FILE NO 2
25890
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM N-1A
__________________________________________________
POST-EFFECTIVE AMENDMENT NO. 58
To The
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF
1933 and
POST-EFFECTIVE AMENDMENT
NO. 38 under
THE INVESTMENT COMPANY ACT OF 1940
______________________________________________
__ __
SMITH BARNEY FUNDS, INC.
(Exact name of Registrant as specified in
Charter)
388 Greenwich Street, New York, New York
10013 (Address of principal executive
offices)
(212) 816-6474
(Registrant's telephone number)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013
(22nd Floor)
(Name and address of agent for service)
__________________________________________________
To Register Additional Securities under Reg. 270.24e-
2
CALCULATION OF REGISTRATION FEE
Title of
Share
Proposed Proposed
securities Amount
Maximum
maximum Amount of
being
being
offering
aggregate
registration
registered registered
price
per
share
offering * fee
Equity Income 2,617,753
$16.65
$290,000 $100
Portfolio-Class A
(Formerly known as
Income and Growth Portfolio)
U.S. Government 5,651,292
$14.19
$290,000 $100
Securities Portfolio-Class A
Income Return 3,310,664
$9.81
$290,000 $100
Account Portfolio-
Class A
Income Return
119,737 $9.61
$290,000 $100
Account Portfolio-
Class C
Income Return
248,185 $9.60 $290,000 $100
Account Portfolio-
Class Y
Short-Term U.S.
26,890,380 $4.17 $290,000
$100 Treasury Portfolio
The fee for the shares to be registered by this filing has
been computed on the basis of the market value per share in
effect on December 14, 1995.
*Calculation of the proposed maximum offering price has been
made pursuant to Rule 24e-2.
During its fiscal year ended December 31, 1994, the fund
redeemed 15,128,995 Class A shares of the Equity Income
Portfolio. During its current fiscal year, the fund used
12,528,659 Class A shares of the Equity Income Portfolio it
redeemed during its fiscal year ended December 31, 1994, for
a reduction pursuant to Rule 24f2(c). The fund currently
is registering 2,617,753 Class A shares for the Equity
Income Portfolio, which is equal to the remaining 2,600,336
shares redeemed during its fiscal year ended December 31,
1994, plus 17,417 shares. During its current fiscal year, the
fund filed no other post-effective amendments for the purpose
of reduction pursuant to Rule 24e-2(a).
During its fiscal year ended December 31, 1994, the fund
redeemed 8,851,963 Class A shares of the U.S.
Government Securities Portfolio. During its current
fiscal year, the fund used 3,221,108 Class A shares
of the U.S. Government Securities Portfolio it redeemed
during its fiscal year ended December 31, 1994, for a
reduction pursuant to Rule 24f-2(c). The fund currently
is registering 5,651,292 Class A shares for the U.S.
Government Securities Portfolio, which is equal to the
remaining 5,630,855 Class A shares redeemed during its
fiscal year ended December 31, 1994, plus 20,437 shares.
During its current fiscal year, the fund filed no other post-
effective amendments for the purpose of reduction pursuant
to Rule 24e-2(a).
During its fiscal year ended December 31, 1994, the fund
redeemed 3,708,422 Class A shares of the Income Return
Account Portfolio. During its current fiscal year, the fund
used 427,320 Class A shares of the Income Return Account
Portfolio it redeemed during its fiscal year ended December
31, 1994, for a reduction pursuant to Rule 24f-2(c). The
fund currently is registering 3,310,664 Class A shares for
the Income Return Account Portfolio, which is equal to the
remaining 3,281,102 Class A shares redeemed during its
fiscal year ended December 31, 1994, plus 29,562 shares.
During its current fiscal year, the fund filed no other
post effective amendments for the purpose of reduction
pursuant
to Rule 24e-2(a).
During its fiscal year ended December 31, 1994, the fund
redeemed 357,469 Class C shares of the Income Return
Account Portfolio. During its current fiscal year, the fund
used 267,909 Class C shares of the Income Return Account
Portfolio it redeemed during its fiscal year ended December
31, 1994, for a reduction pursuant to Rule 24f-2(c). The
fund currently is registering 119,737 Class C shares for
the Income Return Account Portfolio, which is equal to the
remaining 89,560 Class C shares redeemed during its fiscal
year ended December 31, 1994, plus 30,177 shares. During its
current fiscal year, the fund filed no other post-effective
amendments for the purpose of reduction pursuant to Rule
24e2(a).
During its fiscal year ended December 31, 1994, the fund
redeemed 351,172 Class Y shares of the Income Return
Account Portfolio. During its current fiscal year, the fund
used 133,195 Class Y shares of the Income Return Account
Portfolio it redeemed during its fiscal year ended December
31, 1994, for a reduction pursuant to Rule 24f-2(c). The fund
currently is registering 248,185 Class Y shares for the
Income Return Account Portfolio, which is equal to the
remaining 217,977 Class A shares redeemed during its
fiscal year ended December 31, 1994, plus 30,208 shares.
During its current fiscal year, the fund filed no other post-
effective amendments for the purpose of reduction pursuant
to Rule 24e2(a).
During its fiscal year ended December 31, 1994, the fund
redeemed 50,274,705 shares of the Short-Term U.S.
Treasury Portfolio. During its current fiscal year, the fund
used 23,453,869 shares of the Short-Term U.S. Treasury
Portfolio it redeemed during its fiscal year ended December
31, 1994, for a reduction pursuant to Rule 24f-2(c). The
fund currently is registering 26,890,380 shares for the
Short-Term U.S. Treasury Portfolio, which is equal to the
remaining 26,820,836 shares redeemed during its fiscal year
ended December 31, 1994, plus 69,544 shares. During its
current fiscal year, the fund filed no other post-
effective amendments for the purpose of reduction pursuant
to Rule 24e2(a).
Rule 24f-2 (1) Declaration:
Registrant filed its Rule 24f-2 Notice on February 28, 1995
for its most recent fiscal year ended December 31, 1994.
It is proposed that this Post-Effective Amendment will
become effective immediately upon filing pursuant to
paragraph (b) of Rule 485.
CROSS REFERENCE SHEET
(as required by 495 (a))
Part A of
Form N-1A Prospectus Caption
1. Cover Page cover page
2. Synopsis "Prospectus
Summary"
3. Condensed Financial Information "Financial
Highlights"
4. General Description
of
Registrant
"Additional
Information"
cover page
"Investment
Objective
and Management
Policies"
5. Management of the
Fund
"Management of the
Fund" "Prospectus
Summary"
6. Capital Stock and
Other Securities
"Additional
Information"
"Redemption of
Shares" cover page
"Dividends, Distri
butions and
Taxes"
7. Purchase of
Securities
Being Offered
"Prospectus
Summary" "Purchase
of Shares"
"Management of the
Fund"
"Valuation of
Shares"
8. Redemption or
Repurchase
"Redemption of
Shares" "Minimum
Account Size"
9. Legal Proceedings not applicable
Part B of Statement of
Additional
Form N-1A Information Caption
10. Cover page cover page
11. Table of Contents "Table of Contents"
12. General Information and History not applicable
13. Investment Objectives and Policies "Investment
Policies"
"Investment
Restrictions"
14. Management of the Registrant "Directors
and
Officers"
15. Control Persons and Principal
Holders of
Securities
See Prospectus
"Additional
Information"
"Directors and
Officers"
16. Investment Advisory and other Services See
Prospectus
- --
"Management of the
Fund"
"Directors and
Officers" "Investment
Management Agreement and
Other
Services" "Custodian"
"Independent
Auditors"
17. Brokerage Allocation "Investment
Management
Agreement and
Other Services"
18. Capital Stock and Other Securities See
Prospectus
- --
"Additional
Information" See
Prospectus
"Dividends,
Distributions and
Taxes"
"Investment
Policies" "Voting"
19. Purchase, Redemption and Pricing
of Securities
Being Offered
See Prospectus
"Purchase of
Shares" and
"Prospectus
Summary" "IRA and
other Proto
type Retirement
Plans"
See Prospectus
"Valuation of
Shares"
"Financial
Statements" "Redemption of Shares"
20. Tax Status See
Prospectus
- --
"Dividends,
Distribu tions and
Taxes" "Additional
Tax Information"
21. Underwriters See
Prospectus
- --
"Management of the
Fund" "Investment
Management
Agreement and
Other Services"
22. Calculation of Performance Data "Performance
Information"
23. Financial Statements
"Financial
Statements"
Part C of
Form N-1A
Information required to be included in Part C is set forth
under the appropriate item, so numbered in Part C of this
Post Effective Amendment to the Registration Statement.
<PAGE>
P R O S P E C T U S
SMITH BARNEY FUNDS, INC.
Short-Term
U.S. Treasury
Securities
Portfolio
APRIL 28, 1995
Prospectus begins on page one
LOGO Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS
APRIL 28, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Short-Term U.S. Treasury Securities Portfolio (the
"Portfolio") is one of
six investment portfolios that currently comprise Smith
Barney Funds, Inc. (the
"Fund"). The Portfolio seeks current income, preservation of
capital and
liquidity. The Portfolio seeks to achieve its objective by
investing its assets
in U.S. Treasury securities backed by the full faith and
credit of the U.S.
Government. Shares of the Portfolio are not issued, insured
or guaranteed, as
to value or yield, by the U.S. Government or its agencies or
instrumentalities.
This Prospectus sets forth concisely certain information
about the Fund and
the Portfolio, including distribution and service fees and
expenses, that pro-
spective investors will find helpful in making an investment
decision. Invest-
ors are encouraged to read this Prospectus carefully and
retain
it for future
reference.
Additional information about the Portfolio is contained in a
Statement of
Additional Information dated April 28, 1995, as amended or
supplemented from
time to time, that is available upon request and without
charge by calling or
writing the Fund at the telephone number or address set forth
above or by con-
tacting a Smith Barney Financial Consultant. The Statement of
Additional Infor-
mation has been filed with the Securities and Exchange
Commission (the "SEC")
and is incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 8
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 9
- -------------------------------------------------
VALUATION OF SHARES 10
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 11
- -------------------------------------------------
PURCHASE OF SHARES 12
- -------------------------------------------------
EXCHANGE PRIVILEGE 16
- -------------------------------------------------
REDEMPTION OF SHARES 20
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 23
- -------------------------------------------------
PERFORMANCE 23
- -------------------------------------------------
MANAGEMENT OF THE FUND 24
- -------------------------------------------------
DISTRIBUTOR 26
- -------------------------------------------------
ADDITIONAL INFORMATION 26 -----------
- --------------------------------------
</TABLE>
- -------------------------------------------------------------
- ----------------
No person has been authorized to give any information or to
make any
representations in connection with this offering other than
those contained in
this Prospectus and, if given or made, such other information
and representations must not be relied upon as having been
authorized by the Fund
or the Distributor. This Prospectus does not constitute an
offer by the Fund
or the Distributor to sell or a solicitation of an offer to
buy any of the
securities offered hereby in any jurisdiction to any person
to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. -----------------------------------------------
- ------------------------------
2
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
detailed information
appearing elsewhere in this Prospectus and in the Statement
of Additional
Information. Cross references in this summary are to headings
in the
Prospectus. See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio is an open-end, management
investment com-
pany. The Portfolio seeks current income, preservation of
capital and liquidi-
ty. The Portfolio seeks to achieve its objective by investing
its assets in
U.S. Treasury securities backed by the full faith and credit
of the U.S. Gov-
ernment. Shares of the Portfolio are not issued, insured or
guaranteed, as to
value or yield, by the U.S. Government or its agencies or
instrumentalities.
See "Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Portfolio offers two
classes of shares
("Classes") to investors. The general public is offered Class
A shares. Class
Y shares are offered only to investors meeting an initial
investment minimum
of $5,000,000. See "Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold at net asset value
without a sales
charge. Class A shares acquired as part of an exchange
privilege transaction,
which were originally acquired in one of the other funds of
the Smith Barney
Mutual Funds at net asset value subject to a contingent
deferred sales charge
("CDSC"), remain subject to the original fund's CDSC while
held in the Portfo-
lio. Class A shares are subject to an annual service fee of
0.25% and an
annual distribution fee of 0.10% of the average daily net
assets of this
Class.
Class Y Shares. Class Y shares are available only to
investors meeting an ini-
tial investment minimum of $5,000,000. Class Y shares are
sold at net asset
value with no initial sales charge or CDSC. They are not
subject to any serv-
ice or distribution fees.
See "Distributor" for a complete description of the service
and distribution
fees for Class A shares and "Valuation of Shares,"
"Dividends, Distributions
and Taxes" and "Exchange Privilege" for other differences
between the Classes
of shares.
SMITH BARNEY 401(k) PROGRAM Investors may be eligible to
participate in the
Smith Barney 401(k) Program, which is generally designed to
assist plan spon-
sors in the creation and operation of retirement plans under
Section 401(a)
3
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS SUMMARY (CONTINUED)
of the Internal Revenue Code of 1986, as amended (the
"Code"), as well as
other types of participant directed, tax-qualified employee
benefit plans
(collectively, "Participating Plans"). Class A and Class Y
shares are avail-
able as investment alternatives for Participating Plans. See
"Purchase of
Shares -- Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through a
brokerage account main-
tained with Smith Barney Inc. ("Smith Barney"). Shares may
also be purchased
through a broker that clears securities transactions through
Smith Barney on a
fully disclosed basis (an "Introducing Broker") or an
investment dealer in the
selling group. In addition, certain investors, including
qualified retirement
plans and certain other institutional investors, may purchase
shares directly
from the Fund through the Fund's transfer agent, The
Shareholder Services
Group, Inc. ("TSSG"), a subsidiary of First Data Corporation.
See "Purchase of
Shares."
INVESTMENT MINIMUMS Investors in Class A shares may open an
account by making
an initial investment of at least $1,000 for each account, or
$250 for an
individual retirement account ("IRA") or a Self-Employed
Retirement Plan.
Investors in Class Y shares may open an account for an
initial investment of
$5,000,000. Subsequent investments of at least $50 may be
made in either
Class. For participants in retirement plans qualified under
Section 403(b)(7)
or Section 401(a) of the Code, the minimum initial investment
requirement for
Class A shares and the subsequent investment requirement for
both Class A and
Class Y shares is $25. The minimum initial investment
requirement for Class A
shares and the subsequent investment requirement for both
Class A and Class Y
shares through the Systematic Investment Plan described below
is $50. See
"Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio offers shareholders
a Systematic
Investment Plan under which they may authorize the automatic
placement of a
purchase order each month or quarter for Portfolio shares in
an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the
New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase
of Shares" and
"Redemption of Shares."
4
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS SUMMARY (CONTINUED)
MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual Funds
Management Inc. (former-
ly, Smith, Barney Advisers, Inc.) (the "Manager") serves as
the Portfolio's
investment manager. The Manager is a wholly owned subsidiary
of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of The Trav-
elers Inc. ("Travelers"), a diversified financial services
holding company
engaged, through its subsidiaries, principally in four
business segments:
Investment Services, Consumer Finance Services, Life
Insurance
Services and
Property & Casualty Insurance Services. See "Management of
the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for
shares of the same
Class of certain other funds of the Smith Barney Mutual Funds
at the respec-
tive net asset values next determined, plus any applicable
sales charge dif-
ferential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Portfolio for the
prior day gener-
ally is quoted daily in the financial section of most
newspapers and is also
available from a Smith Barney Financial Consultant. See
"Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are paid monthly from
net investment
income. Distributions of net realized capital gains, if any,
are paid annual-
ly. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on
shares of the
Portfolio will be reinvested automatically, unless otherwise
specified by an
investor, in additional shares of the same Class at current
net asset value.
See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no
assurance that the
Portfolio's investment objective will be achieved. The value
of the Portfo-
lio's investments, and thus the net asset value of the
Portfolio's shares,
will fluctuate in response to changes in market and economic
conditions, as
well as the financial condition and prospects of issuers in
which the Portfo-
lio invests. See "Investment Objective and Management
Policies."
5
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS SUMMARY (CONTINUED)
THE PORTFOLIO'S EXPENSES The following expense table lists
the costs and
expenses an investor will incur either directly or indirectly
as a shareholder
of the Portfolio based, unless otherwise noted, on the
Portfolio's operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS Y ---------------------------------------------
- ---------------------------------
<S>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering
price)....................... None None
Maximum CDSC
(as a percentage of original cost or redemption
proceeds, whichever is
lower)............................. None* None ------------
- -------------------------------------------------------------
- ----
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Management
fees.............................................
0.45% 0.45%
12b-1
fees.................................................. 0.35 -
- -
Other
expenses**............................................ 0.11
0.10 --------------------------------------------------------
- ----------------------
TOTAL PORTFOLIO OPERATING EXPENSES
0.91% 0.55% -----------------------------------------------
- -------------------------------
</TABLE>
* Class A shares acquired as part of an exchange privilege
transaction, which
were originally acquired in one of the other funds of the
Smith Barney
Mutual Funds at net asset value subject to a CDSC, remain
subject to the
original fund's CDSC while held in the Portfolio.
** "Other expenses" for Class Y shares have been estimated
because no Class Y
shares were outstanding during the fiscal year ended December
31, 1994.
Smith Barney receives an annual 12b-1 fee of 0.35% of the
value
of average
daily net assets of Class A shares, consisting of a 0.10%
distribution fee and
a 0.25% service fee. "Other expenses" in the above table
include
fees for
shareholder services, custodial fees, legal and accounting
fees, printing costs
and registration fees.
6
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities
Portfolio
PROSPECTUS SUMMARY (CONTINUED)
EXAMPLE
The following example is intended to assist an investor in
understanding the
various costs that an investor in the Portfolio will bear
directly or indirect-
ly. The example assumes payment by the Portfolio of operating
expenses at the
levels set forth in the table above. See "Purchase of
Shares," "Redemption of
Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
1 YEAR 3
YEARS 5 YEARS 10
YEARS ----------------------------------------------
- --------------------------------
<S> <C> <C>
<C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the
end of each time period:
Class A.................................... $ 9 $29
$50 $112
Class Y.................................... 6 18
31 69
</TABLE>
The example also provides a means for the investor to compare
expense levels
of funds with different fee structures over varying
investment periods. To
facilitate such comparison, all funds are required to utilize
a 5.00% annual
return assumption. However, the Portfolio's actual return
will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN
THOSE SHOWN.
7
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
FINANCIAL HIGHLIGHTS
The following schedule for the periods ended December 31st
has been audited in
conjunction with the annual audits of the financial
statements of Smith Bar-
ney Funds, Inc. by KPMG Peat Marwick LLP, independent
auditors. The 1994 finan-
cial statements and the independent auditors' report thereon
appear in the
December 31, 1994 Annual Report to Shareholders. No
information is presented
for Class Y shares, because no Class Y shares were
outstanding for the periods
shown.
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
CLASS A SHARES 1994 1993
1992 1991(a) ------------------------------------------------
- -----------------------------
<S> <C> <C>
<C>
<C>
Net Asset Value, Beginning of Period $4.16 $4.12
$4.09 $4.01 ----------------------------------------------
- -------------------------------
INCOME (LOSS) FROM INVESTMENT OPERA-
TIONS:
Net investment income 0.18 0.18
0.19 0.03
Net realized and unrealized gain
(loss) on investments (0.25) 0.06
0.04 0.09
- -------------------------------------------------------------
- ----------------
Total Income (Loss) from Investment
Operations (0.07) 0.24
0.23 0.12 -----------------------------------------------
- --
- -----------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.18) (0.18)
(0.19) (0.03)
Distributions from net realized gains
on security transactions -- (0.02)
(0.01) (0.01) ---------------------------------------------
- --------------------------------
Total Distributions (0.18) (0.20)
(0.20) (0.04) ---------------------------------------------
- --------------------------------
NET ASSET VALUE, END OF PERIOD 3.91 4.16
4.12 4.09 -----------------------------------------------
- --
- -----------------------------
TOTAL RETURN (2.15)% 6.01%
5.92% 2.85%++ --------------------------------------------
- --
- --------------------------------
NET ASSETS, END OF PERIOD (000S) $88,707 $205,758
$130,280 $93,946 -------------------------------------------
- ----------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.91% 0.88%
0.91% 0.80%+
Net investment income 4.54 4.40
4.76 4.89+ ----------------------------------------------
- --
- ------------------------------
PORTFOLIO TURNOVER RATE 24.51% 41.12%
44.99% 4.61% ---------------------------------------------
- --
- -------------------------------
</TABLE>
(a) For the period from November 11, 1991 (commencement of
operations) to
December 31, 1991.
+ Annualized.
++ Not annualized as it may not be representative of the
total return for the
year.
8
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Portfolio is current income,
preservation of
capital and liquidity. There can be no assurance that the
investment objective
of the Portfolio will be achieved.
The Portfolio will seek to achieve its objective by investing
its assets in
U.S. Treasury debt securities guaranteed by the direct "full
faith and credit"
pledge of the United States Government. U.S. Treasury debt
securities (includ-
ing Treasury bills, notes and bonds) are direct obligations
of the U.S. Trea-
sury. The payment of principal and interest on such
securities is uncondition-
ally guaranteed by the U.S. Government and, therefore, they
are deemed to be of
the highest possible credit quality.
Though U.S. Treasury debt securities have historically not
involved risk of
loss of principal if held to maturity, they are subject to
variations in market
value due to fluctuations in interest rates. Changes in the
value of portfolio
securities will not affect interest income from those
securities but will be
reflected in the Portfolio's net asset value. Thus, a
decrease in interest
rates will generally result in an increase in the value of
the Portfolio's
shares. Conversely, during periods of rising interest rates,
the value of the
Portfolio's shares will generally decline. In an effort to
minimize fluctua-
tions in market value of its portfolio securities, the
Portfolio is expected to
maintain a dollar-weighted average maturity of approximately
3 years.
Pending direct investment in U.S. Treasury debt securities,
the Portfolio may
enter into repurchase agreements secured by such securities
in order to earn
income on available cash but only in an amount up to 10% of
the value of its
total assets. A repurchase agreement arises when the
Portfolio acquires a secu-
rity and simultaneously agrees to resell it to the vendor at
an agreed-upon
future date, normally the next business day. The resale price
is greater than
the purchase price and reflects an agreed-upon return
unrelated to the coupon
rate on the purchased security. Such transactions afford an
opportunity for the
Portfolio to invest temporarily available cash at no market
risk. The Portfolio
requires continual maintenance of the market value of the
collateral in amounts
at least equal to the resale price. The Portfolio's risk is
limited to the
ability of the seller to pay the agreed-upon amount on the
delivery date; how-
ever, if the seller defaults, realization upon the collateral
by the Portfolio
may be delayed or limited, or the Portfolio might incur a
loss if the value of
the collateral securing the repurchase agreement declines and
might incur dis-
position costs in connection with liquidating the collateral.
9
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Portfolio may, to a limited degree, engage in short-term
trading to
attempt to take advantage of short-term market variations, or
may dispose of a
portfolio security prior to its maturity if it believes such
disposition advis-
able or it needs to generate cash to satisfy redemptions. As
the portfolio
turnover rate increases, so will the Portfolio's dealer mark
ups and other
transaction related expenses. Investors should realize that
risk of loss is
inherent in the ownership of any securities and that shares
of the Portfolio
will fluctuate with the market value of its securities.
As a matter of fundamental policy, the Portfolio may borrow
money from banks
for temporary purposes but only in an amount up to 10% of the
value of its
total assets and may pledge its assets in an amount up to 10%
of the value of
its total assets to secure such borrowings. The Portfolio
will borrow money
only to accommodate requests for the redemption of shares
while effecting an
orderly liquidation of portfolio securities or to clear
securities transactions
and not for leveraging purposes. Whenever borrowings exceed
5% of the value of
its total assets, the Portfolio will not make any additional
investments.
The Portfolio's investment objective may be changed only by
the "vote of a
majority of the outstanding voting securities" as defined in
the Investment
Company Act of 1940 (the "1940 Act"). Except as specifically
noted, the Portfo-
lio's investment policies are not fundamental and, as such,
may be modified by
the directors of the Fund provided such modification is not
prohibited by the
investment restrictions (which are set forth in the Statement
of Additional
Information) or applicable law, and any such change will
first be disclosed in
the then current prospectus.
VALUATION OF SHARES
The Portfolio's net asset value per share is determined as of
the close of
regular trading on the NYSE on each day that the NYSE is
open, by dividing the
value of the Portfolio's net assets attributable to each
Class by the total
number of shares of the Class outstanding.
Securities owned by the Portfolio are valued at the mean
between the bid and
asked quotations for those securities or if no quotations are
available, then
for securities of similar type, yield and maturity. Short-
term investments that
have a maturity of more than 60 days are valued at prices
based on market
10
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
VALUATION OF SHARES (CONTINUED)
quotations for securities of similar type, yield and
maturity. Short-term
investments with a remaining maturity of 60 days or less are
valued at amor-
tized cost where the Board has determined that amortized cost
is fair value.
Other investments of the Portfolio, if any, are valued at a
fair value deter-
mined by the Board of Directors in good faith.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Portfolio declares a dividend of substantially all of its
net investment
income on each day the NYSE is open. Net investment income
includes interest
accrued and discount earned and all short-term realized gains
and losses on
portfolio securities and is less premium amortized and
expenses accrued.
Income dividends are paid monthly. Distributions of net
realized capital
gains, if any, are paid annually.
If a shareholder does not otherwise instruct, dividends and
capital gain
distributions will be reinvested automatically in additional
shares of the
same Class at net asset value.
Income dividends and capital gain distributions that are
invested are cred-
ited to shareholders' accounts in additional shares at the
net asset value as
of the close of business on the payment date. A shareholder
may change the
option at any time by notifying a Smith Barney Financial
Consultant. Accounts
held directly by TSSG should notify TSSG in writing at least
five business
days prior to the payment date to permit the change to be
entered in the
shareholder's account. If a shareholder redeems in full an
account between
payment dates, all dividends accrued to the date of
liquidation will be paid
with the proceeds from the redemption of shares.
The per share dividends on Class A shares of the Portfolio
may be lower than
the per share dividends on Class Y shares principally as a
result of the serv-
ice and distribution fees applicable to Class A shares.
Distributions of capi-
tal gains, if any, will be in the same amount for Class A and
Class Y shares.
TAXES
The Portfolio intends to qualify as a regulated investment
company under
Subchapter M of the Code to be relieved of Federal income tax
on that part of
11
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
its net investment income and realized capital gains which it
pays out to its
shareholders. To qualify, the Portfolio must meet certain
tests, including dis-
tributing at least 90% of its investment company taxable
income, and deriving
less than 30% of its gross income from the sale or other
disposition of certain
investments held for less than three months.
Dividends from net investment income and distributions of
realized short-term
capital gains on the sale of securities, whether paid in cash
or automatically
invested in additional shares of the Portfolio, are taxable
to shareholders of
the Portfolio as ordinary income. The Portfolio's dividends
will not qualify
for the dividends received deduction for corporations.
Distributions out of net
long-term capital gains (i.e., net long-term capital gains in
excess of net
short-term capital losses) are taxable to shareholders as
long term capital
gains. Information as to the tax status of dividends paid or
deemed paid in
each calendar year will be mailed to shareholders as early in
the succeeding
year as practical but not later than January 31.
The Fund is required to withhold and remit to the U.S.
Treasury 31% of divi-
dends, distributions and redemption proceeds to shareholders
who fail to pro-
vide a correct taxpayer identification number (the Social
Security number in
the case of an individual) or to make the required
certifications, or who have
been notified by the Internal Revenue Service that they are
subject to backup
withholding and who are not otherwise exempt. The 31%
withholding tax is not an
additional tax, but is creditable against a shareholder's
Federal income tax
liability.
State Taxes. The Fund believes that dividends paid by the
Portfolio are
exempt from state income taxation.
Prior to investing in shares of the Portfolio, investors
should consult with
their tax advisors concerning the Federal, state and local
tax consequences of
such an investment.
PURCHASE OF SHARES
GENERAL
The Portfolio offers two Classes of shares. Class A shares
are sold to
investors without an initial sales charge or CDSC but are
subject to annual
service
12
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
and distribution fees. (In addition, Class A shares acquired
as part of an
exchange privilege transaction, which were originally
acquired in one of the
other funds of the Smith Barney Mutual Funds at net asset
value subject to a
CDSC, remain subject to the original fund's CDSC while held
in the Portfolio.)
Class Y shares are sold without an initial sales charge or
CDSC or service or
distribution fees, and are available only to investors
investing a minimum of
$5,000,000.
Shares may be purchased through a brokerage account
maintained
with Smith
Barney. Shares may also be purchased through an Introducing
Broker or an
investment dealer in the selling group. In addition, certain
investors, includ-
ing qualified retirement plans and certain other
institutional investors, may
purchase shares directly from the Fund through TSSG. When
purchasing shares of
the Portfolio, investors must specify whether the purchase is
for Class A or
Class Y shares. No maintenance fee will be charged by the
Fund in connection
with a brokerage account through which an investor purchases
or holds shares.
Investors in Class A shares may open an account by making an
initial invest-
ment of at least $1,000 for each account, or $250 for an IRA
or a Self-Employed
Retirement Plan in the Portfolio. Investors in Class Y shares
may open an
account by making an initial investment of $5,000,000.
Subsequent investments
of at least $50 may be made for each Class. For participants
in retirement
plans qualified under Section 403(b)(7) or Section 401(a) of
the Code, the min-
imum initial investment requirement for Class A shares and
the subsequent
investment requirement for both Classes in the Portfolio is
$25. For the Port-
folio's Systematic Investment Plan, the minimum initial
investment requirement
for Class A Shares and the subsequent investment requirement
for both Classes
is $50. There are no minimum investment requirements in Class
A shares for
employees of Travelers and its subsidiaries, including Smith
Barney, Directors
of the Fund, and their spouses and children. The Fund
reserves the right to
waive or change minimums, to decline any order to purchase
its shares and to
suspend the offering of shares from time to time. Shares
purchased will be held
in the shareholder's account by the Fund's transfer agent,
TSSG. Share certifi-
cates are issued only upon a shareholder's written request to
TSSG.
The Portfolio's shares are sold continuously at their net
asset value next
determined after a purchase order is received and becomes
effective. A purchase
order becomes effective when the Fund, Smith Barney or an
Introducing Broker
receives, or converts the purchase amount into, Federal funds
(i.e., monies of
member banks within the Federal Reserve System held on
deposit at a Federal
13
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
Reserve Bank). When orders for the purchase of Portfolio
shares are paid for in
Federal funds, or are placed by an investor with sufficient
Federal funds or
cash balance in the investor's brokerage account with Smith
Barney or the
Introducing Broker, the order becomes effective on the day of
receipt prior to
the close of regular trading on the NYSE, on any day the
Portfolio calculates
its net asset value. See "Valuation of Shares." Purchase
orders received after
the close of regular trading on the NYSE are effective as of
the time the net
asset value is next determined. When orders for the purchase
of Portfolio
shares are paid for other than in Federal funds, Smith Barney
or the Introduc-
ing Broker, acting on behalf of the investor, will complete
the conversion
into, or itself advance, Federal funds, and the order becomes
effective on the
day following its receipt by the Fund, Smith Barney or the
Introducing Broker.
Shares purchased directly through TSSG begin to accrue income
dividends on the
day that the purchase order becomes effective. All other
shares purchased begin
to accrue dividends on the next business day following the
day the purchase
order becomes effective.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time
by purchasing
shares through a service known as the Systematic Investment
Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is
authorized through preau-
thorized transfers of $50 or more to charge the regular bank
account or other
financial institution indicated by the shareholder on a
monthly or quarterly
basis to provide systematic additions to the shareholder's
Portfolio account. A
shareholder who has insufficient funds to complete the
transfer will be charged
a fee of up to $25 by Smith Barney or TSSG. The Systematic
Investment Plan also
authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney
brokerage account or redeem the shareholder's shares of a
Smith Barney money
market fund to make additions to the account. Additional
information is avail-
able from the Fund or a Smith Barney Financial Consultant.
LETTER OF INTENT
Class Y Shares. A Letter of Intent may also be used as a way
for investors to
meet the minimum investment requirement for Class Y shares.
Such investors must
make an initial minimum purchase of $1,000,000 in Class Y
shares of the Portfo-
lio and agree to purchase a total of $5,000,000 of Class Y
shares of the same
Portfolio within six months from the date of the Letter. If a
total invest-
14
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
ment of $5,000,000 is not made within the six-month period,
all Class Y shares
purchased to date will be transferred to Class A shares,
where they will be
subject to all fees (including a service fee of 0.25% and a
distribution fee
of 0.10%) and expenses applicable to the Portfolio's Class A
shares. Please
contact a Smith Barney Financial Consultant or TSSG for
further information.
SMITH BARNEY 401(k) PROGRAM
Investors may be eligible to participate in the Smith Barney
401(k) Program,
which is generally designed to assist plan sponsors in the
creation and opera-
tion of retirement plans under Section 401(a) of the Code. To
the extent
applicable, the same terms and conditions are offered to all
Participating
Plans in the Smith Barney 401(k) Program.
The Portfolio offers to Participating Plans Class A and Class
Y shares as
investment alternatives under the Smith Barney 401(k)
Program. Class A shares
acquired through the Smith Barney 401(k) Program are subject
to the same serv-
ice and distribution fees as, but a different CDSC schedule
than, the Class A
shares acquired by other investors. Similar to those shares
available to other
investors, Class Y shares acquired through the Smith Barney
401(k) Program are
not subject to any service or distribution fees or any
initial sales charge or
CDSC. Once a Participating Plan has made an initial
investment in the Portfo-
lio, all of its subsequent investments in the Portfolio must
be in the same
Class of shares.
Class A Shares. Class A shares of the Portfolio are offered
to any Partici-
pating Plan that purchases from $500,000 to $4,999,999 of
Class A shares of
one or more of the other Smith Barney Mutual Funds. Class A
shares acquired
through the Smith Barney 401(k) Program after November 7,
1994 by exchange
from one of the other Smith Barney Mutual Funds are subject
to a CDSC of 1.00%
of redemption proceeds, if the Participating Plan terminates
within four years
of the date the Participating Plan first enrolled in the
Smith Barney 401(k)
Program.
Class Y Shares. Class Y shares of the Portfolio are offered
without any
service or distribution fees, sales charge or CDSC to any
Participating Plan
that purchases $5,000,000 or more of Class Y shares of one or
more of the
other funds of the Smith Barney Mutual Funds.
No CDSC is imposed on redemptions of Class A shares to the
extent that the
net asset value of the shares redeemed does not exceed the
current net asset
15
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
value of the shares purchased through reinvestment of
dividends or capital gain
distributions, plus (a) the current net asset value of such
shares purchased
more than one year prior to redemption, plus (b) increases in
the net asset
value of the shareholder's Class A shares above the purchase
payments made dur-
ing the preceding year. Whether or not the CDSC applies to a
Participating Plan
depends on the number of years since the Participating Plan
first became
enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the
CDSC to other shareholders, which depends on the number of
years since those
shareholders made the purchase payment from which the amount
is being redeemed.
The CDSC will be waived on redemptions of Class A shares in
connection with
lump-sum or other distributions made by a Participating Plan
as a result of:
(a) the retirement of an employee in the Participating Plan;
(b) the termina-
tion of employment of an employee in the Participating Plan;
(c) the death or
disability of an employee in the Participating Plan; (d) the
attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship
of an employee in
the Participating Plan to the extent permitted under Section
401(k) of the
Code; or (f) redemptions of shares in connection with a loan
made by the Par-
ticipating Plan to an employee.
Participating Plans wishing to acquire shares of the
Portfolio through the
Smith Barney 401(k) Program must purchase such shares
directly from TSSG. For
further information regarding the Smith Barney 401(k)
Program, investors should
contact a Smith Barney Financial Consultant.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be
exchanged for
shares of the same Class in the following funds of the Smith
Barney Mutual
Funds, to the extent shares are offered for sale in the
shareholder's state of
residence. Exchanges of Class A shares are subject to
minimum investment
requirements and all shares are subject to the other
requirements of the fund
into which exchanges are made and a sales charge
differential may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
16
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities
Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Fundamental Value Fund
Inc. Smith Barney Growth Opportunity
Fund Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth
Portfolio Smith Barney Funds, Inc. -- Utility
Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors
Fund Smith Barney Utilities Fund
Taxable Fixed-Income Funds
Smith Barney Adjustable Rate Government Income Fund Smith
Barney Diversified Strategic Income Fund
Smith Barney Funds, Inc. -- Income Return Account
Portfolio Smith Barney Funds, Inc. -- Monthly Payment
Government
Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities
Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc. Smith Barney California Municipals
Fund Inc.
Smith Barney Florida Municipals Fund
Smith Barney Intermediate Maturity California
Municipals Fund Smith Barney Intermediate Maturity
New York Municipals Fund Smith Barney Limited
Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund Smith
Barney Muni Funds -- California Portfolio
Smith Barney Muni Funds -- Florida Limited Term
Portfolio Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
Smith Barney Muni Funds -- Limited Term
Portfolio
17
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey
Portfolio Smith Barney Muni Funds -- New York
Portfolio Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio Smith Barney New Jersey Municipals
Fund Inc. Smith Barney New York Municipals
Fund Inc. Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney World Funds, Inc. -- Emerging Markets
Portfolio Smith Barney World Funds, Inc. -- European
Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond
Portfolio
Smith Barney World Funds, Inc. -- International Balanced
Portfolio
Smith Barney World Funds, Inc. -- International Equity
Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Money Market Funds
Smith Barney Money Funds, Inc. -- Cash Portfolio
Smith Barney Money Funds, Inc. -- Government Portfolio
*Smith Barney Money Funds, Inc. -- Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -- California Money Market
Portfolio Smith Barney Muni Funds -- New York Money Market
Portfolio
- -------------------------------------------------------------
- --
- ----------------
* Available only for exchange with Class A shares of the
Portfolio.
Class A Exchanges. Class A shares of the Portfolio will be
subject to the
appropriate "sales charge differential" upon the exchange of
such shares for
Class A shares of another fund of the Smith Barney Mutual
Funds sold with a
sales charge. The "sales charge differential" is limited to a
percentage rate
no greater than the excess of the sales charge rate
applicable to purchases of
shares of the mutual fund being acquired in the exchange over
the sales charge
rate(s) actually paid on the mutual fund shares relinquished
in the exchange
and on any predecessor of those shares. For purposes of the
exchange privilege,
shares obtained through automatic reinvestment of dividends
and capital gain
distribu-
18
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
tions are treated as having paid the same sales charges
applicable to the
shares on which the dividends or distributions were paid;
however, except in
the case of the Smith Barney 401(k) Program, if no sales
charge was imposed
upon the initial purchase of the shares, any shares obtained
through automatic
reinvestment will be subject to a sales charge differential
upon exchange.
Class A shares held in the Portfolio prior to November 7,
1994 that are subse-
quently exchanged for shares of other funds of the Smith
Barney Mutual Funds
will not be subject to a sales charge differential.
Class Y Exchanges. Class Y shareholders of the Portfolio who
wish to
exchange all or a portion of their Class Y shares for Class Y
shares in any of
the funds identified above may do so without imposition of
any charge.
Additional Information Regarding the Exchange Privilege.
Although the
exchange privilege is an important benefit, excessive
exchange transactions
can be detrimental to the Portfolio's performance and its
shareholders. The
Manager may determine that a pattern of frequent exchanges is
excessive and
contrary to the best interests of the Portfolio's other
shareholders. In this
event, the Manager will notify Smith Barney and Smith Barney
may, at its dis-
cretion, decide to limit additional purchases and/or
exchanges by the share-
holder. Upon such a determination, Smith Barney will provide
notice in writing
or by telephone to the shareholder at least 15 days prior to
suspending the
exchange privilege and during the 15 day period the
shareholder will be
required to (a) redeem his or her shares in the Portfolio or
(b) remain
invested in the Portfolio or exchange into any of the funds
of the Smith Bar-
ney Mutual Funds ordinarily available, which position the
shareholder would be
expected to maintain for a significant period of time. All
relevant factors
will be considered in determining what constitutes an abusive
pattern of
exchanges.
Exchanges will be processed at the net asset value next
determined, plus any
applicable sales charge differential. Redemption procedures
discussed below
are also applicable for exchanging shares, and exchanges will
be made upon
receipt of all supporting documents in proper form. If the
account registra-
tion of the shares of the fund being acquired is identical to
the registration
of the shares of the fund exchanged, no signature guarantee
is required. A
capital gain or loss for tax purposes will be realized upon
the exchange,
depending upon the cost or other basis of shares redeemed.
Before exchanging
shares, investors should read the current prospectus
describing the shares to
be acquired. The Portfolio reserves the right to modify or
discontinue
exchange privileges upon 60 days' prior notice to
shareholders.
19
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Portfolio
tendered to it,
as described below, at a redemption price equal to their net
asset value per
share next determined after receipt of a written request in
proper form at no
charge other than any applicable CDSC. Redemption requests
received after the
close of regular trading on the NYSE are priced at the net
asset value next
determined.
If a shareholder holds shares in more than one Class, any
request for
redemption must specify the Class being redeemed. In the
event of a failure to
specify which Class, or if the investor owns fewer shares of
the Class than
specified, the redemption request will be delayed until the
Fund's transfer
agent receives further instructions from Smith Barney, or if
the shareholder's
account is not with Smith Barney, from the shareholder
directly. The redemp-
tion proceeds will normally be remitted on the business day
following receipt
of proper tender but, in any event, payment will be made
within seven days
thereafter, except on any days on which the NYSE is closed or
as permitted
under the 1940 Act in extraordinary circumstances. The Fund
anticipates that,
in accordance with regulatory changes, beginning on or about
June 1, 1995,
payment will be made no later than the third business day
after receipt of
proper tender. Generally, if the redemption proceeds are
remitted to a Smith
Barney brokerage account, these funds will not be invested
for the sharehold-
er's benefit without specific instruction and Smith Barney
will benefit from
the use of temporarily uninvested funds. Redemption proceeds
for shares pur-
chased by check, other than a certified or official bank
check, will be remit-
ted upon clearance of the check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian must be redeemed by
submitting a
written request to a Smith Barney Financial Consultant.
Shares other than
those held by Smith Barney as custodian may be redeemed
through an investor's
Financial Consultant, Introducing Broker or dealer in the
selling group or by
submitting a written request for redemption to:
Smith Barney Funds, Inc./Short-Term U.S. Treasury Securities
Portfolio
Class A or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
20
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
A written redemption request must (a) state the Class and
number or dollar
amount of shares to be redeemed, (b) identify the
shareholder's
account number
and (c) be signed by each registered owner exactly as the
shares are regis-
tered. If the shares to be redeemed were issued in
certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by
an endorsed
stock power) and must be submitted to TSSG together with the
redemption
request. Any signature appearing on a redemption request,
share certificate or
stock power must be guaranteed by an eligible guarantor
institution, such as a
domestic bank, savings and loan institution, domestic credit
union, member
bank of the Federal Reserve System or member firm of a
national securities
exchange. TSSG may require additional supporting documents
for redemptions
made by corporations, executors, administrators, trustees or
guardians. A
redemption request will not be deemed properly received until
TSSG receives
all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an automatic cash
withdrawal plan, under
which shareholders who own shares with a value of at least
$10,000 may elect
to receive cash payments of at least $50 monthly or
quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans
only where the
shareholder is eligible to receive qualified distributions
and has an account
value of at least $5,000. The withdrawal plan will be carried
over on
exchanges between funds or Classes of the Portfolio. Any
applicable CDSC will
not be waived on amounts withdrawn by a shareholder that
exceed 1.00% per
month of the value of the shareholder's shares subject to the
CDSC at the time
the withdrawal plan commences. (With respect to withdrawal
plans in effect
prior to November 7, 1994, any applicable CDSC will be waived
on amounts with-
drawn that do not exceed 2.00% per month of the value of the
shareholder's
shares subject to the CDSC.) For further information
regarding the automatic
cash withdrawal plan, shareholders should contact a Smith
Barney Financial
Consultant.
CONTINGENT DEFERRED SALES CHARGE
Class A shares of the Portfolio acquired as part of an
exchange privilege
transaction, which were originally acquired in one of the
other Smith Barney
Mutual Funds at net asset value subject to a CDSC, continue
to be subject to
any applicable CDSC of the original fund. Therefore, Class A
shares that are
redeemed within 12 months of the date of purchase of the
original fund may be
subject to a CDSC of 1.00%. The amount of any CDSC will be
paid to and
retained by
21
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
Smith Barney. The CDSC will be assessed based on an amount
equal to the lesser
of the cost of the shares being redeemed or their net asset
value at the time
of redemption. Accordingly, no CDSC will be imposed on
increases in net asset
value above the initial purchase price in the original fund.
In addition, no
charge will be assessed on shares derived from reinvestment
of dividends or
capital gain distributions.
In determining the applicability of any CDSC, it will be
assumed that a
redemption is made first of shares representing capital
appreciation, next of
shares representing the reinvestments of dividends and
capital gain distribu-
tions and finally of other shares held by the shareholder for
the longest
period of time. The length of time that Class A shares
acquired through an
exchange have been held will be calculated from the date that
the Class A
shares were initially acquired in one of the other Smith
Barney Mutual Funds,
and such shares being redeemed will be considered to
represent, as applicable,
capital appreciation or dividend and capital gain
distribution reinvestments in
such other funds. For Federal income tax purposes, the amount
of the CDSC will
reduce the gain or increase the loss, as the case may be, on
the amount real-
ized on redemption.
The CDSC on Class A shares, if any, will be waived on (a)
exchanges (see "Ex-
change Privilege" above); (b) automatic cash withdrawals in
amounts equal to or
less than 1.00% per month of the value of the shareholder's
shares at the time
the withdrawal plan commences (see "Automatic Cash Withdrawal
Plan") (provided,
however, that automatic cash withdrawals in amounts equal to
or less than 2.00%
per month of the value of the shareholder's shares will be
permitted for with-
drawal plans that were established prior to November 7,
1994); (c) redemptions
of shares within twelve months following the death or
disability of the share-
holder; (d) redemption of shares made in connection with
qualified distribu-
tions from retirement plans or IRAs upon the attainment of
age 59 1/2; (e)
involuntary redemptions; and (f) redemptions of shares in
connection with a
combination of a Portfolio with any investment company by
merger, acquisition
of assets or otherwise. In addition, a shareholder who has
redeemed shares from
other funds of the Smith Barney Mutual Funds may, under
certain circumstances,
reinvest all or part of the redemption proceeds within 60
days and receive pro
rata credit for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by
Smith Barney in the
case of shareholders who are also Smith Barney clients or by
TSSG in the case
of all other shareholders) of the shareholder's status or
holdings, as the case
may be.
22
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
For information concerning the CDSC applicable to Class A
shares acquired
through the Smith Barney 401(k) Program, see "Purchase of
Shares --Smith Barney
401(k) Program."
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any
shareholder's
account in the Portfolio if the aggregate net asset value of
the shares held in
the Portfolio account is less than $500. (If a shareholder
has more than one
account in this Portfolio, each account must satisfy the
minimum account size.)
The Fund, however, will not redeem shares based solely upon
market reductions
in net asset value. Before the Fund exercises such right,
shareholders will
receive written notice and will be permitted 60 days to bring
accounts up to
the minimum to avoid involuntary liquidation.
PERFORMANCE
From time to time the Portfolio may include its total return,
average annual
total return and yield in advertisements. In addition, in
other
types of sales
literature the Portfolio may include its current dividend
return. These figures
are computed separately for Class A and Class Y shares of the
Portfolio. These
figures are based on historical earnings and are not intended
to indicate
future performance. Total return is computed for a specified
period of time
assuming reinvestment of all income dividends and capital
gain distributions on
the reinvestment dates at prices calculated as stated in this
Prospectus, then
dividing the value of the investment at the end of the period
so calculated by
the initial amount invested and subtracting 100%. The
standard average annual
total return, as prescribed by the SEC is derived from this
total return, which
provides the ending redeemable value. Such standard total
return information
may also be accompanied with nonstandard total return
information for differing
periods computed in the same manner but without annualizing
the total return.
The yield of the Portfolio refers to the net investment
income earned by
investments in the Portfolio over a thirty-day period. This
net investment
income is then annualized, i.e., the amount of income earned
by the investment
during that thirty-day period is assumed to be earned each 30
day period for
twelve periods and is expressed as a percentage of the
investments. The yield
quotation
23
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PERFORMANCE (CONTINUED)
is calculated according to a formula prescribed by the SEC to
facilitate com-
parison with yields quoted by other investment companies. The
Portfolio calcu-
lates current dividend return for each Class by annualizing
the most recent
distribution and dividing by the net asset value on the last
day of the period
for which current dividend return is presented. The
Portfolio's current divi-
dend return for each Class may vary from time to time
depending on market con-
ditions, the composition of its investment portfolio and
operating expenses.
These factors and possible differences in the methods used in
calculating cur-
rent dividend return should be considered when comparing the
Portfolio's cur-
rent return to yields published for other investment
companies and other
investment vehicles. The Portfolio may also include
comparative performance
information in advertising or marketing its shares. Such
performance informa-
tion may include data from Lipper Analytical Services, Inc.
and other financial
publications. The Portfolio will include performance data for
Class A and Class
Y shares in any advertisement or information including
performance data.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the
Fund rests with
the Fund's Board of Directors. The Directors approve all
significant agreements
between the Fund and the companies that furnish services to
the Fund and the
Portfolio, including agreements with the Fund's distributor,
investment manag-
er, custodian and transfer agent. The day-to-day operations
of the Portfolio
are delegated to the Manager. The Statement of Additional
Information contains
background information regarding each Director and executive
officer of the
Fund.
MANAGER
Smith Barney Mutual Funds Management Inc. (the "Manager")
manages the day-to-
day operations of the Portfolio pursuant to a management
agreement entered into
by the Fund on behalf of the Portfolio under which the
Manager offers the Port-
folio advice and assistance with respect to the acquisition,
holding or dis-
posal of securities and recommendations with respect to other
aspects and
affairs of the Portfolio and furnishes the Portfolio with
bookkeeping, account-
ing and administrative services, office space and equipment,
and the
24
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
MANAGEMENT OF THE FUND (CONTINUED)
services of the officers and employees of the Fund. By
written agreement the
research and other departments of Smith Barney and staff
furnish the Manager
with information, advice and assistance and are available for
consultation on
the Fund's Portfolios, thus Smith Barney may also be
considered an investment
adviser to the Fund. Smith Barney's services are paid for by
the Manager on the
basis of direct and indirect costs to Smith Barney for
performing such servic-
es; there is no charge to the Fund for such services.
For the Portfolio's last fiscal year, the management fee was
0.45% of the
Portfolio's average net assets and the Portfolio's total
expenses were 0.91% of
the average net assets for Class A shares.
The Manager was incorporated on March 12, 1968 under the laws
of Delaware. As
of March 31, 1995 the Manager had aggregate assets under
management of approxi-
mately $54 billion. The Manager, Smith Barney and Holdings
are each located at
388 Greenwich Street, New York, New York 10013. The term
"Smith Barney" in the
title of the Fund has been adopted by permission of Smith
Barney and is subject
to the right of Smith Barney to elect that the Fund stop
using the term in any
form or combination of its name.
PORTFOLIO MANAGEMENT
Patrick Sheehan is a Managing Director of Smith Barney, a
Vice President of
the Fund and portfolio manager of the Portfolio, the U.S.
Government Securities
Portfolio, the Monthly Payment Government Portfolio and the
Income Return
Account Portfolio of Smith Barney Funds, Inc. Mr. Sheehan
manages the day to
day operations of each of these Portfolios, including making
all investment
decisions. Prior to January 1992, Mr. Sheehan was a Portfolio
Manager at Value
Line Inc., Senior Vice President of Seaman's Bank for
Savings, Assistant Vice
President of Capital Markets of Federal Home Loan Board of
New York and Vice
President and Treasurer of Poughkeepsie Savings Bank.
Management's discussion and analysis, and additional
performance information
regarding the Portfolio during the fiscal year ended December
31, 1994 is
included in the Annual Report dated December 31, 1994. A copy
of the Annual
Report may be obtained upon request and without charge from a
Smith Barney
Financial Consultant or by writing or calling the Fund at the
address or phone
number listed on page one of this Prospectus.
25
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
DISTRIBUTOR
Smith Barney distributes shares of the Portfolio as principal
underwriter and
as such conducts a continuous offering pursuant to a "best
efforts" arrangement
requiring Smith Barney to take and pay for only such
securities as may be sold
to the public. Pursuant to a plan of distribution adopted by
the Portfolio
under Rule 12b-1 under the 1940 Act (the "Plan"), Smith
Barney is paid a serv-
ice fee with respect to Class A shares of the Portfolio at
the annual rate of
0.25% of the average daily net assets of that Class. Smith
Barney is also paid
a distribution fee with respect to Class A shares at the
annual
rate of 0.10%
of the average daily net assets attributable to those shares.
The fees are used
by Smith Barney to pay its Financial Consultants for
servicing shareholder
accounts and to cover expenses primarily intended to result
in the sale of
those shares. These expenses include: advertising expenses;
the cost of print-
ing and mailing prospectuses to potential investors; payments
to and expenses
of Smith Barney Financial Consultants and other persons who
provide support
services in connection with the distribution of shares;
interest and/or carry-
ing charges; and indirect and overhead costs of Smith Barney
associated with
the sale of Portfolio shares, including lease, utility,
communications and
sales promotion expenses.
The payments to Smith Barney Financial Consultants for
selling shares of a
Class include a commission or fee paid by the investor or
Smith Barney at the
time of sale and, with respect to Class A shares, a
continuing fee for servic-
ing shareholder accounts for as long as a shareholder remains
a holder of that
Class. Smith Barney Financial Consultants may receive
different levels of com-
pensation for selling the different Classes of shares.
Amounts expended by Smith Barney but not reimbursed by the
Portfolio in any
year will not be a continuing liability of the Portfolio in
subsequent years.
Because the Portfolio reimburses Smith Barney only for actual
expenditures,
Smith Barney realizes no profit from the Plan.
ADDITIONAL INFORMATION
The Fund, an open-end, diversified investment company, was
incorporated in
Maryland on December 2, 1966. The Fund has an authorized
capital of
2,000,000,000 shares with a par value of $.01 per share. The
Board of Directors
has authorized the issuance of fifteen series of shares, each
representing
shares in one of fifteen separate Portfolios and may
authorize the issuance of
26
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
ADDITIONAL INFORMATION (CONTINUED)
additional classes of shares in the future. The assets of
each Portfolio are
segregated and separately managed and a shareholder's
interest is in the assets
and earnings of the Portfolio in which he or she holds
shares. Class A and
Class Y shares of the Portfolio represent interests in the
assets of the Port-
folio and have identical voting, dividend, liquidation and
other rights on the
same terms and conditions except that expenses related to the
distribution of
each Class of shares are borne solely by each Class and each
Class of shares
has exclusive voting rights with respect to provisions of the
Fund's Rule 12b-1
distribution plan which pertains to a particular Class.
Shareholders are enti-
tled to one vote for each share held and will vote in the
aggregate and not by
Portfolio except as otherwise required by the 1940 Act or
Maryland law. As
described under "Voting" in the Statement of Additional
Information, the Fund
ordinarily will not hold meetings of shareholders annually;
however, sharehold-
ers have the right to call a meeting upon a vote of 10% of
the Fund's outstand-
ing shares for the purpose of voting to remove directors.
Shareholders will
receive assistance in communicating with other shareholders
in connection with
the removal of directors as required by the 1940 Act. Shares
do not have cumu-
lative voting rights or preemptive rights and are fully paid,
transferable and
nonassessable when issued for payment as described in this
Prospectus.
PNC Bank, National Association, located at 17th and Chestnuts
Streets,
Philadelphia, Pennsylvania 19103, serves as custodian of the
Portfolio's
investments.
TSSG, located at Exchange Place, Boston, Massachusetts 02109,
serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an
audited annual
report, which include listings of the investment securities
held by the Fund at
the end of the period covered. In an effort to reduce the
Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of
its semi-annual and
annual reports by household. This consolidation means that a
household having
multiple accounts with the identical address of record will
receive a single
copy of each report. In addition, the Fund also plans to
consolidate the mail-
ing of its Prospectus so that a shareholder having multiple
accounts (that is,
individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a
single Prospectus annually. Shareholders who do not want this
consolidation to
apply to their account should contact their Smith Barney
Financial Consultant
or the Fund's transfer agent.
27
<PAGE>
SMITH BARNEY
- ------------
A Member of
TravelersGroup LOGO
SMITH BARNEY
FUNDS, INC.
SHORT-TERM
U.S. TREASURY
SECURITIES PORTFOLIO
388 Greenwich Street
New
York, New York 10013
FD 2319 D5
<PAGE>
SMITH BARNEY FUNDS, INC.
Income and
Growth Portfolio
Utility Portfolio
April 28, 1995
PROSPECTUS
BEGINS ON PAGE ONE
[LOGO OF SMITH BARNEY MUTUAL FUNDS
APPEARS HERE]
P R O S P E C T U S
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS
APRIL 28, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Income and Growth Portfolio is one of six investment
portfolios that cur-
rently comprise Smith Barney Funds, Inc. (the "Fund").
The Income
and Growth
Portfolio seeks current income and long-term growth of
income and
capital. It
invests primarily, but not exclusively, in common
stocks.
The Utility Portfolio is also one of six investment
portfolios
that currently
comprise the Fund. The Utility Portfolio seeks current
income and
moderate cap-
ital growth. It seeks to achieve its objective by
investing in
equity and debt
securities of public utility companies.
This Prospectus sets forth concisely certain information
about
the Fund and
each of the Portfolios, including sales charges,
distribution and
service fees
and expenses, that prospective investors will find
helpful in
making an invest-
ment decision. Investors are encouraged to read this
Prospectus
carefully and
retain it for future reference.
Additional information about each of the Portfolios is
contained
in a State-
ment of Additional Information dated April 28, 1995, as
amended or
supplemented
from time to time, that is available upon request and
without
charge by calling
or writing the Fund at the telephone number or address
set forth
above or by
contacting a Smith Barney Financial Consultant. The
Statement of
Additional
Information has been filed with the Securities and
Exchange Commission (the
"SEC") and is incorporated by reference into this
Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED
UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Funds, Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3 -----
- --------------------------------------------FINANCIAL
HIGHLIGHTS 12 -----------------------------------------
- -------INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
15 -------------------------------------------------
VALUATION OF SHARES 18
- ------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 18 -----
- --------------------------------------------PURCHASE OF
SHARES 19
- -------------------------------------------------
EXCHANGE PRIVILEGE 31
- ------------------------------------------------
REDEMPTION OF SHARES 35 -----
- --------------------------------------------MINIMUM
ACCOUNT SIZE 36 -------------
- ------------------------------------
PERFORMANCE 37 -----
- -------------------------------------------MANAGEMENT OF
THE FUND 38 -------------------
- -----------------------------DISTRIBUTOR
40 ------------------------------------------------
ADDITIONAL INFORMATION 41 -----
- --------------------------------------------APPENDIX A-1
- -------------------------------------------------
</TABLE>
- --------------------------------------------------------
- -------
- ---------------
No person has been authorized to give any information or
to make
any
representations in connection with this offering other
than those
contained in
this Prospectus and, if given or made, such other
information and
representations must not be relied upon as having been
authorized
by the Fund
or the Distributor. This Prospectus does not constitute
an offer by
the Fund or
the Distributor to sell or a solicitation of an offer to
buy any of
the
securities offered hereby in any jurisdiction to any
person to whom
it is
unlawful to make such offer or solicitation in such
jurisdiction. ------------------------------------------
- ---------------------
- ---------------
2
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
detailed
information
appearing elsewhere in this Prospectus and in the
Statement of
Additional
Information. Cross references in this summary are to
headings in
the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVES The Income and Growth Portfolio is
an open-end, manage-
ment investment company whose investment objective is to
seek
current income
and long-term growth of income and capital by investing
primarily,
but not
exclusively, in common stocks. The Utility Portfolio
seeks current
income and
moderate capital growth by investing in equity and debt
securities
of public
utility companies. See "Investment Objectives and
Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS Each Portfolio offers
several
classes of
shares ("Classes") to investors designed to provide them
with the
flexibility
of selecting an investment best suited to their needs.
The general
public is
offered three Classes of shares: Class A shares, Class B
shares and
Class C
shares, which differ principally in terms of sales
charges and rate
of
expenses to which they are subject. A fourth Class of
shares, Class
Y shares,
is offered only to investors meeting an initial
investment minimum
of
$5,000,000. In addition, for the Income and Growth
Portfolio only,
a fifth
Class, Class Z shares, which is offered pursuant to a
separate
prospectus, is
offered exclusively to tax-exempt employee benefit and
retirement
plans of
Smith Barney Inc. ("Smith Barney") and its affiliates.
See "Purchase of
Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset
value plus
an initial
sales charge of up to 5.00% and are subject to an annual
service
fee of 0.25%
of the average daily net assets of the Class. The
initial sales
charge may be
reduced or waived for certain purchases. Purchases of
Class A
shares, which
when combined with current holdings of Class A shares
offered with
a sales
charge equal or exceed $500,000 in the aggregate, will
be made at
net asset
value with no initial sales charge, but will be subject
to a contingent
deferred sales charge ("CDSC") of 1.00% on redemptions
made within
12 months
of purchase. See "Prospectus Summary--Reduced or No
Initial Sales
Charge."
Class B Shares. Class B shares are offered at net asset
value
subject to a
maximum CDSC of 5.00% of redemption proceeds, declining
by 1.00%
each year
after the date of purchase to zero. This CDSC may be
waived for
certain
redemptions. Class B shares are subject to an annual
service
fee of
0.25% and
an annual distribution fee of 0.75% of the average daily
net assets
of the
Class.
3
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
The Class B shares' distribution fee may cause that
Class to have
higher
expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will
convert
automatically
to Class A shares, based on relative net asset value,
eight years
after the
date of the original purchase. Upon conversion, these
shares will
no longer be
subject to an annual distribution fee. In addition, a
certain
portion of Class
B shares that have been acquired through the
reinvestment
of
dividends and dis-
tributions ("Class B Dividend Shares") will be converted
at that
time. See
"Purchase of Shares--Deferred Sales Charge
Alternatives."
Class C Shares. Class C shares are sold at net asset
value with
no initial
sales charge. They are subject to an annual service fee
of 0.25%
and an annual
distribution fee of 0.75% of the average daily net
assets of the
Class C
shares, and investors pay a CDSC of 1.00% if they redeem
Class C
shares within
12 months of purchase. The CDSC may be waived for
certain redemptions. The
Class C shares' distribution fee may cause that Class to
have
higher expenses
and pay lower dividends than Class A shares. Purchases
of Class C
shares, which
when combined with current holdings of Class C shares of
the Portfolio equal or
exceed $500,000 in the aggregate, should be made in
Class A shares
at net asset
value with no sales charge, and will be subject to a
CDSC of
1.00%
on redemp-
tions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to
investors
meeting an
initial investment minimum of $5,000,000. Class Y shares
are sold
at net asset
value with no initial sales charge or CDSC. They are not
subject to
any service
or distribution fees.
In deciding which Class of Portfolio shares to purchase,
investors should
consider the following factors, as well as any other
relevant facts
and circum-
stances:
Intended Holding Period. The decision as to which Class
of shares
is more
beneficial to an investor depends on the amount and
intended length
of his or
her investment. Shareholders who are planning to
establish a program of regular
investment may wish to consider Class A shares; as the
investment
accumulates
shareholders may qualify for reduced sales charges and
the shares
are subject
to lower ongoing expenses over the term of the
investment. As an
alternative,
Class B and Class C shares are sold without any initial
sales
charge so the
entire purchase price is immediately invested in a
Portfolio. Any
investment
4
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
return on these additional invested amounts may
partially or wholly
offset the
higher annual expenses of these Classes. Because a
Portfolio's
future return
cannot be predicted, however, there can be no assurance
that this
would be the
case.
Finally, investors should consider the effect of the
CDSC
period
and any con-
version rights of the Classes in the context of their
own investment time
frame. For example, while Class C shares have a shorter
CDSC period
than Class
B shares, they do not have a conversion feature, and
therefore, are
subject to
an ongoing distribution fee. Thus, Class B shares may be
more
attractive than
Class C shares to investors with longer term investment
outlooks.
Investors investing a minimum of $5,000,000 must
purchase
Class
Y shares,
which are not subject to an initial sales charge, CDSC
or service
or distribu-
tion fees. The maximum purchase amount for Class A
shares is $4,999,999, Class
B shares is $249,999 and Class C shares is $499,999.
There is no
maximum pur-
chase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales
charge on
Class A
shares may be waived for certain eligible purchasers,
and the
entire purchase
price will be immediately invested in the Portfolio. In
addition,
Class A share
purchases, which when combined with current holdings of
Class A
shares offered
with a sales charge equal or exceed $500,000 in the
aggregate, will
be made at
net asset value with no initial sales charge, but will
be subject
to a CDSC of
1.00% on redemptions made within 12 months of purchase.
The $500,000 aggregate
investment may be met by adding the purchase to the net
asset value
of all
Class A shares offered with a sales charge held in funds
sponsored
by Smith
Barney listed under "Exchange Privilege." Class A share
purchases
also may be
eligible for a reduced initial sales charge. See
"Purchase of
Shares." Because
the ongoing expenses of Class A shares may be lower than
those for
Class B and
Class C shares, purchasers eligible to purchase Class A
shares at
net asset
value or at a reduced sales charge should consider doing
so.
Smith Barney Financial Consultants may receive different
compensation for
selling each Class of shares. Investors should
understand that the
purpose of
the CDSC on the Class B and Class C shares is the same
as that of
the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund"
for
a
complete descrip-
tion of the sales charges and service and distribution
fees for
each Class
5
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
of shares and "Valuation of Shares," "Dividends,
Distributions and
Taxes" and
"Exchange Privilege" for other differences between the
Classes of
shares.
SMITH BARNEY 401(K) PROGRAM Investors may be eligible to
participate in the
Smith Barney 401(k) Program, which is generally designed
to assist
plan spon-
sors in the creation and operation of retirement plans
under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the
"Code"), as well
as other
types of participant directed, tax-qualified
employee benefit plans
(collec-
tively, "Participating Plans"). Class A, Class B, Class
C and Class
Y shares
are available as investment alternatives for
Participating Plans.
See "Purchase
of Shares -- Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through a
brokerage
account main-
tained with Smith Barney. Shares may also be purchased
through a
broker that
clears securities transactions through Smith Barney on a
fully
disclosed basis
(an "Introducing Broker") or an investment dealer in the
selling
group. In
addition, certain investors, including qualified
retirement plans
and certain
other institutional investors, may purchase shares
directly from
the Fund
through the Fund's transfer agent, The Shareholder
Services Group,
Inc.
("TSSG"), a subsidiary of First Data Corporation. See
"Purchase of
Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and
Class C
shares may open
an account by making an initial investment of at least
$1,000 for
each account,
or $250 for an individual retirement account ("IRA") or
a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an
account for an
initial
investment of $5,000,000. Subsequent investments of at
least $50
may be made
for all Classes. For participants in retirement plans
qualified
under Section
403(b)(7) or Section 401(a) of the Code, the minimum
initial investment
requirement for Class A, Class B and Class C shares and
the subsequent invest-
ment requirement for all Classes is $25. The minimum
initial investment
requirement for Class A, Class B and Class C shares and
the subsequent invest-
ment requirement for all Classes through the Systematic
Investment
Plan
described below is $50. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN Each Portfolio offers
shareholders a
Systematic
Investment Plan under which they may authorize the
automatic placement of a
purchase order each month or quarter for Portfolio
shares in an
amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day
the New
York Stock
Exchange, Inc. ("NYSE") is open for business. See
"Purchase of
Shares" and "Re-
demption of Shares."
6
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
MANAGEMENT OF EACH PORTFOLIO Smith Barney Mutual Funds
Management
Inc. (former-
ly, Smith, Barney Advisers, Inc.) (the "Manager") serves
as each
Portfolio's
investment manager. The Manager is a wholly owned
subsidiary of
Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary
of The Trav-
elers Inc. ("Travelers"), a diversified financial
services holding
company
engaged, through its subsidiaries, principally in four
business
segments:
Investment Services, Consumer Finance Services, Life
Insurance
Services and
Property & Casualty Insurance Services. See "Management
of the
Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged
for shares of
the same
Class of certain other funds of the Smith Barney Mutual
Funds at
the respective
net asset values next determined, plus any applicable
sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of each Portfolio
for the prior
day gener-
ally is quoted daily in the financial section of most
newspapers
and is also
available from a Smith Barney Financial Consultant. See
"Valuation
of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net
investment income
are paid quar-
terly on shares of the Income and Growth Portfolio and
monthly on
shares of the
Utility Portfolio. Distributions of net realized capital
gains, if
any, are
paid annually for each Portfolio. See "Dividends,
Distributions and
Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions
paid on
shares of a Class
will be reinvested automatically, unless otherwise
specified by an
investor, in
additional shares of the same Class at current net asset
value.
Shares acquired
by dividend and distribution reinvestments will not be
subject to
any sales
charge or CDSC. Class B shares acquired through dividend
and distribution rein-
vestments will become eligible for conversion to Class A
shares on
a pro rata
basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no
assurance
that a Port-
folio's investment objective will be achieved. The value
of the
Portfolio's
investments, and thus the net asset value of a
Portfolio's shares,
will fluctu-
ate in response to changes in market and economic
conditions, as
well as the
financial condition and prospects of issuers in which a
Portfolio
invests. The
Income and Growth Portfolio may invest in foreign
securities.
Investments in
foreign securities incur higher costs than investments
in U.S.
securities,
including higher costs in making securities transactions
as well as
foreign
government
7
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
taxes which may reduce the investment return of the
Portfolio. In
addition,
foreign investments may include additional risks
associated with
currency
exchange rates, less complete financial information
about individual companies,
less market liquidity and political instability. See
"Investment
Objectives and
Management Policies" and "Appendix."
EACH PORTFOLIO'S EXPENSES The following expense table
lists the
costs and
expenses an investor will incur either directly or
indirectly as a
shareholder
of each Portfolio, based on the maximum sales charge or
maximum
CDSC that may
be incurred at the time of purchase or redemption and,
each Portfolio's operat-
ing expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
APPLICABLE TO BOTH
PORTFOLIOS
CLASS A
CLASS B CLASS
C CLASS Y
- --------------------------------------------------------
- -------
- ------------
<S> <C>
<C>
<C>
<C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00%
None
None
None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is None*
5.00% 1.00% None
lower)
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE TO
THE INCOME AND
GROWTH
PORTFOLIO CLASS
A CLASS B CLASS
C
CLASS
Y ------------------------------------------------------
- --
- --------
- ---
<S> <C> <C> <C>
<C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.58% 0.58%
0.58%
0.58%
12b-1 fees** 0.25 1.00
1.00
- --
Other expenses*** 0.13 0.01
0.17
0.07 ---------------------------------------------------
- ------------
- ---
TOTAL PORTFOLIO OPERATING EXPENSES 0.96% 1.59%
1.75%
0.65% --------------------------------------------------
- ---------
- -----
- ---
</TABLE>
8
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
APPLICABLE TO THE
UTILITY
PORTFOLIO
EXPENSE
ALLOCATION
CLASS A CLASS B
CLASS C
CLASS Y ------------------------------------------------
- ---------------
- --------
<S> <C> <C>
<C>
<C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.60% 0.60%
0.60%
0.60%
12b-1 fees** 0.25 1.00
1.00
--
Other expenses*** 0.16 0.07
0.17
0.12
- --------------------------------------------------------
- -------
- --------
TOTAL PORTFOLIO OPERATING EXPENSES 1.01% 1.67%
1.77%
0.72%
- --------------------------------------------------------
- -------
- --------
</TABLE>
* Purchases of Class A shares, which when combined with
current
holdings of
Class A shares offered with a sales charge equal or
exceed
$500,000 in the
aggregate, will be made at net asset value with no
sales charge, but will
be subject to a CDSC of 1.00% on redemptions made
within 12
months.
** Upon conversion of Class B shares to Class A shares,
such
shares will no
longer be subject to a distribution fee. Class C shares
do not
have a
conversion feature and, therefore, are subject to an
ongoing
distribution
fee. As a result, long-term shareholders of Class C
shares may
pay more
than the economic equivalent of the maximum front-end
sales
charge
permitted by the National Association of Securities
Dealers,
Inc.
*** "Other expenses" for Class Y shares have been
estimated because
no Class Y
shares were outstanding during the fiscal year ended
December
31, 1994.
The sales charge and CDSC set forth in the above table
are the
maximum
charges imposed on purchases or redemptions of each of
the Portfolio's shares
and investors may actually pay lower or no charges,
depending on
the amount
purchased and, in the case of Class B, Class C and
certain Class A
shares, the
length of time the shares are held and whether the
shares are held
through the
Smith Barney 401(k) Program. See "Purchase of Shares"
and "Redemption of
Shares." Smith Barney receives an annual 12b-1 service
fee of 0.25%
of the
value of average daily net assets of Class A shares.
Smith Barney
also receives
with respect to Class B and Class C shares an annual 12b-
1 fee of
1.00% of the
value of average daily net assets of the respective
Classes, consisting of a
0.75% distribution fee and a 0.25% service fee. "Other
expenses" in
the above
table include fees for shareholder services,
custodial fees, legal
and account-
ing fees, printing costs and registration fees.
9
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
EXAMPLE
The following example is intended to assist an investor
in understanding the
various costs that an investor in each of the Portfolios
will bear
directly or
indirectly. The example assumes payment by each
Portfolio of operating expenses
at the levels set forth in the table above. See
"Purchase of Shares," "Redemp-
tion of Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10
YEARS* -------------------------------------------------
- ------------
<S> <C> <C> <C>
<C>
An investor would pay the
following expenses on a $1,000
investment, assuming (1) 5.00%
annual return and (2) redemption
at the end of each time period:
INCOME AND GROWTH PORTFOLIO
Class A $59 $79
$100
$162
Class B 66 80
97
172
Class C 28 55
95
206
Class Y 7 21
36
81
UTILITY PORTFOLIO
Class A $60 $81
$103
$167
Class B 67 83
101
180
Class C 28 56
96
208
Class Y 7 23
40
89
An investor would pay the
following expenses on the same
investment, assuming the same
annual return and no redemption:
INCOME AND GROWTH PORTFOLIO
Class A $59 $79
$100
$162
Class B 16 50 87
172
Class C 18 55 95
206
Class Y 7 21 36
81
UTILITY PORTFOLIO
Class A $60 $81 $103
$167
Class B 17 53 91
180
Class C 18 56 96
208
Class Y 7 23 40
89 -----------------------------------------------------
- --------
</TABLE>
* Ten-year figures assume conversion of Class B shares
to
Class A
shares at the
end of the eighth year following the date of purchase.
10
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
The example also provides a means for the investor to
compare
expense levels
of funds with different fee structures over varying
investment
periods. To
facilitate such comparison, all funds are required to
utilize a
5.00% annual
return assumption. However, each Portfolio's actual
return will
vary and may be
greater or less than 5.00% THIS EXAMPLE SHOULD NOT BE
CONSIDERED A
REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER
OR LESS THAN
THOSE SHOWN.
11
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS
The following schedule for the periods ended December
31st has been
audited in
conjunction with the annual audits of the financial
statements of
Smith Barney
Funds, Inc. by KPMG Peat Marwick LLP, independent
auditors. The
1994 financial
statements and the independent auditors' report thereon
appear in
the December
31, 1994 Annual Report to Shareholders. No information
is presented
for Class
Y shares, because no Class Y shares were outstanding for
the
periods shown.
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT
EACH YEAR:
INCOME AND GROWTH PORTFOLIO
<TABLE>
<CAPTION>
CLASS A SHARES 1994(1) 1993 1992
1991
1990 -----------------------------------------------
- ----------------
- ---------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE, BEGINNING
OF YEAR $13.31 $12.48 $12.51
$10.54 $12.69 ---------------------------------------
- ------------------------
- ---------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.43 0.46 0.50
0.56 0.67
Net realized and
unrealized gain (loss) on
investments (1.00) 1.56
0.38 2.19 (1.87) -----------------------------------
- ----------------------------
- ---------------
Total Income (Loss) from
Investment Operations (0.57) 2.02
0.88 2.75 (1.20) -----------------------------------
- ----------------------------
- ---------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.42) (0.46) (0.51)
(0.73) (0.70)
Distribution from net
realized gains on
security transactions (2) (0.14) (0.73)
(0.40) (0.05) (0.25) --------------------------------
- -------------------------------
- ---------------
Total Distributions (0.56) (1.19)
(0.91) (0.78) (0.95) --------------------------------
- -------------------------------
- ---------------
NET ASSET VALUE, END OF
YEAR $12.18 $13.31
$12.48 $12.51 $10.54 --------------------------------
- -------------------------------
- ---------------
TOTAL RETURN (P) (4.31)% 16.38%
7.23%
26.57% (9.46)% --------------------------------------
- -------------------------
- ---------------
NET ASSETS, END OF YEAR
(000S) $544,572 $627,870
$573,085 $583,686 $513,586 ----------------------------
- -----------------------------------
- ---------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.96% 0.91%
0.92%
0.84% 0.45%
Net investment income 3.31 3.42
3.97
4.80 5.69 -----------------------------------------
- ----------------------
- ---------------
PORTFOLIO TURNOVER RATE 26.77% 46.10%
39.16%
44.50% 47.99% ---------------------------------------
- ------------------------
- ---------------
<CAPTION>
CLASS A SHARES (CONTINUED) 1989 1988 1987
1986
1985 -----------------------------------------------
- ----------------
- ---------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE, BEGINNING
OF YEAR $11.00 $10.05
$11.40 $10.10 $8.69 --------------------------------
- -------------------------------
- ---------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.70 0.61
0.71
0.69 0.68
Net realized and
unrealized gain (loss) on
investments 2.00 1.14
(0.93)
1.41 1.61 -----------------------------------------
- ----------------------
- ---------------
Total Income (Loss) from
Investment Operations 2.70 1.75
(0.22)
2.10 2.29 -----------------------------------------
- ----------------------
- ---------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.70) (0.63) (0.50)
(0.67) (0.66)
Distribution from net
realized gains on
security transactions (2) (0.31) (0.17)
(0.63) (0.13) (0.22) --------------------------------
- -------------------------------
- ---------------
Total Distributions (1.01) (0.80)
(1.13) (0.80) (0.88) --------------------------------
- -------------------------------
- ---------------
NET ASSET VALUE, END OF
YEAR $12.69 $11.00
$10.05 $11.40 $10.10 --------------------------------
- -------------------------------
- ---------------
TOTAL RETURN (P) 25.11% 17.67%
(2.83)%
21.04% 27.30% ---------------------------------------
- ------------------------
- ---------------
NET ASSETS, END OF YEAR
(000S) $589,952 $517,948
$546,974 $379,345 $85,591 ----------------------------
- -----------------------------------
- ---------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.44% 0.49%
0.45%
0.56% 0.74%
Net investment income 5.65 5.58
5.90 5.99 7.19 ------------------------------------
- ---------------------------
- ---------------
PORTFOLIO TURNOVER RATE 38.06% 25.76%
51.34% 54.22% 24.93% --------------------------------
- -------------------------------
- ---------------
</TABLE>
(1) On October 10, 1994, former Class C shares were
exchanged into
Class A
shares and therefore Class C share activity for the
period from
January 1,
1994 through October 9, 1994 is included with Class A
Share
activity.
(2) Net short term gains, if any, are included and
reported as
ordinary income
for income tax purposes.
(P) Total returns do not reflect sales charges.
12
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD:
INCOME AND GROWTH PORTFOLIO
<TABLE>
<CAPTION>
CLASS B SHARES 1994(1) -----
- --------------------------------------------------------
- -------------
<S> <C>
<C>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.54 -----
- --------------------------------------------------------
- -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03
Net realized and unrealized loss on
investments (0.19) ----
- --
- --------------------------------------------------------
- -------------
Total Loss from Investment Operations (0.16) ----
- --
- --------------------------------------------------------
- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.09)
Distribution from net realized gains on
security transactions (2) (0.14) ----
- --
- --------------------------------------------------------
- -------------
Total Distributions (0.23) ----
- --
- --------------------------------------------------------
- -------------
NET ASSET VALUE, END OF PERIOD $12.15 -----
- --------------------------------------------------------
- -------------
TOTAL RETURN (P) (1.28)%++ -
- --
- --------------------------------------------------------
- ----
- ------------
NET ASSETS, END OF PERIOD (000S) $354 -----
- --
- --------------------------------------------------------
- ------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.59%+*
Net investment income 2.11+
- --------------------------------------------------------
- -------
- ------------
PORTFOLIO TURNOVER RATE 26.77%
- --------------------------------------------------------
- -------
- ------------
<CAPTION>
CLASS C SHARES 1994(3)
1993
1992(4) ------------------------------------------------
- ---------------
- ------------
<S> <C>
<C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.30
$12.48
$12.87 -------------------------------------------------
- --------------
- ------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.31
0.38
0.17
Net realized and unrealized
gain (loss) on investments (0.95)
1.53
(0.10) -------------------------------------------------
-
- --------------
- ------------
Total Income (Loss) from Investment
Operations (0.64)
1.91
0.07 -------------------------------------------------
- --
- -------------
- ------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.34)
(0.36)
(0.06)
Distribution from net realized gains (2) (0.14)
(0.73)
(0.40) -------------------------------------------------
-
- --------------
- ------------
Total Distributions (0.48)
(1.09)
(0.46) -------------------------------------------------
-
- --------------
- ------------
NET ASSET VALUE, END OF PERIOD $12.18
$13.30
$12.48 -------------------------------------------------
- --------------
- ------------
TOTAL RETURN (P) (4.91)%
15.46%
(0.57)%++ ----------------------------------------------
-
- -----------------
- ------------
NET ASSETS, END OF PERIOD (000S) $27,507
$15,408
$1,504 -------------------------------------------------
- --------------
- ------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.75%
1.65%
1.58%+
Net investment income 2.49
2.59
1.80+
- --------------------------------------------------------
- -------
- ------------
PORTFOLIO TURNOVER RATE 26.77%
46.10%
39.16%
- --------------------------------------------------------
- -------
- ------------
</TABLE>
(1) For the period from November 7, 1994 (inception
date) to December 31, 1994.
(2) Net short term gains, if any, are included and
reported as
ordinary income
for income tax purposes.
(3) On November 7, 1994 former Class B shares were
renamed Class C
shares.
(4) For the period from December 2, 1992 (inception
date) to December 31, 1992.
++ Not annualized as it may not be representative of
the total
return for the
year.
+ Annualized.
(P) Total returns do not reflect sales charges.
