SMITH BARNEY SHEARSON INVESTMENT FUNDS INC, 485APOS, 1999-02-26

SMITH BARNEY SHEARSON INVESTMENT FUNDS INC
485APOS, 1999-02-26

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As filed with the Securities and Exchange Commission
on February 26, 1999
- ------------------------------------------------------
- -----------------------
Registration No. 2-74288
811-3275

U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933

[ ] Pre-Effective Amendment No.

[X] Post-Effective Amendment No. 56

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940,
Amendment No. 58

SMITH BARNEY 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)
(800)-451-2010
(Registrant's Telephone Number, including Area Code:)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013(22nd
Floor)
(Name and Address of Agent For Service)
Continuous
(Approximate Date of Proposed Public Offering)

It is proposed that this filing will become effective:
immediately upon filing pursuant to Paragraph (b) of Rule 485
On (date) pursuant to paragraph (b) of Rule 485
XXX 60 days after filing pursuant to paragraph (a)(1) of Rule 485
On (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
On (date) pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:

This post-effective amendment designates a new
effective date for a previously filed post-effective amendment.

SMITH BARNEY INVESTMENT FUNDS
PART A

<PAGE>

[Logo]

Smith Barney Mutual Funds

Investing for your future.

Every day.

PROSPECTUS SMITH BARNEY
MUTUAL FUNDS

April 30, 1999 CONTRARIAN FUND

Class A, B, L and Y Shares

The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>

CONTENTS

<TABLE>
<S> <C>
Fund goal and strategies....................... 4

Risks, performance and expenses................ 5

More on the fund's investments................. 8

Management..................................... 9

Choosing a class of shares to buy.............. 10

Comparing the fund's classes................... 11

Sales charges.................................. 12

More about deferred sales charges.............. 15

Buying shares.................................. 16

Exchanging shares.............................. 17

Redeeming shares............................... 18

Other things to know about
share transactions............................ 20

Smith Barney 401(k) and
ExecChoice/TM/ programs....................... 22

Dividends, distributions and
taxes......................................... 23

Share price.................................... 24

Financial highlights........................... 24
</TABLE>

YOU SHOULD KNOW:

An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.

Contrarian Fund -1-
<PAGE>

FUND GOAL AND STRATEGIES

INVESTMENT OBJECTIVE
The fund seeks long-term growth of capital.

KEY INVESTMENTS
The fund invests primarily in common stocks and other equity securities. Equity
securities include exchange traded and over-the-counter common stocks and
preferred shares, debt securities convertible into equity securities, and
warrants and rights relating to equity securities.

SELECTION PROCESS
The manager uses a "contrarian" approach to selecting investments, which means
that the manager seeks stocks that, at the time of purchase, are price
depressed, undervalued or out of favor. The manager believes that the stock
market ultimately will adjust to reflect the intrinsic value of these stocks.
Some of the fund's investments have a growth component as well.

The manager emphasizes individual security selection while diversifying the
fund's investments across industries and sectors. Companies in which the fund
invests may have large, mid or small size market capitalizations and may operate
in any market sector. In selecting individual securities for investment, the
manager looks for:

. Favorable valuation measures, including stock price relative to: book value,
cash flow, earnings and sales per share

. Qualitative measures, such as experienced and effective management,
competitive advantages and effective research, product development and marketing

. Securities valued at the low end of their 52-week trading range or
significantly below their 52-week high trading range

- -2-
<PAGE>

RISKS, PERFORMANCE AND EXPENSES

PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:

. The stock market declines generally

. Investors continue to disfavor stocks purchased by the fund, causing their
prices to remain depressed

. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect

WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:

. Are seeking to participate in the long term growth potential of the stock
market, through a contrarian approach to investing

. Are planning for a long-term goal and are willing to accept periods of market
volatility

. Are willing to accept the risks of investing in the stock market, including
the risks of investing in stocks that are depressed, undervalued or out of favor

Contrarian Fund -3-
<PAGE>

TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.

[BAR CHART APPEARS HERE]

The bar chart shows the performance of the fund's Class A shares for each of the
past 3 years. Class B, L and Y shares would have different performance because
of their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.

QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X

COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the
Standard & Poor's 500 Index and the Russell 3000 Index, each a broad-based
unmanaged index of common stocks. This table assumes imposition of the maximum
sales charge applicable to the class, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1998

Class 1 year 5 years 10 years Since inception Inception Date
<S> <C> <C> <C> <C> <C>
A n/a n/a 06/30/95
B n/a n/a 06/30/95
L n/a n/a 06/30/95
Y n/a n/a 01/31/96
S&P 500 *
Russell 3000 *
</TABLE>

*Index comparison begins on 06/30/95

- -4-
<PAGE>

FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.

<TABLE>
<CAPTION>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 5.00% None 1.00% None
price)

Maximum deferred sales charge on redemptions (as a % None* 5.00% 1.00% None
of the lower of net asset value at purchase or
redemption)

ANNUAL FUND OPERATING EXPENSES (paid by
the fund as a % of net assets)

Management fee 0.85% 0.85% 0.85% 0.85%

Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None

Other expenses ____ ____ ____ ____

Total annual fund operating expenses
</TABLE>

*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.

EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:

. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same

<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (with or without redemption) $ $ $ $

Class B (redemption at end of period) $ $ $ $

Class B (no redemption) $ $ $ $

Class L (redemption at end of period) $ $ $ $

Class L (no redemption) $ $ $ $

Class Y (with or without redemption) $ $ $ $
</TABLE>

Contrarian Fund -5-
<PAGE>

MORE ON THE FUND'S INVESTMENTS

DERIVATIVE CONTRACTS. The fund may, but need not, use derivative contracts,
such as futures and options on securities or securities indices, or options on
these futures for any of the following purposes:

. To hedge against the economic impact of adverse changes in the market value
of portfolio securities, because of changes in stock market prices

. As a substitute for buying or selling securities

RISK OF HIGH PORTFOLIO TURNOVER. The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.

