annual
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 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 average daily net
assets attributable to those Classes. 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 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 per-
sons 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 con-
tinuing 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.

37
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

DISTRIBUTOR (CONTINUED)

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 Company'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 Smith Barney, amounts received under the Plan and
proceeds of the CDSC.

ADDITIONAL INFORMATION

The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The Fund
offers shares of common stock currently classified into four Classes, A, B, C
and Y, with a par value of $.001 per share. 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 desig-
nation of each Class; (b) the effect of the respective sales charges for each
Class; (c) the distribution and/or service fees borne by each Class pursuant to
the Plan; (d) the expenses allocable exclusively to each Class; (e) voting
rights on matters exclusively affecting a single Class; (f) the exchange privi-
lege of each Class; and (g) the conversion feature of the Class B shares. The
Board of Directors does not anticipate that there will be any conflicts among
the interests of the holders of the different Classes. The Directors, on an
ongoing basis, will consider whether any such conflicts exists and, if so, take
appropriate action.

PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103 serves as custodian of the Fund's investments.

TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Company's transfer agent.

38
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

ADDITIONAL INFORMATION (CONTINUED)

holder 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 Company will be voted on a Company-wide
basis on all matters except matters affecting only the interests of one Fund or
one Class of shares.

The Fund sends its shareholders a semi-annual report and an audited annual
report, each of which includes a list 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 Company 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. In addition, the Company also plans to
consolidate the mailing of its Prospectuses so that a shareholder having multi-
ple accounts (i.e., 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 their Smith
Barney Financial Consultant or the Fund's transfer agent.

-------------------

No person has been authorized to give any information or to make any repre-
sentations 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 Company or the dis-
tributor. This Prospectus does not constitute an offer by the Fund or the dis-
tributor 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.

39
<PAGE>

- --------------------------------------------------------------------------------
SMITH BARNEY
------------

A Member of Travelers Group

Smith
Barney
Growth
Opportunity
Fund

388 Greenwich Street
New York, New York 10013

FDXXXX XX

<PAGE>

SMITH BARNEY INVESTMENT FUNDS, INC.
Growth Opportunity Fund

PROSPECTUS APRIL [ ], 1995

388 Greenwich Street
New York, New York 10013
(212) 723-9218

The Smith Barney Growth Opportunity Fund (the "Fund") seeks capital apprecia-
tion through investments in securities believed to have above average potential
for capital appreciation.

The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up the Smith Barney Investment Funds Inc. (the "Com-
pany"). 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 Company and
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 Addi-
tional Information dated [ ], 1995, 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
Smith Barney Financial Consultant. The Statement of Additional Information has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus in its entirety.

SMITH BARNEY INC.
Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator

SMITH BARNEY
Growth Opportunity Fund

TABLE OF CONTENTS

2
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY

INVESTMENT OBJECTIVE The Fund is an open-end, management investment company
whose investment objective is to seek capital appreciation through investments
in securities believed to have above average potential for capital
appreciation. See "Investment Objective and Management Policies."

ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers two classes of shares
("Classes") to investors 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."

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 Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."

3
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

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 ben-
eficial 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 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 addi-
tional 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,
which when combined with current holdings of Class A shares equal or exceed
$500,000 in the aggregate, will be made at net asset value with no initial
sales charge, but will be subject to a CDSC of 1.00% on redemptions made within
12 months of purchase. The $500,000 aggregate investment may be met by adding
the purchase to the net asset value of all Class A shares held in funds spon-
sored by Smith Barney Inc. ("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 pur-
chase 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 each Class 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.

4
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

SMITH BARNEY 401(K) PROGRAM 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
(collectively, the "Participating Plans"). Class A and Class B shares are
available as investment alternatives for Participating Plans. See "Purchase of
Shares--Smith Barney 401(k) Program."

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 Code, the minimum initial investment requirement for Class A and
Class B shares and the subsequent investment requirement for both Classes is
$25. The minimum initial investment requirement for Class A and Class B shares
and the subsequent investment requirement for both Classes through the
Systematic Investment Plan described below is $100. See "Purchase of Shares."

REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."

MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc (the "Manager")
serves as the Fund's investment adviser. The Manager

5
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

provides investment advisory and management services to investment companies
affiliated with Smith Barney. The Manager is a wholly owned subsidiary of Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers Inc. ("Travelers"), a diversified financial services holding company
engaged, through its subsidiaries principally in four business segments:
Investment Services, Consumer Finance Services, Life Insurance Services and
Property & Casualty Insurance Services. The Manager also serves as the Fund's
administrator. See "Management of the Fund."

DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and
distributions of net realized capital gains, if any, are declared and paid
annually. See "Dividends, Distributions and Taxes."

REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro-
rata basis. See "Dividends, Distributions and Taxes."

RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund invests principally in common
stocks. The prices of common stocks and other securities fluctuate and,
therefore, the value of an investment in the Fund will vary based upon the
Fund's investment performance. Any income from these investments will be
incidental to the goal of capital appreciation. The Fund may use management
techniques and strategies involving options, futures contracts and options on
futures. The utilization of these techniques may involve greater than ordinary
investment risks and the likelihood of more volatile price fluctuation. See
"Investment Objective and Management Policies."

6
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PROSPECTUS SUMMARY (CONTINUED)

<TABLE>
<CAPTION>
CLASS A CLASS B
- -------------------------------------------------------------------------------
<S> <C> <C>
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%
- -------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management Fees............................................. 1.00% 1.00%
12b-1 Fees**................................................ 0.25% 1.00%
Other Expenses***........................................... [ ] [ ]
- -------------------------------------------------------------------------------
Total Fund Operating Expenses.............................. [ %] [ %]
</TABLE>
- -------------------------------------------------------------------------------
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge, equal or exceed $500,000 in
the aggregate, will be made at net asset value 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.
*** "Other Expenses" are estimated based on anticipated expenses of the Fund
for the fiscal year ending December 31, 1995.

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 through the Smith Barney 401(k) Pro-
gram. See "Purchase of Shares" and "Redemption of Shares." Smith Barney
receives an annual 12b-1 service fee of 0.25% of the value of average daily
net assets of Class A shares. Smith Barney also receives with respect to Class
B shares, an annual 12b-1 fee of 1.00% of the value of average daily net
assets of that Class, consisting of a 0.25% distribution fee and a 0.75% serv-
ice fee. "Other expenses" in the above table include fees for shareholder
services, custodial fees, legal and accounting fees, printing costs and regis-
tration fees.

7
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

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 Fund."

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A...................................... $ $ $ $
Class B...................................... $ $ $ $
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A...................................... $ $ $ $
Class B...................................... $ $ $ $
- ------------------------------------------------------------------------------
</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.

8
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES

In making purchases of securities consistent with the above policies, the Fund
will be subject to the applicable restrictions referred to under "Investment

9
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

Restrictions" in the Statement of Additional Information. These restrictions
and the Fund's investment objective are fundamental policies, which may not be
changed without the "vote of a majority of the outstanding voting securities",
as defined in the Investment Company of 1940, as amended (the "1940 Act").
Except for the objective and those restrictions specifically identified as fun-
damental, all investment policies and practices described in this Prospectus
and in the Statement of Additional Information are non-fundamental, which may
be changed by the Board of Directors, without shareholder approval.

10
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

out only by agreement with the other party to the transaction. Any OTC Option
purchased by the Fund will be considered an illiquid security. Any OTC Option
written by the Fund will be with a qualified dealer pursuant to an agreement
under which the Fund may repurchase the option at a formula price. Such
options will be considered illiquid to the extent that the formula price
exceeds the intrinsic value of the option. The Fund may not purchase or sell
futures contracts or related options for which the aggregate initial margin
and premiums exceed 5.00% of the fair market value of the Fund's assets. In
order to prevent leverage in connection with the purchase of futures contracts
thereon by the Fund, an amount of cash, cash equivalents of liquid high grade
debt securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segre-
gated account with the Fund's custodian. The Fund may not invest more than 15%
of its net assets in illiquid securities and repurchase agreements which have
a maturity of longer than seven days. A more complete discussion of the poten-
tial risks involved in transactions involving options or futures contracts and
related options, is contained in the Statement of Additional Information. The
Fund may not purchase or sell futures contracts or related options for which
the aggregate initial margin and premiums exceed 5.00% of the fair market
value of the Fund's assets.

Foreign Securities. The Fund may also invest in securities of foreign issuers
of developed and emerging market countries, including non-U.S. dollar denomi-
nated securities, Eurodollar securities and securities issued, assumed or
guaranteed by foreign governments, political subdivisions or instrumentalities
thereof. The Fund will limit its investment in foreign securities to 35% of
its total assets. Investments in securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investments, including fluctuations in foreign exchange rates, future
foreign political and economic developments and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments.

The Fund may also purchase foreign securities in the form of American Deposi-
tary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. ADRs are pub-
licly 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

11
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

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.

The Fund may also enter contracts with banks or other foreign currency brokers
and dealers in which the Fund purchases or sells foreign currencies at a future
date ("future contracts") and purchase and sell foreign currency futures con-
tracts to hedge against changes in foreign currency exchange rates. A foreign
currency forward contract is a negotiated agreement between the contracting
parties to exchange a specified amount of currency at a specified future time
at a specified rate. The rate can be higher or lower than the spot rate between
the currencies that are the subject of the contract.

12
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

opposite to the hedged position. The Fund will not speculate in foreign cur-
rency forward or futures contracts or through the purchase and sale of foreign
currencies.

Forward Commitments. The Fund may purchase or sell debt securities on a "when-
issued" or "delayed delivery" basis ("Forward Commitments"). These transactions
occur when securities are purchased or sold by the Fund with payment and deliv-
ery taking place in the future (after a month or more after such transactions).
The price is fixed on the date of the commitment and the seller continues to
accrue interest on the securities covered by the Forward Commitment until
delivery and payment take place. At the time of settlement, the market value of
the securities may be more or less than the purchase or sale price.

Loans of Portfolio Securities. The Fund may lend its portfolio securities pro-
vided: (a) the loan is secured continuously by collateral consisting of U.S.
government securities or cash or cash equivalents maintained on a daily marked-
to-market basis in an amount at least equal to the current market value of the
securities loaned; (b) the Fund may at any time call the loan and obtain the
return of the securities loaned; (c) the Fund will receive any interest or div-
idend paid on the loaned securities; and (d) the aggregate market value of
securities loaned will not at any time exceed 33 1/3% of the total assets of
the Fund.

PORTFILIO TRANSACTIONS AND TURNOVER

13
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)

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 fis-
cal 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

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. Secu-
rities 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 assis-
tance 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 deter-
mined by consideration of other factors by or under the direction of the Board
of Directors. 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 Directors.

14
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

If a shareholder does not otherwise instruct, dividends and capital gain dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to
avoid the application of a 4.00% non-deductible excise tax on certain undis-
tributed amounts of ordinary income and capital gains, the Fund may make an
additional distribution shortly before December 31 in each year of any undis-
tributed ordinary income or capital gains and expects to pay any other divi-
dends and distributions necessary to avoid the application of this tax.

The per share dividends on Class B shares of the Fund may be lower than the
per share dividends on Class A shares principally as a result of the distribu-
tion fee applicable with respect to Class B shares. Distributions of capital
gains, if any, will be in the same amount for Class A and Class B shares.

TAXES

The Fund has qualified and intends to continue to qualify as a "regulated
investment company" under the Code. To qualify, the Fund must first meet cer-
tain tests, including the distribution of at least 90% of its investment com-
pany taxable income (which includes, among other items, dividends, interest
and the excess of any net short-term capital gains over net long-term capital
losses).

Distributions of any investment company taxable income are taxable to share-
holders as ordinary income. Distributions of any net capital gains designated
by the Fund as capital gains dividends are taxable to shareholders as long-
term capital gains regardless of the length of time a shareholder may have
held shares of the Fund.

15
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)

Shareholders will be notified annually about the amounts of dividends and dis-
tributions, including the amounts (if any) for that year which have been desig-
nated as capital gain dividends. Dividends and distributions and gains realized
upon a disposition of Fund shares may also be subject to state, local or for-
eign taxes depending on each shareholder's particular situation. Dividends con-
sisting of interest from U.S. government securities may be exempt from all
state and local income taxes. Shareholders should consult their tax advisors
for specific information on the tax consequences of particular types of distri-
butions.

PURCHASE OF SHARES

GENERAL

The Fund offers two Classes of shares. 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.

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 TSSG. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A or Class B
shares. No maintenance fee will be charged by the Fund in connection with a
brokerage account through which an investor purchases or holds shares.

Investors in Class A and Class B shares may open an account by making an ini-
tial investment of at least $1,000 for each account, or $250 for an IRA or a

16
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

Self-Employed Retirement Plan in the Fund. Subsequent investments of at least
$50 may be made for both Classes. For participants in retirement plans quali-
fied under Section 403(b)(7) or Section 401(a) of the Code, the minimum ini-
tial investment requirement for Class A and Class B shares and the subsequent
investment requirement for both Classes in the Fund is $25. For the Fund's
Systematic Investment Plan, the minimum initial investment requirement for
Class A and Class B shares and the subsequent investment requirement for both
Classes is $100. There are no minimum investment requirements for Class A
shares for employees of Travelers and its subsidiaries, including Smith Bar-
ney, Directors of the Company and their spouses and children. The Fund
reserves the right to waive or change minimums, to decline any order to pur-
chase 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 Company's
transfer agent, TSSG. Share certificates are issued only upon a shareholder's
written request to TSSG.

Purchase orders received by Smith Barney prior to the close of regular trad-
ing 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 (the "trade
date"). 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 Smith Barney prior to Smith Barney's close
of business. Currently payment for Fund shares is due on the fifth business
day after the trade date (the "settlement date"). The Fund anticipates that,
in accordance with regulatory changes, beginning on or about June 1, 1995, the
settlement date will be the third business day after the trade date.

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 TSSG is authorized through preau-
thorized transfers of $100 or more 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 TSSG. 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 informa-
tion is available from the Fund or a Smith Barney Financial Consultant.

17
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES

The sales charges applicable to purchases of Class A shares of the Fund are
as follows:

<TABLE>
<CAPTION>
SALES CHARGE
------------------------------ DEALERS'
% OF % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
LESS THAN $ 25,000 5.00% 5.26% 5.00%
$ 25,000 - 49,999 4.00 4.17 4.00
50,000 - 99,999 3.50 3.63 3.50
100,000 - 249,999 3.00 3.09 3.00
250,000 - 499,999 2.00 2.04 2.00
500,000 - AND OVER * * *
- ---------------------------------------------------------------------------
</TABLE>
* PURCHASES OF CLASS A SHARES, WHICH WHEN COMBINED WITH CURRENT HOLDINGS OF
CLASS A SHARES OFFERED WITH A SALES CHARGE EQUAL OR EXCEED $500,000 IN THE
AGGREGATE, WILL BE MADE AT NET ASSET VALUE WITHOUT ANY INITIAL SALES CHARGE,
BUT WILL BE SUBJECT TO A CDSC OF 1.00% ON REDEMPTIONS MADE WITHIN 12 MONTHS
OF PURCHASE. THE CDSC ON CLASS A SHARES IS PAYABLE TO 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 SHARES IS WAIVED. SEE
"DEFERRED SALES CHARGE ALTERNATIVES" AND "WAIVERS OF CDSC."

Members of the selling group who receive at least 90% of the sales charge may
be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.

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 of Class A shares to Direc-
tors of the Company and employees of Travelers and its subsidiaries, or the
spouses and children of such persons (including the surviving spouse of a
deceased Director or employee, and retired Directors or employees), or sales
to any trust, pension, profit-sharing or other benefit plan for such persons
provided such sales

18
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

are made upon the assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to any other investment
company in connection with the combination of such company with the Fund by
merger, acquisition of assets or otherwise; (c) purchases of Class A shares by
any client of a newly employed Smith Barney Financial Consultant (for a period
up to 90 days from the commencement of the Financial Consultant's employment
with Smith Barney), on the condition the purchase of Class A shares is made
with the proceeds of the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer, (ii) was sold to the
client by the Financial Consultant and (iii) was subject to a sales charge;
(d) shareholders who have redeemed Class A shares in the Fund (or Class A
shares of another fund 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; and (e)
accounts managed by registered investment advisory subsidiaries of Travelers.
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 aggregat-
ing 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 informa-
tion at the time of purchase to permit verification that the purchase quali-
fies for the reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares pur-
chased thereafter.

GROUP PURCHASES

19
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

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 meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares 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 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 crite-
ria 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 discre-
tion of Smith Barney.

LETTER OF INTENT

20
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

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 appli-
cable 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 TSSG to obtain a Letter of Intent application.

DEFERRED SALES CHARGE ALTERNATIVES

"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; and (b)
Class A shares which when combined with Class A shares offered with a sales
charge currently held by an investor equal or exceed $500,000 in the
aggregate.

Any applicable CDSC will be assessed on an amount equal to the lesser of the
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 pur-
chase payment, all purchase payments made during a month will be aggregated
and deemed to have been made on the last day of the preceding Smith Barney
statement month. The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in the case of purchases
by Participating Plans, as described below. See "Purchase of Shares--Smith
Barney 401(k) Program."

21
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

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 distribu-
tions 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.

22
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

WAIVERS OF CDSC

SMITH BARNEY 401(K) PROGRAM

23
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

the same terms and conditions are offered to all Participating Plans in the
Smith Barney 401(k) Program.

The Fund offers to Participating Plans, Class A and Class B shares as invest-
ment alternatives under the Smith Barney 401(k) Program. Class A and Class B
shares acquired through the Smith Barney 401(k) Program are subject to the same
service and/or distribution fees as, but different sales charge and CDSC sched-
ules than the Class A and Class B shares acquired by other investors. Once a
Participating Plan has made an initial investment in the Fund, all of its sub-
sequent investments in the Fund must be in the same Class of shares, except as
otherwise described below.

Eight years after the date the Participating Plan enrolled in the Smith Barney
401(k) Program, it will be offered the opportunity to exchange all of its Class
B shares for Class A shares of the Fund. 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 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."

24
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

PURCHASE OF SHARES (CONTINUED)

No CDSC is imposed on redemptions of CDSC 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 gains dis-
tributions, plus (a) with respect to Class A shares, the current net asset
value of such shares purchased more than one year prior to redemption and, with
respect to Class B shares, the current net asset value of Class B shares pur-
chased more than eight years prior to the redemption, plus (b) with respect to
Class A shares, increases in the net asset value of the shareholder's Class A
shares above the purchase payments made during the preceding year and, with
respect to Class B shares, increases in the net asset value of the sharehold-
er's Class B shares above the purchase payments made during the preceding eight
years. Whether or not the CDSC applies to 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 other Class B
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 CDSC 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 disabil-
ity 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

25
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

EXCHANGE PRIVILEGE (CONTINUED)

shares are subject to minimum investment requirements and all shares are sub-
ject to the other requirements of the fund into which exchanges are made and a
sales charge differential may apply.

FUND NAME

Growth Funds

Smith Barney Appreciation Fund Inc.

Growth and Income Funds

Smith Barney Strategic Investors Fund

Taxable Fixed-Income Funds

Smith Barney Investment Grade Bond Fund

Tax-Exempt Funds

Smith Barney Florida Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.

Money Market Funds

Smith Barney Exchange Reserve Fund
Smith Barney Money Funds, Inc.--Cash Portfolio

Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without a
sales charge or with a maximum sales charge of less than the maximum charged
by other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of their shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is lim-
ited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic reinvest-
ment of dividends and capital gains distributions, are treated as having paid
the same sales charges applicable to the shares on which the dividends or dis-
tributions were paid; however, except in the case of the Smith Barney 401(k)
Program, if no sales charge was imposed upon the initial purchase of the
shares, any shares obtained through automatic reinvestment will be subject to
a sales charge differential upon exchange.

26
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

EXCHANGE PRIVILEGE (CONTINUED)

Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Fund on July 15,
1994) wishes to exchange all or a portion of his or her shares in any of the
funds imposing a higher CDSC than that imposed by the Fund, the exchanged
Class B shares will be subject to the higher applicable CDSC. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Fund that have been exchanged.