* Amount has been restated from the December 31, 1994
Annual
Report.
13
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT
EACH PERIOD:
UTILITY PORTFOLIO
<TABLE>
<CAPTION>
CLASS A SHARES 1994(1) 1993
1992 1991 1990(2) ----------------------------------
- -----------------------------
- -----------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $13.29 $13.07
$13.07 $11.94 $11.94 ---------------------------------
- ------------------------------
- -----------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.79
0.82
0.79
0.78 0.01
Net realized and
unrealized gain (loss)
on investments (1.91) 0.52
0.17
1.20 --
- --------------------------------------------------------
- -------
- -----------------
Total Income (Loss) from
Investment Operations (1.12) 1.34
0.96 1.98 0.01 -------------------------------------
- --------------------------
- -----------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.81) (0.81)
(0.79) (0.79) (0.01)
Distributions from net
realized gains on
security transactions
(3) (0.05) (0.31)
(0.17)
(0.06) --
- --------------------------------------------------------
- -------
- -----------------
Total Distributions (0.86) (1.12)
(0.96)
(0.85) (0.01) ----------------------------------------
- -----------------------
- -----------------
NET ASSET VALUE, END OF
PERIOD $11.31 $13.29
$13.07
$13.07 $11.94 ----------------------------------------
- -----------------------
- -----------------
TOTAL RETURN (P) (8.56)% 10.37%
7.77%
17.21% 0.08%++ --------------------------------------
- -------------------------
- -----------------
NET ASSETS, END OF
PERIOD (000S) $68,788 $113,080
$126,437
$104,905 $71,237 --------------------------------------
- -------------------------
- -----------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.01% 0.98%
1.07%
1.00% 1.00%+
Net investment income 6.54 5.97
6.13
6.61 7.58+ -----------------------------------------
- ----------------------
- -----------------
PORTFOLIO TURNOVER RATE 23.54% 36.68%
27.54%
39.45% --------------------------------------------
- --------------------
- -----------------
<CAPTION>
CLASS B SHARES
CLASS C
SHARES (5)
------------------------------
- ----------
1994(4)
1994 1993 1992(6) -----------------------------------
- ----------------------------
- -----------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.29
$13.28
$13.07 $12.98 ----------------------------------------
- -----------------------
- -----------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.14
0.71
0.73 0.02
Net realized and
unrealized gain on
investments 0.06
(1.91)
0.50 0.26 ------------------------------------------
- -----------------
- -----
- -----------------
Total Income (Loss) from
Investment Operations 0.20
(1.20)
1.23 0.28 ------------------------------------------
- ---------------------
- -----------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.12)
(0.71) (0.71) (0.03)
Distribution from net
realized gains on
security transactions
(3) (0.05)
(0.05) (0.31) (0.16) ---------------------------------
- ------------------------------
- -----------------
Total Distributions (0.17)
(0.76) (1.02) (0.19) ---------------------------------
- ------------------------------
- -----------------
NET ASSET VALUE, END OF
PERIOD $11.32
$11.32 $13.28 $13.07 ---------------------------------
- ------------------------------
- -----------------
TOTAL RETURN (P) 1.82%++
(9.19)%
9.48% 2.23%++ ---------------------------------------
- ------------------------
- -----------------
NET ASSETS, END OF
PERIOD (000S) $737
$7,889 $7,573 $860 ---------------------------------
- ------------------------------
- -----------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.67%+
1.77%
1.72% 1.55%+
Net investment income 4.71+
5.87
5.12 2.45+ -----------------------------------------
- ----------------------
- -----------------
PORTFOLIO TURNOVER RATE 23.54%
23.54%
36.68% 27.45% ----------------------------------------
- -----------------------
- -----------------
</TABLE>
(1) On October 10, 1994 former Class C shares were
exchanged into
Class A
shares and therefore Class C share activity for the
period from
January 1,
1994 through October 9, 1994 is included with the Class
A share
activity.
(2) For the period from December 28, 1990 (inception
date) to
December 31,
1990.
(3) Net short term gains, if any, are included and
reported as
ordinary income
for tax purposes.
(4) For the period from November 7, 1994 (inception
date) to December 31, 1994.
(5) On November 7, 1994 former Class B shares were
renamed Class C
shares.
(6) For the period from December 2, 1992 (inception
date) to December 31, 1992.
++ Not annualized as it may be representative of the
total return
for the
year.
+ Annualized.
(P) Total returns do not reflect sales charges.
14
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The Income and Growth Portfolio seeks current income and
long-term growth of
income and capital by investing primarily, but not
exclusively, in
common
stocks. The Utility Portfolio seeks current income and
moderate
capital growth
by investing in equity and debt securities of public
utility companies. Of
course, no assurance can be given that a Portfolio's
objective will
be
achieved.
The Income and Growth Portfolio invests primarily in
common
stocks offering
a current return from dividends and will also normally
include some
interest-
paying debt obligations (such as U.S. Government
Obligations,
investment grade
bonds and debentures) and high quality short-term debt
obligations
(such as
commercial paper and repurchase agreements
collateralized by U.S.
Government
securities with broker/dealers or other financial
institutions,
including the
Fund's custodian); and this Portfolio may also purchase
preferred
stocks and
convertible securities. Temporary defensive investments
or a higher
percentage
of debt securities may be held when deemed advisable by
the Manager. To the
extent the Portfolio's assets are invested for temporary
defensive
purposes,
such assets will not be invested in a manner designed to
achieve
the Portfo-
lio's investment objective. In the selection of common
stock investments,
emphasis is generally placed on issues with established
dividend
records as
well as potential for price appreciation. From time to
time, however, a por-
tion of the assets may be invested in non-dividend
paying stocks.
The Portfo-
lio may make investments in foreign securities, though
management
currently
intends to limit such investments to 5% of the
Portfolio's assets,
and an
additional 10% of its assets may be invested in
sponsored American
Depositary
Receipts representing shares in foreign securities that
are traded
in United
States securities markets.
The Utility Portfolio, under normal conditions, invests
at least
65% of its
total assets in securities of companies in the public
utilities
industry and
companies deriving a majority of their revenues from
their public
utility
operations. Public utility investments include companies
engaged in
the manu-
facture, production, generation, transmission, sale and
distribution of gas
and electric energy, and companies engaged in the
communications
field,
including telephone, telegraph, satellite, microwave and
other
companies pro-
viding communication facilities for the public benefit
(but excluding public
broadcasting companies). The Portfolio will invest in
both equity
securities
(common stocks and securities convertible into common
stocks) and
debt securi-
ties (bond and preferred stock) of public utility
companies.
The
Portfolio
will shift its asset allocation without restriction
between types
of utilities
and between equity and debt securities
15
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
based upon the Manager's determination of how to achieve
the Portfolio's
investment objective in light of prevailing market,
economic and
financial
conditions. For example, at a particular time the
Manager may
choose to allo-
cate up to 100% of the Portfolio's assets in a
particular type of
security
(e.g., equity securities) or in a specific utility
industry segment
(e.g.,
electric utilities). See "Additional Information" for
further
information.
The Utility Portfolio's investments in debt securities
will be
primarily in
securities rated investment grade by Moody's Investors
Service,
Inc.
("Moody's") (Aaa, Aa, A, Baa) or Standard & Poor's
Corporation
("S&P") (AAA,
AA, A, BBB). The Portfolio may invest up to 10% of its
assets in
securities
rated Ba or B by Moody's or BB or B by S&P whenever the
Manager
believes that
the incremental yield on such securities is advantageous
to the
Portfolio in
comparison to the additional risk involved. The yields
on lower
rated debt
securities generally are higher than the yields
available on higher
rated
securities. However, investments in lower rated
securities may be
subject to
greater market fluctuations and greater risks of loss of
income or
principal
(including the possibility of default by, or bankruptcy
of, the
issuers of
such securities) than higher rated securities. Lower
rated securities also may
have speculative characteristics. The Portfolio also may
invest in
debt secu-
rities that, while not rated, are determined by
the Manager to be
of compara-
ble quality to the rated securities in which the
Portfolio may
invest.
The remainder of the Utility Portfolio's assets may be
invested
in any type
of security, including U.S. Government securities, money
market
instruments,
and equity and debt securities of non-utility companies
believed to
afford a
reasonable opportunity for achieving the Portfolio's
investment
objective.
Though it has no present intention to do so, the
Portfolio may buy
or sell put
and call options up to 15% of its net assets, provided
such options
are listed
on a national securities exchange. The Portfolio may
enter into
repurchase
agreements and may invest up to 15% of its total assets
in equity
and debt
securities of foreign issuers. See "Appendix." During
times when
the Manager
believes a defensive posture in the market is warranted,
the Portfolio may
invest temporarily up to 100% of its assets in U.S.
Government
securities,
money market instruments and debt securities (whether or
not they
are utility
securities) such as investment grade bonds and
debentures. To the
extent the
Portfolio's assets are invested for temporary defensive
purposes,
such assets
will not be invested in a manner designed to achieve the
Portfolio's invest-
ment objective.
16
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
The Utility Portfolio's investment objective may be
changed only
by the
"vote of a majority of the outstanding voting
securities" as defined in the
Investment Company Act of 1940 (the "1940 Act"). The
Income and
Growth Portfo-
lio's investment objective and policies, as well as the
Utility
Portfolio's
investment policies, are non-fundamental and, as such,
may be
changed by the
Board of Directors, provided such change is not
prohibited by the
investment
restrictions (which are set forth in the Statement of
Additional
Information)
or applicable law, and any such change will first be
disclosed in
the then
current prospectus.
PORTFOLIO TRANSACTIONS AND TURNOVER
All orders for transactions in securities and options on
behalf
of the Port-
folio are placed by the Manager with broker/dealers that
the Manager selects,
including Smith Barney and other affiliated brokers.
Brokerage will
be allo-
cated to Smith Barney, to the extent and in the manner
permitted by
applicable
law, provided that, in the judgment of the Board of
Directors of
the Fund, the
commission, fee or other remuneration received or to be
received by
Smith Bar-
ney (or any broker/dealer affiliate of Smith Barney that
is also a
member of a
securities exchange) is reasonable and fair compared to
the commission, fee or
other remuneration received by other brokers in
connection with
comparable
transactions involving similar securities being
purchased or sold
on a securi-
ties exchange during the same or comparable period of
time. The
Fund normally
expects to allocate to Smith Barney between 50% and 60%
of each
Portfolio's
transactions to be executed for such account on an
agency basis. In
all trades
directed to Smith Barney, the Fund has been assured that
its orders
will be
accorded priority over those received from Smith Barney
for its own
account or
for any of its directors, officers or employees. The
Fund
will not
deal with
Smith Barney in any transaction in which Smith Barney
acts as
principal.
Although it is anticipated that most investments of each
Portfolio will be
long-term in nature, the rate of portfolio turnover will
depend
upon market
and other conditions, and it will not be a limiting
factor when the
Investment
Manager believes that portfolio changes are appropriate.
It is
expected that
each Portfolio's annual turnover rate will not exceed
100%. As the
portfolio
turnover rate increases, so will a Portfolio's
brokerage and other
transaction
related expenses. Investors should realize that risk
of loss is
inherent in
the ownership of any securities and that shares of
each Portfolio
will fluctu-
ate with the market values of its securities.
17
<PAGE>
Smith Barney Funds, Inc.
VALUATION OF SHARES
Each Portfolio's net asset value per share is
determined as of
the close of
regular trading on the NYSE on each day that the NYSE
is open, by
dividing the
value of the Portfolio's net assets attributable to
each Class by
the total
number of shares of the Class outstanding.
Securities that are listed or traded on a securities
exchange are
valued at
the last sale price on the principal exchange on which
they are
listed and
securities trading on the NASDAQ System are valued at
the last sale
price
reported as of the close of the NYSE. If no last sale
is reported,
the forego-
ing securities and over-the-counter securities other
than those
traded on the
NASDAQ System are valued at the mean between the last
reported bid
and asked
prices. Debt obligations are valued at the mean between
the bid and
asked quo-
tations for those securities or if no quotations are
available,
then for secu-
rities of similar type, yield and maturity. Short-term
investments
that have a
maturity of more than 60 days are valued at prices
based on market
quotations
for securities of similar type, yield and maturity.
Short term
investments
that have a maturity of 60 days or less are valued at
amortized
cost when the
Board of Directors has determined that amortized cost
equals fair
value,
unless market conditions dictate otherwise. Other
investments of a
Portfolio,
if any, including restricted securities, are valued at a
fair value
determined
by the Board of Directors in good faith.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares quarterly income dividends on shares
of
the
Income and
Growth Portfolio and monthly income dividends on shares
of the
Utility Portfo-
lio and makes annual distributions of capital gains, if
any, on
such shares.
If a shareholder does not otherwise instruct, dividends
and
capital gain
distributions will be reinvested automatically in
additional shares
of the
same Class at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gain distributions that are
invested
are cred-
ited to shareholders' accounts in additional shares at
the net
asset value as
of the close of business on the payment date. A
shareholder may
change the
option at any time by notifying his or her Smith
Barney Financial
Consultant.
Accounts held directly by TSSG should notify TSSG in
writing at
least five
business days prior to the payment date to permit the
change to be
entered in
the shareholder's account.
18
<PAGE>
Smith Barney Funds, Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
The per share dividends on Class B and Class C shares of
each
Portfolio may
be lower than the per share dividends on Class A and
Class Y shares
principally
as a result of the distribution fee applicable with
respect to
Class B and
Class C shares. The per share dividends on Class A
shares of each
Portfolio may
be lower than the per share dividends on Class Y shares
principally
as a result
of the service fee applicable to Class A shares.
Distributions of
capital
gains, if any, will be in the same amount for Class A,
Class B,
Class C and
Class Y shares.
TAXES
Each Portfolio intends to qualify as a regulated
investment
company under
Subchapter M of the Code to be relieved of
federal income tax on
that part of
its net investment income and realized capital
gains which it pays
out to its
shareholders. To qualify, the Portfolio must meet
certain tests,
including dis-
tributing at least 90% of its investment company taxable
income,
and deriving
less than 30% of its gross income from the sale or other
disposition of certain
investments held for less than three months.
Dividends from net investment income and distributions
of
realized short-term
capital gains on the sale of securities, whether paid in
cash or
automatically
invested in additional shares of the same Portfolio, are
taxable to
sharehold-
ers of each Portfolio as ordinary income. Each
Portfolio's dividends will not
qualify for the dividends received deduction for
corporations.
Dividends and
distributions declared by each Portfolio may also be
subject to
state and local
taxes. Distributions out of net long-term capital gains
(i.e., net
long-term
capital gains in excess of net short-term capital
losses) are
taxable to share-
holders as long-term capital gains. Information as to
the tax
status of divi-
dends paid or deemed paid in each calendar year will be
mailed to
shareholders
as early in the succeeding year as practical but not
later than
January 31.
PURCHASE OF SHARES
GENERAL
Each Portfolio offers four Classes of shares. Class A
shares are
sold to
investors with an initial sales charge and Class B and
Class C
shares are sold
without an initial sales charge but are subject to a
CDSC payable
upon certain
redemp-
19
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
tions. Class Y shares are sold without an initial sales
charge or
CDSC and are
available only to investors investing a minimum of
$5,000,000. The
Income and
Growth Portfolio also offers a fifth class of shares:
Class Z
shares, which are
offered without a sales charge, CDSC, service fee or
distribution
fee, exclu-
sively to tax-exempt employee benefit and retirement
plans of Smith
Barney and
its affiliates. Investors meeting these criteria who are
interested
in acquir-
ing Class Z shares should contact a Smith Barney
Financial Consultant for a
Class Z Prospectus. See "Prospectus Summary --
Alternative Purchase
Arrange-
ments" for a discussion of factors to consider in
selecting which
Class of
shares to purchase.
Shares may be purchased through a brokerage account
maintained
with Smith
Barney. Shares may also be purchased through an
Introducing Broker
or an
investment dealer in the selling group. In addition,
certain investors, includ-
ing qualified retirement plans and certain other
institutional
investors, may
purchase shares directly from the Fund through TSSG.
When purchasing shares of
the Portfolio, investors must specify whether the
purchase is for
Class A,
Class B, Class C or Class Y shares. No maintenance fee
will be
charged by the
Fund in connection with a brokerage account through
which an investor purchases
or holds shares.
Investors in Class A, Class B and Class C shares may
open
an
account by mak-
ing an initial investment of at least $1,000 for each
account, or
$250 for an
IRA or a Self-Employed Retirement Plan in the Portfolio.
Investors
in Class Y
shares may open an account by making an initial
investment of
$5,000,000. Sub-
sequent investments of at least $50 may be made for all
Classes.
For partici-
pants in retirement plans qualified under Section
403(b)(7) or
Section 401(a)
of the Code, the minimum initial investment requirement
for Class
A, Class B
and Class C shares and the subsequent investment
requirement for
all Classes in
the Portfolio is $25. For each Portfolio's Systematic
Investment
Plan, the min-
imum initial investment requirement for Class A, Class B
and Class
C shares and
the subsequent investment requirement for all Classes is
$50. There
are no min-
imum investment requirements in Class A shares for
employees of
Travelers and
its subsidiaries, including Smith Barney, Directors of
the Fund,
and their
spouses and children. The Fund reserves the right to
waive or
change minimums,
to decline any order to purchase its shares and to
suspend the
offering of
shares from time to time. Shares purchased will be held
in the
shareholder's
account by the Fund's transfer agent, TSSG. Share
certificates are
issued only
upon a shareholder's written request to TSSG.
20
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
Purchase orders received by the Fund or Smith Barney
prior to the
close of
regular trading on the NYSE, on any day a Portfolio
calculates its
net asset
value, are priced according to the net asset value
determined on
that day (the
"trade date"). Orders received by dealers or Introducing
Brokers
prior to the
close of regular trading on the NYSE on any day a
Portfolio calculates its net
asset value, are priced according to the net asset value
determined
on that
day, provided the order is received by the Fund or Smith
Barney
prior to Smith
Barney's close of business. Currently, payment for
Portfolio shares
is due on
the fifth business day (the "settlement date") after the
trade
date. The Port-
folio anticipates that, in accordance with regulatory
changes,
beginning on or
about June 1, 1995, the settlement date will be the
third business
day after
the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any
time by
purchasing
shares through a service known as the Systematic
Investment Plan.
Under the
Systematic Investment Plan, Smith Barney or TSSG is
authorized
through preau-
thorized transfers of $50 or more to charge the regular
bank account or other
financial institution indicated by the shareholder on a
monthly or
quarterly
basis to provide systematic additions to the
shareholder's Portfolio account. A
shareholder who has insufficient funds to complete the
transfer
will be charged
a fee of up to $25 by Smith Barney or TSSG. The
Systematic
Investment Plan also
authorizes Smith Barney to apply cash held in the
shareholder's
Smith Barney
brokerage account or redeem the shareholder's shares of
a Smith
Barney money
market fund to make additions to the account. Additional
information is avail-
able from the Fund or a Smith Barney Financial
Consultant.
21
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A
shares of
each Portfo-
lio are as follows:
<TABLE>
<CAPTION>
SALES CHARGE ---------
--------------------
DEALERS'
% OF % OF
REALLOWANCE
AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED
OFFERING
PRICE --------------------------------------------------
- -------------
- ----------
<S> <C> <C>
<C>
Less than $25,000 5.00% 5.26%
4.50%
$ 25,000 - 49,999 4.00 4.17
3.60
50,000 - 99,999 3.50 3.63
3.15
100,000 - 249,999 3.00 3.09
2.70
250,000 - 499,999 2.00 2.04
1.80
500,000 and over * *
* ------------------------------------------------------
- --
- --------
- ----------
</TABLE>
* Purchases of Class A shares, which when combined with
current
holdings of
Class A shares offered with a sales charge equal or
exceed $500,000 in the
aggregate, will be made at net asset value without any
initial
sales charge,
but will be subject to a CDSC of 1.00% on redemptions
made within
12 months
of purchase. The CDSC on Class A shares is payable to
Smith
Barney, which
compensates Smith Barney Financial Consultants and other
dealers
whose
clients make purchases of $500,000 or more. The CDSC is
waived in
the same
circumstances in which the CDSC applicable to Class B
and
Class
C shares is
waived. See "Deferred Sales Charge Alternatives" and
"Waivers of
CDSC."
Members of the selling group may receive up to 90% of
the
sales
charge and
may be deemed to be underwriters of the Fund as defined
in the
Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to the
aggregate of
purchases of
Class A shares of the Portfolio made at one time by "any
person,"
which
includes an individual, his or her spouse and children,
or a trustee or other
fiduciary of a single trust estate or single fiduciary
account. The
reduced
sales charge minimums may also be met by aggregating the
purchase
with the net
asset value of all Class A shares offered with a sales
charge held
in funds
sponsored by Smith Barney listed under "Exchange
Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset
value without a sales
charge in the following circumstances: (a) sales of
Class A shares
to Direc-
tors of the Fund and employees of Travelers and its
subsidiaries,
or to the
spouse and children of such persons (including the
surviving spouse
of a
deceased Direc-
22
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
tor or employee, and retired Directors or employees), or
sales to
any trust,
pension, profit-sharing or other benefit plan for such
persons
provided such
sales are made upon the assurance of the purchaser that
the purchase is made
for investment purposes and that the securities will not
be resold
except
through redemption or repurchase; (b) offers of Class A
shares to
any other
investment company in connection with the combination of
such
company with the
Portfolio by merger, acquisition of assets or otherwise;
(c) purchases of Class
A shares by any client of a newly employed Smith Barney
Financial
Consultant
(for a period up to 90 days from the commencement of the
Financial
Consultant's
employment with Smith Barney), on the condition the
purchase of
Class A shares
is made with the proceeds of the redemption of shares of
a mutual
fund which
(i) was sponsored by the Financial Consultant's prior
employer,
(ii) was sold
to the client by the Financial Consultant and (iii) was
subject to
a sales
charge; (d) shareholders who have redeemed Class A
shares in a
Portfolio (or
Class A shares of another fund of the Smith Barney
Mutual Funds
that are sold
with a maximum 5.00% sales charge) and who wish to
reinvest their
redemption
proceeds in the Portfolio, provided the reinvestment is
made within
60 calendar
days of the redemption; and (e) accounts managed by
registered
investment advi-
sory subsidiaries of Travelers. In order to obtain such
discounts,
the pur-
chaser must provide sufficient information at the time
of purchase
to permit
verification that the purchase would qualify for the
elimination of
the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of a Portfolio may be purchased by "any
person"
(as defined
above) at a reduced sales charge or at net asset value
determined
by aggregat-
ing the dollar amount of the new purchase and the total
net asset
value of all
Class A shares of the Portfolio and of funds sponsored
by Smith
Barney that are
offered with a sales charge listed under "Exchange
Privilege" then
held by such
person and applying the sales charge applicable to such
aggregate.
In order to
obtain such discount, the purchaser must provide
sufficient information at the
time of purchase to permit verification that the
purchase qualifies
for the
reduced sales charge. The right of accumulation is
subject to
modification or
discontinuance at any time with respect to all shares
purchased
thereafter.
23
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
GROUP PURCHASES
Upon completion of certain automated systems, a reduced
sales
charge or pur-
chase at net asset value will also be available to
employees (and
partners) of
the same employer purchasing as a group, provided each
participant
makes the
minimum initial investment required. The sales charge
applicable to
purchases
by each member of such a group will be determined by the
table set
forth above
under "Initial Sales Charge Alternative--Class A
Shares," and will
be based
upon the aggregate sales of Class A shares of Smith
Barney Mutual
Funds
offered with a sales charge to, and share holdings of,
all members
of the
group. To be eligible for such reduced sales charges or
to purchase
at net
asset value, all purchases must be pursuant to an
employer or
partnership-
sanctioned plan meeting certain requirements. One such
requirement
is that the
plan must be open to specified partners or employees of
the employer and its
subsidiaries, if any. Such plan may, but is not required
to, provide for pay-
roll deductions, IRAs or investments pursuant to
retirement plans
under Sec-
tions 401 or 408 of the Code. Smith Barney may also
offer a reduced
sales
charge or net asset value purchase for aggregating
related fiduciary accounts
under such conditions that Smith Barney will realize
economies of
sales
efforts and sales related expenses. An individual who is
a member
of a quali-
fied group may also purchase Class A shares at the
reduced sales
charge appli-
cable to the group as a whole. The sales charge is based
upon the
aggregate
dollar value of Class A shares offered with a sales
charge that
have been pre-
viously purchased and are still owned by the group, plus
the
amount
of the
current purchase. A "qualified group" is one which (a)
has been in
existence
for more than six months, (b) has a purpose other
than acquiring
Portfolio
shares at a discount and (c) satisfies uniform
criteria which
enable Smith
Barney to realize economies of scale in its costs of
distributing
shares. A
qualified group must have more than 10 members, must
be available
to arrange
for group meetings between representatives of the
Portfolio and the
members,
and must agree to include sales and other
materials related to the
Portfolio
in its publications and mailings to members at no cost
to Smith
Barney. In
order to obtain such reduced sales charge or to
purchase at net
asset value,
the purchaser must provide sufficient information at
the time of
purchase to
permit verification that the purchase qualifies for the
reduced
sales charge.
Approval of group purchase reduced sales charge plans
is subject to
the dis-
cretion of Smith Barney.
24
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of
$50,000 or more
provides
an opportunity for an investor to obtain a reduced
sales charge by
aggregating
investments over a 13 month period, provided that the
investor
refers to such
Letter when placing orders. For purposes of a Letter of
Intent, the
"Amount of
Investment" as referred to in the preceding sales
charge table
includes pur-
chases of all Class A shares of each Portfolio and
other funds of
the Smith
Barney Mutual Funds offered with a sales charge over a
13
month
period based
on the total amount of intended purchases plus the value
of all
Class A shares
previously purchased and still owned. An alternative is
to compute
the 13
month period starting up to 90 days before the date of
execution of
a Letter
of Intent. Each investment made during the period
receives the
reduced sales
charge applicable to the total amount of the investment
goal. If
the goal is
not achieved within the period, the investor must pay
the difference between
the sales charges applicable to the purchases made and
the charges
previously
paid, or an appropriate number of escrowed shares will
be redeemed.
Please
contact a Smith Barney Financial Consultant or TSSG to
obtain a
Letter of
Intent application.
Class Y Shares. A Letter of Intent may also be used as a
way for
investors
to meet the minimum investment requirement for Class Y
shares. Such
investors
must make an initial minimum purchase of $1,000,000 in
Class Y
shares of a
Portfolio and agree to purchase a total of $5,000,000 of
Class Y
shares of the
same Portfolio within six months from the date of the
Letter. If a
total
investment of $5,000,000 is not made within the six-
month period,
all Class Y
shares purchased to date will be transferred to Class A
shares,
where they
will be subject to all fees (including a service fee of
0.25%) and
expenses
applicable to such Portfolio's Class A shares, which
may include a
CDSC of
1.00%. Please contact a Smith Barney Financial
Consultant or TSSG
for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
CDSC Shares are sold at net asset value next determined
without
an initial
sales charge so that the full amount of an investor's
purchase
payment may be
immediately invested in a Portfolio. A CDSC, however,
may be imposed on cer-
tain redemptions of these shares. "CDSC Shares" are: (a)
Class B
shares; (b)
Class C shares; and (c) Class A shares which when
combined with
Class A shares
offered with sales charge currently held by an investor
equal or
exceed
$500,000 in the aggregate.
25
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
Any applicable CDSC will be assessed on an amount equal
to the
lesser of the
original cost of the shares being redeemed or their net
asset value
at the
time of redemption. CDSC Shares that are redeemed will
not be
subject to a
CDSC to the extent that the value of such shares
represents: (a)
capital
appreciation of Portfolio assets; (b) reinvestment of
dividends or
capital
gain distributions; (c) with respect to Class B shares,
shares
redeemed more
than five years after their purchase; or (d) with
respect to Class
C shares
and Class A shares that are CDSC Shares, shares redeemed
more than
12 months
after their purchase.
Class C shares and Class A shares that are CDSC Shares
are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In
circumstances in which
the CDSC is imposed on Class B shares, the amount of the
charge
will depend on
the number of years since the shareholder made the
purchase payment
from which
the amount is being redeemed. Solely for purposes of
determining
the number of
years since a purchase payment, all purchase payments
made
during
a month will
be aggregated and deemed to have been made on the last
day of the
preceding
Smith Barney statement month. The following table sets
forth the
rates of the
charge for redemptions of Class B shares by
shareholders, except in
the case
of purchases by Participating Plans, as described below.
See "Purchase of
Shares -- Smith Barney 401(k) Program."
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC -----------------------
-----
<S> <C>
First 5.00%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 0.00
Seventh 0.00
Eighth 0.00
-----------------------------
</TABLE>
Class B shares will convert automatically to Class A
shares eight
years
after the date on which they were purchased and
thereafter will no
longer be
subject to any distribution fees. There will also be
converted at
that time
such proportion of Class B Dividend Shares owned by the
shareholder
as the
total number of his or her Class B shares converting at
the time
bears to the
total number of outstanding Class B shares (other than
Class B
Dividend
Shares) owned by the
26
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
shareholder. Shareholders who held Class B shares of
Smith Barney
Shearson
Short-Term World Income Fund (the "Short-Term World
Income Fund")
on July 15,
1994 and who subsequently exchange those shares for
Class
B shares
of a Portfo-
lio will be offered the opportunity to exchange all such
Class B
shares for
Class A shares of such Portfolio four years after the
date on which
those
shares were deemed to have been purchased. Holders of
such Class B
shares will
be notified of the pending exchange in writing
approximately 30
days before the
fourth anniversary of the purchase date and, unless the
exchange
has been
rejected in writing, the exchange will occur on or about
the fourth
anniversary
date. See "Prospectus Summary--Alternative Purchase
Arrangements --
Class B
Shares Conversion Feature."
In determining the applicability of any CDSC, it will be
assumed
that a
redemption is made first of shares representing capital
appreciation, next of
shares representing the reinvestment of dividends and
capital gain
distribu-
tions and finally of other shares held by the
shareholder for the
longest
period of time. The length of time that CDSC Shares
acquired through an
exchange have been held will be calculated from the date
that the
shares
exchanged were initially acquired in one of the other
Smith Barney
Mutual
Funds, and Portfolio shares being redeemed will be
considered to
represent, as
applicable, capital appreciation or dividend and capital
gain
distribution
reinvestments in such other funds. For Federal income
tax purposes,
the amount
of the CDSC will reduce the gain or increase the loss,
as the case
may be, on
the amount realized on redemption. The amount of any
CDSC will be
paid to Smith
Barney.
To provide an example, assume an investor purchased 100
Class B
shares at $10
per share for a cost of $1,000. Subsequently, the
investor acquired
5 addi-
tional shares through dividend reinvestment. During the
fifteenth
month after
the purchase, the investor decided to redeem $500 of his
or her
investment.
Assuming at the time of the redemption the net asset
value had
appreciated to
$12 per share, the value of the investor's shares would
be $1,260
(105 shares
at $12 per share). The CDSC would not be applied to the
amount
which represents
appreciation ($200) and the value of the reinvested
dividend shares
($60).
Therefore, $240 of the $500 redemption proceeds ($500
minus $260)
would be
charged at a rate of 4.00% (the applicable rate for
Class B shares)
for a total
deferred sales charge of $9.60.
27
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b)
automatic cash withdrawals in amounts equal to or less
than 1.00%
per month of
the value of the shareholder's shares at the time the
withdrawal
plan commences
(see "Automatic Cash Withdrawal Plan") (provided,
however, that
automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the
value of
the shareholder's shares will be permitted for
withdrawal plans
that were
established prior to November 7, 1994); (c) redemptions
of shares
within twelve
months following the death or disability of the
shareholder; (d)
redemption of
shares made in connection with qualified distributions
from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary
redemptions; and (f)
redemptions of shares in connection with a combination
of
the
Portfolio with
any investment company by merger, acquisition of assets
or otherwise. In addi-
tion, a shareholder who has redeemed shares from other
funds of the
Smith Bar-
ney Mutual Funds may, under certain
circumstances, reinvest all or
part of the
redemption proceeds within 60 days and receive pro rata
credit for
any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by
Smith
Barney in the
case of shareholders who are also Smith Barney clients
or by TSSG
in the case
of all other shareholders) of the shareholder's status
or holdings,
as the case
may be.
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the Smith
Barney
401(k) Program,
which is generally designed to assist plan sponsors in
the creation
and opera-
tion of retirement plans under Section 401(a) of the
Code. To the
extent appli-
cable, the same terms and conditions are offered to all
Participating Plans in
the Smith Barney 401(k) Program.
Each Portfolio offers to Participating Plans Class A,
Class B,
Class C and
Class Y shares as investment alternatives under the
Smith Barney
401(k) Pro-
gram. Class A, Class B and Class C shares acquired
through the
Smith Barney
401(k) Program are subject to the same service and/or
distribution
fees as, but
different sales charge and CDSC schedules than, the
Class A, Class
B and Class
C shares acquired by other investors. Similar to those
shares
available to
other investors, Class Y shares acquired through the
Smith Barney
401(k) Pro-
gram are not subject to any service or distribution fees
or
any
initial sales
charge or
28
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
CDSC. Once a Participating Plan has made an initial
investment in
the Portfo-
lio, all of its subsequent investments in the
Portfolio must be in
the same
Class of shares, except as otherwise described below.
Class A Shares. Class A shares of each Portfolio are
offered
without any ini-
tial sales charge to any Participating Plan that
purchases from
$500,000 to
$4,999,999 of Class A shares of one or more funds of the
Smith
Barney Mutual
Funds. Class A shares acquired through the Smith Barney
401(k)
Program after
November 7, 1994 are subject to a CDSC of 1.00% of
redemption
proceeds, if the
Participating Plan terminates within four years of the
date the
Participating
Plan first enrolled in the Smith Barney 401(k) Program.
Class B Shares. Class B shares of each Portfolio are
offered to
any Partici-
pating Plan that purchases less than $250,000 of one or
more funds
of the
Smith Barney Mutual Funds. Class B shares acquired
through the
Smith Barney
401(k) Program are subject to a CDSC of 3.00% of
redemption proceeds, if the
Participating Plan terminates within eight years of the
date the
Participating
Plan first enrolled in the Smith Barney 401(k) Program.
Eight years after the date the Participating Plan
enrolled in the
Smith Bar-
ney 401(k) Program, it will be offered the opportunity
to exchange
all of its
Class B shares for Class A shares of a Portfolio. Such
Plans will
be notified
of the pending exchange in writing approximately 60 days
before the
eighth
anniversary of the enrollment date and, unless the
exchange has
been rejected
in writing, the exchange will occur on or about the
eighth anniversary date.
Once the exchange has occurred, a Participating Plan
will not be
eligible to
acquire additional Class B shares of the Portfolio but
instead may
acquire
Class A shares of the Portfolio. If the Participating
Plan elects
not to
exchange all of its Class B shares at that time, each
Class B share
held by the
Participating Plan will have the same conversion
feature as Class
B shares held
by other investors. See "Purchase of Shares --
Deferred Sales
Charge Alterna-
tives."
Class C Shares. Class C shares of each Portfolio are
offered to
any Partici-
pating Plan that purchases from $250,000 to $499,999
of one or more
funds of
the Smith Barney Mutual Funds. Class C shares acquired
through the
Smith Barney
401(k) Program after November 7, 1994 are subject to a
CDSC of
1.00% of redemp-
tion proceeds, if the Participating Plan terminates
within four
years of the
date the Participating Plan first enrolled in the Smith
Barney
401(k) Program.
Each year after the date a Participating Plan enrolled
in the Smith
Barney
401(k) Program, if its total Class C holdings equal at
least $500,000 as of the
calendar year-end, the Participating Plan will be
offered the
29
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
opportunity to exchange all of its Class C shares for
Class A
shares of a
Portfolio. Such Plans will be notified in writing within
30 days
after the
last business day of the calendar year, and unless the
exchange
offer has been
rejected in writing, the exchange will occur on or about
the last
business day
of the following March. Once the exchange has occurred,
a Participating Plan
will not be eligible to acquire Class C shares of a
Portfolio but
instead may
acquire Class A shares of such Portfolio. Any Class C
shares not
converted
will continue to be subject to the distribution fee.
Class Y Shares. Class Y shares of each Portfolio are
offered
without any
service or distribution fees, sales charge or CDSC to
any Participating Plan
that purchases $5,000,000 or more of Class Y shares of
one or more
funds of
the Smith Barney Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to the
extent
that the net
asset value of the shares redeemed does not exceed the
current net
asset value
of the shares purchased through reinvestment of
dividends or capital gain dis-
tributions, plus (a) with respect to Class A and Class C
shares,
the current
net asset value of such shares purchased more than one
year prior
to redemp-
tion and, with respect to Class B shares, the current
net asset
value of Class
B shares purchased more than eight years prior to the
redemption,
plus (b)
with respect to Class A and Class C shares, increases in
the net
asset value
of the shareholder's Class A or Class C shares above the
purchase
payments
made during the preceding year and, with respect to
Class B shares,
increases
in the net asset value of the shareholder's Class B
shares above
the purchase
payments made during the preceding eight years. Whether
or not the
CDSC
applies to a Participating Plan depends on the number of
years
since the Par-
ticipating Plan first became enrolled in the Smith
Barney 401(k)
Program,
unlike the applicability of the CDSC to other
shareholders, which
depends on
the number of years since those shareholders made the
purchase
payment from
which the amount is being redeemed.
The CDSC will be waived on redemptions of Class A, Class
B and
Class C
shares in connection with lump-sum or other
distributions made by
a Partici-
pating Plan as a result of: (a) the retirement of an
employee in
the Partici-
pating Plan; (b) the termination of employment of an
employee in
the Partici-
pating Plan; (c) the death or disability of an employee
in the
Participating
Plan; (d) the attainment of age 59 1/2 by an employee in
the Participating
Plan; (e) hardship of an employee in the Participating
Plan to the
extent per-
mitted under Section 401(k) of the Code; or (f)
redemptions of
shares in con-
nection with a loan made by the Participating Plan to an
employee.
30
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
Participating Plans wishing to acquire shares of a
Portfolio
through the
Smith Barney 401(k) Program must purchase such shares
directly from
TSSG. For
further information regarding the Smith Barney 401(k)
Program,
investors should
contact a Smith Barney Financial Consultant.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class
may
be
exchanged for
shares of the same Class in the following funds of the
Smith Barney
Mutual
Funds, to the extent shares are offered for sale in the
shareholder's state of
residence. Exchanges of Class A, Class B and Class C
shares
are
subject to min-
imum investment requirements and all shares are
subject to the
other require-
ments of the fund into which exchanges are made and a
sales charge
differential
may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc. Smith
Barney Growth Opportunity Fund Smith Barney Managed
Growth Fund Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth
Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return
Fund Smith Barney Strategic
Investors Fund Smith Barney
Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income
Fund Smith Barney Diversified Strategic Income
Fund
*Smith Barney Funds, Inc. -- Income Return Account
Portfolio
Smith Barney Funds, Inc. -- Monthly Payment
Government Portfolio
+++Smith Barney Funds, Inc. -- Short-Term U.S.
Treasury Securities
Portfolio
31
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Funds, Inc. -- U.S. Government
Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc. Smith Barney California Municipals
Fund Inc. Smith Barney Florida
Municipals Fund
*Smith Barney Intermediate Maturity California
Municipals
Fund
*Smith Barney Intermediate Maturity New York
Municipals Fund
*Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund Smith
Barney Muni Funds -- California Portfolio
*Smith Barney Muni Funds -- Florida Limited Term
Portfolio Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
*Smith Barney Muni Funds -- Limited Term
Portfolio Smith Barney Muni Funds -- National
Portfolio Smith Barney Muni Funds -- New
Jersey Portfolio Smith Barney Muni Funds --
New York Portfolio Smith Barney Muni Funds --
Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio Smith Barney New Jersey Municipals
Fund Inc. Smith Barney New York Municipals
Fund Inc. Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney World Funds, Inc. -- Emerging Markets
Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government
Bond
Portfolio
Smith Barney World Funds, Inc. -- International
Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity
Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
32
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc. -- Cash Portfolio
++Smith Barney Money Funds, Inc. -- Government
Portfolio ***Smith Barney Money Funds, Inc. --
Retirement Portfolio +++Smith Barney Municipal Money
Market Fund, Inc. +++Smith Barney Muni Funds --
California Money Market Portfolio +++Smith Barney Muni
Funds -- New York Money Market Portfolio. --------------
- -------------------------------------------------
- --------------
*Available for exchange with Class A, Class C and Class
Y
shares of the
Portfolio.
** Available for exchange with Class A, Class B and
Class Y
shares of the
Portfolio. In addition, shareholders who own Class
C shares of
the
Portfolio through the Smith Barney 401(k) Program may
exchange
those
shares for Class C shares of this fund.
*** Available for exchange with Class A shares of the
Portfolio.
+ Available for exchange with Class B and Class C shares
of the
Portfolio.
++ Available for exchange with Class A and Class Y
shares
of the
Portfolio.
In addition, shareholders who own Class C shares of
the Portfolio through
the Smith Barney 401(k) Program may exchange those
shares for
Class C
shares of this fund.
+++ Available for exchange with Class A and Class Y
shares of each
Portfolio.
Class A Exchanges. Class A shares of Smith Barney Mutual
Funds
sold without
a sales charge or with a maximum sales charge of less
than the
maximum charged
by other Smith Barney Mutual Funds will be subject to
the appropriate "sales
charge differential" upon the exchange of such shares
for Class A
shares of a
fund sold with a higher sales charge. The "sales charge
differential" is lim-
ited to a percentage rate no greater than the excess of
the sales
charge rate
applicable to purchases of shares of the mutual fund
being acquired
in the
exchange over the sales charge rate(s) actually paid on
the mutual
fund shares
relinquished in the exchange and on any predecessor of
those shares. For pur-
poses of the exchange privilege, shares obtained through
automatic
reinvest-
ment of dividends and capital gain distributions are
treated as
having paid
the same sales charges applicable to the shares on which
the dividends or dis-
tributions were paid; however, except in the case of the
Smith
Barney 401(k)
Program, if no sales charge was imposed upon the initial
purchase
of the
shares, any shares obtained through automatic
reinvestment will be
subject to
a sales charge differential upon exchange. Class A
shares held in
a Portfolio
prior to November 7, 1994 that are subsequently
exchanged for
shares of other
funds in the Smith Barney Mutual Funds will not be
subject to a
sales charge
differential.
Class B Exchanges. In the event a Class B shareholder
(unless
such share-
holder was a Class B shareholder of the Short-Term World
Income
Fund on
33
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
July 15, 1994) wishes to exchange all or a portion of
his or her
shares in any
of the funds imposing a higher CDSC than that imposed by
a Portfolio, the
exchanged Class B shares will be subject to the higher
applicable
CDSC. Upon
an exchange, the new Class B shares will be deemed to
have been
purchased on
the same date as the Class B shares of the Portfolio
that have been
exchanged.
Class C Exchanges. Upon an exchange, the new Class C
shares will
be deemed
to have been purchased on the same date as the Class C
shares of
the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders of each
Portfolio
who
wish to
exchange all or a portion of their Class Y shares for
Class Y
shares in any of
the funds identified above may do so without imposition
of any
charge.
Additional Information Regarding the Exchange Privilege.
Although
the
exchange privilege is an important benefit, excessive
exchange
transactions
can be detrimental to the Portfolio's performance and
its
shareholders. The
Manager may determine that a pattern of frequent
exchanges is
excessive and
contrary to the best interests of each Portfolio's other
shareholders. In this
event, the Manager will notify Smith Barney and Smith
Barney may,
at its dis-
cretion, decide to limit additional purchases and/or
exchanges by
the share-
holder. Upon such a determination, Smith Barney will
provide notice
in writing
or by telephone to the shareholder at least 15 days
prior to suspending the
exchange privilege and during the 15 day period the
shareholder
will be
required to (a) redeem his or her shares in the
Portfolio or (b)
remain
invested in the Portfolio or exchange into any of the
funds of the
Smith Bar-
ney Mutual Funds ordinarily available, which position
the shareholder would be
expected to maintain for a significant period of time.
All relevant
factors
will be considered in determining what constitutes an
abusive
pattern of
exchanges.
Exchanges will be processed at the net asset value next
determined, plus any
applicable sales charge differential. Redemption
procedures discussed below
are also applicable for exchanging shares, and exchanges
will be
made upon
receipt of all supporting documents in proper form. If
the account
registra-
tion of the shares of the fund being acquired is
identical to the
registration
of the shares of the fund exchanged, no signature
guarantee is
required. A
capital gain or loss for tax purposes will be realized
upon the
exchange,
depending upon the cost or other basis of shares
redeemed. Before
exchanging
shares, investors should read the current prospectus
describing the
shares to
be acquired. Each Portfolio reserves the right to modify
or discontinue
exchange privileges upon 60 days' prior notice to
shareholders.
34
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of each
Portfolio
tendered to it,
as described below, at a redemption price equal to their
net asset
value per
share next determined after receipt of a written request
in proper
form at no
charge other than any applicable CDSC. Redemption
requests received
after the
close of regular trading on the NYSE are priced at the
net asset
value next
determined.
If a shareholder holds shares in more than one Class,
any
request
for
redemption must specify the Class being redeemed. In the
event of
a failure to
specify which Class, or if the investor owns fewer
shares of the
Class than
specified, the redemption request will be delayed until
the Fund's
transfer
agent receives further instructions from Smith Barney,
or if the
shareholder's
account is not with Smith Barney, from the shareholder
directly.
The redemp-
tion proceeds will be remitted on or before the seventh
day following receipt
of proper tender, except on any days on which the NYSE
is closed or
as permit-
ted under the 1940 Act in extraordinary circumstances.
The Fund
anticipates
that, in accordance with regulatory changes, beginning
on or about
June 1,
1995, payment will be made on the third business day
after receipt
of proper
tender. Generally, if the redemption proceeds are
remitted to a
Smith Barney
brokerage account, these funds will not be invested for
the shareholder's ben-
efit without specific instruction and Smith Barney will
benefit
from the use
of temporarily uninvested funds. Redemption proceeds
for shares
purchased by
check, other than a certified or official bank check,
will be
remitted upon
clearance of the check, which may take up to ten days
or more.
Shares held by Smith Barney as custodian must be
redeemed by
submitting a
written request to a Smith Barney Financial Consultant.
Shares
other than
those held by Smith Barney as custodian may be redeemed
through an
investor's
Financial Consultant, Introducing Broker or dealer in
the selling
group or by
submitting a written request for redemption to:
Smith Barney Funds, Inc./(Income and Growth Portfolio
or Utility
Portfolio)
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class
and
number
or dollar
amount of shares to be redeemed, (b) identify the
shareholder's
account number
and (c) be signed by each registered owner exactly as
the shares
are regis-
tered. If the shares to be redeemed were issued in
certificate
form, the cer-
tificates must
35
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES (CONTINUED)
be endorsed for transfer (or be accompanied by an
endorsed stock
power) and
must be submitted to TSSG together with the redemption
request. Any
signature
appearing on a redemption request, share certificate
or stock power
must be
guaranteed by an eligible guarantor institution, such
as a domestic
bank, sav-
ings and loan institution, domestic credit union,
member
bank of
the Federal
Reserve System or member firm of a national securities
exchange.
TSSG may
require additional supporting documents for redemptions
made by
corporations,
executors, administrators, trustees or guardians. A
redemption
request will not
be deemed properly received until TSSG receives all
required documents in
proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
Each Portfolio offers shareholders an automatic cash
withdrawal
plan, under
which shareholders who own shares with a value of at
least $10,000
may elect to
receive cash payments of at least $50 monthly or
quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only
where the share-
holder is eligible to receive qualified distributions
and has an
account value
of at least $5,000. The withdrawal plan will be carried
over on
exchanges
between funds or Classes of a Portfolio. Any applicable
CDSC will
not be waived
on amounts withdrawn by a shareholder that exceed 1.00%
per month
of the value
of the shareholder's shares subject to the CDSC at the
time the
withdrawal plan
commences. (With respect to withdrawal plans in effect
prior to
November 7,
1994, any applicable CDSC will be waived on amounts
withdrawn that
do not
exceed 2.00% per month of the value of the shareholder's
shares
subject to the
CDSC.) For further information regarding the automatic
cash withdrawal plan,
shareholders should contact a Smith Barney Financial
Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate
any shareholder's
account in a Portfolio if the aggregate net asset value
of the
shares held in
that Portfolio account is less than $500. (If a
shareholder has
more than one
account in a Portfolio, each account must satisfy the
minimum
account size.)
The Fund, however, will not redeem shares based solely
on market
reductions in
net asset value. Before the Fund exercises such right,
shareholders
will
receive written notice and will be permitted 60 days to
bring
accounts up to
the minimum to avoid involuntary liquidation.
36
<PAGE>
Smith Barney Funds, Inc.
PERFORMANCE
From time to time a Portfolio may include its total
return,
average annual
total return, yield and current dividend return in
advertisements
and/or other
types of sales literature. These figures are computed
separately
for Class A,
Class B, Class C and Class Y shares of each Portfolio.
These figures are based
on historical earnings and are not intended to indicate
future
performance.
Total return is computed for a specified period of time
assuming
deduction of
the maximum sales charge, if any, from the initial
amount invested
and rein-
vestment of all income dividends and capital gain
distributions on
the rein-
vestment dates at prices calculated as stated in this
Prospectus,
then divid-
ing the value of the investment at the end of the period
so calculated by the
initial amount invested and subtracting 100%. The
standard average
annual
total return, as prescribed by the SEC is derived from
this total
return,
which provides the ending redeemable value. Such
standard total
return infor-
mation may also be accompanied with nonstandard total
return information for
differing periods computed in the same manner but
without annualizing the
total return or taking sales charges into account. The
Income and
Growth Port-
folio calculates current dividend return for each of its
Classes by
dividing
the current dividend by the net asset value or the
maximum public
offering
price (including sales charge) on the last day of the
period for
which current
dividend return is presented. The Utility Portfolio
calculates
current divi-
dend return for each of its Classes by annualizing the
most recent
monthly
distribution, including net equalization credits or
debits, and
dividing by
the net asset value or the maximum public offering price
(including
sales
charge) on the last day of the period for which current
dividend
return is
presented. Each Class' current dividend return may vary
from time
to time
depending on market conditions, the composition of its
investment
portfolio
and operating expenses. These factors and possible
differences in
the methods
used in calculating current dividend return should be
considered
when compar-
ing a Class' current return to yields published for
other investment companies
and other investment vehicles. Each Portfolio may also
include
comparative
performance information in advertising or marketing its
shares.
Such perfor-
mance information may include data from Lipper
Analytical Services,
Inc. and
other financial publications. Each Portfolio will
include performance data for
Class A, Class B, Class C and Class Y shares in any
advertisement
or informa-
tion including performance data of that Portfolio.
37
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision
of the Fund
rests with
the Fund's Board of Directors. The Directors approve
all significant agreements
between the Fund and the companies that furnish
services to the
Fund and each
Portfolio, including agreements with the Fund's
distributor, investment manag-
er, custodian and transfer agent. The day-to-day
operations of each
Portfolio
are delegated to the Manager. The Statement of
Additional Information contains
background information regarding each Director and
executive officer of the
Fund.
MANAGER
Smith Barney Mutual Funds Management Inc. (the
"Manager")
manages
the day-to-
day operations of each Portfolio pursuant to a
management agreement
entered
into by the Fund on behalf of each Portfolio under which
the Manager offers
each Portfolio advice and assistance with respect to the
acquisition, holding
or disposal of securities and recommendations with
respect to other
aspects and
affairs of each Portfolio and furnishes each Portfolio
with bookkeeping,
accounting and administrative services, office space and
equipment,
and the
services of the officers and employees of the Fund. By
written
agreement the
research and other departments and staff of Smith Barney
will
furnish the Man-
ager with information, advice and assistance and will be
available
for consul-
tation on the Portfolios, thus Smith Barney may also be
considered
an invest-
ment adviser to the Fund. Smith Barney's services are
paid for by
the Manager
on the basis of direct and indirect costs to Smith
Barney of performing such
services; there is no charge to the Fund for such
services.
For the Fund's last fiscal year the management fee was
0.58% of
the Income
and Growth Portfolio's average net assets and 0.60% of
the Utility
Portfolio's
average net assets. Total expenses of the Income and
Growth Portfolio were
0.96% of average net assets for Class A shares, 1.59%
of average
net assets for
Class B shares and 1.75% of average net assets for
Class C shares.
Total
expenses of the Utility Portfolio were 1.01% of
average net assets
for Class A
shares, 1.67% of average net assets for Class B shares
and 1.77% of
average net
assets for Class C shares.
38
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
The Manager was incorporated on March 12, 1968 under
the laws of
Delaware.
As of March 31, 1995 the Manager had aggregate assets
under management of
approximately $54 billion. The Manager, Smith Barney
and Holdings
are each
located at 388 Greenwich Street, New York, New York
10013. The term
"Smith
Barney" in the title of the Fund has been adopted by
permission of
Smith Bar-
ney and is subject to the right of Smith Barney to
elect that the
Fund stop
using the term in any form or combination of its name.
PORTFOLIO MANAGEMENT
Bruce D. Sargent, a Vice President and Director of the
Manager,
is also a
Vice President and Director of Smith Barney Funds, Inc.
and the
portfolio man-
ager of the Income and Growth Portfolio. Mr. Sargent co
manages the
day to day
operations of the Income and Growth Portfolio and has
been involved
in equity
investing for over 25 years. He currently manages over
$1 billion
of assets.
Ayako Weissman, Managing Director of Smith Barney,
serves as
co-manager of
the Income and Growth Portfolio. Ms. Weissman has been
involved in
equity
investing for Smith Barney for over 7 years and
currently manages
over $250
million of assets.
Philip Miller, a Managing Director of Smith Barney, is
the portfolio manager
of the Utility Portfolio and manages its day to day
operations,
including mak-
ing all investment decisions. He has been involved in
equity investing for
approximately 15 years.
Management's discussion and analysis, and additional
performance
information
regarding each Portfolio during the fiscal year ended
December 31,
1994 is
included in the Annual Report dated December 31, 1994. A
copy of
the Annual
Report may be obtained upon request and without charge
from a Smith
Barney
Financial Consultant or by writing or calling the Fund
at the
address or phone
number listed on page one of this Prospectus.
39
<PAGE>
Smith Barney Funds, Inc.
DISTRIBUTOR
Smith Barney distributes shares of each Portfolio as
principal
underwriter
and as such conducts a continuous offering pursuant to a
"best
efforts"
arrangement requiring Smith Barney to take and pay for
only such
securities as
may be sold to the public. Pursuant to a plan of
distribution
adopted by each
Portfolio under Rule 12b-1 under the 1940 Act (the
"Plan"), Smith
Barney is
paid a service fee with respect to Class A, Class B and
Class C
shares of each
Portfolio at the annual rate of 0.25% of the average
daily net
assets attrib-
utable to these Classes. Smith Barney is also paid a
distribution
fee with
respect to Class B and Class C shares at the annual rate
of 0.75%
of the aver-
age daily net assets attributable to these Classes.
Class B
shares
that auto-
matically convert to Class A shares eight years after
the date of
original
purchase will no longer be subject to a distribution
fee. The fees
are used by
Smith Barney to pay its Financial Consultants for
servicing shareholder
accounts and, in the case of Class B and Class C shares,
to cover
expenses
primarily intended to result in the sale of those
shares. These
expenses
include: advertising expenses; the cost of printing and
mailing
prospectuses
to potential investors; payments to and expenses of
Smith Barney
Financial
Consultants and other persons who provide support
services in
connection with
the distribution of shares; interest and/or carrying
charges; and
indirect and
overhead costs of Smith Barney associated with the sale
of Portfolio shares,
including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for
selling
shares of a
Class include a commission or fee paid by the investor
or Smith
Barney at the
time of sale and, with respect to Class A, Class B and
Class C
shares, a con-
tinuing fee for servicing shareholder accounts for as
long as a
shareholder
remains a holder of that Class. Smith Barney Financial
Consultants
may receive
different levels of compensation for selling different
Classes of
shares.
Actual distribution expenses for Class B and Class C
shares of
each Portfo-
lio for any given year may exceed the fees received
pursuant to the
Plan and
will be carried forward and paid by each Portfolio in
future years
so long as
the Plan is in effect. Interest is accrued monthly on
such
carryforward
amounts at a rate comparable to that paid by Smith
Barney for bank
borrowings.
40
<PAGE>
Smith Barney Funds, Inc.
ADDITIONAL INFORMATION
The Fund, an open-end, diversified investment company,
was incorporated in
Maryland on December 2, 1966. The Fund has an authorized
capital of
2,000,000,000 shares with a par value of $.01 per share.
The Board
of Direc-
tors has authorized the issuance of fifteen series of
shares, each
represent-
ing shares in one of fifteen separate Portfolios and may
authorize
the issu-
ance of additional series of shares in the future. The
assets of
each Portfo-
lio are segregated and separately managed and a
shareholder's
interest is in
the assets of the Portfolio in which he or she holds
shares. Class
A, Class B,
Class C, Class Y and Class Z (where available) shares of
a Portfolio represent
interests in the assets of that Portfolio and have
identical voting, dividend,
liquidation and other rights on the same terms and
conditions
except that
expenses related to the distribution of each Class of
shares are
borne solely
by each Class and each Class of shares has exclusive
voting rights
with
respect to provisions of the Fund's Rule 12b-1
distribution plan
which pertain
to a particular Class. As described under "Voting" in
the Statement
of Addi-
tional Information, the Fund ordinarily will not hold
shareholder
meetings;
however, shareholders have the right to call a meeting
upon a vote
of 10% of
the Fund's outstanding shares for the purpose of voting
to remove
directors,
and the Fund will assist shareholders in calling such a
meeting as
required by
the 1940 Act. Shares do not have cumulative voting
rights
or preemptive rights
and are fully paid, transferable and nonassessable when
issued for
payment as
described in this Prospectus.
PNC Bank, National Association, located at 17th and
Chestnut
Streets, Phila-
delphia, Pennsylvania 19103 serves as custodian of the
Portfolio's
invest-
ments.
TSSG, located at Exchange Place, Boston, Massachusetts
02109,
serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-annual report
and
an
audited annual
report, which include listings of the investment
securities held by
the Fund
at the end of the period covered. In an effort to reduce
the Fund's
printing
and mailing costs, the Fund plans to consolidate the
mailing of its
semi-
annual and annual reports by household. This
consolidation means
that a house-
hold having multiple accounts with the identical address
of record
will
receive a single copy of each report. In addition, the
Fund also
plans to con-
solidate the mailing of its Prospectus so that a
shareholder having
multiple
accounts (that is, individual, IRA and/or Self-Employed
Retirement
Plan
accounts) will receive a single Prospectus annually.
Shareholders
who do not
want this consolidation to apply to their account should
contact
their Smith
Barney Financial Consultant or the Fund's transfer
agent.
41
<PAGE>
Smith Barney Funds, Inc.
APPENDIX
U.S. GOVERNMENT OBLIGATIONS
In addition to Government National Mortgage Association
("GNMA")
securities
and direct obligations of the U.S. Treasury (such as
Treasury
Bills, Notes and
Bonds), U.S. Government Obligations in which the Fund
may invest
include: (1)
obligations of, or issued by, Banks for Cooperatives,
Federal Land
Banks, Fed-
eral Intermediate Credit Banks, Federal Home Loan Banks,
the Federal Home Loan
Bank Board, or the Student Loan Marketing Association;
(2) other
securities
fully guaranteed as to principal and interest by the
United States
of America;
(3) other obligations of, or issued by, or fully
guaranteed as to
principal
and interest by the Federal National Mortgage
Association or any
agency of the
United States; and (4) obligations currently or
previously sold by
the Federal
Home Loan Mortgage Corporation.
FOREIGN INVESTMENTS
Each Portfolio will ordinarily purchase foreign
securities that
are traded
in the United States or purchase American Depositary
Receipts,
which are cer-
tificates issued by U.S. banks representing the right to
receive
securities of
a foreign issuer deposited with that bank or a
correspondent
bank.
However,
each Portfolio may purchase the securities of foreign
issuers
directly in for-
eign markets. Foreign securities may involve a high
degree of risk.
Foreign
securities usually are denominated in foreign
currencies, which
means their
value will be affected by changes in exchange rates
between other
currencies
and the U.S. dollar as well as the other factors that
affect securities pric-
es. Foreign companies may not be subject to accounting
standards or
governmen-
tal supervision comparable to U.S. companies, and there
may be less
publicly
available information about their operations. There
is generally
less govern-
mental regulation of foreign securities markets, and
security
trading prac-
tices abroad may offer less protection to investors such
as the
Portfolios.
Foreign securities can also be affected by political or
financial
instability
abroad, and may be less liquid or more volatile than
domestic
investments.
SECURITIES LENDING
Each Portfolio may seek to increase its net investment
income by
lending its
securities to unaffiliated brokers, dealers and other
financial
institutions,
provided such loans are callable at any time and are
continuously
secured by
cash or U.S. Government securities equal to no less than
the market
value,
determined daily, of the securities loaned. The risks in
lending
portfolio
securities
A-1
<PAGE>
Smith Barney Funds, Inc.
APPENDIX (CONTINUED)
consist of possible delay in recovery of the securities
or possible
loss of
rights in the collateral should the borrower fail
financially.
Management will
limit such lending to not more than one-third of the
value of the
Utility Port-
folio's total assets and twenty percent of the value of
the Income
and Growth
Portfolio's total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Portfolio may purchase or sell securities on a when-
issued
or delayed
delivery basis. When-issued or delayed delivery
transactions arise
when securi-
ties are purchased or sold by a Portfolio with payment
and delivery
taking
place in the future in order to secure what is
considered
to be an
advantageous
price and yield to the Portfolio at the time of
entering into the
transaction.
The Fund's Custodian will maintain, in a segregated
account of each
Portfolio,
cash, U.S. Government securities or other liquid high
grade debt
obligations
having a value equal to or greater than the Portfolio's
purchase
commitments;
the Custodian will likewise segregate securities sold on
a delayed
basis.
REPURCHASE AGREEMENTS
Each Portfolio may on occasion enter into repurchase
agreements,
wherein the
seller agrees to repurchase a security from the
Portfolio at an
agreed-upon
future date, normally the next business day. The resale
price is
greater than
the purchase price, which reflects the agreed-upon rate
of return
for the
period the Portfolio holds the security and which is not
related to
the coupon
rate on the purchased security. The Fund requires
continual maintenance of the
market value of the collateral in amounts at least equal
to the
resale price,
thus risk is limited to the ability of the seller to pay
the agreed-upon amount
on the delivery date; however, if the seller defaults,
realization
upon the
collateral by the Portfolio may be delayed or limited or
the Portfolio might
incur a loss if the value of the collateral securing the
repurchase
agreement
declines and might incur disposition costs in connection
with
liquidating the
collateral. A Portfolio will only enter into repurchase
agreements
with
broker/dealers or other financial institutions that are
deemed
creditworthy by
the Manager under guidelines approved by the Board of
Directors. It
is the pol-
icy of the Fund not to invest in repurchase agreements
that do not
mature
within seven days if any such investment together with
any
other
illiquid
assets held by a Portfolio amount to more than 15% of
that Portfolio's total
assets.
A-2
<PAGE>
Smith Barney Funds, Inc.
APPENDIX (CONTINUED)
RISK FACTORS AFFECTING PUBLIC UTILITY COMPANIES
Because the Utility Portfolio concentrates its
investments in
public utility
companies, its portfolio may be subject to greater risk
and market
fluctua-
tions than a portfolio of securities representing a
broader range
of invest-
ment alternatives. Unlike industrial companies, the
rates that
utility compa-
nies may charge their customers generally are subject to
review and
limitation
by governmental regulatory commissions. Although rate
changes of a
utility
usually fluctuate in approximate correlation with
financing costs,
due to
political and regulatory factors rate changes ordinarily
occur
after an inter-
val following the changes in financing costs. This
factor will tend
to affect
favorably a utility company's earnings and dividends in
times of
decreasing
costs, but conversely will tend to affect adversely
earnings and
dividends
when costs are rising. In addition, the value of public
utility
debt securi-
ties (and, to a lesser extent, equity securities) tends
to have an
inverse
relationship to the movement of interest rates.
Among the risks affecting the public utility companies
are the
following:
risks of increases in fuel and other operating costs;
the high cost
of borrow-
ing to finance capital construction during inflationary
periods;
restrictions
on operations and increased costs and delays associated
with compliance with
environmental and nuclear safety regulations; the
difficulties
involved in
obtaining natural gas for resale or fuel for generating
electricity
at reason-
able prices; the risks in connection with the
construction and
operation of
nuclear power plants; the effects of energy conservation
and the
effects of
regulatory changes, such as the possible adverse effects
on profits
of recent
increased competition among telecommunications companies
and electric utili-
ties companies.
A-3
<PAGE>
[LOGO OF SMITH BARNEY APPEARS HERE]
SMITH BARNEY
FUNDS, INC.
INCOME AND
GROWTH PORTFOLIO
UTILITY PORTFOLIO
388 Greenwich Street
New York, New York 10013
FD 2320 D5
SMITH BARNEY FUNDS, INC.
U.S. Government
Securities Portfolio
Monthly Payment
Government Portfolio
Income Return
Account Portfolio
APRIL 28, 1995
PROSPECTUS BEGINS ON PAGE ONE
[LOGO OF SMITH BARNEY MUTUAL FUNDS
APPEARS HERE]
P R O S P E C T U S
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS
APRIL 28, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Funds, Inc. (the "Fund") is an
investment company currently
offering a choice of six different Portfolios.
Each Portfolio is separately
managed to achieve its own investment objective
and a shareholder's interest is
in the assets and earnings of the Portfolio in which he
or she holds shares.
This Prospectus contains disclosure regarding the
following
Portfolios:
The U.S. Government Securities Portfolio and the
Monthly Payment Government
Portfolio each seek high current income, liquidity
and security of principal
from a portfolio of U.S. Government Obligations.
The Income Return Account Portfolio seeks high
current income from a portfolio
of high quality debt obligations and employs an
immunization strategy to mini-
mize the risk of loss of account value.
This Prospectus sets forth concisely certain
information about the Fund and
the Portfolios, including sales charges, distribution
and service fees and
expenses, that prospective investors will find helpful
in making an investment
decision. Investors are encouraged to read this
Prospectus carefully and retain
it for future reference.
Additional information about the Portfolio is contained
in a Statement of
Additional Information dated April 28, 1995, as amended
or supplemented from
time to time, that is available upon request and
without charge by calling or
writing the Fund at the telephone number or address
set forth above or by con-
tacting a Smith Barney Financial Consultant. The
Statement of Additional Infor-
mation has been filed with the Securities and
Exchange
Commission (the "SEC")
and is incorporated by reference into this Prospectus
in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Funds, Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 12
- ------------------------------------------------
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES 19
- -------------------------------------------------
VALUATION OF SHARES 21
- ------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 21
- -------------------------------------------------
PURCHASE OF SHARES 23
- -------------------------------------------------
EXCHANGE PRIVILEGE 34
- ------------------------------------------------
REDEMPTION OF SHARES 38
- -------------------------------------------------MINIMUM
ACCOUNT SIZE 40
- ------------------------------------------------
PERFORMANCE 40
- ------------------------------------------------
MANAGEMENT OF THE FUND 42
- ------------------------------------------------
DISTRIBUTOR 43
- ------------------------------------------------
ADDITIONAL INFORMATION 44
- -------------------------------------------------
APPENDIX A-1 -------------------------------------------
- -----</TABLE>
- --------------------------------------------------------
- ----------------------
No person has been authorized to give any information
or
to make any
representations in connection with this offering other
than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as having
been authorized by the Fund
or the Distributor. This Prospectus does not constitute
an offer by the Fund or
the Distributor to sell or a solicitation of an offer to
buy any of the
securities offered hereby in any jurisdiction to any
person to whom it is
unlawful to make such offer or solicitation in
such jurisdiction. -------------------------------------
- -----------------------------------------
2
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety
by
detailed information
appearing elsewhere in this Prospectus and in the
Statement of Additional
Information. Cross references in this summary are
to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVES The Fund is an open-end,
management investment company.
The U.S. Government Securities Portfolio and the
Monthly Payment Government
Portfolio each seek high current income, liquidity
and security of principal
from a portfolio of U.S. Government Obligations. The
Income Return Account
Portfolio seeks high current income from a portfolio of
high quality debt
obligations and employs an immunization strategy to
minimize the risk of loss
of account value. See "Investment Objectives and
Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS Each Portfolio
offers several classes of
shares ("Classes") to investors designed to provide
them with the flexibility
of selecting an investment best suited to their needs.
The general public is
offered three Classes of shares: Class A shares,
Class B shares and Class C
shares, which differ principally in terms of sales
charges and rate of
expenses to which they are subject. A fourth
Class of shares, Class Y shares,
is offered only to investors meeting an initial
investment minimum of
$5,000,000. In addition, a fifth Class, Class Z
shares, which is offered pur-
suant to a separate prospectus, is offered
exclusively to tax-exempt employee
benefit and retirement plans of Smith Barney Inc.
("Smith Barney") and its
affiliates and is available for the U.S.
Government
Securities Portfolio and
the Income Return Account Portfolio. See "Purchase
of Shares" and "Redemption
of Shares."
Class A Shares. Class A shares of the U.S. Government
Securities Portfolio
and the Monthly Payment Government Portfolio are sold at
net asset value plus
an initial sales charge of up to 4.50% and are subject to
an annual service
fee of 0.25% of the average daily net assets of the
Class. Class A shares of
the Income Return Account Portfolio are sold at net
asset value plus an ini-
tial sales charge of up to 2.00% and are not subject to
an annual service fee.
The initial sales charges may be reduced or waived
for certain purchases. Pur-
chases of Class A shares, which when combined with
current holdings of Class A
shares offered with a sales charge equal or exceed
$500,000 in the aggregate,
will be made at net asset value with no initial
sales charge, but will be sub-
ject to a contingent deferred sales charge ("CDSC") of
1.00% on redemptions
made within 12 months of purchase. See "Prospectus
SummaryReduced or No Ini-
tial Sales Charge."
3
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
Class B Shares. Class B shares, which are only
available
in the U.S. Govern-
ment Securities Portfolio and the Monthly Payment
Government Portfolio, are
offered at net asset value subject to a maximum CDSC
of 4.50% of redemption
proceeds, declining by 0.50% the first year after
purchase and by 1.00% each
year thereafter to zero. This CDSC may be waived for
certain redemptions. Class
B shares are subject to an annual service fee of 0.25%
and
an annual distribu-
tion fee of 0.50% of the average daily net assets of
the Class. The Class B
shares' distribution fee may cause that Class to have
higher expenses and pay
lower dividends than Class A shares. Class B shares are
not available for pur-
chase in the Income Return Account Portfolio.
Class B Shares Conversion Feature. Class B shares
will
convert automatically
to Class A shares, based on relative net asset value,
eight years after the
date of the original purchase. Upon conversion, these
shares will no longer be
subject to an annual distribution fee. In
addition, a certain portion of Class
B shares that have been acquired through the
reinvestment of
dividends and dis-
tributions ("Class B Dividend Shares") will be converted
at that time. See
"Purchase of Shares--Deferred Sales Charge
Alternatives."
Class C Shares. Class C shares are sold at net asset
value with no initial
sales charge at the time of purchase. Class C shares of
the U.S. Government
Securities Portfolio and the Monthly Payment
Government Portfolio are subject
to an annual service fee of 0.25% and an annual
distribution fee of 0.45% of
the average daily net assets of the Class C shares.
Class C shares of the
Income Return Account Portfolio are subject to an
annual service fee of 0.15%
and an annual distribution fee of 0.20% of the average
daily net assets of the
Class C shares. All Class C investors pay a CDSC of
1.00% if they redeem Class
C shares within 12 months of purchase. The CDSC may
be
waived for certain
redemptions. The Class C shares' distribution fee may
cause that Class to have
higher expenses and pay lower dividends than Class A
shares. Purchases of Class
C shares, which when combined with current holdings of
Class
C shares of a
Portfolio equal or exceed $500,000 in the aggregate,
should be made in Class A
shares at net asset value with no sales charge, and will
be subject to a CDSC
of 1.00% on redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are available only
to
investors meeting an
initial investment minimum of $5,000,000. Class Y shares
are sold at net asset
value with no initial sales charge or CDSC. They are
not subject to any service
or distribution fees.
4
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
In deciding which Class of Portfolio shares to
purchase,
investors should
consider the following factors, as well as any
other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class
of shares is more
beneficial to an investor depends on the amount and
intended length of his or
her investment. Shareholders who are planning to
establish a program of regular
investment may wish to consider Class A shares; as
the investment accumulates
shareholders may qualify for reduced sales charges and
the shares are subject
to lower ongoing expenses over the term of the
investment. As an alternative,
Class B and Class C shares are sold without any
initial sales charge so the
entire purchase price is immediately invested in
a Portfolio. Any investment
return on these additional invested amounts may
partially or wholly offset the
higher annual expenses of these Classes. Because
a Portfolio's future return
cannot be predicted, however, there can be no assurance
that this would be the
case.
Finally, investors should consider the effect of the
CDSC
period and any con-
version rights of the Classes in the context of their
own investment time
frame. For example, while Class C shares have a shorter
CDSC period than Class
B shares, they do not have a conversion feature,
and
therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may
be more attractive than
Class C shares to investors with longer term
investment outlooks.
Investors investing a minimum of $5,000,000 must
purchase
Class Y shares,
which are not subject to an initial sales charge, CDSC
or service or distribu-
tion fees. The maximum purchase amount for Class A
shares is $4,999,999, Class
B shares is $249,999 and Class C shares is $499,999.
There
is no maximum pur-
chase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial
sales
charge on Class A
shares may be waived for certain eligible purchasers,
and the entire purchase
price will be immediately invested in the Portfolio.
In addition, Class A share
purchases, which when combined with current holdings
of Class A shares offered
with a sales charge equal or exceed $500,000 in
the aggregate, will be made at
net asset value with no initial sales charge, but will
be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase.
The $500,000 aggregate
investment may be met by adding the purchase to the
net asset value of all
Class A shares offered with a sales charge held in
funds sponsored by Smith
Barney listed under "Exchange Privilege." Class A share
pur-
5
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
chases also may be eligible for a reduced initial
sales charge. See "Purchase
of Shares." Because the ongoing expenses of Class A
shares may be lower than
those for Class B and Class C shares, purchasers
eligible to purchase Class A
shares at net asset value or at a reduced sales
charge should consider doing
so.
Smith Barney Financial Consultants may receive
different
compensation for
selling each Class of shares. Investors should
understand that the purpose of
the CDSC on the Class B and Class C shares is the same
as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund"
for
a complete descrip-
tion of the sales charges and service and distribution
fees for each Class of
shares and "Valuation of Shares," "Dividends,
Distributions and Taxes" and "Ex-
change Privilege" for other differences between the
Classes of shares.
SMITH BARNEY 401(K) PROGRAM Investors may be eligible
to participate in the
Smith Barney 401(k) Program, which is generally designed
to assist plan spon-
sors in the creation and operation of retirement plans
under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the
"Code"), as well as other
types of participant directed, tax-qualified
employee
benefit plans
(collectively,"Participating Plans"). Class A, Class
B, Class C and Class Y
shares are available as investment alternatives
for Participating Plans. See
"Purchase of Shares -- Smith Barney 401(k) Program."
PURCHASE OF SHARES Shares may be purchased
through a brokerage account main-
tained with Smith Barney. Shares may also be
purchased through a broker that
clears securities transactions through Smith Barney
on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in
the selling group. In
addition, certain investors, including qualified
retirement plans and certain
other institutional investors, may purchase shares
directly from the Fund
through the Fund's transfer agent, The Shareholder
Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation.
See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and
Class C shares may open
an account by making an initial investment of at
least
$1,000 for each account,
or $250 for an individual retirement account ("IRA")
or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an
account for an initial
investment of $5,000,000. Subsequent investments of at
least $50 may be made
for all Classes. For participants in retirement
plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum
initial investment
requirement for Class A, Class B and Class C shares and
the subsequent invest-
ment requirement for all Classes is $25. The minimum
initial invest-
6
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
ment requirement for Class A, Class B and Class C
shares and the subsequent
investment requirement for all Classes through
the Systematic Investment Plan
described below is $50. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio offers
shareholders a Systematic
Investment Plan under which they may authorize the
automatic placement of a
purchase order each month or quarter for Portfolio
shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day
the New York Stock
Exchange, Inc. ("NYSE") is open for business. See
"Purchase of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE PORTFOLIOS Smith Barney Mutual
Funds Management Inc. (former-
ly, Smith, Barney Advisers, Inc.) ("the "Manager")
serves as the Portfolios'
investment manager. The Manager is a wholly owned
subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly
owned subsidiary of The Trav-
elers Inc. ("Travelers"), a diversified financial
services holding company
engaged, through its subsidiaries, principally in
four business segments:
Investment Services, Consumer Finance Services,
Life Insurance Services and
Property & Casualty Insurance Services. See "Management
of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged
for shares of the same
Class of certain other funds of the Smith Barney
Mutual Funds at the respective
net asset values next determined, plus any applicable
sales charge differen-
tial. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Portfolio for
the prior day gener-
ally is quoted daily in the financial section of
most newspapers and is also
available from a Smith Barney Financial Consultant.
See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net
investment income are paid quar-
terly on shares of the U.S. Government Securities
Portfolio and monthly on
shares of each of the Monthly Payment Government
Portfolio and the Income
Return Account Portfolio. Distributions of net
realized capital gains, if any,
are paid annually. See "Dividends, Distributions and
Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions
paid on shares of a Class
will be reinvested automatically, unless otherwise
specified by an investor, in
additional shares of the same Class at current net
asset value. Shares acquired
by dividend and distribution reinvestments will not
be subject to any
7
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
sales charge or CDSC. Class B shares acquired
through dividend and distribution
reinvestments will become eligible for conversion to
Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be
no assurance that each
Portfolio's investment objective will be achieved. The
value of each Portfo-
lio's investments, and thus the net asset value of
each Portfolio's shares,
will fluctuate in response to changes in market and
economic conditions, as
well as the financial condition and prospects of issuers
in which the Portfolio
invests. See "Investment Objectives and
Management Policies."
THE PORTFOLIOS' EXPENSES The following expense table
lists the costs and
expenses an investor will incur either directly
or indirectly as a shareholder
of the Portfolios, based on the maximum sales charge
or maximum CDSC that may
be incurred at the time of purchase or redemption and
each Portfolio's operat-
ing expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
APPLICABLE TO THE
U.S. GOVERNMENT
SECURITIES PORTFOLIO AND
THE MONTHLY PAYMENT
GOVERNMENT
PORTFOLIO:
CLASS A CLASS B
CLASS C CLASS Y ---------------------
- ---------------------------
- -----------------
<S> <C> <C> <C>
<C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge
imposed on
purchases
(as a percentage of
offering price) 4.50%
None
None
None
Maximum CDSC
(as a percentage of None*
4.50%
1.00%
None
original cost or
redemption
proceeds, whichever
is lower)
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE
TO INCOME
RETURN
ACCOUNT
PORTFOLI
O
CLASS A
CLASS C CLASS Y ---------------------
- ---------------------------
- ---------------
<S> <C> <C>
<C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases
(as a percentage of offering price)
2.00%
None
None
Maximum CDSC (as a percentage of
original cost or redemption
None*
1.00%
None
proceeds, whichever is lower)
</TABLE>
8
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
APPLICABLE TO
U.S. GOVERNMENT
SECURITIES PORTFOLIO
CLASS A CLASS B CLASS C
CLASS
Y ------------------------------------------------------
- --
- ----
- --
<S> <C> <C> <C>
<C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management fees 0.44% 0.44%
0.44%
0.44%
12b-1 fees** 0.25 0.75 0.70
- --
Other expenses 0.07 0.02 0.07
0.17 ---------------------------------------------------
- ---------
TOTAL PORTFOLIO OPERATING
EXPENSES 0.76% 1.21%
1.21%
0.61% --------------------------------------------------
- ----------
<CAPTION>
APPLICABLE TO
MONTHLY PAYMENT
GOVERNMENT PORTFOLIO
<S> <C> <C> <C>
<C>
Management fees 0.44% 0.44%
0.44%
0.44%
12b-1 fees** 0.25 0.75 0.70
- --
Other expenses*** 0.18 0.01 0.18
0.11 ---------------------------------------------------
- ---------
TOTAL PORTFOLIO OPERATING
EXPENSES 0.87% 1.20%
1.32%
0.55% --------------------------------------------------
- ----------
<CAPTION>
APPLICABLE TO INCOME
RETURN ACCOUNT
PORTFOLIO
<S> <C> <C> <C>
<C>
Management fees 0.44%
0.44%
0.44%
12b-1 fees** -- 0.35
- --
Other expenses 0.12 0.15
0.25 ---------------------------------------------------
- ---------
TOTAL PORTFOLIO OPERATING
EXPENSES 0.56%
0.94%
0.69% --------------------------------------------------
- ----------
</TABLE>
* Purchases of Class A shares, which when combined
with
current holdings of
Class A shares offered with a sales charge equal
or exceed $500,000 in the
aggregate, will be made at net asset value with no
sales charge, but will
be subject to a CDSC of 1.00% on redemptions made
within 12 months.
** Upon conversion of Class B shares to Class A
shares,
such shares will no
longer be subject to a distribution fee. Class C
shares do not have a
conversion feature and, therefore, are subject to
an ongoing distribution
fee. As a result, long-term shareholders of
Class C shares may pay more
than the economic equivalent of the maximum front
end
sales charge
permitted by the National Association of
Securities Dealers, Inc.
*** "Other expenses" for Class Y shares have been
estimated because no Class Y
shares were outstanding during the fiscal year
ended December 31, 1994.
The sales charge and CDSC set forth in the above table
are the maximum
charges imposed on purchases or redemptions of
Portfolio shares and investors
may actually pay lower or no charges, depending on
the amount purchased and,
in the case of Class B, Class C and certain Class A
shares, the length of time
the shares are held and whether the shares are held
through the Smith Barney
401(k) Program. See "Purchase of Shares" and "Redemption
of Shares."
9
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
With respect to the U. S. Government Securities
Portfolio
and the Monthly
Payment Government Portfolio, Smith Barney receives
an annual 12b-1 service fee
of 0.25% of the value of average daily net assets of
Class
A shares. Smith Bar-
ney also receives with respect to Class B shares an
annual 12b-1 fee of 0.75%
of the value of average daily net assets of that
Class, consisting of a 0.50%
distribution fee and a 0.25% service fee. For
Class C shares, Smith Barney also
receives an annual 12b-1 fee of 0.70% of the value
of average daily net assets
of this Class, consisting of a 0.45% distribution fee
and a 0.25% service fee.