- -6-
<PAGE>

MANAGEMENT

Pamela P. Milunovich, investment officer of SSBC and a director of Salomon
Brothers Asset Management, has been responsible for the day to day management of
the fund since November 1998.

MANAGEMENT FEE. For its services, the manager received a fee during the fund's
last fiscal year equal on an annual basis to [0.55%] of the fund's average daily
net assets. In addition, the manager received a fee for its administrative
services to the fund equal to [0.20%] of the fund's average daily net assets.

Special Equities Fund -7-
<PAGE>

CHOOSING A CLASS OF SHARES TO BUY

. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.

. For Class B shares, all of your purchase price and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.

You may buy shares from:
. A Salomon Smith Barney Financial Consultant

. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative

. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives

INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INITIAL ADDITIONAL
--------------------------------------------------
CLASSES A, B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans, Uniform $ 250 $15 million $50
Gift to Minor Accounts

Qualified Retirement Plans* $ 25 $15 million $25
Simple IRAs $ 1 n/a $ 1

Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
- -------------------------------------------------------------------------------------------------
</TABLE>

*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans

- -8-
<PAGE>

COMPARING THE FUND'S CLASSES

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A CLASS B CLASS L CLASS Y
KEY . Initial sales charge . No initial sales . Initial sales . No initial or
FEATURES . You may qualify charge charge is lower deferred sales charge
for reduction or . Deferred sales than Class A . Must invest at
waiver of initial charge declines . Deferred sales least
sales charge over time charge for only 1 $15 million
. Lower annual . Converts to year . Lower annual
expenses than Class Class A after 8 . Does not expenses than the
B and Class L years convert to other classes
. Higher annual Class A
expenses than . Higher annual
Class A expenses than
Class A

INITIAL SALES Up to 5.00%; None 1.00% None
CHARGE reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more

ANNUAL 0.25% of average 1% of average 1% of average None
DISTRIBUTION daily net assets daily net assets daily net assets
AND SERVICE
FEES

EXCHANGEABLE INTO* Class A shares of Class B shares of Class L shares of Class Y shares of
most Smith Barney most Smith Barney most Smith most Smith Barney
funds funds Barney funds funds
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.

Special Equities Fund -9-
<PAGE>

SALES CHARGE: CLASS A SHARES

You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.

<TABLE>
<CAPTION>
- -----------------------------------------------------------
SALES CHARGE AS A % OF

OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 5.00 5.26

$25,000 but less than $50,000 4.00 4.17

$50,000 but less than $100,000 3.50 3.63

$100,000 but less than $250,000 3.00 3.09

$250,000 but less than $500,000 2.00 2.04

$500,000 or more -0- -0-
- -----------------------------------------------------------
</TABLE>

Accumulation privilege - lets you combine the current value of Class A shares
owned

. by you, or
. by members of your immediate family,

- -10-
<PAGE>

WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:

. Employees of members of the NASD

. 403(b) or 401(k) retirement plans, if certain conditions are met

. Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met

. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified

Special Equities Fund -11-
<PAGE>

SALES CHARGE: CLASS B SHARES

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------
</TABLE>

Class B conversion. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
SHARES ISSUED: SHARES ISSUED: SHARES ISSUED:
AT INITIAL ON REINVESTMENT OF UPON EXCHANGE FROM
PURCHASE DIVIDENDS AND ANOTHER SMITH BARNEY
DISTRIBUTIONS FUND
----------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total have converted into Class A
Class B shares you own shares
----------------------------------------------------------------------------------
</TABLE>

SALES CHARGE: CLASS L SHARES

SALES CHARGE: CLASS Y SHARES

- -12-
<PAGE>

MORE ABOUT DEFERRED SALES CHARGES

In addition, you do not pay a deferred sales charge on:

. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge

DEFERRED SALES CHARGE WAIVERS

The deferred sales charge for each share class will generally be waived:

If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.

Special Equities Fund -13-
<PAGE>

BUYING SHARES

Through a You should contact your Salomon Smith Barney Financial
Salomon Consultant or dealer representative to open a brokerage
Smith account and make arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order
Consultant rejected
or dealer
will be
represen- . Class of shares being bought
tative . Dollar amount or number of shares being bought

You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's transfer clients of the selling group are eligible to buy shares
directly from the fund.
agent
. Write the transfer agent at the following address:

Smith Barney Investment Funds Inc.
Smith Barney Special Equities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128

. Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.

. Amounts transferred should be at least: $25 monthly or $50
quarterly

. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer
representative or the transfer agent may charge you a fee

For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.

- -14-
<PAGE>

EXCHANGING SHARES

Smith You should contact your Salomon Smith Barney Financial
Barney Consultant or dealer representative to exchange into other
offers a Smith Barney funds. Be sure to read the prospectus of the
distinctive Smith Barney fund you are exchanging into. An exchange is a
family of taxable transaction.
funds
tailored to . You may exchange shares only for shares of the same class
help meet of another Smith Barney fund. Not all Smith Barney funds
the varying offer all classes.
needs of
both large . Not all Smith Barney funds may be offered in your state of
and small residence. Contact your Smith Barney Financial Consultant,
investors. dealer representative or the transfer agent.

. You must meet the minimum investment amount for each fund

. The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you will
be subject to that charge. If you exchange at any time into a
fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible to
exchange shares through the transfer agent. You must complete
an authorization form to authorize telephone transfers. If
eligible, you may make telephone exchanges on any day the New
York Stock Exchange is open. Call the transfer agent at 1-800-
451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Requests received after the close of regular trading on the
Exchange are priced at the net asset value next determined.
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.