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. The Manager
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
Manager will notify Smith Barney and Smith Barney may, at its discretion,
decide to limit additional purchases and/or exchanges by the shareholder. Upon
such a determination, Smith Barney will provide notice in writing or by tele-
phone 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 deter-
mining what constitutes an abusive pattern of exchanges.

Exchanges will be processed at the net asset value next determined, plus any
applicable sales charge differential. 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 registra-
tion 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.

27
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

REDEMPTION OF SHARES

The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per
share next determined after receipt of a written request in proper form at no
charge other than any applicable CDSC. Redemption requests received after
theclose 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 redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, 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 redemp-
tion proceeds will be remitted on or before the seventh day following receipt
of proper tender, except on a days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. The Fund anticipates that,
in accordance with regulatory changes, beginning on or about June 1, 1995,
payment will be made on the third business day after receipt of proper tender.
Generally, if the redemption proceeds are remitted to a Smith Barney brokerage
account, these funds will not be invested for the shareholder's benefit with-
out specific instruction and Smith Barney will benefit from the use of tempo-
rarily uninvested funds. Redemption proceeds for shares purchased by check,
other than a certified or official bank check, will be remitted upon clearance
of the check, which may take up to ten days or more.

Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than
those held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:

Smith Barney Growth Opportunity Fund
Class A or B (please specify)
c/o The Shareholders Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134

28
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

REDEMPTION OF SHARES (CONTINUED)

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 TSSG together with the redemption request. Any signa-
ture appearing on a redemption request, 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. TSSG 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 TSSG receives all required documents in
proper form.

AUTOMATIC CASH WITHDRAWAL PLAN

MINIMUM ACCOUNT SIZE

The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size). The Fund, how-
ever, 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.

29
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

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 speci-
fied period of time assuming deduction of the maximum sales charge, if any,
from the initial amount invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the value of the investment at the end
of the period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the SEC, is
derived from this total return, which provides the ending redeemable value.
Such standard total return information may also be accompanied with nonstandard
total return information for differing periods computed in the same manner but
without annualizing the total return or taking sales charges into account. The
Fund calculates current dividend return for each Class by annualizing the most
recent monthly distribution and dividing by the net asset value or the maximum
public offering price (including sales charge) on the last day of the period
for which current dividend return is presented. The current dividend return for
each Class may vary from time to time depending on market conditions, the com-
position 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 perfor-
mance data for Class A and Class B shares in any advertisement or information
including performance data of the Fund.

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

30
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

MANAGEMENT OF THE FUND (CONTINUED)

Fund are delegated to the Fund's investment manager. The Statement of Addi-
tional Information contains background information regarding each Director of
the Fund and executive officer of the Company.

MANAGER

The Manager, located at 388 Greenwich Street, New York, New York 10013,
serves as the Fund's investment adviser and manages the day-to-day operations
of the Fund pursuant to a management agreement entered into by the Company, on
behalf of the Fund. The Manager (through its predecessors) has been in the
investment counseling business since 1934 and is a registered investment
adviser. The Manager renders investment advice to investment companies that
had aggregate assets under management as of December 31, 1994, in excess of
$50 billion.

Subject to the supervision and direction of the Company's Board of Directors,
the Manager 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 portfo-
lio managers and securities analysts who provide research services to the
Fund. For investment advisory services rendered, the Fund pays the Manager a
monthly fee at the annual rate of 1.00% of the value of its average daily net
assets.

PORTFOLIO MANAGEMENT

31
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

DISTRIBUTOR

Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid 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.
Smith Barney 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 attribut-
able 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 sub-
ject to distribution fees. The fees are used by Smith Barney to pay its Finan-
cial Consultants 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 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 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 pay-
ments may exceed distribution expenses actually incurred. The Company'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 fac-
tors, including expenses borne by Smith Barney, amounts received under the
Plan and proceeds of the CDSC.

32
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

ADDITIONAL INFORMATION

The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The Fund
offers shares of common stock currently classified into two Classes, A and B,
with a par value of $.001 per share. Each Class represents an identical inter-
est 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 for each Class;
(c) the distribution and/or service fees borne by each Class pursuant to the
Plan; (d) the expenses allocable exclusively to each Class; (e) voting rights
on matters exclusively affecting a single Class; (f) the exchange privilege of
each Class; and (g) the conversion feature of the Class B shares. The Board of
Directors does not anticipate that there will be any conflicts among the inter-
ests of the holders of the different Classes. The Directors, on an ongoing
basis, will consider whether any such conflicts exists and, if so, take appro-
priate action.

PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103 serves as custodian of the Fund's investments.

TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Company's transfer agent.

The Company does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any purpose
upon written request of shareholders holding at least 10% of the Company's out-
standing shares and the Company will assist shareholders in calling such a
meeting as required by the 1940 Act. 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 Company will be voted on a Company-wide basis
on all matters except matters affecting only the interests of one Fund or one
Class of shares.

33
<PAGE>

SMITH BARNEY
Growth Opportunity Fund

ADDITIONAL INFORMATION (CONTINUED)

receive a single copy of each report. In addition, the Company also plans to
consolidate the mailing of its Prospectuses so that a shareholder having mul-
tiple accounts (i.e., 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 their Smith
Barney Financial Consultant or the Fund's transfer agent.

----------------------

No person has been authorized to give any information or to make any repre-
sentations 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 Company or the dis-
tributor. This Prospectus does not constitute an offer by the Fund or the dis-
tributor 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.

34
<PAGE>

- --------------------------------------------------------------------------------
SMITH BARNEY
------------

A Member of Travelers Group

Smith Barney
Growth
Opportunity
Fund

388 Greenwich Street New York, New York 10013

FDXXXX XX

<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS APRIL [ ], 1995

388 Greenwich Street
New York, New York 10013
(212) 723-9218

The primary investment objective of the Smith Barney Managed Growth Fund (the
"Fund") will be growth of capital. Dividend income is a secondary objective of
the Fund.

This Prospectus sets forth concisely certain information about the Company and
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 Addi-
tional Information dated [ ], 1995, 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
Smith Barney Financial Consultant. The Statement of Additional Information has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus in its entirety.

SMITH BARNEY INC.

Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.

Investment Adviser and Administrator

SMITH BARNEY
Managed Growth Fund

TABLE OF CONTENTS

2
<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS SUMMARY

INVESTMENT OBJECTIVE The Fund is an open-end, management investment company
whose investment objective is growth of capital. Dividend income is a secondary
objective of the Fund. See "Investment Objective and Management Policies."

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

3
<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS SUMMARY (CONTINUED)

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 Y Shares. Class Y shares are available only to investors meeting an ini-
tial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.

In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:

Intended Holding Period. The decision as to which Class of shares is more ben-
eficial 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 alternative,
Class B shares 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 can-
not be predicted, however, there can be no assurance that this would be the
case.

4
<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS SUMMARY (CONTINUED)

Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases,
which when combined with current holdings of Class A shares equal or exceed
$500,000 in the aggregate, will be made at net asset value with no initial
sales charge, but will be subject to a CDSC of 1.00% on redemptions made within
12 months of purchase. The $500,000 aggregate investment may be met by adding
the purchase to the net asset value of all Class A shares held in funds spon-
sored by Smith Barney Inc. ("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 and Class C shares, purchasers eli-
gible to purchase Class A shares at net asset value or at a reduced sales
charge should consider doing so.

5
<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS SUMMARY (CONTINUED)

The initial subscription period for shares commences on the date of this Pro-
spectus and is scheduled to end no later than [June 30, 1995], subject to
extension (the "Subscription Period"). After the expiration of the Subscription
Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about [August 15, 1995]. See "Purchase of Shares."

SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Invest-
ment Plan under which they may authorize the automatic placement of a

6
<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS SUMMARY (CONTINUED)

purchase order each month or quarter for Fund shares in an amount of at least
$100. 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 "Re-
demption of Shares."

MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. (the "Manag-
er") serves as the Fund's investment adviser. The Manager provides investment
advisory and management services to investment companies affiliated with Smith
Barney. The Manager is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc.
("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries principally in four business segments: Investment
Services, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. The Manager also serves as the Fund's administra-
tor. See "Management of the Fund."

DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions 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 dis-
tribution reinvestments will become eligible for conversion to Class A shares
on a pro-rata basis. See "Dividends, Distributions and Taxes."

7
<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS SUMMARY (CONTINUED)

RISK FACTORS AND SPECIAL CONSIDERATIONS

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as
a percentage of offering price)............ 5.00% None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower)..................................... None* 5.00% 1.00% None
- ---------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of offering price)
Management Fees.............................. 0.85% 0.85% 0.85% 0.85%
12b-1 Fees**................................. 0.25% 1.00% 1.00% None
Other Expenses***............................ [ ] [ ] [ ] [ ]
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses............... [%] [%] [%] [%]
- ---------------------------------------------------------------------------------
</TABLE>

* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge, equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
*** "Other Expenses" have been based on estimated expenses of the Fund for the
fiscal year ending December 31, 1995.

8
<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS SUMMARY (CONTINUED)

The sales charge and CDSC set forth in the above table are the maximum charges
imposed on purchases or redemptions of Fund shares and investors may actually
pay lower or no charges, depending on the amount purchased and, in the case of
Class B, Class C and certain Class A shares, the length of time the shares are
held and whether the shares are held through the Smith Barney 401(k) Program.
See "Purchase of Shares" and "Redemption of Shares." Smith Barney receives an
annual 12b-1 service fee of 0.25% of the value of average daily net assets of
Class A shares. Smith Barney also receives with respect to Class B shares and
Class C shares, an annual 12b-1 fee of 1.00% of the value of average daily net
assets of the respective Classes, consisting of a 0.25% distribution fee and a
0.75% service fee. "Other expenses" in the above table include fees for share-
holder 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 Fund."

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A..................................... $ $ $ $
Class B..................................... $ $ $ $
Class C..................................... $ $ $ $
Class Y..................................... $ $ $ $
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A..................................... $ $ $ $
Class B..................................... $ $ $ $
Class C..................................... $ $ $ $
Class Y..................................... $ $ $ $
- ------------------------------------------------------------------------------
</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.

9
<PAGE>

SMITH BARNEY
Managed Growth Fund

PROSPECTUS SUMMARY (CONTINUED)

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES

The investment objective of the Fund is growth of capital. Dividend income is
a secondary objective of the Fund. There can be no assurance that the invest-
ment objective of the Fund will be achieved. The Fund's investment objective
may be changed only by the "vote of a majority of the outstanding voting secu-
rities" as defined in the Investment Company Act of 1940, as amended (the "1940
Act").

The Fund attempts to achieve its objective by investing primarily in common
stock and securities, including debt securities which are convertible into com-
mon stock and which are currently out of favor. Such securities might typically
be valued at the low end of their 52 week trading range. Although under normal
circumstances the Fund's portfolio will primarily consist of these securities,
the Fund may also invest in preferred stocks and warrants when the Manager per-
ceives an opportunity for capital growth from such securities. The Fund may,
from time to time enter into futures contracts, write call options, purchase
put options, invest in repurchase agreements, lend its portfolio securities and
invest in real estate investment trusts and foreign securities. Additionally,
the Fund may, subject to the limitations set forth in the 1940 Act, invest in
the securities of other investment companies.

The Manager's investment decisions with respect to the Fund's portfolio are
based upon analysis and research, taking into account, among other factors, the
relationship of book value to market value of the securities, cash flow, the
multiple of earnings, private market value and the ratio of market capitaliza-
tion to sales. These factors are not applied formulaically, as the Manager
examines each security separately.

Although the Fund's assets will be invested primarily in equity securities,
government securities money market instruments may be held and repurchase agree-

10
<PAGE>

SMITH BARNEY
Managed Growth Fund

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)

ments may be entered into for defensive purposes and so that the Fund may
receive a return on its otherwise uninvested cash. When the Manager invests in
such securities, investment income will increase and may constitute a larger
portion of the return on the Fund. The Fund may also sell short securities it
does not own up to 5% of its assets. Short sales have risks of loss if the
price of the security sold short increases after the sale, but the Fund can
profit it the price decreases.

Warrants; Convertible Securities. A warrant is a security that gives the
holder the right, but not the obligation, to subscribe for newly created secu-
rities of the issuer or a related company at a fixed price either at a certain
date or during a set period. A convertible security is a security that may be
converted either at a stated price or rate within a specified period of time
into a specified number of shares of common stock. In investing in convertible
securities, the Fund seeks the opportunity, through the conversion feature, to
participate in the capital appreciation of the common stock into which the
securities are convertible.

Covered Option Writing. The Fund may write covered call options with respect
to its portfolio securities. The Fund realizes a fee (referred to as a "premi-
um") for granting the rights evidenced by the options. 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 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 call option written by the Fund, the Fund may suffer a
loss equal to the excess of the security's market value at the time of the
option exercise over the Fund's cost of the security, less the premium received
for writing the option.

The Fund will write only covered options with respect to its portfolio securi-
ties. Accordingly, whenever the Fund writes a call option on its securities, it
will continue to own or have the present right to acquire the underlying secu-
rity for as long as it remains obligated as the writer of the option. To sup-
port its obligation to purchase the underlying security if a call option is
exercised, the Fund will either (a) deposit with its custodian in a segregated
account, cash, government securities or other high grade debt obligations hav-
ing a value at least equal to the exercise price of the underlying securities
or (b) continue to

11
<PAGE>

SMITH BARNEY
Managed Growth Fund

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)

own an equivalent number of puts of the same "series" (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 its custodian 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 to unfreeze an underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). To effect a closing
purchase transaction, the Fund would purchase, prior to the holder's exercise
of an option that the Fund has written, an option of the same series as that on
which the Fund desires to terminate its obligation. The obligation of the Fund
under an option that it has written would be terminated by a closing purchase
transaction, but the Fund would not be deemed to own an option as a result of
the transaction. There can be no assurances 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 domestic
securities exchanges or in the over-the-counter market.

Options on Broad-Based Domestic Stock Indexes. The Fund may write call options
and purchase put options on broad-based domestic stock indexes and enter into
closing transactions with respect to such options. Options on stock indexes are
similar to options on securities except that, rather than having the right to
take or make delivery of stock at the specified exercise price, an option on a
stock index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the stock index upon which the option
is based is "in the money." This amount of cash is equal to the difference
between the closing level of the index and the exercise price of the option,
expressed in dollars times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike stock options, all settlements are in cash, and gain or loss depends on
price movements in the stock market generally rather than price movements in
the individual stocks.

The effectiveness of purchasing and writing puts and calls on stock index
options depends to a large extent on the ability of the Manager to predict the

12
<PAGE>

SMITH BARNEY
Managed Growth Fund

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)

price movement of the stock index selected. Therefore, whether the Fund real-
izes a gain or loss from the purchase of options on an index depends upon move-
ments in the level of stock prices in the stock market generally. Additionally,
because exercises of index options are settled in cash, a call writer such as
the Fund cannot determine the amount of the settlement obligations in advance
and it cannot provide in advance for, or cover, its potential settlement obli-
gations by acquiring and holding the underlying securities. When the Fund has
written the call, there is also a risk that the market may decline between the
time the Fund has a call exercised against it, at a price which is fixed as of
the closing level of the index on the date of exercise, and the time the Fund
is able to exercise the closing transaction with respect to the long call posi-
tion it holds.

Futures Contracts and Options on Futures Contracts. A futures contract pro-
vides for the future sale by one party and the purchase by the other party of a
certain amount of a specified security at a specified price, date, time and
place. The Fund may enter into futures contracts to sell securities when the
Manager believes that the value of the Fund's securities will decrease. An
option on a futures contract, as contrasted with the direct investment in a
futures contract, gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract at a specified exercise price
at any time prior to the expiration date of the option. A call option gives the
purchaser of the option the right to enter into a futures contract to buy and
obliges the writer to enter into a futures contract to sell the underlying
securities. A put option gives a purchaser the right to sell and obliges the
writer to buy the underlying contract. The Fund may enter into futures con-
tracts to purchase securities when the Manager anticipates purchasing the
underlying securities and believes that prices will rise before the purchases
will be made. When the Fund enters into a futures contract to purchase an
underlying security, an amount of cash, government securities or other high
grade debt securities, equal to the market value of the contract, will be
deposited in a segregated account with the Fund's custodian to collateralize
the position, thereby insuring that the use of the contract is unleveraged. The
Fund will not enter into futures contracts for speculation and will only enter
into futures contracts that are traded on a U.S. exchange or board of trade.

Lending Securities. The Fund is authorized to lend securities it holds to bro-
kers, dealers and other financial organizations. These loans, if and when made,
may not exceed 33 1/3% of the Fund's assets taken at value. The Fund's loans

13
<PAGE>

SMITH BARNEY
Managed Growth Fund

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)

of securities will be collateralized by cash, letters of credit or government
securities that are maintained at all times in a segregated account with the
Fund's custodian in an amount at least equal to 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 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 addi-
tional 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 Manager to be of good standing and will not be made
unless, in the judgment of the Manager, the consideration to be earned from
such loans would justify the risk.

Foreign Securities. The Fund may invest up to 10% of its net assets in securi-
ties of foreign issuers. Investing in foreign securities involves certain
risks, including those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future political or economic developments and the
possible imposition of restrictions or prohibitions on the repatriation of for-
eign currencies or other foreign governmental laws or restrictions, reduced
availability of public information concerning issuers, and, typically, the lack
of uniform accounting, auditing and financial reporting standards or other reg-
ulatory practices and requirements comparable to those applicable to domestic
companies. 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, with respect to certain foreign countries, the possi-
bility exists of expropriation, confiscatory taxation and limitations on the
use or removal of funds or other assets of the Fund, including the withholding
of dividends.

The Fund may invest in securities commonly known as Depository Receipts of
foreign issuers which have certain risks, including trading for a lower price,
having less liquidity than their underlying securities and risks relating to
the issuing bank or trust company. Depository Receipts can be sponsored by the
issuing bank or trust company or unsponsored. Holders of unsponsored Depository
Receipts have a greater risk that receipt of corporate information will be
untimely and incomplete and costs may be higher.

Restricted and Illiquid Securities. The Fund may invest in securities which
are not readily marketable as well as restricted securities not registered
under

14
<PAGE>

SMITH BARNEY
Managed Growth Fund

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)

the Securities Act of 1933, OTC options and securities that are otherwise con-
sidered illiquid as a result of market or other factors. Although it may invest
up to 15% of its assets in such securities, the Fund does not currently antici-
pate investing more than 5% on its assets in restricted or illiquid securities.
The Fund may invest in securities eligible for resale under Rule 144A of the
Securities Act ("Rule 144A securities"). The Board of Directors of the Fund may
determine that specific Rule 144A securities held by the Fund may be deemed
liquid. Nevertheless, due to changing market or other factors, Rule 144A secu-
rities may be subject to a greater possibility of becoming illiquid than regis-
tered securities.

PORTFOLIO TRANSACTIONS AND TURNOVER

VALUATION OF SHARES

15
<PAGE>

SMITH BARNEY
Managed Growth Fund

VALUATION OF SHARES (CONTINUED)

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 con-
sideration of other factors by or under the direction of the Board of Direc-
tors. 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 ar 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 Directors.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

16
<PAGE>

SMITH BARNEY
Managed Growth Fund

DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)

The per share dividends on Class B and Class C shares of the Fund may be lower
than the per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice fee applicable to Class A shares. Distributions of capital gains, if any,
will be in the same amount for Class A, Class B, Class C and Class Y shares.

TAXES

17
<PAGE>

SMITH BARNEY
Managed Growth Fund

DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)

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 redemp-
tions. Class Y shares are sold without an initial sales charge or a CDSC and
are available only to investors investing a minimum of $5,000,000. See "Pro-
spectus Summary--Alternative Purchase Arrangements" for a discussion of factors
to consider in selecting which Class of shares to purchase.