With respect to the Income Return Account Portfolio,
Smith Barney receives an
annual 12b-1 fee of 0.35% of the value of average daily
net assets of Class C
shares, consisting of a 0.20% distribution fee and a
0.15% service fee. "Other
expenses" in the above table include fees for
shareholder services, custodial
fees, legal and accounting fees, printing costs
and registration fees.
EXAMPLE
The following example is intended to assist an investor
in understanding the
various costs that an investor in each Portfolio will
bear directly or indi-
rectly. The example assumes payment by each Portfolio
of operating expenses at
the levels set forth in the table above. See "Purchase
of
Shares," "Redemption
of Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5
YEARS 10 YEARS* ----------------------------------------
- -------------------
<S> <C> <C> <C>
<C>
An investor would pay the
following expenses on a
$1,000 investment,
assuming (1) 5.00% annual
return and (2) redemption
at the end of each time
period:
U.S. Government
Securities Portfolio
Class A $52
$68
$85
$135
Class B 57
68
76
134
Class C 22
38
66
147
Class Y 6
20
34
76
Monthly Payment
Government Portfolio
Class A $53
$72
$91
$147
Class B 57 68
76
136
Class C 23 42
72
159
Class Y 6 18
31
69
</TABLE>
10
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5
YEARS
10
YEARS* -------------------------------------------------
- ------------
<S> <C> <C>
<C>
<C>
Income Return Account
Portfolio
Class A $26 $38
$51
$ 89
Class C 20 30
52
115
Class Y 7 22
38
86
An investor would pay the following expenses on the same
investment, assuming the same annual return and no
redemption:
U.S. Government Securities
Portfolio
Class A $52 $68
$85 $135
Class B 12 38
66
134
Class C 12 38
66
147
Class Y 6 20
34
76
Monthly Payment Government
Portfolio
Class A $53 $72
$91 $147
Class B 12 38
66
136
Class C 13 42
72
159
Class Y 6 18
31
69
Income Return Account
Portfolio
Class A $26 $38
$51 $ 89
Class C 10 30
52
115
Class Y 7 22
38
86 -----------------------------------------------------
- --------
</TABLE>
* Ten-year figures assume conversion of Class B shares
to
Class A shares at the
end of the eighth year following the date of purchase.
The example also provides a means for the investor
to
compare expense levels
of funds with different fee structures over
varying
investment periods. To
facilitate such comparison, all funds are required
to utilize a 5.00% annual
return assumption. However, each Portfolio's actual
return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN
THOSE SHOWN.
11
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS
The following schedule for the periods ended December
31st has been audited in
conjunction with the annual audits of the
financial statements of Smith Barney
Funds, Inc. by KPMG Peat Marwick LLP, independent
auditors. The 1994 financial
statements and the independent auditors' report
thereon appear in the December
31, 1994 Annual Report of Shareholders. No information
is presented for Class Y
shares for the Monthly Payment Government Portfolio
because no Class Y shares
were outstanding for the periods shown.
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD:
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
CLASS A SHARES 1994 1993
1992
1991 1990
- --------------------------------------------------------
- --
- ---------------------
<S> <C> <C>
<C>
<C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $13.66 $13.87
$14.10
$13.22 $13.17 ---------------------------------------
- ---------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.91 0.98
1.06
1.26 1.15
Net realized and unrealized
gain
(loss) on investments (1.11) (0.10)
(0.13)
0.80 0.08 -----------------------------------------
- -------------------------------------
Total Income (Loss) from
Investment Operations (0.20) 0.88
0.93
2.06 1.23 -----------------------------------------
- -------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.91) (0.98)
(1.08)
(1.13) (1.18)
Distributions from net
realized gains on security
transactions (1) (0.05) (0.11)
(0.08)
(0.05) -------------------------------------------
- ------------------------------------
Total Distributions (0.96) (1.09)
(1.16)
(1.18) (1.18) ---------------------------------------
- ---------------------------------------
NET ASSET VALUE, END OF YEAR $12.50 $13.66
$13.87
$14.10 $13.22 ---------------------------------------
- ---------------------------------------
TOTAL RETURN (P) (1.48)% 6.40%
6.85%
16.29% 9.95% ---------------------------------------
- ---------------------------------------
NET ASSETS, END OF YEAR
(000S) $358,045 $468,278
$459,380
$394,412 $335,447 -------------------------------------
- -----------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
EXPENSES 0.76%* 0.49%
0.50%
0.44% 0.41%
Net investment income 6.83 7.00
7.65
8.31 8.87
- --------------------------------------------------------
- ----------------------
PORTFOLIO TURNOVER RATE 40.22% 57.34%
26.18%
9.29% 5.62% ----------------------------------------
- --------------------------------------
</TABLE>
(1) Represents distributions from paydown gains which
are reported as ordinary
income for tax purposes.
(P) Total Returns do not reflect sales charges.
* Amount has been restated from the December 31,
1994
Annual Report.
12
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
CLASS A SHARES (CONTINUED) 1989 1988
1987
1986 1985
- --------------------------------------------------------
- -----------------------
<S> <C> <C>
<C>
<C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $12.56 $12.68
$13.89
$13.95 $12.76 --------------------------------------
- -----------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 1.19 1.20
1.23
1.37 1.52
Net realized and
unrealized gain
(loss) on investments 0.63 (0.12)
(0.89)
0.05 0.89
- --------------------------------------------------------
- -----------------------
Total Income (Loss) from
Investment Operations 1.82 1.08
0.34
1.42 2.41
- --------------------------------------------------------
- -----------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (1.21) (1.20)
(1.31)
(1.44) (1.22)
Distributions from net
realized gains on
security transactions (1) --
-(0.24)
(0.04) -------------------------------------------------
- ------------------------------
Total Distributions (1.21) (1.20)
(1.55) (1.48)
(1.22) -------------------------------------------------
- ----------
- ---------------------
NET ASSET VALUE, END OF
YEAR $13.17 $12.56
$12.68 $13.89 $13.95 -------------------------------
- ------------------------------------------------
TOTAL RETURN (P) 15.11% 8.72%
2.67%
10.76% 19.59% --------------------------------------
- -----------------------------------------
NET ASSETS, END OF YEAR
(000S) $329,186 $328,446
$370,783 $507,243 $281,019 ---------------------------
- ---------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
EXPENSES 0.41% 0.42%
0.36%
0.35% 0.27%
Net investment income 9.19 9.25
9.43
9.95 11.45 ----------------------------------------
- ---------------------------------------
PORTFOLIO TURNOVER RATE 22.88% 1.53%
108.19%
130.92% 67.13% -------------------------------------
- ------------------------------------------
<CAPTION>
CLASS B SHARES 1994(2) ------------------
- --------------------------------------------------------
- ----
<S> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $12.47 -------------------
- --------------------------------------------------------
- ---
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.08
Net realized and
unrealized gain
on investments 0.17
- --------------------------------------------------------
- -----------------------
Total Income from
Investment Operations 0.25
- --------------------------------------------------------
- -----------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.21)
Distributions from net
realized gains on
security transactions
(1) --
- --------------------------------------------------------
- -----------------------
Total Distributions (0.21) ------------------
- --------------------------------------------------------
- ----
NET ASSET VALUE, END OF
PERIOD $12.51 -------------------
- --------------------------------------------------------
- ---
TOTAL RETURN (P) 2.04%++ ----------------
- -------------------------------------------
- ---------------------
NET ASSETS, END OF YEAR
(000S) $1,529 -------------------
- --------------------------------------------------------
- ---
RATIOS TO AVERAGE NET
ASSETS:
EXPENSES 1.21%+*
Net investment income 6.94+ ------------------
- --------------------------------------------------------
- ----
PORTFOLIO TURNOVER RATE 40.22% ------------------
- --------------------------------------------------------
- ----
</TABLE>
(1) Represents distributions from paydown gains which
are reported as ordinary
income for tax purposes.
(2) For the period from November 7, 1994 (inception
date) to December 31, 1994.
++ Not annualized as it may not be representative of
the total return for the
year.
+ Annualized.
(P) Total Returns do not reflect sales charges.
* Amount has been restated from the December 31,
1994
Annual Report.
13
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
CLASS C SHARES 1994(1)
1993 1992(2) -------------------------------------------
- ---------------------------
<S> <C>
<C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.66
$13.86 $14.01 ------------------------------------------
- ----------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.82
0.89 0.15
Net realized and unrealized loss
on investments (1.11)
(0.10) -------------------------------------------------
- ----------------------
Total Income (Loss) from Investment
Operations (0.29)
0.79 0.15 ----------------------------------------------
- ------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.83)
(0.88)
(0.30)
Distributions from net realized gains
on security transactions (3) (0.04)
(0.11) -------------------------------------------------
- ----------------------
Total Distributions (0.87)
(0.99)
(0.30) -------------------------------------------------
- ---------------------
NET ASSET VALUE, END OF PERIOD $12.50
$13.66
$13.86 -------------------------------------------------
- ---------------------
TOTAL RETURN (P) (2.11)%
5.74%
1.07%++ ------------------------------------------------
- ----------------------
NET ASSETS, END OF PERIOD (000S) $21,253
$19,938 $1,954 -----------------------------------------
- -----------------------------
RATIOS TO AVERAGE NET ASSETS:
EXPENSES 1.21%
1.21%
1.14%+
Net investment income 6.27
6.23
6.56+ --------------------------------------------------
- --------------------
PORTFOLIO TURNOVER RATE 40.22%
57.34%
26.18% -------------------------------------------------
- ---------------------
<CAPTION>
CLASS Y SHARES 1994(4)
1993(5) ------------------------------------------------
- ----------------------
<S> <C>
<C>
<C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.67
$13.97 -------------------------------------------------
- ---------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.89
0.86
Net realized and unrealized loss on
investments (1.10)
(0.10) -------------------------------------------------
- ---------------------
Total Income (Loss) from Investment
Operations (0.21)
0.76 ---------------------------------------------------
- -------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.91)
(0.95)
Distributions from net realized gains
on security transactions (3) (0.04)
(0.11) -------------------------------------------------
- ---------
- -------------
Total Distributions (0.91)
(1.06) -------------------------------------------------
- ---------------------
NET ASSET VALUE, END OF PERIOD $12.51
$13.67 -------------------------------------------------
- ---------------------
TOTAL RETURN (P)
(1.53)%
5.55%++ ------------------------------------------------
- -----------
- ------------
NET ASSETS, END OF PERIOD (000S) $13,903
$14,118 ------------------------------------------------
- ----------------------
RATIOS TO AVERAGE NET ASSETS:
EXPENSES
0.61% 0.69%+
Net investment income 6.82
7.29+ --------------------------------------------------
- --------------------
PORTFOLIO TURNOVER RATE 40.22%
57.34% -------------------------------------------------
- ---------------------
</TABLE>
(1) On November 7, 1994 the former Class B shares
were renamed Class C shares.
(2) For the period from December 2, 1992 (inception
date) to December 31, 1992.
(3) Represents distributions from paydown gains which
are reported as ordinary
income for tax purposes.
(4) On November 7, 1994, the former Class C shares
were renamed Class Y shares.
(5) For the period from January 12, 1993 (inception
date) to December 31, 1993.
++ Not annualized as it may not be representative of
the total return for the
year.
+ Annualized.
(P) Total Returns do not reflect sales charges.
14
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
MONTHLY PAYMENT GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
CLASS A SHARES 1994 1993 1992
1991 1990 ----------------------------------------------
- ------------------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF YEAR $12.85 $12.96 $13.12
$12.41
$12.37 -------------------------------------------------
- ---------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.79 0.87
0.92
1.02
1.14
Net realized and
unrealized gain
(loss) on investments (0.97) (0.04) (0.07)
0.83
0.01 ---------------------------------------------------
- -------------------
Total Income (Loss)
from Investment
Operations (0.18) 0.83 0.85
1.85
1.15 ---------------------------------------------------
- -------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.78) (0.88)
(0.96) (1.11) (1.11)
Distribution from net
realized gains
on security
transactions (1) (0.03)
(0.06)
(0.05) (0.03) -----------------------------------
- ------------------------------------
Total Distributions (0.81) (0.94)
(1.01) (1.14) (1.11) -------------------------------
- ---------------------------------------
NET ASSET VALUE, END OF
YEAR $11.86 $12.85 $12.96
$13.12
$12.41 -------------------------------------------------
- ---------------------
TOTAL RETURN (P) (1.36)% 6.51%
6.83%
15.66% 9.89% --------------------------------------
- --------------------------------
NET ASSETS, END OF YEAR
(000S) $40,258 $54,953 $49,755
$33,327
$22,527 ------------------------------------------------
- ----------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.87%* 0.56%
0.51%
0.51% 0.44%
Net investment income 6.54 6.66 7.39
8.18
8.91 ---------------------------------------------------
- -------------------
PORTFOLIO TURNOVER RATE 58.00% 97.66%
36.11%
10.62% 4.64% --------------------------------------
- --------------------------------
<CAPTION>
CLASS A SHARES
(CONTINUED) 1989 1988 1987
1986(2) ------------------------------------------------
- ----------------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.74 $11.83 $12.59
$12.50 -------------------------------------------------
- ---------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 1.10 1.09
1.10
0.88
Net realized and
unrealized gain
(loss) on investments 0.64 (0.09)
(0.86) (0.02) ------------------------------------------
- ----------------------------
Total Income (Loss)
from Investment
Operations 1.74 1.00 0.24
0.86 ---------------------------------------------------
- -------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (1.11) (1.09)
(0.99) (0.81)
Distribution from net
realized gains
on security
transactions (1) -- -- (0.01)
- --------------------------------------------------------
- ---------------
Total Distributions (1.11) (1.09)
(1.00) (0.81) ------------------------------------------
- ----------------------------
NET ASSET VALUE, END OF
PERIOD $12.37 $11.74 $11.83
$12.59 -------------------------------------------------
- ---------------------
TOTAL RETURN (P) 15.45% 8.75%
2.09% 7.44%++ ------------------------------------------
- ----------------------------
NET ASSETS, END OF
PERIOD (000S) $17,832 $17,877 $21,011
$15,498 ------------------------------------------------
- ----------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.46% 0.50%
0.41%
0.26%+
Net investment income 9.10 9.03
9.22 8.85+ ---------------------------------------------
- -------------------------
PORTFOLIO TURNOVER RATE 11.35% 5.31%
113.46% 107.44% ----------------------------------------
- ------------------------------
</TABLE>
(1) Represents distributions from paydown gains which
are reported as ordinary
income for tax purposes.
(2) For the period from April 16, 1986 (commencement
of operations) to December
31, 1986.
++ Not annualized as it may not be representative of
the
total return for the
year.
+ Annualized.
(P) Total returns do not reflect sales charges.
* Amount has been restated from the December 31,
1994
Annual Report.
15
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
MONTHLY PAYMENT GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C
SHARES
-------------- --------------
- ---------
1994(1) 1994(2)
1993
1992(3) ------------------------------------------------
- -------------------
<S> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.78 $12.85
$12.96
$12.89 -------------------------------------------------
- ------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.18
0.72
0.78
0.05
Net realized and
unrealized gain
(loss) on investments 0.01 (0.98)
(0.04)
0.10 ---------------------------------------------------
- ----------------
Total Income (Loss) from
Investment Operations 0.19 (0.26)
0.74
0.15 ---------------------------------------------------
- ----------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.12) (0.70)
(0.79)
(0.08)
Distributions from net
realized gains
on security
transactions (4) -- (0.03)
(0.06) -------------------------------------------------
- -------------------
Total Distributions (0.12) (0.73)
(0.85)
(0.08) -------------------------------------------------
- ------------------
NET ASSET VALUE, END OF
PERIOD $11.85 $11.86
$12.85
$12.96 -------------------------------------------------
- --
- -----------------
TOTAL RETURN (P) 1.64%++ (2.07)%
5.77%
1.15%++ ------------------------------------------------
- -------------------
NET ASSETS, END OF PERIOD
(000S) $61 $3,351
$3,155
$72 ----------------------------------------------------
- ---------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.20%+* 1.32%
1.27%
1.21%+
Net investment income 7.18+ 5.92
5.88
6.21+ --------------------------------------------------
- -----------------
PORTFOLIO TURNOVER RATE 58.00% 58.00%
97.66% 36.11% ------------------------------------------
- -------------------------
</TABLE>
(1) For the period from November 10, 1994 (inception
date) to December 31,
1994.
(2) On November 7, 1994 the former Class B shares
were renamed Class C shares.
(3) For the period from December 2, 1992 (inception
date) to December 31, 1992.
(4) Represents distributions from paydown gains which
are reported as ordinary
income for tax purposes.
++ Not annualized as it may not be representative of
the
total return for the
year.
+ Annualized.
(P) Total returns do not reflect sales charges.
* Amount has been restated from the December 31,
1994
Annual Report.
16
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
INCOME RETURN ACCOUNT PORTFOLIO
<TABLE>
<CAPTION>
CLASS A SHARES 1994 1993 1992
1991 1990 ----------------------------------------------
- ----------------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.59 $ 9.68 $ 9.65 $
9.38
$ 9.31
- --------------------------------------------------------
- ------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.46 0.45
0.52
0.67
0.73
Net realized and
unrealized gain
(loss) on
investments (0.26) (0.07) 0.03
0.33
0.08 ---------------------------------------------------
- -----------------
Total Income from
Investment Operations 0.20 0.38 0.55
1.00
0.81 ---------------------------------------------------
- -----------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.45) (0.47) (0.52)
(0.73) (0.74) ------------------------------------------
- --------------------------
Total Distributions (0.45) (0.47) (0.52)
(0.73) (0.74) ------------------------------------------
- --------------------------
NET ASSET VALUE, END
OF YEAR $ 9.34 $ 9.59 $ 9.68 $
9.65
$ 9.38
- --------------------------------------------------------
- ------------
TOTAL RETURN (P) 2.14% 4.00% 5.85%
11.06%
9.10% --------------------------------------------------
- ------------------
NET ASSETS, END OF
YEAR (000S) $18,918 $50,874 $48,538
$33,682 $24,058 ----------------------------------------
- ----------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.56% 0.53% 0.50%
0.49%
0.43%
Net investment income 4.60 4.67 5.33
6.98
7.92 ---------------------------------------------------
- -----------------
PORTFOLIO TURNOVER
RATE 126.64% 152.04% 84.15%
30.44%
27.90% -------------------------------------------------
- -------------------
<CAPTION>
CLASS A SHARES
(CONTINUED) 1989 1988 1987
1986 1985*(1) ------------------------------------------
- --------------------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.12 $ 9.26 $ 9.43 $
9.51
$ 9.17
- --------------------------------------------------------
- --
- -----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.75 0.71
0.68
0.72
0.68
Net realized and
unrealized gain
(loss) on
investments 0.19 (0.13) (0.19)
0.08
0.16 ---------------------------------------------------
- -----------------
Total Income from
Investment Operations 0.94 0.58 0.49
0.80
0.84 ---------------------------------------------------
- -----------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.75) (0.72) (0.60)
(0.87)
(0.50)
Distributions from
net realized gains -- -- (0.06)
(0.01) -------------------------------------------------
- --------------------
Total Distributions (0.75) (0.72) (0.66)
(0.88)
(0.50) -------------------------------------------------
- -------------------
NET ASSET VALUE, END
OF PERIOD $ 9.31 $ 9.12 $ 9.26 $
9.43
$ 9.51
- --------------------------------------------------------
- ------------
TOTAL RETURN (P) 10.67% 6.48% 5.36%
8.78%
9.34%++ ------------------------------------------------
- --------------------
NET ASSETS, END OF
PERIOD (000S) $27,604 $53,950 $55,494
$54,074
$24,855 ------------------------------------------------
- --------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.43% 0.44% 0.35%
0.28%
0.21%+
Net investment income 8.13 7.78 7.37
7.58 8.63+ ---------------------------------------------
- -----------------------
PORTFOLIO TURNOVER
RATE 33.17% 124.33% 68.21%
304.38%
182.61% ------------------------------------------------
- --------------------
</TABLE>
(1) For the period from March 4, 1985 (commencement
of operations) to December
31, 1985.
++ Not annualized as it may not be representative of
the
total return for the
year.
+ Annualized.
(P) Total returns do not reflect sales charges.
* Adjusted for 200% stock dividend to shareholders
of
record on July 17, 1985.
17
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
INCOME RETURN ACCOUNT PORTFOLIO
<TABLE>
<CAPTION>
CLASS C SHARES(1)
CLASS Y SHARES(3)
----------------------- --------
- ------------
1994 1993 1992(2)
1994
1993(4) ------------------------------------------------
- ---------------------
<S> <C> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.58 $ 9.68 $ 9.69 $
9.59
$ 9.72
- --------------------------------------------------------
- -------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.42 0.45 0.03
0.44
0.42
Net realized and
unrealized loss
on investments (0.24) (0.12) --
(0.25)
(0.13) -------------------------------------------------
- --------------------
Total Income from
Investment
Operations 0.18 0.33 0.03
0.19
0.29 ---------------------------------------------------
- ------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.42) (0.43) (0.04)
(0.44) (0.42) ------------------------------------------
- ---------------------------
Total Distributions (0.42) (0.43) (0.04)
(0.44) (0.42) ------------------------------------------
- ---------------------------
NET ASSET VALUE,
END OF YEAR $ 9.34 $ 9.58 $ 9.68 $
9.34
$ 9.59
- --------------------------------------------------------
- --
- ------------
TOTAL RETURN (P) 1.86% 3.53% 0.31%++
2.01%++ 3.01%++ ----------------------------------------
- -----------------------------
NET ASSETS, END OF
YEAR (000S) $3,055 $3,993 $10
$3,235
$ 5,412
- --------------------------------------------------------
- -------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses 0.94% 0.90% 0.86%+
0.69%
0.75%+
Net investment
income 4.40 4.25 5.71+
4.65
4.78+ --------------------------------------------------
- -------------------
PORTFOLIO TURNOVER
RATE 126.64% 152.04% 84.15%
126.64%
152.04% ------------------------------------------------
- ---------------------
</TABLE>
(1) On November 7, 1994 former Class B shares were
renamed Class C shares.
(2) For the period from December 16, 1992 (inception
date) to December 31,
1992.
(3) On November 7, 1994, former Class C shares were
renamed Class Y shares.
(4) For the period from February 1, 1993 (inception
date) to December 31, 1993.
++ Not annualized as it may not be representative of
the total return for the
year.
+ Annualized.
(P) Total returns do not reflect sales charges.
18
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The U.S. Government Securities Portfolio and the
Monthly
Payment Government
Portfolio each seek high current income, liquidity
and security of principal
by investing in obligations of the U.S. Government,
its agencies or its
instrumentalities and related repurchase and
reverse repurchase agreements.
The Income Return Account Portfolio seeks high
current income from a portfolio
of high quality debt obligations and employs
an "immunization strategy" (see
below) to minimize the risk of loss of account value.
Of course, no assurance
can be given that a Portfolio's objective will be
achieved.
The U.S. Government Securities Portfolio and the
Monthly
Payment Government
Portfolio invest primarily in Government National
Mortgage Association
("GNMA") Certificates of the modified pass-through
type and will also normally
include other "U.S. Government Obligations,"
i.e., obligations issued or guar-
anteed by the United States, its agencies or
its
instrumentalities and related
repurchase and reverse repurchase agreements
(reverse repurchase agreement
transactions are limited to no more than 5% of
each Portfolio's net assets).
Under normal market conditions, each Portfolio will
seek to invest substan-
tially all of its assets -- and a Portfolio will
invest not less than 65% of
its assets -- in such securities. GNMA Certificates
are debt securities issued
by a mortgage banker or other mortgagee
representing an interest in a pool of
mortgages insured by the Federal Housing
Administration or the Farmers Home
Administration or guaranteed by the Veterans
Administration. The National
Housing Act provides that the full faith and credit
of the
United States is
pledged to the timely payment of principal and
interest by GNMA of amounts due
on these GNMA Certificates. Securities of the type
to be purchased for these
Portfolios have historically involved no credit
risk; however, due to fluctua-
tions in interest rates, the market value of such
securities will vary during
the period of a shareholder's investment in the
Portfolio. The average life of
GNMA Certificates varies with the maturities of
the underlying mortgages (with
maximum maturities of 30 years) but is likely
to be substantially less than
the original maturity of the mortgage pools
underlying the securities as the
result of prepayments, refinancing of such
mortgages or foreclosure.
Unscheduled prepayments of mortgages are passed
through to the holders of GNMA
Certificates at par and will increase or decrease the
yield realized by the
Portfolio, depending on the cost of the
underlying Certificate and its market
value at the time of prepayment. As a hedge against
changes in interest rates,
the U.S. Government Securities Portfolio and the
Monthly Payment Government
Portfolio may enter into agreements with dealers
in GNMA Certificates to pur-
chase or sell an agreed-upon principal amount
of GNMA Certificates at a speci-
fied price on a certain date; provided,
19
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
however, that settlement occurs within 120 days of the
trade date. For a
detailed explanation, see "Appendix."
The Income Return Account Portfolio invests in
U.S.
Government Obligations
(see "Appendix"), bankers' acceptances, certificates
of deposit, securities
backed by letters of credit, commercial paper rated A-1
by Standard & Poor's
Corporation ("S&P") or Prime-1 by Moody's Investors
Service, Inc. ("Moody's")
and notes and bonds, including floating rate issues,
rated A or better by S&P
or Moody's or, if not rated, of comparable quality
as determined by the Manag-
er. The Portfolio's investments in U.S.
Government Obligations will be in obli-
gations with remaining maturities of five years or less,
and its investments in
corporate debt obligations will be in obligations
with remaining maturities of
three years or less. Normally, approximately one-third
of
the Portfolio will
consist of obligations that have remaining maturities
of less than one year;
however, it is expected there may be occasions when up
to 100% of the Portfolio
will be invested in securities maturing within one
year. This portfolio compo-
sition is intended to achieve a higher level of income
than would otherwise be
available from an exclusively short-term portfolio
with substantially less risk
than that of a conventional bond or note portfolio.
While minor day-to-day
price fluctuations are unavoidable, it is believed that
the Portfolio's immuni-
zation strategy will produce sufficient income
accrual during adverse market
conditions to offset any potential loss in the
Portfolio security value mea-
sured over a three month period.
The U.S. Government Securities Portfolio and the
Monthly
Payment Government
Portfolio each may seek to increase its net
investment income by lending its
securities to unaffiliated brokers, dealers and
other financial institutions,
provided such loans are callable at any time and
are continuously secured by
cash or U.S. Government Obligations equal to no less
than the market value,
determined daily, of the securities loaned. Management
will limit such lending
to not more than one-third of the value of each
Portfolio's total assets. The
risks in lending portfolio securities consist of
possible delay in recovery of
the securities or possible loss of rights in
the collateral should the borrower
fail financially. The Statement of Additional
Information contains more
detailed information.
The Board of Directors of the Fund may modify
the
investment objective and
policies of each Portfolio (other than the Income
Return Account Portfolio
whose objective and policies may be changed only by
the "vote of a majority of
the outstanding voting securities", as defined in
the Investment Company Act of
1940 (the "1940 Act") provided such modification is
not prohibited by the
20
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
(CONTINUED)
investment restrictions (which are set forth in
the
Statement of Additional
Information) or applicable laws, and any such change
will first be disclosed in
the then current prospectus.
PORTFOLIO TURNOVER
None of the Portfolios will engage in the trading
of
securities for the pur-
pose of realizing short-term profits; however,
each Portfolio will adjust its
portfolio as considered advisable in view of prevailing
or anticipated market
conditions and the Portfolio's investment objective. As
the portfolio turnover
rate increases, so will the Portfolio's dealer mark-ups
and other transaction
related expenses. Investors should realize that risk of
loss is inherent in the
ownership of any securities and that shares of a
Portfolio will fluctuate with
the market value of its securities.
VALUATION OF SHARES
Each Portfolio's net asset value per share is
determined
as of the close of
regular trading on the NYSE, on each day that the NYSE
is open, by dividing the
value of the Portfolio's net assets attributable to
each Class by the total
number of shares of the Class outstanding.
Obligations are valued at the mean between the bid
and
asked quotations for
such securities or if no quotations are available, then
for securities of simi-
lar type, yield and maturity. Short-term investments
that have a maturity of
more than 60 days are valued at prices based on
market quotations for securi-
ties of similar type, yield and maturity. Short
term investments that have a
maturity of 60 days or less are valued at amortized
cost when the Board of
Directors has determined that amortized cost equals
fair value, unless market
conditions dictate otherwise. Other investments of
a Portfolio, including
restricted securities, if any, are valued at a fair
value determined by the
Board of Directors in good faith.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares quarterly income dividends on shares
of
the U.S. Government
Securities Portfolio and monthly income dividends on
shares of the
21
<PAGE>
Smith Barney Funds, Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Monthly Payment Government Portfolio and the Income
Return Account Portfolio
and makes annual distributions of capital gains, if any,
on such shares.
If a shareholder does not otherwise instruct,
dividends
and capital gain dis-
tributions will be reinvested automatically in
additional shares of the same
Class at net asset value, subject to no sales charge
or CDSC.
Income dividends and capital gain distributions that
are
invested are cred-
ited to shareholders' accounts in additional shares at
the net asset value as
of the close of business on the payment date. A
shareholder may change the
option at any time by notifying his or her Smith
Barney Financial Consultant.
Accounts held directly by TSSG should notify TSSG in
writing at least five
business days prior to the payment date to permit the
change to be entered in
the shareholder's account.
The per share dividends on Class B and Class C shares
of
each Portfolio may
be lower than the per share dividends on Class A and
Class Y shares principally
as a result of the distribution fee applicable with
respect to Class B and
Class C shares. The per share dividends on Class A
shares of each Portfolio may
be lower than the per share dividends on Class Y
shares principally as a result
of the service fee applicable to Class A
shares. Distributions of capital
gains, if any, will be in the same amount for Class
A, Class B, Class C and
Class Y shares.
TAXES
Each Portfolio intends to qualify as a
regulated investment company under
Subchapter M of the Code to be relieved of federal
income tax on that part of
its net investment income and realized capital gains
which it pays out to its
shareholders. To qualify, each Portfolio must meet
certain tests, including
distributing at least 90% of its investment company
taxable income, and deriv-
ing less than 30% of its gross income from the sale or
other disposition of
certain investments held for less than three months.
Dividends from net investment income and distributions
of
realized short-term
capital gains on the sale of securities, whether paid
in cash or automatically
invested in additional shares of a Portfolio, are
taxable to shareholders as
ordinary income. Each Portfolio's dividends will not
qualify for the dividends
received deduction for corporations. Dividends
and distributions declared by
each Portfolio may also be subject to state and local
taxes. Distributions out
of net long-term capital gains (i.e., net long-term
capital gains in excess of
net
22
<PAGE>
Smith Barney Funds, Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
short-term capital losses) are taxable to shareholders
as long-term capital
gains. Information as to the tax status of dividends
paid or deemed paid in
each calendar year will be mailed to shareholders as
early in the succeeding
year as practical but not later than January 31.
It is the policy of the Fund to comply with
requirements
of the Internal Rev-
enue Code applicable to regulated investment companies
and to distribute all of
the taxable income and net taxable gains of each
Portfolio to its shareholders.
Dividends derived from net investment income and
capital gains on the sale of
securities, whether paid in cash or automatically
invested in additional shares
of the same Portfolio, are taxable to shareholders of
each Portfolio. Informa-
tion as to the tax status of dividends deemed paid in
each calendar year will
be mailed to shareholders as early in the succeeding
year as practical but no
later than January 31. The foregoing relates to
Federal income taxation. Divi-
dends may also be subject to state and local
taxes; investors should consult
with their tax advisors regarding state and local taxes.
PURCHASE OF SHARES
GENERAL
Each Portfolio offers several Classes of shares. Class
A
shares are sold to
investors with an initial sales charge and Class B and
Class C shares are sold
without an initial sales charge but are subject to a
CDSC payable upon certain
redemptions. Class Y shares are sold without an
initial sales charge or CDSC
and are available only to investors investing a minimum
of $5,000,000. A fifth
class, Class Z shares, are also offered with respect to
each of the U.S. Gov-
ernment Securities Portfolio and the Income Return
Account Portfolio. Class Z
shares are offered without a sales charge, CDSC, service
fee or distribution
fee exclusively to tax-exempt employee benefit
and retirement plans of Smith
Barney and its affiliates. Investors meeting these
criteria who are interested
in acquiring Class Z shares should contact a Smith
Barney Financial Consultant
for a Class Z Prospectus. See "Prospectus Summary
- -Alternative Purchase
Arrangements" for a discussion of factors to consider
in selecting which Class
of shares to purchase.
Shares may be purchased through a brokerage
account
maintained with Smith
Barney. Shares may also be purchased through an
Introducing Broker or an
investment dealer in the selling group. In addition,
certain investors, includ-
ing qualified retirement plans and certain
other institutional investors, may
pur-
23
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
chase shares directly from the Fund through TSSG.
When purchasing shares of a
Portfolio, investors must specify whether the purchase
is for Class A, Class B,
Class C or Class Y shares. No maintenance fee will
be charged by the Fund in
connection with a brokerage account through which
an investor purchases or
holds shares.
Investors in Class A, Class B and Class C shares may
open
an account by mak-
ing an initial investment of at least $1,000 for
each account, or $250 for an
IRA or a Self-Employed Retirement Plan in each
Portfolio. Investors in Class Y
shares may open an account by making an initial
investment of $5,000,000. Sub-
sequent investments of at least $50 may be made for
all Classes. For partici-
pants in retirement plans qualified under Section
403(b)(7) or Section 401(a)
of the Code, the minimum initial investment requirement
for Class A, Class B
and Class C shares and the subsequent investment
requirement for all Classes in
each Portfolio is $25. For each Portfolio's
Systematic Investment Plan, the
minimum initial investment requirement for Class A,
Class B and Class C shares
and the subsequent investment requirement for all
Classes is $50. There are no
minimum investment requirements in Class A shares
for employees of Travelers
and its subsidiaries, including Smith Barney, Directors
of the Fund, and their
spouses and children. The Fund reserves the right to
waive or change minimums,
to decline any order to purchase its shares and to
suspend the offering of
shares from time to time. Shares purchased will be held
in the shareholder's
account by the Fund's transfer agent, TSSG.
Share certificates are issued only
upon a shareholder's written request to TSSG.
Purchase orders for a Portfolio that are received by
the
Fund or Smith Barney
prior to the close of regular trading on the NYSE, on
any day the Portfolio
calculates its net asset value, are priced according to
the net asset value
determined on that day (the "trade date"). Orders
received by dealers or Intro-
ducing Brokers prior to the close of regular trading on
the NYSE on any day a
Portfolio calculates its net asset value, are
priced according to the net asset
value determined on that day, provided the order is
received by the Fund or
Smith Barney prior to Smith Barney's close of
business. Currently, payment for
Portfolio shares is due on the fifth business day
(the "settlement date") after
the trade date. Each Portfolio anticipates that,
in accordance with regulatory
changes, beginning on or about June 1, 1995, the
settlement date will be the
third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at
any
time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG
is authorized through
24
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
preauthorized transfers of $50 or more to charge the
regular bank account or
other financial institution indicated by the shareholder
on a monthly or quar-
terly basis to provide systematic additions to
the
shareholder's Portfolio
account. A shareholder who has insufficient funds
to complete the transfer
will be charged a fee of up to $25 by Smith Barney or
TSSG. The Systematic
Investment Plan also authorizes Smith Barney to apply
cash held in the share-
holder's Smith Barney brokerage account or redeem
the shareholder's shares of
a Smith Barney money market fund to make additions to
the
account. Additional
information is available from the Fund or a Smith
Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class
A
shares of each of the
U.S. Government Securities Portfolio and the Monthly
Payment Government Port-
folio are as follows:
<TABLE>
<CAPTION>
SALES CHARGE ---------
--------------------
DEALERS'
% OF %
OF REALLOWANCE AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT
INVESTED OFFERING PRICE --------------------------------
- -----------------------------------------
<S> <C> <C>
<C>
Less than $ 25,000 4.50%
4.71%
4.00%
$ 25,000 - 49,999 4.00
4.17
3.60
50,000 - 99,999 3.50
3.63
3.15
100,000 -249,999 2.50
2.56
2.25
250,000 -499,999 1.50
1.52
1.35
500,000 and over *
*
* ------------------------------------------------------
- --
- ------------------
</TABLE>
The sales charge applicable to purchases of Class A
shares of the Income
Return Portfolio are as follows:
<TABLE>
<CAPTION>
SALES CHARGE --------
---------------------
DEALERS'
% OF %
OF REALLOWANCE AS % OF
AMOUNT OF TRANSACTION OFFERING PRICE AMOUNT
INVESTED OFFERING PRICE --------------------------------
- ------------------------------------------
<S> <C> <C>
<C>
Less than $500,000 2.00%
2.04%
1.80%
$500,000 and
over *
*
* ------------------------------------------------------
- --
- -------------------
</TABLE>
* Purchases of Class A shares, which when combined
with
current holdings of
Class A shares offered with a sales charge equal or
exceed $500,000 in the
aggregate, will be made at net asset value without
any
initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions
made
within 12 months
of purchase. The CDSC on Class A shares is payable
to
Smith Barney, which
compensates Smith Barney Financial Consultants and
other
dealers whose
clients make purchases of $500,000 or more. The CDSC
is
waived in the same
circumstances in which the CDSC applicable to Class B
and
Class C shares is
waived. See "Deferred Sales Charge Alternatives"
and
"Waivers of CDSC."
25
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
Members of the selling group may receive up to 90% of
the
sales charge and
may be deemed to be underwriters of the Fund as defined
in the Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to
the
aggregate of purchases of
Class A shares of each Portfolio made at one time by
"any person," which
includes an individual, his or her spouse and children,
or a trustee or other
fiduciary of a single trust estate or single
fiduciary account. The reduced
sales charge minimums may also be met by aggregating
the purchase with the net
asset value of all Class A shares offered with a
sales charge held in funds
sponsored by Smith Barney listed under "Exchange
Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset
value without a sales
charge in the following circumstances: (a) sales of
Class A shares to Direc-
tors of the Fund and employees of Travelers and
its subsidiaries, or to the
spouse and children of such persons (including the
surviving spouse of a
deceased Director or employee, and retired Directors
or employees), or sales
to any trust, pension, profit-sharing or other benefit
plan for such persons
provided such sales are made upon the assurance of
the purchaser that the pur-
chase is made for investment purposes and that
the
securities will not be
resold except through redemption or repurchase; (b)
offers
of Class A shares
to any other investment company in connection with
the combination of such
company with a Portfolio by merger, acquisition of
assets or otherwise; (c)
purchases of Class A shares by any client of a
newly employed Smith Barney
Financial Consultant (for a period up to 90 days from
the commencement of the
Financial Consultant's employment with Smith Barney), on
the condition the
purchase of Class A shares is made with the proceeds of
the redemption of
shares of a mutual fund which (i) was sponsored by
the Financial Consultant's
prior employer, (ii) was sold to the client by the
Financial Consultant and
(iii) was subject to a sales charge; (d) shareholders
who have redeemed Class
A shares in a Portfolio (or Class A shares of another
fund
of the Smith Barney
Mutual Funds that are offered with a sales charge equal
to or greater than the
maximum sales charge of a Portfolio) and who wish
to reinvest their redemption
proceeds in a Portfolio, provided the reinvestment is
made within 60 calendar
days of the redemption; and (e) accounts managed
by registered investment
advisory subsidiaries of Travelers. In order to obtain
such discounts, the
purchaser must provide sufficient information at the
time of purchase to per-
mit verification that the purchase would qualify for
the elimination of the
sales charge.
26
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
RIGHT OF ACCUMULATION
Class A shares of a Portfolio may be purchased by
"any
person" (as defined
above) at a reduced sales charge or at net asset
value determined by aggregat-
ing the dollar amount of the new purchase and the total
net asset value of all
Class A shares of a Portfolio and of funds sponsored
by Smith Barney that are
offered with a sales charge listed under
"Exchange Privilege" then held by
such person and applying the sales charge applicable to
such aggregate. In
order to obtain such discount, the purchaser must
provide sufficient informa-
tion at the time of purchase to permit verification that
the purchase quali-
fies for the reduced sales charge. The right of
accumulation is subject to
modification or discontinuance at any time with respect
to
all shares pur-
chased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a
reduced
sales charge or pur-
chase at net asset value will also be available to
employees (and partners) of
the same employer purchasing as a group, provided
each participant makes the
minimum initial investment required. The sales
charge applicable to purchases
by each member of such a group will be determined by
the table set forth above
under "Initial Sales Charge Alternative -- Class A
Shares" and will be based
upon the aggregate sales of Class A shares of Smith
Barney Mutual Funds
offered with a sales charge to, and share holdings of,
all members of the
group. To be eligible for such reduced sales charges or
to purchase at net
asset value, all purchases must be pursuant to an
employeror partnership-
sanctioned plan meeting certain requirements. One
such requirement is that the
plan must be open to specified partners or employees of
the employer and its
subsidiaries, if any. Such plan may, but is not required
to, provide for pay-
roll deductions, IRAs or investments pursuant to
retirement plans under Sec-
tions 401 or 408 of the Code. Smith Barney may also
offer a reduced sales
charge or net asset value purchase for aggregating
related fiduciary accounts
under such conditions that Smith Barney will
realize economies of sales
efforts and sales related expenses. An individual who
is a member of a quali-
fied group may also purchase Class A shares at the
reduced sales charge appli-
cable to the group as a whole. The sales charge is
based upon the aggregate
dollar value of Class A shares offered with a sales
charge that have been pre-
viously purchased and are still owned by the group, plus
the amount of the
current purchase. A "qualified group" is one which (a)
has been in existence
for more than six months, (b) has a purpose other
than acquiring Portfolio
shares at a discount and (c) satisfies uniform
criteria which enables Smith
Barney to realize economies of scale in its costs
of distributing shares. A
qualified group must have more than 10 members, must be
27
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
available to arrange for group meetings
between
representatives of the Portfo-
lio and the members, and must agree to include sales
and other materials
related to the Portfolio in its publications and
mailings to members at no
cost to Smith Barney. In order to obtain such reduced
sales charge or to pur-
chase at net asset value, the purchaser must
provide sufficient information at
the time of purchase to permit verification that
the purchase qualifies for
the reduced sales charge. Approval of group purchase
reduced sales charge
plans is subject to the discretion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of
$50,000
or more provides
an opportunity for an investor to obtain a reduced
sales charge by aggregating
investments over a 13 month period, provided that
the investor refers to such
Letter when placing orders. For purposes of a
Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales
charge table includes pur-
chases of all Class A shares of each Portfolio and
other funds of the Smith
Barney Mutual Funds offered with a sales charge over
a 13 month period based
on the total amount of intended purchases plus the
value of all Class A shares
previously purchased and still owned. An alternative
is to compute the 13
month period starting up to 90 days before the
date of execution of a Letter
of Intent. Each investment made during the period
receives the reduced sales
charge applicable to the total amount of the
investment goal. If the goal is
not achieved within the period, the investor must pay
the difference between
the sales charges applicable to the purchases made and
the charges previously
paid, or an appropriate number of escrowed shares
will be redeemed. Please
contact a Smith Barney Financial Consultant or
TSSG to obtain a Letter of
Intent application.
Class Y Shares. A Letter of Intent may also be used as
a
way for investors
to meet the minimum investment requirement for
Class Y shares. Such investors
must make an initial minimum purchase of $1,000,000 in
Class Y shares of a
Portfolio and agree to purchase a total of $5,000,000
of Class Y shares of the
same Portfolio within six months from the date of
the Letter. If a total
investment of $5,000,000 is not made within the six
month period, all Class Y
shares purchased to date will be transferred to
Class A
shares, where they
will be subject to all fees (including a service fee
of 0.25%) (except the
Income Return Account Portfolio's Class A shares will
not be subject to a
service fee) and expenses applicable to the
Portfolio's Class A shares, which
may include a CDSC of 1.00%. Please contact a Smith
Barney Financial Consul-
tant or TSSG for further information.
28
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
DEFERRED SALES CHARGE ALTERNATIVES
Class B shares are only available in the U.S.
Government
Securities Portfo-
lio and the Monthly Payment Government Portfolio.
Class C shares are available
in each Portfolio.
CDSC Shares are sold at net asset value next
determined
without an initial
sales charge so that the full amount of an
investor's purchase payment may be
immediately invested in a Portfolio. A CDSC, however,
may be imposed on cer-
tain redemptions of these shares. "CDSC Shares" are:
(a) Class B shares; (b)
Class C shares; and (c) Class A shares which when
combined with Class A shares
offered with a sales charge currently held by an
investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal
to the lesser of the
original cost of the shares being redeemed or their
net asset value at the
time of redemption. CDSC Shares that are redeemed will
not be subject to a
CDSC to the extent that the value of such shares
represents: (a) capital
appreciation of Portfolio assets; (b) reinvestment
of dividends or capital
gain distributions; (c) with respect to Class B
shares, shares redeemed more
than five years after their purchase; or (d) with
respect to Class C shares
and Class A shares that are CDSC Shares, shares
redeemed more than 12 months
after their purchase.
Class C shares and Class A shares that are CDSC Shares
are subject to a
1.00% CDSC if redeemed within 12 months of purchase.
In circumstances in which
the CDSC is imposed on Class B shares, the amount of
the charge will depend on
the number of years since the shareholder made the
purchase
payment from which
the amount is being redeemed. Solely for purposes
of determining the number of
years since a purchase payment, all purchase payments
made during a month will
be aggregated and deemed to have been made on the last
day of the preceding
Smith Barney statement month. The following table sets
forth the rates of the
charge for redemptions of Class B shares by
shareholders, except in the case
of purchases by Participating Plans, as described below.
See "Purchase of
Shares -- Smith Barney 401(k) Program."
29
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC ------------------------
- -------
<S> <C>
First 4.50%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth 0.00
Seventh 0.00
Eighth 0.00
- --------------------------------
</TABLE>
Class B shares will convert automatically to Class
A
shares eight years after
the date on which they were purchased and thereafter
will no longer be subject
to any distribution fees. There will also be converted
at that time such pro-
portion of Class B Dividend Shares owned by the
shareholder as the total number
of his or her Class B shares converting at the time
bears to the total number
of outstanding Class B shares (other than Class B
Dividend Shares) owned by
the shareholder. Shareholders who held Class B shares
of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World
Income Fund") on July 15,
1994 and who subsequently exchange those shares for
Class B shares of a Portfo-
lio will be offered the opportunity to exchange all
such Class B shares for
Class A shares of the Portfolio four years after the
date on which those shares
were deemed to have been purchased. Holders of such
Class B shares will be
notified of the pending exchange in writing
approximately 30
days before the
fourth anniversary of the purchase date and, unless
the exchange has been
rejected in writing, the exchange will occur on or about
the fourth anniversary
date. See "Prospectus Summary -- Alternative
Purchase Arrangements -- Class B
Shares Conversion Feature."
In determining the applicability of any CDSC, it will
be
assumed that a
redemption is made first of shares representing
capital appreciation, next of
shares representing the reinvestment of dividends
and capital gain distribu-
tions and finally of other shares held by the
shareholder for the longest
period of time. The length of time that CDSC Shares
acquired through an
exchange have been held will be calculated from the
date that the shares
exchanged were initially acquired in one of the other
Smith Barney Mutual
Funds, and Portfolio shares being redeemed will
be considered to represent, as
applicable, capital appreciation or dividend and
capital gain distribution
reinvestments in such other funds. For Federal income
tax purposes, the amount
of the CDSC will reduce the gain or increase the loss,
as the case may be, on
the amount realized on redemption. The amount of any
CDSC will be paid to Smith
Barney.
30
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
To provide an example, assume an investor purchased
100
Class B shares at $10
per share for a cost of $1,000. Subsequently, the
investor acquired 5 addi-
tional shares through dividend reinvestment. During
the fifteenth month after
the purchase, the investor decided to redeem $500 of his
or her investment.
Assuming at the time of the redemption the net asset
value had appreciated to
$12 per share, the value of the investor's shares would
be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to
the amount which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500
minus $260) would be
charged at a rate of 4.00% (the applicable rate for
Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see
"Exchange
Privilege"); (b)
automatic cash withdrawals in amounts equal to or less
than 1.00% per month of
the value of the shareholder's shares at the time
the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided,
however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of
the shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c) redemptions
of shares within twelve
months following the death or disability of the
shareholder; (d) redemption of
shares made in connection with qualified distributions
from retirement plans or
IRAs upon the attainment of age 59 1/2; (e)
involuntary redemptions; and (f)
redemptions of shares in connection with a combination
of a Portfolio with any
investment company by merger, acquisition of assets
or otherwise. In addition,
a shareholder who has redeemed shares from other funds
of
the Smith Barney
Mutual Funds may, under certain circumstances, reinvest
all or part of the
redemption proceeds within 60 days and receive pro
rata credit for any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation
(by
Smith Barney in the
case of shareholders who are also Smith Barney clients
or by TSSG in the case
of all other shareholders) of the shareholder's status
or holdings, as the case
may be.
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the
Smith
Barney 401(k) Program,
which is generally designed to assist plan sponsors in
the creation and opera-
tion
31
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
of retirement plans under Section 401(a) of the Code. To
the extent applicable,
the same terms and conditions are offered to
all Participating Plans in the
Smith Barney 401(k) Program.
Each of the U.S. Government Securities Portfolio and
the
Monthly Payment Gov-
ernment Portfolio offers to Participating Plans Class
A,
Class B, Class C and
Class Y shares as investment alternatives under the
Smith Barney 401(k) Pro-
gram; the Income Return Account Portfolio offers Class
A, Class C and Class Y
shares. Class A, Class B and Class C shares acquired
through the Smith Barney
401(k) Program are subject to the same service
and/or distribution fees as, but
different sales charge and CDSC schedules than, the
Class A, Class B and Class
C shares acquired by other investors. Similar to
those
shares available to
other investors, Class Y shares acquired through the
Smith Barney 401(k) Pro-
gram are not subject to any service or distribution fees
or any initial sales
charge or CDSC. Once a Participating Plan has made
an initial investment in a
Portfolio, all of its subsequent investments in
the
Portfolio must be in the
same Class of shares, except as otherwise described
below.
Class A Shares. Class A shares of each Portfolio
are
offered without any ini-
tial sales charge to any Participating Plan that
purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of
the Smith Barney Mutual
Funds. Class A shares acquired through the Smith
Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00%
of
redemption proceeds, if the
Participating Plan terminates within four years of the
date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
Class B Shares. Class B shares of each
applicable
Portfolio are offered to
any Participating Plan that purchases less than $250,000
of one or more funds
of the Smith Barney Mutual Funds. Class B shares
acquired through the Smith
Barney 401(k) Program are subject to a CDSC of 3.00%
of
redemption proceeds, if
the Participating Plan terminates within eight years of
the date the Partici-
pating Plan first enrolled in the Smith Barney
401(k) Program.
Eight years after the date the Participating Plan
enrolled in the Smith Bar-
ney 401(k) Program, it will be offered the opportunity
to exchange all of its
Class B shares for Class A shares of a Portfolio. Such
Plans will be notified
of the pending exchange in writing approximately 60
days before the eighth
anniversary of the enrollment date and, unless the
exchange has been rejected
in writing, the exchange will occur on or about the
eighth anniversary date.
Once the exchange has occurred, a Participating Plan
will not be eligible to
acquire addi-
32
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
tional Class B shares of the Portfolio but instead
may acquire Class A shares
of the Portfolio. If the Participating Plan elects not
to exchange all of its
Class B shares at that time, each Class B share held by
the Participating Plan
will have the same conversion feature as Class B shares
held by other invest-
ors. See "Purchase of Shares -- Deferred Sales
Charge Alternatives."
Class C Shares. Class C shares of each Portfolio
are
offered to any Partici-
pating Plan that purchases from $250,000 to $499,999 of
one or more funds of the
Smith Barney Mutual Funds. Class C shares acquired
through the Smith Barney
401(k) Program after November 7, 1994 are subject to a
CDSC of 1.00% of
redemption proceeds, if the Participating Plan
terminates within four years of
the date the Participating Plan first enrolled in the
Smith Barney 401(k)
Program. Each year after the date a Participating
Plan enrolled in the Smith
Barney 401(k) Program, if its total Class C holdings
equal at least $500,000 as
of the calendar year-end, the Participating Plan will
be offered the opportunity
to exchange all of its Class C shares for Class A
shares of a Portfolio. Such
Plans will be notified in writing within 30 days after
the last business day of
the calendar year, and unless the exchange offer has
been rejected in writing,
the exchange will occur on or about the last business
day of the following
March. Once the exchange has occurred, a Participating
Plan will not be eligible
to acquire Class C shares of a Portfolio but instead
may acquire Class A shares
of the Portfolio. Any Class C shares not converted
will continue to be subject
to the distribution fee.
Class Y Shares. Class Y shares of each Portfolio
are
offered without any
service or distribution fees, sales charge or CDSC to
any Participating Plan
that purchases $5,000,000 or more of Class Y shares of
one or more funds of the
Smith Barney Mutual Funds.
No CDSC is imposed on redemptions of CDSC Shares to
the
extent that the net
asset value of the shares redeemed does not exceed
the current net asset value
of the shares purchased through reinvestment of
dividends or capital gain dis-
tributions, plus (a) with respect to Class A and
Class C shares, the current
net asset value of such shares purchased more than one
year prior to redemp-
tion and, with respect to Class B shares, the current
net asset value of Class
B shares purchased more than eight years prior to
the
redemption, plus (b)
with respect to Class A and Class C shares, increases in
the net asset value
of the shareholder's Class A or Class C shares above
the purchase payments
made during the preceding year and, with respect to
Class B shares, increases
in the net
33
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
asset value of the shareholder's Class B shares above
the purchase payments
made during the preceding eight years. Whether or not
the CDSC applies to a
Participating Plan depends on the number of years since
the Participating Plan
first became enrolled in the Smith Barney 401(k)
Program, unlike the applica-
bility of the CDSC to other shareholders, which depends
on the number of years
since those shareholders made the purchase payment
from which the amount is
being redeemed.
The CDSC will be waived on redemptions of Class A, Class
B and Class C shares
in connection with lump-sum or other distributions made
by a Participating Plan
as a result of: (a) the retirement of an employee in
the Participating Plan;
(b) the termination of employment of an employee in
the Participating Plan; (c)
the death or disability of an employee in the
Participating Plan; (d) the
attainment of age 59 1/2 by an employee in the
Participating Plan; (e) hardship
of an employee in the Participating Plan to the
extent permitted under Section
401(k) of the Code; or (f) redemptions of shares
in connection with a loan made
by the Participating Plan to an employee.
Participating Plans wishing to acquire shares of
a
Portfolio through the
Smith Barney 401(k) Program must purchase such
shares directly from TSSG. For
further information regarding the Smith Barney
401(k) Program, investors should
contact a Smith Barney Financial Consultant.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class
may
be exchanged for
shares of the same Class in the following funds of the
Smith Barney Mutual
Funds, to the extent shares are offered for sale in
the shareholder's state of
residence. Exchanges of Class A, Class B and Class C
shares are subject to min-
imum investment requirements and all shares are subject
to the other require-
ments of the fund into which exchanges are made and
a sales charge differential
may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc. Smith Barney Growth Opportunity
Fund
34
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth
Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return
Fund Smith Barney Strategic
Investors Fund Smith Barney
Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc. -- Income Return
Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment
Government Portfolio
+++Smith Barney Funds, Inc. -- Short-Term U.S.
Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government
Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc. Smith Barney California Municipals
Fund Inc.
Smith Barney Florida Municipals Fund
*Smith Barney Intermediate Maturity California
Municipals
Fund
*Smith Barney Intermediate Maturity New York
Municipals
Fund
*Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc. Smith
Barney Massachusetts Municipals Fund
Smith Barney Muni Funds -- California
Portfolio
*Smith Barney Muni Funds -- Florida Limited Term
Portfolio Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
*Smith Barney Muni Funds -- Limited Term
Portfolio Smith Barney Muni Funds -- National
Portfolio
35
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Muni Funds -- New Jersey
Portfolio Smith Barney Muni Funds -- New York
Portfolio Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio Smith Barney New Jersey Municipals
Fund Inc. Smith Barney New York Municipals
Fund Inc. Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney World Funds, Inc. -- Emerging
Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government
Bond Portfolio
Smith Barney World Funds, Inc. -- International
Balanced Portfolio
Smith Barney World Funds, Inc. -- International
Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc. -- Cash Portfolio
++Smith Barney Money Funds, Inc. -- Government
Portfolio ***Smith Barney Money Funds, Inc. --
Retirement Portfolio +++Smith Barney Municipal Money
Market Fund, Inc. +++Smith Barney Muni Funds --
California Money Market Portfolio
+++Smith Barney Muni Funds -- New York Money
Market Portfolio ---------------------------------------
- --------------------------------------
* Available for exchange with Class A, Class C and Class
Y
shares of each
Portfolio.
** Available for exchange with Class A, Class B and
Class Y
shares of each
Portfolio. In addition, shareholders who own
Class C shares of a Portfolio
through the Smith Barney 401(k) Program may
exchange those shares for
Class C shares of this fund.
*** Available for exchange with Class A shares of
each
Portfolio.
+ Available for exchange with Class B and Class C
shares
of each Portfolio.
++ Available for exchange with Class A and Class Y
shares of each Portfolio.
In addition, shareholders who own Class C shares
of a Portfolio through
the Smith Barney 401(k) Program may exchange
those shares for Class C
shares of this fund.
+++Available for exchange with Class A and Class Y
shares of each Portfolio.
36
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Class A Exchanges. Class A shares of Smith Barney
Mutual
Funds sold without
a sales charge or with a maximum sales charge of less
than
the maximum charged
by other Smith Barney Mutual Funds will be subject to
the
appropriate "sales
charge differential" upon the exchange of such shares
for Class A shares of a
fund sold with a higher sales charge. The "sales
charge differential" is lim-
ited to a percentage rate no greater than the excess of
the sales charge rate
applicable to purchases of shares of the mutual fund
being acquired in the
exchange over the sales charge rate(s) actually paid on
the mutual fund shares
relinquished in the exchange and on any predecessor of
those shares. For pur-
poses of the exchange privilege, shares obtained
through automatic reinvest-
ment of dividends and capital gain distributions are
treated as having paid
the same sales charges applicable to the shares on which
the dividends or dis-
tributions were paid; however, except in the case of
the Smith Barney 401(k)
Program, if no sales charge was imposed upon the
initial purchase of the
shares, any shares obtained through automatic
reinvestment will be subject to
a sales charge differential upon exchange. Class A
shares
held in a Portfolio
prior to November 7, 1994 that are subsequently
exchanged for shares of other
funds of the Smith Barney Mutual Funds will not be
subject to a sales charge
differential.
Class B Exchanges. In the event a Class B
shareholder
(unless such share-
holder was a Class B shareholder of the Short-Term
World
Income Fund on July
15, 1994) wishes to exchange all or a portion of his or
her shares in any of
the funds imposing a higher CDSC than that imposed
by a Portfolio, the
exchanged Class B shares will be subject to the
higher applicable CDSC. Upon
an exchange, the new Class B shares will be deemed to
have been purchased on
the same date as the Class B shares of the Portfolio
that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class
C
shares will be deemed
to have been purchased on the same date as the
Class C shares of a Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders of each
Portfolio
who wish to
exchange all or a portion of their Class Y shares for
Class Y shares in any of
the funds identified above may do so without imposition
of any charge.
Additional Information Regarding the Exchange
Privilege.
Although the
exchange privilege is an important benefit,
excessive exchange transactions
can be detrimental to each Portfolio's performance and
its shareholders. The
Manager may determine that a pattern of frequent
exchanges is excessive
37
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
and contrary to the best interests of each Portfolio's
other shareholders. In
this event, the Manager will notify Smith Barney and
Smith Barney may, at its
discretion, decide to limit additional purchases
and/or exchanges by the share-
holder. Upon such a determination, Smith Barney will
provide notice in writing
or by telephone to the shareholder at least 15 days
prior to suspending the
exchange privilege and during the 15 day period
the shareholder will be
required to (a) redeem his or her shares in the
Portfolio or (b) remain
invested in the Portfolio or exchange into any of the
funds of the Smith Barney
Mutual Funds ordinarily available, which position
the shareholder would be
expected to maintain for a significant period of time.
All relevant factors
will be considered in determining what constitutes
an abusive pattern of
exchanges.
Exchanges will be processed at the net asset value
next
determined, plus any
applicable sales charge differential. Redemption
procedures discussed below are
also applicable for exchanging shares, and exchanges
will be made upon receipt
of all supporting documents in proper form. If the
account registration of the
shares of the fund being acquired is identical to
the registration of the
shares of the fund exchanged, no signature guarantee
is required. A capital
gain or loss for tax purposes will be realized upon
the exchange, depending
upon the cost or other basis of shares redeemed.
Before exchanging shares,
investors should read the current prospectus describing
the shares to be
acquired. Each Portfolio reserves the right to modify
or discontinue exchange
privileges upon 60 days' prior notice to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of
each
Portfolio tendered to it,
as described below, at a redemption price equal to their
net asset value per
share next determined after receipt of a written request
in proper form at no
charge other than any applicable CDSC. Redemption
requests received after the
close of regular trading on the NYSE are priced at the
net asset value next
determined. If a shareholder holds shares in more than
one Class, any request
for redemption must specify the Class being redeemed. In
the event of a failure
to specify which Class, or if the investor owns fewer
shares of the Class than
specified, the redemption request will be delayed until
the Fund's transfer
agent receives further instructions from Smith Barney,
or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the seventh
day following receipt of
proper
38
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES (CONTINUED)
tender, except on any days on which the NYSE is closed
or as permitted under
the 1940 Act in extraordinary circumstances. The
Fund anticipates that, in
accordance with regulatory changes, beginning on or
about June 1, 1995, pay-
ment will be made on the third business day after
receipt of proper tender.
Generally, if the redemption proceeds are remitted
to
a Smith Barney brokerage
account, these funds will not be invested for
the shareholder's benefit with-
out specific instruction and Smith Barney will benefit
from the use of tempo-
rarily uninvested funds. Redemption proceeds for
shares purchased by check,
other than a certified or official bank check, will
be remitted upon clearance
of the check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be
redeemed
by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than
those held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in
the selling group or by
submitting a written request for redemption to:
Smith Barney Funds, Inc./[Name of Portfolio
(please
specify)]
Class A,B,C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the
Portfolio,
the Class and
number or dollar amount of shares to be redeemed,
(b) identify the sharehold-
er's account number and (c) be signed by each
registered owner exactly as the
shares are registered. If the shares to be redeemed
were issued in certificate
form, the certificates must be endorsed for transfer (or
be accompanied by an
endorsed stock power) and must be submitted to TSSG
together with the redemp-
tion request. Any signature appearing on a
redemption request, share certifi-
cate or stock power must be guaranteed by an
eligible guarantor institution,
such as a domestic bank, savings and loan
institution, domestic credit union,
member bank of the Federal Reserve System or member firm
of a national securi-
ties exchange. TSSG may require additional
supporting documents for redemp-
tions made by corporations, executors,
administrators, trustees or guardians.
A redemption request will not be deemed
properly
received
until TSSG receives
all required documents in proper form.
39
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES (CONTINUED)
AUTOMATIC CASH WITHDRAWAL PLAN
Each Portfolio offers shareholders an automatic
cash
withdrawal plan, under
which shareholders who own shares with a value of at
least $10,000 may elect to
receive cash payments of at least $50 monthly or
quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the share-
holder is eligible to receive qualified distributions
and has an account value
of at least $5,000. The withdrawal plan will be carried
over on exchanges
between funds or Classes of a Portfolio. Any applicable
CDSC will not be waived
on amounts withdrawn by a shareholder that exceed 1.00%
per month of the value
of the shareholder's shares subject to the CDSC at the
time the withdrawal plan
commences. (With respect to withdrawal plans in effect
prior to November 7,
1994, any applicable CDSC will be waived on
amounts withdrawn that do not
exceed 2.00% per month of the value of the
shareholder's shares subject to the
CDSC.) For further information regarding the automatic
cash withdrawal plan,
shareholders should contact a Smith Barney
Financial Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to redeem involuntarily
any
shareholder's account
in a Portfolio if the aggregate net asset value of
the shares held in that
Portfolio account is less than $500. (If a shareholder
has more than one
account in any Portfolio, each account must satisfy
the minimum account size.)
The Fund, however, will not redeem shares based solely
on market reductions in
net asset value. Before the Fund exercises such
right, shareholders will
receive written notice and will be permitted 60 days
to bring accounts up to
the minimum to avoid involuntary liquidation.
PERFORMANCE
From time to time a Portfolio may include its
total
return, average annual
total return, yield and current dividend return
in advertisements and/or other
types of sales literature. These figures are
computed separately for Class A,
Class B, Class C and Class Y shares of each Portfolio.
These figures are based
on historical earnings and are not intended to
indicate future performance.
Total return is computed for a specified period of
time assuming deduction of
40
<PAGE>
Smith Barney Funds, Inc.
PERFORMANCE (CONTINUED)
the maximum sales charge, if any, from the initial
amount invested and rein-
vestment of all income dividends and capital
gain distributions on the rein-
vestment dates at prices calculated as stated in
this Prospectus, then divid-
ing the value of the investment at the end of the
period so calculated by the
initial amount invested and subtracting 100%. The
standard average annual
total return, as prescribed by the SEC is derived from
this total return,
which provides the ending redeemable value. Such
standard total return infor-
mation also may be accompanied with nonstandard total
return information for
differing periods computed in the same manner but
without annualizing the
total return or taking sales charges into account. The
yield of a Portfolio
Class refers to the net investment income earned
by investments in the class
over a thirty-day period. This net investment income is
then annualized, i.e.,
the amount of income earned by the investment during
that thirty-day period is
assumed to be earned each 30-day period for twelve
periods and is expressed as
a percentage of the investments. The yield
quotation is calculated according
to a formula prescribed by the SEC to facilitate
comparison with yields quoted
by other investment companies. The U.S.
Government Securities Portfolio calcu-
lates current dividend return for each Class by
annualizing the most recent
quarterly distribution from investment income,
including net equalization
credits or debits, and dividing by the net asset
value or the maximum public
offering price (including sales charge) on the last
day of the period for
which current dividend return is presented. Each of
the Monthly Payment Gov-
ernment Portfolio and the Income Return Account
Portfolio calculates current
dividend return for each Class by annualizing the
most recent monthly distri-
bution, including net equalization credits or debits,
and dividing by the net
asset value or the maximum public offering price
(including sales charge) on
the last day of the period for which current dividend
return is presented. The
current dividend return for each Class may vary from
time to time depending on
market conditions, the composition of its
investment portfolio and operating
expenses. These factors and possible differences in
the
methods used in calcu-
lating current dividend return should be considered
when comparing a Class'
current return to yields published for other
investment companies and other
investment vehicles. Each Portfolio may also
include comparative performance
information in advertising or marketing its shares.
Such performance informa-
tion may include data from Lipper Analytical
Services, Inc. and other finan-
cial publications. Each Portfolio will include
performance data for Class A,
Class B, Class C and Class Y shares in any
advertisement or information
including performance data of that Portfolio.
41
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision
of
the Fund rests with
the Fund's Board of Directors. The Directors approve
all significant agreements
between the Fund and the companies that furnish services
to the Fund, including
agreements with the Fund's distributor, investment
manager, custodian and
transfer agent. The day-to-day operations of the
Portfolios are delegated to
the Manager. The Statement of Additional
Information contains background infor-
mation regarding each Director and executive officer of
the Fund.
MANAGER
Smith Barney Mutual Funds Management, Inc. (the
"Manager") manages the day-
to-day operations of each Portfolio pursuant to a
management agreement entered
into by the Fund on behalf of each Portfolio under which
the Manager offers
each Portfolio advice and assistance with respect to
the acquisition, holding
or disposal of securities and recommendations with
respect to other aspects and
affairs of each Portfolio and furnishes each Portfolio
with bookkeeping,
accounting and administrative services, office space
and equipment, and the
services of the officers and employees of the Fund.
By written agreement the
research and other departments and staff of Smith
Barney will furnish the Man-
ager with information, advice and assistance and will
be available for consul-
tation on the Fund's Portfolios, thus Smith Barney may
also be considered an
investment adviser to the Fund. Smith Barney's services
are paid for by the
Manager on the basis of direct and indirect costs to
Smith Barney of performing
such services; there is no charge to the Fund for
such services.
For the Portfolios' last fiscal year the management
fee
was 0.44% of each of
the Portfolio's average net assets. Payment under
each Portfolio's management
agreement is made as promptly as possible after the last
day of each month and
is computed on the aggregate net assets of all
Portfolios during the month.
Total expenses for the U.S. Government
Securities Portfolio's average net
assets for the last fiscal year were: 0.76%, 1.21%,
1.21% and 0.61% for Class
A, Class B, Class C and Class Y shares, respectively.
Total expenses for the
Monthly Payment Government Portfolio's average net
assets for the last fiscal
year were: 0.87%, 1.20% and 1.32% for Class A, Class B
and Class C shares,
respectively. Total expenses for the Income Return
Account Portfolio's average
net assets for the last fiscal year were: 0.56%, 0.94%
and 0.69% for Class A,
Class C and Class Y shares, respectively.
42
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
The Manager was incorporated on March 12, 1968 under
the
laws of Delaware. As
of March 31, 1995 the Manager had aggregate assets
under management of approxi-
mately $54 billion. The Manager, Smith Barney and
Holdings are each located at
388 Greenwich Street, New York, New York 10013. The
term "Smith Barney" in the
title of the Fund has been adopted by permission of
Smith Barney and is subject
to the right of Smith Barney to elect that the Fund
stop using the term in any
form or combination of its name.
PORTFOLIO MANAGEMENT
Patrick Sheehan is a Managing Director of Smith Barney,
a
Vice President of
Smith Barney Funds, Inc. and Portfolio Manager of
U.S. Government Securities
Portfolio, Monthly Payment Government Portfolio and
Income Return Account Port-
folio. Mr. Sheehan manages the day to day operations of
each of these Portfo-
lios, including making all investment decisions. Mr.
Sheehan also manages Smith
Barney Funds, Inc.'s Short-Term U.S. Treasury
Securities
Portfolio. Prior to
January 1992, Mr. Sheehan was a Portfolio Manager at
Value Line Inc., Senior
Vice President of Seaman's Bank for Savings, Assistant
Vice President of Capi-
tal Markets of Federal Home Loan Board of New York and
Vice President and Trea-
surer of Poughkeepsie Savings Bank.
Management's discussion and analysis, and
additional
performance information
regarding each Portfolio during the fiscal year
ended December 31, 1994 is
included in the Annual Report dated December 31,
1994. A copy of the Annual
Report may be obtained upon request and without charge
from a Smith Barney
Financial Consultant or by writing or calling the Fund
at the address or phone
number listed on page one of this Prospectus.
DISTRIBUTOR
Smith Barney distributes shares of each Portfolio
as
principal underwriter
and as such conducts a continuous offering pursuant
to a "best efforts"
arrangement requiring Smith Barney to take and pay for
only such securities as
may be sold to the public. Pursuant to a plan
of distribution under Rule 12b-1
under the 1940 Act (the "Plan") adopted by each of the
U.S. Government Securi-
ties Portfolio and the Monthly Payment Government
Portfolio, Smith Barney is
paid a service fee with respect to Class A, Class B
and Class C shares of each
such Portfolio at the annual rate of 0.25% of the
average daily net assets
attributable to these Classes. Smith Barney is also
paid a distribution fee
with respect to Class B and Class C shares of each
such Portfolio at the annual
rate of 0.50% and 0.45%, respectively, of the average
daily net assets attrib-
utable to
43
<PAGE>
Smith Barney Funds, Inc.
DISTRIBUTOR (CONTINUED)
these Classes. Class B shares that automatically convert
to Class A shares
eight years after the date of original purchase will
no longer be subject to a
distribution fee. Pursuant to the Plan adopted by the
Income Return Account
Portfolio, Smith Barney is paid a service fee with
respect to such Portfolio's
Class C shares at the annual rate of 0.15% of the
average daily net assets
attributable that Class. Smith Barney is also
paid a distribution fee with
respect to Class C shares of the Income Return
Account Portfolio at the annual
rate of 0.20% of the average daily net assets
attributable to that Class.
The fees are used by Smith Barney to pay its
Financial
Consultants for ser-
vicing shareholder accounts and, in the case of Class B
and Class C shares, to
cover expenses primarily intended to result in the sale
of those shares. These
expenses include: advertising expenses; the cost of
printing and mailing pro-
spectuses to potential investors; payments to and
expenses of Smith Barney
Financial Consultants and other persons who provide
support services in con-
nection with the distribution of shares; interest
and/or carrying charges; and
indirect and overhead costs of Smith Barney associated
with the sale of Port-
folio shares, including lease, utility, communications
and sales promotion
expenses.
The payments to Smith Barney Financial Consultants
for
selling shares of a
Class include a commission or fee paid by the investor
or Smith Barney at the
time of sale and, with respect to the Class A, Class B
and Class C shares of
each of the U.S. Government Securities Portfolio and
the Monthly Payment Gov-
ernment Portfolio, and to the Class C shares of the
Income Return Account
Portfolio, a continuing fee for servicing
shareholder accounts for as long as
a shareholder remains a holder of that Class. Smith
Barney
Financial Consul-
tants may receive different levels of compensation
for selling different Clas-
ses of shares.
Actual distribution expenses for Class B and Class
C
shares of a Portfolio
for any given year may exceed the fees received pursuant
to the Plan and will
be carried forward and paid by a Portfolio in future
years so long as the Plan
is in effect. Interest is accrued monthly on
such carryforward amounts at a
rate comparable to that paid by Smith Barney for
bank borrowings.
ADDITIONAL INFORMATION
The Fund, an open-end, diversified investment company,
was incorporated in
Maryland on December 2, 1966. The Fund has an
authorized capital of
2,000,000,000 shares with a par value of $.01 per share.
The Board of Direc-
tors has authorized the issuance of fifteen
series of
shares, each represent-
ing
44
<PAGE>
Smith Barney Funds, Inc.
ADDITIONAL INFORMATION (CONTINUED)
shares in one of fifteen separate Portfolios
and may authorize the issuance of
additional series of shares in the future. The
assets of each Portfolio are
segregated and separately managed and a
shareholder's interest is in the
assets of the Portfolio in which he or she holds
shares. Class A, Class B,
Class C, Class Y and Class Z (where available)
shares of each Portfolio repre-
sent interests in the assets of that Portfolio and
have identical voting, div-
idend, liquidation and other rights on the same
terms and conditions except
that expenses related to the distribution of each
Class of shares are borne
solely by each Class and each Class of shares has
exclusive voting rights with
respect to provisions of the Fund's Rule 12b-1
distribution plan which pertain
to a particular Class. As described under "Voting"
in the Statement of Addi-
tional Information, the Fund ordinarily will not
hold shareholder meetings;
however, shareholders have the right to call a meeting
upon a vote of 10% of
the Fund's outstanding shares for the purpose of
voting to remove directors
and, as required by the 1940 Act, the Fund will
assist shareholders in calling
such a meeting. Shares do not have cumulative voting
rights or preemptive
rights and are fully paid, transferable and
nonassessable when issued for pay-
ment as described in this Prospectus.
PNC Bank, National Association, located at 17th
and
Chestnut Streets, Phila-
delphia, Pennsylvania 19103, serves as custodian of
each Portfolio's invest-
ments.
TSSG, located at Exchange Place, Boston,
Massachusetts
02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-annual report
and
an audited annual
report, which include listings of the investment
securities held by the Fund
at the end of the period covered. In an effort to reduce
the Fund's printing
and mailing costs, the Fund plans to consolidate the
mailing of its semi-
annual and annual reports by household. This
consolidation means that a house-
hold having multiple accounts with the identical address
of record will
receive a single copy of each report. In addition, the
Fund also plans to con-
solidate the mailing of its Prospectus so that a
shareholder having multiple
accounts (that is, individual, IRA and/or Self
Employed Retirement Plan
accounts) will receive a single Prospectus
annually. Shareholders who do not
want this consolidation to apply to their account
should contact their Smith
Barney Financial Consultant or the Fund's transfer
agent.
45
<PAGE>
Smith Barney Funds, Inc.
APPENDIX
GNMA Securities. Government National Mortgage
Association
("GNMA"), an agency
of the United States Government, guarantees the
timely payment of monthly
installments of principal and interest on modified
passthrough Certificates,
whether or not such amounts are collected by the issuer
of these Certificates
on the underlying mortgages. Scheduled payments of
principal and interest are
made each month to holders of GNMA Certificates (such as
the U.S. Government
Securities Portfolio and the Monthly Payment
Government Portfolio). Unscheduled
prepayments of mortgages are passed through to holders
of GNMA Certificates at
par with the regular monthly payments of principal
and interest, which have the
effect of reducing future payments on such Certificates.
The income portions of
monthly payments received by these Portfolios will
be included in their net
investment income. See "Dividends, Distributions and
Taxes."
GNMA Certificates have historically involved no
credit
risk; however, due to
fluctuations in interest rates, the market value of
such securities will vary
during the period of a shareholder's investment in the
U.S. Government Securi-
ties Portfolio and the Monthly Payment Government
Portfolio. Prepayments and
scheduled payments of principal will be reinvested by
each Portfolio in then
available GNMA Certificates which may bear interest
at a rate lower or higher
than the Certificate from which the payment was
received. As with other debt
securities, the price of GNMA Certificates is likely
to decrease in times of
rising interest rates; however, in periods of
falling interest rates the poten-
tial for prepayment may reduce the general upward
price increase of GNMA Cer-
tificates that might otherwise occur. If a Portfolio
buys GNMA Certificates at
a premium, mortgage foreclosures or prepayments may
result
in a loss to the
Portfolio of up to the amount of the premium paid since
only timely payment of
principal and interest is guaranteed.
Other U.S. Government Obligations. In addition to
GNMA
Securities and direct
obligations of the U.S. Treasury (such as Treasury
Bills, Notes and Bonds),
U.S. Government Obligations in which the Fund may
invest include: (1) obliga-
tions of, or issued by, Banks for Cooperatives, Federal
Land Banks, Federal
Intermediate Credit Banks, Federal Home Loan Banks,
the Federal Home Loan Bank
Board, or the Student Loan Marketing Association; (2)
other securities fully
guaranteed as to principal and interest by the United
States of America; (3)
other obligations of, or issued by, or fully guaranteed
as to principal and
interest by the Federal National Mortgage Association or
any agency of the
A-1
<PAGE>
Smith Barney Funds, Inc.
APPENDIX (CONTINUED)
United States; and (4) obligations currently or
previously sold by the Federal
Home Loan Mortgage Corporation.
Repurchase Agreements. A repurchase agreement arises
when
the Fund purchases
a security for a Portfolio and simultaneously agrees
to
resell it to the vendor
at an agreed-upon future date, normally the next
business day. The resale price
is greater than the purchase price, which reflects an
agreedupon rate of
return for the period the Portfolio holds the security
and which is not related
to the coupon rate on the purchased security. The
Fund requires continual main-
tenance of the market value of the collateral in amounts
at least equal to the
resale price, thus risk is limited to the ability of
the seller to pay the
agreed-upon amount on the delivery date; however, if
the seller defaults, real-
ization upon the collateral by the Fund may be delayed
or limited or the Port-
folio might incur a loss if the value of the
collateral securing the repurchase
agreement declines and might incur disposition costs
in connection with liqui-
dating the collateral. A Portfolio will only enter
into repurchase agreements
with broker/dealers or other financial institutions that
are
deemed credit-
worthy by the Manager under guidelines approved by the
Board of Directors. It
is the policy of the Fund not to invest in
repurchase agreements that do not
mature within seven days if any such investment
together with any other illiq-
uid assets held by the Portfolio amount to more than 15%
of that Portfolio's
total assets.
Delayed Delivery. A delayed delivery transaction
involves
the purchase of
securities at an agreed-upon price on a specified
future date. At the time the
Fund enters into a binding obligation to purchase
securities on a delayed
delivery basis the Portfolio has all the rights and
risks attendant to the own-
ership of the security and therefore must maintain with
the Custodian a segre-
gated account with assets of a dollar amount sufficient
to make payment for the
securities to be purchased. The value of the securities
on the delivery date
may be more or less than their purchase price.
Securities purchased on a
delayed delivery basis do not generally earn interest
until their scheduled
delivery date.
A-2
<PAGE>
[LOGO OF
SMITH BARNEY APPEARS HERE]
SMITH BARNEY
FUNDS, INC.
U.S. GOVERNMENT
SECURITIES PORTFOLIO
MONTHLY PAYMENT
GOVERNMENT PORTFOLIO
INCOME RETURN
ACCOUNT PORTFOLIO
388 Greenwich Street
New York, New York 10013
FD 2321 D5
Part B
April 28, 1995
SMITH BARNEY
FUNDS, INC. 388
Greenwich Street
New York, New York
10013
STATEMENT OF ADDITIONAL INFORMATION
Shares of Smith Barney Funds, Inc. (the "Fund") are
offered
currently with a choice of six Portfolios: the Income and
Growth Portfolio, the U.S. Government Securities Portfolio,
the Monthly Payment Government Portfolio,
the Income Return Account
Portfolio, the Utility Portfolio and the Short-Term U.S.
Treasury Securities Portfolio. (collectively referred to as
"Portfolios" and individually as "Portfolio").
This Statement of Additional Information is not a prospectus.
It is intended to provide more detailed information about
Smith Barney Funds, Inc. as well as matters already
discussed in the Prospectus of the applicable Portfolio and
therefore should be read in conjunction with such
Portfolio's Prospectus which may be obtained from the Fund
or a Smith Barney Financial Consultant.
TABLE OF CONTENTS
Directors and Officers 2
Investment Policies 4
Investment Restrictions 7
Additional Tax Information 11
IRA and Other Prototype Retirement Plans 12
Performance Information 13
Valuation of Shares 16
Purchase and Redemption of Shares 17
Investment Management Agreement
and Other Services 17
Custodian 20
Independent Auditors 20
Voting 20
Financial Statements 26
Appendix - Ratings of Debt Obligations 27
DIRECTORS AND OFFICERS
*JESSICA M. BIBLIOWICZ, Director and President
Executive Vice President of Smith Barney Inc. ("Smith
Barney"); Director of twelve investment companies
associated with Smith Barney, President
of forty investment companies
associated with Smith Barney. Prior to January 1994,
Director of Sales and Marketing for Prudential Mutual
Funds; Prior to September 1991, Assistant Portfolio Manager
for Shearson Lehman Brothers; 35.