Special Equities Fund -15-
<PAGE>

REDEEMING SHARES

Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.

If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.

If the shares are held by a fiduciary or corporation, other
documents may be required.

Smith Barney Investment Funds Inc.
Smith Barney Special Equities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128

Your written request must provide the following:

. Your account number

. The class of shares and the dollar amount or number of
shares to be redeemed

. Signatures of each owner exactly as the account is
registered

- -16-
<PAGE>

Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You may be charged a fee for wire
transfers. You must submit a new authorization form to change
the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales
charge will be waived if your automatic payments do not exceed
1% per month of the value of your shares subject to a deferred
sales charge.

The following conditions apply:

. Your shares must not be represented by certificates

. All dividends and distributions must be reinvested

For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.

Special Equities Fund -17-
<PAGE>

OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS

When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed.

Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:

. Are redeeming (together with other requests submitted in the previous
10 days) over $10,000 of shares

. Are sending signed share certificates or stock powers to the transfer agent

. Instruct the transfer agent to mail the check to an address different from
the one on your account

. Changed your account registration

. Want the check paid to someone other than the account owner(s)

. Are transferring the redemption proceeds to an account with a different
registration

You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.

- -18-
<PAGE>

The fund has the right to:

. Suspend the offering of shares

. Waive or change minimum and additional investment amounts

. Reject any purchase or exchange order

. Change, revoke or suspend the exchange privilege

. Suspend telephone transactions

. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission

. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities

SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.

Special Equities Fund -19-
<PAGE>

SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS

. Class A shares may be purchased by plans investing at least $1 million.

For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.

- -20-
<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

Redemption or exchange of shares Usually capital gain or loss; long-term
only if shares owned more than one year

Long-term capital gain distributions Long-term capital gain

Short-term capital gain distributions Ordinary income

Dividends Ordinary income
- --------------------------------------------------------------------------------

Special Equities Fund -21-
<PAGE>

SHARE PRICE

Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.

FINANCIAL HIGHLIGHTS

- -22-
<PAGE>

For a Class A share of capital stock outstanding throughout each year ended
December 31:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
1998 1997 1996(1) 1995 1994(1)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $28.11 $30.44 $19.10 $20.23
-----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.21) (0.19) (0.27) (0.13)
Net realized and (1.38) (1.50) 12.37 (1.00)
unrealized gain (loss)
-----------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM (1.59) (1.69) 12.10 (1.13)
operations
-----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.28) (0.76) --

Capital -- (0.36) -- --
-----------------------------------------------------------------------------------------------------
Total Distributions -- (0.64) (0.76) --
-----------------------------------------------------------------------------------------------------
Net asset value, end of year $26.52 28.11 $30.44 $19.10
-----------------------------------------------------------------------------------------------------
Total return (5.66)% 5.81) 63.48% (5.59)%
-----------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $177 $237 $159 $101
-----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.20% .17% 1.43% 1.49%
Net investment loss (0.67) (0.61) (1.05) (0.94)
-----------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 145% 118% 113% 123%
-----------------------------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts calculated using the monthly average shares method.

Special Equities Fund -23-
<PAGE>

FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1998 1997 1996(1) 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $27.28 $29.76 $ 18.82
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.45) (0.41) (0.37)
Net realized and
unrealized gain (loss) (1.29) (1.43) 12.07
--------------------------------------------------------------------------------
Total income (loss) from (1.74) (1.84) 11.70
operations
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- --
Net realized gains -- (0.28) (0.76)
Capital -- (0.36) --
--------------------------------------------------------------------------------
Total distributions -- (0.64) (0.76)
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $25.54 27.28 $ 29.76
--------------------------------------------------------------------------------
TOTAL RETURN (6.38)% (5.81) 63.48%
--------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $ 244 $ 362 $ 171
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.94% 1.91% 2.04%
Net investment loss (1.41) (1.36) (1.61)
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 145% 118% 113%
--------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts calculated using the monthly average shares method.

- -24-
<PAGE>

FOR A CLASS L SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
1998 1997 1996(1) 1995 1994(1)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $28.11 $29.77 $18.82 $20.08
-------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.45) (0.41) (0.42) (0.25)
Net realized and (1.29) (1.44) 12.13 (1.01)
unrealized gain (loss)
-------------------------------------------------------------------------------------
Total income (loss) from operations (1.74) (1.85) 11.71 (1.26)
-------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.28) (0.76) --

Capital -- (0.36) -- --
-------------------------------------------------------------------------------------
Total Distributions -- (0.64) (0.76) --
-------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $25.54 27.28 $29.77 $18.82
-------------------------------------------------------------------------------------
TOTAL RETURN (6.38)% (6.44) 62.35% (6.27)%
-------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $ 19 $ 26 $ 9 $ 2
-------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.95% 1.90% 2.25% 2.15%
Net investment loss (1.42) (1.34) (1.79) (1.60)
-------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 145% 118% 113% 123%
-------------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts calculated using the monthly average shares method.

Special Equities Fund -25-
<PAGE>

FOR A CLASS Y SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
1998 1997 1996(1)(2)
---------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ $28.21 $ 28.99
---------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.09) (0.08)
Net realized and unrealized gain (loss) (1.40) (0.06)
---------------------------------------------------------------------------------
Total income (loss) from operations (1.49) (0.14)
---------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.28)
Capital -- (0.36)
---------------------------------------------------------------------------------
Total Distributions -- (0.64)
---------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 26.72 $ 28.21
---------------------------------------------------------------------------------
TOTAL RETURN (5.28)% (0.75) (3)
---------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $ 106 $ 94
---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.80% 0.82% (4)
Net investment loss (0.27) (0.29 )(4)
---------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 145% 118%
---------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts calculated using the monthly average shares method. (2)
For the period from January 31, 1996 (inception date) to December 31, 1996.
(3) Not annualized.
(4) Annualized.