Initial Subscription Period

Smith Barney, the Fund's distributor, will solicit subscriptions for shares of
the Fund during the Subscription Period. Shares of the Fund subscribed for dur-
ing the Subscription Period for which Smith Barney accepts purchase orders,
will be issued and sold by the Fund on the fifth business day after the end of
the Subscription Period (the "Purchase Date"). On the Purchase Date, Smith Bar-
ney will notify the Fund of the aggregate number of shares for which it has
received and accepted subscriptions, and the Fund will issue shares for such
subscriptions and commence operations.

The Fund is offering its Class A shares to the public at a maximum purchase
price per share of [$ ], which equals the Class A share initial net asset
value per share of [$ ] plus the maximum sales charge set forth below under
"Continuous Offerings." The Fund is offering its Class B, Class C and Class Y
shares to the public at each Class' respective initial net asset value per
share of [$ ].

18
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

The Fund and Smith Barney may in their discretion determine to withdraw the
offering without notice for any reason before the end of the Subscription Peri-
od. The Fund also reserves the right to refuse any order in whole or in part.

Continuous Offerings

Smith Barney will suspend the offering of shares to the public immediately
after the expiration of the Subscription Period or within three weeks thereaf-
ter. During the three-week period, Smith Barney will commence a limited contin-
uous offering of shares to the public. When Smith Barney suspends the offering
of shares to the public (the "Closing Period"), it is expected to do so for 30
days, which period may be lengthened or shortened in the absolute discretion of
Smith Barney. During the Closing Period, the Fund will invest the proceeds from
its Subscription Period and its continuous offering, if any, and existing
shareholders may request redemptions as well as purchase additional shares.
Immediately after the expiration of the Closing Period, Smith Barney expects to
commence a continuous offering of shares of the Fund.

During the continuous offerings, 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 TSSG. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class C or Class Y shares. No
maintenance fee will be charged by the Fund in connection with a brokerage
account through which an investor purchases or holds shares.

19
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors of the Company and their
spouses and children. The Fund reserves the right to waive or change minimums,
to decline any order to purchase its shares and to suspend the offering of
shares from time to time. Shares purchased will be held in the shareholder's
account by the Company's transfer agent, TSSG. Share certificates are issued
only upon a shareholder's written request to TSSG.

SYSTEMATIC INVESTMENT PLAN

20
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

The sales charges applicable to purchases of Class A shares of the Fund are
as follows:

<TABLE>
<CAPTION>
SALES CHARGE
------------------------------
DEALERS'
% OF % OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000............ 5.00% 5.26% 4.50%
$ 25,000 - 49,999............ 4.00 4.17 3.60
50,000 - 99,999............ 3.50 3.63 3.15
100,000 - 249,999........... 3.00 3.09 2.70
250,000 - 499,999........... 2.00 2.04 1.80
500,000 - and over.......... * * *
- --------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months
of purchase. The CDSC on Class A shares is payable to 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.

INITIAL SALES CHARGE WAIVERS

21
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

and children of such persons (including the surviving spouse of a deceased
Director or employee, and retired Directors or employees), or sales to any
trust, pension, profit-sharing or other benefit plan for such persons provided
such sales are made upon the assurance of the purchaser that the purchase is
made for investment purposes and that the securities will not be resold except
through redemption or repurchase; (b) offers of Class A shares to any other
investment company in connection with the combination of such company with the
Fund by merger, acquisition of assets or otherwise; (c) purchases of Class A
shares by any client of a newly employed Smith Barney Financial Consultant (for
a period up to 90 days from the commencement of the Financial Consultant's
employment with Smith Barney), on the condition the purchase of Class A shares
is made with the proceeds of the redemption of shares of a mutual fund which
(i) was sponsored by the Financial Consultant's prior employer, (ii) was sold
to the client by the Financial Consultant and (iii) was subject to a sales
charge; (d) shareholders who have redeemed Class A shares in the Fund (or Class
A shares of another fund 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; and (e)
accounts managed by registered investment advisory subsidiaries of Travelers.
In order to obtain such discounts, the purchaser must provide sufficient infor-
mation at the time of purchase to permit verification that the purchase would
qualify for the elimination of the sales charge.

RIGHT OF ACCUMULATION

22
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

GROUP PURCHASES

Upon completion of certain automated systems, a reduced sales charge or pur-
chase 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 meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares 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 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 crite-
ria 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 discre-
tion of Smith Barney.

23
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

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
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 applica-
ble 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 TSSG to obtain a Letter of Intent application.

DEFERRED SALES CHARGE ALTERNATIVES

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

24
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

which the CDSC is imposed on Class B shares, the amount of the charge will
depend on the number of years since the shareholder made the purchase payment
from which the amount is being redeemed. Solely for purposes of determining the
number of years since a purchase payment, all purchase payments made during a
month will be aggregated and deemed to have been made on the last day of the
preceding Smith Barney statement month. The following table sets forth the
rates of the charge for redemptions of Class B shares by shareholders, except
in the case of purchases by Participating Plans, as described below. See "Pur-
chase of Shares--Smith Barney 401(k) Program:"

25
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

WAIVERS OF CDSC

26
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

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 redemp-
tion.

SMITH BARNEY 401(K) PROGRAM

The Fund offers to Participating Plans Class A, Class B, Class C and Class Y
shares as investment alternatives under the Smith Barney 401(k) Program.
Class A, Class B and Class C shares acquired through the Smith Barney 401(k)
Program are subject to the same service and/or distribution fees as, but dif-
ferent sales charge and CDSC schedules than, the Class A, Class B and Class C
shares acquired by other investors. Similar to those available to other invest-
ors, Class Y shares acquired through the Smith Barney 401(k) Program are not
subject to any initial sales charge, CDSC or service or distribution fee. 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.

27
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

28
<PAGE>

SMITH BARNEY
Managed Growth Fund

PURCHASE OF SHARES (CONTINUED)

No CDSC is imposed on redemptions of CDSC 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 gains dis-
tributions, plus (a) with respect to Class A and Class C shares, the current
net asset value of such shares purchased more than one year prior to redemption
and, with respect to Class B shares, the current net asset value of Class B
shares purchased more than eight years prior to the redemption, plus (b) with
respect to Class A and Class C shares, increases in the net asset value of the
shareholder's Class A or Class C shares above the purchase payments made during
the preceding year and, with respect to Class B shares, 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 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 applica-
bility of the CDSC to other Class B shareholders, which depends on the number
of years since those shareholders made the purchase payment from which the
amount is being redeemed.

29
<PAGE>

SMITH BARNEY
Managed Growth Fund

EXCHANGE PRIVILEGE

Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
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
and a sales charge differential may apply.

FUND NAME

Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Telecommunications Growth Fund
Smith Barney Special Equities Fund

30
<PAGE>

SMITH BARNEY
Managed Growth Fund

EXCHANGE PRIVILEGE (CONTINUED)

Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.

International Funds
Smith Barney Precious Metals and Minerals Fund Inc.
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

31
<PAGE>

SMITH BARNEY
Managed Growth Fund

EXCHANGE PRIVILEGE (CONTINUED)

Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
+++Smith Barney Muni Funds--California Money Market Portfolio
+++Smith Barney Muni Funds--New York Money Market Portfolio.
+++Smith Barney Municipal Money Market Fund, Inc.
- --------------------------------------------------------------------------------
* Available for exchange with Class A, Class C and Class Y shares of the Fund.
** Available for exchange with Class A, Class B and Class Y shares of the Fund.
In addition, shareholders who own Class C shares of the Fund through the
Smith Barney 401(k) Program may exchange those shares for Class C shares of
this Fund.
***Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund. In
addition, shareholders who own Class C shares of the Fund through the Smith
Barney 401(k) Program may exchange those shares for Class C shares of this
Fund.
+++Available for exchange with Class A and Class Y shares of the Fund.

32
<PAGE>

SMITH BARNEY
Managed Growth Fund

EXCHANGE PRIVILEGE (CONTINUED)

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.

33
<PAGE>

SMITH BARNEY
Managed Growth Fund

REDEMPTION OF SHARES

If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, 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 seventh day following receipt of
proper tender, except on days on which the NYSE is closed or as permitted under
the 1940 Act in extraordinary circumstances. The Fund anticipates that, in
accordance with regulatory changes, beginning on or about June 1, 1995, payment
will be made on the third business day after receipt of proper tender. General-
ly, 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.

Smith Barney Managed Growth FundClass A, B, C or Y (please specify)
c/o The Shareholders Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134

34
<PAGE>

SMITH BARNEY
Managed Growth Fund

REDEMPTION OF SHARES (CONTINUED)

AUTOMATIC CASH WITHDRAWAL PLAN

MINIMUM ACCOUNT SIZE

35
<PAGE>

SMITH BARNEY
Managed Growth Fund

PERFORMANCE

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

36
<PAGE>

SMITH BARNEY
Managed Growth Fund

MANAGEMENT OF THE FUND (CONTINUED)

the Fund and the Company, including agreements with its distributor, investment
adviser, custodian and transfer agent. The day-to-day operations of the Fund
are delegated to the Fund's investment manager. The Statement of Additional
Information contains background information regarding each Director of the Fund
and executive officer of the Company.

MANAGER

PORTFOLIO MANAGEMENT

Doug Johnson, a Director of the Mutual Fund Division of Smith Barney, will
manage the day to day operations of the Fund's investment portfolio. Prior to
joining Smith Barney, Mr. Johnson was a portfolio manager with Safeco Asset
Management, where he co-managed the Safeco Equity Fund since 1984.

37
<PAGE>

SMITH BARNEY
Managed Growth Fund

DISTRIBUTOR

38
<PAGE>

SMITH BARNEY
Managed Growth Fund

ADDITIONAL INFORMATION

PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103 serves as custodian of the Fund's investments.

TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Company's transfer agent.

39
<PAGE>

SMITH BARNEY
Managed Growth Fund

ADDITIONAL INFORMATION (CONTINUED)

household having multiple accounts with the identical address of record will
receive a single copy of each report. In addition, the Company also plans to
consolidate the mailing of its Prospectuses so that a shareholder having multi-
ple accounts (i.e., 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 their Smith
Barney Financial Consultant or TSSG.

-------------------

40
<PAGE>

- --------------------------------------------------------------------------------
SMITH BARNEY
------------

A Member of Travelers Group

Smith Barney
Managed
Growth Fund

388 Greenwich Street New York, New York 10013

FDXXXX XX

<PAGE>

Smith Barney
INVESTMENT FUNDS INC.

388 Greenwich Street
New York, New York 10013
(212) 723-9218

STATEMENT OF ADDITIONAL INFORMATION APRIL , 1995

This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectuses of Smith Barney Investment
Funds Inc. (the "Company"), dated March 1, 1995 and April , 1995, as amended
or supplemented from time to time, and should be read in conjunction with the
Company's Prospectuses. The Company issues a Prospectus for each of the
investment funds offered by the Company (the "Funds"). The Company's
Prospectuses may be obtained from a Smith Barney Financial Consultant, or by
writing or calling the Company at the address or telephone number listed
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 this Statement of Additional Information, except where shown below:
<TABLE>
<S> <C>
Management of the Company (see in the Prospectuses "Management of the
Company and the Fund")................................................
Investment Objectives and Management Policies..........................
Purchase of Shares.....................................................
Redemption of Shares...................................................
Distributor............................................................
Valuation of Shares....................................................
Exchange Privilege.....................................................
Performance Data (See in the Prospectus "Performance").................
Taxes (See in the Prospectus "Dividends, Distributions and Taxes").....
Additional Information.................................................
Financial Statements...................................................
Appendix............................................................... A-1
</TABLE>

MANAGEMENT OF THE COMPANY
The executive officers of the Company are employees of certain of the
organizations that provide services to the Company. These organizations are
the following:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Inc.
("Smith Barney")...................... Distributor
Smith Barney Mutual Funds Management
Inc.
("SBMFM")............................. Investment Adviser and Administrator
The Boston Company Advisors, Inc.
("Boston Advisors")................... Sub-Administrator
PNC Bank, National Association
("PNC Bank").......................... Custodian
The Shareholder Services Group, Inc.
("TSSG"),
a subsidiary of First Data
Corporation........................... Transfer Agent
</TABLE>
These organizations and the functions they perform for the Company are
discussed in the Prospectuses and in this Statement of Additional Information.
<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The names of the Directors and executive officers of the Company, together
with information as to their principal business occupations during the past
five years, are shown below. Each Director who is an "interested person" of
the Company, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), is indicated by an asterisk.

Paul R. Ades, Director (age 56). Partner in the law firm of Murov & Ades.
His address is 272 South Wellwood Avenue, Lindenhurst, New York 11757.

Herbert Barg, Director (age 71). Private investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.

Alger B. Chapman, Director (age 65). Chairman and Chief Executive Officer
of the Chicago Board of Options Exchange. His address is Chicago Board of
Options Exchange, 400 South LaSalle Street, Chicago, Illinois 60605.

Dwight B. Crane, Director (age 59). Professor, Graduate School of Business
Administration, Harvard University; a Director of Peer Review Analysis, Inc.
His address is Graduate School of Business Administration, Harvard University,
Boston, Massachusetts 02163.

Frank G. Hubbard, Director (age 59). Corporate Vice President, Materials of
H|$$|Aduls America, Inc. His address is 80 Centennial Avenue P.O. Box 456,
Piscataway, New Jersey 08855-0456.

Allan R. Johnson, Director (age 80). Retired; Former Chairman, Retail
Division of BATUS, Inc., and Chairman and Chief Executive Officer of Saks
Fifth Avenue, Inc. His address is 2 Sutton Place South, New York, New York
10022.

*Heath B. McLendon, Chairman of the Board and Investment Officer (age 63).
Managing Director of Smith Barney and Chairman of Smith Barney Strategy
Advisers Inc. ("SBSA"); 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. His address is 388 Greenwich Street, New
York, New York 10013.

Ken Miller, Director (age 54). President of Young Stuff Apparel Group, Inc.
His address is 1407 Broadway, 6th Floor, New York, New York 10018.

John F. White, Director (age 79). President Emeritus of The Cooper Union
for the Advancement of Science and Art; President of Emily D. and Joseph S.
Kornfeld Foundation. His address is Crows Nest Road, Tuxedo Park, New York
10987.

Jessica M. Bibliowicz, President (age 35). Executive Vice President of
Smith Barney; prior to 1994, Director of Sales and Marketing for Prudential
Mutual Funds; prior to , First Vice President, Asset Management Division of
Shearson Lehman Brothers Inc. Her address is 388 Greenwich Street, New York,
New York 10013.

James E. Conroy, First Vice President and Investment Officer. Managing
Director of SBMFM; prior to July 1993, Managing Director of Shearson Lehman
Advisors. His address is 388 Greenwich Street, New York, New York 10013.

Kenneth A. Egan, First Vice President. Managing Director of SBMFM; prior to
July 1993, Managing Director of Shearson Lehman Advisors. His address is 388
Greenwich Street, New York, New York 10013.

2
<PAGE>

Harvey Eisen, Vice President. Vice President of Smith Barney Advisers Inc.
Senior Vice President of Investment Operations of The Travelers Inc. His
address is 388 Greenwich Street, New York, New York 10013.

Douglas H. Johnson, Vice President. Director of Mutual Fund Division of
Smith Barney. Prior to January, 1995, Vice President of SafeCo Asset Management
Company. His address is 500 108th Avenue, North E., Bellevue, Washington,
98004.

George E. Mueller, Jr., Investment Officer. Managing Director of SBMFM;
prior to July 1993, Managing Director of Shearson Lehman Advisors. His address
is 388 Greenwich Street, New York, New York 10013.

George V. Novello, Investment Officer. Managing Director of SBMFM; prior to
July 1993, Managing Director of Shearson Lehman Advisors. Prior to September
1990, Mr. Novello was a Managing Director at McKinley-Allsopp where he served
as Head of Research. His address is 388 Greenwich Street, New York, New York
10013.

Jeffrey Russell, Investment Officer. Managing Director, Senior International
Equity Portfolio Manager, SBMFM; prior to 1990 Vice President of Drexel Burham,
Lambert. His address is 388 Greenwich Street, New York, New York 10013.

Lewis E. Daidone, Senior Vice President and Treasurer. Managing Director of
Smith Barney and Director and Senior Vice President of SBMFM. His address is
388 Greenwich Street, New York, New York 10013.

Christina T. Sydor, Secretary. Managing Director of Smith Barney and
Secretary of SBMFM. Her address is 388 Greenwich Street, New York, New York,
10013.

Each Director also serves as a director, trustee and/or general partner of
certain other mutual funds for which Smith Barney serves as distributor. As of
January 31, 1995, the Directors and officers of the Company, as a group, owned
less than 1.00% of the outstanding common stock of the Company.

No officer, director or employee of Smith Barney or any parent or subsidiary
receives any compensation from the Company for serving as an officer or
Director of the Company. The Company pays each Director who is not an officer,
director or employee of Smith Barney or any of its affiliates a fee of $16,000
per annum plus $2,500 per meeting attended and reimburses travel and out-of-
pocket expenses. For the fiscal year ended December 31, 1994, the Directors of
the Company were paid the following compensation:

<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
AGGREGATE COMPENSATION FROM THE SMITH BARNEY
DIRECTOR FROM THE COMPANY MUTUAL FUNDS
-------- ---------------------- ----------------------
<S> <C> <C>
Paul R. Ades.................. $ 9,500
Herbert Barg.................. 9,500
Alger B. Chapman.............. 29,000
Dwight B. Crane............... 32,000
Frank G. Hubbard.............. 32,000
Allan G. Johnson.............. 32,000
Ken Miller.................... 9,500
John F. White................. 32,000
</TABLE>

3
<PAGE>

INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM

SBMFM serves as investment adviser to Investment Grade Bond Fund, Government
Securities Fund and Special Equities Fund pursuant to a transfer of the
investment advisory agreements effective November 7, 1994 from its affiliate,
Mutual Management Corp. Mutual Management Corp. and SBMFM are both wholly
owned subsidiaries of Smith Barney Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of The Travelers Inc. ("Travelers"). The advisory
agreements with these Funds (the "Advisory Agreements") were most recently
approved by the Board of Directors, including a majority of the Directors who
are not "interested persons" of the Company or the investment advisers (the
"Independent Directors"), on April 7, 1993 and by shareholders of the
respective Funds on June 9, 1993. Each of the investment advisers bears all
expenses in connection with the performance of its services. The services
provided by the investment advisers under the Advisory Agreements are
described in the Prospectuses under "Management of the Company and the Fund."
SBMFM provides investment advisory and management services to investment
companies affiliated with Smith Barney.

As compensation for investment advisory services rendered to Investment
Grade Bond Fund, Special Equities Fund, Managed Growth Fund and Growth
Opportunity Fund, each Fund pays SBMFM a fee computed daily and paid monthly
at the annual rates of 0.45%, 0.55%, 0.85% and 1.00%, respectively, of the
value of their average daily net assets.

As compensation for investment advisory services rendered to Government
Securities Fund, the Fund pays SBMFM a fee computed daily and paid monthly at
the following annual rates of average daily net assets: 0.35% up to $2
billion; 0.30% on the next $2 billion; 0.25% on the next $2 billion; 0.20% on
the next $2 billion; and 0.15% on net assets thereafter.

For the fiscal years ended December 31, 1992, 1993 and 1994, the Funds
accrued approximate advisory fees as follows:

<TABLE>
<CAPTION>
FUND 1992 1993 1994
<S> <C> <C> <C>
Investment Grade Bond Fund............... $1,879,000 $2,157,373 $1,926,359
Government Securities Fund............... 3,926,000 3,357,123 2,578,209
Special Equities Fund.................... 385,000 548,764 1,052,635
</TABLE>

SBMFM also serves as administrator to Investment Grade Bond Fund,
Government Securities Fund and Special Equities Fund pursuant to a written
agreement dated May 5, 1994 (the "Administration Agreement") which was first
approved by the Board of Directors, including a majority of the Independent
Directors, on May 5, 1994. The services provided by SBMFM under the
Administration Agreement are described in the Prospectuses under "Management
of the Company and the Fund." SBMFM pays the salary of any officer and
employee who is employed by both it and the Fund and bears all expenses in
connection with the performance of its services. Prior to May 5, 1994, Boston
Advisors served as the Company's sub-investment adviser and/or administrator.