RALPH D. CREASMAN, Director
Retired, 4 Moss Hammock Lane, The Landings, Skidaway
Island,
Savannah, Georgia 31411. Director of ten investment
companies associated with Smith Barney. Formerly Chairman,
President and Chief Executive Officer of Lionel D. Edie &
Co.,
Inc. (investment counselors), Chairman of Edie International
S.A. and President and Director of Edie Ready Assets
Trust, Fundamerica of Japan, Edie Special Growth Fund and
Edie Capital Fund; 73.
JOSEPH H. FLEISS, Director
Retired, 3849 Torrey Pines Blvd., Sarasota, Florida
34238. Director of ten investment companies associated
with Smith Barney. Formerly Senior Vice President
of Citibank, Manager of
Citibank's Bond Investment Portfolio and Money Management
Desk and a Director of Citicorp Securities Co., Inc; 77.
DONALD R. FOLEY, Director
Retired, 3668 Freshwater Drive, Jupiter, Florida 33477.
Director of ten investment companies associated with
Smith Barney. Formerly Vice President of Edwin Bird
Wilson, Incorporated (advertising); 72.
PAUL HARDIN, Director
Chancellor of the University of North Carolina at Chapel
Hill, University of North Carolina, 103 S. Building, Chapel
Hill, North Carolina 27599; Director of twelve
investment companies
associated with Smith Barney; and a Director of The
Summit Bancorporation; 63.
FRANCIS P. MARTIN, Director
Practicing physician, 2000 North Village Avenue,
Rockville
Centre, New York 11570. Director of ten investment
companies associated with Smith Barney. Formerly President
of the Nassau Physicians' Fund, Inc.; 70.
*HEATH B. McLENDON, Chairman of the Board and Chief
Executive Officer
Managing Director of Smith Barney ; Director of forty
one investment companies associated with Smith Barney;
President of Smith Barney Mutual Funds Management Inc.
(the "Manager"); Chairman of the Board of Smith Barney
Strategy Advisors Inc.; prior to July 1993, Senior
Executive Vice President of Shearson Lehman Brothers; Vice
Chairman of the Board of Asset Management; 61.
RODERICK C. RASMUSSEN, Director
Investment Counselor, 81 Mountain Road, Verona, New Jersey
07044. Director of ten investment companies associated
with Smith Barney. Formerly Vice President of
Dresdner and Company Inc.
(investment counselors); 68.
* Designates an "interested person" as defined in the
Investment Company Act of 1940 whose business address is
388 Greenwich Street, New York, New York 10013.
*BRUCE D. SARGENT, Director and Vice President
Managing Director of Smith Barney and Vice President
and Director of the Manager and of four investment
companies associated with Smith Barney; 51.
JOHN P. TOOLAN, Director
Retired, 13 Chadwell Place, Morristown, New Jersey
07960. Director of ten investment companies associated
with Smith Barney. Formerly, Director and
Chairman
of Smith Barney Trust
Company, Director of Smith Barney Holdings Inc. and the
Manager and Senior Executive Vice President, Director and
Member of the Executive Committee of Smith Barney; 64.
C. RICHARD YOUNGDAHL, Director
Retired, 339 River Drive, Tequesta, Florida 33469. Director
of ten investment companies associated with Smith Barney and
Member of the Board of Directors of D.W. Rich & Company,
Inc. Formerly Chairman of the Board of Pensions of the
Lutheran Church in America, Chairman of the Board and
Chief Executive Officer of Aubrey G. Lanston & Co.
(dealers in U.S. Government securities) and President of
the Association of Primary Dealers in U.S. Government
Securities; 79.
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Smith Barney, Senior Vice President
and Treasurer of forty-one investment companies associated
with Smith Barney, and Director and Senior Vice President the
Manager; 37.
*PATRICK SHEEHAN, Vice President
Managing Director of Smith Barney and Vice President of
two investment companies associated with Smith Barney.
Prior to
January 1992, Portfolio Manager of Value Line Inc., Senior
Vice President of Seaman's Bank for Savings, Assistant Vice
President of Capital Markets of Federal Home Loan Board of
New York and Vice President and Treasurer of Poughkeepsie
Savings Bank; 47.
*THOMAS M. REYNOLDS, Controller and Assistant Secretary
Director of Smith Barney and Controller and Assistant
Secretary of ten investment companies associated with Smith
Barney. Prior to September 1991, Assistant Treasurer of
Aquila Management Corporation and its associated investment
companies; 35.
*CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney and Secretary of certain
other investment companies associated with Smith Barney
and the
Manager; 44.
On April 11, 1995, directors and officers owned in the
aggregate less than 1% of the outstanding shares of each
Portfolio.
* Designates an "interested person" as defined in the
Investment Company Act of 1940 whose business address is
388 Greenwich Street, New York, New York 10013.
The following table shows the compensation paid by the Fund
to each incumbent director during the Fund's last fiscal
year. None of the oficers of the Fund received any
compensation from the Fund for such period. Officers and
interested directors of the Fund are compensated by Smith
Barney.
COMPENSATION
TABLE Total
Pension or Compensation Number of
Retirement from Fund Funds for
AggregateBenefits Accrued and Fund
Which
director
Compensation as part of Complex Serves Within
Name of Person from Fund Fund Expenses Paid to
Directors Fund Complex
Jessica M. Bibliowicz* $0 $0 $0 12
Ralph D. Creasman 10,254 0 51,500
10
Joseph H. Fleiss 10,254 0 50,900
10
Donal R. Foley 10,254 0 51,500 10
Paul Hardin 5,802 0 27,800** 12**
Heath B. McLendon* 0 0 0
41
Francis P. Martin 10,254 0 51,500
10
Roderick C. Rasmussen 10,254 0 51,500
10
Bruce D. Sargent* 0 0 0
3
John P. Toolan10,254 0 51,500 10
C. Richard Youngdahl 10,254 0 51,500
10
* Designates an "interested director".
** Reflects the compensation paid to Dr. Hardin and the
number of funds within the Fund Complex for which Dr. Hardin
serves as a director as of the date of this
Statement of Additional Information. For the fiscal year
ended December
31, 1994, Mr. Hardin served as a director of 25 funds
within the Fund Complex and was paid $96,400.
INVESTMENT POLICIES
The Articles of Incorporation of the Fund permit the Board
of Directors to establish additional Portfolios of the
Fund from time to time.
The
investment objectives, policies and
restrictions applicable to additional Portfolios would
be
established by the Board of Directors at the time such
Portfolios were established and may differ from those set
forth in the Prospectus and this Statement of Additional
Information.
The Fund effects portfolio transactions with a view
towards attaining the investment objectives of the Portfolios
and is not limited to a predetermined rate of portfolio
turnover. A high portfolio turnover results in
correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions and other
transaction costs that a Portfolio will bear directly, and
may result in the realization of net capital gains which
are taxable when distributed to shareholders. See "
Financial Highlights" in the Prospectus and "Investment
Management
Agreement and Other Services - Brokerage" in this Statement
of Additional Information.
Each Portfolio, other than the Short-Term U.S.
Treasury Securities Portfolio, may invest in investment grade
bonds, i.e. U.S. Government Obligations or bonds rated Aaa,
Aa, A and Baa by Moody's Investors Service, Inc. ("Moody's")
or AAA, AA, A and BBB by Standard & Poor's ("S&P").
Repurchase and Reverse Repurchase Agreements. Each Portfolio
may on occasion enter into repurchase agreements, wherein
the seller agrees to repurchase a security from the
Portfolio at an agreedupon future date, normally the next
business day. The resale price is greater than the
purchase price, which reflects the agreed-upon rate of
return for the period the Portfolio holds the security and
which is not related to the coupon rate on the purchased
security. The Fund requires continual maintenance of the
market value of the collateral in amounts at least equal to
the resale price, thus risk is limited to the ability of
the seller to pay the agreedupon amount on the delivery
date; however, if the seller defaults, realization upon the
collateral by the Portfolio may be delayed or limited or the
Portfolio might incur a loss if
the value of the collateral securing the repurchase
agreement declines and might incur disposition costs in
connection with liquidating the collateral. A Portfolio will
only enter into repurchase agreements with broker/dealers
or other financial institutions that are deemed creditworthy
by the Manager under guidelines approved by the Board of
Directors. It
is the policy of the Fund not to invest in repurchase
agreements that do not mature within seven days if any
such investment together with any other illiquid assets
held by a Portfolio amount to more than 15% of that
Portfolio's total assets.
The Fund has never entered into reverse repurchase
agreements even though it is permitted to do so on behalf
of the Income Return Account Portfolio, the U.S.
Government Securities
Portfolio, the Monthly Payment Government Portfolio, and
the Utility Portfolio. The Fund does not currently intend to
commit to such agreements more than 5% of the net assets of
any of these four Portfolios, although the fundamental
policies of the Income Return Account Portfolio and the
Utility Portfolio permit each Portfolio to invest up to
1/3 of its total assets in reverse repurchase agreements,
and this right is reserved. Each of these Portfolios may
enter into reverse repurchase agreements with
broker/dealers and other financial institutions. Such
agreements involve the sale of Portfolio securities with an
agreement to repurchase the
securities at an agreed-upon price, date and interest
payment and have the characteristics of borrowing. Since
the proceeds of borrowings under reverse repurchase
agreements are invested, this would introduce the
speculative factor known as "leverage." The securities
purchased with the funds obtained from the agreement and
securities collateralizing the agreement will have
maturity dates no later than the repayment date.
Generally the effect of such a transaction is
that the Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the
reverse repurchase agreement, while in many cases it will be
able to keep some of the interest income associated with
those securities. Such transactions are only advantageous
if the Portfolio has
an opportunity to earn a greater rate of interest on
the cash derived from the transaction than the interest cost
of obtaining that cash. Opportunities to realize earnings
from the use of the proceeds equal to or greater than the
interest required to be
paid may not always be available, and the Fund intends to use
the reverse repurchase technique only when the Manager
believes it
will be advantageous to the Portfolio. The use of
reverse repurchase agreements may exaggerate any interim
increase or
decrease in the value of the participating Portfolio's
assets. The Fund's custodian bank will maintain a separate
amount for the Portfolio with securities having a value equal
to or greater than such commitments.
Securities Lending. Each Portfolio, other than the
Income Return Account Portfolio and the Short-Term
U.S.
Treasury
Securities Portfolio, may seek to increase its net
investment income by lending its securities provided such
loans are callable at any time and are continuously
secured by cash or U.S. Government Obligations equal to
no less than
the market value, determined daily, of the securities
loaned. The Portfolio will receive amounts equal to
dividends or interest on the securities loaned. It
will also earn income for having made the loan because
cash collateral pursuant to these loans will be invested in
short-term money market instruments. In
connection with lending of securities the Fund may pay
reasonable finders, administrative and custodial fees.
Management will limit such lending to not more than one
third of the value of the total assets of each of the
U.S. Government Securities Portfolio, the Monthly Payment
Government Portfolio, and the Utility Portfolio, and the
investment restriction of the Income and Growth Portfolio
limits it to less than 20% of such Portfolio's net assets.
Where voting or consent rights with respect to loaned
securities pass to the borrower, management will follow the
policy of calling the loan, in whole or in part as may be
appropriate, to permit the exercise of such voting or
consent rights if the issues involved have a material
effect on the Portfolio's investment in the securities
loaned. Apart from lending its securities
and acquiring debt securities of a type customarily
purchased by
financial institutions, none of the foregoing Portfolios
will make loans to other persons. The risks in lending
portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional
collateral or in the recovery of the securities or
possible loss of rights in the
collateral should the borrower fail financially. Loans will
only be made to borrowers whom the Manager deems to be
of good standing and will not be made unless, in the
judgment of the Manager, the interest to be earned from
such loans would justify the risk.
Foreign Investments. The Income and Growth Portfolio,
and the Utility Portfolio each may invest its
assets
in the
securities of foreign issuers. Investments in foreign
securities involve certain risks not ordinarily associated
with investments in securities of domestic issuers. Such
risks include currency exchange control regulations and
costs, the possibility of expropriation, seizure, or
nationalization of foreign deposits, less
liquidity and volume and more volatility in foreign
securities markets and the impact of political, social,
economic or diplomatic developments or the adoption of
other foreign government restrictions that might adversely
affect the payment of principal and interest on securities
in a Portfolio. If it should become necessary, the
Fund might encounter greater difficulties in invoking legal
processes abroad than would be the case in the United
States. In addition, there may be less publicly
available information about a non-U.S. company, and nonU.S.
companies are not generally subject to uniform accounting
and financial reporting standards, practices and
requirements comparable to those applicable to U.S.
companies. Furthermore, some of these securities may be
subject to foreign brokerage and withholding taxes.
For many foreign securities, there are U.S.
dollardenominated American Depositary Receipts ("ADRs"),
which are traded in the United States on exchanges or over
the counter and are sponsored and issued by domestic banks.
ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent
bank. ADRs do not eliminate all the risk inherent in
investing in the
securities of foreign issuers. However, by investing in
ADRs rather than directly in foreign issuers' stock, the
Portfolio can avoid currency risks during the settlement
period for either purchases or sales. In general, there is
a large, liquid market in the United States for many ADRs.
The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting that those
to which many foreign issuers may be subject.
Restricted Securities. The Utility Portfolio may
invest in securities the disposition of which is subject
to legal or contractual restrictions. The sale of
restricted securities often requires more time and results
in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible
for trading on a national securities exchange that are
not subject to restrictions on
resale.
Restricted securities often sell at a price lower than
similar securities that are not subject to restrictions on
resale.
Additional Policies - Income and Growth Portfolio and
Utility Portfolio
Although the Income and Growth Portfolio and the
Utility Portfolio may, as described below, sell short
"against the box," buy or sell puts or calls and borrow
money, the Income and Growth Portfolio has not done so during
the last fiscal year and neither Portfolio has any
intention of doing so in the foreseeable future.
Although the Income and Growth Portfolio may lend money
or
assets, as described in investment restriction 18 on page 11,
the Portfolio has not engaged in this practice within the
last
year and does not currently intend to engage in loans other
than shortterm loans.
While the Income and Growth Portfolio is permitted to
invest in warrants (including 2% or less of the Portfolio's
total net assets in warrants that are not listed on the
New York Stock Exchange or American Stock Exchange), the
Portfolio has not purchased any warrants during its last
fiscal year and has no intention of doing so in the
foreseeable future. For purposes of computing the
foregoing percentage, warrants acquired by the Portfolio
in units or attached to securities will be deemed to be
without value.
In addition, although each of the Income and
Growth Portfolio and the Utility Portfolio may buy or sell
put and call options up to 15% of its net assets, provided
such options are listed on a national securities exchange,
neither Portfolio has done so in the last year, and neither
Portfolio currently intends to commit more than 5% of its
assets to be invested in or subject to put and call
options. A "call option" gives a holder the right
to purchase a specific stock at a specified price referred
to as the "exercise price," within a specific period of
time (usually 3, 6, or 9 months). A "put option" gives a
holder the right to
sell a specific stock at a specified price within a
specified time period. The initial purchaser of a call
option pays the "writer" a premium, which is paid at
the time of purchase and is retained by the writer whether
or not such option is exercised. Put and call options are
currently
traded on The Chicago Board Options Exchange and
several other national exchanges. Institutions, such as
the Fund, that sell (or "write") call options against
securities held in their investment portfolios retain the
premium. If the writer determines not to deliver the
stock prior to the option's being exercised, the writer
may purchase in the secondary market an identical option for
the same stock with the same price and expiration date in
fulfillment of the obligation. In the event the option
is exercised the writer must deliver the underlying stock to
fulfill the option obligation. The brokerage commissions
associated with the
buying and selling of call options are
normally
proportionately higher than those associated with
general securities transactions.
In selecting investments, the Utility Portfolio will use
the following criteria: the company must have a good
earnings record; the company must have experienced
management; the
security must have competitive yields; and the utility must
have a favorable regulatory climate and be located within a
growing service area.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions
and fundamental policies that cannot be changed without
approval by a "vote of a majority of the outstanding voting
securities" of each Portfolio affected by the change as
defined in the Investment Company Act of 1940 (the "Act")
and Rule 18f-2 thereunder (see "Voting").
Without the approval of a majority of its outstanding
voting securities the Income and Growth Portfolio may not:
1. Invest more than 5% of the value of its total
assets
in any one issuer (except securities of the U.S. Government
and its
instrumentalities); 2. Invest more than 25% of the value of
its total assets in any one industry; 3. Invest more than 5%
of its total assets in issuers with less than three years
of continuous operation (including that of
predecessors)
or so-called
"unseasoned" equity securities that are not either admitted
for trading on a national stock exchange or regularly quoted
in the over-the-counter market; 4. Purchase more than 10%
of any class of outstanding securities, or any class of
voting
securities, of any one issuer; 5.
Purchase any securities on margin; 6. Make
short sales of securities or maintain a short position unless
at all times when a short position is open, the Portfolio
owns or has the right to obtain, at no added cost,
securities identical to those sold short; 7. Borrow
money, except as a temporary measure for extraordinary or
emergency purposes, and then not in excess of the lesser of
10% of its total assets taken at cost or 5% of the value of
its total assets; 8. Mortgage or pledge any of its assets;
9. Act as a securities underwriter or invest in real
estate or commodities (the purchase by the Portfolio of
securities for which there is an established market of
companies engaged in real estate activities or investments
shall not be deemed to be prohibited by this
fundamental investment
limitation); 10. Invest in securities of another
investment company except as permitted by Section 12(d)(1) of
the Investment Company Act of 1940 or as part of a merger,
consolidation, or acquisition; 11. Invest in or hold
securities of an issuer if those officers and directors of
the Fund, its Adviser, or Smith Barney owning beneficially
more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such
issuer; 12. Invest in "restricted securities", that is,
securities which at the time of purchase by the Portfolio
would have to be registered under the Securities Act of
1933 before they could be sold; 13. Invest in any company
for the purpose of exercising control of management; 14.
Have more than 15% of its net assets at any time invested in
or subject to puts, calls or combinations thereof and may
not purchase or sell options that are not listed on a
national securities exchange; 15. Invest in interests in
oil or gas or other mineral exploration or
development programs; 16. Participate on a joint or joint
and several basis in any securities trading account; 17.
Purchase or
sell any securities other than shares of the Fund from or to
the Adviser or any officer or director of the Adviser or
the Fund; and 18. Lend money or assets, except that the
Portfolio may purchase a portion of issues of publicly
distributed bonds, debentures or notes and may invest in
certificates of deposit or commercial paper, and may
lend a portion of its portfolio securities to broker-
dealers and financial institutions, provided that any such
loan must be secured at all times by cash or U.S. Government
Obligations equal at all times to at least 100% of the market
value of the portfolio securities loaned. The Portfolio
will not make a portfolio securities loan if
immediately thereafter as a result thereof, portfolio
securities with a market value of 20% or more of the
Portfolio's total net assets would be subject to such loans.
Without the approval of a majority of its outstanding
voting securities the U.S. Government Securities
Portfolio and the Monthly Payment Government Portfolio each
may not:
1. Purchase any securities other than obligations
issued
or guaranteed by the U.S.
Government or its agencies or
instrumentalities, some of which may be subject to
repurchase agreements. There is no limit on the amount of
its assets which may be invested in the securities of any
one issuer of such obligations; 2. Purchase securities on
margin, sell securities short (provided however each
Portfolio may sell short if it maintains a segregated
account of cash or U.S. Government
Obligations with the Custodian, so that the amount deposited
in it plus the collateral deposited with the broker
equals the current market value of the securities sold short
and is not less than the market value of the securities at
the time they were sold short) or purchase mortgage-
related securities issued or guaranteed
by the U.S. Government or its agencies or
instrumentalities); 3. Borrow money, except from banks
for temporary purposes and then in amounts not in excess of
5% of the value of each Portfolio's assets at the time of
such borrowing; or
mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in
excess of 7 1/2% of the value of the Fund's assets at the
time of such borrowing.
(This borrowing provisions is not for investment
leverage, but solely to facilitate management of each
Portfolio by enabling each Portfolio to meet redemption
requests where the liquidation of portfolio securities
is deemed to be disadvantageous or inconvenient.)
Borrowings may take the form of a sale of portfolio
securities accompanied by a simultaneous agreement as to
their repurchase; 4. Make loans, except through the
purchase of debt obligations (described in restriction 1
above), repurchase agreements and loans of each
Portfolio's securities; and 5. Act as an underwriter of
securities except to the extent the Fund may be deemed to
be an
underwriter in connection with the sale of portfolio
holdings.
Without the approval of a majority of its outstanding
voting securities the Income Return Account Portfolio may
not:
1. Purchase common stocks, preferred stocks,
warrants,
other equity securities or municipal obligations; 2.
Borrow
money except from banks for temporary purposes in an amount
up to 10% of the value of its total assets and may pledge its
assets in an amount up to 10% of the value of its total
assets only to secure such borrowings. The Portfolio will
borrow money only to accommodate requests for the redemption
of shares while effecting an orderly liquidation of
portfolio securities or to clear securities transactions
and not for leveraging purposes. This
restriction shall not be deemed to prohibit the Portfolio
from entering into reverse repurchase agreements so long as
not more than 33 1/3% of the Portfolio's total assets are
subject to such agreements; 3. With respect to 75% of its
assets, invest more than 5% of its assets in the securities
of any one issuer, except securities issued or guaranteed as
to principal and interest by the U.S. Government, its
agencies or instrumentalities; 4. Purchase securities on
margin or sell securities short; 5. Write or purchase put or
call options; 6. Underwrite the securities of other issuers
or knowingly purchase securities subject to
restrictions on disposition under the Securities Act of
1933 (i.e. "restricted securities"); 7. Purchase or sell
commodities or
commodity futures contracts, oil and gas interests or real
estate (however, the Portfolio may purchase mortgage
related securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities); 8. Make
loans to others (except through the purchase of debt
obligations as described in the Fund's then current
Prospectus), except that the Fund may purchase and
simultaneously resell for later delivery, obligations
issued or guaranteed as to principal and interest by the
U.S. Government or its agencies or instrumentalities;
provided, however, that the Portfolio will not enter into
such a repurchase agreement if, as a result thereof, more
than 10% of its total assets (taken at current value) at
that time would be subject to repurchase agreements
maturing in more than seven days; 9.Invest in companies
for the purpose of exercising
control;
10. Invest in securities of other investment companies,
except as they may be acquired as part of a merger,
consolidation or
acquisition of assets; 11. Purchase any securities, other
than obligations of the U.S. Government, its agencies
or its
instrumentalities, if immediately after such purchase more
than 25% of the Portfolio's total assets would be invested
in the securities of issuers in the same industry; and 12.
Issue senior securities as defined in the Act except insofar
as the Fund may be deemed to have issued a senior
security by reason of (a) entering into any repurchase
agreement or reverse repurchase agreement; or (b) permitted
borrowings of
money.
Without the approval of a majority of its outstanding
voting securities, the Utility Portfolio may not:
1. With respect to 75% of its total assets, invest
more
than 5% of its total assets in the securities of any
single issuer (except securities of the U.S. Government and
its agencies and instrumentalities); 2. Invest more than
25% of its total assets in a particular industry, except
that the Portfolio will invest more than 25% of its total
assets in the securities of utility companies; 3.
Purchase more than 10% of the outstanding voting securities
of an issuer; 4. Purchase any securities on margin; 5.
Make short sales of securities or maintain a short position
unless at all times when a short position is open, the
Portfolio owns or has the right to obtain, at no added
cost, securities identical to those sold short; 6. Purchase
or sell real estate or interests therein, although the
Portfolio may purchase securities of issuers which engage
in real estate operations and securities secured by real
estate or interests therein;
7. Invest in securities of another investment company
except by purchase in the open market involving only
customary brokerage commissions or as part of a merger,
consolidation, or acquisition;
8. Purchase or sell puts, calls, straddles, spreads
or combinations thereof except as described in this
Statement of Additional Information and may not purchase or
sell options that are not listed on a national securities
exchange; 9. Purchase oil, gas or other mineral leases,
rights or royalty contracts or exploration or development
programs, except that the Portfolio may invest in the
securities of companies which operate, invest in, or
sponsor such programs; 10. Borrow money (including
borrowings through entering into reverse repurchase
agreements) in excess of 33 1/3% of its total assets
(including the amount of money borrowed but excluding any
liabilities and indebtedness not constituting senior
securities), or letters of credit solely for purposes
of participating in a captive insurance company
sponsored by the Investment Company Institute to provide
fidelity and directors and officers liability insurance, or
pledge its assets other than to secure such borrowings or in
connection with short sales, when-issued and delayed
delivery transactions and similar investment strategies.
Whenever borrowings exceed 5% of the value of the
Portfolio's total assets, the Portfolio will not make any
additional investments; and 11. Make loans, except the
Portfolio
may purchase debt obligations, may enter
into
repurchase agreements and may lend securities.
In order to comply with certain state statutes and
policies, the Utility Portfolio also will not, as a matter
of operating policy:
1. Purchase puts, calls, straddles, spreads, and
any
repurchase thereof if by reason thereof the value of
its aggregate investment in such classes of securities will
exceed 5% of its total assets; 2. Make illiquid
investments, i.e., purchase securities which cannot be
readily resold to the public because of legal or
contractual restrictions on resale or for which no readily
available market exits or engage in a repurchase agreement
maturing in more than seven days if, as a result
thereof, more than 10% of the value of the total assets of
the Portfolio could be invested in such securities; 3.
Purchase any security if as a result the Portfolio would
then have more than 5% of its total assets (taken at
current value) invested in
securities of companies (including predecessors) that have
been in operation for less that three years or in equity
securities for which market quotations are not readily
available; 4.
Purchase or sell commodities or commodity futures contracts
or
options thereon, or interests in commodity pools; 6. Purchase
or
retain the securities of any issuer if the officers and
directors of the Fund or its investment adviser owning
beneficially more than 1/2 of 1% of the issuer's
securities together own
beneficially more than 5% of the issuer's securities; and
7.
Purchase warrants if as a result the Portfolio would then
have more than 5% of its net assets (determined at the
time of
investment) invested in warrants. Warrants will be valued at
the lower of cost or market and investment in warrants which
are not listed on the New York Stock Exchange or the
American Stock Exchange will be limited to 2% of the
Portfolio's net assets (determined at the time of
investment). For the purpose of this limitation, warrants
acquired in units or attached to securities are deemed to be
without value.
Without the approval of a majority of its outstanding
voting securities, the Short-Term U.S. Treasury Securities
Portfolio may not:
1. Invest more than 5% of the value of its total
assets in the securities of any one issuer (other than
obligations issued or guaranteed by the United States
Government, its agencies or
instrumentalities); 2. Purchase common stocks, preferred
stocks, warrants, other equity securities, corporate
bonds, municipal bonds or industrial revenue bonds; 3.
Borrow money except from banks for temporary purposes in an
amount up to 10% of the value of its total assets. The
Portfolio will borrow money only
to
accommodate requests for the redemption of shares while
effecting an orderly liquidation of portfolio securities
or to clear securities transactions and may not for
leveraging purposes. Whenever borrowings exceed 5% of the
value of the Portfolio's total assets, the Portfolio
will not make any additional investments. This
restriction will not be deemed to prohibit the Fund from
obtaining letters of credit solely for purpose
of participating in a captive insurance company sponsored
by the Investment Company Institute to provide fidelity and
directors and officers liability insurance; 4. Pledge,
hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 10% of the value of its total
assets, but only to secure borrowings for temporary
purposes; 5. Sell securities short
or
purchase securities on margin; 6. Write or purchase put or
call options; 7. Underwrite the securities of other
issuers or
purchase restricted securities; 8. Purchase or sell real
estate, real estate investment trust securities, commodities
or commodity contracts or oil and gas interests; 9. Make
loans
to others except through the purchase of qualified debt
obligations in
accordance with the Portfolio's investment objective
and
policies; 10. Issue senior securities as defined in the
Act except insofar as the Portfolio may be deemed to have
issued a senior security by reason of: (a) borrowing money
in accordance with restrictions described above or (b) by
purchasing securities on a when-issued or delayed delivery
basis or purchasing or
selling securities on a forward commitment basis; and 11.
Invest in securities of other investment companies, except
as they may be acquired as part of a merger,
consolidation, acquisition of
assets or plan of reorganization.
The foregoing percentage restrictions apply at the time
an investment is made; a subsequent increase or
decrease in
percentage may result from changes in values or net assets.
ADDITIONAL TAX INFORMATION
The following summary addresses the principal United
States income tax considerations regarding the purchase,
ownership and disposition of shares in a Portfolio of the
Fund.
General.
Each Portfolio within the Fund is generally treated
as a separate corporation for federal income tax purposes,
and thus the provisions of the Internal Revenue Code of
1986, as amended (the "Code") generally will be applied
to each Portfolio separately, rather than to the Fund as a
whole. For tax purposes therefor, net long-term and short-
term capital gains, net income and operating expenses will
be determined separately for each Portfolio.
Each Portfolio within the Fund intends to qualify and
elect to be treated for each taxable year as a "regulated
investment company" under Sections 851-855 of the Code. To
so qualify, each Portfolio must, among other things, (i)
derive at least 90% of its gross income in each taxable
year from dividends, interest, proceeds from loans of stock
and securities, gains from the sale or other disposition of
stock, securities or foreign currency, of certain other
income (including but not limited to gains from options,
futures and forward contracts) derived from its business of
investing stock, securities or currency; (ii) derive less
than 30% of its gross income in each taxable year from the
sale or other disposition of any of the following which was
held for less than three months: (a) stocks or securities,
(b) options, futures or forward contracts (other than
options, futures or forward contracts on foreign
currency), but only if such currency (or options futures of
forward contracts) is not directly related to each
Portfolio's principal business of investing in stock or
securities (or options or futures with respect to stock
or securities); and (iii) diversify its holding so that , at
the end of each quarter of its taxable
years, the following two conditions are met: (a) at least
50% of the market value of the Portfolio's total assets is
represented by cash, U.S. Government securities, securities
of other regulated investment companies and other
securities, with such other
securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Portfolio's assets and
not more than 10% of the outstanding voting securities of
such issuer; and (b) not more than 25% of the value of the
Portfolio's assets is invested in securities of any one
issuer (other than U.S. Government securities or
securities of other regulated investment companies).
The diversification requirements described above may
limit a
Portfolio's ability to engage in hedging transactions by
writing or buying options or by entering into futures
or forward contracts.
At December 31, 1994 the unused capital loss carryovers
of the Fund by Portfolio were approximately as follows:
U.S. Government Securities Portfolio, $31,251,158; Monthly
Payment Government Portfolio, $2,102,900; Income
Return Account Portfolio, $1,816,221; and Short-Term U.S.
Treasury Portfolio, $3,929,597. For federal income tax
purposes, these amounts are available to be applied against
future securities gains, if any, realized. The carryovers
expire as follows:
December 31,
(in thousands)
1995 1996 1997
2002
U.S. Government Securities Portfolio $27,365$ 392$898 $2,596
Monthly Payment Government Portfolio 1,673 --- --- 430
Income Return Account Portfolio --- 1,032 237 547
Short-Term U.S. Treasury --- --- --- 3,930
Distributions
If the net asset value of shares of a Portfolio is
reduced below a shareholder's costs as a result of a
distribution by the Portfolio, such distribution will be
taxable even though it represents a return of invested
capital.
Redemption of Shares.
Any gain or loss realized on the redemption or exchange
of Portfolio shares by a shareholder who is not a
dealer in securities will be treated as long-term capital
loan or loss if the shares have been
held for more than one year, and otherwise
as short-term capital gain or loss.
However, any loss realized by a shareholder upon
the redemption or exchange of Portfolio shares held six
months or less will be treated as a long-term capital loss
to the extent of any long-term
capital gain distributors received by the
shareholder with respect to such shares. Additionally, any
loss realized on a redemption or exchange of Portfolio
shares will be disallowed
to the extent the shares disposed of
are replaced within a period of 61 days beginning 30 days
before and ending 30 days after such disposition, such as
pursuant to reinvestment of dividends in Portfolio shares.
IRA AND OTHER PROTOTYPE RETIREMENT PLANS
Copies of the following plans with custody or trust
agreements have been approved by the Internal Revenue
Service and are available from the Fund or Smith Barney;
investors should consult with their own tax or retirement
planning advisors prior to the establishment of a plan.
IRA, Rollover IRA and Simplified Employee Pension - IRA
The Tax Reform Act of 1986 (the "Tax Reform Act") changed
the eligibility requirements for
participants in Individual
Retirement Accounts ("IRAs"). Under the Tax Reform Act's
new provisions, if you or your spouse has earned income and
neither your nor your spouse is an active participant in
any employersponsored retirement plan, each of you may
establish an IRA and make maximum annual contributions
equal to the lesser of earned income or $2,000. If your
spouse is not employed, you may contribute and deduct on
your joint venture a total of $2,250 between two IRA's.
If you or you spouse is an active participant in an
employersponsored retirement plan, a deduction for
contributions to an IRA might still be
allowed in full or in part, depending on your
combined adjusted gross income. For married couples
filing jointly, a full deduction of contributions to an
IRA will be
allowed where the couples' adjusted gross income is below
$40,001 ($25,001 for an unmarried individual); a partial
deduction will be allowed when adjusted gross income is
between $40,001 $50,000 ($25,001 - $35,000 for an unmarried
individual); and no deduction when adjusted income is
$50,000 ($35,000 for an unmarried individual).
Shareholders should consult their tax advisors concerning
the effects of the Tax Reform Act on the deductibility of
their IRA contributions.
A Rollover IRA is available to defer taxes on lump
sum payments and other qualifying rollover amounts (no
maximum) received from another retirement plan.
An employer who has established a Simplified Employee
Pension - IRA ("SEP-IRA") on behalf of eligible employees
may make a
maximum annual contribution to each participant's account of
15% (up to $22,500) of each participant's compensation.
In addition, certain small employers (those who have 25
or fewer employees) can establish a Simplified Employees
Pension Plan - Salary Reduction Plan ("SEP - Salary
Reduction Plan") under which employees can make elective pre
tax contributions of up to $9,240 of gross income.
Consult your tax advisor for special rules regarding
establishing either type of SEP.
An ERISA disclosure statement providing additional details
is included with each IRA application sent to participants.
Paired Defined Contribution Prototype
Corporations (including Subchapter S corporations) and
noncorporate entities may purchase shares of the Fund
through
the Smith Barney Prototype Paired Defined Contribution
Plan. The
prototype permits adoption of profit-sharing provisions,
money purchase pension provisions, or both, to provide
benefits for eligible employees and their
beneficiaries. The prototype provides for a maximum
annual tax deductible contribution on behalf of each
Participant of up to 25% of compensation, but not to exceed
$30,000 (provided that a money purchase pension plan or both
a profit-sharing plan and a money purchase pension plan are
adopted thereunder).
PERFORMANCE INFORMATION
From time to time the Fund may advertise a Portfolio's
total return, average annual total return and yield in
advertisements. In addition, in other types of sales
literature the Fund may also advertise a Portfolio's current
dividend return. These figures are based on historical
earnings and are not intended to indicate future performance.
The total return shows what an investment in the Portfolio
would have earned over a specified period of time (one,
five or ten years) assuming the payment of the maximum
sales load when the investment was first made, that
all distributions and dividends by the Portfolio were
reinvested on the reinvestment dates during the period less
the maximum sales load charged upon reinvestment and less all
recurring fees. The
average annual total return is derived from this total
return, which provides the ending redeemable value. The
Fund may also quote a Portfolio's total return for present
shareholders that eliminates the sales charge on the initial
investment.
Each Portfolio's average annual total return with respect
to its Class A Shares for the one-year period, five-year
period, if
any, and for the life of the Portfolio (except for the
Income & Growth Portfolio and U.S. Government Securities
Portfolio which displays performance data for ten years)
ended December 31, 1994 is as follows:
One Year Five Years Life Inception Date
Income & Growth(9.10)%5.38%11.10%* 2/26/72
Income Return0.05 6.16 7.15
3/4/85
U.S. Government(5.89) 6.46 8.99*
10/9/84
Monthly Payment(5.83) 6.38 7.57
4/16/86
Utility (13.14) N/A 4.90
12/28/90
Short-Term U.S.(2.15) N/A 3.98
11/11/91
* Representative of ten years, not life of the Income &
Growth Portfolio and U.S. Government Securities Portfolio.
Each Portfolio's average annual total return with respect to
its Class B Shares (where applicable) for the life
of
such Portfolio's Class B shares through December 31,
1994 is as follows:
Portfolio Life Inception Date
Income & Growth (6.22)%
11/7/94
Utility (3.18) 11/7/94
U.S. Gov't (2.46) 11/7/94
Monthly Payment (2.86) 11/10/94
Each Portfolio's average annual total return with respect to
its Class C Shares (where applicable) for the one-year
period and life of such Portfolio's Class C shares through
December 31, 1994 is as follows:
Portfolio One Year Life Inception Date
Income & Growth (5.86)% 4.88% 12/2/92
Utility (10.10) 0.77 12/2/92
Income Return 0.86 2.79 12/16/92
U.S. Government (3.09) 2.19
12/2/92
Monthly Payment (3.05) 2.26
12/2/92
Each Portfolio's average annual total return with respect to
its Class Y Shares (where applicable) for the life
of
such Portfolio's Class Y shares through December 31,
1994 is as follows:
Portfolio Life Inception Date
Income Return 2.63% 2/1/93
U.S. Government 1.98 1/12/93
Each Portfolio's average annual total return with respect to
its Class Z Shares (where applicable) for the life
of such Portfolio's Class Z shares through December 31,
1994 is as follows:
Portfolio Life Inception Date
Income Return 0.38% 11/7/94 U.S. Government
2.15 11/7/94 Income & Growth (0.73) 11/7/94
Note that effective October 3, 1994 Class C shares
were reclassified as additional Class A shares with respect
to the Income and Growth Portfolio, the Utility
Portfolio and the Capital Appreciation Portfolio and that
effective November 7, 1994 Class C shares were redesignated
Class Y shares with respect to the U.S. Government
Securities Portfolio, the Monthly Payment Government
Portfolio and the Income Return Account Portfolio. Note
further that effective November 7, 1994 then existing Class B
shares of each Portfolio were designated as Class C
shares. Each Portfolio (except the Short-Term U.S. Treasury
Securities Portfolio) began to offer new Class B shares on
November 7, 1994.
Each Portfolio's yield is computed by dividing the
net investment income per share earned during a specified
thirty day period by the maximum offering price per share on
the last day of such period and annualyzing the result.
For purposes of the yield calculation, interest income is
determined based on a yield to maturity percentage for each
long-term debt obligation in the Portfolio; income on short
term obligations is based on current payment rate.
The Fund calculates current dividend return for the
U.S. Government Securities Portfolio by analyzing the
most recent quarterly distribution from investment income,
including net equalization credits or debits, and dividing
by the net asset value or the maximum public offering
price (including sales charge) on the last day of the
period for which current dividend return is presented. The
Fund calculates current dividend return for the Income and
Growth Portfolio and the Utility Portfolio by dividing the
dividends from investment income declared during the most
recent twelve months by the net asset value or the maximum
public offering price (including sales charge) on the last
day of the period for which current dividend return is
presented. The Fund calculates current dividend
return for the Capital
Appreciation Portfolio by dividing the distribution
from investment income declared during the most recent
six-month period by the net asset value or the maximum
public offering price (including sales charge) on the last
day of the period for which current dividend return is
presented. The Fund calculates current dividend return
for the Monthly Payment Government Portfolio, the Income
Return Account Portfolio and the Short-Term U.S. Treasury
Securities Portfolio by analyzing the most recent monthly
distribution,
including net equalization credits and debits, and
dividing by the net asset value or the maximum public
offering price (including sales charge) on the last day of
the
period for which current dividend return is presented. From
time to time, the Fund may include a Portfolio's
current dividend
return in information furnished to present or
prospective shareholders and in advertisements.
A Portfolio's current dividend return may vary from time
to
time depending on market conditions, the composition of
its
investment portfolio and operating expenses. These factors
and possible differences in the methods used in calculating
current dividend return should be considered when
comparing the Portfolio's current dividend return to yields
published for other investment companies in other
investment vehicles. Current dividends return should also
be considered relative to changes in the
value of the Portfolio's shares and to the risks associated
with the Portfolio's investment objective and policies.
For
example, in comparing current dividend returns with those
offered by Certificates of Deposit ("CDs"), it should be
noted that CDs
are insured (up to $100,000) and offer a fixed rate of
return.
Returns of the Income Return Account Portfolio and the Short
Term U.S. Treasury Securities Portfolio may from time
to
time be
compared with returns of money market funds measured
by Donoghue's Money Fund Report, a widely-distributed
publication on money market funds.
Performance information may be useful in evaluating a
Portfolio and for providing a basis for comparison
with other financial
alternatives. Since the performance of each Portfolio
changes in response to fluctuations in market conditions,
interest rates and Portfolio expenses, no performance
quotation should be considered a representation as to the
Portfolio's performance for any future
period.
Smith Barney Funds - Income and Growth Portfolio
Historic Highs
(Ten $1,000 annual investments at the highest offering
price.)
Date of the Year's High Price
For the Income and
Growth Portfolio Maximum Offering
Shares (1985-1994)
Price
Purchased
12/20/85 $10.93 91.491
9/14/86 12.67
78.927
8/14/87 14.12
70.822
10/21/88 12.03
83.126
9/1/89 14.14
70.721
1/12/90 12.83
77.942
11/13/91 13.26
75.415
8/4/92 13.64
73.314
12/13/93 14.80
67.568
1/31/94 14.39
69.493
VALUATION OF SHARES
The net asset value of each Portfolio's Classes of shares
will be determined on any day that the New York Stock
Exchange is
open. The New York Stock Exchange is closed on the
following
holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day,
Thanksgiving
Day and Christmas
Day.
PURCHASE AND REDEMPTION OF SHARES
The Fund has committed itself to pay in cash all requests
for
redemption by any shareholder of record limited in amount
during any 90-day period to the lesser of $250,000 or 1%
of the net asset value of the Fund at the
beginning of such
period. Such commitment is irrevocable without the
prior approval of the Securities and Exchange Commission.
Redemptions in excess of the above limit may be paid in
portfolio securities, in cash or any combination or both,
as the Board of Directors may deem advisable;
however, payments shall be made wholly in cash unless the
Board of Directors believes that economic conditions exist
that would make such a practice detrimental to the best
interests of the Fund and its remaining shareholders. If a
redemption is paid in portfolio securities, such securities
will be valued in accordance with the procedures
described under "Valuation of Shares" in the Prospectus and
a shareholder would incur brokerage expenses if these
securities were then converted to cash.
INVESTMENT MANAGEMENT AGREEMENT AND OTHER SERVICES
Manager
For the year 1992, 1993 and 1994 the management fees for
each Portfolio were as follows:
Portfolio 1992 1993 1994
U.S. Gov't$$1,892,949$2,178,838$1,987,629 Income
Return189,754 257,413 208,151 Monthly
Payment188,472235,187 226,622 Utility 689,892 799,734
557,472
Inc. and Growth 3,381,0083,654,3784,079,437 Short-Term
Treas. 557,833808,698735,555
Pursuant to the Management Agreement, the management
fee for each of the Income and Growth Portfolio and the
Utility Portfolio is calculated at a rate in
accordance with the following schedule:
0.60%
of the first $500 million of average daily net
assets; 0.55% of the next $500 million; and 0.50% of
average daily net assets over $1 billion. The management
fee for the U.S. Government Securities Portfolio, the
Monthly Payment Government Portfolio and the Income Return
Account Portfolio is calculated at a rate in accordance
with the following schedule: 0.50% of the first $200
million of aggregate average daily net assets of the
three Portfolios, and 0.40% of the aggregate average
daily net assets of the three Portfolios in excess of $200
million. The management fee for the Short-Term U.S.
Treasury Securities Portfolio is calculated at the annual
rate of 0.45% of such Portfolios average daily net assets.
The Management Agreement for each of the Fund's
Portfolios further provides that all other expenses not
specifically assumed by the Manager under the Management
Agreement on behalf of the Portfolio are borne by the Fund.
Expenses payable by the Fund include, but are not
limited to, all charges of custodians (including sums as
custodian and sums for keeping books and for rendering
other services to the Fund) and shareholder servicing
agents, expenses of preparing, printing and distributing
all prospectuses, proxy material, reports
and notices
to
shareholders, all expenses of shareholders' and
directors' meetings. filing fees and expenses relating to
the registration and qualification of the Fund's shares and
the Fund under Federal or state securities laws and
maintaining such registrations and qualifications (including
the printing of the Fund's registration statements), fees
of auditors and legal counsel, costs of performing
portfolio valuations, out-of-pocket expenses
of
directors and fees of directors who are not "interested
persons" as defined in the Act, interest, taxes and
governmental fees, fees and commissions of every kind,
expenses of issue, repurchase or
redemption of shares, insurance expense, association
membership dues, all other costs incident to the Fund's
existence and extraordinary expenses such as litigation and
indemnification expenses. Direct expenses are charged to
each Portfolio; general corporate expenses are allocated on
the basis of relative net assets.
Plan of Distribution
Pursuant to a Plan of Distribution adopted by the Fund
on behalf of each Portfolio under Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), Smith
Barney incurs the expenses of distributing each Portfolio's
Class A, Class B, Class C and Class Y shares. See
"Distributor" in each Portfolio's applicable Prospectus.
For the year ended December 31, 1994, the table
below represents the fees which have been accrued and/or paid
to Smith Barney under the Plans of Distribution pursuant
to Rule 12b-1 for the Fund's Portfolios. The distribution
expenses for 1994 included compensation of Financial
Consultants and printing costs of prospectuses and marketing
materials.
Portfolio Class A Class B Class C Class Y Total
U.S. Gov't $232,042 $1,230$159,261 $18,269
$410,802
Income Return N/A N/A 12,920 7,682 20,602
Monthly Payment N/A 0 23,791 N/A 50,511
Utility 211,655 340 82,164 N/A 294,159
Inc. and Growth1,779,433 257 282,942 N/A
2,062,633
Short-Term Treas.572,083 N/A N/A 0 572,083
During the fiscal years 1992 and 1993 aggregate
sales commissions of $8,668,237 and $8,756,000 respectively,
were paid to Smith Barney by the purchasers of Fund
shares. For the
fiscal year 1994, aggregate sales commissions of
approximately $1,992,000 were paid to Smith Barney by the
purchasers of Fund shares. A contingent deferred sales
charge ("CDSC") may be imposed on certain redemptions of
Class A, Class B shares and Class C shares. The amount of
the CDSC will depend on the number of years since the
shareholder made the purchase payment from which the amount
is being redeemed. For Class B shares, for each of the
Income and Growth Portfolio and the Utility Portfolio the
maximum CDSC is 5.00% of redemption proceeds, declining by
1.00%
each year after the date of purchase to zero. For Class B
shares of each of the U.S. Government Securities
Portfolio and the Monthly Payment Government Portfolio
the maximum CDSC
is 4.50% of redemption proceeds, declining by 0.50% the
first year after purchase and by 1.00% each year
thereafter to zero. A CDSC of 1.00% is imposed on
redemptions of
Class A which when combined with Class A shares offered with
a sales charge currently held by an investor equal or exceed
$500,000 in the aggregate and Class C shares if such
redemptions occur within 12 months from the date such
investment was made. Any sales charge imposed on
redemptions is paid to the distributor of the Fund shares.
Note that effective October 3, 1994 Class C shares
were reclassified as additional Class A shares with respect
to the Income and Growth Portfolio, the Utility
Portfolio
and the Capital Appreciation Portfolio and that effective
November 7, 1994 Class C shares were redesignated Class Y
shares with respect to the U.S. Government Securities
Portfolio, the Monthly Payment
Government Portfolio and the Income Return Account
Portfolio. Note further that effective November 7, 1994
Class B shares of each Portfolio were designated as Class
C shares.
Each Portfolio (except the Short-Term U.S. Treasury
Securities Portfolio) began to offer new Class B shares on
November 7, 1994.
Brokerage
The Manager is responsible for allocating the Fund's
brokerage. Orders may be directed to any broker including, to
the extent and in the manner permitted by applicable law,
Smith Barney. Smith Barney has acted as the Fund's
principal broker on behalf of the Income and Growth
Portfolio and the Utility Portfolio (no
commissionable transactions have
been paid to date on behalf of the U.S. Government
Securities Portfolio, the Monthly Payment Government
Portfolio or the Income Return Account Portfolio, or the
Short-Term U.S. Treasury Securities Portfolio) and has
received a substantial portion of brokerage fees paid by
such Portfolios. No Portfolio will deal with Smith Barney
in any transaction in which Smith Barney acts as principal.
The Fund attempts to obtain the most favorable execution
of each portfolio transaction, that is, the best combination
of
net price and price and prompt reliable execution. In the
opinion of the Manager or the Subadviser, as the case may be,
however, it is not possible to determine in advance that any
particular broker will actually be able to effect the
most favorable execution because, in the context of a
constantly changing market, order execution involves
judgments as to price, commission rates, volume, the
direction of the market and the likelihood of future change.
In making its decision as to which broker or brokers are most
likely to provide the most favorable execution,
the
management of the Fund takes into account the
relevant
circumstances. These include, in varying degrees, the size
of the order, the importance of prompt execution, the
breadth and trends of the market in the particular
security, anticipated commission rates, the broker's
familiarity with such security including its contacts with
possible buyers and sellers and its level of activity in
the security, the possibility of a block transaction and
the general record of the broker for prompt, competent
and
reliable service in all aspects of order
processing, execution and settlement.
Commissions are negotiated and take into account the
difficulty involved in execution of a transaction, the
time it took to conclude, the extent of the broker's
commitment of its own capital, if any, and the price
received. Anticipated commission rates are an important
consideration in all trades and are weighed along with
the other relevant factors affecting order execution set
forth above. In allocating brokerage among those brokers
who are believed to be capable of providing equally
favorable execution, the Fund takes into consideration the
fact that a particular broker may, in addition to
execution
capability, provide other services to the Fund such as
research and statistical information. It is not possible
to place a dollar value on such services nor does their
availability reduce the expenses of the Manager, the
Subadviser or Smith Barney in connection with services
rendered to other advisory clients and not all such services
may be used in connection with the Fund.
Shown below are the total brokerage fees paid by the Fund
on behalf of the Income and Growth Portfolio and the
Utility
Portfolio during 1992, 1993 and 1994. Also shown is the
portion paid to Smith Barney and the portion paid to other
brokers for the execution of orders allocated in
consideration of research and statistical services or
solely for their ability to execute the order. During
fiscal year 1994, the total amount of commissionable
transactions was $661,159,000; $158,888,000 (24.0%) of
which was directed to Smith Barney and executed by
unaffiliated brokers and $502,271,000 (76.0%) of which
was directed to other brokers.
Commissions
To Others For
Execution and
For Execution Only
Research
and
Statistical
Total To Smith Barney To Others Services
1992 571,556 316,151 * 48.419,988
15.6
235,417 36.0
1993 1,169,691342,492* 29.3 242,492 20.7 584,707 50.0
1994 1,062,407177,691* 16.7 271,982 25.6 613,334 57.7
* Directed to Smith Barney and executed by
unaffiliated
brokers.
The Board of Directors of the Fund has adopted
certain policies and procedures incorporating the standards
of Rule 17e-1 issued by the Securities and Exchange
Commission under the Act which requires that the
commissions paid to Smith Barney must be "reasonable and
fair compared to the commission, fee or other remuneration
received or to be received by other brokers in
connection with comparable transactions involving
similar securities during a comparable period of time." The
Rule and the policy and procedures also contain review
requirements and require the Manager to furnish reports to
the Board of Directors and to maintain records in connection
with such reviews.
CUSTODIAN
Portfolio securities and cash owned by the Fund are held
in the custody of PNC Bank, National Association, 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103 (foreign
securities, if any, will be held in the custody of the
Barclays Bank, PLC)
In the event of the liquidation or dissolution of the
Fund, shares of a Portfolio are entitled to receive
the assets belonging to that Portfolio that are available
for distribution and a proportionate distribution, based
upon the relative net assets of the respective Portfolios,
of any general assets not belonging to any particular
Portfolio that are available for distribution.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New
York 10154, have been selected as independent auditors for
the Fund for its fiscal year ending December 31, 1995 to
audit and report on the financial statements
and
supplementary financial
information of the Fund.
VOTING
As permitted by Maryland law, there will normally be
no meetings of shareholders for the purpose of electing
directors unless and until such time as less than a
majority of the directors holding office have been elected
by shareholders.
At
that time, the directors then in office will call a
shareholders' meeting for the election of directors. The
directors must call a meeting of shareholders for the
purpose of voting upon the question or removal of any
director when requested in writing to do so by the
record holders of not less than 10% of the outstanding
shares of the Fund. At such a meeting, a director may be
removed
after the holders of record of not less than a majority of
the outstanding shares of the Fund have declared that the
director be removed either by declaration in writing or by
votes cast in person or by proxy. Except as set forth above,
the directors shall continue to hold office and may appoint
successor directors.
As used in the Prospectus and this Statement of
Additional Information, a "vote of a majority of the
outstanding voting securities" means the affirmative vote of
the lesser of (a) more than 50% of the outstanding shares
of the Fund (or the affected Portfolio or class) or (b) 67%
or more of such shares present at a meeting if more than
50% of the outstanding shares of the Fund (or the affected
Portfolio or class) are represented at the meeting in
person or by proxy. A Portfolio or class shall be deemed
to be affected by a matter unless it is clear that the
interests of each Portfolio or class in the matter are
identical or that the matter does not affect any interest of
the Portfolio or class. Under the Rule the approval of a
management agreement or any change in a fundamental
investment policy would be effectively acted upon with
respect to a Portfolio only if approved by a "vote of
a majority of the outstanding voting securities" of the
Portfolio affected by the matter; however, the ratification
of independent accountants, the election
of
directors, and the approval of a distribution agreement that
is submitted to shareholders are not subject to the separate
voting requirements and may be effectively acted upon by a
vote of the holders of a majority of all Fund shares voting
without regard to Portfolio.
As of April 11, 1995, the Smith Barney 401(k)
Employee Savings Plan, 388 Greenwich Street, New York, New
York, 10013, owned of record, but not beneficially,
6,764,056.881 (100%) of the outstanding Class Z shares of the
Income and Growth Portfolio; the Smith Barney 401(k)
Employee Savings Plan, 388 Greenwich Street, New York, New
York, 10013, owned of record, but not beneficially,
1,581,464.673 (100%) of the outstanding Class Z shares of the
U.S. Government Securities Portfolio; and the Smith Barney
401(k) Employee Savings Plan, 388 Greenwich Street, New
York, New York, 10013, owned of record, but not
beneficially, 739,425.414 (100%) of the outstanding Class Z
shares of the Income Return Account Portfolio. The
following table contains a list of shareholders who of
record or beneficially own at least 5% of the outstanding
shares of a particular class of shares of a Portfolio of the
Fund:
U.S. Government Securities Portfolio
Class B
Charlie G. Herring
Smith Barney Inc. Rollover Cust.
1147 Hunters Drive
Stone Mountain, GA 30083-2544
owned 11,773.396 (5.86%) shares
Class Y
Virginia P. Swindal Tr.
UAD 4-9-92
Virginia P. Swindal Rev Trust
5111 South Nichols Street
Tampa, FL 33611-4132
owned 60,757.000 (9.66%) shares
Baxter P. Freeze & Anne Freeze TRS
U/A/D 4/24/92
Baxter P. Freeze Charitable Trust
1515 Wickliff Avenue
High Point, NC 27262-4551
owned 77,532.849 (12.33%) shares
Arthur Smith Corporation
c/o Phyllis Smith
4888 Loop Central Drive
Suite 500
Houston, TX 77081-2214
owned 105,560.000 (16.79%) shares
Bost & Co.
FBO Labranche & CO.
One Cabot Road
Mutual Fund Operations
Medford, MA 02155
owned 558,358.16 (6.90%) shares
Raul Cuadrado
3250 Riveria Drive
Coral Gables, FL 33134-6477
owned 36,390.102 (5.79%) shares
Charles Dockery
Smith Barney Inc. Rollover Cust
338 Deauville Road
Statesville, NC 28677-7501
owned 35,919.486 (5.71%) shares
Nolan Gotcher
232 Spyglass Drive
Advance, NC 27006-9566
owned 35,588 (5.66%) shares
Monthly Payment Government Portfolio
Class B shares
J.H. Winters Inc.
P.O. Box 445
Burlingame, CA 94011-0445
owned 6,480.167 (25.59%) shares
Lincoln Trust Co. C/F
Invt. Annuity of Paul Kasper
P.O. Box 5831 T.A.
Denver, CO 80217
owned 2,543.772 (10.05%) shares
Winslow Williams
June K. Williams
300 Ridge Road
Richmond, VA 23229-7449
owned 2,520.383 (9.95%) shares
Konrad R. Solochier & Edna M.
Solochier Family Trust
FBO Konrad and Edna Solochier
306 NE Holly Ave.
Port St. Lucie, FL 34952
owned 2,441.215 (9.64%) shares
William J. Keck
Smith Barney Inc. Rollover Cust
2649 Via Pacheco
Palos Vedes, CA 90275
owned 2,123.375 (8.39%) shares
George E. Fitch Jr.
Smith Barney Inc. Rollover Cust
2649 Via Pacheco
Palos Verdes Est CA 90274-4349
owned 1,271.886 (5.02%) shares
Class C shares
Martha Araujo as Conservator
FOR Manuel Araujo
47-26 157th Street
Flushing, NY 11355-2346
owned 22,034.696 (8.30%) shares
City of Falcon Heights
Attn: Tom Kelly
2077 West Larpeatlur Avenue
Falcon Heights, MN 55113-5551
owned 22,919.000 (8.63%) shares
Income Return Account Portfolio
Class A
Haffner's Car Care Corp.
Attn: E. Haffner Fournier
69 Parket Street
Lawrence, MA 01843-1532
owned 100,436.024 (5.21%) shares
Kerry E. Barnett, Receiver
FOR North-West Insurance Co.
c/o Jack Sanguin
350 Morgan Bldg., 720 S.W. Washington
Portland, OR 97205-3500
owned 437,391.568 (22.71%) shares
Class C
Marshall E. Redding / IRA
Smith Barney IRA Cust.
2530 Atlantic Avenue, Suite - A
Long Beach, CA 90806-2741
owned 21,720.353 (7.42%) shares
Brendan T. Cremen
Susan Delany Cremen
c/o Delany
17 Libarary Road
Shankill
County Dublin, Ireland
owned 19,071.371 (6.51%) shares
Process Supplies And
Accessories Incorporated
Profit Sharing Plan
Attn. Larry E. Wright
P.O. 11025
Knoxville, TN 37939
owned 16,112.859 (5.50%) shares
Class Y
Mark Rothbaum & Associates Inc.
Pension Plan U/A/D 7/1/80
Mark Rothbaum TTEE
P.O. Box K
Redding, CT 06875-0236
owned 49,745.154 (21.03%) shares
The Interfaith Coalition Fr.
the Andrew Recovery Effort
Attn: Mary Louise Cole/Director
111 S.W. Fifth Avenue, #104
Miami, FL 33130-1381
owned 34,423.627 (14.55%) shares
Beatrice S. Wind
Smith Barney IRA Cust.
8101 S.W. 72nd Avenue
Miami, FL 33143-7609
owned 50,177.516 (21.44%) shares
Kurt F. Wilkening
243 Robin Drive
Sarasota, FL 34236
owned 55,097.057 (23.29%) shares
Elizabeth Lynn Schneider &
Theodre J. Vittoria
Beatrice S. Wind Charitable
630 Fifth Avenue
New York, NY 10111
owned 22,109.115 (9.35%) shares
David B. Heyler Jr.
Myrtle Elaine Cornish Trust
FBO South Coast Botanic Garden
Foundation
2049 Century PArk East # 1200
Los Angeles, CA 90067
owned 18,785.201 (7.94) shares
Utility Portfolio
Class B shares
Derrell Johnson &
Carol Robinson Co.
FBO Rady and Assoc. Inc.
910 Collier
Fort Worth, TX 76102-3524
owned 9,829.283 (5.68%) shares
Katherine W. Washburne
2022 N. 71st Street
Milwaukee, WI 53213
owned 9,156.37 (5.29%) shares
FINANCIAL STATEMENTS
The following financial information is hereby
incorporated by reference to the indicated pages of
the Fund's 1994
Annual Reports to Shareholders, copies of which are furnished
with this Statement of Additional Information.
Page(s) in
Annual Report:
Income & Growth
U.S.Gov't
et al
Average Annual Total Return 3-5 3-4, 6-8
Line Graph Showing Growth of $10,000 Investment 6
5,9 Statements of Assets and Liabilities
dated December 31, 1994 11 12
Statements of Changes in Net Assets
for the years ended December 31, 1994 and 1993 13 14
Statements of Operations
for the year ended December 31, 1994 12 13
Notes to Financial Statements 14-18 15-20
Financial Highlights 19-21 21-23
Independent Auditors' Report 22 24
Page(s) in
Annual Report:
Income
Return et al
Average Annual Total Return 3-4,6
Line Graph Showing Growth of $10,000 Investment
5,7 Statement of Assets and Liabilities
dated December 31, 1994 10
Statement of Changes in Net Assets
for the years ended December 31, 1994 and 1993 12
Statement of Operations
for the year ended December 31, 1994 11
Notes to Financial Statements 13-16
Financial Highlights 17-19
Independent Auditors' Report 20
Page(s)
in Annual
Report:
Utility
Average Annual Total Return 3-4
Line Graph Showing Growth of $10,000 Investment
5 Statement of Assets and Liabilities
dated December 31, 1994 8
Statement of Changes in Net Assets
for the years ended December 31, 1994 and 1993
10 Statement of Operations
for the year ended December 31, 1994 9
Notes to Financial Statements 11-
14
Financial Highlights
15
Independent Auditors' Report
16
APPENDIX - RATINGS OR DEBT
OBLIGATIONS
BOND (AND NOTES) RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged to be of the
best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edged."
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated "Aa" are judged to be of
high quality by all standards. Together with the "Aaa"
group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present
that make the long term risks appear somewhat larger than
in "Aaa" securities.
A - Bonds that are rated "A" possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate by elements
may be present that suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated "Baa" are considered as
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length
of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics
as well.
Ba - Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as
well assured. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds
in this class.
B - Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing.
Such
issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C - Bonds which are rated C are the lowest class of bonds
and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Con (..) - Bonds for which the security depends upon
the completion of some act or the fulfillment of some
condition are
rated conditionally. These are bonds secured by (a) earnings
of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin
when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: The modifier 1 indicates that the security ranks in
the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its
generic rating category.
Standard & Poor's Corporation
AAA - Debt rated "AAA" has the highest rating assigned
by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to
pay interest and repay principal and differs from the
highest rated issues only in small degree.
A- Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible
to the adverse
effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an
adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' and
'C' is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the
obligation. 'BB' indicates the lowest degree of
speculation and 'C' the highest degree of speculation.
While such debt will likely have some quality and
protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): The ratings from 'AA' to 'B' may
be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the
debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent
upon the successful and timely completion of the
project. This rating, however, while addressing credit
quality subsequent to completion of
the
project, makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. The investor
should exercise judgment with respect to such likelihood and
risk.
L The letter "L" indicates that the rating pertains to
the principal amount of those bonds where the underlying
deposit collateral is fully insured by the Federal
Savings & Loan Insurance Corp. or the Federal Deposit
Insurance Corp.
Continuance of the rating is contingent upon S&P's
receipt
of closing documentation confirming investments and cash
flow. * Continuance of the rating is contingent upon
S&P's
receipt of an executed copy of the escrow agreement.
NR Indicates no rating has been requested, that there
is insufficient information on which to base a rating, or
that S&P does not rate a particular type of obligation as
a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Issuers rated "Prime-1" (or related supporting
institutions) have a superior capacity for repayment of
shortterm promissory obligations. Prime-1 repayment will
normally be evidenced by the following characteristics:
leading market positions in wellestablished industries;
high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and
ample asset protection; broad margins in earnings coverage
of fixed financial changes and high internal cash
generation; wellestablished access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" (or related supporting
institutions) have strong capacity for repayment of short
term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's Corporation
A-1 - This designation indicates that the degree of
safety regarding timely payment is either overwhelming or
very strong. Those issuers determined to possess
overwhelming safety characteristics will be denoted with a
plus (+) sign designation.
A-2 - Capacity for timely payment on issues with
this designation is strong. However, the relative degree of
safety is not as high as for issues designated A-1.
- -------------------------------------------------------------
- -----------------
SEMI-ANNUAL REPORT ------------------------------------------
- ------------------------------------
[ARTWORK APPEARS HERE]
Smith Barney
Funds, Inc.
Income & Growth
Portfolio -------------
------------June 30,
1995
[RECYCLING LOGO Smith Barney Mutual Funds
APPEARS HERE] Investing for your future.
Every day.
- -------------------------------------------------------------
- -----------------
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Dear Shareholder:
For the six months ended June 30, 1995, the Income and Growth
Portfolio had a
total return of 16.00% for Class A shares. The Standard &
Poor's 500 Stock
Index, a common proxy for the U.S. stock market, had a total
return of 20.19%
during the same time. At June 30, 1995, the Portfolio was
paying a quarterly
dividend of $0.10 per share for Class A shares.
U.S. stock and bond markets rallied in the first six months
of 1995 driven by a
belief that the economy would slow to a more sustainable
growth level with
little or no inflation. This "soft landing," credited to the
Federal Reserve's
monetary policy, prepared the way for many corporations to
experience
significant productivity gains that translated into positive
earnings reports
and growing investor demand for equities.
Portfolio Strategy
In selecting stocks for the Portfolio, we typically choose
largecapitalization
companies with an above-market dividend yield and look for
companies with assets
that we would view as undervalued by the marketplace. We are
also looking for a
fundamental improvement underway such as a new product or new
management, that
is not reflected in the stock price.
We currently favor multi-national, industrial/capital goods
companies despite
what we perceive to be a slowdown in global growth. Slowing
growth is more
apparent in the consumer sector, than in manufacturing where
orders remain
strong. Furthermore, global output should outstrip domestic
growth, thereby
benefiting those companies with international exposure. The
relative weakness of
the U.S. dollar against the Japanese yen and the German mark
should also enhance
the competitiveness of U.S. multi-nationals.
A stock we recently added to the Portfolio within the capital
goods sector is
Honeywell Inc., a diversified industrial and manufacturing
company with products
for three main segments: home and building sensors and
controls, factory
automation systems, and aerospace manufacturing. It is the
leading supplier of
integrated cockpit technology to the newly launched Boeing
777. With business
interests in both consumer and manufacturing sectors, the
company is in an
excellent position to benefit from a steadily growing
economy. In addition,
recent cost-cutting and management changes should help
Honeywell increase
efficiencies in its dominant markets, helping to raise
margins and leading to
further profitability.
One of our largest positions in the Portfolio is Eastman
Kodak. This multi-
national company has benefitted from a dynamic new management
which has
1
restructured the company, sold unprofitable divisions, and
paid down its debt.
Management is now focusing attention on Kodak's core
businesses which are film
and imaging technology. Kodak is turning its attention to new
markets outside
the U.S. Together with its restructuring efforts, this
emphasis on global
markets should have a beneficial impact on the company's
future earning power.
We have also begun to modestly increase our exposure in the
energy sector. We
believe that increased demand from developing economies, high
capacity rates,
and historically low refining margins are creating selective
opportunities in
this area. Also, real oil prices have retreated to a level
not seen in the
industry since 1963. Because of these lower oil prices,
energy companies have
been forced to manage their businesses more efficiently.
During the past six
months, we added a position in Mobil to the Portfolio. Mobil
is currently in a
cost-cutting mode, and we believe that the company should be
able to grow
earnings by 15% to 20% in the next two years.
Outlook
In our opinion, as long as we have slower economic growth and
interest rates
continue to be stable, the outlook for the stock market
should be good. Although
the economy may be slowing, it is not doing so at the expense
of corporate
earnings, which will probably continue to grow. We still
believe, however, that
growth potential will also come from careful stock selection
of undervalued
companies with strong turnaround potential. As we go forward,
in our view,
dividends should become a more important component of total
return. Therefore we
will maintain our conservative, low-risk approach with its
focus on large-
capitalization companies with a higher-than-average market
yield. In this way,
we believe that we can best serve our shareholders who not
only want to
participate in the market, but are also seeking a more
conservative approach to
equity investing.
We thank you for your confidence in our investment management
and look forward
to serving your investment needs in the future.
Sincerely,
/s/ Heath B. McLendon /s/ Bruce D. Sargent
/s/
Ayako Weissman
Heath B. McLendon Bruce D. Sargent
Ayako Weissman
Chairman and Director and
Portfolio Manager
Chief Executive Officer Vice President
July 31, 1995
2
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Historical Performance -- Class A Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
-------
Beginning End
Income Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/ ------------------------------
- -------------------------------------------------------------
- -------
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.18 $13.91
$0.21
$0.00 16.00% -------------------------------------
- -------------------------------------------------------------
12/31/94 13.31 12.18
0.42
0.14 (4.31) --------------------------------------
- ------------------------------------------------------------
12/31/93 12.48 13.31
0.46
0.73 16.38 ---------------------------------------
- --
- ----------------------------------------------------------
12/31/92 12.51 12.48
0.51
0.40 7.23 ---------------------------------------
- --
- ------------------------
- ------------------------------------
12/31/91 10.54 12.51
0.73
0.05 26.57
- -------------------------------------------------------------
- --------------------------------------
12/31/90 12.69 10.54
0.70
0.25 (9.46) --------------------------------------
- ------------------------------------------------------------
12/31/89 11.00 12.69
0.70
0.31 25.11
- -------------------------------------------------------------
- --------------------------------------
12/31/88 10.05 11.00
0.63
0.17 17.67
- -------------------------------------------------------------
- --------------------------------------
12/31/87 11.40 10.05
0.50
0.63 (2.83) --------------------------------------
- ------------------------------------------------------------
12/31/86 10.10 11.40
0.67
0.13 21.04
- -------------------------------------------------------------
- --------------------------------------
12/31/85 8.69 10.10
0.66
0.22 27.30
- -------------------------------------------------------------
- --------------------------------------
12/31/84 9.84 8.69
0.65
1.35 9.92
- -------------------------------------------------------------
- --------------------------------------
Total
$6.84
$4.38 -------------------------------------------------------
- --------------------------------------------
</TABLE>
It is the Fund's policy to distribute dividends quarterly and
capital gains, if
any, annually.
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class A Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
<S> <C>
<C> ---------------------------------------------------------
- ---------------------
Six Months Ended 6/30/95+ 16.00%
10.21% ------------------------------------------------------
- ------------------------
Year Ended 6/30/95 15.62
9.85 --------------------------------------------------------
- ----------------------
Five Years Ended 6/30/95 10.07
8.95 --------------------------------------------------------
- ----------------------
Ten Years Ended 6/30/95 11.57
10.99 -------------------------------------------------------
- -----------------------
</TABLE>
3
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Historical Performance -- Class B Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
-------
Beginning End
Income
Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/ ------------------------------
- -------------------------------------------------------------
- -------
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.15 $13.88
$0.16
$0.00 15.62% ------------------------------------
- -------------------------------------------------------------
- -Inception*-12/31/94 12.54 12.15
0.09
0.14 (1.28) -------------------------------------
- -------------------------------------------------------------
Total
$0.25
$0.14 -------------------------------------------------------
- --------------------------------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class B Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/ -------------------------------------------
- -----------------------------------
<S> <C>
<C>
Six Months Ended 6/30/95+ 15.62%
10.62% ------------------------------------------------------
- ------------------------
Inception* through 6/30/95 14.14
9.14 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Historical Performance -- Class C Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
- --
------
Beginning End
Income
Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/ ------------------------------
- -------------------------------------------------------------
- -------
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.18 $13.90
$0.16
$0.00 15.52% ----------------------------------
- -------------------------------------------------------------
- ---
12/31/94 13.30 12.18
0.34
0.14 (4.91) -----------------------------------
- -------------------------------------------------------------
- --12/31/93 12.48 13.30
0.36
0.73 15.46 ------------------------------------
- -------------------------------------------------------------
- -Inception*-12/31/92 12.87 12.48
0.06
0.40 (0.57) -----------------------------------
- -------------------------------------------------------------
- --Total
$0.92
$1.27 -------------------------------------------------------
- --------------------------------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class C Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/ -------------------------------------------
- -----------------------------------
<S> <C>
<C>
Six Months Ended 6/30/95+ 15.52%
14.52% ------------------------------------------------------
- ------------------------
Year Ended 6/30/95 14.69
13.69 -------------------------------------------------------
- -----------------------
Inception* through 6/30/95 9.91
9.91 --------------------------------------------------------
- ----------------------
</TABLE>
4
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Historical Performance -- Class Z Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
-------
Beginning End
Income
Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/ ------------------------------
- -------------------------------------------------------------
- -------
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.19 $13.92
$0.23 $0.00 16.12% ------------------------------
- -------------------------------------------------------------
- -------Inception*-12/31/94 12.54 12.19
0.12 0.14 (0.73) --------------------------------
- -------------------------------------------------------------
- -----Total
$0.35 $0.14 -------------------------------------------------
- --------------------------------------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class Z Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
Sales Charge/(1)/ -------------------------------------------
- -----------------------------------
<S>
<C>
Six Months Ended 6/30/95+
16.12% ------------------------------------------------------
- ------------------------
Inception* through 6/30/95
15.27 -------------------------------------------------------
- ---------
- ---------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Cumulative Total Return -------------------------------------
- -----------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge/(1)/ -------------------------------------------
- -----------------------------------
<S>
<C>
Class A (6/30/85 through 6/30/95)
198.75% -----------------------------------------------------
- -------------------------
Class B (Inception* through 6/30/95)
14.14 -------------------------------------------------------
- -----------------------
Class C (Inception* through 6/30/95)
27.45 -------------------------------------------------------
- -----------------------
Class Z (Inception* through 6/30/95)
15.27 -------------------------------------------------------
- -----------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect a deduction of the
applicable sales charge
with respect to Class A shares or the contingent deferred
sales charges
("CDSC") with respect to Class B and Class C shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 5.00% and Class B shares
reflect the
deduction of 5.00% CDSC, which applies if shares are
redeemed less than one
year from initial purchase. Class C shares reflect the
deduction of a 1.00%
CDSC if shares are redeemed within the first year of
purchase.
* Inception dates for Class B, C and Z shares are November
7,
1994,
December 2, 1992 and November 7, 1994, respectively.
+ Represents total return for the period from January 1,
1995
through
June 30, 1995, not annualized.
5
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Historical Performance --------------------------------------
- ----------------------------------------
Growth of $10,000 Invested in Class A Shares
of the Income and Growth Portfolio vs S&P 500
Index/+/
(unaudited) ---------------
- -------------------------------------------------------------
- --
June 1985 - June 1995
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DATE Income & Growth S&P
500
---- --------------- -----
- --
<S> <C> <C>
6/85 9,424.4
10,000
6/86 11,629.3
12,533.23
6/87 14,079.4
14,421.3
6/88 13,678.3
13,428.58
6/89 15,973.6
16,183.91
6/90 17,149
18,853.98
6/91 17,901.8
20,245.14
6/92 20,643.2
22,964.26
6/93 23,577.8
26,098.87
6/94 23,917.2
26,463.97
6/95 27,652.2
33,359.13
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A
shares
on June 30,
1985, assuming deduction of the maximum 5.75% sales charge in
effect at the
time of investment and reinvestment of dividends (after
deduction of
applicable sales charge through 1990, afterwards at net asset
value) and
capital gains at net asset value through June 30, 1995. The
S&P 500 is an
index of widely held common stocks listed on the New York and
American Stock
Exchanges and the over-the-counter markets. Figures for the
S&P 500 Index
include reinvestment of dividends. The index is unmanaged and
is not subject
to the same management and trading expenses of a mutual fund.
The performance
of the Portfolio's other classes may be greater or less than
the Class A
shares' performance indicated on this chart, depending on
whether greater or
lesser sales charges and fees were incurred by shareholders
investing in the
other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
value may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
6
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Schedule of Investments (unaudited)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
=============================================================
== == ===============
<C> <S>
<C>
COMMON STOCKS -- 90.6%
Capital Goods -- 4.6%
100,000 Emerson Electric Co.
$ 7,150,000
250,000 General Electric Co.
14,093,750
242,000 Honeywell Inc.
10,436,250 --------------------------------------------------
- ----------------------------
31,680,000 --------------------------------------------------
- ----------------------------
Conglomerates -- 10.1%
300,000 American Brands Inc.
11,925,000
350,000 Minnesota Mining & Manufacturing Co.
20,037,500
300,000 Tenneco Inc.
13,800,000
300,000 United Technologies Corp.
23,437,500 --------------------------------------------------
- ----------------------------
69,200,000 --------------------------------------------------
- ----------------------------
Consumer Cyclicals -- 12.0%
300,000 Deluxe Corp.
9,937,500
30,000 Daimler-Benz Aktieng ADR
1,383,750
200,000 Ford Motor Co.
5,950,000
250,000 Goodyear Tire & Rubber
Co.
10,312,500
100,000 May Department Stores
Co.
4,162,500
80,000 McDonald's Corp.
3,130,000
100,000 McGraw Hill Inc.
7,587,500
208,000 Readers Digest Association
9,178,000
450,000 Sears Roebuck & Co.
26,943,750
60,000 Tribune Co.
3,682,500 ---------------------------------------------------
- ---------------------------
82,268,000 --------------------------------------------------
- ----------------------------
Consumer Staples -- 6.9%
170,000 Anheuser Busch Cos. Inc.
9,668,750
177,500 Clorox Co.
11,581,875
50,000 Eli Lilly & Co.
3,925,000
100,000 Merck and Co.
4,900,000
150,000 Phillip Morris Cos. Inc.
11,156,250
200,000 U.S. Healthcare Inc.
6,125,000 ---------------------------------------------------
- ---------------------------
47,356,875 --------------------------------------------------
- ----------------------------
Energy -- 14.9%
440,000 Chevron Corp.
20,515,000
250,000 Dresser Industries Inc.
5,562,500
300,000 Exxon Corp.
21,187,500
150,000 Mobil Corp.
14,400,000
50,000 Phillips Petroleum Co.
1,668,750
</TABLE>
See Notes to Financial Statements.
7
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Schedule of Investments (unaudited) (continued)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
=============================================================
== == ===============
<C> <S>
<C>
Energy -- 14.9% (continued)
160,000 Royal Dutch Petroleum Co.
$ 19,500,000
300,000 Texaco Inc.
19,687,500 --------------------------------------------------
- ----------------------------
102,521,250 -------------------------------------------------
- -----------------------------
Financial Services -- 9.4%
30,000 American International Group Inc.
3,420,000
11,600 Aon Corp.
432,100
150,000 Aetna Life & Casualty Co.
9,431,250
200,000 Barnett Banks Inc.
10,250,000
160,000 Equifax Inc.
5,340,000
100,000 First Interstate Bancorp
8,025,000
25,000 Great Western Financial Corp.
515,625
150,000 Household International Inc.
7,425,000
140,000 Lincoln National Corp.
6,125,000
165,000 Marsh & McLennon Co.
13,385,625 --------------------------------------------------
- ----------------------------
64,349,600 --------------------------------------------------
- ----------------------------
Raw & Intermediate Materials -- 11.1%
125,000 Carpenter Technology Corp.
8,515,625
200,000 E.I. du Pont De Nemours & Co.
13,750,000
150,000 Eastman Chemical Co.
8,925,000
80,000 International Paper Co.
6,860,000
250,000 Imperial Chemical Industries ADR
12,187,500
141,000 Kimberly-Clark Corp.
8,442,375
100,000 Monsanto Corp.
9,012,500
200,000 Westvaco Corp.
8,850,000 ---------------------------------------------------
- ---------------------------
76,543,000 --------------------------------------------------
- ----------------------------
Technology -- 12.6%
300,000 Amp Inc.
12,675,000
400,000 Eastman Kodak Co.
24,250,000
90,000 International Business Machines Corp.
8,640,000
300,000 Lockheed Martin Corp.
18,937,500
100,000 Rockwell International Corp.
4,575,000
150,000 Xerox Corp.
17,587,500 --------------------------------------------------
- ----------------------------
86,665,000 --------------------------------------------------
- ----------------------------
Transportation -- 2.8%
80,000 Alexander Baldwin Inc.
1,780,000
125,000 Illinois Central Corp.
4,312,500
200,000 Norfolk Southern Corp.
13,475,000 --------------------------------------------------
- ----------------------------
19,567,500 --------------------------------------------------
- ----------------------------
</TABLE>
See Notes to Financial Statements.
8
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Schedule of Investments (unaudited) (continued)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
=============================================================
== == ===============
<C> <S>
<C>
Utilities -- 6.2%
300,000 Cinergy Corp.
$ 7,875,000
250,000 Consolidated Natural Gas Co.
9,437,500
400,000 GTE Corp.
13,650,000
150,000 Sprint Corp.
5,043,750
200,000 Texas Utilities Co.
6,875,000 ---------------------------------------------------
- ---------------------------
42,881,250 --------------------------------------------------
- ----------------------------
TOTAL COMMON STOCKS
(Cost -- $494,322,680)
623,032,475
=============================================================
== == ===============
PREFERRED CONVERTIBLE STOCKS -- 2.5%
Financial Services -- 1.6%
185,000 Banc One Corp. Series C, Convertible $3.500
10,776,250 --------------------------------------------------
- ----------------------------
Raw Materials -- 0.9%
100,000 Federal Paperboard, Convertible $2.875
6,462,500 ---------------------------------------------------
- ---------------------------
TOTAL PREFERRED CONVERTIBLE STOCKS
(Cost -- $17,021,650)
17,238,750
=============================================================
== == ===============
<CAPTION>
FACE
AMOUNT SECURITY
VALUE -------------------------------------------------------
- -----------------------
<C> <S>
<C>
CONVERTIBLE DEBENTURES -- 4.6%
Consumer Products & Services -- 0.7%
$5,000,000 Price Company, 6.75% due 3/01/01
5,000,000 ---------------------------------------------------
- ---------------------------
Energy -- 0.7%
5,800,000 Oryx Energy, 7.50% due 5/15/14
5,104,000 ---------------------------------------------------
- ---------------------------
Retail Trade -- 1.2%
7,000,000 Hechinger, 5.50% due 4/01/12
4,480,000
4,000,000 Waban Inc., 6.50% due 7/01/02
3,640,000 ---------------------------------------------------
- ---------------------------
8,120,000 ---------------------------------------------------
- ---------------------------
Waste Management -- 2.0%
3,300,000 Browning Ferris, 6.75% due 7/01/02
3,283,500
7,500,000 Titan Wheel International, 4.75% due 12/01/00
10,200,000 --------------------------------------------------
- ----------------------------
13,483,500 --------------------------------------------------
- ----------------------------
TOTAL CONVERTIBLE DEBENTURES
(Cost -- $30,951,504)
31,707,500
=============================================================
== == ===============
</TABLE>
See Notes to Financial Statements.