- -26-
<PAGE>

SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]

SPECIAL EQUITIES FUND
- --an investment portfolio of Smith Barney Investment Funds Inc.

VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com

(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.

(Investment Company Act file no. 811-06290)
[FD00000 2/99]

-------------------
[Logo]

Smith Barney Mutual
Funds

Investing for your
future.

Every day.
-------------------

PROSPECTUS SMITH BARNEY
MUTUAL FUNDS

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

April 30, 1999 Government Securities Fund

Class A, B, L and Y Shares

The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.

<PAGE>

- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------

Fund goal and strategies .................................................. 4

Risks, performance and expenses ........................................... 5

More on the fund's investments ............................................ 8

Management ................................................................ 9

Choosing a class of shares to buy ......................................... 10

Comparing the fund's classes .............................................. 11

Sales charges ............................................................. 12

More about deferred sales charges ......................................... 15

Buying shares ............................................................. 16

Exchanging shares ......................................................... 17

Redeeming shares .......................................................... 18

Other things to know about
share transactions ...................................................... 20

Smith Barney 401(k) and
ExecChoice(TM) programs ................................................. 22

Dividends, distributions and
taxes ................................................................... 23

Share price ............................................................... 24

Financial highlights ...................................................... 24

You should know:

An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.

Government Securities Fund -3-
<PAGE>

- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------

Investment objective

The fund seeks high current return.

Key investments

The fund invests primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities include U.S.
Treasury securities and mortgage-related securities. Mortgage-
related securities issued by federal agencies or instrumentalities may be backed
by the full faith and credit of the U.S. Treasury, by the right of the issuer to
borrow from the U.S. government or only by the credit of the issuer itself.

Selection process

The manager focuses on identifying undervalued sectors and securities.
Specifically, the manager:

o Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues
that it believes will provide a yield advantage

o Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and relative value
factors based on interest rate outlook

o Uses research to uncover inefficient sectors of the government and
mortgage markets and adjusts portfolio positions to take advantage of new
information

o Measures the potential impact of supply/demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual securities
that balance potential return and risk

- -4-

<PAGE>

- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------

Principal risks of investing in the fund

Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:

o Interest rates increase, causing the prices of fixed income securities to
decline and reducing the value of the fund's portfolio

o As interest rates decline, the issuers of mortgage-related securities held
by the fund may pay principal earlier than scheduled or exercise a right
to call the securities, forcing the fund to reinvest in lower yielding
securities. This is known as prepayment or call risk.

o As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in
below-market interest rates and reducing the value of these securities.
This is known as extension risk.

o The manager's judgment about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect

Payments of principal and interest on mortgage pools issued by instrumentalities
of the U.S. government are not guaranteed by the U.S. government. Although
mortgage pools issued by U.S. agencies are guaranteed with respect to payments
of principal and interest, this guarantee does not apply to losses resulting
from declines in the market value of these securities.

Who may want to invest

The fund may be an appropriate investment if you:

o Are seeking income consistent with preservation of capital

o Are willing to accept the interest rate risks and market risks of
investing in government bonds and mortgage-related securities

o Prefer to invest in U.S. government securities rather than higher yielding
corporate securities

Government Securities Fund -5-

<PAGE>

Total return

This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.

[BAR CHART]

Total Return for Class B Shares

Calendar years
ended December 31
89 14.58
90 6.99
91 16.28
92 5.45
93 10.45
94 -3.25
95 13.87
96 1.42
97 10.82

Quarterly returns (past 10 years): Highest: xx% in ___ quarter 199X; Lowest: xx%
in ___ quarter 199X

Comparative performance

This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the
Lehman Brothers Government Bond Index, an unmanaged index of all U.S.
government obligations and the Merrill
Lynch U.S. Treasuries 5-10 Index, an unmanaged index of U.S. treasury
obligations with maturities ranging from five to 10 years. This table assumes
imposition of the maximum sales charge applicable to the class, redemption of
shares at the end of the period, and reinvestment of distributions and
dividends.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since inception Inception Date
<S> <C> <C> <C> <C> <C>
A n/a 11/06/92
B 03/20/84
L n/a 02/04/93
Y n/a n/a 02/07/96
Merrill Lynch U.S.
Treasuries 5-10 Index n/a
</TABLE>

*Index comparison begins on

- -6-

<PAGE>

Fees and expenses

This table sets forth the fees and expenses you will pay if you invest in fund
shares.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Shareholder fees
(paid directly from your investment) Class A Class B Class L Class Y
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 4.50% None 1.00% None
price)

Maximum deferred sales charge on redemptions (as a % None* 4.50% 1.00% None
of the lower of net asset value at purchase or
redemption)

Annual fund operating expenses (paid by
the fund as a % of net assets)

Management fee 0.55% 0.55% 0.55% 0.55%

Distribution and service (12b-1) fee 0.25% 0.75% 0.70% None

Other expenses
---- ---- ---- ----
Total annual fund operating expenses
==== ==== ==== ====
</TABLE>

Example

This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:

o You invest $10,000 in the fund for the period shown

o Your investment has a 5% return each year

o You reinvest all distributions and dividends without a sales charge

o The fund's operating expenses remain the same

- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A (with or without redemption) $ $ $ $

Class B (redemption at end of period) $ $ $ $

Class B (no redemption) $ $ $ $

Class L (redemption at end of period) $ $ $ $

Class L (no redemption) $ $ $ $

Class Y (with or without redemption) $ $ $ $

Government Securities Fund -7-

<PAGE>

- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------

Derivative contracts. The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:

o To hedge against the economic impact of adverse changes in the market value of
portfolio securities, because of changes in interest rates

o As a substitute for buying or selling securities

A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.