SBMFM serves as investment adviser and administrator to the Managed Growth
Fund and Growth Opportunity Fund pursuant to an Investment Advisory Agreement
dated April , 1995 and April , 1995, respectively.

4
<PAGE>

As compensation for administrative services rendered to Investment Grade
Bond Fund, Government Securities Fund and Special Equities Fund, SBMFM
receives a fee computed daily and paid monthly at the annual rate of 0.20% of
the value of its average daily net assets. For the fiscal years ended December
31, 1992, 1993 and 1994, these Funds paid administrative fees to Boston
Advisors or SBMFM as follows:

<TABLE>
<CAPTION>
BOSTON ADVISORS SBMFM
--------------- ------------------
FOR THE FISCAL
PERIOD FROM FOR THE FISCAL
1/1/94 PERIOD FROM 5/5/94
FUND 1992 1993 THROUGH 5/4/94 THROUGH 12/31/94
<S> <C> <C> <C> <C>
Investment Grade Bond
Fund................... $ 835,000 $ 958,700
Government Securities
Fund................... 2,243,000 1,918,367
Special Equities Fund... 140,000 199,551
</TABLE>

SUB-ADMINISTRATOR -- BOSTON ADVISORS

Boston Advisors serves as sub-administrator to Investment Grade Bond Fund,
Government Securities Fund and Special Equities Fund pursuant to a written
agreement (the "Sub-Administration Agreement") dated May 5, 1994, which was
first approved by the Company's Board of Directors, including a majority of
the Independent Directors of the Company or Boston Advisors on May 5, 1994.
Under the Sub-Administration Agreement, Boston Advisors is paid a portion of
the administration fee paid by these Funds to SBMFM at a rate agreed upon from
time to time between Boston Advisors and SBMFM. Boston Advisors is a wholly
owned subsidiary of The Boston Company, Inc. ("TBC"), a financial services
holding company, which is in turn an indirect wholly owned subsidiary of
Mellon Bank Corporation ("Mellon").

Certain of the services provided to the Company by Boston Advisors pursuant
to the Sub-Administration Agreement are described in these Funds Prospectuses
under "Management of the Company and the Fund." In addition to those services,
Boston Advisors pays the salaries of all officers and employees who are
employed by both it and the Company, maintains office facilities for the
Company, furnishes the Company with statistical and research data, clerical
help and accounting, data processing, bookkeeping, internal auditing and legal
services and certain other services required by the Company, prepares reports
to the Company's shareholders and prepares tax returns, reports to and filings
with the Securities and Exchange Commission (the "SEC") and state Blue Sky
authorities. Boston Advisors bears all expenses in connection with the
performance of its services.

The Company bears expenses incurred in its operation, including taxes,
interest, brokerage fees and commissions, if any; fees of Directors who are
not officers, directors, shareholders or employees of Smith Barney, SBMFM or
Boston Advisors; SEC fees and state Blue Sky qualification fees; charges of
custodians; transfer and dividend disbursing agent's fees; certain insurance
premiums; outside auditing and legal expenses; costs of maintenance of
corporate existence; investor services (including allocated telephone and
personnel expenses); and costs of preparation and printing of prospectuses for
regulatory purposes and for distribution to existing shareholders; cost of
shareholders' reports and shareholder meetings and meetings of the officers or
Board of Directors of the Company.

SBMFM and Boston Advisors have agreed that if in any fiscal year the
aggregate expenses of a Fund (including fees paid pursuant to the Advisory,
Administration and Sub-Administration Agreements, but

5
<PAGE>

excluding interest, taxes, brokerage fees paid pursuant to the Fund's services
and distribution plan, and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Fund, SBMFM and Boston
Advisors will, to the extent required by law, reduce their fees by the amount
of such excess expense, such amount to be allocated between them in the
proportion that their respective fees bear to the aggregate of such fees paid
by the Fund. Such a fee reduction, if any, will be estimated and reconciled on
a monthly basis. The most restrictive state limitation applicable to the
Company would require SBMFM and Boston Advisors to reduce their fees in any
year that such excess expenses exceed 2.5% of the first $30 million of average
net assets, 2% of the next $70 million of average net assets and 1.5% of the
remaining average net assets. No fee reduction was required for the 1994, 1993
and 1992 fiscal years.

COUNSEL AND AUDITORS

Willkie Farr & Gallagher serves as counsel to the Company. The Directors who
are not "interested persons" of the Company have selected Stroock & Stroock &
Lavan as their legal counsel.

KPMG Peat Marwick, LLP, independent accountants, 345 Park Avenue, New York,
New York 10154, serve as auditors of the Fund and will render an opinion on
the Fund's financial statements annually. Prior to October 19, 1994, Coopers &
Lybrand L.L.P., independent auditors, served as auditors of the Fund and
rendered an opinion on the Fund's financial statements for the fiscal year
ended December 31, 1994.

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES

The Prospectuses discuss the investment objectives of each Fund and the
policies they employ to achieve such objectives. The following discussion
supplements the description of the Funds' investment objectives and management
policies contained in the Prospectuses.

INVESTMENT GRADE BOND FUND

The investment objective of Investment Grade Bond Fund is to provide as high a
level of current income as is consistent with prudent investment management
and preservation of capital. The Fund seeks to achieve its objective by
investing in the following securities: corporate bonds which are rated Aaa,
Aa, A, or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A, or
BBB by Standard & Poor's Corporation ("S&P") (See Appendix for a description
of these ratings); U.S. government securities (See below); commercial paper
issued by domestic corporations rated Prime-1 or Prime-2 by Moody's or A-1+,
A-1 or A-2 by S&P or, if not rated by Moody's or S&P, issued by a corporation
having an outstanding debt issue rated Aa or better by Moody's or AA or better
by S&P; negotiable bank certificates of deposit or bankers' acceptances issued
by domestic banks (but not their foreign branches) having together with
branches or subsidiaries, total assets in excess of $1 billion; high-yielding
common stocks (which may be purchased directly or acquired through the
exercise of warrants or the conversion of fixed-income securities); and
warrants.

The ratings of Moody's and S&P generally represent the opinions of those
organizations as to the quality of the securities that they rate. Such
ratings, however, are relative and subjective, are not absolute standards of
quality and do not evaluate the market risk of the securities. Although SBMFM
uses these ratings as a criterion for the selection of securities for the
Fund, SBMFM also relies on its independent analysis to evaluate potential
investments for the Fund. The Fund's achievement of its investment objective
may be more

6
<PAGE>

dependent on SBMFM's credit analysis of low-rated and unrated securities than
would be the case for a portfolio of higher-rated securities.

Subsequent to its purchase by the Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase
by the Fund. In addition, it is possible that Moody's and S&P might not timely
change their ratings of a particular issue to reflect subsequent events. None
of these events will require the sale of the securities by the Fund, although
SBMFM will consider these events in determining whether the Fund should
continue to hold the securities. To the extent that the ratings given by
Moody's or S&P for securities may change as a result of changes in the rating
systems or due to a corporate reorganization of Moody's and/or S&P, the Fund
will attempt to use comparable ratings as standards for its investments in
accordance with the investment objective and policies of the Fund.

As a condition of its continuing registration in a state, Investment Grade
Bond Fund has undertaken that its investments in warrants, valued at the lower
of cost or market, will not exceed 5% of the value of its net assets. Included
within that amount, but not to exceed 2% of the Fund's net assets, may be
warrants which are not listed on either the New York Stock Exchange, Inc. (the
"NYSE") or the American Stock Exchange. Warrants acquired by the Fund in units
or attached to securities will be deemed to be without value for purposes of
this restriction. These limits are not fundamental policies of the Fund and
may be changed by the Board of Directors without shareholder approval.

Investment Grade Bond Fund may enter into repurchase agreements, reverse
repurchase agreements and firm commitment agreements and may lend its
portfolio securities, in each case in accordance with the description of those
techniques (and subject to the same risks) set forth below. The Fund may
purchase American Depositary Receipts ("ADRs"), which are dollar-denominated
receipts issued generally by domestic banks and representing the deposit with
the bank of a security of a foreign issuer. ADRs are publicly traded on
exchanges or over-the-counter in the United States.

Investment Grade Bond Fund may also sell securities "short against the
box." While a short sale is the sale of a security the Fund does not own, it
is "against the box" if at all times when the short position is open, the Fund
owns an equal amount of the securities or securities convertible into, or
exchangeable without further consideration for, securities of the same issue
as the securities sold short. Short sales against the box are used to defer
recognition of capital gains or losses or to extend the holding period of
securities for certain Federal income tax purposes.

It is the Fund's policy that at least 65% of its assets will be invested in
bonds, except during times when SBMFM believes that adoption of a temporary
defensive position by investing more heavily in cash or money market
instruments (such as short-term U.S. government securities, commercial paper,
and negotiable bank certificates of deposit) is desirable due to prevailing
market or economic conditions. This policy was adopted in accordance with SEC
guidelines which require that any investment company whose name implies that
it invests primarily in a particular type of security have a policy of
investing at least 65% of its total assets in that type of security under
normal market conditions. This policy may be changed without shareholder
approval in the event the SEC guidelines are modified.

Repurchase Agreements. The Fund may purchase securities and concurrently
enter into repurchase agreements with certain member 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.
Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell

7
<PAGE>

the security to the seller at an agreed-upon price and date. Under each
repurchase agreement, the selling institution will be required to maintain the
value of the securities subject to the repurchase agreement at not less than
their repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party, including possible
delays or restrictions upon a Fund's ability to dispose of the underlying
securities, 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 part of the income from the repurchase
agreement. SBMFM or Boston Advisors, acting under the supervision of the
Company's Board of Directors, review 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. The Fund
will not enter into repurchase agreements that would cause more than 10% of
its total assets to be invested in "illiquid" securities.

Reverse Repurchase Agreements. A reverse repurchase agreement involves the
sale of a money market instrument held by the Fund coupled with an agreement
by the Fund to repurchase the instrument at a stated price, date and interest
payment. The Fund will use the proceeds of a reverse repurchase agreement to
purchase other money market instruments which either mature at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement or which are held under an agreement to resell maturing as of that
time.

The Fund will enter into a reverse repurchase agreement only when the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. Under the
1940 Act, reverse repurchase agreements may be considered to be borrowings by
the seller. The Fund may not enter into a reverse repurchase agreement if, as
a result, its current obligations under such agreements would exceed one-third
of the current market value of the Fund's total assets (less all of its
liabilities other than obligations under such agreements).

The Fund may enter into reverse repurchase agreements with banks or broker-
dealers. Entry into such agreements with broker-dealers requires the creation
and maintenance of a segregated account with the Company's custodian
consisting of U.S. government securities, cash or cash equivalents.

Firm Commitment Agreements. The Fund may enter into firm commitment
agreements (when-issued purchases) for the purchase of securities at an
agreed-upon price on a specified future date. Such agreements might be entered
into, for example, when a decline in the yield of securities of a given issuer
is anticipated and a more advantageous yield may be obtained by committing
currently to purchase securities to be issued later.

The Fund will not enter into such agreements for the purpose of investment
leverage. Liability for the purchase price, and all the rights and risks of
ownership of the securities, accrue to the Fund at the time it becomes
obligated to purchase such securities, although delivery and payment occur at
a later date. Accordingly, if the market price of the security should decline,
the effect of the agreement would be to obligate the Fund to purchase the
security at a price above the current market price on the date of delivery and
payment. During the time the Fund is obligated to purchase such securities, it
will maintain in a segregated account with the Company's custodian, U.S.
government securities, cash or cash equivalents of an aggregate current value
sufficient to make payment for the securities.

Lending of Portfolio Securities. The Fund has the ability to lend
securities from its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed 33 1/3% of the

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Fund's total assets taken at value. The Fund will not lend portfolio
securities to Smith Barney or its affiliates 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 which are maintained at all times in an amount at least
equal to the current market value of the loaned securities. From time to time,
the Fund may return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third
party, which is unaffiliated with the Fund or with Smith Barney, and which is
acting as a "finder."

In lending its securities, the Fund can increase its income by continuing
to receive interest on the loaned securities as well as by either investing
the cash collateral in short-term instruments or obtaining yield in the form
of interest paid by the borrower when U.S. government securities are used as
collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever the Fund's 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 an amount equal to 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 Board of
Directors 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 possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to firms deemed by SBMFM to
be of good standing and will not be made unless, in the judgment of SBMFM, the
consideration to be earned from such loans would justify the risk.

GOVERNMENT SECURITIES FUND

The investment objective of Government Securities Fund is high current return.
It seeks to achieve its objective by investing in U.S. government securities
and by writing covered call options and secured put options and by purchasing
put options on U.S. government securities. The Fund also may purchase and sell
interest rate futures contracts, and purchase and sell put and call options on
futures contracts, as a means of hedging against changes in interest rates.

U.S. Government Securities. Direct obligations of the United States
Treasury include a variety of securities, which differ in their interest
rates, maturities and dates of issuance. Treasury Bills have maturities of one
year or less; 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.

In addition to direct obligations of the United States Treasury, securities
issued or guaranteed by the United States government, its agencies or
instrumentalities 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 ("GNMA"), General Services Administration, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association ("FNMA"), Federal Maritime Administration, Tennessee Valley
Authority, Resolution Trust Corporation, District of Columbia Armory Board,
Student Loan Marketing Association and various

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<PAGE>

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, the Fund will invest in obligations of an
instrumentality to which the United States government is not obligated by law
to provide support only if SBMFM determines that the credit risk with respect
to the instrumentality does not make its securities unsuitable for investment
by the Fund.

It is the Fund's policy that at least 65% of its total assets will be
invested in U.S. government securities, including options and futures
contracts thereon, except during times when SBMFM believes that adoption of a
temporary defensive position by investing more heavily in cash or money market
instruments is desirable due to prevailing market or economic conditions. This
policy was adopted in accordance with SEC guidelines which require that any
investment company whose name implies that it invests primarily in a
particular type of security have a policy of investing at least 65% of its
total assets in that type of security under normal market conditions. This
policy may be changed without shareholder approval in the event that the SEC's
guidelines are modified.

The Fund's current distribution return consists generally of interest
income from U.S. government securities, premiums from expired put and call
options written by the Fund, net gains from closing purchase and sale
transactions, and net gains from sales of portfolio securities pursuant to
options or otherwise.

Exchange Rate-Related U.S. Government Securities. The Fund may invest up to
5% of its net assets in U.S. government securities for which the principal
repayment at maturity, while paid in U.S. dollars, is determined by reference
to the exchange rate between the U.S. dollar and the currency of one or more
foreign countries ("Exchange Rate-Related Securities"). The interest payable
on these securities is denominated in U.S. dollars, is not subject to foreign
currency risk and, in most cases, is paid at rates higher than most other U.S.
government securities in recognition of the foreign currency risk component of
Exchange Rate-Related Securities.

Exchange Rate-Related Securities are issued in a variety of forms,
depending on the structure of the principal repayment formula. The principal
repayment formula may be structured so that the securityholder will benefit if
a particular foreign currency to which the security is linked is stable or
appreciates against the U.S. dollar. In the alternative, the principal
repayment formula may be structured so that the securityholder benefits if the
U.S. dollar is stable or appreciates against the linked foreign currency.
Finally, the principal repayment formula can be a function of more than one
currency and, therefore, be designed in either of the aforementioned forms or
a combination of those forms.

Investments in Exchange Rate-Related Securities entail special risks. There
is the possibility of significant changes in rates of exchange between the
U.S. dollar and any foreign currency to which an Exchange Rate-Related
Security is linked. If currency exchange rates do not move in the direction or
to the extent anticipated at the time of purchase of the security, the amount
of principal repaid at maturity might be significantly below the par value of
the security, which might not be offset by the interest earned by the Fund
over the term of the security. The rate of exchange between the U.S. dollar
and other currencies is determined by the forces of supply and demand in the
foreign exchange markets. These forces are affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. The imposition or modification of
foreign exchange controls by the United States or foreign governments or
intervention by central banks also could affect exchange rates. Finally, there
is no assurance

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<PAGE>

that sufficient trading interest to create a liquid secondary market will
exist for particular Exchange Rate-Related Securities due to conditions in the
debt and foreign currency markets. Illiquidity in the forward foreign exchange
market and the high volatility of the foreign exchange market may from time to
time combine to make it difficult to sell an Exchange Rate-Related Security
prior to maturity without incurring a significant price loss.

Options Activities. Government Securities Fund may write (i.e., sell) call
options on U.S. government securities ("calls"). The Fund writes only
"covered" call options, which means that so long as the Fund is obligated as
the writer of a call option, it will own the underlying securities subject to
the option, or, in the case of options on certain U.S. government securities
as described further below, it will maintain in a segregated account with the
Company's custodian, cash or cash equivalents or U.S. government securities
with a value sufficient to meet its obligations under the call.

When the Fund writes a call, it receives a premium and gives the purchaser
the right to buy the underlying U.S. government security at any time during
the call period (usually between three and nine months, but not more than
fifteen months) at a fixed exercise price regardless of market price changes
during the call period. If the call is exercised, the Fund forgoes any gain
from an increase in the market price of the underlying security over the
exercise price.

The Fund may purchase a call on securities only to effect a "closing
purchase transaction," which is the purchase of a call covering the same
underlying security and having the same exercise price and expiration date as
the call previously written by the Fund on which it wishes to terminate its
obligation. Government Securities Fund also may purchase call options on
futures contracts, as described below. If the Fund is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
security until the call previously written by the Fund expires (or until the
call is exercised and the Fund delivers the underlying security).

The Fund will realize a gain (or loss) on a closing purchase transaction
with respect to a call or put previously written by the Fund if the premium,
plus commission costs, paid to purchase the call or put is less (or greater)
than the premium, less commission costs, received on the sale of the call or
put. A gain also will be realized if a call or put which the Fund has written
lapses unexercised, because the Fund would retain the premium. See "Taxes."

Government Securities Fund also may write and purchase put options ("puts")
on U.S. government securities. When the Fund writes a put, it receives a
premium and gives the purchaser of the put the right to sell the underlying
U.S. government security to the Fund at the exercise price at any time during
the option period. When the Fund purchases a put, it pays a premium in return
for the right to sell the underlying U.S. government security at the exercise
price at any time during the option period. If any put is not exercised or
sold, it will become worthless on its expiration date. The Fund will not
purchase puts if more than 10% of its net assets would be invested in premiums
on puts.

The Fund may write puts only if they are "secured." A put is "secured" if
the Fund maintains cash, cash equivalents or U.S. government securities with a
value equal to the exercise price in a segregated account or holds a put on
the same underlying security at an equal or greater exercise price. The
aggregate value of the obligations underlying puts written by a Fund will not
exceed 50% of its net assets. The Fund also may write "straddles," which are
combinations of secured puts and covered calls on the same underlying U.S.
government security.

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<PAGE>

There can be no assurance that a liquid secondary market will exist at a
given time for any particular option. In this regard, trading in options on
U.S. government securities is relatively new, so that it is impossible to
predict to what extent liquid markets will develop or continue. The Fund has
undertaken with a state securities commission that it will limit losses from
all options transactions to 5% of its average net assets per year, or cease
options transactions until in compliance with the 5% limitation, but there can
be no absolute assurance that these limits can be complied with.

The Company's custodian, or a securities depository acting for it, will act
as escrow agent as to the securities on which the Fund has written puts or
calls, or as to other securities acceptable for such escrow, so that no margin
deposit will be required of the Fund. Until the underlying securities are
released from escrow, they cannot be sold by the Fund.

SPECIAL CONSIDERATIONS RELATING TO OPTIONS ON CERTAIN U.S. GOVERNMENT
SECURITIES

Treasury Bonds and Notes. Because trading interest in U.S. Treasury bonds and
notes tends to center on the most recently auctioned issues, the exchanges
will not continue indefinitely to introduce new expirations to replace
expiring options on particular issues. The expirations introduced at the
commencement of options trading on a particular issue will be allowed to run,
with the possible addition of a limited number of new expirations as the
original expirations expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and a
full range of expirations will not ordinarily be available for every issue on
which options are traded.