9
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Schedule of Investments (unaudited) (continued)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE -------------------------------------------------------
- -----------------------
REPURCHASE AGREEMENT -- 2.3%
<C> <S>
<C>
$15,713,000 Goldman Sachs, 5.947% due 7/03/95;
Proceeds at maturity -$15,720,787; (Fully
collateralized by U.S. Treasury Notes, 6.625%
due 3/31/97; Market value -$16,034,566)
(Cost -- $15,713,000)
$ 15,713,000
=============================================================
== == ===============
TOTAL INVESTMENTS -- 100%
(Cost -- $558,008,834*)
$687,691,725
=============================================================
== == ===============
</TABLE>
*Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
10
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Statement of Assets and Liabilities (unaudited)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<S>
<C>
ASSETS:
Investments, at value (Cost -- $558,008,834)
$ 687,691,725
Cash
4,980,563
Receivable for Fund shares sold
211,077
Receivable for securities sold
2,362,321
Dividends and interest receivable
1,943,393
Other assets
369,037 -----------------------------------------------------
- -------------------------
Total Assets
697,558,116 -------------------------------------------------
- -----------------------------
LIABILITIES:
Management fees payable
341,818
Distribution costs payable
253,791
Payable for securities purchased
2,115,750
Dividends payable
4,980,402
Accrued expenses and other liabilities
78,649 ------------------------------------------------------
- ------------------------
Total Liabilities
7,770,410 ---------------------------------------------------
- ---------------------------
Total Net Assets
$689,787,706
=============================================================
== == ===============
NET ASSETS:
Par value of capital shares
$ 495,854
Capital paid in excess of par value
548,859,115
Overdistributed net investment income
(247,785)
Accumulated net realized gain on security transactions
10,997,631
Net unrealized appreciation of investments
129,682,891 -------------------------------------------------
- -----------------------------
Total Net Assets
$689,787,706
=============================================================
== == ===============
Shares Outstanding:
Class A
40,953,900 --------------------------------------------------
-----------
- ---------------
Class B
122,283 -----------------------------------------------------
--------
- ---------------
Class C
1,899,724 ---------------------------------------------------
----------
- ---------------
Class Z
6,609,585 ---------------------------------------------------
----------
- ---------------
Net Asset Value:
Class A (and redemption price)
$13.91 ------------------------------------------------------
-------
- ---------------
Class B*
$13.88 ------------------------------------------------------
-------
- ---------------
Class C**
$13.90 ------------------------------------------------------
-------
- ---------------
Class Z (and redemption price)
$13.92 ------------------------------------------------------
-------
- ---------------
Class A Maximum Offering Price Per Share
(net asset value plus 5.26% of net asset value)
$14.64
=============================================================
== == ===============
</TABLE>
* Redemption price is NAV of Class B shares reduced by a
5.00% CDSC if shares
are redeemed less than one year from initial purchase.
** Redemption price is NAV of Class C shares reduced by a
1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
11
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Statement of Operations (unaudited) -------------------------
- -----------------------------------------------------
For the Six Months Ended June 30, 1995
<TABLE>
<S>
<C>
INVESTMENT INCOME:
Dividends
$11,149,768
Interest
2,382,016 ---------------------------------------------------
- ---------------------------
Total Investment Income
13,531,784 --------------------------------------------------
- ----------------------------
EXPENSES:
Management fees (Note 2)
1,970,307
Distribution fees (Note 2)
835,006
Shareholder and system servicing fees
160,883
Shareholder communications
89,260
Custody
28,763
Registration fees
26,283
Audit and legal
13,291
Directors' fees
4,464
Other
4,463 -------------------------------------------------------
- -----------------------
Total Expenses
3,132,720 ---------------------------------------------------
- ---------------------------
Net Investment Income
10,399,064 --------------------------------------------------
- ----------------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales
90,725,144
Cost of securities sold
79,783,045 --------------------------------------------------
- ----------------------------
Net Realized Gain
10,942,099 --------------------------------------------------
- ----------------------------
Changes in Net Unrealized Appreciation of Investments:
Beginning of period
51,104,489
End of period
129,682,891 -------------------------------------------------
- -----------------------------
Increase in Net Unrealized Appreciation
78,578,402 --------------------------------------------------
- ----------------------------
Net Gain on Investments
89,520,501 --------------------------------------------------
- --------------
- ---------------
Increase in Net Assets From Operations
$99,919,565
=============================================================
== == ===============
</TABLE>
See Notes to Financial Statements.
12
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Statements of Changes in Net Assets -------------------------
- -----------------------------------------------------
For the Six Months Ended June 30, 1995 (unaudited)
and the Year Ended December 31, 1994
<TABLE>
<CAPTION>
1995 1994 ---------------------------------------------------
- ----------------------------------
<S> <C>
<C>
OPERATIONS:
Net investment income $
10,399,064 $ 22,461,726
Net realized gain from security transactions
10,942,099 7,232,686
Increase (decrease) in net unrealized
appreciation of investments
78,578,402 (43,420,036) -----------------------------
- -------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations
99,919,565 (13,725,624) -----------------------------
- --
- ------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
(10,657,355) (22,551,312)
Net realized gain
- -- (7,455,252)
- -------------------------------------------------------------
- ------------------------
Decrease in Net Assets From Distributions
To Shareholders
(10,657,355) (30,006,564) ----------------------------
- ---------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sales
16,857,836 135,017,510
Net asset value of shares issued
in connection with the transfer of the Smith Barney Equity
Fund's net assets (Note 6)
- -- 88,308,192
Net asset value of shares issued for
reinvestment of dividends 5,077,227 27,216,070
Cost of shares reacquired (73,852,467) (199,254,008)
- -------------------------------------------------------------
- ------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions
(51,917,404) 51,287,764 -----------------------------
- -------------------------------------------------------
Increase in Net Assets
37,344,806 7,555,576
NET ASSETS:
Beginning of period
652,442,900 644,887,324 -----------------------------
- --
- -------------------------------------------------------
End of period *
$689,787,706 $652,442,900
=============================================================
== == ======================
* Includes undistributed (overdistributed)
net investment income of:
$(247,785) $10,506
=============================================================
== == ======================
</TABLE>
See Notes to Financial Statements.
13
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Notes to Financial Statements (unaudited) -------------------
- -----------------------------------------------------------
1. Significant Accounting Policies
The Income and Growth Portfolio ("Portfolio") is a
separate investment
portfolio of the Smith Barney Funds, Inc. ("Fund"). The Fund,
a Maryland
corporation, is registered under the Investment Company Act
of
1940, as amended,
as a diversified, open-end management investment company and
consists of this
Portfolio and five other separate investment portfolios: U.S.
Government
Securities, Income Return Account, Monthly Payment
Government, Short-Term U.S.
Treasury Securities and Utility Portfolios. The financial
statements and
financial highlights for the other portfolios are presented
in separate semi-
annual reports.
The significant accounting policies consistently
followed by the Fund are:
(a) securities transactions are accounted for on trade date;
(b) securities
traded on national securities markets are valued at the
closing prices on such
markets; securities for which no sales price was reported and
U.S. Government
and Government Agency obligations are valued at the mean
between the bid and
asked prices; short-term investments that have a maturity of
more than 60 days
are valued at prices based on market quotations for
securities of similar type,
yield and maturity; short-term investments that have a
maturity of 60 days or
less are valued at cost plus accreted discount, or minus
amortized premium, as
applicable; (c) dividend income is recorded on the ex-
dividend date and interest
income is recorded on the accrual basis; (d) gains or losses
on the sale of
securities are calculated by using the specific
identification method; (e)
direct expenses are charged to each portfolio and each class;
management fees
and general fund expenses are allocated on the basis of
relative net assets; (f)
dividends and distributions to shareholders are recorded on
the ex-dividend
date; (g) the accounting records are maintained in U.S.
dollars. All assets and
liabilities denominated in foreign currencies are translated
into U.S. dollars
based on the rate of exchange of such currencies against U.S.
dollars on the
date of valuation. Purchases and sales of securities, and
income and expenses
are translated at the rate of exchange quoted on the
respective date that such
transactions are recorded. Differences between income and
expense amounts
recorded and collected or paid are adjusted when reported by
the custodian bank;
and (h) each portfolio intends to comply with the
14
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- --
- -------------------------------------------------------------
- --------
requirements of the Internal Revenue Code pertaining to
regulated investment
companies and to make the required distributions to
shareholders; therefore, no
provision for Federal income taxes has been made.
2. Management Agreement and Transactions with Affiliated
Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a
subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager of
the Fund. The Income
and Growth Portfolio pays SBMFM a management fee calculated
at an annual rate of
0.60% on the Portfolio's average daily net assets up to $500
million, 0.55% on
the next $500 million and 0.50% on average daily net assets
in excess of $1.0
billion. All fees are calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
six months ended June 30, 1995, SB received brokerage
commissions of $30,474 and
sales charges of approximately $246,000 on sales of Income
and Growth Class A
shares.
There is a contingent deferred sales charge ("CDSC") of
5.00% on Class B
shares if redemption occurs less than one year from initial
purchase and
declines by 1.00% per year until no CDSC is incurred. Class C
shares have a
1.00% CDSC if redemption occurs within the first year from
the date such
investment was made. Any CDSC imposed on redemptions is paid
to SB. For the six
months ended June 30, 1995, there were approximately $5,000
in such charges.
Pursuant to a Distribution Plan the Portfolio pays a
service fee with
respect to its Class A, B and C shares calculated at the
annual rate of 0.25% of
the average daily net assets for each class, respectively.
The Portfolio also
pays a distribution fee with respect to Class B and C shares
calculated at the
annual rate of 0.75% of the average daily net assets for each
class,
respectively. All officers and three directors of the Fund
are employees of SB.
15
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- --
- --------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
3. Investments
During the six months ended June 30, 1995, the aggregate
cost of purchases
and proceeds from sales of investments (including maturities,
but excluding
short-term securities) was $97,538,730 and $90,725,144,
respectively.
At June 30, 1995, net unrealized appreciation of
investments for Federal
income tax purposes consisted of the following:
<TABLE>
=============================================================
== == ===============
<S>
<C>
Gross unrealized appreciation
$137,496,585
Gross unrealized depreciation
(7,813,694)
Net unrealized appreciation
$129,682,891
=============================================================
== == ===============
</TABLE>
4. Repurchase Agreements
The Portfolio purchases (and its custodian takes
possession of) U.S.
Government Securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolio requires
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
5. Capital Shares
At June 30, 1995, there were two billion shares of $0.01
par value capital
stock authorized. The Portfolio has the ability to issue
multiple classes of
shares. Each share of a class represents an identical
interest and has the same
rights, except that each class bears certain expenses,
including those
specifically related to the distribution of its shares.
Effective November 7,
1994, the Fund adopted a new class structure, renaming
existing Class B shares
as Class C shares and exchanging former Class C shares into
Class A shares. At
June 30, 1995, total paid-in capital amounted to the
following for each class:
<TABLE>
<CAPTION>
Class A Class B
Class C Class Z
=============================================================
== == ======================
<S> <C> <C>
<C> <C>
Total Paid-in Capital $439,713,554 $1,572,389
$25,454,995 $82,614,031
=============================================================
== == ======================
</TABLE>
16
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six
Months Ended Year Ended
June
30, 1995 December 31, 1994*
---------------
---
- ------------ ---------------------------------Shares
Amount Shares Amount
- -------------------------------------------------------------
- ---------------------------------------------------------
<S> <C>
<C> <C> <C>
Class A++
Shares sold 587,005
$ 7,700,147 3,925,141 $
33,508,255
Net asset value of shares
issued in connection with
the transfer of the Smith
Barney Equity Fund's net
assets (Note 6) -
- -
- -- 6,640,327 87,697,961
Shares issued on reinvestment
313,848
4,114,546 1,963,191 24,707,770
Shares redeemed
(4,638,816)
(60,719,731) (15,128,995) (191,764,655) -----
- -------------------------------------------------------------
- ----------------------------------------------------
Net Decrease (3,737,963)
$(48,905,038) (2,600,336) $ (45,850,669)
=============================================================
== == =======================================================
Class B
Shares sold 110,802
$ 1,449,419 31,333 $ 385,206
Shares issued on reinvestment
504
6,597 406 4,935
Shares redeemed
(18,159)
(242,272) (2,603) (31,497) --------
- -------------------------------------------------------------
- -------------------------------------------------
Net Increase 93,147
$ 1,213,744 29,136 $ 358,644
=============================================================
== == =======================================================
Class C+
Shares sold 106,360
$ 1,407,260 1,382,439 $
18,194,922
Net asset value of shares
issued in connection with
the transfer of the Smith
Barney Equity Fund's net
assets (Note 6) ---
46,193 610,231
Shares issued on reinvestment 12,185
159,747 74,754 936,415
Shares redeemed (476,922)
(6,234,222) (403,684) (5,134,706) ------
- -------------------------------------------------------------
- --------------------------------------------------
Net Increase (Decrease) (358,377)
$ (4,667,215) 1,099,702 $ 14,606,862
=============================================================
== == =======================================================
Class Z
Shares sold 491,320
$ 6,301,010 6,623,375 $ 82,929,127
Shares issued on reinvestment 60,696
796,337 128,353 1,566,950
Shares redeemed (504,776)
(6,656,242) (189,383) (2,323,150) ------
- -------------------------------------------------------------
- --------------------------------------------------
Net Increase 47,240
$ 441,105 6,562,345 $ 82,172,927
=============================================================
== == =======================================================
</TABLE>
* For Class B and Class Z shares, transactions are for the
period from
November 7, 1994 (inception date) to December 31, 1994.
++ On October 10, 1994 the former Class C shares were
exchanged into Class A
shares; therefore for the period from January 1, 1994 to
October 9, 1994 the
Class C share activity is included with the Class A share
activity.
+ On November 7, 1994 the former Class B shares were renamed
Class C shares.
17
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
6. Transfer of Net Assets
On March 4, 1994 (the "Closing") the Income & Growth
Portfolio of Smith
Barney Funds, Inc. received the net assets of the Smith
Barney Equity Fund, Inc.
("Equity") pursuant to an Agreement and Plan of
Reorganization dated December
31, 1993. In accordance with the agreement, the Portfolio, at
the closing,
issued 6,686,520 shares of the Portfolio having an aggregate
value of
$88,308,192. As a result, the Portfolio issued 1.11355 Class
A shares and
1.111279 Class B shares, for one share of Equity Class A and
Class B,
respectively.
The transaction was structured for tax purposes to
qualify as a tax-free
reorganization under the Internal Revenue Code. The Smith
Barney Equity Fund,
Inc. net assets at that date were $88,308,192, including
$17,574,361 of
unrealized appreciation. Directly after the merger the
combined net assets in
the Income and Growth Portfolio were $735,636,465 with a net
asset value for
each of the classes of $13.21.
18
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Financial Highlights ----------------------------------------
- --------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Class A Shares 1995(1)
1994 1993 1992 1991
=============================================================
== == ===============================
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $12.18
$13.31 $12.48 $12.51 $10.54 ------------------------
- -------------------------------------------------------------
- --------
Income (Loss) From Operations:
Net investment income 0.21
0.43 0.46 0.50 0.56
Net realized and unrealized
gain (loss) on investments 1.73
(1.00) 1.56 0.38 2.19 -------------------------
- --
- -------------------------------------------------------------
- ------
Total Income (Loss) From Operations 1.94
(0.57) 2.02 0.88 2.75 -------------------------
- -------------------------------------------------------------
- -------
Less Distributions:
Dividends from net investment income (0.21)
(0.42) (0.46) (0.51) (0.73)
Distribution from net realized gains
on security transactions (2)
- --
(0.14) (0.73) (0.40) (0.05) ------------------------
- -------------------------------------------------------------
- --------
Total Distributions (0.21)
(0.56) (1.19) (0.91) (0.78) ------------------------
- -------------------------------------------------------------
- ---------
Net Asset Value, End of Period $13.91
$12.18 $13.31 $12.48 $12.51 ------------------------
- -------------------------------------------------------------
- --------
Total Return 16.00%++
(4.31)% 16.38% 7.23% 26.57% ------------------------
- -------------------------------------------------------------
- --------
Net Assets, End of Period (000s) $569,669
$544,572 $627,870 $573,085 $583,686 ----------------------
- -------------------------------------------------------------
- ----------
Ratios to Average Net Assets:
Expenses 0.99%+
0.96% 0.91% 0.92% 0.84%
Net investment income 3.10+
3.31 3.42 3.97 4.80 --------------------------
- --
- -------------------------------------------------------------
- -----
Portfolio Turnover Rate 14.47%
26.77% 46.10% 39.16% 44.50%
=============================================================
== == ===============================
<CAPTION>
Class B Shares (3) 1995(1)
1994(4)
=============================================================
== == ===============================
<S> <C> <C>
Net Asset Value, Beginning of Period $12.15
$12.54
Income (Loss) From Operations:
Net investment income 0.16
0.03
Net realized and unrealized
gain (loss) on investments 1.73
(0.19) ------------------------------------------------------
- ----------------------------------------
Total Income (Loss) From Operations 1.89
(0.16) ------------------------------------------------------
- ----------------------------------------
Less Distributions:
Dividends from net investment income (0.16)
(0.09)
Distribution from net realized gains on
security transactions (2) --
(0.14) ------------------------------------------------------
- ----------------------------------------
Total Distributions (0.16)
(0.23) ------------------------------------------------------
- ----------------------------------------
Net Asset Value, End of Period $13.88
$12.15 ------------------------------------------------------
- ----------------------------------------
Total Return 15.62%++
(1.28)%++ ---------------------------------------------------
- -------------------------------------------
Net Assets, End of Period (000s) $1,697
$354 --------------------------------------------------------
- --------------------------------------
Ratios to Average Net Assets:
Expenses 1.71%+
1.15%+
Net investment income 2.28+
2.11+ -------------------------------------------------------
- ---------------------------------------
Portfolio Turnover Rate 14.47%
26.77%
=============================================================
== == ===============================
</TABLE>
(1) For the six months ended June 30, 1995 (unaudited).
(2) Net short term gains, if any, are included and reported
as ordinary income
for income tax purposes.
(3) On November 7, 1994 the former Class B shares were
renamed Class C shares.
(4) For the period from November 7, 1994 (inception date) to
December 31, 1994.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
19
Smith Barney Funds, Inc.
Income and Growth Portfolio ---------------------------------
- ---------------------------------------------
Financial Highlights (continued) ----------------------------
- --------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Class C Shares (1) 1995(2)
1994 1993 1992(3) ---------------------------------------
- ----------------------------------------------
<S> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 12.18
$13.30 $ 12.48 $ 12.87 -----------------------------------
- --------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.16
0.31 0.38 0.17
Net realized and unrealized
gain (loss) on investments 1.72
(0.95) 1.53 (0.10)
- -------------------------------------------------------------
- ------------------------
Total Income (Loss) From Operations 1.88
(0.64) 1.91 0.07
- -------------------------------------------------------------
- ------------------------
Less Distributions:
Dividends from net investment income (0.16)
(0.34) (0.36) (0.06)
Distribution from net realized gains (4) --
(0.14) (0.73) (0.40) -----------------------------------
- --------------------------------------------------
Total Distributions (0.16)
(0.48) (1.09) (0.46) -----------------------------------
- --------------------------------------------------
Net Asset Value, End of Period $ 13.90
$12.18 $ 13.30 $ 12.48 -----------------------------------
- --------------------------------------------------
Total Return 15.52%++
(4.91)% 15.46% (0.57)%++
- -------------------------------------------------------------
- ------------------------
Net Assets, End of Period (000s) $26,413
$27,507 $15,408 $ 1,504 ----------------------------------
- ---------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.75%+
1.75% 1.65% 1.58%+
Net investment income 2.34+
2.49 2.59 1.80+ ------------------------------------
- --
- ------------------------------------------------
Portfolio Turnover Rate 14.47%
26.77% 46.10% 39.16%
=============================================================
== == ======================
<CAPTION>
Class Z Shares 1995(2)
1994(5)
=============================================================
== == ======================
<S> <C> <C>
Net Asset Value, Beginning of Period $ 12.19 $
12.54 -------------------------------------------------------
- ------------------------------
Income (Loss) From Operations:
Net investment income 0.22
0.07
Net realized and unrealized
gain (loss) on investments 1.74
(0.16) ------------------------------------------------------
- -------------------------------
Total Income (Loss) From Operations 1.96
(0.09) ------------------------------------------------------
- -------------------------------
Less Distributions:
Dividends from net investment income (0.23)
(0.12)
Distribution from net realized gains (4) --
(0.14) ------------------------------------------------------
- -------------------------------
Total Distributions (0.23)
(0.26) ------------------------------------------------------
- -------------------------------
Net Asset Value, End of Period $ 13.92 $
12.19 -------------------------------------------------------
- ------------------------------
Total Return 16.12%++
(0.73)%++ ---------------------------------------------------
- ----------------------------------
Net Assets, End of Period (000s) $92,009
$80,010 -----------------------------------------------------
- --------------------------------
Ratios to Average Net Assets:
Expenses 0.72%+
0.42%+
Net investment income 3.38+
3.88+ -------------------------------------------------------
- ------------------------------
Portfolio Turnover Rate 14.47%
26.77%
=============================================================
== == ======================
</TABLE>
(1) On October 10, 1994 the former Class C shares were
exchanged into Class A
shares; therefore for the period from January 1, 1994 to
October 9, 1994 the
Class C share activity is included with the Class A share
activity.
(2) For the six months ended June 30, 1995 (unaudited).
(3) For the period from December 2, 1992 (inception date) to
December 31, 1992.
(4) Net short term gains, if any, are included and reported
as ordinary income
for income tax purposes.
(5) For the period from November 7, 1994 (inception date) to
December 31, 1994.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
20
Smith Barney
Funds, Inc.
Directors
Jessica M. Bibliowicz
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Heath B. McLendon, Chairman
C. Richard Youngdahl
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
------------
[LOGO OF TRAVELERS GROUP
APPEARS HERE]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the
shareholders of
Smith Barney Funds, Inc.; Income & Growth Portfolio. It is
not authorized for
distribution to prospective investors unless accompanied or
preceded by a
current Prospectus for the Portfolio, which contains
information concerning the
Portfolio's investment policies and expenses as well as
other pertinent
information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD 0628 8/95
- -------------------------------------------------------------
- -----------------
SEMI-ANNUAL REPORT ------------------------------------------
- ------------------------------------
Smith Barney
Funds, Inc.
Utility Portfolio
------------------------------------
- -----------------
June 30,1995
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future.
Every day.
- -------------------------------------------------------------
- -----------------
Utility Portfolio -------------------------------------------
- -----------------------------------
Dear Shareholder:
The Utility Portfolio's total return for the six months ended
June 30, 1995 was
12.62% for Class A shares. This compares with 15.14% for the
Standard & Poor's
Utility Index, an unmanaged index of 45 gas, electric, and
telephone stocks, and
11.80% for the Lehman Government/Corporate Bond Index, an
unmanaged index which
measures the performance of U.S. government and corporate
bonds, for the same
period. The average total return for all utility stock funds
for the same period
was 11.11%, according to Lipper Analytical Services.
Financial assets performed well across the board for the
first half of 1995, and
utility issues were no exception. Interest rates have
declined this year almost
as sharply as they rose last year. One important difference
this year is that
market forces are now leading interest rates down whereas in
1994 the Federal
Reserve Board led rates up. The Fed's recent decision to
notch down rates by
one-quarter percentage point bodes well for utility stocks
since a further
decline in rates is expected. As we moved through the first
half of 1995,
consumer sales weakened, which, in turn, contributed to a
classic inventory
correction. A number of key commodity prices have either
declined or peaked out.
Significantly, there appears to be some progress in
Washington in paring down
the budget excesses of the past. Thus, we may be in an
environment where short-
term trends favorable to low inflation and stable
interest rates are reinforced
by longer-term trends.
Portfolio Strategy
We have been fully invested throughout the year. At the
present time, asset
allocation for the Utility Portfolio is 32% bonds and 68%
stocks. The duration
of the bonds is less than 10 years, and they are, for the
most part, widely
diversified between electric and natural gas utility issuers.
In the equity
sector, the breakdown is: electric, 65%; telephone, 16%;
natural gas, 15%; and
miscellaneous, 4%.
Deregulation is having a huge impact on electric utilities as
it slowly erodes
utilities' monopoly status and makes them compete to sell
power, especially to
large industrial users. Because of these pressures, market
participants now
perceive electric utility stocks to be more risky
investments. This has pushed
utility yields to about the same level as Treasury bond
yields whereas
historically, utility yields have been approximately one
percentage point lower.
In this changing market environment, investors are more
carefully evaluating a
utility's competitive position with respect to production
costs, debt levels,
and market share -- making dividend yield a less important
criterion.
1
In selecting stocks for the Utility Portfolio, we try to
focus on companies with
low payout ratios combined with being a low-cost producer of
electricity.
Special situations are also an integral part of the
Portfolio. One example is
Entergy, an out-of-favor electric utility with a low
price/book ratio and a high
yield. We think that there are a number of positive changes
taking place within
the company which are not yet reflected in the price of the
stock. We have also
added Houston Industries to the Portfolio. We believe that
the sale of its
cable operations will provide funds for a share buy-back plan
and boost
earnings. In the telephone utilities area, we have added
Sprint and Comsat and
increased our position in Telmex.
Outlook
As we discussed, the yield on utility stocks is historically
high relative to
Treasuries. In our opinion, utility stock prices are still
undervalued primarily
because of the threat of deregulation and therefore have a
potential for
appreciation. Although increased competition and deregulation
is still very
real, it could take a long time to materialize. This should
benefit electric
utility stock performance over the near term. In the natural
gas sector, the
price of natural gas has also declined, but should recover
later in the year.
This will be modestly positive for Questar, Tenneco and
Sonat. In the telephone
industry, the soft landing for the economy should keep
interest rates attractive
and provide unit-volume growth, which will be especially
positive for Sprint.
Regulatory changes pending in Congress should benefit our
largest position in
GTE, as well as Bell Atlantic.
We thank you for your confidence in our investment management
and look forward
to serving your investment needs in the future.
Sincerely,
/s/ Heath B. McLendon /s/ Philip
Miller
Heath B. McLendon Philip Miller
Chairman and Portfolio
Manager Chief Executive Officer
July 20, 1995
2
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Historical Performance -- Class A Shares --------------------
- --------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Net Asset Value -----------------
---
Beginning End of Income
Capital Gain Total
Period Ended of Period Period
Dividend
Distributions Returns/(1)/
=============================================================
== == ===============================
<S> <C> <C> <C>
<C> <C>
6/30/95 $11.31 $12.31 $0.41
$0.00 12.62% -------------------------------------
- --------------------------------------------------------
12/31/94 13.29 11.31 0.81
0.05 (8.56) --------------------------------------
- -------------------------------------------------------
12/31/93 13.07 13.29 0.81
0.31 10.37 ---------------------------------------
- ------------------------------------------------------
12/31/92 13.07 13.07 0.79
0.17 7.77 ---------------------------------------
- ------------------------------------------------------
12/31/91 11.94 13.07 0.79
0.06 17.21 ---------------------------------------
- ------------------------------------------------------
Inception*- 12/31/90 11.94 11.94 0.01
0.00 0.08
=============================================================
== == ===============================
Total $3.62
$0.59
=============================================================
== == ===============================
</TABLE>
It is the Fund's policy to distribute dividends monthly and
capital gains, if
any, annually.
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class A Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============================
<S> <C>
<C>
Six Months Ended 6/30/95+ 12.62%
6.95% -------------------------------------------------------
- ---------
- -------------------------------
Year Ended 6/30/95 12.87
7.21 --------------------------------------------------------
- --------------------------------------
Inception* through 6/30/95 8.37
7.14 --------------------------------------------------------
- --------------------------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Historical Performance -- Class B Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value -----------------
---
Beginning End of Income
Capital Gain Total
Period Ended of Period Period
Dividend
Distributions Returns/(1)/
=============================================================
== == ===============================
<S> <C> <C> <C>
<C> <C>
6/30/95 $11.32 $12.34 $0.35
$0.00 12.31% --------------------------------------
- --
- ------------------------------------------------------
Inception*-12/31/94 11.29 11.32 0.12
0.05 1.82
=============================================================
== == ===============================
Total $0.47
$0.05
=============================================================
== == ===============================
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class B Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales
Charge/(1)/ Sales Charge/(2)/
=============================================================
== == ===============================
<S> <C>
<C>
Six Months Ended 6/30/95+ 12.31%
7.31% -------------------------------------------------------
- ---------------------------------------
Inception* through 6/30/95 14.36
9.36 --------------------------------------------------------
- --------------------------------------
</TABLE>
3
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Historical Performance -- Class C Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value -----------------
---
Beginning End of Income
Capital Gain Total
Period Ended of Period Period
Dividend
Distributions Returns/(1)/
=============================================================
== == ===============================
<S> <C> <C> <C>
<C> <C>
6/30/95 $11.32 $12.33 $0.35
$0.00 12.22% --------------------------------------
- -------------------------------------------------------
12/31/94 13.28 11.32 0.71
0.05 (9.19) ---------------------------------------
- ------------------------------------------------------
12/31/93 13.07 13.28 0.71
0.31 9.48 ----------------------------------------
- -----------------------------------------------------
Inception*-12/31/92 12.98 13.07 0.03
0.16 2.23
=============================================================
== == ===============================
Total $1.80
$0.52
=============================================================
== == ===============================
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class C Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales
Charge/(1)/ Sales Charge/(2)/
=============================================================
== == ===============================
<S> <C>
<C>
Six Months Ended 6/30/95+ 12.22%
11.22% ------------------------------------------------------
- ----------------------------------------
Year Ended 6/30/95 12.07
11.07 -------------------------------------------------------
- ---------------------------------------
Inception* through 6/30/95 5.23
5.23 --------------------------------------------------------
- --------------------------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Cumulative Total Return -------------------------------------
- -----------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge/(1)/
=============================================================
== == ===============================
<S>
<C>
Class A (Inception* through 6/30/95)
43.66% ------------------------------------------------------
- ----------------------------------------
Class B (Inception* through 6/30/95)
14.36 -------------------------------------------------------
- ---------------------------------------
Class C (Inception* through 6/30/95)
14.03 -------------------------------------------------------
- ---------------------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect deduction of the
applicable sales charge
with respect to Class A shares or the applicable contingent
deferred sales
charges ("CDSC") with respect to Class B and Class C
shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 5.00% and Class B shares
reflect the
deduction of a 5.00% CDSC, which applies if shares are
redeemed less than
one year from initial purchase. Class C shares reflect the
deduction of a
1.00% CDSC if shares are redeemed within the first year of
purchase.
* Inception dates for Class A, B and C shares are December
28,
1990,
November 7, 1994 and December 2, 1992, respectively.
+ Represents total return for the period from January 1,
1995
through June 30,
1995, not annualized.
4
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Historical Performance --------------------------------------
- ----------------------------------------
Growth of $10,000 Invested in Class A Shares
of The Utility Portfolio vs Standard & Poor's Utility,
Lehman
Bros.
Intermediate Corp. Bond and Lehman Bros.
Government Corp. Bond Indexes
(unaudited)
- -------------------------------------------------------------
- -----------------
December 1990 - June 1995
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers
Lehman Brothers
Utility S&P Intermediate
Corp.
Gov't. Corp.
Date Portfolio Utility Bond Index
Bond Index
---- --------- ------- ----------
- ----------
<S> <C> <C> <C>
<C>
12/28/90 9,550 10,000 10,000
10,000
12/90 9,559 10,012 10,017
10,010
12/91 11,205 11,479 11,742
10,544
12/92 12,076 12,636 12,675
12,378
12/93 13,326 14,453 14,054
13,698
12/94 12,185 12,946 13,738
13,788
6/95 13,723 14,906 15,379
15,415
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A
shares
at inception
on December 28, 1990, assuming deduction of the maximum 4.50%
sales charge in
effect at the time of investment and reinvestment of
dividends (after
deduction of applicable sales charge through November 7,
1994, afterwards at
net asset value) and capital gains at net asset value through
June 30, 1995.
The Standard & Poor's Utility Index is composed of Telephone,
Natural Gas and
Electric Companies. The Lehman Brothers Intermediate (1-10)
Corporate Bond
Index includes all publicly issued fixed rate, nonconvertible
investment grade
SEC-registered corporate debt. The Lehman Brothers Government
Corp. Bond Index
includes the Government and Corporate Bond Indexes, including
U.S. government
treasury and agency securities, corporate and yankee bonds.
The corporate
index sectors are industrial finance, utility and Yankee. The
indexes are
unmanaged and are not subject to the same management and
trading expenses of a
mutual fund. The performance of the Portfolio's other classes
may be greater
or less than the Class A shares' performance indicated on
this chart,
depending on whether greater or lesser sales charges and fees
were incurred by
shareholders investing in the other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
values may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
5
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Schedule of Investments (unaudited)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
=============================================================
== == ==============
<C> <S>
<C>
COMMON STOCKS -- 59.6%
ELECTRIC -- 37.5%
35,000 American Electrical Power
Co. $ 1,229,375
100,000 DPL Inc. Holding Co.
2,212,500
125,000 Eastern Utilities
Association 2,828,125
70,000 Energy Corp.
1,688,750
25,000 Florida Progress Corp.
781,250
50,000 Illinova Corp.
1,268,750
10,000 Houston Industries
421,250
100,000 Montana Power Co.
2,300,000
93,700 New York State Electric & Gas Corp.
2,190,238
110,000 Northeast Utilities
2,475,000
100,000 Pacificorp
1,875,000
80,000 Peco Energy Co.
2,210,000
60,000 Portland General Corp.
1,327,500
110,000 Public Service Enterprise Group
3,052,500
59,000 Texas Utilities Co.
2,028,125
60,000 United Illumination Co.
1,980,000 ---------------------------------------------------
- --------------------------
29,868,363 --------------------------------------------------
- ---------------------------
NATURAL GAS -- 10.7%
30,000 Central & Southwest Corp.
787,500
25,000 CMS Energy Corp.
615,625
40,000 Questar Corp.
1,150,000
10,000 Sonat Inc.
305,000
25,000 Tenneco Inc.
1,150,000
50,000 UGI Corp.
1,056,250
155,000 Washington Energy Co.
2,538,125
50,000 Williams Coal Steam Gas Trust
887,500 -----------------------------------------------------
- ------------------------
8,490,000 ---------------------------------------------------
- --------------------------
TELECOMMUNICATION -- 3.0%
50,000 Comsat Corp.
981,250
20,000 Sprint Corp.
672,500
25,000 Telefonos de Mexico
740,625 -----------------------------------------------------
- --
- -----------------------
2,394,375 ---------------------------------------------------
- --------------------------
TELEPHONE -- 6.2%
15,000 Bell Atlantic Corp.
840,000
120,000 GTE Corp.
4,095,000 ---------------------------------------------------
- --------------------------
4,935,000 ---------------------------------------------------
- --------------------------
</TABLE>
See Notes to Financial Statements.
6
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Schedule of Investments (unaudited) (continued)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
=============================================================
== == ==============
<C> <S>
<C>
Real Estate Investment Trusts -- 2.2%
25,000 McArthur Glen Realty
$ 365,625
50,000 Storage USA Inc.
1,418,750 ---------------------------------------------------
- --------------------------
1,784,375 ---------------------------------------------------
- --------------------------
TOTAL COMMON STOCKS (Cost -- $45,434,908)
47,472,113
=============================================================
== == ==============
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
=============================================================
== == ==============
<C> <S>
<C>
CORPORATE BONDS -- 37.7%
AIRLINE -- 3.0%
$2,150,000 Delta Airlines, 9.900% due 6/16/02
2,413,375 ---------------------------------------------------
- --------------------------
ELECTRIC -- 28.6%
1,000,000 Cleveland Electric
Illumination,
9.375% due 3/01/17
970,000
2,000,000 Coastal Corp., 10.750% due 10/01/10
2,512,500
2,000,000 Coastal Corp., 9.625% due 5/15/12
2,300,000
3,000,000 First Private Funding, 10.300% due
1/15/14
3,082,500
3,825,000 National Coop Services, 9.480% due
1/01/12
4,135,781
2,000,000 National Rural Utilities, 9.000% due
9/1/21
2,235,000
1,980,000 Public Service Electric, 8.750% due
11/01/21
2,128,500
2,900,000 Texas New Mexico Power, 10.750% due
9/15/03
3,055,875
2,000,000 Texas Utilities Electric, 9.750% due
5/01/21
2,322,500 ---------------------------------------------------
- --------------------------
22,742,656 --------------------------------------------------
- ---------------------------
NATURAL GAS -- 3.9%
2,000,000 Transcontinental Pipeline, 9.125% due
2/01/17
2,102,500
1,000,000 Westinghouse Electric Co., 8.625% due
8/01/12
1,032,500 ---------------------------------------------------
- --------------------------
3,135,000 ---------------------------------------------------
- --------------------------
TRANSPORTATION -- 2.2%
2,000,000 Greyhound, 10.000% due 7/31/01
1,737,500 ---------------------------------------------------
- --------------------------
TOTAL CORPORATE BONDS (Cost --
$29,500,561) 30,028,531
=============================================================
== == ==============
EURO BONDS -- 2.7%
2,000,000 Fisher Brothers Financial Realty,
10.75% due 12/17/00 (Cost -- $2,250,000)
2,110,000
=============================================================
== == ==============
TOTAL INVESTMENTS -- 100%
(Cost -- $77,185,469*)
$79,610,644
=============================================================
== == ==============
</TABLE>
* Aggregate cost for Federal income tax purposes is
substantially
the same.
See Notes to Financial Statements.
7
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- --
- ---------------------------------
Statement of Assets and Liabilities (unaudited)
June 30, 1995 -----------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
<S>
<C>
ASSETS:
Investments, at value (Cost -- $77,185,469)
$79,610,644
Receivable for securities sold
419,544
Dividends and interest receivable
1,178,266 ---------------------------------------------------
- --------------------------
Total Assets
81,208,454 --------------------------------------------------
- ---------------------------
LIABILITIES:
Management fees payable
40,386
Distribution costs payable
16,187
Dividends payable
434,198
Accrued expenses
59,949
Other liabilities
727,750 -----------------------------------------------------
- ------------------------
Total Liabilities
1,278,470 ---------------------------------------------------
- --------------------------
Total Net Assets
$79,929,984
=============================================================
== == ==============
NET ASSETS:
Par value of capital shares
$ 64,898
Capital paid in excess of par value
77,266,117
Overdistributed net investment income
(54,359)
Accumulated net realized gain on security transactions
228,153
Net unrealized appreciation of investments
2,425,175 ---------------------------------------------------
- --------------------------
Total Net Assets
$79,929,984
=============================================================
== == ==============
Shares Outstanding:
Class A
5,661,001 ---------------------------------------------------
- --------------------------
Class B
198,878 -----------------------------------------------------
- ------------------------
Class C
629,937 -----------------------------------------------------
- ------------------------
Net Asset Value:
Class A (and redemption price)
$12.31 ------------------------------------------------------
- -----------------------
Class B*
$12.34 ------------------------------------------------------
- -----------------------
Class C**
$12.33 ------------------------------------------------------
- -----------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share)
$12.96
=============================================================
== == ==============
</TABLE>
* Redemption price is NAV of Class B shares reduced by a
5.00% CDSC if shares
are redeemed less than one year from initial purchase.
** Redemption price is NAV of Class C shares reduced by a
1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
8
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- ----------------------------------
Statement of Operations (unaudited) -------------------------
- ----------------------------------------------------
For the Six Months Ended June 30, 1995
<TABLE>
<CAPTION>
<S>
<C>
INVESTMENT INCOME:
Dividends
$1,573,331
Interest
1,523,606 ---------------------------------------------------
- --------------------------
Total Investment Income
3,096,937 ---------------------------------------------------
- --------------------------
EXPENSES:
Management fees (Note 2)
239,216
Distribution fees (Note 2)
136,541
Shareholder and system servicing fees
34,449
Registration fees
16,860
Shareholder communications
9,421
Custody
7,935
Audit and legal
5,703
Directors' fees
1,240
Other
3,919 -------------------------------------------------------
- ----------------------
Total Expenses
455,284 -----------------------------------------------------
- ------------------------
Net Investment Income
2,641,653 ---------------------------------------------------
- --------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From Security
Transactions (excluding short-term
securities):
Proceeds from sales
7,506,324
Cost of securities sold
7,282,987 ---------------------------------------------------
- --------------------------
Net Realized Gain
223,337 -----------------------------------------------------
- ------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period
(4,227,598)
End of period
2,425,175 ---------------------------------------------------
- --------------------------
Increase in Net Unrealized Appreciation
6,652,773 ---------------------------------------------------
- --------------------------
Net Gain on Investments
6,876,110 ---------------------------------------------------
- --------------------------
Increase in Net Assets From Operations
$9,517,763
=============================================================
== == ==============
</TABLE>
See Notes to Financial Statements.
9
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Statements of Changes in Net Assets -------------------------
- -----------------------------------------------------
For the Six Months Ended June 30, 1995 (unaudited)
and the Year Ended December 31, 1994
<TABLE>
<CAPTION>
1995 1994
=============================================================
== == ==================================
<S>
<C> <C>
OPERATIONS:
Net investment income
$ 2,641,653 $ 6,071,341
Net realized gain
223,337 336,336
Increase (decrease) in net unrealized appreciation
of investments
6,652,773 (15,551,622) -----------------------------
- -------------------------------------------------------------
- ---
- ----
Increase (Decrease) in
Net Assets From Operations
9,517,763 (9,143,945) -----------------------------
- -------------------------------------------------------------
- ------
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
(2,696,012) (6,203,791)
Net realized gain
- -- (339,516)
- -------------------------------------------------------------
- ------------------------------------
Decrease in Net Assets From
Distributions To Shareholders
(2,696,012) (6,543,307) ----------------------------
- -------------------------------------------------------------
- --------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares
3,863,832 9,101,919
Net asset value of shares issued for
reinvestment of dividends
1,512,348 4,384,725
Cost of shares reacquired
(9,681,120) (41,366,290) ----------------------------
- -------------------------------------------------------------
- -------
Decrease in Net Assets From Fund
Share Transactions
(4,304,940) (27,879,646) ----------------------------
- -------------------------------------------------------------
- --------
Increase (Decrease) In Net Assets
2,516,811 (43,566,898)
NET ASSETS:
Beginning of period
77,413,173 120,980,071 -----------------------------
- -------------------------------------------------------------
- ------
End of period*
$79,929,984 $ 77,413,173
=============================================================
== == ==================================
* Includes overdistributed net investment income of:
$(54,359) --
=============================================================
== == ==================================
</TABLE>
See Notes to Financial Statements.
10
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Notes to Financial Statements (unaudited) -------------------
- -----------------------------------------------------------
1. Significant Accounting Policies
The Utility Portfolio ("Portfolio") is a separate
investment portfolio of
the Smith Barney Funds, Inc. ("Fund"). The Fund, a Maryland
corporation, is
registered under the Investment Company Act of 1940, as
amended, as a
diversified, open-end management investment company and
consists of this
Portfolio and five other separate investment portfolios:
Income and Growth, U.S.
Government Securities, Income Return Account, Monthly Payment
Government and
Short-Term U.S. Treasury Securities Portfolios. The financial
statements and
financial highlights for the other portfolios are presented
in separate semi-
annual reports.
The significant accounting policies consistently
followed by the Fund are:
(a) securities transactions are accounted for on trade date;
(b) securities
traded on national securities markets are valued at the
closing prices on such
markets; securities for which no sales price was reported and
U.S. Government
and Government Agency obligations are valued at the mean
between the bid and
asked prices; short-term investments that have a maturity of
more than 60 days
are valued at prices based on market quotations for
securities of similar type,
yield and maturity; short-term investments that have a
maturity of 60 days or
less are valued at cost plus accreted discount, or minus
amortized premium, as
applicable; (c) dividend income is recorded on the ex-
dividend date and interest
income is recorded on the accrual basis; (d) gains or losses
on the sale of
securities are calculated by using the specific
identification method; (e)
direct expenses are charged to each portfolio and each class;
management fees
and general fund expenses are allocated on the basis of
relative net assets; (f)
dividends and distributions to shareholders are recorded on
the ex-dividend
date; (g) the accounting records are maintained in U.S.
dollars. All assets and
liabilities denominated in foreign currencies are translated
into U.S. dollars
based on the rate of exchange of such currencies against U.S.
dollars on the
date of valuation. Purchases and sales of securities, and
income and expenses
are translated at the rate of exchange quoted on the
respective date that such
transactions are recorded. Differences between income and
expense amounts
recorded and collected or paid are adjusted when reported by
the custodian bank;
(h) each portfolio intends to comply with the requirements of
the Internal
Revenue Code pertaining to regulated investment companies and
to make the
required distributions to shareholders; therefore, no
provision for Federal
income taxes has been made; and (i) during 1994, the Fund
adopted Statement of
- ------------
Position 93-2
- -------------
11
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
Determination, Disclosure, and Financial Statement
Presentation of Income, -------------------------------------
- -----------------------------------
Capital Gain, and Return of Capital Distributions by
Investment Companies. ---------------------------------------
- ---------------------------------
Accordingly, the net investment loss of $48,269 at December
31, 1994 has been
reclassified to paid-in capital. Net investment income, net
realized gains, and
net assets were not affected by this change.
2. Management Agreement and Transactions with Affiliated
Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a
subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager of
the Fund. The
Utility Portfolio pays SBMFM a management fee calculated at
an annual rate of
0.60% on the Portfolio's average daily net assets up to $500
million, 0.55% on
the next $500 million and 0.50% on average daily net assets
in excess of $1.0
billion. All fees are calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
six months ended June 30, 1995, SB received brokerage
commissions of $2,100 and
sales charges of approximately $39,000 on sales of Utility
Class A shares.
There is a contingent deferred sales charge ("CDSC") of
5.00% on Class B
shares if redemption occurs less than one year from initial
purchase and
declines by 1.00% per year thereafter until no CDSC is
incurred. Class C shares
have a 1.00% CDSC if redemption occurs within the first year
from the date such
investment was made. Any CDSC imposed on redemptions is paid
to SB. For the six
months ended June 30, 1995, there were approximately $3,000
in such charges.
Pursuant to a Distribution Plan the Portfolio pays a
service fee with
respect to its Class A, B and C shares calculated at the
annual rate of 0.25% of
the average daily net assets for each class, respectively.
The Portfolio also
pays a distribution fee with respect to Class B and C shares
calculated at the
annual rate of 0.75% of the average daily net assets for each
class,
respectively. All officers and three directors of the Fund
are employees of SB.
12
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
3. Investments
During the six months ended June 30, 1995, the aggregate
cost of purchases
and proceeds from sales of investments (including maturities,
but excluding
short-term securities) was $6,469,320 and $7,506,324,
respectively.
At June 30, 1995, the net unrealized appreciation of
investments for
Federal income tax purposes consisted of the following:
<TABLE>
=============================================================
== == ==============
<S>
<C>
Gross unrealized appreciation
$ 4,727,200
Gross unrealized depreciation
(2,302,025) -------------------------------------------------
- ----------------------------
Net unrealized appreciation
$ 2,425,175
=============================================================
== == ==============
</TABLE>
4. Repurchase Agreements
The Portfolio purchases (and its custodian takes
possession of) U.S.
Government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolio requires
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
5. Capital Shares
At June 30, 1995, there were two billion shares of $0.01
par value capital
stock authorized. The Portfolio has the ability to issue
multiple classes of
shares. Each share of a class represents an identical
interest and has the same
rights, except that each class bears certain expenses,
including those
specifically related to the distribution of its shares.
Effective November 7,
1994, the Fund adopted a new class structure, renaming
existing Class B shares
as Class C shares and exchanging former Class C shares into
Class A shares. At
June 30, 1995, total paid-in capital amounted to the
following for each class:
<TABLE>
<CAPTION>
Class A
Class B
Class C
=============================================================
== == ===============
<S> <C> <C>
<C>
Total Paid-in Capital $66,369,022
$2,307,654 $8,654,339
=============================================================
== == ===============
</TABLE>
13
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended
June 30, 1995
December 31, 1994*
-------------------------------
- -------------------------
Shares Amount
Shares Amount
=============================================================
== == ================================
<S> <C> <C>
<C> <C>
Class A++
Shares sold 129,176 $ 1,516,185
399,731 $ 4,862,656
Shares issued on
reinvestment 112,716 1,329,040
333,095 3,997,753
Shares redeemed (663,681) (7,916,671)
(3,185,160) (39,122,649) ------------------------------
- --
- -------------------------------------------------------------
- --
Net Decrease (421,789) $(5,071,446)
(2,452,334) $(30,262,240)
=============================================================
== == ================================
Class B
Shares sold 138,967 $ 1,630,737
65,088 $ 738,648
Shares issued on
reinvestment 2,662 31,575
279 3,155
Shares redeemed (7,837) (92,795)
(281) (3,206) ------------------------------------
- --
- ---------------------------------------------------------Net
Increase 133,792 $ 1,569,517
65,086 $ 738,597
=============================================================
== ==
================================
Class C+
Shares sold 61,089 $ 716,910
282,137 $ 3,500,615
Shares issued on
reinvestment 12,856 151,733
32,304 383,817
Shares redeemed (141,082) (1,671,654)
(187,475) (2,240,435) --------------------------------
- --
- -------------------------------------------------------------
Net Increase (Decrease) (67,137) $ (803,011)
126,966 $ 1,643,997
=============================================================
== == ================================
</TABLE>
* For Class B shares, transactions are for the period from
November 7, 1994
(inception date) to December 31, 1994.
++ On October 10, 1994 the former Class C shares were
exchanged into Class A
shares; therefore for the period from January 1, 1994 to
October 9, 1994 the
Class C share activity is included with the Class A share
activity.
+ On November 7, 1994 the former Class B shares were renamed
Class C shares.
14
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- -----------------------------------
Financial Highlights ----------------------------------------
- --------------------------------------
For a share of each class of capital stock outstanding
throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1995(1)
1994 1993 1992 1991
=============================================================
== == =======================================
<S> <C>
<C>
<C> <C> <C>
Net Asset Value, Beginning of Period $11.31
$13.29 $13.07 $13.07 $11.94 ----------------
- -------------------------------------------------------------
- ------------------------
Income (Loss) From Operations:
Net investment income 0.40
0.79 0.82 0.79 0.78
Net realized and unrealized
gain (loss) on investments 1.01
(1.91) 0.52 0.17 1.20 -----------------
- --
- -------------------------------------------------------------
- -----------------------
Total Income (Loss) From Operations 1.41
(1.12) 1.34 0.96 1.98 -----------------
- --
- -------------------------------------------------------------
- ----------------------
Less Distributions:
Dividends from net investment income (0.41)
(0.81) (0.81) (0.79) (0.79)
Distributions from net realized gains on security
transactions (2) --
(0.05) (0.31) (0.17) (0.06) ----------------
- -------------------------------------------------------------
- ------------------------
Total Distributions (0.41)
(0.86) (1.12) (0.96) (0.85) ----------------
- -------------------------------------------------------------
- ------------------------
Net Asset Value, End of Period $12.31
$11.31 $13.29 $13.07 $13.07 ----------------
- -------------------------------------------------------------
- ------------------------
Total Return 12.62%++
(8.56)% 10.37% 7.77% 17.21% ----------------
- --
- -------------------------------------------------------------
- -----------------------
Net Assets, End of Period (000s) $69,709
$68,788 $113,080 $126,437 $104,905 ---------------
- -------------------------------------------------------------
- -------------------------
Ratios to Average Net Assets:
Expenses 1.04%+
1.01% 0.98% 1.07% 1.00%
Net investment income 6.71+
6.54 5.97 6.13 6.61 ------------------
- -------------------------------------------------------------
- ----------------------
Portfolio Turnover Rate 8.21%
23.54% 36.68% 27.54% 39.45%
=============================================================
== == =======================================
<CAPTION>
Class B Shares(3) 1995(1)
1994(4)
=============================================================
== == =======================================
<S> <C>
<C>
Net Asset Value, Beginning of Period $11.32
$11.29 ------------------------------------------------------
- ------------------------------------------------
Income From Operations:
Net investment income 0.36
0.14
Net realized and unrealized
gain on investments 1.01
0.06 --------------------------------------------------------
- ----------------------------------------------
Total Income From Operations 1.37
0.20 --------------------------------------------------------
- ----------------------------------------------
Less Distributions:
Dividends from net investment income (0.35)
(0.12)
Distributions from net realized gains on
security transactions (2) --
(0.05) ------------------------------------------------------
- ------------------------------------------------
Total Distributions (0.35)
(0.17) ------------------------------------------------------
- ------------------------------------------------
Net Asset Value, End of Period $12.34
$11.32 ------------------------------------------------------
- ------------------------------------------------
Total Return 12.31%++
1.82%++ -----------------------------------------------------
- -------------------------------------------------
Net Assets, End of Period (000s) $2,453
$737 --------------------------------------------------------
- ----------------------------------------------
Ratios to Average Net Assets:
Expenses 1.73%+
1.67%+
Net investment income 6.03+
4.71+ -------------------------------------------------------
- -----------------------------------------------
Portfolio Turnover Rate 8.21%
23.54%
=============================================================
== == =======================================
</TABLE>
(1) For the six months ended June 30, 1995 (unaudited).
(2) Net short-term gains, if any, are included and reported
as ordinary income
for tax purposes.
(3) On November 7, 1994 the former Class B shares were
renamed Class C shares.
(4) For the period from November 7, 1994 (inception date) to
December 31, 1994.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
15
Smith Barney Funds, Inc.
Utility Portfolio -------------------------------------------
- --------------------------------
Financial Highlights (continued) ----------------------------
- -----------------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
Class C Shares(1) 1995(3) 1994
1993 1992(4)
=============================================================
== == ============
<S> <C> <C>
<C>
<C>
Net Asset Value, Beginning of Period $11.32 $13.28
$13.07 $12.98 --------------------------------------------
- -------------------------------
Income (Loss) From Operations:
Net investment income 0.35 0.71
0.73 0.02
Net realized and unrealized
gain (loss) on investments 1.01 (1.91)
0.50 0.26 ----------------------------------------------
- -----------------------------
Total Income (Loss) From Operations 1.36 (1.20)
1.23 0.28 ----------------------------------------------
- -----------------------------
Less Distributions:
Dividends from net investment income (0.35) (0.71)
(0.71) (0.03)
Distributions from net realized gains on
security transactions (2) -- (0.05)
(0.31) (0.16) --------------------------------------------
- -------------------------------
Total Distributions (0.35) (0.76)
(1.02) (0.19) --------------------------------------------
- -------------------------------
Net Asset Value, End of Period $12.33 $11.32
$13.28 $13.07 --------------------------------------------
- -------------------------------
Total Return 12.22%++ (9.19)%
9.48% 2.23%++ -------------------------------------------
- --------------------------------
Net Assets, End of Period (000s) $7,768 $7,889
$7,573 $860 --------------------------------------------
- -------------------------------
Ratios to Average Net Assets:
Expenses 1.79%+ 1.77%
1.72% 1.55%+
Net investment income 5.98+ 5.87
5.12 2.45+ ---------------------------------------------
- ------------------------------
Portfolio Turnover Rate 8.21% 23.54%
36.68% 27.45%
=============================================================
== == ============
</TABLE>
(1) On October 10, 1994 the former Class C shares were
exchanged into Class A
shares; therefore for the period from January 1, 1994 to
October 9, 1994 the
Class C share activity is included with the Class A share
activity.
(2) Net short term gains, if any, are included and
reported as ordinary income
for tax purposes.
(3) For the six months ended June 30, 1995 (unaudited).
(4) For the period from December 2, 1992 (inception date)
to December 31, 1992.
++ Not annualized as it may not be representative of the
total
return for the
year.
+ Annualized.
16
Smith Barney
Funds, Inc.
Directors
Jessica M. Bibliowicz
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Heath B. McLendon, Chairman
C. Richard Youngdahl
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ------------
[LOGO OF TRAVELERS
GROUP APPEARS HERE]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the
shareholders of
Smith Barney Funds, Inc.: Utility Portfolio. It is not
authorized for
distribution to prospective investors unless accompanied or
preceded by a
current Prospectus for the Portfolio, which contains
information concerning the
Portfolio's investment policies and expenses as well as
other pertinent
information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD 0629 8/95 ------------------------------------------------
- ------------------------------
SEMI-ANNUAL REPORT ------------
- -------------------------------------------------------------
- ----
Smith Barney
Funds, Inc.
Monthly Payment
Government
Portfolio
U.S. Government
Securities Portfolio -----------
------------------------
- ---------------
June 30, 1995
[RECYCLING LOGO Smith Barney Mutual Funds
APPEARS HERE] Investing for your
future.
Every day.
- -------------------------------------------------------------
- -----------------
Monthly Payment Government and
U.S. Government Securities Portfolios -----------------------
- -------------------------------------------------------
Dear Shareholder:
For the six months ended June 30, 1995, the total return for
Class A shares of
the Smith Barney Funds-Monthly Payment Government Portfolio
was 10.39%, and the
total return for the U.S. Government Securities Portfolio was
10.62%. This
compares with a total return of 10.84% for the unmanaged
Lehman Brothers GNMA
Mutual Fund Index, a broad measure of performance of
Government National
Mortgage Association (GNMA) securities, for the same period.
Both Portfolios
outperformed the average Ginnie Mae fund, which returned
10.22% for the same
period, according to Lipper Analytical Services.
Market Review
Although we had expected that 1995 would be a positive year
for the bond market,
we did not anticipate the strength of the rally we have
witnessed over the
course of the last six months. Therefore, we maintained a
position that had
similar characteristics to the Ginnie Mae index. As economic
growth slowed and
inflation appeared to be in check, particularly in the second
quarter, interest
rates began to fall, causing bond prices to rise. In our
opinion, there were
three major factors, beside the overall picture of a slowing
economy, behind the
rally.
The first area of support came from foreign central banks
which intervened to
support the U.S. dollar after it fell precipitously early in
the year. As the
banks purchased dollars, they invested them in U.S. Treasury
securities,
particularly in maturities at the front end of the yield
curve.
Second, because last year's bond market was so depressed,
many investors were
under-invested. In 1995, when interest rates began to fall,
buyers re-entered
the market. The buying had a snowball effect, causing bond
prices to rise
dramatically and yields to fall.
The third boost to the bond market came from foreign private
investors.
Believing that the dollar had reached bottom, these investors
bought a record
$29.7 billion of U.S. Treasury securities in the first
quarter of 1995.
During the first quarter, mortgage-backed securities
outperformed Treasuries
because rates were still high enough to mitigate prepayment
fears. As the rally
progressed into the second quarter, and yields came down,
more of the mortgage
universe became subject to refinancings causing Treasuries to
outperform Ginnie
Maes.
1
Portfolio Strategy
To help insulate the Portfolios against rapid prepayment
risk, if it should
occur, we have invested a significant amount of the
Portfolios' assets in Ginnie
Mae securities which are trading below or near par. In
addition, recently, in an
effort to maintain the Portfolios' average maturity, we added
to our Treasury
holdings with some longer-term bonds. If the rally in the
bond market continues,
we would be likely to add to our Treasury position.
Outlook
On July 6, 1995, the Federal Reserve Board eased monetary
policy and lowered the
target federal funds rate (the rate banks charge each other
for overnight loans)
by one-quarter percentage point. Although this did cause a
brief but powerful
one-day rally in the financial markets, followed by a minor
correction, in our
view it had little other substantive impact. It did, however,
reinforce the
belief among investors that inflation is not a threat and
rates are probably
headed somewhat lower.
Looking forward, there are several areas that are worth
reviewing. One of those
is prepayments. As we mentioned earlier, the market rally has
subjected a large
portion of the mortgage-backed security universe to
prepayment risks. So far,
these risks have been largely unrealized. While there has
been an increase in
prepayments, it has been no where near the levels we saw in
1992 and 1993.
Although prepayment levels should be higher in the second
half, we do not
believe that they will be unmanageable, and mortgage-backed
securities should do
well under the circumstances.
The second area we want to look at is what might happen to
interest rates. While
there are no guarantees, it would be unprecedented for the
Fed to lower interest
rates only once. Therefore, we believe that we will see
further rate decreases,
although perhaps not in the near-term. By the end of the
year, however, we think
that the federal funds rate, which is now 5.75%, may reach
5.25%. The market has
probably already discounted this reduction in rates, but in
our view, there may
be room for longer-term rates to come down a bit more, which
also leaves room
for more price appreciation in the bond market.
We thank you for your confidence in our investment management
and look forward
to serving your investment needs in the future.
Sincerely,
/s/ Heath B. McLendon /s/ Patrick
Sheehan
Heath B. McLendon Patrick
Sheehan
Chairman and Vice President
Chief Executive Officer
July 31, 1995
2
Smith Barney Funds, Inc.
Monthly Payment Government Portfolio ------------------------
- -----------------------------------------------------
Historical Performance -- Class A Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
---------
Beginning End
Income Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/
=============================================================
== == ===================================
<S> <C> <C> <C>
<C> <C>
6/30/95 $11.86 $12.67
$0.41
$0.00 10.39% ---------------------------------------
- ----------------------------------------------------------
12/31/94 12.85 11.86
0.81
0.00 (1.36) ----------------------------------------
- ---------------------------------------------------------
12/31/93 12.96 12.85
0.88
0.06 6.51 -----------------------------------------
- --
- -------------------------------------------------------
12/31/92 13.12 12.96
0.96
0.05 6.83 -----------------------------------------
- --
- -------------------------------------------------------
12/31/91 12.41 13.12
1.11
0.03 15.66
- -------------------------------------------------------------
- -------------------------------------
12/31/90 12.37 12.41
1.11
0.00 9.89 -----------------------------------------
- --
- -------------------------------------------------------
12/31/89 11.74 12.37
1.11
0.00 15.45 -----------------------------------------
- --
- -------------------------------------------------------
12/31/88 11.83 11.74
1.09
0.00 8.75 -----------------------------------------
- --
- --------------------------------------------------------
12/31/87 12.59 11.83
0.99
0.01 2.09 -----------------------------------------
- --------------------------------------------------------
Inception*-12/31/86 12.50 12.59
0.81
0.00 7.44
=============================================================
== == ===================================
Total
$9.28
$0.15
=============================================================
== == ===================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and
capital gains, if
any, annually.
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class A Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============
<S> <C>
<C>
Six Months Ended 6/30/95+ 10.39%
5.41% -------------------------------------------------------
- -----------------------
Year Ended 6/30/95 12.07
7.01 --------------------------------------------------------
- ----------------------
Five Years Ended 6/30/95 8.68
7.67 --------------------------------------------------------
- ----------------------
Inception* through 6/30/95 8.85
8.30 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- ---
- ---------------
Historical Performance -- Class B Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
---------
Beginning End
Income
Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/
=============================================================
== == ===================================
<S> <C> <C> <C>
<C> <C>
6/30/95 $11.85 $12.66
$0.38
$0.00 10.22% -------------------------------------
- -------------------------------------------------------------
Inception*-12/31/94 11.78 11.85
0.12
0.00 1.64
=============================================================
== == ===================================
Total
$0.50
$0.00
=============================================================
== == ===================================
</TABLE>
3
Smith Barney Funds, Inc.
Monthly Payment Government Portfolio ------------------------
- ------------------------------------------------------
Average Annual Total Return -- Class B Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============
<S> <C>
<C>
Six Months Ended 6/30/95+ 10.22%
5.72% -------------------------------------------------------
- -----------------------
Inception* through 12/31/94 11.93
7.43 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Historical Performance -- Class C Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
---------
Beginning End
Income
Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/
=============================================================
== == ===================================
<S> <C> <C> <C>
<C> <C>
6/30/95 $11.86 $12.67
$0.38
$0.00 10.15% --------------------------------------
- -----------------------------------------------------------
12/31/94 12.85 11.86
0.73
0.00 (2.07) ---------------------------------------
- ----------------------------------------------------------
12/31/93 12.96 12.85
0.79
0.06 5.77 ----------------------------------------
- ---------------------------------------------------------
Inception*-12/31/92 12.89 12.96
0.08
0.00 1.15
=============================================================
==
== ===================================
Total
$1.98
$0.06
=============================================================
== == ===================================
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class C Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============
<S> <C>
<C>
Six Months Ended 6/30/95+ 10.15%
9.15% -------------------------------------------------------
- -----------------------
Year Ended 6/30/95 11.54
10.54 -------------------------------------------------------
- -----------------------
Inception* through 6/30/95 5.72
5.72 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Cumulative Total Return -------------------------------------
- -----------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge/(1)/
=============================================================
== == ===============
<S>
<C>
Class A (Inception* through 6/30/95)
118.35% -----------------------------------------------------
- -------------------------
Class B (Inception* through 6/30/95)
11.93 -------------------------------------------------------
- -----------------------
Class C (Inception* through 6/30/95)
15.40 -------------------------------------------------------
- -----------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect a deduction of the
applicable sales charge
with respect to Class A shares or the applicable contingent
deferred sales
charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 4.50% and Class B shares
reflect the
deduction of a 4.50% CDSC, which applies if shares are
redeemed less than
one year from initial purchase. Class C shares reflect the
deduction of a
1.00% CDSC if shares are redeemed within the first year of
purchase.
* Inception dates for Class A, B and C shares are April 16,
1986, November 10,
1994 and December 2, 1992, respectively.
+ Represents total return for the period from January 1, 1995
through June 30,
1995, not annualized.
4
Smith Barney Funds, Inc.
Monthly Payment Government Portfolio ------------------------
- -----------------------------------------------------
Historical Performance --------------------------------------
- ----------------------------------------
Growth of $10,000 Invested in Class A Shares of the
Monthly
Payment Government Portfolio vs. Lehman Brothers
GNMA Mutual Fund Index+
(unaudited) ---------------
--
- -------------------------------------------------------------
April 1986 - June 1995
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date Monthly Payment Portfolio Lehman Brothers GNMA
Mutual Fund Index
- ---- ------------------------- --------------------
- --
- ---------------
<S> <C> <C>
4/86 9,601
10,000
12/86 10,289
10,754
12/87 10,603
11,220
12/88 11,485
12,207
12/89 13,210
14,120
12/90 14,464
15,612
12/91 16,669
18,117
12/92 17,752
19,461
12/93 18,854
20,740
12/94 18,560
20,997
6/95 20,372
23,272
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A
shares
at inception
on April 16, 1986 assuming deduction of the maximum 4.00%
sales charge in
effect at the time of investment and reinvestment of
dividends (after
deduction of applicable sales charge through November 7,
1994, afterwards at
net asset value) and capital gains at net asset value through
June 30, 1995.
The Lehman Brothers GNMA Mutual Fund Index is composed of 15-
year and 30-year
fixed-rate securities backed by mortgage pools of the
Government National
Mortgage Association. The Index is unmanaged and is not
subject to the
management and trading expenses of a mutual fund. The
performance of the
Portfolio's other classes may be greater or less than the
Class A shares'
performance indicated on this chart, depending on whether
greater or lesser
sales charges and fees were incurred by shareholders
investing in other
classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
value may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
5
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- -----------------------------------------------------
Historical Performance -- Class A Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
---------
Beginning End
Income Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/
=============================================================
== == ===================================
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.50 $13.33
$0.49
$0.00 10.62% ----------------------------------------
- ---------------------------------------------------------
12/31/94 13.66 12.50
0.96
0.00 (1.48) -----------------------------------------
- ---------------------------------------------------------
12/31/93 13.87 13.66
0.98
0.11 6.40
- -------------------------------------------------------------
- -------------------------------------
12/31/92 14.10 13.87
1.08
0.08 6.85
- -------------------------------------------------------------
- -------------------------------------
12/31/91 13.22 14.10
1.13
0.05 16.29
- -------------------------------------------------------------
- -------------------------------------
12/31/90 13.17 13.22
1.18
0.00 9.95
- -------------------------------------------------------------
- -------------------------------------
12/31/89 12.56 13.17
1.21
0.00 15.11
- -------------------------------------------------------------
- -------------------------------------
12/31/88 12.68 12.56
1.20
0.00 8.72
- -------------------------------------------------------------
- -------------------------------------
12/31/87 13.89 12.68
1.31
0.24 2.67
- -------------------------------------------------------------
- -------------------------------------
12/31/86 13.95 13.89
1.44
0.04 10.76 ------------------------------------------
- --
- ------------------------------------------------------
12/31/85 12.76 13.95
1.22
0.00 19.59 ------------------------------------------
- --
- ------------------------------------------------------
Inception*-12/31/84 12.50 12.76
0.20
0.00 3.32
=============================================================
== == ===================================
Total
$12.40
$0.52
=============================================================
== == ===================================
</TABLE>
It is the Fund's policy to distribute dividends quarterly and
capital gains,
if any, annually.
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class A Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============
<S> <C>
<C>
For the Six Months Ended 6/30/95+ 10.62%
5.64% -------------------------------------------------------
- -----------------------
For the Year Ended 6/30/95 12.28
7.24 --------------------------------------------------------
- ----------------------
Five Years Ended 6/30/95 8.99
7.99 --------------------------------------------------------
- ----------------------
Ten Years Ended 6/30/95 10.32
9.80 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Historical Performance -- Class B Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
---------
Beginning End
Income
Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/
=============================================================
== == ===================================
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.51 $13.34
$0.45
$0.00 10.35% --------------------------------------
- -----------------------------------------------------------
Inception*-12/31/94 12.47 12.51
0.12
0.00 2.04
=============================================================
== == ===================================
Total
$0.57
$0.00
=============================================================
== == ===================================
</TABLE>
6
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- ------------------------------------------------------
Average Annual Total Return -- Class B Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============
<S> <C>
<C>
For the Six Months Ended 6/30/95+ 10.35%
5.85% -------------------------------------------------------
- -----------------------
Inception* through 6/30/95 12.60
8.10 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- --
- ----------------
Historical Performance -- Class C Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
---------
Beginning End
Income
Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/
=============================================================
== == ===================================
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.50 $13.32
$0.46
$0.00 10.30% ---------------------------------------
- ----------------------------------------------------------
12/31/94 13.66 12.50
0.87
0.00 (2.11) ----------------------------------------
- ---------------------------------------------------------
12/31/93 13.86 13.66
0.88
0.11 5.74 -----------------------------------------
- --------------------------------------------------------
Inception*-12/31/92 14.01 13.86
0.30
0.00 1.07
=============================================================
== == ===================================
Total
$2.51
$0.11
=============================================================
== == ===================================
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class C Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============
<S> <C>
<C>
For the Six Months Ended 6/30/95+ 10.30%
9.30% -------------------------------------------------------
- -----------------------
Year Ended 6/30/95 11.72
10.72 -------------------------------------------------------
- -----------------------
Inception* through 6/30/95 5.72
5.72 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Historical Performance -- Class Y Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
---------
Beginning End
Income Capital Gain Total
Period Ended of Period of Period
Dividends
Distributions Returns/(1)/
=============================================================
== == ===================================
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.51 $13.33
$0.50
$0.00 10.67% ---------------------------------------
- ----------------------------------------------------------
12/31/94 13.67 12.51
0.95
0.00 (1.53) ----------------------------------------
- ---------------------------------------------------------
Inception*-12/31/93 13.97 13.67
0.95
0.11 5.55
=============================================================
== == ===================================
Total
$2.40
$0.11
=============================================================
== == ===================================
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class Y Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
Sales Charge/(1)/
=============================================================
== == ===============
<S>
<C>
For the Six Months Ended 6/30/95+
10.67% ------------------------------------------------------
- ------------------------
Year Ended 6/30/95
12.35 -------------------------------------------------------
- -----------------------
Inception* through 6/30/95
5.80 --------------------------------------------------------
- ----------------------
</TABLE>
7
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- -----------------------------------------------------
Historical Performance -- Class Z Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------
---------
Beginning End
Income Capital Gain Total
Period Ended of Period of Period
Dividends Distributions Returns/(1)/
=============================================================
== == ===================================
<S> <C> <C> <C>
<C> <C>
6/30/95 $12.50 $13.33
$0.50 $0.00 10.76% --------------------------------
- -------------------------------------------------------------
- ----
Inception*-12/31/94 12.47 12.50
0.24 0.00 (2.15)
=============================================================
== == ===================================
Total
$0.74 $0.00
=============================================================
== == ===================================
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class Z Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
Sales Charge/(1)/
=============================================================
== == ===============
<S>
<C>
For the Six Months Ended 6/30/95+
10.76% ------------------------------------------------------
- ------------------------
Inception* through 6/30/95
13.14 -------------------------------------------------------
- -----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Cumulative Total Return -------------------------------------
- -----------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge/(2)/
=============================================================
== == ===============
<S>
<C>
Class A (6/30/85 through 6/30/95)
166.95% -----------------------------------------------------
- -------------------------
Class B (Inception* through 6/30/95)
12.60 -------------------------------------------------------
- -----------------------
Class C (Inception* through 6/30/95)
15.39 -------------------------------------------------------
- -----------------------
Class Y (Inception* through 6/30/95)
15.03 -------------------------------------------------------
- -----------------------
Class Z (Inception* through 6/30/95)
13.14 -------------------------------------------------------
- -----------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect a deduction of the
applicable sales charge
with respect to Class A shares or the contingent deferred
sales charges
("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 4.50% and Class B shares
reflect the
deduction of a 4.50%, which applies CDSC if shares are
redeemed less than
one year from initial purchase. Class C shares reflect the
deduction of a
1.00% CDSC if shares are redeemed within the first year of
purchase.
* Inception dates for Class B, C, Y and Z shares are November
7, 1994,
December 2, 1992, January 12, 1993, and November 7, 1994,
respectively.
+ Represents total return for the period from January 1, 1995
through June 30,
1995, not annualized.
8
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- -----------------------------------------------------
Historical Performance --------------------------------------
- ----------------------------------------
Growth of $10,000 Invested in Class A Shares of
the U.S. Government Securities Portfolio vs.
Lehman
Brothers
GNMA Mutual Fund Index+
(unaudited) ---------------
--
- -------------------------------------------------------------
June 1985 - June 1995
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date U.S. Government Securities Portfolio Lehman
Brothers GNMA Mutual Fund Index
- ---- ------------------------------------ ---------
- ---------------------------
<S> <C> <C>
6/85 9,600.60
10,000.00
6/86 11,709.80
11,681.58
6/87 12,408.00
12,666.16
6/88 13,529.20
13,891.68
6/89 15,124.50
15,590.64
6/90 16,325.40
17,098.93
6/91 18,120.20
19,149.85
6/92 20,671.30
21,811.33
6/93 22,512.60
23,795.51
6/94 22,069.10
23,490.75
6/95 24,762.00
26,425.10
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A
shares
on June 30,
1985, assuming deduction of the maximum 4.00% sales charge in
effect at the
time of investment and reinvestment of dividends (after
deduction of
applicable sales charge through November 7, 1994, afterwards
at net asset
value) and capital gains at net asset value through June 30,
1995. The Lehman
Brothers GNMA Mutual Fund Index is composed of 15-year and 30
year fixed-rate
securities backed by mortgage pools of the Government
National Mortgage
Association. The Index is unmanaged and is not subject to the
management and
trading expenses of a mutual fund. The performance of the
Portfolio's other
classes may be greater or less than the Class A shares'
performance indicated
on this chart, depending on whether greater or lesser sales
charges and fees
were incurred by shareholders investing in other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
value may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
9
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Schedules of Investments (unaudited)
June 30, 1995 -----------------------------------------------
- -------------------------------
MONTHLY PAYMENT GOVERNMENT SECURITIES
PORTFOLIO <TABLE>
<CAPTION>
FACE
COUPON
AMOUNT SECURITY
RATE MATURITY* VALUE
=============================================================
== == ===========================================
<C> <S>
<C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS -- 91.1%
$4,300,972 GNMA Certificates
6.50% 12/01/23 $ 4,141,018
5,435,949 GNMA Certificates
7.00 03/15/23 5,357,780
7,292,108 GNMA Certificates
7.50 11/15/22 7,344,465
4,928,494 GNMA Certificates
8.00 09/15/21 5,053,234
5,453,366 GNMA Certificates
8.50 11/15/19 5,669,755
2,313,496 GNMA Certificates
9.00 10/15/17 2,432,779
2,262,885 GNMA Certificates
9.50 11/15/17 2,402,189
1,254,160 GNMA Certificates
10.00 07/15/20 1,367,812
4,209,174 GNMA Certificates
II
8.50 04/20/22 4,339,363
2,500,000 U.S. Treasury Note
6.25 08/15/23 2,364,200
- -------------------------------------------------------------
- ---------------------------------------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost -- $39,443,376)
40,472,595
=============================================================
== == ===========================================
REPURCHASE AGREEMENT -- 8.9%
3,935,000 Goldman Sachs, 5.947% due 7/03/95;
Proceeds at maturity -- $3,936,950;
(Fully collateralized by U.S. Treasury
Notes, 6.625% due 3/31/97; Market value -
-
$4,017,480)
(Cost -- $3,935,000)
3,935,000
=============================================================
== == ===========================================
TOTAL INVESTMENTS -- 100%
(Cost -- $43,378,376+)
$44,407,595
=============================================================
== ==
===========================================
</TABLE>
See Notes to Financial Statements.
10
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Schedules of Investments (unaudited) (continued)
June 30, 1995 -----------------------------------------------
- -------------------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
FACE
COUPON
AMOUNT SECURITY
RATE MATURITY* VALUE
=============================================================
== == ===========================================
<C> <S>
<C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS -- 94.6%
$19,801,000 FHLMC Gold Certificates
7.50% 06/01/25 $ 19,893,049
15,466,000 FHLMC Gold
Certificates
TBA
8.50 06/01/25 5,473,400
58,361,000 GNMA Certificates
6.50 12/01/23 56,190,182
72,629,000 GNMA Certificates
7.00 03/15/23 71,584,900
60,026,000 GNMA Certificates
7.50 11/15/22 60,457,108
30,990,000 GNMA Certificates
8.00 09/15/21 33,825,085
21,797,000 GNMA Certificates
8.50 11/15/19 22,662,143
59,866,000 GNMA Certificates
9.00 10/15/17 22,710,101
27,107,000 GNMA Certificates
9.50 11/15/17 28,775,841
4,726,000 GNMA Certificates
10.00 07/15/20
5,154,565
18,402,000 GNMA Certificates
II
8.50 04/20/22 18,971,454
2,812,000 GNMA Certificates
II
10.00 10/20/16
3,028,241
26,234,000 GNMA Certificates
TBA
9.00 10/15/17 26,250,000
12,000,000 U.S. Treasury Note
6.25 08/15/23 11,348,159
- -------------------------------------------------------------
- ---------------------------------------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost -- $390,782,185)
396,324,228
=============================================================
== == ===========================================
REPURCHASE AGREEMENT -- 5.4%
22,672,000 Goldman Sachs, 5.947% due 07/03/95;
Proceeds at maturity -- $22,683,236;
(Fully collateralized by U.S. Treasury
Notes, 6.625% due 03/31/97; Market value
--
$23,147,218)
(Cost -- $22,672,000)
22,672,000
=============================================================
== == ===========================================
TOTAL INVESTMENTS -- 100%
(Cost -- $413,454,185+)
$418,996,228
=============================================================
== == ===========================================
</TABLE>
* Date shown represents the last in the range of maturity
dates
of mortgage
certificates only.
+ Aggregate cost for Federal income tax purposes is
substantially
the same.
See Notes to Financial Statements.
11
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Statements of Assets and Liabilities (unaudited)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<CAPTION>
Monthly Payment U.S. Government
Government Securities
Portfolio Portfolio
=============================================================
== == ====================================================
<S>
<C> <C>
ASSETS:
Investments, at value (Cost -- $43,378,376
and $413,454,185, respectively)
$44,407,595 $418,996,228
Cash
578 1,161
Receivable for Fund shares sold
- -- 318,134
Receivable for securities sold
- -- 40,686,863
Interest receivable
306,951 2,930,725
Other assets
87,709 4,258
- -------------------------------------------------------------
- ------------------------------------------------------
Total Assets
44,802,833 462,937,369
- -------------------------------------------------------------
- -----------------------------------------------------
LIABILITIES:
Management fees payable
16,235 152,465
Distribution costs payable
7,733 65,355
Dividends payable
245,145 7,135,015
Payable for securities purchased
- -- 41,876,198
Accrued expenses and other liabilities
41,887 256,888
- -------------------------------------------------------------
- ------------------------------------------------------
Total Liabilities
311,000 49,485,921 -----------------------------
- --
- -------------------------------------------------------------
- -----------------------
Total Net Assets
$44,491,833 $413,451,448
=============================================================
== == ====================================================
NET ASSETS:
Par value of capital shares
$ 35,124 $ 310,229
Capital paid in excess of par value
45,543,071 433,203,048
Undistributed (overdistributed) net investment income
150,709 (313,530)
Accumulated net realized loss on investments
(2,266,290) (25,290,342)
Net unrealized appreciation of investments
1,029,219 5,542,043
- -------------------------------------------------------------
- ------------------------------------------------------
Total Net Assets
$44,491,833 $413,451,448
=============================================================
== == ====================================================
Shares Outstanding:
Class A
3,224,873 26,862,920
- -------------------------------------------------------------
- ------------------------------------------------------
Class B
46,321 492,362
- -------------------------------------------------------------
- ------------------------------------------------------
Class C
241,234 1,571,787 -----------------------------
- -------------------------------------------------------------
- ------------------------
Class Y
- -- 592,315 ----------------------------------
- -------------------------------------------------------------
- -------------------
Class Z
- -- 1,503,563 ----------------------------------
- -------------------------------------------------------------
- -------------------
Net Asset Value:
Class A (and redemption price)
$12.67 $13.33
- -------------------------------------------------------------
- ------------------------------------------------------
Class B*
$12.66 $13.34
- -------------------------------------------------------------
- ------------------------------------------------------
Class C**
$12.67 $13.32
- -------------------------------------------------------------
- ------------------------------------------------------
Class Y (and redemption price)
- -- $13.33 ----------------------------------
- -------------------------------------------------------------
- --------------------
Class Z (and redemption price)
- -- $13.33 ----------------------------------
- -------------------------------------------------------------
- --------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.71% of net asset value per share)
$13.27 $13.96
=============================================================
== == ====================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a
4.50% CDSC if shares
are redeemed less than one year from initial purchase.