Mortgage Dollar Rolls. The fund may enter into mortgage dollar roll
transactions, where the fund sells a mortgage related security and
simultaneously agrees to repurchase, at a future date, another mortgage related
security with the same interest rate and maturity date, but generally backed by
a different pool of mortgages. The benefits from these transactions depend on
the manager's ability to forecast mortgage prepayment patterns on different
mortgage pools. The fund may lose money if the securities to be repurchased
decline in value before the date of repurchase.

Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.

Risk of high portfolio turnover. The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.

- -8-

<PAGE>

- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------

Manager. The fund's investment manager is SSBC Fund Management Inc., an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial
services -- asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.

James E. Conroy, investment officer of SSBC and managing director of Salomon
Smith Barney, has been responsible for the day to day management of the fund
since its inception in 1984.

Management fee. For its services, the manager received a fee during the fund's
last fiscal year equal on an annual basis to [0.35%] of the fund's average daily
net assets. In addition, the manager received a fee for its administrative
services to the fund equal to [0.20%] of the fund's average daily net assets.

Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.

Distribution plans. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.

Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.

Government Securities Fund -9-

<PAGE>

- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------

o If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.

o For Class B shares, all of your purchase price and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.

o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.

You may buy shares from:

o A Salomon Smith Barney Financial Consultant

o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative

o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives

Investment minimums. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Initial Additional
---------------------------------- -------------
- ---------------------------------------------------------------------------------------------------
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50

IRAs, Self Employed Retirement Plans, Uniform $250 $15 million $50

Gift to Minor Accounts
Qualified Retirement Plans* $25 $15 million $25

Simple IRAs $1 n/a $1
- ---------------------------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 n/a $25
- ---------------------------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $50 n/a $50
- ---------------------------------------------------------------------------------------------------
</TABLE>

*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans

- -10-

<PAGE>

- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------

Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key o Initial sales charge o No initial sales o Initial sales o No initial or
features o You may qualify charge charge is lower deferred sales charge
for reduction or o Deferred sales than Class A o Must invest at least
waiver of initial charge declines o Deferred sales $15 million
sales charge over time charge for only 1 o Lower annual
o Lower annual o Converts to year expenses than the
expenses than Class Class A after 8 o Does not other classes
B and Class L years convert to
o Higher annual Class A
expenses than o Higher annual
Class A expenses than
Class A

Initial sales Up to 4.50%; None 1.00% None
charge reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more

Deferred 1% on purchases of Up to 4.50% 1% if you redeem None
sales charge $500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years

Annual 0.25% of average 0.75% of average 0.70% of average None
distribution daily net assets daily net assets daily net assets
and service
fees

Exchange- Class A shares of Class B shares of Class L shares of Class Y shares of
able into* most Smith Barney most Smith Barney most Smith most Smith Barney
funds funds Barney funds funds
- -----------------------------------------------------------------------------------------------------------
</TABLE>

*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.

Government Securities Fund -11-

<PAGE>

- --------------------------------------------------------------------------------
Sales charge: Class A shares
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $25,000 4.50 4.71

$25,000 but less than $50,000 4.00 4.17

$50,000 but less than $100,000 3.50 3.63

$100,000 but less than $250,000 2.50 2.56

$250,000 but less than $500,000 1.50 1.52

$500,000 or more -0- -0-
- --------------------------------------------------------------------------------

Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.

Qualifying for a reduced Class A sales charge. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.

Accumulation privilege - lets you combine the current value of Class A shares
owned

o by you, or
o by members of your immediate family,

- -12-

<PAGE>

Waivers for certain Class A investors. Class A initial sales charges are waived
for certain types of investors, including:

o Employees of members of the NASD

o 403(b) or 401(k) retirement plans, if certain conditions are met

o Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met

o Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified

Government Securities Fund -13-

<PAGE>

- --------------------------------------------------------------------------------
Sales charge: Class B shares
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- --------------------------------------------------------------------------------
Deferred sales charge 4.50% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- ------------------------------------------------------------------------------------------
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- ------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
Sales charge: Class L shares
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Sales charge: Class Y shares
- --------------------------------------------------------------------------------

- -14-

<PAGE>

- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------

In addition, you do not pay a deferred sales charge on:

o Shares exchanged for shares of another Smith Barney fund

o Shares representing reinvested distributions and dividends

o Shares no longer subject to the deferred sales charge

Deferred sales charge waivers

The deferred sales charge for each share class will generally be waived:

o On payments made through certain systematic withdrawal plans

o On certain distributions from a retirement plan

o For involuntary redemptions of small account balances

o For 12 months following the death or disability of a shareholder

If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.

Government Securities Fund -15-

<PAGE>

- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------

Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will
Consultant be rejected
or dealer
represen- o Class of shares being bought
tative o Dollar amount or number of shares being bought

- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares directly
transfer from the fund.
agent
o Write the transfer agent at the following address:

Smith Barney Investment Funds Inc.
Smith Barney Government Securities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128

o Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.

o For more information, call the transfer agent at
1-800-451-2010.

- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds
investment automatically from a regular bank account, cash held
plan in a Salomon Smith Barney brokerage account or Smith Barney
money market fund to buy shares on a regular basis.

o Amounts transferred should be at least: $25 monthly or $50
quarterly

o If you do not have sufficient funds in your account on
a transfer date, Salomon Smith Barney, your dealer
representative or the transfer agent may charge you a fee

For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult
the SAI.