Treasury Bills. Because the deliverable U.S. Treasury bill changes from
week to week, writers of U.S. Treasury bill calls cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Fund holds a long position in U.S.
Treasury bills with a principal amount corresponding to the contract size of
the option, it may be hedged from a risk standpoint. In addition, the Fund
will maintain U.S. Treasury bills maturing no later than those which would be
deliverable in the event of the exercise of a call option it has written in a
segregated account with its custodian so that it will be treated as being
covered for margin purposes.

GNMA Certificates. GNMA Certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans. These loans are made
by private lenders and are either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. Once approved by
GNMA, the timely payment of interest and principal on each mortgage in a
"pool" of such mortgages is guaranteed by the full faith and credit of the
U.S. government. Unlike most debt securities, GNMA Certificates provide for
repayment of principal over the term of the loan rather than in a lump sum at
maturity. GNMA Certificates are called "pass-through" securities because both
interest and principal payments on the mortgages are passed through to the
holder.

Since the remaining principal balance of GNMA Certificates declines each
month as mortgage payments are made, the Fund as a writer of a GNMA call may
find that the GNMA Certificates it holds no longer have a sufficient remaining
principal balance to satisfy its delivery obligation in the event of exercise
of the call option it has written. Should this occur, additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA
Certificates will have to be purchased in the cash market to meet delivery
obligations.

The Fund will either replace GNMA Certificates representing cover for call
options it has written or will maintain in a segregated account with its
custodian cash, cash equivalents or U.S. government securities

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<PAGE>

having an aggregate value equal to the market value of the GNMA Certificates
underlying the call options it has written.

Other Risks. In the event of a shortage of the underlying securities
deliverable on exercise of an option, the Options Clearing Corporation has the
authority to permit other, generally comparable securities to be delivered in
fulfillment of option exercise obligations. If the Options Clearing
Corporation exercises its discretionary authority to allow such other
securities to be delivered it may also adjust the exercise prices of the
affected options by setting different prices at which otherwise ineligible
securities may be delivered. As an alternative to permitting such substitute
deliveries, the Options Clearing Corporation may impose special exercise
settlement procedures.

The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the options markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the options markets.

Options are traded on exchanges on only a limited number of U.S. government
securities, and exchange regulations limit the maximum number of options which
may be written or purchased by a single investor or a group of investors
acting in concert. The Company and other clients advised by affiliates of
Smith Barney may be deemed to constitute a group for these purposes. In light
of these limits, the Board of Directors may determine at any time to restrict
or terminate the public offering of the Fund's shares (including through
exchanges from the other Funds).

Exchange markets in options on U.S. government securities are a relatively
new and untested concept. It is impossible to predict the amount of trading
interest that may exist in such options, and there can be no assurance that
viable exchange markets will develop or continue.

Interest Rate Futures Transactions. The Fund may purchase and sell interest
rate futures contracts ("futures contracts") as a hedge against changes in
interest rates. A futures contract is an agreement between two parties to buy
and sell a security for a set price on a future date. Futures contracts are
traded on designated "contracts markets" which, through their clearing
corporations, guarantee performance of the contracts. Currently there are
futures contracts based on securities such as long-term U.S. Treasury bonds,
U.S. Treasury notes, GNMA Certificates and three-month U.S. Treasury bills.

Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if the Fund holds long-term U.S. government securities
and SBMFM anticipates a rise in long-term interest rates, it could, in lieu of
disposing of its portfolio securities, enter into futures contracts for the
sale of similar long-term securities. If rates increased and the value of the
Fund's securities declined, the value of the Fund's futures contracts would
increase, thereby protecting the Fund by preventing net asset value from
declining as much as it otherwise would have. Similarly, entering into a
futures contract for the purchase of securities has an effect similar to the
actual purchase of the underlying securities, but permits the continued
holding of securities other than the underlying securities. For example, if
SBMFM expects long-term interest rates to decline, the Fund might enter into
futures contracts for the purchase of long-term securities, so that it could
gain rapid market exposure that may offset anticipated increases in the cost
of securities it intends to

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<PAGE>

purchase, while continuing to hold higher-yield short-term securities or
waiting for the long-term market to stabilize. See "Taxes."

The Appendix contains additional information on the characteristics and
risks of interest rate futures contracts.

Options on Futures Contracts. Government Securities Fund also may purchase
and sell listed put and call options on futures contracts. An option on a
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 during the option period. When an option on a
futures contract is exercised, delivery of the futures position is accompanied
by cash representing the difference between the current market price of the
futures contract and the exercise price of the option. The Fund may purchase
put options on interest rate futures contracts in lieu of, and for the same
purpose as, sale of a futures contract. It also may purchase such put options
in order to hedge a long position in the underlying futures contract in the
same manner as it purchases "protective puts" on securities. See "Options
Activities."

The purchase of call options on interest rate futures contracts is intended
to serve the same purpose as the actual purchase of the futures contract, and
the Fund will set aside cash and cash equivalents sufficient to purchase the
amount of portfolio securities represented by the underlying futures
contracts. The Fund generally would purchase call options on interest rate
futures contracts in anticipation of a market advance when it is not fully
invested.

The Fund would write a call option on a futures contract in order to hedge
against a decline in the prices of the debt securities underlying the futures
contracts. If the price of the futures contract at expiration is below the
exercise price, the Fund would retain the option premium, which would offset,
in part, any decline in the value of its portfolio securities.

The writing of a put option on a futures contract is similar to the
purchase of the futures contract, except that, if the market price declines,
the Fund would pay more than the market price for the underlying securities.
The net cost to the Fund will be reduced, however, by the premium on the sale
of the put, less any transaction costs. See "Taxes."

Limitations on Transactions in Futures and Options on Futures. Government
Securities Fund will not engage in transactions in futures contracts or
related options for speculation but only as a hedge against changes in the
market values of debt securities held, or intended to be purchased by, the
Fund, and where the transactions are appropriate to reduce of the Fund's
risks. The Fund may not purchase futures contracts or related options if,
immediately thereafter, more than 30% of the Fund's total assets would be so
invested. In purchasing and selling futures contracts and related options, the
Fund will comply with rules and interpretations of the Commodity Futures
Trading Commissions ("CFTC"), under which the Fund is excluded from regulation
as a "commodity pool." In order to prevent leverage in connection with the
purchase of futures contracts by the Fund, an amount of cash, cash equivalents
and/or U.S. government securities equal to the market value of futures
contracts purchased will be maintained in a segregated account with the
custodian (or broker).

The Fund's futures transactions will be entered into for traditional
hedging purposes -- that is, futures contracts will be sold (or related put
options purchased) to protect against a decline in the price of securities

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<PAGE>

that the Fund owns, or futures contracts (or related call options) will be
purchased to protect the Fund against an increase in the price of securities
it is committed to purchase. See Appendix, "Supplementary Description of
Interest Rate Futures Contracts and Related Options."

Leverage Through Borrowing. Government Securities Fund may borrow up to 25%
of the value of its net assets on an unsecured basis from banks to increase
its holdings of portfolio securities or to acquire securities to be placed in
a segregated account with its custodian for various purposes (e.g., to secure
puts written by the Fund). The Fund is required to maintain continuous asset
coverage of 300% with respect to such borrowings, and to sell (within three
days) sufficient portfolio holdings to restore such coverage, if it should
decline to less than 300% due to market fluctuations or otherwise, even if
disadvantageous from an investment standpoint. Leveraging will exaggerate the
effect of any increase or decrease in the value of portfolio securities on the
Fund's net asset value, and money borrowed will be subject to interest costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the interest and option premiums
received from the securities purchased with borrowed funds.

SPECIAL EQUITIES FUND

The investment objective of Special Equities Fund is long-term capital
appreciation. It seeks to achieve this objective by investing in common
stocks, or securities convertible into or exchangeable for common stocks (such
as convertible preferred stocks, convertible debentures or warrants), which
SBMFM believes to have superior appreciation potential.

The Fund invests primarily in equity securities of secondary companies that
have yet to reach a fully mature stage of earnings growth. These companies may
still be in the developmental stage or may be older companies that appear to
be entering a new stage of more rapid earnings progress due to factors such as
management change or development of new technology, products or markets. A
significant number of these companies may be in technology areas and may have
annual sales less than $300 million.

Some of the securities in which the Fund invests may not be listed on a
national securities exchange, but such securities will usually have an
established over-the-counter market. However, some of the securities in which
the Fund invests may have limited marketability, and the Fund may invest up to
10% of its total assets in securities the disposition of which would be
subject to legal restrictions ("restricted securities"). It may be difficult
to sell restricted securities at a price which represents SBMFM's opinion of
their fair value until they may be sold publicly. The Fund ordinarily will
acquire the right to have such securities registered at the expense of the
issuer within some specified period of time. Where registration is required
prior to sale, a considerable period of time may elapse between a decision to
sell the restricted securities and the time when the Fund could sell them,
during which period the price may change. The Fund may not invest in
restricted securities of public utilities.

The Fund may also acquire securities subject to contractual restrictions on
its right to resell them. These restrictions might prevent their sale at a
time when sale would otherwise be desirable. No restricted securities and no
securities for which there is no readily available market ("illiquid
securities") will be acquired if such acquisition would cause the aggregate
value of illiquid and restricted securities to exceed 10% of the Fund's total
assets. The Fund may not invest more than 5% of its total assets in securities
of issuers which, together with any predecessor, have been in operation for
less than three years.

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<PAGE>

Special Equities Fund also may invest in, or enter into repurchase
agreements with respect to, corporate bonds, U.S. government securities,
commercial paper, certificates of deposit or other money market securities
during periods when SBMFM believes that adoption of a temporary defensive
position is desirable due to prevailing market or economic conditions. Special
Equities Fund may lend its portfolio securities, in accordance with the
description set forth under "Investment Grade Bond Fund -- Lending of
Portfolio Securities" above. Special Equities Fund's investments in warrants
are subject to the same undertaking applicable to Investment Grade Bond Fund,
as described above. The limits contained in that undertaking are not
fundamental policies of the Fund and may be changed by the Board of Directors
without the vote of shareholders. Special Equities Fund may also sell
securities "short against the box," in accordance with the description set
forth above. The Fund may also purchase ADRs.

Investors should realize that the very nature of investing in smaller,
newer companies involves greater risk than is customarily associated with
investing in larger, more established companies. Smaller, newer companies
often have limited product lines, markets or financial resources, and they may
be dependent for management upon one of a few key persons. The securities of
such companies may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or than the market averages
in general. In accordance with its investment objective of long-term capital
appreciation, securities purchased for Special Equities Fund will not
generally be traded for short-term profits, but will be retained for their
longer-term appreciation potential. This general practice limits the Fund's
ability to adopt a defensive position by investing in money market instruments
during periods of market downturn. Accordingly, while in periods of market
upturn the Fund may outperform the market averages, in periods of downturn, it
is likely to underperform the market averages. Thus, investing in Special
Equities Fund may involve greater risk than investing in other Funds.

GROWTH OPPORTUNITY FUND

The investment objective of the Growth Opportunity Fund is achieving capital
appreciation. It seeks to achieve this objective by investing in securities
believed to have above average potential for capital appreciation.

The Fund invests principally in common stocks and SBMFM uses a flexible
management style to select what it believes to be usually attractive growth
investments on an individual company basis. Such securities will typically be
issued by small capitalization companies, larger companies with established
records of growth in sales or earnings, and companies with new products, new
services, or new processes. The Fund may also invest in companies in cyclical
industries during periods when their securities appear overly depressed and
therefore attractive for capital appreciation. In addition to common stocks of
companies, the Fund may invest in securities convertible into or exchangeable
for common stocks, such as convertible preferred stocks or convertible
debentures, and warrants.

Repurchase Agreements. The Fund may enter into repurchase agreement
transactions with domestic banks or broker-dealers. Under the terms of a
typical repurchase agreement, the Fund would acquire and underlying debt
obligation for a relatively short period (usually not more than one week)
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. Under each repurchase agreement, the selling institution will be
required to maintain the value of the securities subject to the

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<PAGE>

repurchase agreement at not less than their repurchase price. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the other party including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities, 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 part of the income
from the agreement. SBMFM, acting under the supervision of the Board of
Directors, reviews on an ongoing basis to evaluate potential risks, the value
of the collateral and the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements.

Options, Futures Contracts and Related Options. The Fund expects to utilize
options, futures contracts and options thereon in several different ways,
depending upon the status of the Fund's portfolio and SBMFM's expectations
concerning the securities markets. The purchase and sale of options and futures
contracts involve risks different from those involved with direct investments
in securities. If SBMFM is not successful in utilizing options, futures
contracts and similar instruments, which may be advantageous to the Fund, the
Fund's performance will be worse than if the Fund did not make such
investments. The Fund may write or purchase options in privately negotiated
transactions ("OTC Options") as well as listed options. OTC Options can be
closed out only by agreement with the other party to the transaction. Any OTC
Option purchased by the Fund will be considered an illiquid security. Any OTC
Option written by the Fund will be with a qualified dealer pursuant to an
agreement under which the Fund may repurchase the option at a formula price.
Such options will be considered illiquid to the extent that the formula price
exceeds the intrinsic value of the option. The Fund may not purchase or sell
futures contracts or related options for which the aggregate initial margin and
premiums exceed 5% of the fair market value of the fund's assets. In order to
prevent leverage in connection with the purchase of futures contracts thereon
by the Fund, an amount of cash, cash equivalents of liquid high grade debt
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Fund's custodian. The Fund may not invest more than 15% of its
net assets in illiquid securities and repurchase agreements which have a
maturity of longer than seven days.

There are several risks connected with the use of futures contracts. Such
risks include the imperfect correlation between movements in the price of the
futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement. The Fund may not purchase or sell futures contracts or related
options for which the aggregate initial margin and premiums exceed 5% of the
fair market value of the Fund's assets.

The Fund may lend its portfolio securities in accordance with the
description set forth under "Investment Grade Bond Fund -- Lending of Portfolio
Securities" above. The Fund's investment in warrants are subject to the same
undertaking applicable to Investment Grade Bond Fund, as described above.

MANAGED GROWTH FUND

The investment objective of the Managed Growth Fund is growth of capital.
Dividend income is a secondary objective of the Fund. The Fund attempts to
achieve its objective by investing primarily in common stock and securities,
including debt securities which are convertible into common stock and which are
currently out of favor. Such securities might typically be valued at the low
end of their 52 week trading range.

17
<PAGE>

Covered Option Writing. The Fund may write covered call options with
respect to its portfolio securities. The Fund realizes a fee (referred to as a
"premium") for granting the rights evidenced by the options. 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 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 call option written by the Fund, the Fund may suffer
a loss equal to the excess of the security's market value at the time of the
option exercise over the Fund's cost of the security, less the premium
received for writing the option.

The Fund will write only covered options with respect to its portfolio
securities. Accordingly, whenever the Fund writes a call option on its
securities, 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
call option is exercised, the Fund will either (a) deposit with its custodian
in a segregated account, cash, government securities or other high grade debt
obligations 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) 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 its custodian 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 to unfreeze an
underlying security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's expiration). To
effect a closing purchase transaction, the Fund would purchase, prior to the
holder's exercise of an option that the Fund has written, an option of the
same series as that on which the Fund desires to terminate its obligation. The
obligation of the Fund under an option that it has written would be terminated
by a closing purchase transaction, but the Fund would not be deemed to own an
option as a result of the transaction. There can be no assurances 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 domestic securities exchanges or in the over-the-counter market.

Options on Broad-Based Domestic Stock Indexes. The Fund may write call
options and purchase put options on broad-based domestic stock indexes and
enter into closing transitions with respect to such options. Options on stock
indexes are similar to options on securities except that, rather than having
the right to take or make delivery of stock at the specified exercise price,
an option on a stock index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the stock
index upon which the option is based is "in the money." This amount of cash is
equal to the difference between the closing level of the index and the
exercise price of the option, expressed in dollars times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. Unlike stock options, all settlements are in
cash, and gain or loss depends on price movements in the stock market
generally rather than price movements in the individual stocks.

The effectiveness of purchasing and writing puts and calls on stock index
options depends to a large extent on the ability of SBMFM to predict the price
movement of the stock index selected. Therefore, whether the Fund realizes a
gain or loss from the purchase of options on an index depends upon movements
in the

18
<PAGE>

level of stock prices in the stock market generally. Additionally, because
exercises of index options are settled in cash, a call writer such as the Fund
cannot determine the amount of the settlement obligations in advance and it
cannot provide in advance for, or cover, its potential settlement obligations
by acquiring and holding the underlying securities. When the Fund has written
the call, there is also a risk that the market may decline between the time
the Fund has a call exercised against it, at a price which is fixed as of the
closing level of the index on the date of exercise, and the time the Fund is
able to exercise the closing transaction with respect to the long call
position it holds.

Restricted and Illiquid Securities. The Fund may invest in securities which
are not readily marketable as well as restricted securities not registered
under the Securities Act of 1933, OTC options and securities that are
otherwise considered illiquid as a result of market or other factors. Although
it may invest up to 15% of its assets in such securities, the Fund does not
currently anticipate investing more than 5% on its assets in restricted or
illiquid securities. The Fund may invest in securities eligible for resale
under Rule 144A of the Securities Act ("Rule 144A securities"). The Board of
Directors of the Fund may determine that specific Rule 144A securities held by
the Fund may be deemed liquid. Nevertheless, due to changing market or other
factors, Rule 144A securities may be subject to a greater possibility of
becoming illiquid than registered securities.

The Fund may enter into repurchase agreements, lend its portfolio
securities, invest in warrants and enter into futures contracts and purchase
options on futures contracts all in accordance with the description of the
Investment Grade Bond Fund set forth above.

INVESTMENT RESTRICTIONS

The Funds' investment objectives and the investment restrictions set forth
below are fundamental policies of each Fund, i.e., they may not be changed
with respect to a Fund without a majority vote of the outstanding shares of
that Fund. (All other investment practices described in the Prospectuses and
the Statement of Additional Information may be changed by the Board of
Directors without the approval of shareholders.)

Unless otherwise indicated, all percentage limitations apply to each Fund
on an individual basis, and apply only at the time a transaction is entered
into. (Accordingly, if a percentage restriction is complied with at the time
of investment, a later increase or decrease in the percentage which results
from a relative change in values or from a change in the Fund's net assets
will not be considered a violation.)

Restrictions Applicable to All Funds. No Fund may:

1. Purchase the securities of any one issuer, other than the U.S.
government or its agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of the total assets of the Fund would be
invested in securities of such issuer;

2. Invest in real estate, real estate mortgage loans, or interests in oil,
gas and/or mineral exploration or development programs, provided that this
limitation shall not prohibit the purchase of securities issued by
companies, including real estate investment trusts, which invest in real
estate or interests therein;

3. Purchase securities of any other investment company, except in
connection with a merger, consolidation, reorganization, or acquisition or
assets. (For purposes of this limitation, foreign banks or their agencies
or subsidiaries are not considered "investment companies") (the Managed
Growth Fund may purchase the securities of closed-end investment companies
to the extent permitted by law);

19
<PAGE>

4. Make investments in securities for the purpose of exercising control
over or management of the issuer;

5. Participate on a joint or a joint and several basis in any trading
account in securities. (The "bunching" of orders of two or more Funds--or
of one or more Funds and of other accounts--for the sale or purchase of
portfolio securities shall not be considered participation in a joint
securities trading account);

6. Purchase the securities of any one issuer if, immediately after such
purchase, the Fund would own more than 10% of the outstanding voting
securities of such issuer;

7. Purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions. (For this purpose, the deposit
or payment by Government Securities Fund of initial or maintenance margin
in connection with futures contracts and related options is not considered
to be the purchase of a security on margin. Additionally, borrowing by
Government Securities Fund to increase its holdings of portfolio securities
is not considered to be the purchase of securities on margin);

8. Make loans, except that this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly distributed debt
securities, (b) the lending of portfolio securities, or (c) entry into
repurchase agreements;

9. Invest in securities of an issuer which, together with any predecessor,
has been in operation for less than three years if, as a result, more than
5% of the total assets of the Fund would then be invested in such
securities (for purposes of this restriction, issuers include predecessors,
sponsors, controlling persons, general guarantors and originators of
underlying assets);

10. Purchase the securities of an issuer if, to the Company's knowledge,
one or more of the Directors or officers of the Company individually own
beneficially more than 1/2 of 1% of the outstanding securities of such
issuer or together own beneficially more than 5% of such securities;

11. Purchase a security which is not readily marketable if, as a result,
more than 10% of the Fund's total assets would consist of such securities.
If permitted by the laws of certain states, the Growth Opportunity Fund may
invest up to 15% of its assets in securities not readily marketable. (For
purposes of this limitation, restricted securities and repurchase
agreements having more than seven days remaining to maturity are considered
not readily marketable);

12. Purchase the securities of issuers conducting their principal business
activities in the same industry, if immediately after such purchase the
value of its investments in such industry would exceed 25% of the value of
the total assets of the Fund, provided that (a) neither all utility
companies (including telephone companies), as a group, nor all banks,
savings and loan associations and savings banks, as a group, will be
considered a single industry for purposes of this limitation, and (b) there
is no such limitation with respect to repurchase agreements or to
investments in U.S. government securities or certificates of deposit or
bankers' acceptances issued by domestic institutions (but not their foreign
branches).