** Redemption price is NAV of Class C shares reduced by a
1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
12
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Statements of Operations (unaudited) ------------------------
- ------------------------------------------------------
For the Six Months Ended June 30, 1995
<TABLE>
<CAPTION>
Monthly Payment U.S. Government
Government Securities
Portfolio Portfolio
=============================================================
== == ============================
<S> <C>
<C>
INVESTMENT INCOME:
Interest
$1,727,365 $16,167,527 -----------------------------
- --
- ------------------------------------------------------------
EXPENSES:
Management fees (Note 2)
97,278 914,885
Distribution fees (Note 2)
62,814 533,464
Registration fees
15,566 22,811
Shareholder and system servicing fees
7,140 59,256
Shareholder communications
4,706 34,714
Audit and legal
2,172 9,226
Custody
1,629 25,787
Directors' fees
724 4,463
Other
11,908 7,772
- -------------------------------------------------------------
- ------------------------------
Total Expenses
203,937 1,612,378 --------------------------------
- ----------------------------------------------------------Net
Investment Income
1,523,428 14,555,149
- -------------------------------------------------------------
- ------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized Gain (Loss) From Security Transactions
(excluding short-term securities):
Proceeds from sales
18,650,128 209,094,919
Cost of securities sold
18,803,804 202,851,199
- -------------------------------------------------------------
- ------------------------------
Net Realized Gain (Loss)
(153,676) 6,243,720
- -------------------------------------------------------------
- ------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of period
(1,969,754) (15,550,013)
End of period
1,029,219 5,542,043
- -------------------------------------------------------------
- ------------------------------
Increase in Net Unrealized Appreciation
2,998,973 21,092,056
- -------------------------------------------------------------
- ------------------------------
Net Gain on Investments
2,845,297 27,335,776
- -------------------------------------------------------------
- ------------------------------
Increase in Net Assets From Operations
$4,368,725 $41,890,925
=============================================================
== == ============================
</TABLE>
See Notes to Financial Statements.
13
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Statements of Changes in Net Assets -------------------------
- ---------------------------------------
- ---------------
For the Six Months Ended June 30, 1995 (unaudited)
and the Year Ended December 31, 1994
<TABLE>
<CAPTION>
Monthly
Payment U.S. Government
Government Securities
Portfolio Portfolio
-----------------
- ------------ ---------------------------------
1995
1994 1995 1994
=============================================================
== == ==================================================
<S> <C>
<C> <C> <C>
OPERATIONS:
Net investment income $ 1,523,428
$
3,386,342 $ 14,555,149 $ 31,215,317
Net realized gain (loss)
on security transactions
(153,676)
(317,752) 6,243,720 (1,106,366)
Increase (decrease) in net
unrealized appreciation of
investments 2,998,973
(4,006,984) 21,092,056 (38,104,827) ---------
- --
- -------------------------------------------------------------
- -----------------------------------------
Increase (Decrease) in Net
Assets From Operations 4,368,725
(938,394) 41,890,925 (7,995,876) -----------
- -------------------------------------------------------------
- ---------------------------------------DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (1,440,231)
(3,338,476) (14,896,283) (31,643,231)
Net realized gain on
security transactions (9,714)
(112,248) (282,903) (1,490,047) -----------
- --
- -------------------------------------------------------------
- ---------------------------------------
Decrease in Net Assets
From Distributions
to Shareholders (1,449,945)
(3,450,724) (15,179,186) (33,133,278) ---------
- --
- -------------------------------------------------------------
- -----------------------------------------
FUND SHARE TRANSACTIONS
(NOTE 5):
Net proceeds from sales 5,130,597
5,006,752 17,367,126 56,175,610
Net value of shares issued
to shareholders for
reinvestment of dividends 308,605
842,312 4,760,847 18,997,260
Cost of reacquired shares (7,536,351)
(15,897,992) (48,697,547) (123,068,611) --------
- --
- -------------------------------------------------------------
- ------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (2,097,149)
(10,048,928) (26,569,574) (47,895,741) --------
- --
- -------------------------------------------------------------
- ------------------------------------------
Increase (Decrease)
in Net Assets 821,631
(14,438,046) 142,165 (89,024,895)
NET ASSETS:
Beginning of period 43,670,202
58,108,248 413,309,283 502,334,178 ----------
- --
- -------------------------------------------------------------
- ----------------------------------------
End of period* $44,491,833
$43,670,202 $413,451,448 $413,309,283
=============================================================
== == ==================================================
* Includes undistributed
(overdistributed) net
investment income of: $150,709
$67,512 $ (313,530) $27,604
=============================================================
== == ==================================================
</TABLE>
See Notes to Financial Statements.
14
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) -------------------
- -----------------------------------------------------------
1. Significant Accounting Policies
The Monthly Payment Government Portfolio ("Monthly
Payment") and the U.S.
Government Securities Portfolio ("U.S. Government") are
separate investment
portfolios ("Portfolios") of the Smith Barney Funds, Inc.
("Fund"). The Fund, a
Maryland corporation, is registered under the Investment
Company Act of 1940, as
amended, as a diversified, open-end management investment
company. The Fund
consists of these Portfolios and four other separate
investment portfolios:
Income and Growth, Income Return Account, Short-Term U.S.
Treasury Securities,
and Utility Portfolios. The financial statements and
financial highlights for
the other portfolios are presented in separate semi-annual
reports.
The significant accounting policies consistently
followed by the Fund are:
(a) securities transactions are accounted for on trade date;
(b) U.S. Government
and Government Agency obligations are valued at the mean
between the bid and
asked prices; short-term investments that have a maturity of
more than 60 days
are valued at prices based on market quotations for
securities of similar type,
yield and maturity; short-term investments that have a
maturity of 60 days or
less are valued at cost plus accreted discount, or minus
amortized premium, as
applicable; (c) interest income is recorded on the accrual
basis; (d) gains or
losses on the sale of securities are calculated by using the
specific
identification method and include gains or losses resulting
from repayments of
principal on mortgage-backed securities; (e) direct expenses
are charged to each
portfolio and each class; management fees and general fund
expenses are
allocated on the basis of relative net assets; (f) dividends
and distributions
to shareholders are recorded on the ex-dividend date; and (g)
each portfolio
intends to comply with the requirements of the Internal
Revenue Code pertaining
to regulated investment companies and to make the required
distributions to
shareholders; therefore, no provision for Federal income
taxes has been made.
2. Management Agreement and Transactions with Affiliated
Persons
Smith Barney Mutual Funds Management, Inc. ("SBMFM"), a
subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to
the Fund. Monthly
Payment, U.S. Government and Income Return Account Portfolios
pay SBMFM a
management fee calculated at
15
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
the annual rate of 0.50% on the first $200 million of the
aggregate average
daily net assets of the three Portfolios and 0.40% on the
aggregate average
daily net assets in excess of $200 million, allocated to each
Portfolio based on
their relative average daily net assets. All fees are
calculated daily and paid
monthly.
Smith Barney Inc. ("SB"), another subsidiary of Smith
Barney Holdings Inc.,
acts as distributor of Fund shares. For the six months ended
June 30, 1995, SB
received sales charges of approximately $199,000 on sales of
the Portfolios'
Class A shares.
There is a contingent deferred sales charge ("CDSC") of
4.50% on Class B
shares if redemption occurs less than one year from initial
purchase. This CDSC
declines by 0.50% the first year after purchase and by 1.00%
per year thereafter
until no CDSC is incurred. Class C shares have a 1.00% CDSC
if redemption occurs
within the first year from the date such investment was made.
Any CDSC imposed
on redemptions is paid to SB. For the six months ended June
30, 1995, there were
approximately $2,000 in such charges.
Pursuant to Distribution Plans, the Portfolios pay a
service fee with
respect to their Class A, B and C shares calculated at the
annual rate of 0.25%
of the average daily net assets for each class, respectively.
Each Portfolio
also pays a distribution fee with respect to Class B and
Class C shares
calculated at the annual rate of 0.50% and 0.45% of the
average daily net assets
for each class, respectively. All officers and three
directors of the Fund are
employees of SB.
16
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
3. Investments
During the six months ended June 30, 1995, the aggregate
cost of purchases
and proceeds from sales (including maturities, but excluding
short-term
securities) of investments were, as follows:
<TABLE>
<CAPTION>
Portfolio Purchases
Sales
=============================================================
== == ===============
<S> <C>
<C>
Monthly Payment Government $ 10,912,987
$ 14,182,970
U.S. Government Securities 166,916,267
176,719,002
=============================================================
== == ===============
</TABLE>
At June 30, 1995, the net unrealized appreciation of
investments for
Federal income tax purposes by Portfolio consisted of the
following:
<TABLE>
<CAPTION>
Monthly
U.S.
Payment
Government
Government
Securities
=============================================================
== == ===============
<S> <C>
<C>
Gross unrealized appreciation $ 1,384,815
$ 9,713,256
Gross unrealized depreciation (355,596)
(4,171,213) -------------------------------------------------
- -----------------------------
Net unrealized appreciation $ 1,029,219
$ 5,542,043
=============================================================
== == ===============
</TABLE>
At December 31, 1994, the Monthly Payment and the U.S.
Government
Portfolios had net capital loss carryovers of $2,102,900 and
$31,251,158,
respectively, available to offset future capital gains. To
the extent that these
carryover losses are used to offset capital gains it is
probable that any gains
so offset will not be distributed. The amount and expiration
of the carryovers
are indicated below. Expiration occurs on December 31, of the
year indicated:
<TABLE>
<CAPTION>
Portfolio 1995 1996
1997 2002
=============================================================
== == ======================
<S> <C> <C>
<C> <C>
Monthly Payment Government $ 1,672,900 --
- - $ 430,000
U.S. Government Securities 27,364,758 $392,439
$897,548 2,596,413
=============================================================
== == ======================
</TABLE>
4. Repurchase Agreements
The Portfolios purchase (and their custodian takes
possession of) U.S.
Government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolios require
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
17
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
5. Securities Traded on a When-Issued or To-Be-Announced
Basis
The Portfolios may trade portfolio securities on a "to-
be announced"
("TBA") basis. In a TBA transaction, the Portfolios commit to
purchasing or
selling securities for which specific information is not yet
known at the time
of the trade, particularly the face amount and maturity date
in GNMA
transactions. Securities purchased on a TBA basis are not
settled until they are
delivered to the Portfolios, normally 15 to 45 days later.
These transactions
are subject to market fluctuations and their current value is
determined in the
same manner as for other portfolio securities. As of June 30,
1995, U.S.
Government held two TBA securities.
6. Capital Shares
At June 30, 1995, the Fund had two billion shares of
$0.01 par value
capital stock authorized. Each Portfolio has the ability to
issue multiple
classes of shares. Each share of a class represents an
identical interest in its
respective Portfolio and has the same rights, except that
each class bears
certain expenses, including those specifically related to the
distribution of
its shares. Effective November 7, 1994, the Fund adopted a
new class structure,
renaming existing Class B shares as Class C shares and former
C shares as Class
Y shares. At June 30, 1995, total paid-in capital amounted to
the following for
each class and respective Portfolio.
<TABLE>
<CAPTION>
Monthly
Payment
U.S. Gov't.
Class Government
Securities
=============================================================
== == ===============
<S> <C>
<C>
A $41,851,042
$377,258,140
B 559,939
6,430,233
C 3,167,214
22,159,803
Y --
8,927,883
Z --
18,737,218
=============================================================
== == ===============
</TABLE>
18
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
Six
Months Ended Year Ended
June
30, 1995 December 31, 1994*
Monthly Payment ---------------
- ---------- -----------------------------
Government Shares
Amount Shares Amount
=============================================================
== == =============================================
<S> <C>
<C>
<C> <C>
Class A
Shares sold 336,902
$
4,137,438 320,608 $ 3,949,827
Shares issued on reinvestment 23,040
282,685 63,319 774,146
Shares redeemed (530,372)
(6,509,229) (1,263,505) (15,306,810) ------------
- -------------------------------------------------------------
- ----------------------------------
Net Decrease (170,430)
$(2,089,106) (879,578) $(10,582,837)
=============================================================
== == =============================================
Class B
Shares sold 68,160
$
838,356 5,165 $ 61,023
Shares issued on reinvestment 421
5,215 1 6
Shares redeemed (27,426)
(344,659) -- ------------------
- --
- -------------------------------------------------------------
- ----------------------------
Net Increase 41,155
$
498,912 5,166 $ 61,029
=============================================================
== == =============================================
Class C+
Shares sold 12,229
$
154,803 79,705 $ 995,902
Shares issued on reinvestment 1,697
20,705 5,578 68,160
Shares redeemed (55,347)
(682,463) (48,174) (591,182)
- -------------------------------------------------------------
- -----------------------------------------------
Net Increase (Decrease) (41,421)
$
(506,955) 37,109 $ 472,880
=============================================================
== == =============================================
</TABLE>
* For Class B shares, transactions are for the period from
November 7, 1994
(inception date) to December 31, 1994.
+ On November 7, 1994 the former Class B shares were renamed
Class C shares.
19
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Six Months Ended
Year Ended
June 30, 1995
December 31, 1994*
U.S. Government ------------------------ -
- --
- -------------------------
Securities Shares Amount
Shares Amount
=============================================================
== == ========================
<S> <C> <C>
<C>
<C>
Class A
Shares sold 632,286 $ 8,246,198
1,869,276 $ 24,593,957
Shares issued on
reinvestment 309,777 3,996,122
1,351,832 17,357,603
Shares redeemed (2,723,411) (35,472,395)
(8,851,963) (114,384,462) --------------------------------
- --
- ------------------------------------------------------
Net Increase (Decrease) (1,781,348) $(23,230,075)
(5,630,855) $ (72,432,902)
=============================================================
== == ========================
Class B
Shares sold 438,023 $ 5,791,118
149,288 $ 1,870,235
Shares issued on
reinvestment 2,525 32,628
1,488 18,633
Shares redeemed (70,381) (925,724)
(28,581) (356,657) -----------------------------------
- --
- ---------------------------------------------------
Net Increase 370,167 $ 4,898,022
122,195 $ 1,532,211
=============================================================
== == ========================
Class C+
Shares sold 118,472 $ 1,548,506
722,632 $ 9,602,624
Shares issued on
reinvestment 21,044 271,474
85,790 1,099,736
Shares redeemed (268,613) (3,492,225)
(567,463) (7,323,683) ----------------------------------
- --
- ----------------------------------------------------
Net Increase (129,097) $ (1,672,245)
240,959 $ 3,378,677
=============================================================
== == ========================
Class Y++
Shares sold 1,670 $ 21,837
103,206 $ 1,413,134
Shares issued on
reinvestment 3,842 49,604
13,895 178,365
Shares redeemed (524,648) (6,830,652)
(38,511) (508,509) -----------------------------------
- --
- ---------------------------------------------------
Net Increase (519,136) $ (6,759,211)
78,590 $ 1,082,990
=============================================================
== == ========================
Class Z
Shares sold 136,110 $ 1,759,467
1,498,512 $ 18,695,660
Shares issued on
reinvestment 31,862 411,019
27,412 342,923
Shares redeemed (150,762) (1,976,551)
(39,571) (495,300) -----------------------------------
- ----------------------------------------------------
Net Increase 17,210 $ 193,935
1,486,353 $ 18,543,283
=============================================================
== == ========================
</TABLE>
* For Class B and Z shares, transactions are for the period
from
November 7,
1994 (inception date) to December 31, 1994.
+ On November 7, 1994 the former Class B shares were renamed
Class C shares.
++ On November 7, 1994 the former Class C shares were renamed
Class Y shares.
20
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
7. Mortgage Dollar Rolls
The Portfolios may enter into mortgage dollar rolls in
which the Portfolios
sell mortgage securities for delivery in the current month
and simultaneously
contracts to repurchase similar, but not identical,
securities at the same price
on a fixed date. The Portfolios receive compensation as
consideration for
entering into the commitment to repurchase. The counterparty
receives all
principal and interest payments, including prepayments, made
with regard to this
security while it is the holder. Mortgage dollar rolls may be
renewed with a new
purchase and repurchase price fixed and a cash settlement
made at each renewal
without physical delivery of the securities subject to the
contract. At June 30,
1995, there were no open mortgage dollar roll contracts.
21
Smith Barney Funds, Inc.
Monthly Payment Government Portfolio ------------------------
- -----------------------------------------------------
Financial Highlights ----------------------------------------
- --------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1995(2) 1994
1993 1992 1991
=============================================================
==
== ======================
<S> <C> <C>
<C>
<C> <C>
Net Asset Value, Beginning of Period $11.86 $12.85
$12.96 $13.12 $12.41 ----------------------------------
- --
- --------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.43 0.79
0.87 0.92 1.02
Net realized and unrealized
gain (loss) on investments 0.79 (0.97)
(0.04) (0.07) 0.83 -----------------------------------
- --
- -------------------------------------------------
Total Income (Loss) From Operations 1.22 (0.18)
0.83 0.85 1.85 ------------------------------------
- --
- ------------------------------------------------
Less Distributions:
Dividends from net investment income (0.41) (0.78)
(0.88) (0.96) (1.11)
Distribution from net realized gains
on security transactions (1) -- (0.03)
(0.06) (0.05) (0.03) ----------------------------------
- --
- -----------------------------
- ----------------------
Total Distributions (0.41) (0.81)
(0.94) (1.01) (1.14) ----------------------------------
- --
- --------------------------------------------------
Net Asset Value, End of Period $12.67 $11.86
$12.85 $12.96 $13.12 ----------------------------------
- --
- --------------------------------------------------
Total Return 10.39%++ (1.36)%
6.51% 6.83% 15.66% -----------------------------------
- --
- -------------------------------------------------
Net Assets, End of Period (000s) $40,850 $40,258
$54,953 $49,755 $33,327 ---------------------------------
- --
- ---------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.89%+ 0.67%
0.56% 0.51% 0.51%
Net investment income 7.02+ 6.54
6.66 7.39 8.18 ------------------------------------
- --
- ------------------------------------------------
Portfolio Turnover Rate 25.52% 58.00%
97.66% 36.11% 10.62%
=============================================================
== == ======================
<CAPTION>
Class B Shares 1995(2) 1994(3)
=============================================================
== == ======================
<S> <C> <C>
Net Asset Value, Beginning of Period $11.85 $11.78 ---
- -------------------------------------------------------------
- --------------------
Income From Operations:
Net investment income 0.39 0.18
Net realized and unrealized
gain on investments 0.80 0.01
- -------------------------------------------------------------
- ------------------------
Total Income From Operations 1.19 0.19
- -------------------------------------------------------------
- ------------------------
Less Distributions:
Dividends from net investment income (0.38) (0.12)
Distribution from net realized gains
on security transactions (1) -- --
- -------------------------------------------------------------
- ------------------------
Total Distributions (0.38) (0.12) --
- -------------------------------------------------------------
- ---------------------
Net Asset Value, End of Period $12.66 $11.85 ---
- -------------------------------------------------------------
- --------------------
Total Return 10.22%++ 1.64%++
- -------------------------------------------------------------
- ------------------------
Net Assets, End of Period (000s) $587 $61
- -------------------------------------------------------------
- ------------------------
Ratios to Average Net Assets:
Expenses 1.36%+ 0.67%+
Net investment income 6.53+ 7.18+
- -------------------------------------------------------------
- ------------------------
Portfolio Turnover Rate 25.52% 58.00%
=============================================================
== == ======================
</TABLE>
(1) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
(2) For the six months ended June 30, 1995 (unaudited).
(3) For the period from November 10, 1994 (inception date) to
December 31, 1994.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
22
Smith Barney Funds, Inc.
Monthly Payment Government Portfolio ------------------------
- -----------------------------------------------------
Financial Highlights (continued) ----------------------------
- --------------------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
Class C Shares (1) 1995(2) 1994
1993 1992(3)
=============================================================
== == ================
<S> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $11.86
$12.85 $12.96 $12.89 --------------------------------------
- -----------------------------------------
Income (Loss) From Operations:
Net investment income 0.41 0.72
0.78 0.05
Net realized and unrealized
gain (loss) on investments 0.78
(0.98) (0.04) 0.10 ---------------------------------------
- ---------
- --------------------------------
Total Income (Loss) From Operations 1.19
(0.26) 0.74 0.15 ----------------------------------------
- ---------------------------------------
Less Distributions:
Dividends from net investment income (0.38) (0.70)
(0.79) (0.08)
Distribution from net realized gains
on security transactions (4) --
(0.03) (0.06) ------------------------------------------
- -----------------------
- ----------------
Total Distributions (0.38)
(0.73) (0.85) (0.08) --------------------------------------
- -----------------------------------------
Net Asset Value, End of Period $12.67
$11.86 $12.85 $12.96 --------------------------------------
- -----------------------------------------
Total Return 10.15%++
(2.07)% 5.77% 1.15%++ ------------------------------------
- -------------------------------------------
Net Assets, End of Period (000s) $3,055
$3,351 $3,155 $72 --------------------------------------
- -----------------------------------------
Ratios to Average Net Assets:
Expenses 1.34%+ 1.32%
1.27% 1.21%+
Net investment income 6.57+ 5.92
5.88 6.21+ ----------------------------------------------
- ---------------------------------
Portfolio Turnover Rate 25.52%
58.00% 97.66% 36.11%
=============================================================
== == ================
</TABLE>
(1) On November 7, 1994 the former Class B shares were
renamed Class C shares.
(2) For the six months ended June 30, 1995 (unaudited).
(3) For the period from December 2, 1992 (inception date) to
December 31, 1992.
(4) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
23
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- -----------------------------------------------------
Financial Highlights (continued) ----------------------------
- --------------------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1995(2) 1994
1993 1992 1991
=============================================================
== == ===============================
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $12.50 $13.66
$13.87 $14.10 $13.22
- -------------------------------------------------------------
- ---------------------------------
Income (Loss) From Operations:
Net investment income 0.47 0.91
0.98 1.06 1.26
Net realized and unrealized
gain (loss) on investments 0.84 (1.11)
(0.10) (0.13) 0.80
- -------------------------------------------------------------
- ---------------------------------
Total Income (Loss) From Operations 1.31 (0.20)
0.88 0.93 2.06
- -------------------------------------------------------------
- ---------------------------------
Less Distributions:
Dividends from net investment income (0.48) (0.91)
(0.98) (1.08) (1.13)
Distribution from net realized gains
on security transactions (1) -- (0.05)
(0.11) (0.08) (0.05)
- -------------------------------------------------------------
- ---------------------------------
Total Distributions (0.48) (0.96)
(1.09) (1.16) (1.18)
- -------------------------------------------------------------
- ---------------------------------
Net Asset Value, End of Period $13.33 $12.50
$13.66 $13.87 $14.10
- -------------------------------------------------------------
- ---------------------------------
Total Return 10.62%++ (1.48)%
6.40% 6.85% 16.29%
- -------------------------------------------------------------
- ---------------------------------
Net Assets, End of Period (000s) $358,005 $358,045
$468,278 $459,380 $394,412
- -------------------------------------------------------------
- ---------------------------------
Ratios to Average Net Assets:
Expenses 0.77%+ 0.56%
0.49% 0.50% 0.44%
Net investment income 7.20+ 6.83
7.00 7.65 8.31
- -------------------------------------------------------------
- ---------------------------------
Portfolio Turnover Rate 42.48% 40.22%
57.34% 26.18% 9.29%
=============================================================
== == ===============================
</TABLE>
(1) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
(2) For the six months ended June 30, 1995 (unaudited).
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
24
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- -----------------------------------------------------
Financial Highlights (continued) ----------------------------
- --------------------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
Class B Shares
1995(2) 1994(3)
=============================================================
== == =========================
<S>
<C> <C>
Net Asset Value, Beginning of Period
$12.51 $12.47
- -------------------------------------------------------------
- ---------------------------
Income From Operations:
Net investment income
0.33 0.08
Net realized and unrealized
gain on investments
0.95 0.17
- -------------------------------------------------------------
- ---------------------------
Total Income From Operations
1.28 0.25
- -------------------------------------------------------------
- ---------------------------
Less Distributions:
Dividends from net investment income
(0.45) (0.21)
Distribution from net realized gains
on security transactions (1)
- -- --
- -------------------------------------------------------------
- ---------------------------
Total Distributions
(0.45) (0.21)
- -------------------------------------------------------------
- ---------------------------
Net Asset Value, End of Period
$13.34 $12.51
- -------------------------------------------------------------
- ---------------------------
Total Return
10.35%++ 2.04%++
- -------------------------------------------------------------
- ---------------------------
Net Assets, End of Period (000s)
$6,569 $1,529
- -------------------------------------------------------------
- ---------------------------
Ratios to Average Net Assets:
Expenses
1.24%+ 1.02%+
Net investment income
6.70+ 6.94+ ---------------------------------------
- -------------------------------------------------
Portfolio Turnover Rate
42.48% 40.22%
=============================================================
== == =========================
</TABLE>
(1) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
(2) For the six months ended June 30, 1995 (unaudited).
(3) For the period from November 7, 1994 (inception date) to
December 31, 1994.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
25
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- -----------------------------------------------------
Financial Highlights (continued) ----------------------------
- --------------------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
Class C Shares (2) 1995(3) 1994
1993 1992(4)
=============================================================
== == =============
<S> <C> <C>
<C>
<C>
Net Asset Value, Beginning of Period $12.50 $13.66
$13.86 $14.01 --------------------------------------------
- --------------------------------
Income (Loss) From Operations:
Net investment income 0.44 0.82
0.89 0.15
Net realized and unrealized
gain (loss) on investments 0.84 (1.11)
(0.10) ------------------------------------------------
- -----------------------------
Total Income (Loss) From Operations 1.28 (0.29)
0.79 0.15 ----------------------------------------------
- ------------------------------
Less Distributions:
Dividends from net investment income (0.46) (0.83)
(0.88) (0.30)
Distribution from net realized gains
on security transactions (1) -- (0.04)
(0.11) ------------------------------------------------
- -----------------------------
Total Distributions (0.46) (0.87)
(0.99) (0.30) --------------------------------------------
- --------------------------------
Net Asset Value, End of Period $13.32 $12.50
$13.66 $13.86 --------------------------------------------
- --------------------------------
Total Return 10.30%++ (2.11)%
5.74% 1.07%++ -------------------------------------------
- ---------------------------------
Net Assets, End of Period (000s) $20,939 $21,253
$19,938 $1,954 -------------------------------------------
- ---------------------------------
Ratios to Average Net Assets:
Expenses 1.22%+ 1.21%
1.21% 1.14%+
Net investment income 6.75+ 6.27
6.23 6.56+ ---------------------------------------------
- -------------------------------
Portfolio Turnover Rate 42.48% 40.22%
57.34% 26.18%
=============================================================
== == =============
</TABLE>
(1) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
(2) On November 7, 1994 the former Class B shares were
renamed Class C shares.
(3) For the six months ended June 30, 1995 (unaudited).
(4) For the period from December 2, 1992 (inception date) to
December 31, 1992.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
26
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- -----------------------------------------------------
Financial Highlights (continued) ----------------------------
- --------------------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
Class Y Shares 1995(2)
1994 1993(3)
=============================================================
== == ==============
<S> <C>
<C>
<C>
Net Asset Value, Beginning of Period $12.51
$13.67 $13.97 -------------------------------------------
- ----------------------------------
Income (Loss) From Operations:
Net investment income 0.55
0.89 0.86
Net realized and unrealized gain
(loss) on investments 0.77
(1.10) (0.10) -------------------------------------------
- ----------------------------------
Total Income (Loss) From Operations 1.32
(0.21) 0.76
- -------------------------------------------------------------
- ----------------
Less Distributions:
Dividends from net investment income (0.50)
(0.91) (0.95)
Distribution from net realized gains on
security transactions (1) --
(0.04) (0.11) -------------------------------------------
- ----------------------------------
Total Distributions (0.50)
(0.95) (1.06) -------------------------------------------
- ----------------------------------
Net Asset Value, End of Period $13.33
$12.51 $13.67 -------------------------------------------
- ----------------------------------
Total Return 10.67%++
(1.53)% 5.55%++
- -------------------------------------------------------------
- ----------------
Net Assets, End of Period (000s) $7,898
$13,903 $14,118 ------------------------------------------
- -----------------------------------
Ratios to Average Net Assets:
Expenses 0.54%+
0.61% 0.69%+
Net investment income 7.48+
6.82 7.29+ --------------------------------------------
- ---------------------------------
Portfolio Turnover Rate 42.48%
40.22% 57.34%
=============================================================
== == ==============
</TABLE>
(1) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
(2) For the six months ended June 30, 1995 (unaudited).
(3) For the period from January 12, 1993 (inception date) to
December 31, 1993.
++ Not annualized as it may not be representative of the
total
return for the
year.
+ Annualized.
27
Smith Barney Funds, Inc.
U.S. Government Securities Portfolio ------------------------
- -----------------------------------------------------
Financial Highlights (continued) ----------------------------
- --
- -------------------------------------------------
For a share of each class of capital stock
outstanding throughout each period:
<TABLE>
<CAPTION>
Class Z Shares
1995(1) 1994(2)
=============================================================
== == ==================
<S> <C>
<C>
Net Asset Value, Beginning of Period
$12.50 $12.47 -----------------------------------------------
- ----------------------------------
Income From Operations:
Net investment income
0.48
0.14
Net realized and unrealized
gain on investments
0.85
0.13 --------------------------------------------------------
- -------------------------
Total Income From Operations
1.33
0.27 --------------------------------------------------------
- -------------------------
Less Distributions:
Dividends from net investment income
(0.50) (0.24) -----------------------------------------------
- ----------------------------------
Total Distributions
(0.50) (0.24) -----------------------------------------------
- ----------------------------------
Net Asset Value, End of Period
$13.33 $12.50 -----------------------------------------------
- ----------------------------------
Total Return
10.76%++ (2.15)%++ --------------------------------
- -------------------------------------------------
Net Assets, End of Period (000s)
$20,040
$18,580 -----------------------------------------------------
- ----------------------------
Ratios to Average Net Assets:
Expenses
0.52%+ 0.34%+
Net investment income
7.45+ 7.55+ -------------------------------------------------
- --------------------------------
Portfolio Turnover Rate
42.48% 40.22%
=============================================================
== == ==================
</TABLE>
(1) For the six months ended June 30, 1995 (unaudited).
(2) For the period from November 7, 1994 (inception date) to
December 31, 1994.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
28
Smith Barney
Funds, Inc.
Directors
Jessica M. Bibliowicz
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Heath B. McLendon, Chairman
C. Richard Youngdahl
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
------------
[LOGO OF TRAVELERS
GROUP APPEARS HERE]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the
shareholders of
Smith Barney Funds, Inc.: U.S. Government Securities and
Monthly Payment
Government Portfolios. It is not authorized for
distribution to prospective
investors unless accompanied or preceded by a current
Prospectus for the
Portfolio, which contains information concerning the
Portfolios' investment
policies and expenses as well as other pertinent
information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD 0631 8/95 ------------------------------------------------
- ------------------------------
SEMI-ANNUAL REPORT ------------
- -------------------------------------------------------------
- ----
Smith Barney
Funds, Inc.
Income Return
Account Portfolio
Short-Term U.S.
Treasury Securities
Portfolio
--------------------------------
- ---
- ---------------
June 30, 1995
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future.
Every day.
- -------------------------------------------------------------
- -----------------
INCOME RETURN ACCOUNT AND SHORT-TERM
U.S. TREASURY SECURITIES PORTFOLIOS -------------------------
- -----------------------------------------------------
Dear Shareholder:
Although we had expected that 1995 would be a positive year
for the bond market,
we did not anticipate the strength of the rally we have
witnessed over the
course of the last six months. As economic growth slowed and
inflation appeared
to be in check, particularly in the second quarter, interest
rates began to
fall, causing bond prices to rise. In our opinion, there were
three major
factors, beside the overall picture of a slowing economy,
behind the rally.
The first area of support came from foreign central banks
which intervened to
support the U.S. dollar after it fell precipitously early in
the year. As the
banks purchased dollars, they invested them in U.S. Treasury
securities,
particularly in maturities at the front end of the yield
curve.
Second, because last year's bond market was so depressed,
many investors were
under-invested. In 1995, when interest rates began to fall,
buyers re-entered
the market. The buying had a snowball effect, causing bond
prices to rise
dramatically and yields to fall.
The third boost to the bond market came from foreign private
investors.
Believing that the dollar had reached bottom, these investors
bought a record
$29.7 billion of U.S. Treasury securities in the first
quarter of 1995.
Income Return Account Portfolio
Performance and Strategy
For the six months ended June 30, 1995, the total return for
Class A shares of
the Income Return Account Portfolio was 5.34%. The Portfolio
outperformed the
unmanaged Salomon Brothers 1-Year Treasury Index, which
measures the performance
of the most recently issued twelve-month U.S. Treasury Bill
until maturity. The
Index returned 4.72% for the same period.
In January, the Income Return Account Portfolio's duration, a
measure of
interest-rate sensitivity, was approximately one year. By the
beginning of
February, the Portfolio's duration stood at approximately 1.5
years. Recently,
due to declining interest rates, it has moved down to 1.1
years. The Portfolio's
duration is controlled by a computer-driven model.
Short-Term U.S. Treasury Securities Portfolio
Performance and Strategy
The Short-Term U.S. Treasury Securities Portfolio had a total
return of 8.22%
for Class A shares for the six months ended June 30, 1995.
This compares to a
total return of 8.39% for the unmanaged Salomon Brothers 3-
Year Treasury Index,
which measures the performance of the most recently issued
threeyear U.S.
Treasury Note until maturity.
1
For the first six months of 1995, our average maturity was
maintained at our
maximum allowable three years and our duration was
approximately 2.7 years.
Early in July, we reduced our average maturity slightly to
2.7 years and our
duration to 2.4 years in response to market weakness
following the Federal
Reserve's easing.
Outlook
On July 6, 1995, the Federal Reserve Board eased monetary
policy and lowered the
target federal funds rate (the rate banks charge each other
for overnight loans)
by one-quarter percentage point. Although this did cause a
brief but powerful
one-day rally in the financial markets, followed by a minor
correction, in our
view it had little other substantive impact. It did, however,
reinforce the
belief among investors that inflation is not a threat and
rates are probably
headed somewhat lower.
We do want to look at what might happen to interest rates
going forward. While
there are no guarantees, it would be unprecedented for the
Fed to lower interest
rates only once. Therefore, we believe that we will see
further rate decreases,
although perhaps not in the near-term. By the end of the
year, however, we think
that the federal funds rate, which is now 5.75%, may reach
5.25%. The market has
probably already discounted this reduction in rates, but in
our view, there may
be room for longer-term rates to come down a bit more, which
also leaves room
for more price appreciation in the bond market.
We would like to point out that on August 11, 1995, the Smith
Barney Limited
Maturity Treasury Fund will be merged into the Short-Term
U.S. Treasury
Securities Portfolio, increasing the Portfolio's assets by
approximately $54
million.
We thank you for your confidence in our investment management
and look forward
to serving your investment needs in the future.
Sincerely,
/s/ Heath B. McLendon /s/ Patrick
Sheehan
Heath B. McLendon Patrick Sheehan
Chairman and Vice President
Chief Executive Officer
July 20, 1995
2
Smith Barney Funds, Inc.
Income Return Account Portfolio -----------------------------
- -------------------------------------------------
Historical Performance -- Class A Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End of Income
Capital Gain Total
Period Ended of Period Period Dividends
Distributions Returns/(1)/
=============================================================
== == =======================
<S> <C> <C> <C>
<C>
<C>
6/30/95 $9.34 $9.58 $0.25
$0.00 5.34% ---------------------------------------
- --
- ----------------------------------------------
12/31/94 9.59 9.34 0.45
0.00 2.14 -----------------------------------------
- --
- --------------------------------------------
12/31/93 9.68 9.59 0.47
0.00 4.00 -----------------------------------------
- --
- --------------------------------------------
12/31/92 9.65 9.68 0.52
0.00 5.85 -----------------------------------------
- --
- --------------------------------------------
12/31/91 9.38 9.65 0.73
0.00 11.06 -----------------------------------------
- --
- --------------------------------------------
12/31/90 9.31 9.38 0.74
0.00 9.10 -----------------------------------------
- --
- --------------------------------------------
12/31/89 9.12 9.31 0.75
0.00 10.67 -----------------------------------------
- --
- --------------------------------------------
12/31/88 9.26 9.12 0.72
0.00 6.48 -----------------------------------------
- --
- --------------------------------------------
12/31/87 9.43 9.26 0.60
0.06 5.36 -----------------------------------------
- --
- --------------------------------------------
12/31/86 9.51 9.43 0.87
0.01 8.78 -----------------------------------------
- --
- -------------------------------------------Inception*-
12/31/85 9.17 9.51 0.50
0.00 9.34
=============================================================
== == =======================
Total $6.60
$0.07
=============================================================
== == =======================
</TABLE>
It is the Fund's policy to distribute dividends monthly and
capital gains, if
any, annually.
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class A Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============
<S> <C>
<C>
Six Months Ended 6/30/95+ 5.34%
3.24% -------------------------------------------------------
- -----------------------
Year Ended 6/30/95 6.94
4.84 --------------------------------------------------------
- ----------------------
Five Years Ended 6/30/95 6.80
6.37 --------------------------------------------------------
- ----------------------
Ten Years Ended 6/30/95 7.53
7.31 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Historical Performance -- Class C Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End of Income
Capital Gain Total
Period Ended of Period Period Dividends
Distributions Returns/(1)/
=============================================================
== == =======================
<S> <C> <C> <C>
<C>
<C>
6/30/95 $9.34 $9.58 $0.24
$0.00 5.16% --------------------------------------
- ------------------------------------------------
12/31/94 9.58 9.34 0.42
0.00 1.86 ----------------------------------------
- ----------------------------------------------
12/31/93 9.68 9.58 0.43
0.00 3.53 ----------------------------------------
- ---------------------------------------------Inception*-
12/31/92 9.69 9.68 0.04
0.00 0.31
=============================================================
== == =======================
Total $1.13
$0.00
=============================================================
== == =======================
</TABLE>
3
Smith Barney Funds, Inc.
Income Return Account Portfolio -----------------------------
- -------------------------------------------------
Average Annual Total Return -- Class C Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
With
Sales Charge/(1)/
Sales Charge/(2)/
=============================================================
== == ===============
<S> <C>
<C>
Six Months Ended 6/30/95+ 5.16%
4.16% -------------------------------------------------------
- -----------------------
Year Ended 6/30/95 6.54
5.54 --------------------------------------------------------
- --------
- ---------------
Inception* through 6/30/95 4.29
4.29 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Historical Performance -- Class Y Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End of Income
Capital Gain Total
Period Ended of Period Period Dividends
Distributions Returns/(1)/
=============================================================
== == =======================
<S> <C> <C> <C>
<C>
<C>
6/30/95 $9.34 $9.58 $0.25
$0.00 5.34% ---------------------------------------
- -----------------------------------------------
12/31/94 9.59 9.34 0.44
0.00 2.01 -----------------------------------------
- --------------------------------------------Inception*-
12/31/93 9.72 9.59 0.42
0.00 3.01
=============================================================
== == =======================
Total $1.11
$0.00
=============================================================
== == =======================
</TABLE>
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class Y Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
Sales Charge/(1)/
=============================================================
== == ===============
<S>
<C>
Six Months Ended 6/30/95+
5.34% -------------------------------------------------------
- -----------------------
Year Ended 6/30/95
6.89 --------------------------------------------------------
- ----------------------
Inception* through 6/30/95
4.31 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Historical Performance -- Class Z Shares --------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End of Income
Capital Gain Total
Period Ended of Period Period Dividends
Distributions Returns/(1)/
=============================================================
== == =======================
<S> <C> <C> <C>
<C>
<C>
6/30/95 $9.35 $9.58 $0.25
$0.00 5.22% ----------------------------------------
- ---------------------------------------------Inception*-
12/31/94 9.42 9.35 0.12
0.00 0.38
=============================================================
== == =======================
Total $0.37
$0.00
=============================================================
== == =======================
</TABLE>
4
Smith Barney Funds, Inc.
Income Return Account Portfolio -----------------------------
- -------------------------------------------------
Average Annual Total Return -- Class Z Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
Sales Charge/(1)/
=============================================================
== == ===============
<S>
<C>
Six Months Ended 6/30/95+
5.22% -------------------------------------------------------
- -----------------------
Inception* through 6/30/95
5.73 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- ---
- ---------------
Cumulative Total Return -------------------------------------
- -----------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge/(1)/
=============================================================
== == ===============
<S>
<C>
Class A (Inception* through 6/30/95)
111.94% -----------------------------------------------------
- -------------------------
Class C (Inception* through 6/30/95)
11.23 -------------------------------------------------------
- -----------------------
Class Y (Inception* through 6/30/95)
10.69 -------------------------------------------------------
- -----------------------
Class Z (Inception* through 6/30/95)
5.73 --------------------------------------------------------
- ----------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect a deduction of the
applicable sales charge
with respect to Class A shares or the applicable contingent
deferred sales
charges ("CDSC") with respect to Class C shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 2.00% and Class C shares
reflect the
deduction of a 1.00% CDSC if shares are redeemed within the
first year of
purchase.
* Inception dates for Class A, C, Y, and Z shares are March
4,
1985, December
16, 1992, February 1, 1993 and November 7, 1994,
respectively.
+ Represents total return for the period from January 1, 1995
through June 30,
1995, not annualized.
5
Smith Barney Funds, Inc.
Income Return Account Portfolio -----------------------------
- -------------------------------------------------
Historical Performance --------------------------------------
- ----------------------------------------
Growth of $10,000 Invested in Class A Shares
of Income Return Account Portfolio
vs. Salomon Brothers 1-Year Treasury Index+
(unaudited)
- -------------------------------------------------------------
- -----------------
March 1985 - June 1995
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Salomon
Brothers Income Return 1-Year
Account Portfolio Treasury
Index+
----------------------------------------------
<S> <C> <C>
3/85 9,745 10,000
12/85 10,532 10,912
12/86 11,386 11,790
12/87 11,927 12,469
12/88 12,699 13,230
12/89 14,054 14,562
12/90 15,431 15,862
12/91 17,138 17,246
12/92 18,140 18,079
12/93 18,865 18,771
12/94 19,260 19,265
6/95 20,288 20,176
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A
shares
at inception
on March 4, 1985, assuming deduction of the maximum 2.50%
sales charge in
effect at the time of investment and the reinvestment of
dividends (after
deduction of applicable sales charge through November 7,
1994, afterwards at
net asset value) and capital gains at net asset value through
June 30, 1995.
The Salomon Brothers 1-Year Treasury Index is composed of the
most recently
issued twelve month United States Treasury Bill ("Bill")
which is used to
track the Bill's return until its maturity. The Index is
unmanaged and is not
subject to the same management and trading expenses of a
mutual fund. The
performance of the Portfolio's other classes may be greater
or less than the
Class A shares' performance indicated on this chart,
depending on whether
greater or lesser sales charges and fees were incurred by
shareholders
investing in the other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment return and principal value will fluctuate
and redemption
values may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
6
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio ---------------
- -------------------------------------------------------------
- -Historical Performance -- Class A Shares -------------------
- ---
- --------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value --------------------
Beginning End of Income
Capital Gain Total
Period Ended of Period Period Dividends
Distributions Returns
=============================================================
== == =======================
<S> <C> <C> <C>
<C>
<C>
6/30/95 $3.91 $4.11 $0.10
$0.00 8.22% --------------------------------------
- ------------------------------------------------
12/31/94 4.16 3.91 0.18
0.00 (2.15) ---------------------------------------
- -----------------------------------------------
12/31/93 4.12 4.16 0.18
0.02 6.01 ----------------------------------------
- ----------------------------------------------
12/31/92 4.09 4.12 0.19
0.01 5.92 ----------------------------------------
- ---------------------------------------------Inception*-
12/31/91 4.01 4.09 0.03
0.01 2.85
=============================================================
== == =======================
Total $0.68
$0.04
=============================================================
== == =======================
</TABLE>
It is the Fund's policy to distribute dividends monthly and
capital gains, if
any, annually.
- -------------------------------------------------------------
- -----------------
Average Annual Total Return -- Class A Shares ---------------
- -------------------------------------------------------------
- -<TABLE>
<CAPTION>
Without
Sales Charge
=============================================================
== == ===============
<S>
<C>
Six Months Ended 6/30/95+
8.22% -------------------------------------------------------
- -----------------------
Year Ended 6/30/95
7.90 --------------------------------------------------------
- ----------------------
Inception* through 6/30/95
5.69 --------------------------------------------------------
- ----------------------
</TABLE>
- -------------------------------------------------------------
- -----------------
Cumulative Total Return -------------------------------------
- -----------------------------------------
<TABLE>
<CAPTION>
Without
Sales Charge
=============================================================
== == ===============
<S>
<C>
Class A shares (Inception* through 6/30/95)
22.27% ------------------------------------------------------
- ------------------------
</TABLE>
* The inception date for Class A shares is November 11, 1991.
+ Represents total return for the period from January 1, 1995
through June 30,
1995, not annualized.
7
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio ---------------
- -------------------------------------------------------------
- -Historical Performance -------------------------------------
- -----------------------------------------
Growth of $10,000 Invested in Class A Shares
of Short-Term U.S. Treasury Securities
Portfolio vs.
Salomon Brothers 3-Year
Treasury Index+ (unaudited)
- -------------------------------------------------------------
- -----------------
November 1991 - June 1995
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Short-Term Salomon
Brothers U.S. Treasury 3-Year
Securities Portfolio Treasury
Index+ -----------------------------------------
--------<S> <C> <C>
11/91 10,000 10,000
12/91 10,285 10,230
12/92 10,894 10,902
12/93 11,549 11,653
12/94 11,301 11,471
6/95 12,227 12,433
</TABLE>
+ Hypothetical illustration of $10,000 invested in shares at
inception on
November 11, 1991, assuming reinvestment of dividends and
capital gains at net
asset value through June 30, 1995. The Salomon Brothers 3-
Year Treasury Index
is composed of the most recently issued 3-year United States
Treasury Note
("Note") which is used to track the Note's return until its
maturity. The
index is unmanaged and is not subject to the same management
and trading
expenses of a mutual fund.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
values may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
8
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Schedules of Investments (unaudited)
June 30, 1995 -----------------------------------------------
- -------------------------------
INCOME RETURN ACCOUNT PORTFOLIO
<TABLE>
<CAPTION>
FACE
COUPON
AMOUNT SECURITY
RATE
MATURITY VALUE
=============================================================
== == ==================================
<C> <S> <C>
<C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS -- 66.6%
$3,000,000 U.S. Treasury Note
5.500%
4/30/96 $ 2,993,970
2,000,000 U.S. Treasury Note
4.250
5/15/96 1,975,160
4,000,000 U.S. Treasury Note
6.250
8/31/96 4,019,480
2,000,000 U.S. Treasury Note 6.250
1/31/97 2,012,660
5,000,000 U.S. Treasury Note 6.750
2/28/97 5,070,900
2,000,000 U.S. Treasury Note 7.125
9/30/99 2,082,880
- -------------------------------------------------------------
- ------------------------------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost -- $17,984,844)
18,155,050
=============================================================
== == ==================================
REPURCHASE AGREEMENTS -- 33.4%
6,346,000 Goldman Sachs, 5.947% due 7/3/95;
Proceeds at maturity -- $6,349,145; (Fully
collateralized
by U.S. Treasury Notes, 6.625% due 3/31/97;
Market value -- $6,479,016)
6,346,000
2,755,000 Chemical Securities Inc., 5.977% due 7/3/95;
Proceeds at maturity -- $2,756,372; (Fully
collateralized
by U.S. Treasury Notes, 6.125% due 5/15/98;
Market value -- $2,811,714)
2,755,000 ---------------------------------------------------
- ----------------------------------------------
TOTAL REPURCHASE AGREEMENTS (Cost --
$9,101,000) 9,101,000
=============================================================
== == ==================================
TOTAL INVESTMENTS -- 100% (Cost --
$27,085,844*) $27,256,050
=============================================================
== == ==================================
</TABLE>
See Notes to Financial Statements.
9
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Schedules of Investments (unaudited) (continued)
June 30, 1995 -----------------------------------------------
- -------------------------------
SHORT-TERM U.S. TREASURY SECURITIES
PORTFOLIO
<TABLE>
<CAPTION>
FACE
COUPON
AMOUNT SECURITY
RATE
MATURITY VALUE
=============================================================
== == ==================================
<C> <S> <C>
<C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS -- 98.1%
$ 5,000,000 U.S. Treasury Note
6.875%
10/31/96 $ 5,067,750
9,000,000 U.S. Treasury Note
6.500
11/30/96 9,084,510
4,000,000 U.S. Treasury Note
5.500
07/31/97 3,974,240
5,000,000 U.S. Treasury Note
6.500
08/15/97 5,063,350
9,000,000 U.S. Treasury Note
6.000
11/30/97 9,027,180
2,750,000 U.S. Treasury Note
6.000
12/31/97 2,758,773
11,500,000 U.S. Treasury Note
6.500
04/30/99 11,704,240
20,000,000 U.S. Treasury Note
6.750
05/31/99 20,535,400
- -------------------------------------------------------------
- ------------------------------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost -- $65,844,960)
67,215,443
=============================================================
== == ==================================
REPURCHASE AGREEMENT -- 1.9%
1,295,000 Goldman Sachs, 5.947% due 07/03/95;
Proceeds at Maturity -- $1,295,642; (Fully
collateralized by
U.S. Treasury Notes, 6.625% due 3/31/97;
Market value -- $1,322,144) (Cost --
$1,295,000) 1,295,000
=============================================================
== == ==================================
TOTAL INVESTMENTS -- 100% (Cost --
$67,139,960*) $68,510,443
=============================================================
== == ==================================
</TABLE>
*Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
10
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Statements of Assets and Liabilities (unaudited)
June 30, 1995 -----------------------------------------------
- -------------------------------
<TABLE>
<CAPTION>
INCOME SHORT-TERM
RETURN U.S. TREASURY
ACCOUNT SECURITIES
PORTFOLIO PORTFOLIO
=============================================================
== == ==================================
<S>
<C> <C>
ASSETS:
Investments, at value (Cost--
$27,085,844 and $67,139,960,
respectively)
$27,256,050 $68,510,443
Cash
1,092 984
Receivable for Fund shares sold
161,622 --
Interest receivable
324,504 768,561
Other assets
106,585 151,848
- -------------------------------------------------------------
- ------------------------------------
Total Assets
27,849,853 69,431,836
- -------------------------------------------------------------
- ------------------------------------
LIABILITIES:
Management fees payable
9,987 31,517
Distribution costs payable
924 150,089
Dividends payable
123,964 212,342
Accrued expenses and other liabilities
22,847 34,980
- -------------------------------------------------------------
- ------------------------------------
Total Liabilities
157,722 428,928
- -------------------------------------------------------------
- ------------------------------------
Total Net Assets
$27,692,131 $69,002,908
=============================================================
== == ==================================
NET ASSETS:
Par value of capital shares
$ 28,913 $ 167,836
Capital paid in excess of par value
29,172,461 72,757,195
Undistributed net investment income
38,622 --
Accumulated net realized loss on
security transactions
(1,718,071) (5,292,606)
Net unrealized appreciation of investments
170,206 1,370,483 --------------------------------
- -------------------------------------------------------------
- ---
Total Net Assets
$27,692,131 $69,002,908
=============================================================
== == ==================================
Shares Outstanding:
Class A
1,786,881 16,783,614 ------------------------------
--------------------------------
- ----------------------------------
Class C
288,817 --
- -------------------------------------------------------------
- -----------------------------------
Class Y
122,509 --
- -------------------------------------------------------------
- -----------------------------------
Class Z
693,087 --
- -------------------------------------------------------------
- -----------------------------------
Net Asset Value: --------------------------------------------
------------------
- ----------------------------------
Class A (and redemption price)
$9.58 $4.11 ----------------------------------
- --
-----------------------------------------------------------
- -
Class C*
$9.58 --
- -------------------------------------------------------------
- -----------------------------------
Class Y (and redemption price)
$9.58 --
- -------------------------------------------------------------
- -----------------------------------
Class Z (and redemption price)
$9.58 --
- -------------------------------------------------------------
- -----------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 2.04% of net asset value per share)
$9.78 $4.11
=============================================================
== == ==================================
</TABLE>
* Redemption price is NAV of Class C shares reduced by a
1.00%
CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
11
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Statements of Operations (unaudited) ------------------------
- ------------------------------------------------------
For the Six Months Ended June 30, 1995
<TABLE>
<CAPTION>
INCOME SHORT-TERM
RETURN U.S. TREASURY
ACCOUNT SECURITIES
PORTFOLIO PORTFOLIO
=============================================================
== == ==========================================
<S>
<C> <C>
INVESTMENT INCOME:
Interest
$ 918,783 $ 2,457,763
- -------------------------------------------------------------
- --------------------------------------------
EXPENSES:
Management fees (Note 2)
65,472 174,634
Distribution fees (Note 2)
4,943 135,827
Registration fees
12,894 32,590
Shareholder and system servicing
fees 6,726 20,055
Custody
2,976 9,026
Audit and legal
2,779 4,313
Shareholder communications
2,232 7,018
Directors' fees
496 1,555
Other
5,205 4,331
- -------------------------------------------------------------
- --------------------------------------------
Total Expenses
103,723 389,349
- -------------------------------------------------------------
- --------------------------------------------
Net Investment Income
815,060 2,068,414 -------------------------------
- -------------------------------------------------------------
- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions
(excluding short-term securities):
Proceeds from sales
27,769,998 48,474,570
Cost of securities sold
27,671,848 49,837,579
- -------------------------------------------------------------
- --------------------------------------------
Net Realized Gain (Loss)
98,150 (1,363,009) -------------------------------
- -------------------------------------------------------------
- ------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period
(463,291) (3,910,726)
End of period
170,206 1,370,483
- -------------------------------------------------------------
- --------------------------------------------
Increase in Unrealized Appreciation
633,497 5,281,209
- -------------------------------------------------------------
- --------------------------------------------
Net Gain On Investments
731,647 3,918,200
- -------------------------------------------------------------
- --------------------------------------------
Increase in Net Assets From Operations
$ 1,546,707 $5,986,614
=============================================================
== == ==========================================
</TABLE>
See Notes to Financial Statements.
12
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Statements of Changes in Net Assets -------------------------
- -----------------------------------------------------
For the Six Months Ended June 30, 1995 (unaudited)
and the Year Ended December 31, 1994
<TABLE>
<CAPTION>
SHORT-TERM
INCOME RETURN
U.S. TREASURY
ACCOUNT PORTFOLIO SECURITIES PORTFOLIO
-------------
- ---------------- --------------------------------
1995
1994 1995 1994
=============================================================
== == =====================================================
<S> <C>
<C> <C> <C>
OPERATIONS:
Net investment income $ 815,060
$ 2,203,747 $ 2,068,414 $ 7,334,575
Net realized gain (loss) on
security transaction 98,150
(547,137) (1,363,009) (3,948,419)
Increase (decrease) in net
unrealized appreciation
(depreciation) of
investments 633,497
(689,785) 5,281,209 (6,533,895) ------------
- --
- -------------------------------------------------------------
- -----------------------------------------
Increase (Decrease) in Net
Assets From Operations 1,546,707
966,825 5,986,614 (3,147,739) -------------
- -------------------------------------------------------------
- ----------------------------------------DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (791,677)
(2,191,210) (2,068,414) (7,334,575)
Net realized gain on security
transactions --
- -- -- ----------------------
- --
- -------------------------------------------------------------
- --------------------------------
Decrease in Net Assets
From Distributions to
Shareholders (791,677)
(2,191,210) (2,068,414) (7,334,575) ----------
- --
- -------------------------------------------------------------
- -------------------------------------------
FUND SHARE TRANSACTIONS
(NOTE 5):
Net proceeds
from sale of shares
1,563,428 13,380,684 3,786,057
89,709,541
Net value of shares issued
for reinvestment of
dividends 559,223
1,738,307 1,524,330 6,166,194
Cost of shares reacquired (7,476,845)
(41,882,513) (28,932,272) (202,445,248) ---------
- --
- -------------------------------------------------------------
- --------------------------------------------
Decrease in Net Assets
From Fund Share
Transactions (5,354,194)
(26,763,522) (23,621,885) (106,569,513) ---------
- --
- -------------------------------------------------------------
- --------------------------------------------
Decrease in Net Assets (4,599,164)
(27,987,907) (19,703,685) (117,051,827)
NET ASSETS:
Beginning of period 32,291,295
60,279,202 88,706,593 205,758,420 -----------
- --
- -------------------------------------------------------------
- ------------------------------------------
End of period $27,692,131
$ 32,291,295 $ 69,002,908 $ 88,706,593
=============================================================
== == =====================================================
* Includes undistributed
net investment income of: $38,622
$15,239 -- --
=============================================================
== == =====================================================
</TABLE>
See Notes to Financial Statements.
13
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) -------------------
- --
- ----------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Income Return Account Portfolio ("Income Return
Account") and the
Short-Term U.S. Treasury Securities Portfolio ("Short-Term
U.S. Treasury") are
separate investment portfolios ("Portfolios") of the Smith
Barney Funds, Inc.
("Fund"). The Fund, a Maryland corporation, is registered
under the Investment
Company Act of 1940, as amended, as a diversified, open-end
management
investment company. The Fund consists of these Portfolios and
four other
separate investment portfolios: Income and Growth, U.S.
Government Securities,
Monthly Payment Government and Utility Portfolios. The
financial statements and
financial highlights for the other portfolios are presented
in separate semi-
annual reports.
The significant accounting policies consistently
followed by the Fund are:
(a) securities transactions are accounted for on the trade
date; (b) U.S.
Government and Government Agency obligations are valued at
the mean between the
bid and asked prices; short-term investments that have a
maturity of more than
60 days are valued at prices based on market quotations for
securities of
similar type, yield and maturity; short-term investments that
have a maturity of
60 days or less are valued at cost plus accreted discount, or
minus amortized
premiums, as applicable; (c) interest income is recorded on
the accrual basis;
(d) gains or losses on the sale of securities are calculated
by using the
specific identification method and include gains or losses
resulting from
repayments of principal on mortgage-backed securities; (e)
direct expenses are
charged to each portfolio and each class; management fees and
general fund
expenses are allocated on the basis of relative net assets;
(f) dividends and
distributions to shareholders are recorded on the ex-dividend
date; and (g) each
portfolio intends to comply with the requirements of the
Internal Revenue Code
pertaining to regulated investment companies and to make the
required
distributions to shareholders; therefore, no provision for
Federal income taxes
has been made.
2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED
PERSONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a
subsidiary of Smith
Barney Holdings Inc., acts as investment manager to the
Fund.
The Monthly
Payment Government, U.S. Government Securities and Income
Return Account
Portfolios pay SBMFM a management fee calculated at the
annual rate of 0.50% on
the first $200 million of the aggregate average daily net
assets of the three
portfolios
14
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
and 0.40% on the aggregate average daily net assets in excess
of
$200 million,
allocated to each Portfolio based on their relative average
daily
net assets.
Short-Term U.S. Treasury pays SBMFM a management fee
calculated at the annual
rate of 0.45% of the Portfolio's average daily net assets.
All fees are
calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of Smith
Barney Holdings Inc.,
acts as distributor of Fund shares. For the six months ended
June 30, 1995, SB
received sales charges of approximately $16,000 on sales of
Income Return
Account Class A shares.
There is a contingent deferred sales charge ("CDSC") of
1.00% on Class C
shares if redemption occurs within the first year from the
date such investment
was made. Any CDSC imposed on redemptions is paid to SB. For
the six months
ended June 30, 1995, there were approximately $1,000 in such
charges.
Pursuant to a Distribution Plan Income Return Account
pays a distribution
fee and service fee with respect to its Class C shares
calculated at an annual
rate of 0.20% and 0.15% of average daily net assets,
respectively. Short-Term
U.S. Treasury pays a service fee with respect to Class A
shares calculated at
the annual rate of 0.25% of its average daily net assets and
a distribution fee
calculated at the annual rate of 0.10% of average daily net
assets. All officers
and three directors of the Fund are employees of SB.
3. INVESTMENTS
During the six months ended June 30, 1995, the aggregate
cost of purchases
and proceeds from sales (including maturities, but excluding
short-term
securities) of investments were, as follows:
<TABLE>
<CAPTION>
Portfolio Purchases
Sales
=============================================================
== == ===============
<S> <C>
<C>
Income Return Account
$18,901,250 $15,333,438
Short-Term U.S. Treasury Securities
25,328,281 48,474,570
=============================================================
== == ===============
</TABLE>
15
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
At June 30, 1995, the net unrealized appreciation of
investments for Federal
Income tax purposes by Portfolio consisted of the following:
<TABLE>
<CAPTION>
Short-
Income Term U.S.
Return Treasury
Account Securities
=============================================================
== == ===============
<S> <C>
<C>
Gross unrealized appreciation
$206,646 $1,466,590
Gross unrealized depreciation
(36,440)
(96,107) ----------------------------------------------------
- --------------------------
Net unrealized appreciation
$170,206 $1,370,483
=============================================================
== == ===============
</TABLE>
At December 31, 1994, Income Return Account and Short-
Term U.S. Treasury
had net capital loss carryovers of $1,816,221 and $3,929,597,
respectively,
available to offset future capital gains. To the extent that
these carryover
losses are used to offset capital gains, it is probable that
any gains so offset
will not be distributed. The amount and expiration of the
carryovers are
indicated below. Expiration occurs on December 31, of the
year indicated:
<TABLE>
<CAPTION>
Portfolio 2002
1997 1996
=============================================================
== == =====================
<S> <C>
<C> <C>
Income Return Account $ 547,137
$236,762 $1,032,322
Short-Term U.S. Treasury Securities 3,929,597
- -- --
=============================================================
== == =====================
</TABLE>
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and its custodian takes
possession of) U.S.
Government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolios require
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
5. CAPITAL SHARES
At June 30, 1995, the Fund had two billion shares of
$0.01 par value
capital stock authorized. The Income Return Account has the
ability to issue
multiple classes of shares. Each share of a class represents
an identical
interest and has the same rights, except that each class
bears certain expenses,
including those specifically related to the distribution of
its shares.
Effective November 7, 1994, the Fund adopted a new class
structure, renaming
existing Class B shares as Class C shares for the
16
Smith Barney Funds, Inc. ------------------------------------
- ------------------------------------------
Notes to Financial Statements (unaudited) (continued) -------
- -------------------------------------------------------------
- ---------
Income Return Account. At June 30, 1995 total paid-in-capital
amounted to the
following for each class and respective Portfolio:
<TABLE>
<CAPTION>
Portfolio Class A
Class C Class Y Class Z
=============================================================
== == ======================================
<S> <C>
<C> <C> <C>
Income Return Account $18,541,613
$2,824,676 $1,312,587 $6,522,498
Short-Term U.S. Treasury Securities 72,925,031
- -- -- -
=============================================================
== == ======================================
</TABLE>
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
SIX
MONTHS ENDED YEAR ENDED
JUNE 30,
1995 DECEMBER 31, 1994
-----------------
- ------------ ----------------------------------
INCOME RETURN ACCOUNT SHARES
AMOUNT SHARES AMOUNT
=============================================================
== == ===================================================
<S> <C>
<C>
<C> <C>
Class A
Shares sold 140,093
$
1,340,153 276,529 $ 2,616,488
Shares issued on reinvestment
33,922
320,395 150,791 1,427,935
Shares redeemed (413,257)
(3,921,860) (3,708,422) (35,070,581)
=============================================================
== == ===================================================
Net Decrease (239,242)
$
(2,261,312) (3,281,102) $ (31,026,158)
=============================================================
== == ===================================================
Class C+
Shares sold 21,297
$
202,324 256,941 $ 2,437,665
Shares issued on reinvestment
4,802
45,367 10,968 110,488
Shares redeemed
(64,464)
(607,682) (357,469) (3,389,893)
=============================================================
== == ===================================================
Net Decrease (38,365)
$
(359,991) (89,560) $ (841,740)
=============================================================
== == ===================================================
Class Y++
Shares sold --
- -- 121,282 $ 1,152,444
Shares issued on reinvestment 3,979
$
37,516 11,913 112,510
Shares redeemed (227,850)
(2,153,345) (351,172) (3,300,139)
=============================================================
== == ===================================================
Net Decrease (223,871)
$ (2,115,829) (217,977) $ (2,035,185)
=============================================================
== == ===================================================
Class Z*
Shares sold 2,222
$ 20,951 761,580 $ 7,174,087
Shares issued on reinvestment 16,490
155,945 9,325 87,374
Shares redeemed
(83,530)
(793,958) (13,001) (121,900)
=============================================================
== == ===================================================
Net Increase (Decrease) (64,818)
$ (617,062) 757,904 $ 7,139,561
=============================================================
== == ===================================================
Short-Term U.S. Treasury Securities
=============================================================
== == ===================================================
Class A
Shares sold 936,142
$ 3,786,057 21,923,554 $ 89,709,541
Shares issued on reinvestment 379,554
1,524,330 1,530,315 6,166,194 Shares
redeemed (7,216,348) (28,932,272)
(50,274,705) (202,445,248)
=============================================================
== == ===================================================
Net Decrease (5,900,652)
$(23,621,885) (26,820,836) $(106,569,513)
=============================================================
== == ===================================================
</TABLE>
+ On November 7, 1994 the former Class B shares were renamed
Class C shares.
++ On November 7, 1994 the former Class C shares were renamed
Class Y shares.
* Sales of Class Z shares commenced on November 7, 1994.
17
Smith Barney Funds, Inc.
Income Return Account Portfolio -----------------------------
- -------------------------------------------------
Financial Highlights ----------------------------------------
- --------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
CLASS A SHARES
1995(1) 1994 1993 1992 1991
=============================================================
== ==
==========================================================
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.34
$9.59 $9.68 $9.65 $9.38 -----------
- --
- -------------------------------------------------------------
- ----------------------------------------------Income From
Operations:
Net investment income 0.26
0.46 0.45 0.52 0.67
Net realized and unrealized
gain (loss) on investments 0.23
(0.26) (0.07) 0.03 0.33 -----------
- --
- -------------------------------------------------------------
- ----------------------------------------------Total Income
From Operations
0.49 0.20 0.38
0.55 1.00 ------------------------------------------
- --
- -------------------------------------------------------------
- ----------------
Less Distributions:
Dividends from net investment income (0.25)
(0.45) (0.47) (0.52) (0.73) ----------
- --
- -------------------------------------------------------------
- -----------------------------------------------Total
Distributions (0.25)
(0.45) (0.47) (0.52) (0.73)
- -------------------------------------------------------------
- -----------------------------------------------------------
Net Asset Value, End of Period $9.58
$9.34 $9.59 $9.68 $9.65
- -------------------------------------------------------------
- -----------------------------------------------------------
Total Return
5.34%++
2.14% 4.00% 5.85% 11.06%
- -------------------------------------------------------------
- -----------------------------------------------------------
Net Assets, End of Period (000s) $17,111
$18,918 $50,874 $48,538 $33,682
- -------------------------------------------------------------
- ----------------------------------------------------------
Ratios to Average Net Assets:
Expenses
0.67%+
0.56% 0.53% 0.50% 0.49%
Net investment income
5.60+
4.60 4.67 5.33 6.98
- -------------------------------------------------------------
- ----------------------------------------------------------
Portfolio Turnover Rate
83.87%
126.64% 152.04% 84.15% 30.44%
=============================================================
== ==
==========================================================
<CAPTION>
CLASS C SHARES (2)
1995(1)
1994 1993 1992(3)
=============================================================
== ==
==========================================================
<S> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $9.34
$9.58 $9.68 $9.69
- -------------------------------------------------------------
- ----------------------------------------------------------
Income From Operations:
Net investment income 0.24
0.42 0.45 0.03
Net realized and unrealized
gain (loss) on investments 0.24
(0.24) (0.12) ----------------------------
- -------------------------------------------------------------
- --------------------------------Total Income From Operations
0.48 0.18 0.33 0.03 ---------------------
- -------------------------------------------------------------
- --------------------------------------Less Distributions:
Dividends from net investment income (0.24)
(0.42) (0.43) (0.04) ------------------------
- -------------------------------------------------------------
- -----------------------------------Total Distributions
(0.24)
(0.42) (0.43) (0.04) ------------------------
- -------------------------------------------------------------
- -----------------------------------Net Asset Value, End of
Period $9.58 $9.34 $9.58
$9.68 -------------------------------------------------------
- -------------------------------------------------------------
- ----Total Return
5.16%++
1.86% 3.53% 0.31%++ -----------------------
- -----------------------------------------
- ---------------------------------------------------------Net
Assets, End of Period (000s) $2,765
$3,055 $3,993 $10 ------------------------
- -------------------------------------------------------------
- ----------------------------------Ratios to Average Net
Assets:
Expenses 0.97%+
0.94% 0.90% 0.86%+
Net investment income 4.96+
4.40 4.25 5.71+ -------------------------
- -------------------------------------------------------------
- ---------------------------------Portfolio Turnover Rate
83.87% 126.64% 152.04% 84.15%
=============================================================
== ==
==========================================================
</TABLE>
(1) For the six months ended June 30, 1995 (unaudited).
(2) On November 7, 1994 the former Class B shares were
renamed Class C shares.
(3) For the period from December 16, 1992 (inception date) to
December 31, 1992.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
18
Smith Barney Funds, Inc.
Income Return Account Portfolio -----------------------------
- -------------------------------------------------
Financial Highlights (continued) ----------------------------
- --------------------------------------------------
For a share of each class of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
CLASS Y SHARES (1)
1995(2) 1994 1993(3)
=============================================================
== == ===============================================
<S>
<C> <C> <C>
Net Asset Value, Beginning of Period
$9.34 $9.59 $9.72 --------------------
- --
- -------------------------------------------------------------
- ---------------------------
Income From Operations:
Net investment income
0.26 0.44 0.42
Net realized and unrealized gain (loss) on investments
0.23 (0.25) (0.13) --------------------
- -------------------------------------------------------------
- ----------------------------
Total Income From Operations
0.49 0.19 0.29
- -------------------------------------------------------------
- -------------------------------------------------
Less Distributions:
Dividends from net investment income
(0.25) (0.44) (0.42)
- -------------------------------------------------------------
- -------------------------------------------------
Total Distributions
(0.25) (0.44) (0.42)
- -------------------------------------------------------------
- -------------------------------------------------
Net Asset Value, End of Period
$9.58 $9.34 $9.59
- -------------------------------------------------------------
- -------------------------------------------------
Total Return
5.34%++ 2.01% 3.01%++
- -------------------------------------------------------------
- -------------------------------------------------
Net Assets, End of Period (000s)
$1,173 $3,235 $ 5,412
- -------------------------------------------------------------
- -------------------------------------------------
Ratios to Average Net Assets:
Expenses
0.70%+ 0.69% 0.75%+
Net investment income
5.63+ 4.65 4.78+
- -------------------------------------------------------------
- -------------------------------------------------
Portfolio Turnover Rate
83.87% 126.64% 152.04%
=============================================================
== == ===============================================
<CAPTION>
CLASS Z SHARES
1995(2) 1994(4)
=============================================================
== == ===============================================
<S>
<C> <C>
Net Asset Value, Beginning of Period
$9.35 $9.42
- -------------------------------------------------------------
- -------------------------------------------------
Income From Operations:
Net investment income
0.25 0.07
Net realized and unrealized gain (loss) on investments
0.23 (0.02) --------------------------------------
- -------------------------------------------------------------
- ----------
Total Income From Operations
0.48 0.05 ---------------------------------------
- -------------------------------------------------------------
- ----------
Less Distributions:
Dividends from net investment income
(0.25) (0.12) -------------------------------------
- -------------------------------------------------------------
- ------------
Total Distributions
(0.25) (0.12) -------------------------------------
- -------------------------------------------------------------
- ------------
Net Asset Value, End of Period
$9.58 $9.35 --------------------------------------
- -------------------------------------------------------------
- ----------
Total Return
5.22%++ 0.38%++ ------------------------------------
- -------------------------------------------------------------
- ------------
Net Assets, End of Period (000s)
$6,643 $7,083 -------------------------------------
- -------------------------------------------------------------
- -----------
Ratios to Average Net Assets:
Expenses
0.68%+ 0.46%+
Net investment income
5.59+ 5.29+ --------------------------------------
- -------------------------------------------------------------
- ----------
Portfolio Turnover Rate
83.87% 126.64%
=============================================================
== == ===============================================
</TABLE>
(1) On November 7, 1994 the former Class C shares were
renamed Class Y shares.
(2) For the six months ended June 30, 1995 (unaudited).
(3) For the period from February 1, 1993 (inception date) to
December 31, 1993.
(4) For the period from November 7, 1994 (inception date) to
December 31, 1994.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
19
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio ---------------
- --
- -------------------------------------------------------------
Financial Highlights (continued) ----------------------------
- --------------------------------------------------
For a share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
CLASS A SHARES 1995(1)
1994 1993 1992 1991(2)
=============================================================
== ==
======================================================== <S>
<C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Period $3.91
$4.16 $4.12 $4.09 $4.01 ----------
- -------------------------------------------------------------
- -----------------------------------------------Income (Loss)
From Operations:
Net investment income 0.10
0.18 0.18 0.19 0.03
Net realized and unrealized
gain (loss) on investments 0.20
(0.25) 0.06 0.04 0.09
- -------------------------------------------------------------
- ---------------------------------------------------------
Total Income (Loss) From Operations 0.30
(0.07) 0.24 0.23 0.12
- -------------------------------------------------------------
- ---------------------------------------------------------Less
Distributions:
Dividends from net investment income (0.10)
(0.18) (0.18) (0.19) (0.03)
Distribution from net realized gains
on security transactions --
- -- (0.02) (0.01) (0.01) ------------
- -------------------------------------------------------------
- ---------------------------------------------
Total Distributions (0.10)
(0.18) (0.20) (0.20) (0.04) ---------
- -------------------------------------------------------------
- ------------------------------------------------
Net Asset Value, End of Period $4.11
$3.91 $4.16 $4.12 $4.09 ----------
- -------------------------------------------------------------
- -----------------------------------------------
Total Return 8.22%++
(2.15)% 6.01% 5.92% 2.85%++
- -------------------------------------------------------------
- ----------------------------------------------------------
Net Assets, End of Period (000s) $69,003
$88,707 $205,758 $130,280 $93,946 --------
- -------------------------------------------------------------
- -------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.03%+
0.91% 0.88% 0.91% 0.80%+
Net investment income 5.45+
4.54 4.40 4.76 4.89+ ----------
- -------------------------------------------------------------
- ----------------------------------------------Portfolio
Turnover Rate 33.43%
24.51% 41.12% 44.99% 4.61%
=============================================================
== ==
========================================================
</TABLE>
(1) For the six months ended June 30, 1995 (unaudited).
(2) For the period from November 11, 1991 (inception date)
to December 31, 1991.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
20
Smith Barney
Funds, Inc.
DIRECTORS
Jessica M. Bibliowicz
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Heath B. McLendon, Chairman
C. Richard Youngdahl
OFFICERS
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY ---------
--
A Member of
TravelersGroup [LOGO APPEARS HERE]
INVESTMENT MANAGER
Smith Barney Mutual Funds
Management Inc.
DISTRIBUTOR
Smith Barney Inc.
CUSTODIAN
PNC Bank
SHAREHOLDER
SERVICING AGENT
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the
shareholders of
Smith Barney Funds, Inc.: Income Return Account and Short-
Term U.S. Treasury
Securities Portfolios. It is not authorized for distribution
to prospective investors unless accompanied or preceded by a
current Prospectus for the
Portfolio, which contains information concerning the
Portfolio's investment
policies and expenses as well as other pertinent information.
SMITH BARNEY FUNDS, INC.
388 Greenwich Street
New York, New York 10013
FD 0632 8/95
<PAGE>
Annual Report
1994
1994
1994
1994
1994
Smith Barney
Funds, Inc.
Income & Growth
Portfolio
- ---------------------------
December 31, 1994
[LOGO]
Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Income and Growth Portfolio
Dear Shareholder:
The Smith Barney Funds, Inc.: Income and Growth Portfolio
faced
a challenging
environment for equity investing in 1994. The Fund produced a
total return of a
negative 4.31% for Class A shares for the year ended December
31, 1994 compared
to 1.31% total return for the Standard & Poor's 500 Index
during the same
period. At December 31, 1994, the Portfolio was paying a
quarterly dividend of
$0.1118 per share for Class A shareholders, which represents
a slight increase
from June 30, 1994.
Market Review
Beginning in February of 1994, the Federal Reserve Board
("Fed")
began a shift
away from a monetary policy intended to stimulate economic
growth, to a more
neutral stance. The Fed implemented its new policy direction
by raising the
federal funds rate -- the rate banks charge each other for
overnight loans
- -- six times throughout the year. The rate began the year at
3.0%, and by the
end of December, it stood at 5.5%.
The Fed's objective in raising short-term interest rates was
to moderate the
rate of economic growth in order to preempt future inflation.
The rate hikes
had another effect, however, and that was to cause heavy
selling in both the
bond and stock markets. The sell-off in stocks occurred in
spite of extremely
strong corporate earnings, creating a stalemate in the equity
markets. While
earnings helped push stock prices higher at times during the
past year,
interest-rate worries largely overwhelmed corporate-profit
growth.
Portfolio Strategy
Our strategy for coping with last year's difficult market
environment was
careful stock selection. We continued to rely on fundamental
research and
typically employed a bottom-up approach to identify
attractive stocks where
valuations had come down, but intrinsic worth remained
strong. We also kept our
focus on larger-capitalization companies whose dividend
yields are higher than
the average.
The Portfolio holds a number of retail stocks in the
consumer cyclical sector
which we believe have depressed valuations due to the
market's perception that
consumer spending will slow down next year. In our view,
some individual retail
stocks will buck that trend. Sears, Roebuck & Co., for
instance, has refocused
itself, improved its merchandising and lowered its costs. By
doing so it also
increased its prospects for earnings growth as it faces
competition from
discount retailers and traditional department stores.
1
<PAGE>
Eastman Kodak also fits the description of a high-quality
company that suffers
from overly pessimistic investor views. We think Kodak is
attractive because
management is committed to reorganizing and streamlining the
company's massive
bureaucracy to combat foreign competition.
We also like insurance companies such as Lincoln National and
Marsh & McLennon.
They are currently undervalued because it does not appear
that current prices
reflect any improvement in earnings. We see this as an
excellent buying
opportunity because, as the bond market stabilizes, the
negative balance-sheet
impact of lower bond prices will subside.
We also maintained our positions in multinational companies
which stand to
benefit from an improving economic outlook overseas. Avon
Products Inc. is an
example of a true global company which is benefitting from
highly diversified
exposure worldwide and is well-positioned to profit from
heavy consumer demand
in developing countries.
Outlook
In the U.S., we believe that this year's string of interest
rate hikes should
create a slowdown, but not halt, to economic growth.
Meanwhile, corporate
earnings should continue to rise, but at a slower pace. The
environment for
investing in equities, however, will remain challenging until
the Fed is
convinced that inflation is under control and begins to lower
rates. In
selecting investments for the Portfolio, we will continue to
focus on large,
mature, financially stable companies offering higher-than
average dividend
yields. This is consistent with our conservative, income
oriented management
style which emphasizes a low-risk approach.
Respectfully yours,
/s/ Stephen Treadway
Stephen Treadway
Chairman and Chief Executive Officer
January 31, 1995
2
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Historical Performance - Class A Shares
Net Asset Value ---------------------
Beginning End of Income Capital
Gain Total
Year Ended of Year Year Dividends
Distributions Return (1)
=============================================================
== ==
==============
12/31/94 $13.31 $12.18 $0.42
$0.14
(4.31)% -----------------------------------------------------
- ------------------------
12/31/93 12.48 13.31 0.46
0.73
16.38 -------------------------------------------------------
- ----------------------
12/31/92 12.51 12.48 0.51
0.40
7.23 --------------------------------------------------------
- ---------------------
12/31/91 10.54 12.51 0.73
0.05
26.57 -------------------------------------------------------
- ----------------------
12/31/90 12.69 10.54 0.70
0.25
(9.46) ------------------------------------------------------
- -----------------------
12/31/89 11.00 12.69 0.70
0.31
25.11 -------------------------------------------------------
- ----------------------
12/31/88 10.05 11.00 0.63
0.17
17.67 -------------------------------------------------------
- ----------------------
12/31/87 11.40 10.05 0.50
0.63
(2.83) ------------------------------------------------------
- -----------------------
12/31/86 10.10 11.40 0.67
0.13
21.04 -------------------------------------------------------
- ----------------------
12/31/85 8.69 10.10 0.66
0.22
27.30 -------------------------------------------------------
- ----------------------
12/31/84 9.84 8.69 0.65
1.35
9.92
=============================================================
== == ==============
Total $6.63
$4.38
=============================================================
== == ==============
It is the Fund's policy to distribute dividends quarterly
and capital gains, if any, annually.
Average Annual Total Return - Class A Shares
Without With
Sales Charge (1) Sales
Charge (2)
=============================================================
== == =========
Year Ended 12/31/94 (4.31)%
(9.10)%
- -------------------------------------------------------------
- -----------
Five Years Ended 12/31/94 6.47 5.38
- -------------------------------------------------------------
- -----------
Ten Years Ended 12/31/94 11.67 11.10
- -------------------------------------------------------------
- -----------
3
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Historical Performance - Class B
Shares
Net Asset Value
----------------
--
Beginning End Income Capital
Gain Total
Year Ended of Year of Year Dividends
Distributions Returns (1)
=============================================================
== == ===============
11/7/94*-12/31/94 $12.54 $12.15 $0.09
$0.14
(1.28)%
=============================================================
== == ===============
Average Annual Total Return -- Class B Shares
Without
With
Sales Charges (1)
Sales Charges (2)
=============================================================
== == ===============
11/7/94* through 12/31/94 (1.28)%
(6.22)% -----------------------------------------------------
- -------------------------
Historical Performance - Class C Shares
Net Asset Value
------------------
Beginning End Income Capital
Gain Total
Year Ended of Year of Year Dividends
Distributions Returns (1)
=============================================================
== == ===============
12/31/94 $13.30 $12.18 $0.34
$0.14
(4.91)% -----------------------------------------------------
- -------------------------
12/31/93 12.48 13.30 0.36
0.73
15.46 -------------------------------------------------------
- -----------------------
12/2/92*-12/31/92 12.87 12.48 0.06
0.40
(0.57)
=============================================================
== == ===============
Total $0.76
$1.27
=============================================================
== == ===============
Average Annual Total Return -- Class C Shares
Without
With
Sales Charges (1)
Sales Charges (2)
=============================================================
== == ===============
Year Ended 12/31/94 (4.91)%
(5.86)% -----------------------------------------------------
- -------------------------
12/2/92* through 12/31/94 4.88
4.88 --------------------------------------------------------
- ----------------------
* Inception.