- -16-

<PAGE>

- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------

Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney
offers a funds. Be sure to read the prospectus of the Smith Barney fund you
distinctive are exchanging into. An exchange is a taxable transaction.
family of
funds o You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the varying
needs of o Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Smith Barney Financial Consultant, dealer
and small representative or the transfer agent.
investors.
o You must meet the minimum investment amount for each fund

o If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.

o The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges

- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the
additional time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured
from the date of your original purchase. If the fund you exchange
into has a higher deferred sales charge, you will be subject
to that charge. If you exchange at any time into a fund with
a lower charge, the sales charge will not be reduced.

- --------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If
eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Requests received after the close of regular trading on the
Exchange are priced at the net asset value next determined.

You can make telephone exchanges only between accounts that
have identical registrations.

- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.

Government Securities Fund -17-

<PAGE>

- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------

Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.

If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock powers
before the redemption is effective.

If the shares are held by a fiduciary or corporation, other
documents may be required.

Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears, which
may take up to 15 days.

- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:

Smith Barney Investment Funds Inc.
Smith Barney Government Securities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128

Your written request must provide the following:

o Your account number

o The class of shares and the dollar amount or number of
shares to be redeemed

o Signatures of each owner exactly as the account is registered

- -18-

<PAGE>

By If you do not have a brokerage account, you may be eligible to
telephone redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You must
complete an authorization form to authorize telephone redemptions.
If eligible, you may request redemptions by telephone on any day
the New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Requests received after the close of regular trading on the
Exchange are priced at the net asset value next determined.

The following conditions apply:

o Your shares must not be represented by certificates

o All dividends and distributions must be reinvested

For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.

Government Securities Fund -19-

<PAGE>

- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------

When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed.

o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or
redeemed
o Signature of each owner exactly as the account is registered

Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:

o Are redeeming (together with other requests submitted in the previous 10 days)
over $10,000 of shares

o Are sending signed share certificates or stock powers to the transfer agent

o Instruct the transfer agent to mail the check to an address different from the
one on your account

o Changed your account registration

o Want the check paid to someone other than the account owner(s)

o Are transferring the redemption proceeds to an account with a different
registration

You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.

- -20-

<PAGE>

The fund has the right to:

o Suspend the offering of shares

o Waive or change minimum and additional investment amounts

o Reject any purchase or exchange order

o Change, revoke or suspend the exchange privilege

o Suspend telephone transactions

o Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission

o Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities

Small account balances. If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.

Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.

Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.

Government Securities Fund -21-

<PAGE>

- --------------------------------------------------------------------------------
Smith Barney 401(k) and ExecChoice(TM) programs
- --------------------------------------------------------------------------------

o Class A shares may be purchased by plans investing at least $1 million.

o Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible to exchange into to Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner in the
following circumstances:

For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.

- -22-

<PAGE>

- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------

Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in additional fund shares of the same class you hold. The fund expects
distributions to be primarily from income. You do not pay a sales charge on
reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.

Taxes. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.

- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------

Redemption or exchange of shares Usually capital gain or loss; long-term
only if shares owned more than one year

Long-term capital gain distributions Long-term capital gain

Short-term capital gain distributions Ordinary income

Dividends Ordinary income
- --------------------------------------------------------------------------------

Government Securities Fund -23-

<PAGE>

- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------

The fund generally values its fund securities based on market prices or
quotations. When reliable market prices are not readily available, or when the
value of a security has been materially affected by events occurring after a
foreign exchange closes, the fund may price those securities at fair value. Fair
value is determined in accordance with procedures approved by the fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund using market quotations to price the same
securities.

Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.

- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------

- -24-

<PAGE>

For a Class A share of capital stock outstanding throughout each year ended
December 31:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995(1) 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ $9.34 $9.77 $9.17 $10.01
- ---------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.59 0.61 0.67 0.52
Net realized and unrealized gain (loss) 0.42 (0.44) 0.62 (0.80)
- ---------------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.01 0.17 1.29 (0.28)
- ---------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.60) (0.59) (0.69) (0.49)
Capital -- (0.01) -- (0.07)
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.60) (0.69) (0.56)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.75 $9.34 $9.77 $9.17
- ---------------------------------------------------------------------------------------------------------
Total return 11.23% 1.96% 14.50% (2.76)%
- ---------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $361 $389 $453 $482
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2) 0.92% 0.93% 0.94% 1.00%
Net investment income 6.24 6.16 6.70 6.18
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 274% 420% 294% 276%
- ---------------------------------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts calculated using the monthly average shares method.
(2) For the year ended December 31, 1994, the expense ratio was calculated
excluding interest expense. The expense ratio including interest expense
was 1.26%.

Government Securities Fund -25-

<PAGE>

For a Class B share of capital stock outstanding throughout each year ended
December 31:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995(1) 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ $9.38 $9.81 $9.17 $10.01
- ---------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.54 0.56 0.59 0.46
Net realized and unrealized
gain (loss) 0.44 (0.44) 0.65 (0.78)
- ---------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.98 0.12 1.24 (0.32)
- ---------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.57) (0.54) (0.60) (0.45)
Capital -- (0.01) -- (0.07)
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.57) (0.55) (0.60) (0.52)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.79 $9.38 $9.81 $9.17
- ---------------------------------------------------------------------------------------------------------
Total return 10.82% 1.42% 13.87% (3.25)%
- ---------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $101 $122 $158 $173
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2) 1.44% 1.45% 1.45% 1.48%
Net investment income 5.73 5.64 6.19 5.69
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 274% 420% 294% 276%
- ---------------------------------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts calculated using the monthly average shares method.
(2) For the year ended December 31, 1994, the expense ratio was excluding
interest expense. The expense ratio including interest expense would have
been 1.74%.