Restrictions Applicable to All Funds Except Government Securities Fund,
Growth Opportunity Fund and Managed Growth Fund. The Funds may not:

1. Invest in commodities or commodity futures contracts;

20
<PAGE>

2. Borrow amounts in excess of 5% of their total assets taken at cost or at
market value, whichever is lower, and then only from banks as a temporary
measure for extraordinary or emergency purposes. A Fund may not mortgage,
pledge or in any other manner transfer any of its assets as security for
any indebtedness. This restriction shall not prohibit entry into reverse
repurchase agreements, provided that a Fund may not enter into a reverse
repurchase agreement if, as a result, its current obligations under such
agreements would exceed one-third of the current market value of the Fund's
total assets (less its liabilities other than obligations under such
agreements); or

3. Write, purchase or sell puts, calls, straddles, spreads or any
combinations thereof.

Restrictions Applicable to All Funds Except Special Equities Fund, Growth
Opportunity Fund and Managed Growth Fund. The Funds may not:

1. Purchase securities which may not be resold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act");
or

2. Act as an underwriter of securities.

Restrictions Applicable to Special Equities Fund. The Funds may not act as
an underwriter of securities, except that each Fund may invest up to 10% of
its total assets in securities which it may not be free to resell without
registration under the 1933 Act, in which registration the Fund may
technically be deemed an underwriter for purposes of the 1933 Act.

Restrictions Applicable to All Funds Except Managed Growth Fund. The Funds
may not sell securities short, unless at all times when a short position is
open, it owns an equal amount of the securities or securities convertible
into, or exchangeable without payment of any further consideration for,
securities of the same issue as the securities sold short.

Restrictions Applicable to Investment Grade Bond Fund Only. Investment
Grade Bond Fund may not purchase corporate bonds unless rated at the time of
purchase Baa or better by Moody's or BBB or better by S&P, or purchase
commercial paper unless issued by a U.S. corporation and rated at the time of
purchase Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P (or, if not rated,
issued by a corporation having outstanding debt rated Aa or better by Moody's
or AA or better by S&P), although it may continue to hold a security if its
quality rating is reduced by a rating service below those specified.

BROKERAGE

In selecting brokers or dealers to execute securities transactions on behalf
of a Fund, SBMFM seeks the best overall terms available. In assessing the best
overall terms available for any transaction, SBMFM will consider the factors
that it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and 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 investment
advisory agreement authorizes SBMFM, 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 Company, the other Funds and other accounts over which SBMFM or its
affiliates exercise investment discretion. The fees under the investment
advisory agreements and the administration agreement between the Company and
SBMFM

21
<PAGE>

are not reduced by reason of their receiving such brokerage and research
services. The Board of Directors 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 Company.
SEC rules require that commissions paid to Smith Barney by a Fund on exchange
transactions not exceed "usual and customary brokerage commissions." The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Board of
Directors, particularly the Independent Directors of the Company (as defined
in the 1940 Act), has adopted procedures for evaluating the reasonableness of
commissions paid to Smith Barney and reviews these procedures periodically. In
addition, under rules adopted by the SEC, Smith Barney may directly execute
transactions for a Fund on the floor of any national securities exchange,
provided: (a) the Board of Directors has expressly authorized Smith Barney to
effect such transactions; and (b) Smith Barney annually advises the Fund of
the aggregate compensation it earned on such transactions.

To the extent consistent with applicable provisions of the 1940 Act and the
rules and exemptions adopted by the SEC thereunder, the Board of Directors has
determined that transactions for a Fund may be executed through Smith Barney
and other affiliated broker-dealers if, in the judgment of SBMFM 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.

Portfolio securities are not purchased from or through Smith Barney or any
affiliated person (as defined in the 1940 Act) of Smith Barney where such
entities are acting as principal, except pursuant to the terms and conditions
of exemptive rules or orders promulgated by the SEC. Pursuant to conditions
set forth in rules of the SEC, the Company may purchase securities from an
underwriting syndicate of which Smith Barney is a member (but not from Smith
Barney). Such conditions relate to the price and amount of the securities
purchased, the commission or spread paid, and the quality of the issuer. The
rules further require that such purchases take place in accordance with
procedures adopted and reviewed periodically by the Board of Directors,
particularly those Directors who are not interested persons of the Company.

The Funds 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 Funds commodity commissions at rates comparable to those charged
by Smith Barney to its most favored clients for comparable trades in
comparable accounts.

22
<PAGE>

The following table sets forth certain information regarding each Fund's
payment of brokerage commissions to Smith Barney:

<TABLE>
<CAPTION>
FISCAL YEAR GOVERNMENT SPECIAL
ENDED SECURITIES EQUITIES
DECEMBER 31, FUND FUND
<S> <C> <C> <C>
Total Brokerage Commissions 1992 $238,425 $267,089
1993 $717,340 $139,427
1994 $686,000 $217,269
Commissions paid to 1992 $ 0 $ 56,498
Smith Barney* 1993 $ 87,550 $ 16,614
1994 $ 0 $ 14,280
% of Total Brokerage 1994 %** 14%
Commissions paid to
Smith Barney*
% of Total Transactions 1994 %** %
involving Commissions paid
to Smith Barney*
</TABLE>
- ---------
* Includes commissions paid to Shearson Lehman Brothers, the Company's
distributor prior to Smith Barney.
** The disproportional amount between the percentage of total brokerage
commissions paid to Smith Barney and the percentage of total transactions
involving commissions paid to Smith Barney for the Government Securities
Fund resulted from higher brokerage commissions for options and futures
transactions which were the only commission transactions involving Smith
Barney.

PORTFOLIO TURNOVER

For reporting purposes, a 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 portfolio securities
owned by the Fund during the fiscal year. In determining such portfolio
turnover, all securities whose maturities at the time of acquisition were one
year or less are excluded. A 100% portfolio turnover rate would occur, for
example, if all of the securities in the Fund's investment portfolio (other
than short-term money market securities) were replaced once during the fiscal
year.

Investment Grade Bond Fund will not normally engage in the trading of
securities for the purpose of realizing short-term profits, but it will adjust
its portfolio as considered advisable in view of prevailing or anticipated
market conditions. Portfolio turnover will not be a limiting factor should
SBMFM deem it advisable to purchase or sell securities.

Special Equities Fund invests for long-term capital appreciation and will
not generally trade for short-term profits. However, its portfolio will be
adjusted as deemed advisable by the investment adviser, and portfolio turnover
will not be a limiting factor should SBMFM deem it advisable to purchase or
sell securities.

The options activities of Government Securities Fund may affect its
portfolio turnover rate and the amount of brokerage commissions paid by the
Fund. The exercise of calls written by the Fund may cause the Fund to sell
portfolio securities, thus increasing its turnover rate. The exercise of puts
also may cause the sale of securities and increase turnover; although such
exercise is within the Fund's control, holding a

23
<PAGE>

protective put might cause the Fund to sell the underlying securities for
reasons which would not exist in the absence of the put. The Fund will pay a
brokerage commission each time it buys or sells a security in connection with
the exercise of a put or call. Some commissions may be higher than those which
would apply to direct purchases or sales of portfolio securities. High
portfolio turnover involves correspondingly greater commission expenses and
transaction costs.

For the fiscal years ended December 31, 1993 and 1994, the portfolio
turnover rates were as follows:

<TABLE>
<CAPTION>
FUND 1993 1994
<S> <C> <C>
Investment Grade Bond Fund..................................... 65% 18%
Government Securities Fund..................................... 540% 276%
Special Equities Fund.......................................... 112% 123%
</TABLE>

Increased portfolio turnover necessarily results in correspondingly greater
brokerage commissions which must be paid by the Fund. To the extent that
portfolio trading results in realization of net short-term capital gains,
shareholders will be taxed on such gains at ordinary income tax rates (except
shareholders who invest through IRAs and other retirement plans which are not
taxed currently on accumulations in their accounts).

SBMFM manages a number of private investment accounts on a discretionary
basis and it is not bound by the recommendations of the Smith Barney research
department in managing the Funds. Although investment decisions are made
individually for each client, at times decisions may be made to purchase or
sell the same securities for one or more of the Funds and/or for one or more
of the other accounts managed by SBMFM or the fund manager. When two or more
such accounts simultaneously are engaged in the purchase or sale of the same
security, transactions are allocated in a manner considered equitable to each,
with emphasis on purchasing or selling entire orders wherever possible. 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.

PURCHASE OF SHARES

VOLUME DISCOUNTS

The schedules of sales charges on Class A shares described in the Prospectuses
apply 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.

24
<PAGE>

COMBINED RIGHT OF ACCUMULATION

Reduced sales charges, in accordance with the schedule in the Prospectuses,
apply to any purchase of Class A shares if the aggregate investment in Class A
shares of a Fund and in Class A shares of the other funds in the Company and
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. Each Fund 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 right of
accumulation, shareholders should contact a Smith Barney Financial Consultant.

DETERMINATION OF PUBLIC OFFERING PRICE

Each Fund offers its shares to the public on a continuous basis. The public
offering price for a Class A and Class Y share of each Fund is equal to the
net asset value per share at the time of purchase plus, for Class A shares, an
initial sales charge based on the aggregate amount of the investment. The
public offering price for a Class B share and Class C share, and Class A share
purchases, including applicable right of accumulation, equalling or exceeding
$500,000, is equal to the net asset value per share at the time of purchase
and no sales charge is imposed at the time of purchase. A contingent deferred
sales charge ("CDSC"), however, is imposed on certain redemptions of Class B
shares, Class C shares, and Class A shares when purchased in amounts equalling
or exceeding $500,000. The method of computation of the public offering price
is shown in each Fund's financial statements, 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 NYSE is closed (other than for customary
weekend and holiday closings), (b) when trading in markets a Fund normally
utilizes is restricted, or an emergency as determined by the SEC exists, so
that disposal of the Fund's investments or determination of net asset value is
not reasonably practicable or (c) for such other periods as the SEC by order
may permit for the protection of the Fund's shareholders.

DISTRIBUTIONS IN KIND

If the Board of Directors of the Company determines that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make a redemption payment wholly in cash, the Fund may pay, in accordance with
SEC rules, any portion of a redemption in excess of the lesser of $250,000 or
1% of the Fund's net assets by a 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 ($5,000 for
retirement plan accounts) and who wish to receive specific amounts of cash
monthly or quarterly. Withdrawals of at least $100 may be made under the
Withdrawal Plan by redeeming as many shares of a Fund 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

25
<PAGE>

month of the value of a shareholder's shares at the time the Withdrawal Plan
commences. (With respect to Withdrawal Plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not
exceed 2.00% per month of the value of a shareholder's shares at the time the
Withdrawal Plan commences.) To the extent withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. Furthermore, as it generally would not be advantageous
to a shareholder to make additional investments in the Fund at the same time
that he or she is participating in the Withdrawal Plan, purchases by such
shareholders in amounts of less than $5,000 will not ordinarily 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
TSSG 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 the Company. Withdrawal Plans should be set up with a
Smith Barney Financial Consultant. A shareholder who purchases shares directly
through TSSG may continue to do so and applications for participation in the
Withdrawal Plan must be received by TSSG 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 Company's distributor on a best efforts basis
pursuant to a distribution agreement (the "Distribution Agreement") which was
most recently approved by the Company's Board of Directors on August 4, 1994.

When payment is made by the investor before the settlement date, unless
otherwise directed 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 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 Smith
Barney money market fund, the amount of the investment will be included as
part of the average daily net assets of both the Company and the money market
fund, and affiliates of Smith Barney that serve the funds in an investment
advisory capacity will benefit from the fact that they are receiving fees from
both such investment companies for managing these assets computed on the basis
of their average daily net assets. The Company's Board of Directors 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.

During the fiscal year ended December 31, 1993, Shearson Lehman Brothers,
the Company's distributor prior to Smith Barney, received $ in the
aggregate from the Company under the Plan.

For the fiscal year ended December 31, 1994, Smith Barney incurred
distribution expenses totalling approximately $ , consisting of
approximately $ for advertising, $ for printing and mailing of
Prospectuses, $ for support services, $ to Smith Barney Financial
Consultants, and $ in accruals for interest on the excess of Smith Barney
expenses incurred in distributing the Fund's

26
<PAGE>

shares over the sum of the distribution fees and CDSC received by Smith Barney
from the Fund. No comparable information is available for 1992, the year that
the variable pricing system was implemented.

DISTRIBUTION ARRANGEMENTS

To compensate Smith Barney for the services it provides and for the expense it
bears under the Distribution Agreement, the Company has adopted a services and
distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Under the Plan, each Fund pays Smith Barney a service fee, accrued daily and
paid monthly, calculated at the annual rate of 0.25% of the value of each
Fund's average daily net assets attributable to the Class A, Class B and Class
C shares. In addition, the Fund pays Smith Barney a distribution fee with
respect to the Class B and Class C shares primarily intended to compensate
Smith Barney for its initial expense of paying Financial Consultants a
commission upon sales of those shares. Such shares' distribution fees, which
are accrued daily and paid monthly, are calculated at the annual rate of 0.75%
of the value of average daily net assets attributable to the Class B and Class
C shares with respect to Special Equities Fund, 0.50% of the value of average
daily net assets attributable to the Class B shares and 0.45% of the value of
average daily net assets attributable to Class C shares, with respect to
Government Securities Fund and Investment Grade Bond Fund.

The following expenses were incurred during the periods indicated:

Sales Charges (paid to Smith Barney or Shearson Lehman Brothers, its
predecessor).

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------
FOR PERIOD
FROM 11/6/92 FISCAL YEAR FISCAL YEAR
NAME OF FUND THROUGH 12/31/92 ENDED 12/31/93 ENDED 12/31/94
<S> <C> <C> <C>
Investment Grade Bond Fund.. $ $110,683 $114,571
Government Securities Fund.. 48,964 66,217
Special Equities Fund....... 172,978 186,104
</TABLE>

CDSC (paid to Smith Barney or Shearson Lehman Brothers, its predecessor).

<TABLE>
<CAPTION>
CLASS B
--------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
NAME OF FUND ENDED 12/31/92 ENDED 12/31/93 ENDED 12/31/94
<S> <C> <C> <C>
Investment Grade Bond Fund.. $ $498,515 $556,007
Government Securities Fund.. 820,619 629,700
Special Equities Fund....... 73,089 288,013
</TABLE>

Service Fees

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------
FOR PERIOD
FROM 11/6/9 FISCAL YEAR FISCAL YEAR
NAME OF FUND THROUGH 12/31/92 ENDED 12/31/93 ENDED 12/31/94
<S> <C> <C> <C>
Investment Grade Bond Fund.. $ $16,729 $147,152
Government Securities Fund.. 13,628 334,848
Special Equities Fund....... 22,380 147,488
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
CLASS B
--------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
NAME OF FUND ENDED 12/31/92 ENDED 12/31/93 ENDED 12/31/94
<S> <C> <C> <C>
Investment Grade Bond Fund.... $ $1,181,850 $ 922,038
Government Securities Fund.... 2,384,061 1,505,763
Special Equities Fund......... 226,964 329,007
</TABLE>

<TABLE>
<CAPTION>
CLASS C
(FORMERLY DESIGNATED AS CLASS D)
----------------------------------------------
FOR PERIOD
FROM 11/6/92 FISCAL YEAR FISCAL YEAR
NAME OF FUND THROUGH 12/31/92 ENDED 12/31/93 ENDED 12/31/94
<S> <C> <C> <C>
Investment Grade Bond Fund.. $ $148 $1,009
Government Securities Fund.. 255 967
Special Equities Fund....... 281 1,975
</TABLE>

Distribution Fees

<TABLE>
<CAPTION>
CLASS B
--------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
NAME OF FUND ENDED 12/31/92 ENDED 12/31/93 ENDED 12/31/94
<S> <C> <C> <C>
Investment Grade Bond Fund.. $ $2,363,700 $1,844,077
Government Securities Fund.. 4,768,122 3,011,526
Special Equities Fund....... 680,894 987,022
</TABLE>

<TABLE>
<CAPTION>
CLASS C
(FORMERLY DESIGNATED AS CLASS D)
----------------------------------------------
FOR PERIOD
FROM 11/6/92 FISCAL YEAR FISCAL YEAR
NAME OF FUND THROUGH 12/31/92 ENDED 12/31/93 ENDED 12/31/94
<S> <C> <C> <C>
Investment Grade Bond Fund.. $ $295 $1,958
Government Securities Fund.. 510 1,893
Special Equities Fund....... 281 5,927
</TABLE>

Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Board of Directors, including
a majority of the Independent Directors. The Plan may not be amended to
increase the amount to be spent for the services provided by Smith Barney
without shareholder approval, and all amendments of the Plan also must be
approved by the Directors in the manner described above. The Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the Company (as defined in the 1940 Act). Pursuant to the Plan,
Smith Barney will provide the Board of Directors 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 Years's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays falls on
a Saturday or Sunday,

28
<PAGE>

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 Funds in valuing its
assets.

A security which 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 Board of Directors. In
carrying out the Board of Director's valuation policies, SBMFM, as
administrator, or Boston Advisors, as sub-administrator, may consult with an
independent pricing service (the "Pricing Service") retained by the Company.

Debt securities of United States issuers (other than U.S. government
securities and short-term investments) are valued by SBMFM, as administrator,
or Boston Advisors, as sub-administrator, after consultation with the Pricing
Service approved by the Board of Directors. 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 Company under the general supervision and responsibility
of the Board of Directors.

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 and provided your
investment dealer is authorized to distribute shares of the fund, on the basis
of relative net asset value per share at the time of exchange as follows:

A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds, and the sales
charge differential, if any, will be applied. Class A shares of any fund
may be exchanged without a sales charge for shares of the funds that are
offered without a sales charge. Class A shares of any fund purchased
without a sales charge may be exchanged for shares sold with a sales
charge, and the appropriate sales charge differential will be applied.

B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of any of
the other funds, and the sales charge differential, if any, will be
applied.

C. Class B shares of any fund may be exchanged without a CDSC. Class B
shares of the 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.

29
<PAGE>

Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the account
number in order to accomplish an exchange of shares of Smith Barney High
Income Fund under paragraph B above.

The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe that a
shift between funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange, the shareholder should
obtain and review a copy of the current prospectus of each fund into which an
exchange is being considered. Prospectuses may be obtained from a Smith Barney
Financial Consultant.

Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and, subject to any applicable CDSC, the proceeds are immediately invested at
a price as described above, in shares of the fund being acquired. Smith Barney
reserves the right to reject any exchange request. The exchange privilege may
be modified or terminated at any time after written notice to shareholders.