4
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Historical Performance - Class Z Shares
Net Asset Value
--------------------
Beginning End Income Capital
Gain
Total
Year Ended of Year of Year Dividends
Distributions Returns (1)
=============================================================
== == ===============
11/7/94*-12/31/94 $12.54 $12.19 $0.12
$0.14
(0.73)%
=============================================================
== == ===============
Average Annual Total Return - Class Z Shares
Without
With
Sales Charges (1)
Sales Charges (2)
=============================================================
== == ===============
11/7/94* through 12/31/94 (0.73)%
(0.73)% -----------------------------------------------------
- -------------------------
Cumulative Total Return
Without
Sales Charges (1)
=============================================================
== == ===============
Class A (12/31/84 through 12/31/94)
201.60% -----------------------------------------------------
- --
- ------------------------
Class B (11/7/94* through 12/31/94)
(1.28) ------------------------------------------------------
- ------------------------
Class C (12/2/92* through 12/31/94)
10.43 -------------------------------------------------------
- -----------------------
Class Z (11/7/94* through 12/31/94)
(0.73) ------------------------------------------------------
- ------------------------
(1) Assumes reinvestment of all dividends and capital gain
distributions at
net asset value and does not reflect a deduction of the
applicable sales
charge with respect to Class A shares or the contingent
deferred sales
charges ("CDSC") with respect to Class B and Class C
shares. (2) Assumes reinvestment of all dividends and capital
gain distributions at
net asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 5.00%, Class B shares
reflect the deduction
of 5.00% CDSC, which applies if shares are redeemed less
than one year from
initial purchase and declines by 1.00% per year until no
CDSC is incurred
and Class C shares reflect the deduction of a 1.00% CDSC if
shares are
redeemed within the first year of purchase.
* Inception.
5
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Historical Performance
Growth of $10,000 Invested in Class A Shares
of the Income and Growth Portfolio vs S&P
500+
(unaudited)
- -------------------------------------------------------------
- --------------
December 1984 - December 1994
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Income & Growth S&P 500
- ------------------- --------------- ---------
<S> <C>
<C>
Measurement Pt-
12/31/94 $ 9,430
$10,610
FYE 12/85 $11,950
$13,960
FYE 12/86 $14,420
$16,550
FYE 12/87 $13,980
$17,395
FYE 12/88 $16,390
$20,284
FYE 12/89 $20,440
$26,712
FYE 12/90 $18,440
$25,884
FYE 12/91 $23,340
$33,770
FYE 12/92 $25,030
$36,344
FYE 12/93 $29,130
$40,007
FYE 12/94 $27,870 $40,532
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A
shares
on
December 31, 1983, assuming deduction of the maximum 5.75%
sales charge at the
time of investment and reinvestment of dividends (after
deduction of
applicable sales charges through 1990, afterwards at net
asset value) and
capital gains (at net asset value) through December 31,
1994.
The S&P 500 is
an index of widely held common stocks listed on the New York
and American
Stock Exchanges and the over-the-counter markets. Figures
for
the S&P 500
include reinvestment of dividends. The index is unmanaged
and
is not subject
to the same management and trading expenses of a mutual
fund.
The performance
of the Portfolio's other classes may be greater or less than
the Class A
shares performance indicated on this chart, depending on
whether greater or
lesser sales charges and fees were incurred by shareholders
investing in the
other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
value may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
6
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Schedule of Investments December
31, 1994
SHARES SECURITY
VALUE
=============================================================
== == ====
COMMON STOCKS -- 79.9%
Capital Goods -- 3.5%
150,000 AMP Inc.
$10,912,500
40,000 Emerson Electric Co.
2,500,000
200,000 General Electric Co.
10,200,000 --------------------------------------------------
- -----------------
23,612,500 --------------------------------------------------
- -----------------
Conglomerates -- 4.8%
350,000 Minnesota Mining & Manufacturing Co.
18,681,250
300,000 Tenneco Inc.
12,750,000 --------------------------------------------------
- -----------------
31,431,250 --------------------------------------------------
- -----------------
Consumer Cyclicals -- 11.4%
198,800 American Brands Inc.
7,455,000
60,000 Carnival Cruise Class "A"
1,275,000
55,000 Daimler-Benz Aktieng ADR
2,708,750
300,000 Deluxe Corp.
7,950,000
100,000 Dun & Bradstreet Corp.
5,500,000
30,000 Great Atlantic & Pacific Tea Co.
543,750
60,000 Hayes Wheels International Inc.
1,290,000
50,000 Marriot International Inc.
1,406,250
50,000 May Department Stores Co.
1,687,500
80,000 McDonald's Corp.
2,340,000
100,000 McGraw Hill Inc.
6,687,500
40,000 Omnicom Group Inc.
2,070,000
208,000 Readers Digest Association
10,218,000
450,000 Sears Roebuck & Co.
20,700,000
60,000 Tribune Co.
3,285,000 ---------------------------------------------------
- ----------------
75,116,750 --------------------------------------------------
- -----------------
Consumer Staples -- 6.4%
200,000 Avon Products Inc.
11,950,000
170,000 Anheuser Busch Cos. Inc.
8,648,750
177,500 Clorox Co.
10,450,313
29,100 Pfizer Inc.
2,247,975
150,000 Philip Morris Cos. Inc.
8,625,000 ---------------------------------------------------
- ----------------
41,922,038 --------------------------------------------------
- -----------------
See Notes to
Financial Statements.
7
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Schedule of Investments (continued)
December 31, 1994
SHARES SECURITY
VALUE
=============================================================
== == ======
Energy -- 14.2%
440,000 Chevron Corp.
$19,635,000
200,000 Dresser Industries Inc.
3,775,000
80,000 Enron Oil & Gas
1,500,000
300,000 Exxon Corp.
18,225,000
255,000 Royal Dutch Petroleum Co.
27,412,500
390,000 Texaco Inc.
23,351,250 --------------------------------------------------
- -------------------
93,898,750 --------------------------------------------------
- -------------------
Financial Services -- 6.6%
30,000 American International Group Inc.
2,940,000
200,000 Barnett Banks Inc.
7,675,000
50,000 Equifax Inc.
1,318,750
100,000 First Interstate Bancorp
6,762,500
200,000 Great Western Financial Corp.
3,200,000
170,000 Lincoln National Corp.
5,950,000
165,000 Marsh & McLennon Co.
13,076,250
50,500 Transamerica Corp.
2,512,375 ---------------------------------------------------
- ------------------
43,434,875 --------------------------------------------------
- -------------------
Raw and Intermediate Materials -- 11.2%
125,000 Carpenter Technology Corp.
7,000,000
150,000 Dow Chemical Co.
10,087,500
150,000 Eastman Chemical Co.
7,575,000
200,000 du Pont De Nemours
11,250,000
80,000 International Paper Co.
6,030,000
250,000 Imperial Chemical Industries ADR
11,625,000
141,000 Kimberly-Clark Corp.
7,120,500
80,000 Monsanto Corp.
5,640,000
200,000 Westvaco Corp.
7,850,000 ---------------------------------------------------
- ------------------
74,178,000 --------------------------------------------------
- -------------------
Technology -- 11.4%
350,000 Eastman Kodak Co.
16,712,500
120,000 International Business Machines Corp.
8,820,000
130,000 Lockheed Corp.
9,441,250
100,000 Rockwell International Corp.
3,575,000
300,000 United Technologies Corp.
18,862,500
180,000 Xerox Corp.
17,820,000 --------------------------------------------------
- -------------------
75,231,250 --------------------------------------------------
- -------------------
See Notes to Financial Statements.
8
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Schedule of Investments (continued)
December 31, 1994
SHARES SECURITY
VALUE
=============================================================
== == =========
Transportation -- 2.7%
80,000 Alexander Baldwin Inc.
$ 1,780,000
100,000 Illinois Central Corp.
3,075,000
200,000 Norfolk Southern Corp.
12,125,000
20,000 Wisconsin Central Transportation Corp.*
825,000 -----------------------------------------------------
- -----------
- ---------
17,805,000 --------------------------------------------------
- ----------------------
Utilities -- 7.7%
146,000 Bell Atlantic Corp.
7,263,500
300,000 Cinergy Corp.
7,012,500
250,000 Consolidated Natural Gas Co.
8,875,000
40,000 El Paso Natural Gas Co.
1,220,000
400,000 GTE Corp.
12,150,000
100,000 Merck & Co.
3,812,500
150,000 Sprint Corp.
4,143,750
200,000 Texas Utilities Co.
6,400,000 ---------------------------------------------------
- ---------------------
50,877,250 --------------------------------------------------
- ----------------------
TOTAL COMMON STOCKS (Cost--$468,890,439)
527,507,663
=============================================================
== == =========
PREFERRED STOCKS -- 3.2%
Energy -- 0.5%
110,300 Maxus Energy $4.00 CV. Pfd.
3,391,725 ---------------------------------------------------
- ---------------------
Financial Services -- 1.4%
185,000 Banc One Corp. $3.50 Series C CV. Pfd.
9,180,625 ---------------------------------------------------
- ---------------------
Raw Materials -- 1.3%
100,000 Federal Paperboard $2.875 CV. Pfd.
5,350,000
50,000 Magma Copper $2.81 Series D Pfd.
3,087,500 ---------------------------------------------------
- ---------------------
8,437,500 ---------------------------------------------------
- ---------------------
TOTAL PREFERRED STOCKS (Cost--$24,482,581)
21,009,850
=============================================================
== == =========
See Notes to Financial Statements.
9
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
<TABLE>
<CAPTION>
Schedule of Investments (continued)
December 31, 1994
FACE
AMOUNT SECURITY
VALUE
=============================================================
== == ==================
<S> <C>
<C>
CONVERTIBLE DEBENTURES -- 4.1%
Cash and Carry -- 0.6%
$ 4,000,000 Waban Inc., 6.50% due 07/01/02
$ 3,580,000
- -------------------------------------------------------------
- --------------------
Consumer Products and Services -- 0.7%
5,000,000 Price Company, 6.75% due 3/01/01
4,500,000 ---------------------------------------------------
- ------------------------------
Energy -- 0.3%
3,300,000 Oryx Energy, 7.50% due 5/15/14
2,272,875 ---------------------------------------------------
- ------------------------------
Retail Trade -- 0.9%
10,000,000 Hechinger, 5.50% due 4/01/12
6,225,000 ---------------------------------------------------
- ------------------------------
Transportation -- 0.1%
1,000,000 Delta Airlines, 3.23% due 6/15/03
706,250 -----------------------------------------------------
- ----------------------------
Waste Management -- 1.5%
3,300,000 Browning Ferris, 6.75% due 7/01/02
3,003,000
6,000,000 Titan Wheel International, 4.75% 12/01/00
6,840,000 ---------------------------------------------------
- ------------------------------
9,843,000 ---------------------------------------------------
- ------------------------------
TOTAL CONVERTIBLE DEBENTURES
(Cost--$31,167,129)
27,127,125
=============================================================
== == ==================
REPURCHASE AGREEMENT -- 12.8%
84,393,000 Chemical Securities Inc., 5.75% due 1/03/95;
proceeds at maturity -- $84,446,882 (Fully
collateralized by U.S. Treasury Notes 6.50% due
9/30/96;
Market value -- $86,086,279) (Cost--$84,393,000)
84,393,000
=============================================================
== == ==================
TOTAL INVESTMENTS -- 100%
(Cost--$608,933,149**)
$660,037,638
=============================================================
== == ==================
</TABLE>
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1994
<S>
<C>
ASSETS:
Investments, at value (Cost - $608,933,149)
$660,037,638
Cash
320
Receivable for Fund shares sold
262,545
Dividends and interest receivable
2,296,960
Other assets
150,156 -----------------------------------------------------
- -----------------------
Total Assets
662,747,619
=============================================================
== == =============
LIABILITIES:
Payable for securities purchased
3,020,160
Payable for Fund shares reacquired
5,945,627
Management fees payable
658,547
Distribution costs payable
537,347
Accrued expenses and other liabilities
143,038 -----------------------------------------------------
- -----------------------
Total Liabilities
10,304,719
=============================================================
== == =============
Total Net Assets
$652,442,900
=============================================================
== == =============
NET ASSETS:
Par value of capital shares
$ 535,414
Capital paid in excess of par value
600,736,959
Undistributed net investment income
10,506
Undistributed net realized gain on security transactions
55,532
Net unrealized appreciation of investments
51,104,489 --------------------------------------------------
- --------------------------
Total Net Assets
$652,442,900
=============================================================
== == =============
Shares Outstanding:
Class A
44,691,863 --------------------------------------------------
------------
- -------------
Class B
29,136 ------------------------------------------------------
--------
- -------------
Class C
2,258,101 ---------------------------------------------------
- --
----------
- -------------
Class Z
6,562,345 ---------------------------------------------------
-----------
- -------------
Net Asset Value:
Class A (and redemption price)
$12.18 ------------------------------------------------------
--------
- -------------
Class B*
$12.15 ------------------------------------------------------
--------
- -------------
Class C**
$12.18 ------------------------------------------------------
--------
- -------------
Class Z (and redemption price)
$12.19 ------------------------------------------------------
--------
- -------------
Class A Maximum Offering Price Per Share
(net asset value plus 5.25% of net asset value)
$12.82
=============================================================
== == =============
</TABLE>
*Redemption price is NAV of Class B shares reduced by 5.00%
if shares are
redeemed less than one year from initial purchase and
declines by 1% per year
until no CDSC is incurred.
**Redemption price is NAV of Class C shares reduced by 1.00%
if shares are
redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
<TABLE>
<CAPTION>
Statement of Operations For the year
ended December 31, 1994
<S>
<C>
INVESTMENT INCOME:
Dividends
$ 23,944,973
Interest
5,245,189 ---------------------------------------------------
- ---------------------------
Total Income
29,190,162 --------------------------------------------------
- ----------------------------
EXPENSES:
Management fees (Note 2)
4,079,437
Distribution costs (Note 2)
2,062,633
Shareholder servicing fees
250,559
Shareholder communications fees
180,000
Custodian fees
58,002
Registration fees
53,002
Audit and legal fees
26,802
Directors' fees
9,001
Other
9,000 -------------------------------------------------------
- -----------------------
Total Expenses
6,728,436 ---------------------------------------------------
- ---------------------------
Net Investment Income
22,461,726
=============================================================
== == ===============
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales
252,895,090
Cost of securities sold
245,662,404 -------------------------------------------------
- -----------------------------
Net Realized Gain
7,232,686 ---------------------------------------------------
- ---------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year
94,524,525
End of year
51,104,489 --------------------------------------------------
- ----------------------------
Decrease in Net Unrealized Appreciation
(43,420,036) ------------------------------------------------
- ------------------------------
Net Loss On Investments
(36,187,350)
=============================================================
== == ===============
Decrease in Net Assets Resulting From Operations
$(13,725,624)
=============================================================
== == ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
<TABLE>
<CAPTION>
Statements of Changes in Net Assets For the
years ended December 31,
1994
1993
=============================================================
== == ===============
<S> <C>
<C>
OPERATIONS:
Net investment income $
22,461,726
$ 21,163,014
Net realized gain on security transactions
7,232,686 33,196,859
Increase (decrease) in net unrealized
appreciation of investments
(43,420,036) 38,084,313 -------------------------------------
- -----------------------------------------
Increase (Decrease) In Net Assets
Resulting From Operations
(13,725,624) 92,444,186
=============================================================
== == ===============
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
(22,551,312)
(21,134,705)
Net realized
gains
(7,455,252)
(33,215,996) ------------------------------------------------
- ------------------------------
Decrease In Net Assets From
Distributions To Shareholders
(30,006,564) (54,350,701)
=============================================================
== == ===============
FUND SHARE TRANSACTIONS:
Net proceeds from sales
135,017,510
68,002,376
Net asset value of shares issued in
connection with the transfer of the
Smith Barney Equity Fund's net
assets (Note 6)
88,308,192
- --
Net asset value of shares issued for
reinvestment of dividends
27,216,070
50,727,177
Cost of shares reacquired
(199,254,008)
(86,503,551) ------------------------------------------------
- ------------------------------
Increase In Net Assets From
Fund Share Transactions 51,287,764
32,226,002
=============================================================
== == ===============
Increase In Net Assets
7,555,576 70,319,487
NET ASSETS
Beginning of year
644,887,324
574,567,837 -------------------------------------------------
- -----------------------------
End of year*
$652,442,900
$644,887,324
=============================================================
== == ===============
* Includes undistributed net investment income of:
$10,506
$100,092
=============================================================
== == ===============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Notes to Financial Statements
1. Significant Accounting Policies
The Income and Growth Portfolio ("Portfolio") is a separate
investment
portfolio of the Smith Barney Funds, Inc. ("Fund"). The
Fund, a Maryland
corporation, is registered under the Investment Company Act
of 1940, as amended,
as a diversified, open-end management investment company and
consists of this
Portfolio and six other separate investment portfolios: U.S.
Government
Securities, Income Return Account, Monthly Payment
Government, Short-Term U.S.
Treasury Securities, Capital Appreciation and Utility
Portfolios. The financial
statements and financial highlights for the other portfolios
are presented in
separate annual reports.
The significant accounting policies consistently followed
by the Portfolio
are: (a) securities transactions are accounted for on trade
date; (b)
securities traded on national securities markets are valued
at the closing
prices on such markets; securities for which no sales price
was reported and
U.S. Government and Government Agency obligations are valued
at the mean
between the bid and asked prices; short-term investments that
have a maturity
of more than 60 days are valued at prices based on market
quotations for
securities of similar type, yield and maturity; short-term
investments that
have a maturity of 60 days or less are valued at cost plus
accreted discount,
or minus amortized premium, as applicable; (c) dividend
income is recorded on
the ex-dividend date and interest income is recorded on the
accrual basis; (d)
gains or losses on the sale of securities are calculated by
using the specific
identification method; (e) direct expenses are charged to
each portfolio and
each class; management fees and general fund expenses are
allocated on the
basis of relative net assets; (f) dividends and distributions
to shareholders
are recorded by the Portfolio on the ex-dividend date; (g)
the accounting
records of the Portfolio are maintained in U.S. dollars. All
assets
liabilities denominated in foreign currencies are translated
into U.S.
based on the rate of exchange of such currencies against U.S.
dollars on the
date of valuation. Purchases and sales of securities, and
income and expenses
are translated at the rate of exchange quoted on the
respective date that such
transactions are recorded. Differences between income and
expense amounts
recorded and collected or paid are adjusted when reported by
the custodian
bank; and (h) the Portfolio intends to comply with the
requirements of the
Internal Revenue Code pertaining to regulated investment
companies and to make
the required distributions to shareholders; therefore, no
provision for Federal
income taxes has been made.
14
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Notes to Financial Statements (continued)
2. Management Agreement and Transactions with
Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
formerly known as Smith
Barney Advisers, Inc., a subsidiary of Smith Barney Holdings
Inc. ("SBH"), acts
as investment manager of the Fund. The Income and Growth
Portfolio pays SBMFM a
management fee calculated at an annual rate of 0.60% on the
first $500 million,
0.55% on the next $500 million and 0.50% on average daily net
assets in excess
of $1.0 billion. All fees are calculated daily and paid
monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts
as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
year ended December 31, 1994, SB received brokerage
commissions of $136,581 and
was paid sales charges on Class A share purchases of
approximately $1 million.
Effective November 7, 1994, the Fund adopted a new class
structure, renaming
the existing Class B shares as Class C shares and exchanging
the old Class C
shares into Class A shares. A contingent deferred sales
charge ("CDSC") was
imposed on new Class B shares which begins at 5.00% if
redemption occurs less
than one year from initial purchase and declines by 1.00% per
year until no
CDSC is incurred. A CDSC of 1.00% was imposed on Class C
shares if redemption
occurs within the first year from the date such investment
was made. Any CDSC
imposed on redemptions is paid to SB. For the year ended
December 31, 1994,
there were approximately $23,000 in such charges.
Pursuant to a Distribution Plan the Portfolio pays a
service fee with
respect to its Class A, B and C shares calculated at the
annual rate of 0.25%
of the average daily net assets of each respective class'
shares. The Portfolio
also pays a distribution fee with respect to Class B and C
shares calculated at
the annual rate of 0.75% of the average daily net assets for
that class. All
officers and two directors of the Fund are employees of SB.
15
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Notes to Financial Statements (continued)
3. Investments
During the year ended December 31, 1994, the aggregate cost
of purchases and
proceeds from sales of investments (including maturities, but
excluding short-
term securities) was $169,653,232 and $252,895,090,
respectively. At December
31, 1994, net unrealized appreciation of investments for
Federal income tax
purposes consisted of the following:
=============================================================
== == ===============
Gross unrealized appreciation
$ 77,897,919
Gross unrealized depreciation
(26,793,430) ------------------------------------------------
- ------------------------------
Net unrealized appreciation
$ 51,104,489
=============================================================
== == ===============
4. Repurchase Agreements
The Portfolio purchases (and its custodian takes possession
of) U.S.
Government Securities from banks and securities dealers
subject to agreements
to resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolio requires
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
5. Capital Shares
At December 31, 1994, there were two billion shares of
$0.01 par value
capital stock authorized. The Portfolio has the ability to
issue multiple
classes of shares. Each share of a class represents an
identical interest and
has the same rights, except that each class bears certain
expenses, including
those specifically related to the distribution of its shares.
At December 31,
1994, paid-in capital amounted to the following for each
class:
Class A Class B
Class
C Class Z
=============================================================
== == ===============
Total Paid-in Capital $488,618,593 $358,644
$30,122,210 $82,172,926
=============================================================
== == ===============
16
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Notes to Financial Statements (continued)
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
December 31, 1994
December 31, 1993
--------------------------
- ------------
Shares Amount
Shares Amount
=============================================================
== == =======================
<S> <C> <C>
<C> <C>
Class A++
Shares sold 3,925,141 $ 33,508,255
3,942,695 $ 52,823,562
Net asset value of shares
issued in connection with
the transfer of the Smith
Barney Equity Fund's net
assets (Note 6) 6,640,327 87,697,961
- -- --
Shares issued on reinvestment 1,963,191 24,707,770
3,722,184 49,726,153
Shares redeemed (15,128,995) (191,764,655)
(6,384,958) (85,777,643) ----------------------------------
- ----------------------------------------------------
Net Increase (Decrease) (2,600,336) $ (45,850,669)
1,279,921 $ 16,772,072
=============================================================
== == =======================
Class B*
Shares sold 31,333 $ 385,206
122,766 $ 1,645,647
Shares issued on reinvestment 406 4,935
6,074 88,224
Shares redeemed (2,603) (31,497)
(7,910) (110,972) --------------------------------------
- ------------------------------------------------
Net Increase 29,136 $ 358,644
120,930 $ 1,622,899
=============================================================
== == =======================
Class C+
Shares sold 1,382,439 $ 18,194,922
1,002,794 $ 13,533,168
Net asset value of shares
issued in connection with
the transfer of the Smith
Barney Equity Fund's net
assets (Note 6) 46,193 610,231
- -- --
Shares issued on reinvestment 74,754 936,415
68,341 912,800
Shares redeemed (403,684) (5,134,706)
(44,596) (614,936) -------------------------------------
- -------------------------------------------------
Net Increase 1,099,702 $ 14,606,862
1,026,539 $ 13,831,032
=============================================================
== == =======================
Class Z*
Shares sold 6,623,375 $ 82,929,127 -
- - --
Shares issued on reinvestment 128,353 1,566,950 -
- - --
Shares redeemed (189,383) (2,323,150)
- -- ----------------------------------------------
- -----------------------------------------
Net Increase 6,562,345 $ 82,172,927 -
- -
=============================================================
== == =======================
</TABLE>
++ On October 10, 1994 the old Class C shares were exchanged
into Class A shares
and therefore Class C share activity is included with the
Class A share
activity prior to this date.
* Sales of Class B and Z shares commenced on November 7,
1994.
+ On November 7, 1994 the old Class B shares were renamed
Class
C shares.
17
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Notes to Financial Statements (continued)
6. Transfer of Net Assets
On March 4, 1994 (the "Closing") the Income & Growth
Portfolio of Smith
Barney Funds, Inc. received the net assets of the Smith
Barney Equity Fund,
Inc. ("Equity") pursuant to an Agreement and Plan of
Reorganization dated
December 31, 1993. In accordance with the agreement, the
Portfolio, at the
closing, issued 6,686,520 shares of the Portfolio having an
aggregate value of
$88,308,192. As a result, the Portfolio issued 1.11355
shares and 1.111279
shares, respectively, for each Equity class A share and each
Equity class B
share.
The transaction was structured for tax purposes to
qualify as a tax-free
reorganization under the Internal Revenue Code. The Smith
Barney Equity Fund,
Inc. net assets at that date were $88,308,192, including
$17,574,361 of
unrealized appreciation. Directly after the merger the
combined net assets in
the Income and Growth Portfolio were $735,636,465 with a net
asset value for
each of the classes of $13.21.
18
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Financial Highlights
For a share of each capital stock outstanding throughout each
year:
<TABLE>
<CAPTION>
Class A Shares 1994 1993
1992 1991 1990
=============================================================
== == =======================================
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Year $13.31
$12.48 $12.51 $10.54 $12.69 ---------------------
- -------------------------------------------------------------
- --------------------
Income (Loss) From Investment Operations:
Net investment income 0.43 0.46
0.50 0.56 0.67
Net realized and unrealized
gain (loss) on investments (1.00)
1.56 0.38 2.19 (1.87) ------------------------
- -------------------------------------------------------------
- ----------------
Total Income (Loss) from Investment
Operations (0.57)
2.02 0.88 2.75 (1.20) ------------------------
- -------------------------------------------------------------
- --------
- ---------
Less Distributions:
Dividends from net investment income (0.42)
(0.46)
(0.51) (0.73) (0.70)
Distribution from net realized gains
on security transactions (1) (0.14) (0.73)
(0.40) (0.05) (0.25) ----------------------------
- -------------------------------------------------------------
- -------------
Total Distributions (0.56)
(1.19)
(0.91) (0.78) (0.95) ----------------------------
- -------------------------------------------------------------
- -------------
Net Asset Value, End of Year $12.18
$13.31 $12.48 $12.51 $10.54 ---------------------
- -------------------------------------------------------------
- -------------------
Total Return (4.31)%
16.38%
7.23% 26.57% (9.46)% ----------------------------
- -------------------------------------------------------------
- ------------
Net Assets, End of Year (000s) $544,572
$627,870 $573,085 $583,686 $513,586 -----------------
- -------------------------------------------------------------
- -----------------------
Ratios to Average Net Assets:
Expenses 0.96%
0.91%
0.92% 0.84% 0.45%
Net investment income 3.31
3.42
3.97 4.80 5.69 ------------------------------
- -------------------------------------------------------------
- ----------
Portfolio Turnover Rate 26.77%
46.10%
39.16% 44.50% 47.99%
=============================================================
== == =======================================
Class B Shares (2) 1994(3))
=============================================================
== == =======================================
Net Asset Value, Beginning of Period $12.54 -----------
- -------------------------------------------------------------
- -----------------------------
Income From Investment Operations:
Net investment income 0.03
Net realized and unrealized
loss on investment (0.19)
- -------------------------------------------------------------
- -----------------------------------------
Total Loss from Investment Operations (0.16)
- -------------------------------------------------------------
- -----------------------------------------
Less Distributions:
Dividends from net investment income (0.09)
Distribution from net realized gains
on security transactions (1) (0.14)
- -------------------------------------------------------------
- -----------------------------------------
Total Distributions (0.23)
- -------------------------------------------------------------
- -----------------------------------------
Net Asset Value, End of Year $12.15 -----------
- -------------------------------------------------------------
- -----------------------------
+
Total Return (1.28)%+
- -------------------------------------------------------------
- --
- ----------------------------------------
Net Assets, End of Year (000s) $354 -----------
- -------------------------------------------------------------
- ------------------------------
Ratios to Average Net Assets:
Expenses 1.15%+
Net investment income 2.11+ ----------
- -------------------------------------------------------------
- -------------------------------
Portfolio Turnover Rate 26.77%
=============================================================
== == =======================================
</TABLE>
(1) Net short term gains, if any, are included and reported
as ordinary income
for income tax purposes.
(2) On November 7, 1994 old Class B shares were renamed
Class C shares.
(3) For the period from November 7, 1994 (inception date) to
December 31,
1994.
+
+ Not annualized as it may not be representative of the
total
return for
the year.
+ Annualized.
19
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Financial Highlights (continued)
For a share of each capital stock outstanding throughout each
year:
Class C Shares (1) 1994
1993
1992(2)
=============================================================
== == ===========
Net Asset Value, Beginning of Year $ 13.30 $
12.48 $12.87 ------------------------------------------------
- --------------------------
Income (Loss) From Investment Operations:
Net investment income 0.31
0.38
0.17
Net realized and unrealized
gain (loss) on investment (0.95)
1.53
(0.10) ------------------------------------------------------
- --------------------
Total Income (Loss) from Investment Operations (0.64)
1.91
0.07 --------------------------------------------------------
- ------------------
Less Distributions:
Dividends from net investment income (0.34)
(0.36) (0.06)
Distribution from net realized gains (3) (0.14)
(0.73) (0.40) --------------------------------------------
- --
- -----------------------------
Total Distributions (0.48)
(1.09) (0.46) --------------------------------------------
- ------------------------------
Net Asset Value, End of Year $ 12.18 $
13.30 $12.48 ------------------------------------------------
- --------------------------
+
Total Return (4.91)%
15.46% (0.57)%+ ------------------------------------------
- --------------------------------
Net Assets, End of Year (000s) $27,507
$15,408 $1,504 ----------------------------------------------
- ----------------------------
Ratios to Average Net Assets:
Expenses 1.75%
1.65% 1.58%+
Net investment income 2.49
2.59 1.80+ --------------------------------------------------
- ------------------------
Portfolio Turnover Rate 26.77%
46.10% 39.16%
=============================================================
== == ===========
(1) On October 10, 1994 old Class C shares were exchanged
into Class A shares
and therefore Class C share activity is included with the
Class A share
activity prior to this date.
(2) For the period from December 2, 1992 (inception date) to
December 31,
1992.
(3) Net short term gains, if any, are included and reported
as ordinary income
for income tax purposes.
+
+ Not annualized as it may not be representative of the
total
return for the
year.
+ Annualized.
20
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Financial Highlights (continued)
For a share of each capital stock outstanding throughout each
year:
Class Z Shares
1994(1)
=============================================================
== == ========
Net Asset Value, Beginning of Year
$ 12.54 -----------------------------------------------------
- --
- -----------------
Income (Loss) From Investment Operations:
Net investment income
0.07
Net realized and unrealized
loss on investment
(0.16) ------------------------------------------------------
- -----------------
Total Loss from Investment Operations
(0.09) ------------------------------------------------------
- -----------------
Less Distributions:
Dividends from net investment income
(0.12)
Distribution from net realized gains (2)
(0.14) ------------------------------------------------------
- -----------------
Total Distributions
(0.26) ------------------------------------------------------
- -----------------
Net Asset Value, End of Year
$ 12.19 -----------------------------------------------------
- --
- -----------------
Total Return
(0.73)%++ ---------------------------------------------------
- --------------------
Net Assets, End of Year (000s)
$80,010 -----------------------------------------------------
- ------------------
Ratios to Average Net Assets:
Expenses
0.42%+
Net investment income
3.88+ -------------------------------------------------------
- ----------------
Portfolio Turnover Rate
26.77%
=============================================================
== == ========
(1) For the period from November 7, 1994 (inception date) to
December 31, 1994.
(2) Net short term gains, if any, are included and reported
as ordinary income
for income tax purposes.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
21
<PAGE>
Smith Barney Funds, Inc.
Income and Growth Portfolio
Independent Auditors' Report
To the Board of Directors and Shareholders of
Smith Barney Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities
including the schedule of investments of the Income and
Growth Portfolio of
Smith Barney Funds, Inc., as of December 31, 1994, and the
related statement of
operations for the year then ended, the statements of
changes in net assets for
each of the years in the two-year period then ended and the
financial
highlights for each of the years in the five-year period then
ended. These
financial statements and financial highlights are the
responsibility of the
Fund's management. Our responsibility is to express an
opinion on these
financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to
obtain reasonable assurance about whether the financial
statements and
financial highlights are free of material misstatement. An
audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in
the financial statements. Our procedures include
confirmation of securities
owned as of December 31, 1994, by correspondence with the
custodian. An audit
also includes assessing the accounting principles used and
significant
estimates made by management, as well as evaluating the
overall financial
statement presentation. We believe that our audits provide a
reasonable basis
for our opinion.
In our opinion, the financial statements and financial
highlights referred
to above present fairly, in all material respects, the
financial position of
the Income and Growth Portfolio of Smith Barney Funds, Inc.
as of December 31,
1994, the results of its operations for the year then ended,
the changes in its
net assets for each of the years in the two-year period then
ended, and the
financial highlights for each of the years in the five-year
period then ended,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick
LLP New York, New York
February 17, 1995
22
<PAGE>
Smith Barney
Funds, Inc.
Directors
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Stephen Treadway, Chairman
C. Richard Youngdahl
Officers
Stephen Treadway
Chief Executive Officer
Heath B. McLendon
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ------------
A Member of TravelersGroup[UMBRELLA LOGO]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the
shareholders of
Smith Barney Funds, Inc. Income & Growth Portfolio. It is
not authorized for
distribution to prospective investors unless accompanied or
preceded by
a current Prospectus for the Portfolio, which contains
information concerning
the Portfolio's investment policies and expenses as well as
other pertinent
information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD0853 B5
<PAGE>
Annual Report
1994
1994
1994
1994
1994
Smith Barney
Funds, Inc.
Utility Portfolio
December 31,1994
[LOGO] Smith Barney Mutual Fund
Investing for your future.
Everyday.
<PAGE>
Utility Portfolio
Dear Shareholder:
The Smith Barney Funds, Inc.: Utility Portfolio's total
return for the year
ended December 31, 1994 was a negative 8.56% for Class A
shares, compared to a
negative 8.99% for the average utility stock fund during the
same period,
according to Lipper Analytical Services. The Standard &
Poor's Utilities Index
returned a negative 7.95% and the Lehman Government/Corporate
Index returned a
negative 3.51%, both for the same period.
Market Review
Although 1993 was a solid year for utilities, most utility
stocks experienced a
steep correction in 1994. Throughout the year, the electric
utility industry was
buffeted by both internal and external forces. External
pressures occurred as
the Federal Reserve Board attempted to slow economic growth
and prevent
inflation by increasing interest rates six times throughout
the year. In
response, the bond market plunged, suffering one of its worst
declines in 40
years. Not only did higher interest rates push bond prices
down, but they also
caused utility prices to fall.
Internal forces, however, are producing a fundamental change
in the electric
utilities industry in the form of deregulation. This
deregulation is creating
competitive challenges which will ultimately affect all U.S.
utilities. Concerns
about deregulation added to last year's correction in the
utilities market.The
earnings of several electric utility companies have already
been affected by
deregulation as more retail customers are able to choose from
a selection of
electric power providers, and industrial heavy users
negotiate lower rates. FPL
Group, (formerly Florida Power & Light), SCE, a Rosemead,
California company,
and New York State Gas and Electric are notable cases where
dividends have been
cut. The Federal Energy Regulatory Commission is currently
considering other
significant deregulation issues, such as separating the cost
of producing
electricity from transmitting it across the wires.
Several other influences on 1994 utility results are also
worth mentioning.
First, weather conditions became less severe as the year
progressed which hurt
natural gas and electric utility earnings. Second, the
typically high payout
ratios (about 85%) of the electric utilities industry left
little room for
negative earnings surprises. At worst this contributed to
dividend cuts in a
period when the industry, as a whole, had slowed its dividend
growth to less
than 1%.
Portfolio Strategy
In the face of industry and market uncertainties, our
strategy has been to keep
the Utility Portfolio well diversified. In the second half
of the year, we
gradually
1
<PAGE>
increased the Portfolio's equity postion. At year end, the
Portfolio's
allocation was approximately 60% stocks, 39% bonds and 1%
cash. Within the
equity sector, 67% was allocated to electric, 11% to natural
gas and 13% to
telephone. Late in the year, we increased both our stock and
bond electric
position. With prices depressed, electric utilities offer
good value and
attractive yields. We decreased our natural gas holdings
because prices had
collapsed, and we thought they might suffer further losses.
Also, we sold
Sprint, taking a profit on the strength of their long
distance business, which
decreased our telephone position.
To benefit from the effects of rising interest rates, we
modestly increased the
average duration in the bond portion of the Portfolio late in
1994. Duration is
a measure of a fund's volatility when interest rates move up
or down. The longer
the duration, the more sensitive the fund is to interest rate
changes.
Companies that we favor are low-cost producers with no
expensive nuclear power
generating equipment. One such company is American Electric
Power. Located in
Columbus, Ohio, it benefits from the Midwest's industrial
strength and has
excellent transmission capabilities. Another is Dayton Power
& Light. It
received a favorable rate decision from Ohio state regulators
which should be
good for earnings and above-average dividend growth. In the
telephone sector, we
have positive expectations for GTE. Although the benefits of
restructuring have
appeared more slowly than expected, we believe they will be
seen in the next few
years. There are also excellent opportunities in their
cellular phone business.
Outlook
Looking ahead, we believe that interest rates will stabilize,
creating more
favorable circumstances for both the bond and stock markets.
Deregulation should
proceed more slowly than expected by many investors, but it
will still be a
factor in the industry. Some utilities with low costs already
in place are in a
position to benefit from deregulation, and we will continue
to seek those
companies for the Portfolio. In this environment, we expect
that the performance
of the Utility Portfolio should improve as we continue to
emphasize a
diversified portfolio and individual stock selection in the
coming year.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman and Chief Executive Officer
January 31, 1995
2
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Funds, Inc.
Utility Portfolio
<S>
<C>
<C> <C> <C> <C>
Historical Performance - Class A Shares
Net Asset Value
--
- ---
- ---------
Beginning End of Income Capital Gain Total
Year Ended
of
Year Year Dividend Distributions Returns(1) -
- --------- --
- --
- --
- --- --------- -------- ------------- --------
12/31/94 $
13.29 $ 11.31 $0.81 $0.05 (8.56)%
12/31/93
13.07 13.29 0.81 0.31 10.37
12/31/92
13.07 13.07 0.79 0.17 7.77
12/31/91
11.94 13.07 0.79 0.06 17.21
12/28/90*- 12/31/90
11.94 11.94 0.01 -- 0.08
Total
$ 3.21 $ 0.59
It is the Fund's policy to distribute dividends monthly
and capital gains, if any, annually.
Average Annual Total Return - Class A Shares
Without With
Sales
Charge(1) Sales Charge(2)
-----
- ------- ---------------
Year Ended 12/31/94
(8.56)% (13.14)%
12/28/90* through 12/31/94
6.26
4.90
Historical Performance -- Class B Shares
Net Asset Value
Beginning End of
Income Capital Gain Total
Year Ended of
Year Year Dividend Distributions
Returns(1) ----------
- -----
- --
- -- -------- -------- ------------- --------
11/7/94*-12/31/94 $
11.29 $ 11.32 $0.12 $0.05 1.82%
Average Annual Total Return - Class B Shares
Without With
Sales
Charge(1) Sales Charge(2)
-----
- -------- ---------------
11/7/94* through 12/31/94
1.82% (3.18)%
* Inception.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Funds, Inc.
Utility Portfolio
<S> <C>
<C> <C> <C> <C>
Historical Performance -- Class C Shares
Net
Asset Value
------
- -------
Beginning
End of Income Capital Gain Total
Year Ended of Year
Year Dividend Distributions Returns(1)
- ---------- ---------
- -------- -------- ------------- ----------
12/31/94 $ 13.28
$ 11.32 $0.71 $0.05 (9.19)%
12/31/93 13.07
13.28 0.71 0.31 9.48
12/2/92*-12/31/92 12.98
13.07 0.03 0.16 2.23
Total
$1.45 $0.52
Average Annual Total Return - Class C Shares
Without
With
Sales
Charge(1) Sales Charge(2)
-----------
- -----------------
Year Ended 12/31/94 (9.19)%
(10.10)%
12/2/90* through 12/31/94 0.77
0.77
Cumulative Total Return
Without
Sales Charge(1)
- ---------------
Class A (12/28/90* through 12/31/94)
27.56%
Class B (11/7/94* through 12/31/94)
1.82
Class C (12/2/92* through 12/31/94)
1.62
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect deduction of the
applicable sales charge
with respect to Class A shares or the applicable contingent
deferred sales
charges ("CDSC") with respect to Class B and Class C
shares. (2) Assumes reinvestment of all dividends and capital
gain distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 5.00%, Class B shares
reflect the deduction
of a 5.00% CDSC, which applies if shares are redeemed less
than one year
from initial purchase and declines by 1.00% per year
until no CDSC is
incurred. Class C shares reflect the deduction of a 1.00%
CDSC if shares
are redeemed within the first year of purchase.
* Inception.
4
<PAGE>
Smith Barney Funds, Inc.
Utility Portfolio
Historical Performance
Growth of $10,000 Invested in
Class A Shares of The Utility Portfolio vs Standard
& Poor's
Utility, Lehman Bros. Intermediate Corp.
Bond and Lehman Bros. Government Corp. Bond
Indices
(unaudited)
December 1990 - December 1994
[GRAPH]
<TABLE>
<CAPTION>
LEHMAN
BROTHERS LEHMAN BROTHERS
PORTFOLIO
INTERMEDIATE GOV'T CORP.
Measurement period CLASS A S&P
CORP.
BOND BOND
(Fiscal year Covered) SHARES UTILITY
INDEX
INDEX
- --------------------- -------- -------- -----
- --
- --
- ----- ---------------
<S> <C> <C> <C>
<C>
Measurement PT -
12/28/90 $ 9,550 $10,000
$10,000 $10,000
FYE 12/90 $ 9,559 $10,012
$10,017 $10,010
FYE 12/91 $11,205 $11,479
$11,742 $11,544
FYE 12/92 $12,076 $12,636
$12,675 $12,378
FYE 12/93 $13,326 $14,453
$14,054 $13,698
FYE 12/94 $12,185 $12,946
$13,738 $13,235
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A
shares
at inception
on December 28, 1990, assuming deduction of the maximum 4.50%
sales charge at
the time of investment and reinvestment of dividends and
capital gains at net
asset value through December 31, 1994. The Standard & Poor's
Utility Index is
composed of Telephone, Natural Gas and Electric Companies.
The Lehman Brothers
Intermediate (1-10) Corporate Bond Index includes all
publicly issued fixed
rate, nonconvertible investment grade SEC-registered
corporate debt. The
Lehman Brothers Government Corp. Bond Index includes the
Government and
Corporate Bond Indices, including U.S. government treasury
and agency
securities, corporate and yankee bonds.The corporate index
sectors are
industrial finance, utility and Yankee. The indices are
unmanaged and are not
subject to the same management and trading expenses of a
mutual fund. The
performance of the Portfolio's other classes may be greater
or less than the
Class A shares performance indicated on this chart, depending
on whether
greater or lesser sales charges and fees were incurred by
shareholders
investing in the other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
values may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
5
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Funds, Inc.
Utility Portfolio
Schedule of Investments December 31, 1994
<C> <S>
<C>
Shares Security
Value
- ------ --------
- -----
COMMON STOCKS -- 59.0%
Electric -- 40.6%
70,000 American Electrical Power Co.
$2,301,250 20,000 BCE Inc.
642,500
100,000 DPL Inc Holding Co.
2,050,000 130,000 Eastern Utility Association
2,860,000
30,000 Florida Progress Corp.
900,000 50,000 Illinova Corp.
1,087,500 10,000 McDermott International Inc.
247,500
100,000 Montana Power Co. 2,300,000
93,700 New York State Electric & Gas Corp.
1,780,300
128,100 Northeast Utilities
2,770,163
170,000 Pacificorp
3,081,250
80,000 Peco Energy Co.
1,960,000
60,000 Portland General Corp.
1,155,000
110,000 Public Service Enterprise Group
2,915,000
59,000 Texas Utilities Co.
1,888,000
15,000 TNP Enterprises Inc.
223,125
60,000 United Illuminating Co.
177,721
29,931,588 Natural Gas -- 9.0%
40,000 Questar Corp.
1,100,000
10,000 Sonat Inc.
280,000
25,000 Tenneco Inc.
1,062,500
50,000 UGI Corp.
1,018,750
135,000 Washington Energy Co.
1,822,500
50,000 Williams Coal Steam Gas Trust
875,000
20,000 Williams Co.
502,500
6,661,250
Telecommunications -- 1.0%
40,000 Comsat Corp.
745,000
Telephone -- 6.0%
15,000 Bell Atlantic Corp.
746,250
120,000 GTE Corp.
3,645,000
4,391,250 </TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Funds, Inc.
Utility Portfolio
Schedule of Investments (continued)
December 31, 1994
<S> <C>
<C>
Shares Security
Value
- ------ --------
- --
- ---
Real Estate Investment -- 2.4%
25,000 McArthur Glen Realty
$
412,500
50,000 Storage USA Inc.
1,375,000
1,787,500
TOTAL COMMON STOCKS (Cost--
$45,244,400) 43,516,588
Face
Amount Security
Value
- ------ --------
- --
- ---
CORPORATE BONDS -- 36.8%
Electric -- 28.1%
$1,000,000 Cleveland Electric
Illumination,
9.375% due 3/01/17
867,500
2,000,000 Coastal Corp., 10.75% due 10/10/10
2,200,000
2,000,000 Coastal Corp., 9.625% due 5/15/12
2,015,000
3,000,000 First Private Funding, 10.30% due 1/15/14
2,827,500
824,800 National Coop Services, 9.48% due 1/01/12
3,949,106
2,000,000 Natural Rural Utilities, 9.00% due 9/1/21
2,005,000
1,980,000 Public Service Electric, 8.75% due 11/01/21
1,940,400
2,900,000 Texas New Mexico Power, 10.75% due 9/15/03
2,856,500
2,000,000 Texas Utilities Electric, 9.75% due 5/01/21
2,072,500
20,733,506
Airline -- 2.9%
2,150,000 Delta Airlines, 9.90% due 6/15/02
2,155,374
Natural Gas -- 3.8%
2,000,000 Transcontinental Pipeline, 9.125% due
2/01/17
1,860,000
1,000,000 Westinghouse Electric Co., 8.625% due
08/10/12
922,500
2,782,500
Transportation -- 2.0%
2,O00,000 Greyhound, 10.00% due 7/31/01
1,505,000
TOTAL CORPORATE BONDS (Cost--$29,500,361)
27,176,380
EURO BONDS -- 2.8%
2,000,000 Fisher Brothers Financial Realty,
10.75% due 12/17/00 (Cost--$2,250,000)
2,075,000
GOVERNMENT BONDS -- 1.4%
1,000,000 U.S. Treasury Bond, 7.875% due 11/15/04
(Cost--$1,004,375)
1,003,570
TOTAL INVESTMENTS -- 100% (Cost--
$77,999,136*) $73,771,538
* Aggregate cost for Federal income tax purposes is
substantially the same.
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Funds, Inc.
Utility Portfolio
Statement of Assets and Liabilities
December 31, 1994
<S>
<C>
ASSETS:
Investments, at value (Cost -- $77,999,136)
$73,771,538
Cash
1,379,432
Receivable for securities sold
1,349,021
Receivable for Fund shares sold
123,105
Dividends and interest receivable
1,214,038
Total Assets
77,837,134
LIABILITIES:
Payable for securities purchased
155,450
Payable for Fund shares purchased
13,045
Management fees payable
77,745
Distribution costs payable
55,407
Accrued expenses and other liabilities
122,254
Total Liabilities
423,961
Total Net Assets
$77,413,173
NET ASSETS:
Par value of capital
shares $
68,449
Capital paid in excess of par value
81,567,506
Accumulated net realized gain on security
transactions
4,816
Net unrealized depreciation of investments
(4,227,598)
Total Net Assets
$77,413,173
Shares Outstanding:
Class A
6,082,790
Class B
65,086
Class C
697,074
Net Asset Value:
Class A (and redemption price)
$11.31
Class B*
$11.32
Class C**
$11.32
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share)
$11.91
</TABLE>
* Redemption price is NAV of Class B shares reduced by 5.00%
if shares are
redeemed less than one year from initial purchase and
declines by 1.00% per
year until no CDSC is incurred.
** Redemption price is NAV of Class C shares reduced by 1.00%
if shares are
redeemed within the first year of purchase.
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Funds, Inc.
Utility Portfolio
Statement of Operations For the year
ended December 31, 1994
<S> <C>
INVESTMENT INCOME:
Dividends $
3,534,460
Interest
3,549,264
Total Income
7,083,724
EXPENSES:
Management fees (Note 2)
557,472
Distribution costs (Note 2)
294,159
Shareholder servicing fees
69,847
Registration fees
34,000
Shareholder communication fees
18,998
Custodian fees
16,002
Audit and legal fees
11,501
Directors' fees
2,500
Other
7,904
Total Expenses
1,012,383
Net Investment Income
6,071,341
REALIZED AND UNREALIZED GAIN (loss) ON INVESTMENTS (NOTE 4):
Realized Gain From Security Transactions (excluding short-
term securities):
Proceeds from sales
50,826,269
Cost of securities sold
50,489,933
Net Realized Gain
336,336
Change in Net Unrealized Appreciation of Investments:
Beginning of year
11,324,024
End of year
(4,227,598)
Decrease in Net Unrealized Appreciation
(15,551,622)
Net Loss on Investments
(15,215,286)
Decrease in Net Assets Resulting From Operations $
(9,143,945)
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Smith Barney Funds, Inc.
Utility Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the years
ended December 31,
1994
1993
<S> <C>
<C>
OPERATIONS:
Net investment income $
6,071,341
$ 7,915,352
Net realized gain
336,336
2,781,304
Increase (decrease) in net unrealized
appreciation of investments
(15,551,622)
2,206,756
Increase (Decrease) In Net Assets
Resulting
From Operations
(9,143,945)
12,903,412
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income
(6,203,791)
(7,840,186)
Net realized gain
(339,516)
(2,776,876)
Decrease In Net Assets From Distributions
To Shareholders
(6,543,307)
(10,617,062)
FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares
9,101,919 26,947,083
Net asset value of shares issued for
reinvestment of dividends
4,384,725
7,661,653
Cost of shares reacquired
(41,366,290)
(43,211,654)
Decrease In Net Assets From
Fund Share Transactions
(27,879,646)
(8,602,918)
Decrease In Net Assets
(43,566,898) (6,316,568)
NET ASSETS:
Beginning of year
120,980,071
127,296,639
End of year* $
77,413,173
$120,980,071
</TABLE>
*Includes undistributed net investment income of:
$ 84,181
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Funds, Inc.
Utility Portfolio
Notes to Financial Statements
1. Significant Accounting Policies
The Utility Portfolio ("Portfolio") is a separate investment
portfolio of the
Smith Barney Funds, Inc. ("Fund"). The Fund, a Maryland
corporation, is
registered under the Investment Company Act of 1940, as
amended, as a
diversified, open-end management investment company and
consists of this
Portfolio and six other separate investment portfolios:
Income
and Growth, U.S.
Government Securities, Income Return Account, Monthly
Payment Government, Short-
Term U.S. Treasury Securities and Capital Appreciation
Portfolios. The financial
statements and financial highlights for the other
portfolios are presented in
separate annual reports.
The significant accounting policies consistently followed by
the Portfolio are:
(a) securities transactions are accounted for on trade date;
(b) securities traded on national securities markets are
valued at the closing
prices on such markets; securities for which no sales price
was reported and
U.S. Government and Government Agency obligations are valued
at the mean between
the bid and asked prices; short-term investments that have a
maturity of more
than 60 days are valued at prices based on market quotations
for securities of
similar type, yield and maturity; short-term investments that
have a maturity of
60 days or less are valued at cost plus accreted discount, or
minus amortized
premium, as applicable; (c) dividend income is recorded on the
exdividend date
and interest income is recorded on the accrual basis; (d)
gains or losses on the
sale of securities are calculated by using the specific
identification method;
(e) direct expenses are charged to each portfolio and each
class; management
fees and general fund expenses are allocated on the basis of
relative net
assets; (f) dividends and distributions to shareholders are
recorded by the
Portfolio on the ex-dividend date; (g) the accounting records
of the Portfolio
are maintained in U.S. dollars. All assets and liabilities
denominated in
foreign currencies are translated into U.S. dollars based on
the rate of
exchange of such currencies against U.S. dollars on the date
of valuation.
Purchases and sales of securities, and income and expenses are
translated at the
rate of exchange quoted on the respective date that such
transactions are
recorded. Differences between income and expense amounts
recorded and collected
or paid are adjusted when reported by the custodian bank; (h)
the Portfolio
intends to comply with the requirements of the Internal
Revenue Code pertaining
to regulated investment companies and to make the required
distributions to
shareholders; therefore, no provision for Federal income
11
<PAGE>
Smith Barney Funds, Inc.
Utility Portfolio
Notes to Financial Statements (continued)
taxes has been made; and (i) during 1994, the Fund adopted
Statement of
Position 93-2 Determination, Disclosure, and Financial
Statement Presentation of
Income, Capital Gain, and Return of Capital Distributions by
Investment
Companies. Accordingly, the net investment loss of $48,269 at
December 31, 1994
has been reclassified to paid-in capital. Net investment
income, net realized
gains, and net assets were not affected by this change.
2. Management Agreement and Transactions
with Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
formerly known as
Smith Barney Advisers, Inc., a subsidiary of Smith Barney
Holdings Inc. ("SBH"),
acts as investment manager of the Fund. The Utility Portfolio
pays SBMFM a
management fee calculated at an annual rate of 0.60% on the
first $500 million
of average daily net assets, 0.55% on the next $500 million
and 0.50% on average
daily net assets in excess of $1.0 billion. All fees are
calculated daily and
paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
year ended December 31, 1994, SB received brokerage
commissions of $22,907 and
was paid sales charges on Class A share purchases of
approximately $162,000.
Effective November 7, 1994, the Fund adopted a new class
structure,
renaming the existing Class B shares as Class C shares and
exchanging the old
Class C shares into Class A shares. A contingent deferred
sales charge ("CDSC")
was imposed on new Class B shares which begins at 5.00% if
redemption occurs
less than one year from initial purchase and declines by
1.00% per year until no
CDSC is incurred. A CDSC of 1.00% was imposed on Class C
shares if redemption
occurs within the first year from the date such investment
was made. Any CDSC
imposed on redemptions is paid to SB. For the year ended
December 31, 1994,
there were approximately $8,000 in such charges.
Pursuant to a Distribution Plan the Portfolio pays a
service fee with
respect to its Class A, B and C shares calculated at the
annual rate of 0.25% of
the average daily net assets of each respective class'
shares. The
12
<PAGE>
Smith Barney Funds, Inc.
Utility Portfolio
Notes to Financial Statements (continued)
Portfolio also pays a distribution fee with respect to Class
B and C shares
calculated at the annual rate of 0.75% of the average daily
net assets for that
class. All officers and two directors of the Fund are
employees of SB.
3. Investments
During the year ended December 31, 1994, the aggregate
cost of purchases
and proceeds from sales of investments (including maturities,
but excluding
short-term securities) was $21,757,160 and $50,826,269,
respectively.
At December 31, 1994, the net unrealized depreciation of
investments for
Federal income tax purposes consisted of the following:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 2,210,202
Gross unrealized depreciation (6,437,800)
Net unrealized depreciation $ (4,227,598)
</TABLE>
4. Repurchase Agreements
The Portfolio purchases (and its custodian takes
possession of) U.S.
Government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolio requires
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
5. Capital Shares
At December 31, 1994, there were two billion shares of
$0.01 par value
capital stock authorized. The Portfolio has the ability to
issue multiple
classes of shares. Each share of a class represents an
identical interest and
has the same rights, except that each class bears certain
expenses, including
those specifically related to the distribution of its shares.
At December 31,
1994, paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class C
------ ------- -------
<S> <C> <C> <C>
Total Paid-in Capital $71,423,954 $739,046 $9,472,955
</TABLE>
13
<PAGE>
Smith Barney Funds, Inc.
Utility Portfolio
Notes to Financial Statements (continued)
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year
Ended Year Ended
December
31, 1994 December 31, 1993
----------------
--
- ----------- ---------------------------------
Shares
Amount Shares Amount
----------------
- ----- ----------- --------------
<S> <C>
<C> <C> <C>
Class A++
Shares sold
399,731
$
4,862,656 1,403,632 $ 19,296,800
Shares issued on reinvestment
333,095
3,997,75 540,025 7,351,402
Shares redeemed
(3,185,160)
(39,122,649) (3,104,284) (42,558,472)
Net Decrease
(2,452,334)
$(30,262,240) (1,160,627)
$(15,910,270)
Class B*
Shares sold
65,088
$
738,648 529,526 $ 7,318,245
Shares issued on reinvestment
279
3,155 21,923 296,738
Shares redeemed
(281)
(3,206) (47,143) (653,182)
Net Increase
65,086
$
738,597 504,306 $ 6,961,801
Class C+
Shares sold
282,137
$
3,500,615 23,589 $ 332,038
Shares issued on reinvestment
32,304
383,817 999 13,513
Shares redeemed
(187,475)
(2,240,435) -- --
Net Increase
126,966
$
1,643,997 24,588 $ 345,551
++ On October 10, 1994 the old Class C shares were
exchanged
into Class A shares and therefore
Class C share activity is included with the Class A share
activity prior to this date.
* Sales of Class B shares commenced on November 7, 1994.
+ On November 7, 1994 the old Class B shares were renamed
Class
C shares.
</TABLE>
14
<PAGE>
Smith Barney Funds, Inc.
Utility Portfolio
Financial Highlights
For a share of each class of capital stock outstanding
throughout
each year:
<TABLE>
<CAPTION>
Class A Shares 1994
1993 1992 1991 1990(1)
- -------------- -------
- --
- -
- -------- -------- -------- ---------
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year $
13.29
$ 13.07 $ 13.07 $ 11.94 $ 11.94
Income (Loss) from Investment Operations:
Net investment income
0.79
0.82 0.79 0.78 0.01
Net realized and unrealized gain (loss)
on investments
(1.91)
0.52 0.17 1.20 --
Total Income (Loss) from Investment Operations
(1.12)
1.34 0.96 1.98 0.01
Less Distributions:
Dividends from net investment income
(0.81)
(0.81) (0.79) (0.79) (0.01)
Distributions from net realized gains on
security transactions (2)
(0.05)
(0.31) (0.17) (0.06) --
Total Distributions
(0.86)
(1.12) (0.96) (0.85) (0.01)
Net Asset Value, End of Year
$
11.31
$ 13.29 $ 13.07 $ 13.07 $ 11.94
Total Return
(8.56)% 10.37% 7.77% 17.21%
0.08%++
Net Assets, End of Year (000s)
$
68,788
$113,080 $126,437 $104,905 $ 71,237
Ratios to Average Net Assets:
Expenses
1.01%
0.98% 1.07% 1.00% 1.00%+
Net investment income
6.54
5.97 6.13 6.61 7.58+
Portfolio Turnover Rate
23.54%
36.68% 27.54% 39.45% --
Class B
Shares (3) Class C Shares (5)
--------
- -------- --------------------------------
1994(4) 1994 1993 1992(6) -----
-----
- ------- -------- -------- --------
Net Asset Value, Beginning of Year $
11.29
$ 13.28 $ 13.07 $ 12.98
Income (Loss) from Investment Operations:
Net investment income
0.14
0.71 0.73 0.02
Net realized and unrealized gain
on investments
0.06
(1.91) 0.50 0.26
Total Income (Loss) from Investment Operations
0.20
(1.20) 1.23 0.28
Less Distributions:
Dividends from net investment income
(0.12)
(0.71) (0.71) (0.03)
Distributions from net realized gains on
security transactions (2)
(0.05) (0.05) (0.31) (0.16)
Total Distributions
(0.17) (0.76) (1.02) (0.19)
Net Asset Value, End of Year
$
11.32 $ 11.32 $ 13.28 $ 13.07
Total Return
1.82%++ (9.19)% 9.48% 2.23%++
Net Assets, End of Year (000s)
$
737 $ 7,889 $ 7,573 $ 860
Ratios to Average Net Assets:
Expenses
1.67%+ 1.77% 1.72% 1.55%+
Net investment income
4.71+ 5.87 5.12 2.45+
Portfolio Turnover Rate
23.54% 23.54% 36.68% 27.45%
</TABLE>
(1) For the period from December 28, 1990 (inception date)
to December 31,
1990.
(2) Net short term gains, if any, are included and reported
as ordinary income
for tax purposes.
(3) On November 7, 1994 the old Class B shares were renamed
Class C shares.
(4) For the period from November 7, 1994 (inception date) to
December 31, 1994.
(5) On October 10, 1994 old Class C shares were exchanged
into
Class A shares
and therefore Class C share activity is included with the
Class A share
activity prior to this date.
(6) For the period from December 2, 1992 (inception date)
to
December 31, 1992.
++ Not annualized as it may not be representative of the
total
return for the
year.
+ Annualized.
15
<PAGE>
Smith Barney Funds, Inc.
Utility Portfolio
Independent Auditors' Report
To the Shareholders and Board of Directors of
Smith Barney Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities
including the schedule of investments of the Utility
Portfolio of Smith Barney
Funds, Inc. as of December 31, 1994, and the related
statement of operations for
the year then ended, the statements of changes in net assets
for each of the
years in the two-year period then ended and the financial
highlights for each of
the years in the four-year period then ended and the period
from December 28,
1990 (commencement of operations) to December 31, 1990. These
financial
statements and financial highlights are the responsibility of
the Portfolio's
management. Our responsibility is to express an opinion on
these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of
securities owned as of
December 31, 1994, by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial
highlights referred
to above present fairly, in all material respects, the
financial position of the
Utility Portfolio of Smith Barney Funds, Inc. as of December
31, 1994 and the
results of its operations for the year then ended, changes in
its net assets for
each of the years in the two-year period then ended and the
financial highlights
for each of the years in the four-year period then ended and
the period from
December 28, 1990 (commencement of operations) to December
31, 1990, in
conformity with generally accepted accounting principles.
/s/ KPMG
Peak Marwick LLP
New York, New York
February 17, 1995
16
<PAGE>
Smith Barney
Funds, Inc.
Directors
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Stephen Treadway, Chairman
C. Richard Youngdahl
Officers
Stephen Treadway
Chief Executive Officer
Heath B. McLendon
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
[LOGO OF SMITH BARNEY APPEARS HERE]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the
shareholders of
Smith Barney Funds, Inc. Utility Portfolio. It is not
authorized for
distribution to prospective investors unless accompanied or
preceded by a
current Prospectus for the Portfolio, which contains
information concerning the
Portfolio's investment policies and expenses as well as
other pertinent
information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD 0852 B5
<PAGE>
A N N U A L R E P O R T
1994
1994
1994
1994
1994
Smith Barney
Funds, Inc.
Monthly Payment
Government
Portfolio
U.S. Government
Securities Portfolio -----------------
- ---
December 31,1994
[LOGO] Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
Monthly Payment Government and
U.S. Government Securities Portfolios
Dear Shareholders:
For the year ended December 31, 1994, the total return for
Class A shares of the
Smith Barney Funds, Inc.: Monthly Payment Government
Portfolio
was negative
1.38% and the total return for the U.S. Government Securities
Portfolio was
negative 1.40%. Both of the Portfolios outperformed the
Lehman Brothers GNMA
Mutual Fund Index which produced a total return of negative
1.50% for the same
period. According to Lipper Analytical Services, both
Portfolios outperformed
the average Ginnie Mae fund, which returned a negative 2.49%
for the year.
Market Review
Interest rates moved steadily upward during the past year
causing a substantial
decline in bond prices. In fact, 1994 has been characterized
as the worst year
for bonds since record keeping began in 1927. By December 31,
the yield on the
benchmark 30-year Treasury bond had risen to 7.88%, compared
with 6.35% at the
start of the year. The rise in short-term rates was even more
striking. The
yield on the two-year Treasury note, for example, rose from
4.23% in January, to
7.69% by December.
Rates were propelled upward by the Federal Reserve Board's
("Fed") six increases
in the federal funds rate--the rate banks charge each other
for overnight loans.
The Fed, concerned that inflationary pressures were building,
moved toward this
more restrictive monetary policy in an effort to stem
potential
future inflation
before it became an issue. On February 4, 1994, the Fed
raised the federal funds
rate to 3.25%, and by the end of December, it had pushed the
rate to 5.5%.
In the mortgage-backed market, the current coupon rate for
securities issued by
the Government National Mortgage Association ("GNMA") began
the year yielding
6.68% and climbed to a yield of 8.89% by year end. Also, with
interest rates
rising, homeowners were less inclined to refinance their
existing mortgages, and
prepayments declined rapidly. This drop in prepayments had
the effect of
lengthening the average duration of mortgage-backed
securities. Duration is a
measure of a bond's volatility when interest rates move up or
down. The longer
the duration, the more sensitive the bond is to interest rate
changes.
1
<PAGE>
Portfolio Strategy
Shortly after the first increase in the federal funds rate in
February, we sold
longer-term Treasury securities in order to reduce the
Portfolios' duration. The
GNMA Index began the year with a duration of 3.2 years, but
as prepayments
slowed, its duration lengthened. Throughout much of 1994 we
kept the Portfolios'
duration shorter than the Index's by about one-half year,
primarily by holding a
reserve of cash equivalents equal to 15% of each Portfolio.
By year end, we had
reduced our cash position and lengthened our duration to 5.25
years, compared
with 5.5 years for the GNMA Index, through the addition of
shortterm
Treasuries.
Outlook
Despite the Fed's efforts to cool the economy, strong capital
spending and
employment growth indicate a fourth-quarter Gross Domestic
Product (GDP) rate
that could exceed 4.0% when the final data for 1994 is
tallied.
It is generally
understood that a rate which surpasses 2.5% may point to
future inflation. A
healthy GDP number could cause the Fed to increase rates
again when its policy-
making committee meets at the end of January.
In our view, inflation, as measured by the Consumer Price
Index, will probably
trend towards 3.5% in 1995 which will represent an increase
but not pose a
problem. We believe that after an erratic first quarter, the
environment for
fixed-income investments will turn more positive.
Accordingly, we plan to
position the Portfolios more bullishly by lengthening
duration as the quarter
ends.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman and Chief Executive Officer
January 31, 1995
2
<PAGE>
SMITH BARNEY FUNDS, INC.
MONTHLY PAYMENT GOVERNMENT PORTFOLIOS
Historical Performance - Class A Shares
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End of Income
Capital Gain
Total
Year Ended of Year Year Dividend
Distributions
Returns/(1)/
- ---------- --------- ------ -------- ---------
- ---
- ------------
<S> <C> <C> <C> <C>
<C>
12/31/94 $12.85 $11.86 $0.81 $0.00
(1.36)%
12/31/93 12.96 12.85 0.88 0.06
6.51
12/31/92 13.12 12.96 0.96 0.05
6.83
12/31/91 12.41 13.12 1.11 0.03
15.66
12/31/90 12.37 12.41 1.11 0.00
9.89
12/31/89 11.74 12.37 1.11 0.00
15.45
12/31/88 11.83 11.74 1.09 0.00
8.75
12/31/87 12.59 11.83 0.99 0.01
2.09
4/16/86*-12/31/86 12.50 12.59 0.81 0.00
7.44
----- ----
Total $8.87 $0.15
===== =====
<CAPTION>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND
CAPITAL GAINS, IF
ANY, ANNUALLY.
Average Annual Total Return - Class A
Shares
Without
With
Sales Charge/(1)/ Sales
Charge/(2)/
----------------- ---------
- ------
<S> <C> <C>
Year Ended 12/31/94 (1.36)%
(5.83)%
Five Years Ended 12/31/94 7.36
6.38
4/16/86* through 12/31/94 8.13
7.57
<CAPTION>
Historical Performance - Class B Shares
Net Asset Value
-------------------
Beginning End of Income Capital
Gain Total
Year Ended of Year Year Dividend
Distributions Returns/(1)/
- ---------- --------- ------ -------- --------
- --
- --
- - ------------
<S> <C> <C> <C> <C>
<C>
11/10/94*-12/31/94 $11.78 $ 11.85 $ 0.12 $
0.00
1.64%
<CAPTION>
Average Annual Total Return - Class B Shares
Without
With Sales Charge/(1)/
Sales
Charge/(2)/
----------------- ---------
- ------
<S> <C> <C>
11/10/94* through 12/31/94 1.64%
(2.86)%
</TABLE>
* Inception.
3
<PAGE>
SMITH BARNEY FUNDS, INC.
MONTHLY PAYMENT GOVERNMENT PORTFOLIO
Historical Performance - Class C Shares
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End of Income Capital
Gain Total
Year Ended of Year Year Dividend
Distributions
Returns/(1)/
- ---------- --------- ------ -------- ----------
- -
- --
- ------------
<S> <C> <C> <C> <C>
<C>
12/31/94 $12.85 $11.86 $0.73 $0.00
(2.07)%
12/31/93 12.96 12.85 0.79 0.06
5.77
12/02/92*-12/31/92 12.89 12.96 0.08 0.00
1.15
----- ----
Total $1.60 $0.06
===== =====
<CAPTION>
Average Annual Total Return - Class C Shares
Without
With Sales Charge/(1)/
Sales
Charge/(2)/
----------------- ---------
- ---
- ----
<S> <C> <C>
Year Ended 12/31/94 (2.07)%
(3.05)%
12/2/92* through 12/31/94 2.26 2.26
Cumulative Total Return
<CAPTION>
Without
Sales
Charge/(1)/
-----------
- ----
<S> <C>
Class A (4/16/86* through 12/31/94) 98.98%
Class B (11/10/94* through 12/31/94) 1.64
Class C (12/2/92* through 12/31/94) 4.77
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect a deduction of the
applicable sales charge
with respect to Class A shares or the applicable
contingent deferred sales
charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 4.50%, Class B shares
reflect the deduction
of a 4.50% CDSC, which applies if shares are redeemed
less than one year
from initial purchase and declines by 1.00% per year
until no CDSC is
incurred and Class C shares reflect the deduction of a
1.00% CDSC if shares
are redeemed within the first year of purchase.
* Inception.
4
<PAGE>
SMITH BARNEY FUNDS, INC.
MONTHLY PAYMENT GOVERNMENT PORTFOLIO
Historical Performance
GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF THE
MONTHLY
PAYMENT GOVERNMENT PORTFOLIO VS. LEHMAN
BROTHERS GNMA
MUTUAL FUND INDEX+
(UNAUDITED) ---------------
- -------------------------------------------------------------
- --
April 1986 - December 1994
[CHART APPEARS HERE]
+ Hypothetical illustration of $10,000 invested in Class A
shares
at inception
on April 16, 1986 assuming deduction of the maximum 4.00%
sales charge at the
time of investment and reinvestment of dividends (after
deduction of
applicable sales charge) and capital gains (at net asset
value) through
December 31, 1994. The Lehman Brothers GNMA Mutual Fund Index
is composed of
15-year and 30-year fixed-rate securities backed by mortgage
pools of the
Government National Mortgage Association. The Index is
unmanaged and is not
subject to the management and trading expenses of a mutual
fund. The
performance of the Portfolio's other classes may be greater
or less than the
Class A shares performance indicated on this chart, depending
on whether
greater or lesser sales charges and fees were incurred by
shareholders
investing in other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
value may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
5
<PAGE>
SMITH BARNEY FUNDS, INC.
U.S. GOVERNMENT SECURITIES PORTFOLIO
Historical Performance - Class A Shares
Net Asset Value
-------------------
Beginning End of Income Capital
Gain Total
Year Ended of Year Year Dividend
Distributions
Returns/(1)/
- ---------- --------- ------ -------- ---------
- --
- --
- ------------
12/31/94 $13.66 $12.50 $0.96 $0.00
(1.48)%
12/31/93 13.87 13.66 0.98 0.11
6.40
12/31/92 14.10 13.87 1.08 0.08
6.85
12/31/91 13.22 14.10 1.13
0.05
16.29
12/31/90 13.17 13.22 1.18
0.00
9.95
12/31/89 12.56 13.17 1.21
0.00
15.11
12/31/88 12.68 12.56 1.20
0.00
8.72
12/31/87 13.89 12.68 1.31
0.24
2.67
12/31/86 13.95 13.89 1.44
0.04
10.76
12/31/85 12.76 13.95 1.22
0.00
19.59
10/9/84*-12/31/84 12.50 12.76 0.20
0.00
3.32
------ ---
Total $11.91
$0.52
======
=====
It is the Fund's policy to distribute dividends quarterly
and capital gains, if
any, annually.
Average Annual Total Return - Class A Shares
Without
With Sales Charge/(1)/
Sales
Charge/(2)/
----------------- ---------
- ------
Year Ended 12/31/94 (1.48)%
(5.89)%
Five Years Ended 12/31/94 7.45 6.46
10/9/84* through 12/31/94 9.48 8.99
Historical Performance - Class B Shares
Net Asset Value
-------------------
Beginning End of Income Capital
Gain Total
Year Ended of Year Year Dividend
Distributions
Returns/(1)/
- ---------- --------- ------ -------- ----------
- --
- -
- ------------
11/7/94*-12/31/94 $12.47 $12.51 $0.12 $0.00
2.04%
*Inception.
6
<PAGE>
SMITH BARNEY FUNDS, INC.
MONTHLY PAYMENT GOVERNMENT PORTFOLIO
Average Annual Total Return - Class B Shares
Without
With Sales Charge/(1)/
Sales
Charge/(2)/
----------------- ---------
- ---
- ----
11/7/94* through 12/31/94 2.04%
(2.46)%
Historical Performance - Class C Shares
Net Asset Value
-------------------
Beginning End of Income Capital
Gain Total
Year Ended of Year Year Dividend
Distributions
Returns/(1)/
- ---------- --------- ------ -------- ----------
- --
- -
- ------------
12/31/94 $13.66 $12.50 $0.87 $0.00
(2.11)%
12/31/93 13.86 13.66 0.88 0.11
5.74
12/2/92*-12/31/92 14.01 13.86 0.30 0.00
1.07
----- -----
Total $1.78 $0.11
===== =====
Average Annual Total Return - Class C Shares
Without
With
Sales Charge/(1)/ Sales
Charge/(2)/
----------------- ---------
- ------
Year Ended 12/31/94 (2.11)%
(3.09)%
12/2/92* through 12/31/94 2.19 2.19
Historical Performance - Class Y Shares
Net Asset Value
-------------------
Beginning End of Income Capital
Gain
Total
Year Ended of Year Year Dividend
Distributions
Returns/(1)/
- ---------- --------- ------ -------- ----------
- --
- -
- ------------
12/31/94 $13.67 $12.51 $0.95 $0.00
(1.53)%
1/12/93*-12/31/93 13.97 13.67 0.95 0.11
5.55
----- -----
Total $1.90 $0.11
===== =====
Average Annutal Total Return - Class Y Shares
Without
With
Sales Charge/(1)/ Sales
Charge/(2)/
----------------- ---------
- ------
Year Ended 12/31/94 (1.53)%
(1.53)%
1/12/93* through 12/31/94 1.98 1.98
*Inception.
7
<PAGE>
SMITH BARNEY FUNDS, INC.
U.S. GOVERNMENT SECURITIES PORTFOLIO
Historical Performance - Class Z Shares
Net Asset Value -----------------
Beginning End of Income Capital Gain
Total
Year Ended of Year Year Dividend
Distributions
Returns/(1)/
- ---------- --------- ------ -------- ---------
- ---
- ------------
11/7/94*-12/31/94 $12.47 $12.50 $0.24 $0.00
(2.15)%
Average Annual Total Return - Class Z Shares
Without
With
Sales Charge/(1)/ Sales
Charge/(2)/
----------------- -------
- --
- --
- ------
11/7/94* through 12/31/94 (2.15)%
(2.15)%
Cumulative Total Return
Without
Sales
Charge/(2)/ -
-------------
--
Class A (10/9/84* through 12/31/94) 152.62%
Class B (11/7/94* through 12/31/94) 2.04
Class C (12/2/92* through 12/31/94) 4.62
Class Y (1/12/93* through 12/31/94) 3.94
Class Z (11/7/94* through 12/31/94) (2.15)
(1) Assumes reinvestment of all dividends and capital
gain distributions at net
asset value and does not reflect a deduction of the
applicable sales charge
with respect to Class A shares or the contingent
deferred sales charges
("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 4.50%, Class B shares
reflect the deduction
of a 4.50%, which applies CDSC if shares are redeemed
less than one year
from initial purchase and declines by 1.00% per year
until no CDSC is
incurred and Class C shares reflect the deduction of a
1.00% CDSC if shares
are redeemed within the first year of purchase.
* Inception.
8
<PAGE>
SMITH BARNEY FUNDS, INC.
U.S. GOVERNMENT SECURITIES PORTFOLIO
Historical Performance
GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF
THE U.S. GOVERNMENT SECURITIES PORTFOLIO VS.
LEHMAN
BROTHERS
GNMA MUTUAL FUND INDEX+
(UNAUDITED) ---------------
--
- -------------------------------------------------------------
October 1984 - December 1994
[CHART APPEARS HERE]
+ Hypothetical illustration of $10,000 invested in Class A
shares on October 9,
1984 assuming deduction of the maximum 4.00% sales charge at
the time of
investment and reinvestment of dividends (after deduction of
applicable sales
charge) and capital gains (at net asset value) through
December 31, 1994. The
Lehman Brothers GNMA Mutual Fund Index is composed of 15-year
and 30-year
fixed-rate securities backed by mortgage pools of the
Government National
Mortgage Association. The Index is unmanaged and is not
subject to the
management and trading expenses of a mutual fund. The
performance of the
Portfolio's other classes may be greater or less than the
Class A performance
indicated on this chart, depending on whether greater or
lesser sales charges
and fees were incurred by shareholders investing in other
classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and
redemption value may be more or less than the original cost.
No adjustment
has been made for shareholder tax liability on dividends or
capital gains.
9
<PAGE>
SMITH BARNEY FUNDS, INC.
Schedules of Investments
December
31, 1994
MONTHLY PAYMENT GOVERNMENT SECURITIES
PORTFOLIO
FACE COUPON
AMOUNT SECURITY RATE MATURITY**
VALUE
- ------ -------- ------ ---------- -
- --
- --
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS-93.8%
$9,303,000 GNMA Certificates 6.50% 12/01/23 $
8,079,250
5,590,000 GNMA Certificates 7.00 3/15/23
5,027,825
7,685,000 GNMA Certificates 7.50 11/15/22
7,144,624
3,101,000 GNMA Certificates 8.00 9/15/21
2,971,405
5,791,000 GNMA Certificates 8.50 11/15/19
5,702,408
2,441,000 GNMA Certificates 9.00 10/15/17
2,467,426
2,410,000 GNMA Certificates 9.50 11/15/17
2,490,932
1,317,000 GNMA Certificates 10.00 7/15/20
1,387,699
4,389,000 GNMA II Certificates 8.50 4/20/22
4,283,615
3,000,000 U.S. Treasury Note 7.25 11/30/96
2,977,170
----
- -----
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost-$44,497,486)
42,532,354
===========
SHORT-TERM INVESTMENTS-6.2%
3,000,000 U.S. Treasury Bill
(Cost-$2,808,572) 7.06* 12/14/95
2,803,950
----
- -----
TOTAL INVESTMENTS--100% (Cost-$47,306,058+)
$45,336,304
===========
See Notes to Financial Statements.
10
<PAGE>
SMITH BARNEY FUNDS, INC.
Schedules of Investments (Continued)
December 31, 1994
U.S. GOVERNMENT SECURITIES PORTFOLIO
FACE COUPON
AMOUNT SECURITY RATE
MATURITY**
VALUE
- ------ -------- ------ ------
- --
- --
- -----
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS--94.9%
$74,393,000 GNMA Certificates 6.50%
12/01/23
$64,605,149
74,329,000 GNMA Certificates 7.00
3/15/23
66,849,022
67,478,000 GNMA Certificates 7.50
11/15/22
62,732,554
24,407,000 GNMA Certificates 8.00
9/15/21
23,384,452
23,072,000 GNMA Certificates 8.50
11/15/19
22,718,843
63,286,000 GNMA Certificates 9.00
10/15/17
63,977,965
29,011,000 GNMA Certificates 9.50
11/15/17
29,990,348
5,133,000 GNMA Certificates 10.00
7/15/20
5,410,433
18,871,000 GNMA 11 Certificates 8.50
4/20/22
18,416,529
3,050,000 GNMA 11 Certificates 10.00
10/20/16
3,161,689
32,000,000 U.S. Treasury Note 7.25
11/30/96
31,756,480
- ------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost--$408,524,206)
393,003,464
============
SHORT-TERM INVESTMENTS--5.1%
19,000,000 U.S. Treasury Bill 7.06*
12/14/95
17,758,350
3,155,000 Repurchase Agreement --
Chemical Securities Inc.,
5.75% due 1/03/95 proceeds at maturity-
$3,157,014 (Fully collateralized by
U.S. Treasury Notes 6.50%,
due 9/30/96; Market value--$3,218,303)
3,155,000
- ------------
TOTAL SHORT-TERM INVESTMENTS (Cost--
$20,942,621) 20,913,350
- ------------
TOTAL INVESTMENTS--100% (Cost--$429,466,827+)
$413,916,814
============
* Annualized yield on date of purchase for short-term
securities.
** Date shown represents the last in the range of maturity
dates of mortgage
certificates owned.
+ Aggregate cost for Federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL
STATEMENTS. 11
<PAGE>
SMITH BARNEY FUNDS, INC.