- -26-

<PAGE>

For a Class L share of capital stock outstanding throughout each year ended
December 31:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995(1) 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ $9.38 $9.81 $9.17 $10.01
- ---------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.54 0.57 0.60 0.49
Net realized and unrealized gain (loss) 0.43 (0.44) 0.65 (0.81)
- ---------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.97 0.13 1.25 (0.32)
- ---------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.57) (0.55) (0.61) (0.45)
Capital -- (0.01) -- (0.07)
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.57) (0.56) (0.61) (0.52)
- ---------------------------------------------------------------------------------------------------------
Net assets value, end of year $9.78 $9.38 $9.81 $9.17
- ---------------------------------------------------------------------------------------------------------
Total return 10.75% 1.47% 13.93% (3.25)%
- ---------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $2,311 $1,443 $1,039 $646
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2) 1.39% 1.38% 1.37% 1.47%
Net investment income 5.70 5.71 6.27 5.71
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 274% 420% 294% 276%
- ---------------------------------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts calculated using the monthly average shares method.
(2) For the year ended December 31, 1994 the expense ratio was calculated
excluding interest expense. The expense ratio including interest expense
would have been 1.72%.

Government Securities Fund -27-
<PAGE>

For a Class Y share of capital stock outstanding throughout each year ended
December 31:

- --------------------------------------------------------------------------------
1998 1997 1996(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of year $ $9.34 $9.71
- --------------------------------------------------------------------------------
Income from operations:
Net investment income 0.61 0.57
Net realized and unrealized gain (loss) 0.44 (0.37)
- --------------------------------------------------------------------------------
Total income from operations 1.05 0.20
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.63) (0.56)
Capital -- (0.01)
- --------------------------------------------------------------------------------
Total distributions (0.63) (0.57)
- --------------------------------------------------------------------------------
Net asset value, end of year $9.76 $9.34
- --------------------------------------------------------------------------------
Total return 11.73% 2.30%(2)
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s $109,909 $39,667
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.58% 0.44%(3)
Net investment income 6.46 6.49(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate 274% 420%
- --------------------------------------------------------------------------------

(1) For the period from February 7, 1996 (inception date) to December 31,
1996.
(2) Not annualized.
(3) Annualized.

- -28-

<PAGE>

SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]

Government Securities Fund
- --an investment portfolio of Smith Barney Investment Funds Inc.

Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.

Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.

Visit our web site. Our web site is located at www.smithbarney.com

You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at http:www.sec.gov

(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.

(Investment Company Act file no. 811-06290)
[FD00000 2/99]

-------------------
[Logo]

Smith Barney Mutual
Funds

Investing for your
future.

Every day.
-------------------

PROSPECTUS SMITH BARNEY
MUTUAL FUNDS

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

February 28, 1999 Government Securities Fund

Class Z Shares

The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>

The Class Z shares described in this prospectus are offered exclusively
for sale to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney Inc. or any of its affiliates.

<PAGE>

- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------

Fund goal and strategies .................................................. 4

More on the fund's investments ............................................ 8

Management ................................................................ 9

Buying, selling and redeeming
Class Z shares .......................................................... 10

Share price ............................................................... 11

Dividends, distributions and
taxes ................................................................... 12

Financial highlights ...................................................... 13

You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.

Government Securities Fund -- Class Z Shares -3-

<PAGE>

- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------

Investment objective
The fund seeks high current return.

Key investments

Selection process

The manager focuses on identifying undervalued sectors and securities.
Specifically, the manager:

o Monitors the spreads between U.S. Treasury and government agency or
instrumentality issuers and purchases agency and instrumentality issues
that it believes will provide a yield advantage

o Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and relative value
factors based on interest rate outlook

o Uses research to uncover inefficient sectors of the government and
mortgage markets and adjusts portfolio positions to take advantage of new
information

o Measures the potential impact of supply/demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual securities
that balance potential return and risk

- -4-

<PAGE>

- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------

Principal risks of investing in the fund

Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:

o Interest rates increase, causing the prices of fixed income securities to
decline and reducing the value of the fund's portfolio

o The manager's judgment about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect

Who may want to invest

The fund may be an appropriate investment if you:

o Are seeking income consistent with preservation of capital

o Are willing to accept the interest rate risks and market risks of
investing in government bonds and mortgage-related securities

o Prefer to invest in U.S. government securities rather than higher yielding
corporate securities

Government Securities Fund -- Class Z Shares -5-

<PAGE>

Total return

This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance for each of the past 10 years. Past performance does
not necessarily indicate how the fund will perform in the future.

[BAR CHART]

% Total Return: Class B Shares*

Calendar years
ended December 31
89 14.58
90 6.99
91 16.28
92 5.45
93 10.45
94 -3.25
95 13.87
96 1.42
97 10.82

Quarterly returns (past 10 years)*: Highest: xx% in ___ quarter 199X;
Lowest: xx% in ___ quarter 199X

Comparative performance

This table indicates the risks of investing in the fund by comparing the average
annual total return of the fund for the periods shown to that of the Lehman
Brothers Government Bond Index, an unmanaged index of all U.S.
government obligations and the Merrill
Lynch U.S. Treasuries 5-10 Index, an unmanaged index of government
securities with maturities of five to 10 years. This table assumes the
reinvestment of distributions and dividends.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Average Annual Total Returns
Calendar Years Ended December 31, 1998
1 year 5 years 10 years Since Inception
Inception Date
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Governement Securities [xx/xx/xx]
Fund (Class B)*

Merrill Lynch U.S.
Treasuries 5-10 Index [xx/xx/xx]
</TABLE>

*Class Z shares were not offered during these periods. Total returns shown above
are for Class B shares, which are not offered in this prospectus. The
performance of Class Z shares is substantially similar to that of Class B
shares, except that it differs to the extent they have different expenses.