PERFORMANCE DATA

From time to time, a Fund may quote its yield or total return in
advertisements or in reports and other communications to shareholders. The
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 a Fund describes the expenses or performance of a
Class, it will also disclose such information for the other Classes.

YIELD

A Fund's 30-day yield figure described below is calculated according to a
formula prescribed by the SEC. The formula can be expressed as follows:

YIELD = 2[( + 1)(6TH POWER OF) - 1]

Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.

For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Fund at a discount or premium,
the formula generally calls for amortization of the discount or premium; the
amortization schedule will be adjusted monthly to reflect changes in the
market values of the debt obligations.

Investors should recognize that in periods of declining interest rates a
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the Fund's yield will

30
<PAGE>

tend to be somewhat lower. In addition, when interest rates are falling, the
inflow of net new money to the Fund from the continuous sale of its shares
will likely be invested in portfolio instruments producing lower yields than
the balance of the Fund's investments, thereby reducing the current yield of
the Fund. In periods of rising interest rates, the opposite can be expected to
occur.

The Class A yields for the 30-day period ended December 31, 1994 for
Investment Grade Bond Fund and Government Securities Fund were 8.18% and
7.35%, respectively.

The Class B yields for the 30-day period ended December 31, 1994 for
Investment Grade Bond Fund and Government Securities Fund were 8.08% and
7.19%, respectively.

The Class C yields for the 30-day period ended December 31, 1994 for
Investment Grade Bond Fund and Government Securities Fund were 8.10% and
7.25%, respectively.

AVERAGE ANNUAL TOTAL RETURN

"Average annual total return" figures, as described below, 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
investment made at the beginning of a 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. A
Class' total return figures calculated in accordance
with the above formula assume that the maximum
applicable sales charge or maximum applicable CDSC,
as the case may be, has been deducted from the
hypothetical $1,000 initial investment at the time of
purchase or redemption, as applicable.

Class A's average annual total returns were as follows for the periods
indicated:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 6, 1992*
NAME OF FUND DECEMBER 31, 1994 THROUGH DECEMBER 31, 1994
<S> <C> <C>
Investment Grade Bond Fund..... (17.65)% 2.90%
Government Securities Fund..... (11.74) 2.49
Special Equities Fund.......... (14.24) 13.26
</TABLE>
- ---------
* The Funds commenced selling Class A shares on November 6, 1992.

Class B's average annual total returns (reflecting the waiver of the Fund's
investment advisory, sub-investment advisory, administration and distribution
fees, when applicable) were as follows for the periods indicated:
<TABLE>
<CAPTION>
FIVE YEAR TEN YEAR
YEAR ENDED PERIOD ENDED PERIOD ENDED
NAME OF FUND DECEMBER 31, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994(1)
<S> <C> <C> <C>
Investment Grade Bond
Fund................... (13.10)% 7.75% 10.20%
Government Securities
Fund................... (7.37) 6.84 8.12
Special Equities Fund... (10.96) 7.87 9.73
</TABLE>
- ---------
(1) Class B shares automatically convert to Class A shares eight years after
date of original purchase. Thus, a shareholder's actual return for the ten
years ended December 31, 1994 would be different than that reflected
above.

31
<PAGE>

If investment advisory, sub-investment advisory, administration and
distribution fees had not been waived, Class B's average annual total return
for the same periods would have been the following:

<TABLE>
<CAPTION>
FIVE YEAR TEN YEAR
YEAR ENDED PERIOD ENDED PERIOD ENDED
NAME OF FUND DECEMBER 31, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994
<S> <C> <C> <C>
Investment Grade Bond
Fund................... % % %
Government Securities
Fund...................
Special Equities Fund...
</TABLE>

Class C's average annual total returns were as follows for the periods
indicated:

<TABLE>
<CAPTION>
PER ANNUM FOR
THE PERIOD FROM
ONE YEAR COMMENCEMENT OF
PERIOD ENDED OPERATIONS
NAME OF FUND 12/31/94 THROUGH 12/31/94
<S> <C> <C>
Investment Grade Bond Fund(1)................ (10.23)% (0.01)%
Government Securities Fund(2)................ (4.16) 2.01
Special Equities Fund(3)..................... (7.21) (13.02)
</TABLE>
- ---------
(1) The Fund commenced selling Class C shares (previously designated as Class
D shares) on February 26, 1993.
(2) The Fund commenced selling Class C shares (previously designated as Class
D shares) on February 4, 1993.
(3) The Fund commenced selling Class C shares (previously designated as Class
D shares) on October 18, 1993.

AGGREGATE TOTAL RETURN

Aggregate total return figures, as described below, 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

AGGREGATE TOTAL RETURN = 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 a 1-, 5- or 10-
year period (or fractional portion thereof), at the
end of the 1-, 5- or 10-year period (or fractional
portion thereof), assuming reinvestment of all
dividends and distributions.

32
<PAGE>

Class A's aggregate total returns were as follows for the periods
indicated:

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 6, 1992* ONE YEAR NOVEMBER 6, 1992
ONE YEAR THROUGH PERIOD ENDED THROUGH
PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
NAME OF FUND DECEMBER 31, 1994** 1994** 1994*** 1994***
<S> <C> <C> <C> <C>
Investment Grade Bond
Fund................... (8.95)% 11.36% (17.65)% 3.46%
Government Securities
Fund................... (2.76) 10.41 (11.74) 2.56
Special Equities Fund... (5.59) 37.38 (14.24) 27.77
</TABLE>
- ---------
* The Funds commenced selling Class A shares on November 6, 1992.
** Figures do not include the effect of the maximum sales charge.
*** Figures include the effect of the maximum sales charge.

Class B's aggregate total returns were as follows for the periods
indicated:

<TABLE>
<CAPTION>
TEN YEAR PERIOD
OR PERIOD FROM
COMMENCEMENT
ONE YEAR FIVE YEAR OF OPERATIONS ONE YEAR FIVE YEAR TEN YEAR
PERIOD ENDED PERIOD ENDED THROUGH PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NAME OF FUND 1994* 1994* 1994* 1994** 1994** 1994**(1)
<S> <C> <C> <C> <C> <C> <C>
Investment Grade Bond
Fund................... (9.41)% 46.19% 164.07%(1) (13.10)% 45.16% 164.07%
Government Securities
Fund................... (3.25) 40.20 118.37 (7.37) 39.20 118.37
Special Equities Fund... (6.27) 47.03 153.15 (10.96) 47.03 153.15
</TABLE>
- ---------
* Figures do not include the effect of the CDSC (maximum 4.50% for Investment
Grade Bond Fund and Government Securities Fund and 5.00% for the other
Funds).
** Figures include the effect of the maximum applicable CDSC, if any.
(1) Class B shares automatically convert to Class A shares eight years after
date of original purchase. Thus, a shareholder's actual return for the ten
years ended December 31, 1994 would be different than that reflected
above.

Class C's (formerly Class D) aggregate total returns were as follows for
the periods indicated:

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
ONE YEAR COMMENCEMENT* ONE YEAR COMMENCEMENT*
PERIOD ENDED THROUGH PERIOD ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NAME OF FUND 1994** 1994** 1994*** 1994***
<S> <C> <C> <C> <C>
Investment Grade Bond
Fund.................... (9.41)% (0.01)% (10.23)% (0.01)%
Government Securities
Fund.................... (3.25) 3.87 (4.16) 3.87
Special Equities Fund.... (6.27) (15.43) (7.21) (15.43)
</TABLE>
- ---------
* Investment Grade Bond Fund, Government Securities Fund and Special Equities
Fund commenced selling Class C shares on February 26, 1993, February 4, 1993
and October 18, 1993, respectively. Class C shares are sold at net asset
value without any sales charge or CDSC.
** Figures do not include the effect of the CDSC.
*** Figures include the effect of the applicable CDSC (1.00%).

It is important to note that the yield and 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 upon
market conditions, the composition of the Fund's investment portfolio and
operating

33
<PAGE>

expenses and the expenses exclusively attributable to the 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 Company and its shareholders. The summary is not intended as a
substitute for individual tax advice, and investors are urged to consult their
tax advisors as to the tax consequences of an investment in any Fund of the
Company.

TAX STATUS OF THE FUNDS

Each Fund will be treated as a separate taxable entity for Federal income tax
purposes.

Each Fund has qualified and the Company intends that each Fund will
continue to qualify separately each year as a "regulated investment company"
under the Code. A qualified Fund will not be liable for Federal income taxes
to the extent that its taxable net investment income and net realized capital
gains are distributed to its shareholders, provided that each Fund distributes
at least 90% of its net investment income.

Each Fund intends to accrue dividend income for Federal income tax purposes
in accordance with the rules applicable to regulated investment companies. In
some cases, these rules may have the effect of accelerating (in comparison to
other recipients of the dividend) the time at which the dividend is taken into
account by a Fund as taxable income.

Certain options, futures contracts and forward contracts in which the Funds
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"); however, foreign currency gains or losses arising
from certain section 1256 contracts may be treated as ordinary income or loss.
Also, section 1256 contracts held by a Fund at the end of each taxable year
are "marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized and the resulting gain or loss is treated
as 60/40 gain or loss as ordinary income or loss, as the case may be. These
contracts also may be marked-to-market for purposes of the 4% excise tax under
rules prescribed in the Code.

Many of the hedging transactions undertaken by the Funds will result in
"straddles" for Federal income tax purposes. Straddles are defined to include
"offsetting positions" in actively traded personal property. It is not
entirely clear under what circumstances one investment made by a Fund will be
treated as offsetting another investment held by the Fund. In general,
positions are 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 straddle rules may affect the character of gains (or losses)
realized on straddle positions. In addition, losses realized by a Fund on
straddle positions may be deferred under the straddle rules, rather than being
taken into account in calculating the taxable income for the taxable year in
which losses are realized. The hedging transactions may also increase the
amount of gains from assets held less than three months. As a result, the 30%
limit on gains from certain assets held less than three months, which applies
to regulated investment companies, may restrict a Fund in the amount of
hedging transactions which it may undertake. In addition,

34
<PAGE>

hedging transactions may increase the amount of short-term capital gain
realized by a Fund which is taxed as ordinary income when distributed to the
shareholders. The Fund may make one or more of the elections available under
the Code which are applicable to straddles. If a Fund makes any of the
elections, the amount, character and timing of the recognition of gain or
losses from the affected straddle positions will be determined under rules
that vary according to the election(s) made. Because only a few regulations
implementing the straddle rules have been promulgated, the consequences of
straddle transactions to a Fund are not entirely clear.

Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. In view of each Fund's investment policy, it
is expected that dividends from domestic corporations will constitute a
portion of the gross income of several of the Funds but not of others.
Therefore, it is expected that a portion of the income distributed by the
Special Equities Fund but not others (Investment Grade Bond Fund and
Government Securities Fund) may be eligible for the dividends-received
deduction for corporations.

Distributions of net realized capital gains designated by a Fund as capital
gains dividends are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of a Fund have been held by a
shareholder. Distributions of capital gains, whether long or short-term, are
not eligible for the dividends-received deduction.

Dividends (including capital gain dividends) declared by a Fund in October,
November or December of any calendar year to shareholders of record on a date
in such a month will be deemed to have been received by shareholders on
December 31 of that calendar year, provided that the dividend is actually paid
by the Fund during January of the following calendar year.

All dividends are taxable to the shareholder whether reinvested in
additional shares or received in cash. Shareholders receiving distributions in
the form of additional shares will have a cost basis for Federal income tax
purposes in each share received equal to the net asset value of a share of the
Fund on the reinvestment date. Shareholders will be notified annually as to
the Federal tax status of distributions.

Under the Code, gains or losses attributable to fluctuations in currency
exchange rates which occur between the time a Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time a Fund actually collects such receivables or pays such
liabilities, generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain futures contracts, forward contracts and
options, gains or losses attributable to fluctuations in the value of certain
currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.

It is expected that certain dividends and interest received by the Fund
will be subject to foreign withholding taxes. So long as more than 50% in
value of a Fund's total assets at the close of a given taxable year consists
of stocks or securities of foreign corporations, the Fund may elect to treat
any foreign taxes paid or accrued by it as paid by its shareholders. Each Fund
will notify shareholders in writing each year whether it makes the election
and the amount of foreign taxes it has elected to have treated as paid by the
shareholders. If a Fund makes the election, shareholders will be required to
include as income their

35
<PAGE>

proportionate share of the amount of foreign taxes paid or accrued by the Fund
and generally will be entitled to claim either a credit or deduction (as an
itemized deduction) for their share of the taxes in computing their Federal
income tax, subject to limitations.

Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's United States tax attributable to his or her
total foreign source taxable income. For this purpose, if the pass-through
election is made, the source of the electing Fund's income will flow through
to its shareholders. With respect to a Fund, gains from the sales of
securities generally will be treated as derived from United States sources and
certain currency fluctuation gains, including fluctuation gains from foreign
currency denominated debt securities, receivables and payables, will be
treated as ordinary income derived from United States sources. The limitation
on the foreign tax credit is applied separately to foreign source passive
income (as defined for purposes of the foreign tax credit), including the
foreign source passive income passed through by a Fund. Shareholders may be
unable to claim a credit for the full amount of their proportionate share of
the foreign tax paid or accrued by a Fund. A foreign tax credit can be used to
offset only 90% of the alternative minimum tax (as computed under the Code for
purposes of the limitation) imposed on corporations and individuals. If a Fund
is not eligible to make the election to "pass through" to its shareholders its
foreign taxes, the foreign taxes it pays will reduce investment company
taxable income and the distributions by that Fund will be treated as United
States source income.

The foregoing is only a general description of the foreign tax credit.
Because application of the credit depends on the particular circumstances of
each shareholder, shareholders are advised to consult their own tax advisors.

Distributions by a Fund reduces the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution nevertheless generally would be taxable to the
shareholder as ordinary income or capital gains as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution but the distribution generally would be taxable to him.

Upon redemption, sale or exchange of his shares, a shareholder will realize
a taxable gain or loss depending upon his basis for his shares. Such gain or
loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands. Such gain or loss generally will be long-term or
short-term depending upon the shareholder's holding period for the shares.
However, a loss realized by a shareholder on the sale of shares of a Fund with
respect to which capital gain dividends have been paid will, to the extent of
such capital gain dividends, be treated as long-term capital loss if such
shares have been held by the shareholder for six months or less. A gain
realized on a redemption, sale or exchange will not be affected by a
reacquisition of shares. A loss realized on a redemption, sale or exchange,
however, will be disallowed to the extent the shares disposed of are replaced
(whether through reinvestment of distributions or otherwise) within a period
of 61 days beginning 30 days before and ending 30 days after the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.

For the purposes of computing the revised alternative minimum tax of 20%
for corporations, 75% of the excess of the adjusted current earnings (as
defined in the Code) over other alternative minimum taxable income is treated
as an adjustment item. Shareholders are advised to consult their own tax
advisors for details regarding the alternative minimum tax.

36
<PAGE>

If a Fund purchases shares in certain foreign investment funds classified
under the Code as a "passive foreign investment company", the Fund may be
subject to Federal income tax on a portion of an "excess distribution" and
gain from the disposition of such shares, even though such income may have to
be distributed as a taxable dividend by the Fund to its shareholders. In
addition, gains on the disposition of shares in a passive foreign investment
company generally are treated as ordinary income even though the shares are
capital assets in the hands of the Company. Certain interest charges may be
imposed on either the Fund or its shareholders in respect of any taxes arising
from such distributions or gains. A Fund may be eligible to elect to include
in its gross income its share of earnings of a passive foreign investment
company on a current basis. Generally the election would eliminate the
interest charge and the ordinary income treatment on the disposition of stock,
but such an election may have the effect of accelerating the recognition of
income and gains by the Fund compared to a fund that did not make the
election. In addition, another election may be available that would involve
marking to market a Fund's passive foreign investment company shares at the
end of each taxable year (and on certain other dates prescribed in the Code),
with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the passive
foreign investment company rules would generally be eliminated, but the Fund
could, in limited circumstances, incur nondeductible interest charges. Each
Fund's intention to qualify annually as a regulated investment company may
limit its elections with respect to shares of passive foreign investment
companies.

Because the application of the passive foreign investment company rules may
affect, among other things, the character of gains, the amount of gain or loss
and the timing of the recognition of income with respect to passive foreign
investment company shares, as well as subject a Fund itself to tax on certain
income from such shares, the amount that must be distributed to shareholders,
and which will be taxed to shareholders as ordinary income or long-term
capital gain, may be increased or decreased substantially as compared to a
fund that did not invest in passive foreign investment companies.

If a shareholder (a) incurs a sales charge in acquiring shares of the
Company, (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 (i.e., exchange privilege), the original 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 subsequent acquisition. This provision
prevents a shareholder from immediately deducting the sales charge by shifting
his or her investment in a family of mutual funds.

Backup Withholding. If a shareholder fails to furnish a correct taxpayer
identification number, fails to fully report dividend or 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 such withholding, then the
shareholder may be subject to a 31% "backup withholding tax" with respect to
(a) any taxable dividends and distributions and (b) any proceeds of any
redemption of Company shares. 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.

37
<PAGE>

The foregoing discussion relates only to Federal income tax law as
applicable to United States citizens. Distributions by the Funds also may be
subject to state, local and foreign taxes, and their treatment under state,
local and foreign income tax laws may differ from the Federal income tax
treatment. The Government Securities Fund's dividends, to the extent they
consist of interest from obligations of the United States government and
certain of its agencies and instrumentalities, may be exempt from state and
local income taxes in some jurisdictions. The Company intends to advise
shareholders of the proportion of that Fund's dividends which are derived from
such interest. Shareholders should consult their tax advisors with respect to
particular questions of Federal, state, local and foreign taxation.

ADDITIONAL INFORMATION

The Company was incorporated on September 29, 1981 under the name Hutton
Investment Series Inc. The Company's corporate name was changed on December
29, 1988, July 30, 1993 and October 28, 1994, to SLH Investment Portfolios
Inc., Smith Barney Shearson Investment Funds Inc. and Smith Barney Investment
Funds Inc., respectively.

PNC Bank is located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, and serves as the custodian of the Company. Under its
custody agreement with the Company, PNC Bank holds the Company's fund
securities and keeps all necessary accounts and records. For its services, PNC
Bank receives a monthly fee based upon the month-end market value of
securities held in custody and also receives securities transaction charges.
PNC Bank is authorized to establish separate accounts for foreign securities
owned by the Company to be held with foreign branches of other domestic banks
as well as with certain foreign banks and securities depositories. The assets
of the Company are held under bank custodianship in compliance with the 1940
Act.

TSSG is located at Exchange Place, Boston, Massachusetts 02109 and serves
as the Company's transfer agent. For these services, TSSG receives a monthly
fee computed on the basis of the number of shareholder accounts it maintains
for the Company during the month and is reimbursed for out-of-pocket expenses.

FINANCIAL STATEMENTS

The Annual Reports for each Fund for the fiscal year ended December 31, 1994
accompany this Statement of Additional Information and are incorporated herein
by reference in their entirety.

38
<PAGE>

APPENDIX

CORPORATE BONDS AND COMMERCIAL PAPER RATINGS

Corporate Bonds. Bonds rated Aa by Moody's are judged by Moody's to be of
high-quality by all standards. Together with bonds rated Aaa (Moody's highest
rating) they comprise what are generally known as high-grade bonds. Aa bonds
are rated lower than Aaa bonds because margins of protection may not be as
large as those of Aaa bonds, 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 those applicable to Aaa securities.
Bonds which are rated A by Moody's 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.

Moody's Baa rated bonds 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.

Bonds rated AA by S&P are judged by S&P to be the high-grade obligations
and in the majority of instances differ only in small degree from issues rated
AAA (S&P highest rating). Bonds rated AAA are considered by S&P to be the
highest grade obligations and possess the ultimate degree of protection as to
principal and interest. With AA bonds, as with AAA bonds, prices move with the
long-term money market. Bonds rated A by S&P have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.