- -6-

<PAGE>

Fees and expenses

This table sets forth the fees and expenses you will pay if you invest in fund
shares.

Annual fund operating expenses
(paid by the fund as a % of net assets)

Management fee 0.55%

Other expenses
----

Total annual fund operating expenses
====
Example

This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:

o You invest $10,000 in the fund for the period shown

o Your investment has a 5% return each year

o You reinvest all distributions and dividends

o The fund's operating expenses remain the same

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class Z $ $ $ $
</TABLE>

Government Securities Fund -- Class Z Shares -7-

<PAGE>

- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------

Derivative contracts. The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:

o To hedge against the economic impact of adverse changes in the market value of
portfolio securities, because of changes in interest rates

o As a substitute for buying or selling securities

- -8-

<PAGE>

- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------

James E. Conroy, investment officer of SSBC and managing director of Salomon
Smith Barney, has been responsible for the day to day management of the fund
since its inception in 1984.

Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker dealers sell fund shares to the public.

Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.

Government Securities Fund -- Class Z Shares -9-
<PAGE>

- --------------------------------------------------------------------------------
Buying, selling and exchanging Class Z shares
- --------------------------------------------------------------------------------

Through a You may buy, sell or exchange Class Z shares only through a
qualified "qualified plan." A qualified plan is a tax-exempt employee
plan benefit or retirement plan of Salomon Smith Barney, Inc. or
one of its affiliates.

There are no minimum investment requirements for Class Z
shares. However, the fund reserves the right to change this
policy at any time.

Buying Orders to buy Class Z shares must be made in accordance
with the terms of a qualified plan. If you are a participant
in a qualified plan, you mayplace an order with your plan to
buy Class Z shares at net asset value, without any sales
charge. Payment is due to Salomon Smith Barney on
settlement date, which is the third business day after your
order is accepted. If you make payment prior to this date, you
may designate a temporary investment (such as a money
market fund of the Smith Barney Mutual Funds) for payment
until settlement date. The fund reserves the right to reject
any order to buy shares and to suspend the offering of shares
for a period of time.

Selling Qualified plans may redeem their shares on any day on which
the fund calculates its net asset value. You should consult
the terms of your qualified plan for special redemption
provisions.

Exchanging You should should consult your qualified plan for
information about available exchange options.

- -10-
<PAGE>

- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------

Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order. The
fund's net asset value is the value of its assets minus its liabilities. Net
asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
The Exchange is closed on certain holidays listed in the SAI. This calculation
is done when regular trading closes on the Exchange (normally 4:00 p.m., Eastern
time).

The fund generally values its fund securities based on market prices or
quotations. When reliable market prices are not readily available, or when the
value of a security has been materially affected by events occurring after a
foreign exchange closes, the fund may price those securities at fair value. Fair
value is determined in accordance with procedures approved by the fund's board.
A fund that uses fair value to price securities may value those securities
higher or lower than another fund that uses market quotations to price the same
securities.

In order to buy, redeem or exchange shares at that day's price, you must place
your order with your qualified plan before the New York Stock Exchange closes.
If the New York Stock Exchange closes early, you must place your order with your
qualified plan prior to the actual closing time. Otherwise, you will receive the
next business day's price.

Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.

Government Securities Fund -- Class Z Shares -11-

<PAGE>

- --------------------------------------------------------------------------------
Distributions, dividends and taxes
- --------------------------------------------------------------------------------

An investment in the fund will have the following consequences
for a qualified plan as the owner of shares in the fund. Qualified plan
participants should consult their plan document or tax advisors about the tax
consequences of participating in a qualified plan.

Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the fund
to avoid a federal tax. Capital gain distributions and dividends are reinvested
in addition Class Z shares. The fund expects distributions to be primarily from
capital gains. No sales charge is imposed on reinvested distributions or
dividends. Alternatively, a qualified plan can instruct its Salomon Smith
Barney Financial Consultant, dealer representative or the transfer agent to
have distributions and/or dividends paid in cash. It can change that choice
at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.

Taxes. Provided that a qualified plan has not borrowed to finance its
investment in the fund, it will not be taxable on the receipt of dividends
and distributions from the fund.

- -12-
<PAGE>

- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
performance of Class Z shares since inception. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent accountants, whose report, along with the
fund's financial statements, are included in the annual report (available upon
request).

For a Class Z share of capital stock outstanding throughout each year ended
December 31:

- --------------------------------------------------------------------------------
1998(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of year
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(loss)
Net realized and unrealized gain
(loss)
- --------------------------------------------------------------------------------
Total income (loss) from operations
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- --------------------------------------------------------------------------------
Total distributions
- --------------------------------------------------------------------------------
Net asset value, end of year
- --------------------------------------------------------------------------------
Total return
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s
- --------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (2)
Net investment income (loss) (2)
- --------------------------------------------------------------------------------
Portfolio turnover rate
- --------------------------------------------------------------------------------

(1) For the period from November 12, 1998 (inception date) to December 31,
1998.
(2) Annualized.

silva/83579.257/prspcts/SBGS_Z.wpf

Government Securities Fund -- Class Z Shares -13-

<PAGE>

SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]

Government Securities Fund

The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan or the transfer agent if you do not
want this policy to apply to you.

You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
qualified plan, by calling the fund at 1-800-451-2010, or by writing to the fund
at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York
10013.

Visit our web site. Our web site is located at www.smithbarney.com

You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at http:www.sec.gov

(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.

(Investment Company Act file no. 811-_____)
[FD00000 2/99]

-------------------
[Logo]

Smith Barney Mutual
Funds

Investing for your
future.

Every day.
-------------------

PROSPECTUS SMITH BARNEY
MUTUAL FUNDS

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

April 30, 1999 Investment Grade Bond Fund