Bonds rated BBB by S&P, or medium-grade category bonds, are borderline
between definitely sound obligations and those where speculative elements
begin to predominate. These bonds have adequate asset coverage and normally
are protected by satisfactory earnings. Their susceptibility to changing
conditions, particularly to depressions, necessitates constant watching. These
bonds generally are more responsive to business and trade conditions than to
interest rates. This group is the lowest which qualifies for commercial bank
investment.

Commercial Paper. The Prime rating 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 a parent company and the
relationships which exist with the issuer; and (h) recognition by management
of obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations. Issuers within
the Prime category may be given ratings 1, 2 or 3, depending on the relative
strengths of these factors.

Commercial paper rated A by S&P has the following characteristics: (a)
liquidity ratios are adequate to meet cash requirements; (b) long-term senior
debt rating should be A or better, although in some cases BBB credits may be
allowed if other factors outweigh the BBB; (c) the issuer should have access
to at least two

A-1
<PAGE>

additional channels of borrowing; (d) basic earnings and cash flow should have
an upward trend with allowances made for unusual circumstances; and (e)
typically the issuer's industry should be well established and the issuer
should have a strong position within its industry, and the reliability and
quality of management should be unquestioned. Issuers rated A are further
referred to by use of number 1, 2 and 3 to denote relative strength within
this highest classification.

SUPPLEMENTARY DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS AND RELATED
OPTIONS

Characteristics of Futures Contracts. Currently, futures contracts can be
purchased and sold on such securities as U.S. Treasury bonds, U.S. Treasury
notes, GNMAs and U.S. Treasury bills. Unlike when the Fund purchases or sells
a security, no price is paid or received by the Fund upon the purchase or
sales of a futures contract. The Fund will initially be required to deposit
with the custodian or the broker an amount of "initial margin" of cash of U.S.
Treasury bills. The nature of initial margin in futures transactions is
different from that of margin in security transactions in that futures
contract initial margin does not involve the borrowing of funds by their
customer to finance the transaction. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments, called
maintenance margin, to and from the broker, will be made on a daily basis as
the price of the underlying debt security fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "marked-to-market." For example, when the Fund has purchased a futures
contract and the price of the underlying debt security has risen, that
position will have increased in value and the Fund will receive from the
broker a maintenance margin payment equal to that increase in value.
Conversely, when the Fund has purchased a futures contract and the price of
the underlying debt security has declined, the position would be less valuable
and the Fund would be required to make a maintenance margin payment to the
broker. At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of maintenance margin is then made, additional cash is required
to be paid by or released to the Fund, and the Fund realizes a loss or a gain.

While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are
very seldom made. Generally, the futures contract is terminated by entering
into an offsetting transaction. An offsetting transaction for a futures
contract sale is effected by the Fund entering into a futures contract
purchase for the same aggregate amount of the specific type of financial
instrument and same delivery date. If the price in the sale exceeds the price
in the offsetting purchase, the Fund pays the difference and realizes the
loss. Similarly, the closing out of a futures contract purchase is effected by
the Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase
price exceeds the offsetting price, the Fund realizes a loss.

Risks of Transactions in Futures Contracts. There are several risks in
connection with the use of futures contracts by Government Securities Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the futures contracts and movements in the price of
the debt securities which are the subject of the hedge. The price of the
futures contract may move more than or less than the price of the debt
securities being hedged. If the price of the futures contract moves less than
the price of the securities which are the subject of the hedge, the hedge will
not be fully effective, but, if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position

A-2
<PAGE>

than if it has not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be partially offset by
the movement in the price of the futures contract. If the price of the futures
contracts moves more than the price of the security, the Fund will experience
either a loss or a gain on the future which will not be completely offset by
movements in the prices of the debt securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price
of debt securities being hedged and movements in the prices of the futures
contracts, the Fund may buy or sell futures contracts in a greater dollar
amount than the dollar amount of the securities being hedged if the historical
volatility of the prices of such securities has been greater than the
historical volatility of the futures contracts. Conversely, the Fund may buy
or sell fewer futures contracts if the historical volatility of the price of
the securities being hedged is less than the historical volatility of the
futures contracts. It is also possible that, where the Fund has sold futures
to hedge its portfolio against decline in the market, the market may advance
and the value of securities held in the Fund's portfolio may decline. If this
occurred, the Fund would lose money on the futures contracts and also
experience a decline in value in its portfolio securities. However, while this
could occur for a very brief period or to a very small degree, over time the
value of a diversified portfolio will tend to move in the same direction as
the futures contracts. Where futures are purchased to hedge against a possible
increase in prices of securities before the Fund is able to invest its cash
(or cash equivalents) in U.S. government securities (or options) in an orderly
fashion, it is possible that the market may decline instead; if the Fund then
concludes not to invest in U.S. government securities or options at that time
because of concern as to possible further market decline or for other reasons,
the Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of securities purchased.

In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures contracts and the
portion of the portfolio being hedged, the market prices of futures contracts
may be affected by certain factors. First, all participants in the futures
market are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts though offsetting transactions which could distort the normal
relationship between the debt securities and futures markets; second, from the
point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and because of the imperfect correlation between movements in
the debt securities and movements in the prices of futures contracts, a
correct forecast of interest rate trends by the investment advisor may still
not result in a successful hedging transaction over a very short time frame.

Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although
Government Securities Fund intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures position, and
in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. However, in the
event that the futures contracts have been used to hedge portfolio securities,
such securities will not be sold until the futures contracts can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contracts.
However, as described above, there is no guarantee that the price of the
securities will, in fact, correlate with the price movements of the futures
contracts and thus provide an offset to losses on futures

A-3
<PAGE>

contracts. Successful use of futures contracts by the Fund is also subject to
the investment adviser's ability to predict correctly movements in the
direction of interest rates and other factors affecting markets of debt
securities. For example, if the Fund has hedged against the possibility of an
increase in interest rates which would adversely affect debt securities held
in its portfolio and prices of such securities increase instead, the Fund will
lose part or all of the benefit of the increased value of its securities which
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient cash, it may
have to sell securities to meet daily variation margin requirements. Such sale
of securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.

Characteristics of Options on Futures Contracts. As with options on debt
securities, the holder of an option may terminate his position by selling an
option of the same series. There is no guarantee that such closing
transactions can be effected. The Fund will be required to deposit initial
margin and maintenance margin with respect to put and call options on futures
contracts written by it pursuant to brokers' requirements similar to those
applicable to interest rate futures contracts described above, and, in
addition, net option premiums received will be included as initial margin
deposits.

In addition to the risks which apply to all options transactions, there are
several special risks relating to options on futures contracts. Trading in
such options commenced in October 1982. The ability to establish and close out
positions on such options will be subject to the development and maintenance
of a liquid secondary market. It is not certain that this market will develop.
The Fund will not purchase options on futures contracts on any exchange unless
and until, in the investment advisor's opinion, the market for such options
had developed sufficiently that the risks in connection with options on
futures contracts are not greater than the risks in connection with futures
contracts. Compared to the use of futures contracts, the purchase of options
on futures contracts involves less potential risk to the Fund because the
maximum amount of risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the use of an option on a
futures contract would result in a loss to the Fund when the use of a futures
contract would not, such as when there is no movement in the prices of debt
securities. Writing an option on a futures contract involves risks similar to
those arising in the sale of futures contracts, as described above.

Smith Barney Investment Funds Inc.

388 Greenwich Street

New York, New York 10013

Smith Barney

A-4
<PAGE>

SMITH BARNEY
INVESTMENT FUNDS INC.
388 Greenwich Street
New York, New York 10013
Smith Barney
INVESTMENT FUNDS INC.

SMITH BARNEY INVESTMENT GRADE BOND FUND

SMITH BARNEY GOVERNMENT SECURITIES FUND

SMITH BARNEY SPECIAL EQUITIES FUND

SMITH BARNEY GROWTH OPPORTUNITY FUND

SMITH BARNEY MANAGED GROWTH FUND

STATEMENT OF
ADDITIONAL INFORMATION

APRIL , 1995

[LOGO OF SMITH BARNEY APPEARS HERE]

SMITH BARNEY INVESTMENT FUNDS INC.

PART C

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

Included in Part A:

None

Included in Part B:

The Registrant's Annual Reports for the fiscal year ended December 31, 1993
and the Reports of Independent Accountants dated February 2, 1994 are
incorporated by reference to the Definitive 30b-2 filed on March 1, 1994 as
Accession # 0000053798-94-000110.

The Registrant's Semi-Annual Reports for the six month period ended June
30, 1994 are incorporated by reference to the Definitive 30b-2 filed on
August 31, 1994 as Accession # 0000053798-94-000445.R>

Included in Part C:

None

(b) Exhibits

All references are to the Registrant's registration
statement on Form N-1A (the "Registration Statement") as
filed with the SEC on October 2, 1981 (File Nos. 2-74288 and
811-3275).

(1) Articles of Restatement dated September 17, 1993 to Registrant's
Articles of Incorporation dated September 28, 1981, Articles of Amendment
dated October 14, 1994, Articles Supplementary, Articles of Amendments and
Certificates of Correction dated November 7, 1994 are incorporated by
reference to Post-Effective Amendment No. 37 to the Registration Statement
filed on November 7, 1994 ("Post-Effective Amendment No. 37").

(2) Registrant's By-Laws, as amended on September 30, 1992 are
incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement filed on April 30, 1993.

(3) Not Applicable.

(4) Registrant's form of stock certificate for Class A, Class B and Class
D are incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement filed on October 23, 1992.

(5)(a) Investment Advisory Agreement dated July 30, 1993, between the
Registrant on behalf of Smith Barney Shearson Investment Grade Bond Fund,
Smith Barney Shearson Government Securities Fund and Smith Barney Shearson
Special Equities Fund and Greenwich Street Advisors is incorporated by
reference to the Registration Statement filed on Form N-14 on September 2,
1993. File No. 33-50153.

(b) Investment Advisory Agreement dated April 8, 1994, between the
Registrant on behalf of Smith Barney Shearson European Fund and Smith,
Barney Advisers, Inc. is incorporated by reference to Post-Effective
Amendment No. 35 to the Registration Statement filed on June 23, 1994.

(c) Transfer of Investment Advisory Agreement dated November 7,
1994, between the Registrant, Greenwich Street Advisors and Smith Barney
Mutual Funds Management Inc. ("SBMFM") on behalf of Smith Barney Investment
Grade Bond Fund, Smith Barney Government Securities Fund and Smith Barney
Special Equities Fund will be filed by amendment.

(d) Transfer of Investment Advisory Agreement dated November 7,
1994, between the Registrant, Smith, Barney Advisers, Inc. ("SBA") and
SBMFM on behalf of Smith Barney European Fund will be filed by
amendment.

(e) Investment Advisory Agreements on behalf of Smith Barney Growth
Opportunity Fund and Smith Barney Managed Growth Fund will be filed by
amendment.

(6)(a) Distribution Agreement dated July 30, 1993, between the
Registrant and Smith Barney Shearson Inc. is incorporated by reference to
the registration statement filed on Form N-14 on September 2, 1993. File
No. 33-50153.

(b) Supplement to the Distribution Agreement between the Registrant
and Smith Barney Inc. on behalf of Smith Barney Growth Opportunity Fund and
Smith Barney Managed Growth Fund will be filed by amendment

(7) Not Applicable.

(8) Custodian Agreement with PCN Bank, National Associates will be
filed by amendment.

9(a) Administration Agreement dated May 5, 1994, between the Registrant
and SBA is incorporated by reference to Post-Effective Amendment No.
37.

(b) Sub-Administration Agreement dated May 5, 1994, between the
Registrant, SBA and The Boston Company Advisors, Inc. is incorporated by
reference to Post-Effective Amendment No. 37.

(c) Transfer Agency and Registrar Agreement dated August 5, 1993 with The
Shareholder Services Group, Inc. ("TSSG") is incorporated by reference to
Post-Effective Amendment No. 31 as filed on December 22, 1993 ("Post-
Effective Amendment No. 31").

(d) Supplement to the Transfer Agency and Registrar Agreement
between the Registrant and TSSG on behalf of Smith Barney Growth
Opportunity Fund and Smith Barney Managed Growth Fund will be filed by
amendment.
(10) Not Applicable.

(11) Consent of Independent Accountants will be filed by amendment.

(12) Not Applicable.

(13) Not Applicable.

(14) Not Applicable.

(15)(a) Amended Services and Distribution Plans pursuant to Rule 12b-1
between the Registrant on behalf of Smith Barney Investment Grade Bond
Fund, Smith Barney Government Securities Fund, Smith Barney Special
Equities Fund and Smith Barney European Fund and Smith Barney, Inc. ("Smith
Barney") are incorporated by reference to Post-Effective Amendment No.
37.

(b) Form of Services and Distribution Plans pursuant to Rule 12b-1
between the Registrant on behalf of Smith Barney Growth Opportunity Fund
and Smith Barney Managed Growth Fund will be filed by amendment.

(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 22 as filed on May 1, 1989.

(17) Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 31.

Item 25. Persons Controlled by or Under Common Control with Registrant

None.

Item 26. Number of Holders of Securities
(1) (2)

Number of Record
Title of Class Holders as of December 16, 1994

Common Stock par value Class A Class B
Class C
$.001 per share

Special Equities
Fund
19,802
16,093
61

Investment Grade
Bond Fund
16,952
16,168
44

Government
Securities Fund
35,421
12,763
32

European Fund
1,960
4,709
5

Item 27. Indemnification

The response to this item is incorporated by reference to Pre-
Effective Amendment No. 1 to the registration statement filed on Form N-14
on October 8, 1993 (File No. 33-50153).

Item 28(a). Business and Other Connections of Investment Adviser

Investment Adviser - - Smith Barney Mutual Funds Management Inc., formerly
known as Smith, Barney Advisers, Inc. ("SBMFM")

SBMFM was incorporated in December 1968 under the laws of the State of
Delaware. SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings") (formerly known as Smith Barney Shearson Holdings Inc.), which
in turn is a wholly owned subsidiary of The Travelers Inc. (formerly known
as Primerica Corporation) ("Travelers"). SBMFM is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act").

The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SBMFM pursuant to the Advisers Act
(SEC File No. 801-8314).

Prior to the close of business on November 7, 1994, Greenwich Street
Advisors served as investment adviser. Greenwich Street Advisors, through
its predecessors, has been in the investment counseling business since 1934
and is a division of Mutual Management Corp. ("MMC"). MMC was incorporated
in 1978 and is a wholly owned subsidiary of Smith Barney Holdings Inc.
(formerly known as Smith Barney Shearson Holdings Inc.) ("Holdings"), which
is in turn a wholly owned subsidiary of The Travelers Inc. (formerly known
as Primerica Corporation) ("Travelers"). The list required by this Item 28
of officers and directors of MMC and Greenwich Street Advisors, together
with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two fiscal years, is incorporated by reference to
Schedules A and D of FORM ADV filed by MMC on behalf of Greenwich Street
Advisors pursuant to the Advisers Act (SEC File No. 801-14437).

Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Advisors, a member of the Asset Management Group of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), served as the Registrant's
investment adviser. On the Closing, Travelers and Smith Barney Inc.
(formerly known as Smith Barney Shearson Inc.) acquired the domestic retail
brokerage and asset management business of Shearson Lehman Brothers, which
included the business of the Registrant's prior investment adviser.
Shearson Lehman Brothers was a wholly owned subsidiary of Shearson Lehman
Brothers Holdings Inc. ("Shearson Holdings"). All of the issued and
outstanding common stock of Shearson Holdings (representing 92% of the
voting stock) was held by American Express Company. Information as to any
past business vocation or employment of a substantial nature engaged in by
officers and directors of Shearson Lehman Advisors can be located in
Schedules A and D of FORM ADV filed by Shearson Lehman Brothers on behalf
of Shearson Lehman Advisors prior to July 30, 1993. (SEC FILE NO. 801-
3701)

2/14/95

Item 29. Principal Underwriters

Smith Barney Inc. ("Smith Barney") currently acts as distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Global Opportunities Fund,
Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund
Inc., Smith Barney Principal Return Fund, Smith Barney Shearson Municipal
Money Market Fund Inc., Smith Barney Daily Dividend Fund Inc., Smith Barney
Government and Agencies Fund Inc., Smith Barney Managed Governments Fund
Inc., Smith Barney New York Municipal Money Market Fund, Smith Barney
California Municipal Money Market Fund, Smith Barney Income Funds, Smith
Barney Equity Funds, Smith Barney Investment Funds Inc., Smith Barney
Precious Metals and Minerals Fund Inc., Smith Barney Telecommunications
Trust, Smith Barney Arizona Municipals Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., The USA High Yield Fund N.V., Garzarelli Sector
Analysis Portfolio N.V., The Advisors Fund L.P., Smith Barney Fundamental
Value Fund Inc., Smith Barney Series Fund, Consulting Group Capital Markets
Funds, Smith Barney Income Trust, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Florida Municipals Fund, Smith Barney Oregon
Municipals Fund, Smith Barney Funds, Inc., Smith Barney Muni Funds, Smith
Barney World Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney Tax
Free Money Fund, Inc., Smith Barney Variable Account Funds, Smith Barney
U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), Smith Barney International Fund (Luxembourg)
and various series of unit investment trusts.

Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation) ("Travelers"). On June 1, 1994, Smith Barney changed its
name from Smith Barney Shearson Inc. to its current name. The information
required by this Item 29 with respect to each director, officer and partner
of Smith Barney is incorporated by reference to Schedule A of FORM BD filed
by Smith Barney pursuant to the Securities Exchange Act of 1934 (SEC File
No. 812-8510).

11/4/94

Item 30. Location of Accounts and Records

(1) Smith Barney Investment Funds Inc.
388 Greenwich Street
New York, New York 10013

(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013

(3) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108

(4) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA

(5) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109

Item 31. Management Services

Not Applicable.

Item 32. Undertakings

The Registrant hereby undertakes to furnish to each person to whom a
prospectus of any series of the Registrant is delivered a copy of the
Registrant's latest annual report, upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, SMITH BARNEY INVESTMENT FUNDS INC., has duly caused
this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the
City of New York, State of New York on the 14th day of February,
1995.

SMITH BARNEY
INVESTMENT FUNDS
INC.

By: /s/ Heath B.
McLendon
Heath B. McLendon
Chief Executive Officer

We, the undersigned, hereby severally constitute and
appoint Heath B. McLendon, Christina T. Sydor and Lee D. Augsburger
and each of them singly, our true and lawful attorneys, with full
power to them and each of them to sign for us, and in our hands and
in the capacities indicated below, any and all Amendments to this
Registration Statement and to file the same, with all exhibits
thereto, and other documents therewith, with the Securities and
Exchange Commission, granting unto said attorneys, and each of
them, acting alone, full authority and power to do and perform each
and every act and thing requisite or necessary to be done in the
premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said
attorneys or any of them may lawfully do or cause to be done by
virtue thereof.

WITNESS our hands on the date set forth below.

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above
Power of Attorney has been signed below by the following persons in
the capacities and on the dates indicated.

Signature Title Date

/s/ Heath B. McLendon Chairman of the Board
2/14/95
Heath B. McLendon (Chief Executive Officer)

/s/ Lewis E. Daidone Senior Vice President and
2/14/95
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer)

Signature Title Date

/s/ Paul R. Ades * Director 2/14/95
Paul R. Ades

/s/ Herbert Barg* Director 2/14/95
Herbert Barg

/s/ Alger B. Chapman* Director 2/14/95

Alger B. Chapman

/s/ Dwight B. Crane* Director 2/14/95

Dwight B. Crane

/s/ Frank Hubbard* Director
2/14/95
Frank Hubbard

/s/ Allan R. Johnson* Director 2/14/95

Allan R. Johnson

/s/ Ken Miller* Director 2/14/95
Ken Miller

/s/ John F. White* Director 2/14/95

John F. White

*Signed by Lee D. Augsburger, their duly authorized attorney-in-
fact, pursuant to power of attorney dated November 3, 1994.

/s/ Lee D. Augsburger
Lee D. Augsburger

SLIV/PEAS/PEA#38/pea38.doc