Statements of Assets and Liabilities
December 31, 1994
<TABLE>
<CAPTION>
MONTHLY
PAYMENT U.S. GOVERNMENT
GOVERNMENT SECURITIES
PORTFOLIO PORTFOLIO
-----------
- -----------------
<S> <C>
<C>
ASSETS:
Investments, at value
(Cost--$47,306,058
and $429,466,827, respectively)
$45,336,304
$413,916,814
Cash
- -
-
435
Receivable for Fund shares sold
36,426
163,028
Interest receivable
291,295
2,694,995
Other assets
233
4,258
--------
- -----------------
TOTAL ASSETS
45,664,258
416,779,530
============ ===============
LIABILITIES:
Payable for Fund shares purchased
153,544
2,789,471
Management fees
payable 33,157
303,489
Distribution costs
payable 27,901
233,042
Accrued expenses and other
liabilities 1,779,454
144,245
--------
- -----------------
TOTAL LIABILITIES
1,994,056
3,470,247
============ ===============
TOTAL NET ASSETS
$43,670,202
$413,309,283
============ ===============
NET ASSETS:
Par value of capital shares
$
36,831
$ 330,653
Capital paid in excess of par value
47,638,513
459,752,198
Undistributed net investment income
67,512
27,604
Accumulated net realized loss on
investments (2,102,900)
(31,251,159)
Net unrealized depreciation of investments
(1,969,754) (15,550,013)
--------
- -----------------
TOTAL NET ASSETS
$43,670,202
$413,309,283
============ ===============
SHARES OUTSTANDING:
Class A
3,395,303
28,644,268
Class B
5,166
122,195
Class C
282,655
1,700,884
Class Y
- -
-
1,111,451
Class Z
- -
-
1,486,353
--------
- -----------------
NET ASSET VALUE:
Class A (and redemption price)
$11.86
$12.50
Class B*
$11.85
$12.51
Class C**
$11.86
$12.50
Class Y (and redemption price)
- -
-
$12.51
Class Z (and redemption price)
- -
-
$12.50
--------
- -----------------
CLASS A MAXIMUM PUBLIC OFFERING PRICE PER SHARE
(net asset value plus 4.71% of net asset
value
per share)
$12.42
$13.09
============ ===============
</TABLE>
* Redemption price is NAV of Class B shares reduced by 5.00%
if
shares are
redeemed less than one year from initial purchase and
declines BY 1.00%
per year until no CDSC is incurred.
** Redemption price is NAV of Class C shares reduced by 1.00%
if shares are
redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
<TABLE>
<CAPTION>
SMITH BARNEY FUNDS, INC.
Statements of Operations For the year ended
December 31, 1994
MONTHLY PAYMENT U.S. GOVERNMENT
GOVERNMENT SECURITIES
PORTFOLIO PORTFOLIO
--
- ----------- --------------
<S>
<C>
<C>
INVESTMENT INCOME:
Interest
$
3,760,106 $ 33,941,357
- ---------- ------------
EXPENSES:
Management fees (Note 2)
226,622 1,987,629
Distribution costs (Note 2)
50,511 410,802
Registration fees
31,390 46,001
Shareholder servicing fees
25,820 119,997
Shareholder communication fees
9,490 70,003
Audit and legal fees
4,380 18,604
Custodian fees
3,285 52,002
Directors' fees
1,460 9,001
Other
20,806 12,001
- ---------- ------------
TOTAL EXPENSES
373,764 2,726,040
- ---------- ------------
NET INVESTMENT INCOME
3,386,342 31,215,317
=========== ============
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Realized Loss From Security
Transactions (excluding short-term
securities): Proceeds from sales
33,638,072 240,175,422
Cost of securities sold
33,955,824 241,281,788
NET REALIZED LOSS
(317,752) (1,106,366)
Change in Net Unrealized Depreciation
of Investments:
Beginning of year
2,037,230 22,554,814
End of year
(1,969,754) (15,550,013)
INCREASE IN NET UNREALIZED DEPRECIATION
(4,006,984) (38,104,827)
- ---------- ------------
NET LOSS ON INVESTMENTS
(4,324,736) (39,211,193)
- ---------- ------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$
(938,394) $ (7,995,876)
=========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
SMITH BARNEY FUNDS, INC.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
MONTHLY PAYMENT
U.S. GOVERNMENT
GOVERNMENT
SECURITIES
PORTFOLIO
PORTFOLIO
------------------
- -------------
1994 1993
1994 1993
---- -----
- -----
<S> <C> <C>
<C> <C>
OPERATIONS:
Net investment income $ 3,386,342 $
3,610,754
$ 31,215,317 $ 35,096,724
Net realized gain (loss)
on security transactions (317,752)
281,187
(1,106,366) 7,477,067
Increase in net unrealized
depreciation of
investments (4,006,984)
(566,091)
(38,104,827) (11,749,463)
----------- --------
- ------------- ------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS (938,394)
3,325,850
(7,995,876) 30,824,328
===========
=========== ============ ============
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (3,338,476)
(3,641,688)
(31,643,231) (35,085,778)
Net realized gain on
security transactions (112,248)
(234,030)
(1,490,047) (3,904,933)
----------- --------
- ------------- ------------
DECREASE IN NET ASSETS
FROM DISTRIBUTIONS
TO SHAREHOLDERS (3,450,724)
(3,875,718)
(33,133,278) (38,990,711)
===========
=========== ============ ============
FUND SHARE TRANSACTIONS:
Net proceeds from sales 5,006,752
18,564,513
56,175,610 116,428,965
Net value of shares issued
to shareholders for
reinvestment of
dividends 842,312
873,297
18,997,260 22,593,548
Cost of reacquired
shares (15,897,992)
(10,607,078)
(123,068,611) (89,855,888)
----------- --------
- --
- ------------ ------------
INCREASE (DECREASE) IN
NET ASSETS FROM FUND SHARE
TRANSACTIONS (10,048,928)
8,830,732
(47,895,741) 49,166,625
===========
===========
============ ============
INCREASE (DECREASE)
IN NET ASSETS (14,438,046)
8,280,864
(89,024,895) 41,000,242
NET ASSETS:
Beginning of year 58,108,248
49,827,384
502,334,178 461,333,936
----------- --------
- --
- ------------ ------------
END OF YEAR* $ 43,670,202
$58,108,248
$413,309,283 $502,334,178
===========
===========
============ ============
*Includes undistributed net
investment income of: $ 67,512 $
19,646 $ 27,604 $ 455,518
===========
===========
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements
1. Significant Accounting Policies
The Monthly Payment Government Portfolio ("Monthly Payment")
and the U.S.
Government Securities Portfolio ("U.S. Government") are
separate investment
portfolios ("Portfolios") of the Smith Barney Funds, Inc.
("Fund"). The Fund, a
Maryland corporation, is registered under the Investment
Company Act of 1940, as
amended, as a diversified, open-end management investment
company. The Fund
consists of these Portfolios and five other separate
investment portfolios:
Income and Growth, Income Return Account, Short-Term U.S.
Treasury Securities,
Capital Appreciation and Utility Portfolios. The financial
statements and
financial highlights for the other portfolios are presented
in separate annual
reports.
The significant accounting policies consistently followed by
the Fund are: (a)
securities transactions are accounted for on trade date; (b)
U.S. Government and
Government Agency obligations are valued at the mean between
the bid and asked
prices; short-term investments that have a maturity of more
than 6o days are
valued at prices based on market quotations for securities of
similar type,
yield and maturity; short-term investments that have a
maturity of 60 days or
less are valued at cost plus accreted discount, or minus
amortized premium, as
applicable; (c) interest income is recorded on the accrual
basis; (d) gains or
losses on the sale of securities are calculated by using the
specific
identification method and include gains or losses resulting
from repayments of
principal on mortgage-backed securities; (e) direct expenses
are charged to each
portfolio and each class; management fees and general fund
expenses are
allocated on the basis of relative net assets; (f)
dividends and distributions
to shareholders are recorded by the Fund on the ex-
dividend date; (g) each
Portfolio intends to comply with the requirements of the
Internal Revenue Code
pertaining to regulated investment companies and to make
the required
distributions to shareholders; therefore, no provision for
Federal income taxes
has been made.
2. Management Agreement and Transactions with
Affiliated Persons
Smith Barney Mutual Funds Management, Inc. ("SBMFM"),
formerly known as Smith
Barney Advisers, Inc., a subsidiary of Smith Barney Holdings
Inc. ("SBH"), acts
as investment manager to the Fund. Monthly Payment, U.S.
Government and Income
Return Account Portfolios pay SBMFM a management fee
calculated at the annual
rate of O.5O% on the first $200 million of the aggregate
average daily net
assets of the three Porfollos and 0.40% on the aggregate
average daily net
assets in excess of $200 million, allocated to each Portfolio
based on their
relative average daily net assets. All fees are calculated
daily and paid
monthly.
15
<PAGE>
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements (continued)
Smith Barney Inc. ("SB"), another subsidiary of Smith Barney
Holdings Inc.,
acts as distributor of Fund shares. For the year ended
December
31, 1994, SB
has advised the Portfolio that it was paid sales charges of
approximately
$150,000 and $644,000 by purchasers of Monthly Payment and
U.S. Government
shares, respectively.
Effective November 7, 1994, the Fund adopted a new class
structure, renaming
the existing Class B shares as Class C shares and the old
Class C shares were
renamed Class Y shares. A contingent deferred sales charge
("CDSC") was imposed
on new Class B shares which begins at 4.50% if redemption
occurs less than one
year from initial purchase and declines by 1.00% per year
until no CDSC is
incurred. A CDSC of 1.00% Is imposed on Class C shares if
redemption occurs
within the first year from the date such investment was made.
For the year
ended December 31, 1994, there were approximately $34,390 in
such charges.
Pursuant to Distribution Plans, the Monthly Payment and the
U.S. Government
Portfolios pay a service fee with respect to their class A, B
and C shares
calculated at the annual rate of 0.25% of the average daily
net
assets of each
respective class' shares. Each Portfolio also pays a
distribution fee with
respect to class B and class C shares calculated at the
annual rate of 0.50% and
0.45% of their class's average daily net assets,
respectively. All officers and
two directors of the Fund are employees of SB.
3. Investments
During the year ended December 31, 1994, the aggregate cost
of purchases and
proceeds from sales (including maturities, but excluding
short term securities)
of investments were, as follows:
PORTFOLIO PURCHASES SALES --------
- - --------- ----Monthly Payment
Government $ 27,536,952 $ 26,422,900 U.S.
Government Securities 186,320,481 166,355,959
At December 31, 1994, the net unrealized depreciation of
investments for
Federal income tax purposes by Portfolio consisted of the
following:
MONTHLY U.S.
PAYMENT
GOVERNMENT
GOVERNMENT
SECURITIES ---------------
----
Gross unrealized appreciation $ 526,208 $
7,896,901
Gross unrealized depreciation (2,495,962)
(23,446,914)
----------- ----------
Net unrealized depreciation $(1,969,754)
$(15,550,013)
===========
============
16
<PAGE>
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements (continued)
At December 31, 1994, the Monthly Payment and the U.S.
Government Portfolios
had net capital loss carryovers of $2,102,900 and
$31,251,158,
respectively,
available to offset future capital gains. To the extent that
these carryover
losses are used to offset capital gains it is probable that
any gains so offset
will not be distributed. The amount and expiration of the
carryovers are
indicated below. Expiration occurs on December 31, of the
year indicated:
PORTFOLIO 1995 1996 1997
2002
---- ---- ------
Monthly Payment Government $ 1,672,900 $ -- $ -$
430,000
U.S. Government Securities 27,364,758 392,439 897,548
2,596,413
4. Repurchase Agreements
The Portfolios purchase (and their custodian takes possession
of) U.S.
Government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolios require
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
5. Securities Traded on a When-Issued or
To-Be-Announced Basis
The Portfolios may trade portfolio securities on a "to-be-
announced" ("TBA")
basis. In a TBA transaction, the Portfolios commit to
purchasing or selling
securities for which all specific information is not yet
known at the time of
the trade, particularly the face amount and maturity date IN
GNMA transactions.
Securities purchased on a TBA basis are not settled until
they are delivered
to the fund, normally 15 to 45 days later. These
transactions are subject to
market fluctuations and their current value is determined in
the same manner as
for other portfolio securities. As of December 31, 1994
there were no TBA
transactions.
17
<PAGE>
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements (continued)
6. Capital Shares
At December 31, 1994, the Fund had two billion shares of
$0.01 par value
capital stock authorized. Each Portfolio has the ability to
issue multiple
classes of shares. Each share of a class represents an
identical interest in
its respective Portfolio and has the same rights, except that
each class bears
certain expenses including those specifically related to the
distribution of its
shares. At December 31, 1994, paid-in capital amounted to
the following for
each class and respective Portfolio.
MONTHLY
PAYMENT U.S.
GOV'T. CLASS GOVERNMENT
SECURITIES ----- ----------
- -----------
A $43,940,148
$400,488,215
B 61,028
1,532,211
C 3,674,168
23,832,048
Y --
15,687,094
Z --
18,543,283
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED
MONTHLY PAYMENT DECEMBER 31, 1994
DECEMBER 31, 1993
GOVERNMENT SHARES AMOUNT
SHARES AMOUNT
- --------------- -------------------------
- -
- -----------------------
<S> <C> <C>
<C>
<C>
Class A
Shares sold 320,608 $ 3,949,827
1,165,152 $ 15,217,047
Shares issued on reinvestment 63,319 774,146
63,977 834,690
Shares redeemed (1,263,505) (15,306,810)
(791,989) (10,350,270)
- ------------
Net Increase (Decrease) (879,578) $(10,582,837)
437,140 $ 5,701,467
============
Class B*
Shares sold 5,165 $ 61,023
- -- --
Shares issued on reinvestment 1 6
- -- --
Shares redeemed - -
- -- --
- ------------
Net Increase 5,166 $ 61,029
- -- --
============
Class C+
Shares sold 79,705 $ 995,902
256,792 $ 3,347,466
Shares issued on reinvestment 5,578 68,160
2,968 38,607
Shares redeemed (48,174) (591,182)
(19,758) (256,808)
- ------------
Net Increase 37,109 $ 472,880
240,002 $ 3,129,265
============
</TABLE>
* Sales of Class C shares commenced on November 10, 1994.
+ On November 7, 1994 the old Class B shares were renamed
Class C shares.
18
<PAGE>
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED
DECEMBER 31, 1994
DECEMBER 31, 1993
U.S. GOVERNMENT ------------------------
- --------------
SECURITIES SHARES AMOUNT
SHARES AMOUNT
- --------------- ------ -----------
- ------
<S> <C> <C>
<C> <C>
Class A
Shares sold 1,869,276 $ 24,593,957
5,479,533 $ 76,895,000
Shares issued on reinvestment 1,351,832 17,357,603
1,556,745 21,652,420
Shares redeemed (8,851,963) (114,384,462)
(5,890,140) (82,459,319)
- ------------
Net Increase (Decrease) (5,630,855) $ (72,432,902)
1,146,138 $ 16,088,101
============
Class B*
Shares sold 149,288 $ 1,870,235 -
- - --
Shares issued on reinvestment 1,488 18,633
- -- --
Shares redeemed (28,581) (356,657)
- -- --
- ------------
Net Increase 122,195 $ 1,532,211
- -- --
============
Class C+
Shares sold 722,632 $ 9,602,624
1,386,800 $ 19,424,557
Shares issued on reinvestment 85,790 1,099,736
44,608 617,871
Shares redeemed (567,463) (7,323,683)
(112,421) (1,568,025)
- ------------
Net Increase 240,959 $ 3,378,677
1,318,987 $ 18,474,403
============
Class Y++
Shares sold 103,206 $ 1,413,134
1,424,604 $20,109,408
Shares issued on reinvestment 13,895 178,365
23,153 323,257
Shares redeemed (38,511) (508,509)
(414,896) (5,828,544)
- ------------
Net Increase 78,590 $ 1,082,990
1,032,861 $14,604,121
============
Class Z*
Shares sold 1,498,512 $ 18,695,660
- -- --
Shares issued on reinvestment 27,412 342,923
- -- --
Shares redeemed (39,571) (495,300)
- -- --
- ------------
Net Increase 1,486,353 $ 18,543,283
- -- --
============
</TABLE>
* Sales of Class B and Z commenced on November 7, 1994.
+ On November 7, 1994 the old Class B shares were renamed
Class C shares.
++ On November 7, 1994 the old Class C shares were renamed
Class Y shares.
19
<PAGE>
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements (continued)
7. Mortgage Dollar Rolls
The Portfolios may enter into mortgage dollar rolls in which
the Portfolios
sell mortgage securities for delivery in the current month
and simultaneously
contracts to repurchase similar, but not identical,
securities at the same price
on a fixed date. The Portfolios receive compensation as
consideration for
entering into the commitment to repurchase. The
compensation is recorded as
deferred income and amortized to interest income. The
counterparty receives all
principal and interest payments, including prepayments, made
with regard to this
security while it is the holder. Mortgage dollar rolls may
be renewed with a
new purchase and repurchase price fixed and a cash
settlement made at each
renewal without physical delivery of the securities subject
to the contract.
At December 31, 1994, there were no open mortgage dollar
roll
contracts.
20
<PAGE>
SMITH BARNEY FUNDS, INC.
MONTHLY PAYMENT GOVERNMENT PORTFOLIO
Financial Highlights
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS A SHARES 1994 1993
1992 1991 1990
- -------------- ---- ----
- --- ---- ----
<S> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 12.85 $
12.96
$ 13.12 $ 12.41 $ 12.37
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.79
0.87
0.92 1.02 1.14
Net realized and unrealized
gain (loss) on investments (0.97)
(0.04)
(0.07) 0.83 0.01
Total Income (Loss) from Investment
Operations (0.18)
0.83
0.85 1.85 1.15
LESS DISTRIBUTIONS:
Dividends from net investment income (0.78)
(0.88)
(0.96) (1.11) (1.11)
Distribution from net realized gains
on security transactions(1) (0.03) (0.06)
(0.05) (0.03) --
Total Distributions (0.81)
(0.94)
(1.01) (1.14) (1.11)
NET ASSET VALUE, END OF YEAR $ 11.86 $
12.85
$ 12.96 $ 13.12 $ 12.41
TOTAL RETURN (1.36)%
6.51%
6.83% 15.66% 9.89%
NET ASSETS, END OF YEAR (000s) $40,258
$54,953
$49,755 $33,327 $ 22,527
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.67%
0.56%
0.51% 0.51% 0.44%
Net investment income 6.54
6.66
7.39 8.18 8.91
- ---------
PORTFOLIO TURNOVER RATE 58.00%
97.66%
36.11% 10.62% 4.64%
=========
<CAPTION>
CLASS B
SHARES CLASS C SHARES(3)
----------
- ---------------------------
1994(2) 1994 1993 1992(4)
------
- -- ---- ----
<S> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.78
$12.85 $12.96 $12.89
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.18
0.72 0.78 0.05
Net realized and unrealized
gain (loss) on investments 0.01
(0.98) (0.04) 0.10
Total Income (Loss) from Investment
Operations 0.19
(0.26) 0.74 0.15
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.12)
(0.70) (0.79) (0.08)
Distribution from net realized gains
on security transactions(1) -
- -
(0.03) (0.06) --
Total Distributions
(0.12)
(0.73) (0.85) (0.08)
NET ASSET VALUE, END OF YEAR
$11.85
$11.86 $12.85 $12.96
TOTAL RETURN
1.64%++
(2.07)% 5.77% 1.15%+
NET ASSETS, END OF YEAR (000s) $
61
$3,351 $3,155 $ 72
RATIOS TO AVERAGE NOT ASSETS:
Expenses
0.67%+
1.32% 1.27% 1.21%+
Net investment income
7.18+
5.92 5.88 6.21+
- ------
PORTFOLIO TURNOVER RATE
58.00%
58.00% 97.66% 36.11%
======
</TABLE>
(1) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
(2) For the period from November 10, 1994 (inception date)
to
December 31, 1994.
(3) On November 7, 1994 the old Class B share were renamed
Class C shares.
(4) For the period from December 2, 1992 (inception date) to
December 31, 1992.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
21
<PAGE>
SMITH BARNEY FUNDS, INC.
U.S. GOVERNMENT SECURITIES PORTFOLIO
Financial Highlights (continued)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS A SHARES 1994
1993
1992 1991 1990
<S> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $13.66 $
13.87 $14.10 $13.22 $13.17
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.91
0.98
1.06 1.26 1.15
Net realized and unrealized
gain (loss) on investments
(1.11)
(0.10) (0.13) 0.80 0.08
Total Income (Loss) from Investment
Operations
(0.20)
0.88
0.93 2.06 1.23
LESS DISTRIBUTIONS:
Dividends from net investment income (0.91)
(0.98) (1.08) (1.13) (1.18)
Distribution from net realized gains
on security transactions (1) (0.05)
(0.11) (0.08) (0.05) --
Total Distributions
(0.96)
(1.09) (1.16) (1.18) (1.18)
NET ASSET VALUE, END OF YEAR $ 12.50
$13.66
$13.87 $14.10 $13.22
TOTAL RETURN
(1.48)%
6.40% 6.85% 16.29% 9.95%
NET ASSETS, END OF YEAR (000s) $358,045
$468,278 $459,380 $394,412 $335,447
RATIOS TO AVERAGE NET ASSETS:
Expenses
0.56%
0.49% 0.50% 0.44% 0.41%
Net investment income 6.83
7.00
7.65 8.31 8.87
- --------
PORTFOLIO TURNOVER RATE 40.22%
57.34%
26.18% 9.29% 5.62%
========
<CAPTION>
CLASS B SHARES CLASS C SHARES(3)
---
- --------- --------------------------
1994(2) 1994 1993 1992(4)
---- ---- ----
<S>
<C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
$
12.47 $ 13.66 $ 13.86 $14.01
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income
0.08 0.82 0.89 0.15
Net realized and unrealized
gain (loss) on investments
0.17 (1.11) (0.10) -TOTAL
INCOME (LOSS) FROM INVESTMENT
OPERATIONS
0.25 (0.29) 0.79 0.15
LESS DISTRIBUTIONS:
Dividends from net investment income
(0.21) (0.83) (0.88) (0.30)
Distribution from net realized gains
on security transactions(1)
- -- (0.04) (0.11) --
Total Distributions
(0.21) (0.87) (0.99) (0.30)
NET ASSET VALUE, END OF YEAR
$
12.51 $ 12.50 $ 13.66 $13.86
TOTAL RETURN
2.04%++ (2.11)% 5.74% 1.07%++
NET ASSETS, END OF YEAR (000s)
$
1,529 $21,253 $19,938 $1,954
RATIOS TO AVERAGE NET ASSETS:
Expenses
1.02%+ 1.21% 1.21% 1.14%+
Net investment income
6.94+ 627 6.23 6.56+
- ------
PORTFOLIO TURNOVER RATE
40.22% 40.22% 57.34% 26.18%
======
</TABLE>
(1) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
(2) For the period from November 7, 1994 (inception date) to
December 31, 1994.
(3) On November 7, 1994 the old Class B shares were renamed
Class C shares.
(4) For the period from December 2, 1992 (inception date) to
December 31, 1992.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
22
<PAGE>
SMITH BARNEY FUNDS, INC.
U.S. GOVERNMENT SECURITIES PORTFOLIO
Financial Highlights (continued)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE YEAR:
CLASS Y SHARES 1994
1993(1)
---- ----
NOT ASSET VALUE, BEGINNING OF YEAR $13.67
$13.97
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment Income 0.89
0.86
Net realized and unrealized
loss on investments (1.10)
(0.10)
Total Income (Loss) from Investment
Operations (0.21) 0.76
LESS DISTRIBUTIONS:
Dividends from net investment income (0.91)
(0.95)
Distribution from net realized gains on
security transactions (2) (0.04)
(0.11)
Total Distributions (0.91)
(1.06)
NET ASSET VALUE, END OF YEAR $ 12.51 $
13.67
TOTAL RETURN (1.53)%
5.55%++
NET ASSETS, END OF YEAR (000S) $13,903
$14,118
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.61%
0.69%+
Net investment income 6.82
7.29+
-----
PORTFOLIO TURNOVER RATE 40.22%
57.34%
=======
CLASS Z SHARES
1994(3)
---
NET ASSET VALUE, BEGINNING OF YEAR 12.47
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.14
Net realized and unrealized
gain on investments 0.13
Total Gain from Investment
Operations 0.27
LESS DISTRIBUTIONS:
Dividends from net investment income
(0.24)
Total Distributions
(0.24)
NET ASSET VALUE, END OF YEAR $ 12.50
TOTAL RETURN
(2.15)%++
NET ASSETS, END OF YEAR (000s) $18,580
RATIOS TO AVERAGE NET ASSETS:
Expenses
0.34%+
Net investment income 7.55+
-----
PORTFOLIO TURNOVER RATE
40.22%
=======
(1) For the period from January 12, 1993 (inception date)
to December 31, 1993.
(2) Represents distributions from paydown gains which are
reported as ordinary
income for tax purposes.
(3) For the period from November 7, 1994 (inception date)
to December 31, 1994.
++ Not annualized as it may not be representative of the
total
return for the
year.
+ Annualized.
23
<PAGE>
SMITH BARNEY FUNDS, INC.
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SMITH BARNEY FUNDS, INC.:
We have audited the accompanying statements of assets and
liabilities
including the schedules of investments of the Monthly Payment
Government and
U.S. Government Securities Portfolios of Smith Barney Funds,
Inc. as of December
31, 1994, and the related statements of operations for the
year then ended,
statements of changes in net assets for each of the years in
the two-year
period then ended, and the financial highlights for each of
the years in the
five-year period then ended. These financial statements and
financial
highlights are the responsibility of the Fund's management.
Our responsibility
is to express an opinion on these financial statements and
financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted
auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of
securities owned as of
December 31, 1994, by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial
highlights referred to
above present fairly, in all material respects, the
financial position of the
Monthly Payment Government and U.S. Government Securities
Portfolios of Smith
Barney Funds, Inc. as of December 31, 1994, and the results
of their operations
for the year then ended, the changes in their net assets for
each of the years
in the two-year period then ended and the financial
highlights for each of the
years in the five-year period then ended, in conformity with
generally accepted
accounting principles.
/s/ KPMG Peat
Marwick LLP
New York, New York
February 17, 1995
24
<PAGE>
Smith Barney
Funds, Inc.
Directors
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Stephen Treadway, Chairman
C. Richard Youngdahl
Officers
Stephen Treadway
Chief Executive Officer
Heath B. McLendon
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ------------
A Member of TravelersGroup[LOGO]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the
shareholders of
Smith Barney Funds, Inc.'s U.S. Government Securities and
Monthly Payment
Government Portfolios. It is not authorized for distribution
to prospective
investors unless accompanied or preceded by a current
Prospectus for the
Portfolio, which contains information concerning the
Portfolios' investment
policies and expenses as well as other pertinent information.
SMITH BARNEY FUNDS, INC.
388 Greenwich Street
New York, New York 10013
FD 0856 B5
A N N U A L R E P O R T
1994
1994
1994
1994
1994
Smith Barney
Funds, Inc.
Income Return
Account Portfolio
Short-Term U.S.
Treasury Securities
Portfolio
- --------------------
December 31, 1994
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
INCOME RETURN ACCOUNT AND SHORT-TERM
U.S. TREASURY SECURITIES PORTFOLIOS
Dear Shareholder:
Interest rates moved steadily upward during the past year
causing a substantial
decline in bond prices. In fact, 1994 has been characterized
as the worst year
for bonds since record keeping began in 1927. By December 31,
the yield on the
benchmark 30-year Treasury bond had risen to 7.88%, compared
with 6.35% at the
start of the year. The rise in short-term rates was even more
striking. The
yield on the two-year Treasury note, for example, rose from
4.23% to 7.69% by
December.
Rates were propelled upward by the Federal Reserve Board's
("Fed") six increases
in the federal funds rate -- the rate banks charge each other
for overnight
loans. The Fed, concerned that inflationary pressures were
building, moved
toward this more restrictive monetary policy in an effort to
stem potential
future inflation before it became an issue. On February 4,
1994, the Fed raised
the federal funds rate to 3.25%, and by the end of December,
it had pushed the
rate to 5.5%.
INCOME RETURN ACCOUNT PORTFOLIO
PERFORMANCE AND STRATEGY
For the year ended December 31, 1994, the total return for
Class A shares of the
Smith Barney Funds, Inc.: Income Return Account Portfolio
was 2.14%. The
Portfolio slightly underperformed its benchmark, the Salomon
Brothers 1--Year
Treasury Index, which produced a total return of 2.63% for
the same period.
According to Lipper Analytical Services, the Portfolio
outperformed the average
short investment-grade bond fund which returned a negative
0.37% for the year.
The Income Return Account Portfolio seeks to achieve
positive quarterly total
returns, along with the highest current income consistent
with those returns,
through the use of a computer-generated model. Last year's
difficult market
environment provided a strong test for our model, and it
performed well. We did
avoid negative returns for all four quarters, even though we
did experience
negative returns in the months of February and September.
With interest rates rising early in 1994, the computer model
recommended a
shortening of the Portfollo's duration. Duration is a
measure
of a fund's
volatility when interest rates move up or down. The longer
the duration, the
more sensitive the fund is to interest rate changes. The
Portfolio's duration
was 1.1 years in January and, by March, it was as short as
four months. By
December, the duration was back up to 1.01 years.
SHORT-TERM U.S. TREASURY SECURITIES
PORTFOLIO PERFORMANCE AND STRATEGY
The Smith Barney Funds, Inc.: Short-Term U.S. Treasury
Securities Portfolio
produced a total return of a negative 2.15% for Class A
shares for the year
ended December 31, 1994 compared to a negative 1.56% for the
Salomon Brothers
3-Year Treasury Index for the same period.
Because of the Fed's series of interest-rate hikes during the
year, we kept the
average duration of the Portfolio relatively short at about
2.2 years. This
enabled us to avoid some of the price volatility associated
with longer-duration
securities.
OUTLOOK
Despite the Fed's efforts to cool the economy, strong capital
spending and
employment growth indicate a fourth-quarter gross domestic
product (GDP) rate
that could exceed 4.0% when the final data for 1994 is
tallied. It is generally
understood that a rate which surpasses 2.5% may point to
future inflation. A
healthy GDP number could cause the Fed to increase rates when
its policymaking
committee meets at the end of January.
In our opinion, inflation, as measured by the Consumer Price
Index, will
probably trend toward 3.5% in 1995 which will represent an
increase but should
not pose a problem. We believe that short-term rates will
peak around midyear,
and after an erratic first quarter, the environment for fixed
income investments
will turn more positive.
As rates stabilize, we will most likely extend the duration
of both the Income
Return Account Portfolio and the Short-Term U.S. Treasury
Securities Portfolio.
We anticipate that these duration extensions will improve our
yields and create
a more favorable result for the Portfolios in 1995.
Sincerely,
/s/ Stephen Treadway
Stephen Treadway
Chairman and Chief Executive Officer
January 31, 1995
2
SMITH BARNEY FUNDS, INC.
INCOME RETURN ACCOUNT PORTFOLIO
Historical Performance -- Class A Shares
<TABLE>
<CAPTION>
Net Asset Value -------
--------Beginning End
of Income
Capital Gain Total
Year Ended of Year Year
Dividends
Distributions Returns(1)
- ---------- --------- ------ ---------
- -
- --
- ---------- ---------
<S> <C> <C> <C>
<C>
<C>
12/31/94 $9.59 $9.34 $0.45
$0.00 2.14%
12/31/93 9.68 9.59 0.47
0.00 4.00
12/31/92 9.65 9.68 0.52
0.00 5.85
12/31/91 9.38 9.65 0.73
0.00 11.06
12/31/90 9.31 9.38 0.74
0.00 9.10
12/31/89 9.12 9.31 0.75
0.00 10.67
12/31/88 9.26 9.12 0.72
0.00 6.48
12/31/87 9.43 9.26 0.60
0.06 5.36
12/31/86 9.51 9.43 0.87
0.01 8.78
3/4/85*-12/31/85 9.17 9.51 0.50
0.00 9.34
-------
- -Total $6.35
$0.07
=====
=====
</TABLE>
It is the Fund's policy to distribute dividends monthly and
capital gains, if
any, annually.
Average Annual Total Return -- Class A Shares
Without
With
Sales Charge(1)
Sales Charge(2)
---------------
- --
- --
- -----------
Year Ended 12/31/94 2.14%
0.05%
Five Years Ended 12/31/94 6.40
6.16
3/4/85* through 12/31/94 7.05
7.15
Historical Performance -- Class C Shares
<TABLE>
<CAPTION>
Net Asset Value --------------
----
Beginning End of Income
Capital Gain Total
Year Ended of Year Year Dividends
Distributions Returns(1)
- ---------- --------- ------- ---------
- ------------- ----------
<S> <C> <C> <C>
<C> <C>
12/31/94 $9.58 $9.34 $0.42
$0.00 1.86%
12/31/93 9.68 9.58 0.43
0.00 3.53
12/2/92*-12/31/92 9.69 9.68 0.04
0.00 0.31
--------
Total $0.89
$0.00
=====
=====
</TABLE>
* Inception.
3
SMITH BARNEY FUNDS, INC.
INCOME RETURN ACCOUNT PORTFOLIO
Average Annual Total Return -- Class C Shares
Without
With
Sales Charge(1) Sales
Charge(2)
--------------- --------
- --
- --
- ---
Year Ended 12/31/94 1.86%
0.86%
12/16/92* through 12/31/94 2.79
2.79
Historical Performance -- Class Y Shares
<TABLE>
<CAPTION>
Net Asset Value
-----------------
Beginning End of Income
Capital Gain Total
Year Ended of Year Year Dividends
Distributions Returns(1)
- ----------- --------- ------ --------- ----
- --
- --
- ----- ----------
<S> <C> <C> <C> <C>
<C>
12/31/94 $9.59 $9.34 $0.44
$0.00 2.01%
2/1/93* -12/31/93* 9.72 9.59 0.42
0.00 3.01
-----
- ---
- -
Total $0.86
$0.00
=====
=====
</TABLE>
Average Annual Total Return -- Class Y Shares
Without With
Sales Charge(1) Sales
Charge(2) --------------- ---
------------
Year Ended 12/31/94 2.01% 2.01%
2/1/93* through 12/31/94 2.63 2.63
Historical Performance -- Class Z Shares
Net Asset Value
-----------------
Beginning End of Income Capital
Gain Total
Year Ended of Year Year Dividends
Distributions
Returns(1)
- ---------- --------- ------ --------- ----------
- --
- -
- ----------
[S] [C] [C] [C] [C]
[C]
11/7/94*-12/31/94 $9.42 $9.35 $0.12 $0.00
0.38%
Average Annual Total Return -- Class Z Shares
Without
With
Sales Charge(1)
Sales Charge(2)
--------------- -
- ------------
11/7/94* through 12/31/94 0.38%
0.38%
Cumulative Total Return
Without
Sales Charge(1)
-
- ------------
Class A (3/4/85* through 12/31/94)
95.28%
CLASS C (12/16/92* through 12/31/94)
5.78
CLASS Y (2/1/93* through 12/31/94)
5.09
Class Z (11/7/94* through 12/31/94)
0.38
* Inception.
4
SMITH BARNEY FUNDS, INC.
INCOME RETURN ACCOUNT PORTFOLIO
Historical Performance
GROWTH OF $10,000 INVESTED IN CLASS A SHARES
OF INCOME RETURN ACCOUNT PORTFOLIO
VS. SALOMON BROTHERS 1-YEAR TREASURY INDEX+
(UNAUDITED)
- -------------------------------------------------------------
- -----------------
March 1985 - December 1994
[CHART]
+ Hypothetical illustration of $10,000 invested in Class A
shares
at inception
on March 4, 1985, assuming deduction of the maximum 2.50%
sales charge at the
time of investment and the reinvestment of dividends (after
deduction of
applicable sales charges) and capital gains (at net asset
value) through
December 31, 1994. The Salomon Brothers 1-Year Treasury Index
is composed of
one 1-year United States Treasury Bond ("Bond") which is used
to track the
Bond's return until its maturity. The Index is unmanaged and
is not subject to
the same management and trading expenses of a mutual fund.
The performance of
the Portfolio's other classes may be greater or less than the
Class A shares
performance indicated on this chart, depending on whether
greater or lesser
sales charges and fees were incurred by shareholders
investing in the other
classes.
All figures represent past performance and are not a
guarantee of future
results. Investment return and principal value will fluctuate
and redemption
values may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital
gains, ------------------------------------------------------
- ------------------------
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect a deduction of the
applicable sales charge
with respect to Class A shares or the applicable contingent
deferred sales
charges ("CDSC") with respect to Class C shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value, except for income dividends on Class A shares
which are
reinvested at the maximum offering price. In addition, the
deduction of the
maximum initial sales charge of 2.00% with respect to
Class A shares and the
deduction of a CDSO of 1.00% with respect to Class C shares
has been
factored into these calculations.
SMITH BARNEY FUNDS, INC.
SHORT-TERM U.S. TREASURY SECURITIES PORTFOLIO
Historical Performance -- Class A Shares
Net Asset Value
-----------------
Beginning End of Income
Capital Gain Total
Year Ended of Year Year Dividends
Distributions Returns
- ---------- --------- ------ --------- ------
- --
- --
- --- -------
[S] [C] [C] [C] [C]
[C]
12/31/94 $4.16 $3.91 $0.18
$0.00
(2.15)%
12/31/93 4.12 4.16 0.18
0.02
6.01
12/31/92 4.09 4.12 0.19
0.01
5.92
11/11/91*-12/31/91 4.01 4.09 0.03
0.01
2.85
----- -
- --Total $0.58
$0.04
=====
=====
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND
CAPITAL GAINS, IF
ANY, ANNUALLY.
Average Annual Total Return -- Class A Shares
Without
Sales
Charge -
--------
--
Year Ended 12/31/94 (2.15)%
11/11/91* through 12/31/94 3.98
Cumulative Total Return
Without
Sales Charge -
----------
Class A (11/11/91* through 12/31/94) 13.01%
* Inception.
6
SMITH BARNEY FUNDS, INC.
SHORT-TERM U.S. TREASURY SECURITIES PORTFOLIO
Historical Performance
GROWTH OF $10,000 INVESTED IN CLASS A SHARES
OF SHORT-TERM U.S. TREASURY SECURITIES
PORTFOLIO VS.
SALOMON BROTHERS 3-YEAR
TREASURY INDEX+ (UNAUDITED)
- -------------------------------------------------------------
- -----------------
NOVEMBER 1991 - DECEMBER 1994
+ Hypothetical illustration of $10,000 invested in shares at
inception on
November 11, 1991, assuming reinvestment of dividends and
capital gains
through December 31, 1994. The Salomon Brothers 3-Year
Treasury Index is
composed of one 3-year United States Treasury Bond ("Bond")
which is used to
track the Bond's return until its maturity. The index is
unmanaged and is not
subject to the same management and trading expenses of a
mutual fund.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
values may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
7
SMITH BARNEY FUNDS, INC.
Schedules of Investments
December 31, 1994
INCOME RETURN ACCOUNT
PORTFOLIO <TABLE>
<CAPTION>
FACE
COUPON
AMOUNT SECURITY
RATE
MATURITY VALUE
- ------ -------- ------
- --
- --
- ---- -----
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS -- 43.5%
<S> <C> <C>
<C>
<C>
$ 2,250,000 U.S. Treasury Note 5.88%
5/15/95 $ 2,245,568
3,000,000 U.S. Treasury Note 5.50
4/30/96 2,925,630
2,000,000 U.S. Treasury Note 4.25
5/15/96 1,917,100
2,000,000 U.S. Treasury Note 6.25
1/31/97 1,945,860
5,000,000 U.S. Treasury Note 6.75
2/28/97 4,903,750
- -----------
TOTAL U.S. GOVERNMENT
AND GOVERNMENT AGENCY
OBLIGATIONS
(Cost - $14,381,172)
13,937,908
===========
CORPORATE NOTES - 6.2%
2,000,000 Goldman Sachs
4.84++
2/16/95
(Cost - $2,000,000)
2,000,000
===========
SHORT-TERM
INVESTMENTS - 50.3%
13,000,000 U.S. Treasury Bill
7.06++
12/14/95 12,150,450
3,948,000 Repurchase Agreement -
Chemical Securities
Inc., 5.75% due 1/3/95,
Proceeds at maturity
$3,950,521 (Fully
collateralized
by U.S. Treasury Notes
6.50%, due 9/30/96;
Market value -
$4,027,214)
3,948,000
- -----------
TOTAL SHORT-TERM
(Cost -- $16,118,477)
16,098,450
===========
TOTAL INVESTMENTS-1 00%
(Cost - $32,499,6491)
$32,036,358
===========
</TABLE>
SEE NOTES TO FINANCIAL
STATEMENTS. 8
SMITH BARNEY FUNDS, INC.
Schedules of Investments (continued)
December 31, 1994
SHORT-TERM U.S. TREASURY SECURITIES
PORTFOLIO <TABLE>
<CAPTION>
FACE COUPON
AMOUNT SECURITY RATE MATURITY
VALUE
- ------- -------- ---- --------
- --
- ---
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS- 98.9%
<S> <C> <C> <C>
<C>
$ 5,000,000 U.S. Treasury Note 6.88% 10/31/96
$
4,933,400
3,000,000 U.S. Treasury Note 4.38 11/15/96
2,830,800
11,000,000 U.S. Treasury Note 6.50 11/30/96
10,780,000
30,000,000 U.S. Treasury Note 6.25 1/31/97
29,187,900
6,000,000 U.S. Treasury Note 5.50 7/31/97
5,684,100
6,000,000 U.S. Treasury Note 6.50 8/15/97
5,817,780
9,000,000 U.S. Treasury Note 6.00 11/30/97
8,584,740
4,750,000 U.S. Treasury Note 6.00 12/31/97
4,526,703
5,000,000 U.S. Treasury Note 5.13 6/30/98
4,593,550
10,000,000 U.S. Treasury Note 6.50 4/30/99
9,507,800
- ---------
TOTAL U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost - $90,357,499)
86,446,773
===========
REPURCHASE
AGREEMENT - 1.1%
988,000 Chemical Securities,
Inc. 5.75% due 1/03/95
Proceeds at maturity
- $988,631 (Fully
collateralized by
U.S. Treasury Notes
6.50%, due 9/30/96;
Market value
$1,007,823)
(Cost - $988,000)
988,000
===========
TOTAL INVESTMENTS
100% (Cost
$91,345,499*)
$87,434,773
===========
</TABLE>
++ Daily Floating Rate Note -interest rate varies
with Federal Funds Rate.
+ Annualized yield on date of purchase for short-
term
securities.
* Aggregate cost for federal income tax purposes is
substantially the same.
SEE NOTES TO FINANCIAL
STATEMENTS.
9
SMITH BARNEY FUNDS, INC.
Statements of Assets and Liabilities
December 31, 1994
<TABLE>
<CAPTION>
INCOME SHORT-TERM
RETURN U.S. TREASURY
ACCOUNT SECURITIES
PORTFOLIO PORTFOLIO
<S> <C>
<C>
ASSETS:
Investments, at value (Cost - $32,499,649
and $91,345,499, respectively)
$32,036,358 $87,434,773
Cash
758 88
Receivable for Fund shares sold
545 2,683
Interest receivable
239,509 1,640,060
Other assets
61,761 --
TOTAL
ASSETS 32,338,931
89,077,604
=========== ===========
LIABILITIES:
Payable for Fund shares reacquired
- -- 122,086
Management fees payable
25,721 80,743
Distribution costs payable
3,338 80,438
Accrued expenses and other liabilities
18,577 14,463
Dividends payable
- -- 73,281
TOTAL
LIABILITIES
47,636 371,011
===========
===========
TOTAL NET ASSETS
$32,291,295 $88,706,593
=========== ===========
NET ASSETS:
Par value of capital
shares $
34,576 $ 226,843
Capital paid in excess of par value
34,520,992 96,320,073
Undistributed net investment income
15,239 --
Accumulated net realized loss on
security transactions
(1,816,221) (3,929,597)
Net unrealized depreciation of
investments
(463,291) (3,910,726)
- -----------
TOTAL NET ASSETS
$32,291,295 $88,706,593
=========== ===========
SHARES OUTSTANDING:
Class A
2,026,123 22,684,266
- -----------
Class C
327,182 --
- -----------
Class Y
346,380 --
- -----------
Class Z
757,905 --
- -----------
NET ASSET VALUE:
Class A (and redemption price)
$9.34 $3.91
- -----------
Class C*
$9.34 --
- -----------
Class Y (and redemption price)
$9.34 --
- -----------
Class Z (and redemption price)
$9.35 --
- -----------
CLASS A MAXIMUM PUBLIC OFFERING PRICE PER SHARE
(net asset value plus 2.04% of net asset value per
share)
$9.53 $3.91
=========== ===========
</TABLE>
* Redemption price is NAV of Class C shares reduced by 1.00%
if
shares are
redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
10
SMITH BARNEY FUNDS, INC.
Statements of Operations For the year ended
December 31, 1994
<TABLE>
<CAPTION>
Income Short-Term
Return U.S. Treasury
Account Securities
Portfolio Portfolio
------
- ---- --------------
<S> <C>
<C>
INVESTMENT INCOME:
Interest $
2,491,543 $ 8,796,122
-----
- ---- ------------
EXPENSES:
Management fees (Note 2)
208,151 735,555
Distribution costs (Note 2)
20,602 572,083
Registration fees
26,003 65,003
Shareholder servicing fees
9,534 40,000
Custodian fees
6,001 1 8,002
Audit and legal fees
5,603 8,603
Shareholder communication fees
4,500 13,998
Directors' fees
1,000 3,103
Other
6,402 5,200
-----
- ---- ------------
Total Expenses
287,796 1,461,547
-----
- ---- ------------
Net Investment Gain
2,203,747 7,334,575
=========== ============
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS: Realized Loss From
Security Transactions
(excluding short-term
securities): Proceeds from sales
58,269,456 127,295,867
Cost of securities sold
58,816,593 131,244,286
-----
- ---- ------------
Net Realized Loss
(547,137) (3,948,419)
-----
- ---- ------------
Change in Unrealized Depreciation of Investments:
Beginning of year
226,494 2,623,169
End of year
(463,291) (3,910,726)
-----
- ---- ------------
Increase in Unrealized Depreciation
(689,785) (6,533,895)
-----
- ---- ------------
Net Loss On Investments
(1,236,922) (10,482 314)
=========== ============
Increase (Decrease) in Net Assets Resulting
From Operations
$
966,825 $ (3,147,739)
=========== ============
</TABLE>
SEE NOTES TO
FINANCIAL STATEMENTS.
11
SMITH BARNEY FUNDS, INC.
Statements of Changes in Net Assets
For the years ended December 31,
<TABLE>
<CAPTION>
Short-Term
Income
Return U.S. Treasury
Account
Portfolio Securities Portfolio
-------------
- ----------------------
1994
1993
1994 1993
----
- --
- --
- ---- ----
<S> <C>
<C>
<C> <C>
OPERATIONS:
Net investment income $ 2,203,747
$
2,751,158 $ 7,334,575 $ 7,847,190
Net realized gain (loss) on
security transactions
(547,137)
65,282 (3,948,419) 1,132,857
Increase in net unrealized
appreciation (depreciation) of
investments (689,785)
(616,609) (6,533,895) 554,436
------------ ----
- --
- ----- ------------- ------------
Increase (Decrease) in Net
Assets Resulting From
Operations
966,825
2,199,831 (3,147,739) 9,534,483
------------ ----
- --
- --
- ---- ------------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (2,191,210)
(2,859,347) (7,334,575) (7,847,190)
Net realized gains on security
transactions --
- -- -- (1,113,325)
------------ ----
- --
- --
- ---- ------------- ------------
Decrease in Net Assets
from Distributions to
Shareholders (2,191,210)
(2,859,347) (7,334,575) (8,960,515)
------------ ----
- --
- --
- ---- ------------- ------------
FUND SHARE TRANSACTIONS:
Net proceeds
from sale of shares 13,380,684
35,287,465 89,709,541 236,111,337
Net value of shares issued
for reinvestment of
dividends 1,738,307
2,314,282 6,166,194 7,302,423
Cost of shares reacquired (41,882,513)
(25,210,776) (202,445,248) (168,509,798)
------------ ----
- --
- --
- ---- ------------- ------------
Increase (Decrease) in Net
Assets From Fund
Share Transactions (26,763,522)
12,390,971 (106,569,513) 74,903,962
------------ ----
- --
- --
- ---- ------------- ------------
Increase (Decrease) in
Net Assets (27,987,907)
11,731,455 (117,051,827) 75,477,930
NET ASSETS:
Beginning of year 60,279,202
48,547,747 205,758,420 130,280,490
------------ ----
- --
- --
- ---- ------------- ------------
End of year* $32,291,295 $
60,279,202 $ 88,706,593 $205,758,420
============
============ ============= ============
* Includes undistributed
net investment income of: $ 15,239
$
2,702 -- --
============
============ ============= ============
</TABLE>
See Notes to Financial Statements.
12
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
The Income Return Account Portfolio ("Income Return Account")
and the Short-
Term U.S. Treasury Securities Portfolio ("Short-Term") are
separate investment
portfolios ("Portfolios") of the Smith Barney Funds, Inc.
("Fund"). The Fund, a
Maryland corporation, is registered under the Investment
Company Act of 1940, as
amended, as a diversified, open-end management investment
company. The Fund
consists of these Portfolios and five other separate
investment portfolios:
Income and Growth, U.S. Government Securities, Monthly
Payment Government,
Capital Appreciation and Utility Portfolios. The financial
statements and
financial highlights for the other portfolios are presented
in separate annual
reports.
The significant accounting policies consistently followed by
the Fund are:
(a) securities transactions are accounted for on the trade
date; (b) U.S.
Government and Government Agency obligations are valued at
the mean between the
bid and asked prices: short-term investments that have a
maturity of more than
60 days are valued at prices based on market quotations for
securities of
similar type, yield and maturity; short-term investments that
have a maturity of
60 days or less are valued at cost plus accreted discount, or
minus amortized
premiums, as applicable; (c) interest income is recorded on
the accrual basis;
(d) gains or losses on the sale of securities are calculated
by using the
specific identification method and include gains or losses
resulting from
repayments of principal on mortgage-backed securities; (e)
direct expenses are
charged to each portfolio and each class; management fees and
general fund
expenses are allocated on the basis of relative net assets;
(f) dividends and
distributions to shareholders are recorded by the Fund on the
exdividend date;
and (g) each Portfolio intends to comply with the
requirements of the Internal
Revenue Code pertaining to regulated investment companies and
to make the
required distributions to shareholders; therefore, no
provision for Federal
income taxes has been made.
2. MANAGEMENT ACREEMENT AND TRANSACTIONS WITH AFFILIATED
PERSONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), formerly
known as Smith
Barney Advisers, Inc., a subsidiary of Smith Barney Holdings
Inc., acts as
investment manager to the Fund. The Monthly Payment, U.S.
Government Securities
and Income Return Account
13
SMITH BARNEY FUNDS, INC.
INCOME RETURN ACCOUNT PORTFOLIO
Notes to Financial Statements (continued)
Portfolios pay SBMFM a management fee calculated at the
annual rate of 0.50% on
the first $200 million of the aggregate average daily net
assets of the three
portfolios and 0.40% on the aggregate average daily net
assets in excess of $200
million, allocated to each Portfolio based on their relative
average daily net
assets. Short-Term U.S. Treasury Securities Portfolio pays
SBMFM a management
fee calculated at the annual rate of 0.45% of the Portfolio's
average daily net
assets. All fees are calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of Smith Barney
Holdings Inc.,
acts as distributor of Fund shares. For the year ended
December 31, 1994, SB has
advised the Fund that it was paid sales charges of
approximately $36,000 by
purchasers of Income Return Account.
Effective November 7, 1994, the Fund adopted a new class
structure, renaming
the existing Class B shares as Class C shares for the Income
Return Account
Portfolio. A contingent deferred sales charge ("CDSC") of
1.0% was imposed on
class C shares if redemption occurs within the first year
from the date such
investment was made. Any CDSC imposed on redemptions is paid
to SB. For the year
ended December 31, 1994, there were approximately $16,000 in
such charges.
Pursuant to a Distribution Plan Income Return Account pays a
distribution fee
and service fee with respect to its class C shares calculated
at an annual rate
of 0.20% and 0.15% of average daily net assets, respectively.
Short-Term U.S.
Treasury Securities pays a service fee with respect to class
A shares calculated
at the annual rate of 0.25% of its average daily net assets
and a distribution
fee calculated at the annual rate of 0.10% of average daily
net assets. All
officers and two directors of the Fund are employees of SB.
3. INVESTMENTS
During the year ended December 31, 1994, the aggregate cost
of purchases and
proceeds from sales (including maturities, but excluding
short term securities)
of investments were, as follows:
PORTFOLIO PURCHASES
SALES
- --------- ---------
- -----
Income Return Account $37,838,281
$ 63,331,406
Short-Term U.S. Treasury Securities 37,397,031
135,295,866
14
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements (continued)
At December 31, 1994, the net unrealized depreciation of
investments for
Federal Income tax purposes by Portfolio consisted of the
following:
Short
Income Term
U.S. Return
Treasury
Account
Securities ---------------
--
Gross unrealized appreciation $ -- $ -
- -
Gross unrealized depreciation (463,291)
(3,910,726)
--------- ----------
- -
Net unrealized depreciation $(463,291)
$(3,910,726)
=========
===========
At December 31, 1994, the Income Return Account and Short-
Term U.S. Treasury
Portfolios had net capital loss carryovers of $1,816,221 and
$3,929,597
available to offset future capital gains, respectively. To
the
extent that these
carryover losses are used to offset capital gains, it is
probable that any gains
so offset will not be distributed. The amount and expiration
of the carryovers
are indicated below. Expiration occurs on December 31, of the
year indicated:
[S] [C] [C]
[C]
PORTFOLIO 2002 1997
1996
- --------- ---- ----
- -
- ---
Income Return Account $ 547,137 $236,762
$1,032,322
Short-Term U.S. Treasury Securities 3,929 597 --
- --
========== ========
==========
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and its custodian takes possession
of) U.S.
Government securities from banks and securities dealers
subject to agreements to
resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolios require
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
5. CAPITAL SHARES
At December 31, 1994, the Fund had two billion shares of
$0.01 par value
capital stock authorized. The Income Return Account has the
ability to issue
multiple classes of shares. Each share of a class represents
an identical
interest and has the same rights, except that each class
bears certain expenses,
including those specifically related to the distribution of
its shares. At
December 31, 1994 paid-in-capital amounted to the following
for each class and
respective Portfolio.
15
SMITH BARNEY FUNDS, INC.
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
PORTFOLIO CLASS A
CLASS C CLASS Y CLASS Z
----------- --
- ------ ---------- ----------
<S> <C>
<C>
<C> <C>
Income Return Account
$20,802,925
$3,184,667 $3,428,415 $7,139,561 Short-
Term U S. Treasury Securities
96,546,916
- -- -- --
----------- --
- --
- ----- ---------- ----------
</TABLE>
Transactions in shares of each Portfolio were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED
DECEMBER 31,
1994 DECEMBER 31, 1993
--------------------
- ------ ---------------------------
Income Return Account SHARES
AMOUNT
SHARES AMOUNT
----------- ------
- ------ ---------- -------------
<S> <C> <C>
<C> <C>
Class A
Shares sold 276,529 $
2,616,488 2,608,900 $ 25,261,540
Shares issued on reinvestment 150,791
1,427,935 230,967 2,231,516
Shares redeemed (3,708,422)
(35,070,581) (2,547,228) (24,582,050)
----------- ------
- ------ ---------- -------------
Net Increase (Decrease) (3,281,102) $
(31,026,158) 292,639 $ 2,911,006
----------- ------
- ------ ---------- -------------
Class C+
Shares sold 256,226 $
2,437,665 474,467 $ 4,583,636
Shares issued on reinvestment 11,683
110,488 5,796 55,873
Shares redeemed (357,469)
(3,389,893) (64,558) (623,143)
----------- -----
- --
- --
- ---- ---------- -------------
Net Increase (Decrease) (89,560) $
(841,740) 415,705 $ 4,016,366
----------- -----
- --
- --
- ---- ---------- -------------
Class Y++
Shares sold 121,282 $
1,152,444 562,143 $ 5,442,289
Shares issued on reinvestment 11,913
112,510 2,789 26,893
Shares redeemed (351,172)
(3,300,139) (575) (5,583)
----------- -----
- --
- --
- ---- ---------- -------------
Net Increase (Decrease) (217,977) $
(2,035,185) 564,357 $ 5,463,599
----------- -----
- --
- --
- ---- ---------- -------------
Class Z*
Shares sold 761,580 $
7,174,087 -- --
Shares issued on reinvestment 9,325
87,374 -- --
Shares redeemed (13,001)
(121,900) -- --
----------- -----
- --
- --
- ---- ---------- -------------
Net Increase 757,904 $
7,139,561 -- --
----------- -----
- --
- --
- ---- ---------- -------------
Short-Term U.S. Treasury Securities
Class A
Shares sold 21,923,554 $
89,709,541 56,302,474 $ 236,111,337
Shares issued on reinvestment 1,530,315
6,166,194 1,742,918 7,302,423
Shares redeemed (50,274,705)
(202,445,248) (40,197,809) (168,509,798)
----------- -----
- --
- --
- ---- ---------- -------------
Net Increase (Decrease) (26,820,836)
$(106,569,513) 17,847,583 $ 74,903,962
----------- -----
- --
- --
- ---- ---------- -------------
</TABLE>
+ On November 7, 1994 the old Class B shares were renamed
Class
C shares.
++ On November 7, 1994 the old Class C shares were renamed
Class Y shares.
* Sales of Class Z shares commenced on November 7, 1994.
16
SMITH BARNEY FUNDS, INC.
Income Return Account Portfolio
Financial Highlights
For a share of each class of capital stock outstanding
throughout the year:
<TABLE>
<CAPTION>
Class A Shares 1994
1993 1992 1991 1990
=======
======= ======= ======= =======
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 9.59
$
9.68 $ 9.65 $ 9.38 $9.31
--------
- ----- ------- ------- -------
Income From Investment Operations:
Net investment income
0.46
0.45 0.52 0.67 0.73
Net realized and unrealized gain (loss)
on investments
(0.26)
(0.07) 0.03 0.33 0.08
------
- --
- ----- ------- ------- -------
Total Income from Investment Operations
0.20
0.38 0.55 1.00 0.81
------
- --
- ----- ------- ------- -------
Less Distributions:
Dividends from net investment income
(0.45)
(0.47) (0.52) (0.73) (0.74)
------
- --
- ----- ------- ------- -------
Total Distributions
(0.45)
(0.47) (0.52) (0.73) (0.74)
------
- --
- ----- ------- ------- -------
Net Asset Value, End of Year $
9.34
$
9.59 $ 9.68 $ 9.65 $9.38
------
- --
- ----- ------- ------- -------
Total Return
2.14%
4.00% 5.85% 11.06% 9.10%
------
- --
- ----- ------- ------- -------
Net Assets, End of Year (000s)
$18,918
$50,874 $48,538 $33,682 $24,058
------
- --
- ----- ------- ------- -------
Ratios to Average Net Assets:
Expenses
0.56%
0.53% 0.50% 0.49% 0.43%
Net investment income
4.60
4.67 5.33 6.98 7.92
------
- --
- ----- ------- ------- -------
Portfolio Turnover Rate
126.64%
152.04% 84.15% 30.44% 27.90%
======= ======= ======= ======= =======
Class C Shares (1) 1994
1993 1992(2)
======= ======= =======
Net Asset Value, Beginning of Year $
9.58
$
9.68 $ 9.69
------
- --
- ----- -------
Income From Investment Operations:
Net investment income 0.42
0.45 0.03
Net realized and unrealized loss on investments (0.24)
(0.12) --
--------
- ----- -------
Total Income from Investment Operations 0.18
0.33 0.03
--------
- ----- -------
Less Distributions:
Dividends from net investment income (0.42)
(0.43) (0.04)
-------
- ----- -------
Total Distributions (0.42)
(0.43) (0.04)
-------
- ----- -------
Net Asset Value, End of Year $ 9.34
$
9.58 $ 9.68
--------
- ----- -------
Total Return 1.86%
3.53% 0.31%++
--------
- ----- -------
Net Assets, End of Year (OOOs) $ 3,055
$
3,993 $ 10
--------
- ----- -------
Ratios to Average Net Assets:
Expenses 0.94%
0.90% 0.86%+
Net investment income 4.40
4.25 5.71+
-------
- ----- -------
Portfolio Turnover Rate 126.64%
152.04% 84.15%
=======
======= =======
</TABLE>
(1) On November 7, 1994 old Class B shares were renamed Class
C shares.
(2) For the period from December 16, 1992 (inception date) to
December 31, 1992.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
17
SMITH BARNEY FUNDS, INC.
Income Return Account Portfolio
Financial Highlights (continued)
For a share of each class of capital stock outstanding
throughout the year:
Class Y Shares (1) 1994
1993(2)
========
========
Net Asset Value, Beginning of Year $ 9.59
$ 9.72
----------
- ----
Income From Investment Operations:
Net investment income 0.44
0.42
Net realized and unrealized loss on investments (0.25)
(0.13)
----------
- ----
Total Income from Investment Operations 0.19
0.29
----------
- ----
Less Distributions:
Dividends from net investment income (0.44)
(0.42)
----------
- ----
Total Distributions (0.44)
(0.42)
----------
- ----
Net Asset Value, End of Year $ 9.34
$ 9.59
----------
- ----
Total Return 2.01%
3.01%++
----------
- ----
Net Assets, End of Year (000s) $ 3,235
$ 5,412
----------
- ----
Ratios to Average Net Assets:
Expenses 0.69%
0.75%+
Net investment income 4.65
4.78+
----------
- ----
Portfolio Turnover Rate 126.64%
152.04%
========
========
Class Z Shares 1994(3)
========
Net Asset Value, Beginning of Year $ 9.42
------
Income From Investment Operations:
Net investment income 0.07
Net realized and unrealized loss on investments (0.02)
------
Total Income from Investment Operations 0.05
------Less
Distributions:
Dividends from net investment income (0.12)
------
Total Distributions (0.12)
-------Net
Asset Value, End of Year $9.35
------
Total Return
0.38%++
-------Net
Assets, End of Year (000s) $ 7,083
------
Ratios to Average Net Assets:
Expenses 0.46%+
Net investment income 5.29+
------
Portfolio Turnover Rate 126.64%
========
(1) On November 7, 1994 old Class C shares were renamed Class
Y shares.
(2) For the period from February 1, 1993 (inception date) to
December 31, 1993.
(3) For the period from November 7, 1994 (inception date) to
December 31, 1994.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
18
SMITH BARNEY FUNDS, INC.
Short-Term U.S. Treasury Securities Portfolio
Financial Highlights (continued)
For a share of each class of capital stock outstanding
throughout the year:
<TABLE>
<CAPTION>
Class A Shares 1994
1993 1992 1991(1)
======== ======== ======== ========
<S> <C>
<C> <C> <C>
Net Asset Value, Beginning of Year
$4.16
$ 4.12 $ 4.09 $ 4.01
-------
- ------- -------- --------
Income (Loss) From Investment Operations:
Net investment income
0.18
0.18 0.19 0.03
Net realized and unrealized gain (loss)
on investments
(0.25)
0.06 0.04 0.09
-----
- --------- -------- --------
Total Income (Loss) from Investment Operations
(0.07)
0.24 0.23 0.12
-----
- --
- -------- -------- --------
Less Distributions:
Dividends from investment income
(0.18)
(0.18) (0.19) (0.03)
-----
- --------- -------- --------
Distribution from net realized gains on
security transactions
- --
(0.02) (0.01) (0.01)
------
- -------- -------- --------
Total Distributions
(0.18)
(0.20) (0.20) (0.04)
------
- -------- -------- --------
Net Asset Value, End of Year
$3.91
$ 4.16 $4.12 $4.09
------
- -------- -------- --------
Total Return
(2.15)%
6.01% 5.92% 2.85%++
------
- -------- -------- --------
Net Assets, End of Year (000s)
$88,707
$205,758 $130,280 $93,946
------
- -------- -------- --------
Ratios to Average Net Assets:
Expenses
0.91%
0.88% 0.91% 0.80%+
Net investment income
4.54
4.40 4.76 4.89+
------
- -------- -------- --------
Portfolio Turnover Rate
24.51%
41.12% 44.99% 4.61%
======== ======== ========
========
</TABLE>
(1) For the period from November 11, 1991 (inception date)
to December 31, 1991.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
SMITH BARNEY FUNDS, INC.
Independent Auditors' Report
To the Shareholders and Board of Directors of
Smith Barney Funds, Inc.:
We have audited the accompanying statements of assets and
liabilities
including the schedules of investments of the Income Return
Account and the
Short-Term U.S. Treasury Securities Portfolios of Smith
Barney
Funds, Inc. as of
December 31, 1994, and the related statements of operations
for
the year then
ended, the statements of changes in net assets for each of
the years in the two-
year period then ended and the financial highlights for each
of the years in the
five-year period then ended with respect to the Income Return
Account Portfolio
and for each of the years in the three-year period then ended
and the period
from November 11, 1991 (commencement of operations) to
December 31, 1991 with
respect to the Short-Term U.S. Treasury Securities Portfolio.
These financial
statements and financial highlights are the responsibility of
the Fund's
management. Our responsibility is to express an opinion on
these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of
securities owned as of
December 31, 1994, by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
20
SMITH BARNEY FUNDS, INC.
Independent Auditors' Report (continued)
In our opinion, the financial statements and financial
highlights referred to
above present fairly, in all material respects, the financial
position of the
Income Return Account and the Short-Term U.S. Treasury
Securities Portfolios of
Smith Barney Funds, Inc. as of December 31, 1994, and the
results of their
operations for the year then ended, the changes in their net
assets for each of
the years in the two-year period then ended and the financial
highlights for
each of the years in the five-year period then ended with
respect to Income
Return Account Portfolio and for each of the years in the
three year period then
ended and the period from November 11, 1991 (commencement of
operations) to
December 31, 1991 with respect to the Short-Term U.S.
Treasury Securities
Portfolio, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat
Marwick LLP
New York, New York
February 17, 1995
21
Smith Barney
Funds, Inc.
Directors
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Stephen Treadway, Chairman
C. Richard Youngdahl
Officers
Stephen Treadway
Chief Executive Officer
Heath B. McLendon
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ------------
[logo]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the
general information of the shareholders
of Smith Barney Funds, Inc. Income
Return Account and Short-Term U.S.
Treasury
Securities Portfolios. It is not
authorized for distribution to
prospective investors unless
accompanied or preceded by a current
Prospectus for the Portfolio, which
contains information concerning the
Portfolio's investment policies and
expenses as well as other pertinent
information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD084 B5
<PAGE>
Annual Report
1994
1994
1994
1994
1994
Smith Barney
Funds, Inc.
Capital Appreciation
Portfolio ----------------------------
- -December 31, 1994
Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Capital Appreciation Portfolio
Dear Shareholder:
The Smith Barney Funds, Inc.: Capital Appreciation Portfolio
encountered a
difficult market in 1994. Although the Standard & Poor's 500
Index managed a
gain of 1.3%, according to Lipper Analytical Services, the
average stock mutual
fund was down 1.7%, and bonds had one of their worst years on
record. For the
year ended December 31, 1994, the Portfolio produced a total
return of negative
7.79% for Class A shares.
Much of the damage was done during the first six months. In
early February,
the Federal Reserve Board, fearing that a stronger economy
might lead to
inflation, raised the federal funds rate--the rate banks
charge each other for
overnight loans--from 3.00% to 3.25%. That rate hike, and
another in March,
caused heavy selling in both the stock and bond markets. In
total, the Fed
raised its rate six times during the year and by December it
had reached 5.5%.
By the second half of the year, however, the stock market
settled down.
The rise in rates during 1994 seemed to accentuate a
continuing paradox of
market behavior which has appeared over the last few years.
While the popular
averages have gained moderately, many stocks and industry
groups have
experienced substantial downward pressure. A recent study
cited in Barron's
(January 2, 1995) indicated that roughly two-thirds of the
stocks tracked by
the Russell 3000, an index of the 3,000 largest U.S.
companies, were down from
their February 1994 price levels, and almost one-half were
off by at least 10%
to 30%, despite gains in both the S&P 500 and the Dow Jones
Industrial Average.
Portfolio Strategy
This volatility was certainly evident during the first half
of 1994 and
affected overall portfolio performance. There were also some
fundamental
disappointments, including Lotus Development, the software
designer and
manufacturer. Lotus announced weaker-than-expected earnings,
and its shares
declined sharply. Also, shares of Newbridge Networks dropped
due to the
perception that its networking products were facing increased
competition.
Second-half performance was helped by strong results from
Citicorp,
credit-card processor First Financial Management, and Pfizer,
where earnings
and unit volumes are growing, and there are a number of new
pharmaceutical
products in the pipeline. Compaq Computer also contributed to
performance
during the last six months of 1994.
1
<PAGE>
Outlook
Going forward, we believe the prospects for equities are
mixed. If 1994 was
any indication, the market could continue to vacillate
between enthusiasm for
stocks during reporting periods and fear of inflation and
higher rates in
between. Higher interest rates do profoundly affect earnings
multiples and
valuation models. Inflation, however, has proved to be only a
perceived threat
to date. Furthermore, we see good values in an increasing
number of large
growth stocks. In some cases, prices are close to where they
were two years ago
while earnings have grown substantially. Earnings prospects
for companies like
Motorola are also excellent. Motorola recently increased the
projected growth
rate for its semiconductor business from 15% to 20% for the
year and expects
the personal computer market to grow by 30% in 1995.
The Portfolio is now focused most heavily in the technology
and
telecommunications sectors, with special emphasis on the
client server and
personal computer areas, and on cellular telecommunications
services and
equipment. We also continue to hold a number of financial
service companies,
such as Federal Home Loan Mortgage Corporation and Federal
National Mortgage
Association. These companies are experiencing solid earnings
increases and sell
at low P/E multiples. In the retail area we like Home Depot,
and among the
health care group, the emphasis is on pharmaceutical
companies and HMOs. We
believe these stocks will fare well in a market where careful
stock selection
and excellent earnings will be rewarded.
Respectfully yours,
/s/Stephen Treadway
Stephen Treadway
Chairman and Chief Executive Officer
January 31, 1995
2
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
<TABLE>
<CAPTION>
Historical Performance -- Class A Shares
Net Asset Value -------------------
-Beginning End Income
Capital Gain Total
Year Ended of Year of Year Dividends
Distributions Return(1) -----------------------------------
- ----------------------------------------------------
<S> <C> <C> <C>
<C>
<C>
12/31/94 $14.50 $13.37 $0.00
$0.00 (7.79)% --------------------------------------
- -------------------------------------------------
12/31/93 13.16 14.50 0.00
0.00 10.18 -----------------------------------------
- ---------------------------------------------11/30/92*-
12/31/92 12.50 13.16 0.00
0.00 5.28 -----------------------------------------
- ----------------------------------------------
Total $0.00
$0.00
=============================================================
== == ========================
</TABLE>
It is the Fund's policy to distribute dividends and capital
gains, if any,
annually.
<TABLE>
<CAPTION>
Average Annual Total Return -- Class A
Shares
Without
With
Sales Charge(1)
Sales Charge(2) ---------------------------------------------
- ----------------------------------
<S> <C>
<C>
Year Ended 12/31/94 (7.79)%
(12.39)% ----------------------------------------------------
- ---------------------------
11/30/92* through 12/31/94 3.28
0.76 --------------------------------------------------------
- -----------------------
</TABLE>
<TABLE>
<CAPTION>
Historical Performance -- Class B Shares
Net Asset Value -------------------
--
Beginning End Income
Capital Gain Total
Year Ended of Year of Year Dividends
Distributions Return(1) -----------------------------------
- ----------------------------------------------------
<S> <C> <C> <C>
<C>
<C>
11/7/94*-12/31/94 $13.88 $13.36 $0.00
$0.00 (3.75)%
=============================================================
== == ========================
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return -- Class B Shares
Without
With
Sales Charge(1)
Sales Charge(2) ---------------------------------------------
- ----------------------------------
<S> <C>
<C>
11/7/94* through 12/31/94 (3.75)%
(8.56)% -----------------------------------------------------
- --------------------------
</TABLE>
* Inception.
3
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
<TABLE>
<CAPTION>
Historical Performance -- Class C Shares
Net Asset Value -------------------
- --
Beginning End Income
Capital Gain Total
Year Ended of Year of Year Dividends
Distributions Return(1) -----------------------------------
- ----------------------------------------------------
<S> <C> <C> <C>
<C>
<C>
12/31/94 $14.39 $13.17 $0.00
$0.00 (8.48)% --------------------------------------
- -------------------------------------------------
12/31/93 13.16 14.39 0.00
0.00 9.35 -----------------------------------------
- ---------------------------------------------11/30/92*-
12/31/92 12.50 13.16 0.00
0.00 5.28 -----------------------------------------
- ----------------------------------------------
Total $0.00
$0.00
=============================================================
== == ========================
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return -- Class C Shares
Without
With
Sales Charge(1)
Sales Charge(2) ---------------------------------------------
- ----------------------------------
<S> <C>
<C>
Year Ended 12/31/94 (8.48)%
(9.39)% -----------------------------------------------------
- --------------------------
11/30/92* through 12/31/94 2.54
2.54 --------------------------------------------------------
- -----------------------
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total Return
Without
Sales Charge(1) ---------------------------------------------
- ----------------------------------
<S>
<C>
Class A (11/30/92* through 12/31/94)
6.96% -------------------------------------------------------
- ------------------------
Class B (11/7/94* through 12/31/94)
(3.75) ------------------------------------------------------
- -------------------------
Class C (11/30/93* through 12/31/94)
5.36 --------------------------------------------------------
- -----------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect deduction of the
applicable sales charge
with respect to Class A shares or the applicable contingent
deferred sales
charges ("CDSC") with respect to Class B and Class C
shares. (2) Assumes reinvestment of all dividends and
capital gains distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 5.00%, Class B shares
reflect the deduction
of a 5.00% CDSC, which applies if shares are redeemed less
than one year
from initial purchase and declines by 1.00% per year
until no CDSC is
incurred and Class C shares reflect the deduction of a
1.00% CDSC if shares
are redeemed within the first year of purchase.
* Inception.
4
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
Historical Performance
Growth of $10,000 Invested in Class A Shares of
the Capital Appreciation Portfolio vs. S&P
500+
(unaudited) ---------------
- -----------------------------------------------------
November 1992 - December 1994
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION> ---------------------------------------------------
- -----------------
Capital Appreciation S&P
500 ---------------------------------------------------------
- -----------
<S> <C> <C>
Measurement Period $10,000
$10,000
11/30/92 9,549
10,000
12/92 10,069
10,041
12/93 11,077
11,024
12/94 10,214
11,168 ------------------------------------------------------
- --------------
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A
shares
at inception
on November 30, 1992, assuming deduction of the maximum 4.50%
sales charge at
the time of investment and reinvestment of dividends and
capital gains, if
any, at net asset value through December 31, 1994. The S&P
500 is an index of
widely held common stocks listed on the New York and American
Stock Exchanges
and the over the counter markets. Figures for the S&P 500
include reinvestment
of dividends. The Index is unmanaged and is not subject to
the same management
and trading expenses of a mutual fund. The performance of the
Portfolio's
other classes may be greater or less than the Class A shares
performance
indicated on this chart, depending on whether greater or
lesser sales charges
and fees were incurred by shareholders investing in the other
classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
values may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital gains.
5
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
<TABLE>
<CAPTION>
Schedule of Investments
December 31, 1994
SHARES SECURITY
VALUE -------------------------------------------------------
- ----------------------
<S> <C>
<C>
COMMON STOCKS -- 64.3%
Automotive -- 3.5%
88,480 Chrysler Corp.
$ 4,335,520
- -------------------------------------------------------------
- ----------------
Banking -- 3.4%
86,600 Citicorp
3,583,075
16,200 First Bank Systems Inc.
538,650 -----------------------------------------------------
- ------------------------
4,121,725 ---------------------------------------------------
- --------------------------
Computer Systems -- 11.7%
8,900 Ceridian Corp.**
239,188
29,700 Compaq Computer Corp.**
1,173,150
59,675 Dell Computer Corp.**
2,446,675
95,450 Digital Equipment Corp.**
3,173,712
23,125 General Motors Corp. Class E
890,313
66,875 Microsoft Corp.**
4,087,734
52,700 Oracle Systems Corp.**
2,325,388 ---------------------------------------------------
- --------------------------
14,336,160 --------------------------------------------------
- ---------------------------
Consumer Products & Services -- 4.7%
142,425 Aldila Inc.**
1,637,888
96,000 Duracell International Inc.
4,164,000 ---------------------------------------------------
- --------------------------
5,801,888 ---------------------------------------------------
- --------------------------
Diversified Manufacturing -- 4.4%
53,450 General Instruments Corp.**
1,603,500
131,100 Philips Electronics N.V. ADR
3,851,063 ---------------------------------------------------
- --------------------------
5,454,563 ---------------------------------------------------
- --------------------------
Financial Services -- 7.8%
50,500 Federal National Mortgage Corp.
3,680,188
65,225 Federal Home Loan Mortgage Corp.
3,293,862
72,200 Merrill Lynch & Company Inc.
2,581,150 ---------------------------------------------------
- --------------------------
9,555,200 ---------------------------------------------------
- --------------------------
Food & Beverage -- 4.8%
115,350 Coca Cola Co.
5,940,525 ---------------------------------------------------
- ---------------------------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
<TABLE>
<CAPTION>
Schedule of Investments (continued)
December 31, 1994
SHARES SECURITY
VALUE
=============================================================
== == =============
<S> <C>
<C>
HEALTHCARE--9.3%
112,125 Columbia/HCA Healthcare Corp.
$ 4,092,563
31,675 Pfizer Inc.
2,446,894
72,750 United Healthcare Corp.
3,282,843
37,510 US Healthcare Inc.
1,547,288 ---------------------------------------------------
- -------------------------
11,369,588 --------------------------------------------------
- --------------------------
PHARMACEUTICALS--2.1%
43,450 Amgen Inc.**
2,563,550 ---------------------------------------------------
- -------------------------
RAILROAD--1.5%
36,225 Conrail Inc.
1,829,363 ---------------------------------------------------
- -------------------------
RETAIL PRODUCTS--2.7%
73,333 Home Depot Inc.
3,373,318 ---------------------------------------------------
- -------------------------
TECHNOLOGY--1.3%
21,175 Texas Instruments Inc.
1,585,478 ---------------------------------------------------
- -------------------------
TELECOMMUNICATIONS--7.1%
103,575 AirTouch Communications Inc.**
3,016,621
1,050 LIN Broadcasting Corp.**
140,175
89,275 Motorola Inc.
5,166,791
132,450 Vodafone Group PLC
439,358 -----------------------------------------------------
- -----------------------
8,762,945 ---------------------------------------------------
- -------------------------
TELEVISION--0.0%
525 LIN Television Corp.**
11,944 ------------------------------------------------------
- ----------------------
TOTAL COMMON STOCKS (Cost--$74,921,760)
79,041,767
=============================================================
== ==
=============
PREFERRED STOCKS--8.0%
TELECOMMUNICATIONS--8.0%
47,500 Nokia Corp. AB Preferred
6,995,610
37,200 Nokia Corp. ADR Preferred
2,790,000 ---------------------------------------------------
- -------------------------
TOTAL PREFERRED STOCKS (Cost--$7,617,438)
9,785,610
=============================================================
== == =============
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
=============================================================
== == =============
<S> <C>
<C>
REPURCHASE AGREEMENT--27.7%
$33,961,000 Chemical Securities Inc., 5.75% due 1/3/95;
proceeds at maturity -- $33,982,683 (Fully
collateralized by U.S. Treasury Notes 6.50% due
9/30/96; Market value--$34,642,401) (Cost-
$33,961,000)
33,961,000
=============================================================
== == =============
TOTAL INVESTMENTS--100% (Cost--$116,500,198*)
$122,788,377
=============================================================
== == =============
</TABLE>
** Non-income producing security.
* Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities December
31, 1994
<S> <C>
ASSETS:
Investments, at value (Cost -- $116,500,198)
$122,788,377
Cash
39
Receivable for Fund shares sold
128,133
Dividends and interest receivable
56,672 ------------------------------------------------------
- --------------
TOTAL ASSETS
122,973,221
=============================================================
== == =====
LIABILITIES:
Payable for Fund shares purchased
48,380
Management fees payable
291,099
Distribution costs payable
182,266
Accrued expenses and other liabilities
19,688 ------------------------------------------------------
- --------------
TOTAL LIABILITIES
541,433
=============================================================
==
== =====
TOTAL NET ASSETS
$122,431,788
=============================================================
== == =====
NET ASSETS:
Par value of capital shares $
92,345
Capital paid in excess of par value
116,706,654
Accumulated net realized captial loss
(655,390)
Net unrealized appreciation of investments
6,288,179 ---------------------------------------------------
- -----------------
TOTAL NET ASSETS
$122,431,788
=============================================================
== == =====
SHARES OUTSTANDING:
Class A
4,039,452 ---------------------------------------------------
- -----------------
Class B
15,223 ------------------------------------------------------
- --------------
Class C
5,179,866 ---------------------------------------------------
- -----------------
NET ASSET VALUE:
Class A (and redemption price)
$13.37 ------------------------------------------------------
- --------------
Class B*
$13.36 ------------------------------------------------------
- ----------
- -----
Class C**
$13.17 ------------------------------------------------------
- --------------
CLASS A MAXIMUM PUBLIC OFFERING PRICE PER SHARE
(net asset value plus 5.26% of net asset value)
$14.07
=============================================================
== == =====
</TABLE>
* Redemption price is NAV of Class B shares reduced by
5.00% if
shares are
redeemed less than one year from initial purchase and
declines by 1.00% per
year until no CDSC is incurred.
** Redemption price is NAV of Class C shares reduced by
1.00% if shares are
redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
<TABLE>
<CAPTION>
Statement of Operations For the year ended
December 31, 1994
<S>
<C>
INVESTMENT INCOME:
Dividends
$ 1,361,902
Interest
330,335 -----------------------------------------------------
- -------------------------
Total Income
1,692,237
=============================================================
== == ===============
EXPENSES:
Management fees (Note 2)
1,479,311
Distribution costs (Note 2)
1,004,767
Shareholder servicing fees
79,119
Registration fees
60,002
Shareholder communication fees
52,002
Custodian fees
23,999
Audit and legal fees
20,002
Directors' fees
3,927
Other
13,100 ------------------------------------------------------
- ------------------------
Total Expenses
2,736,229 ---------------------------------------------------
- ---------------------------
Net Investment Loss
(1,043,992)
=============================================================
== == ===============
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized Gain From Security Transactions
(excluding short-term securities): Proceeds from sales
235,779,211
Cost of securities sold
233,938,041 -------------------------------------------------
- -----------------------------
Net Realized Gain
1,841,170 ---------------------------------------------------
- ---------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year
20,592,683
End of year
6,288,179 ---------------------------------------------------
- ---------------------------
Decrease in Net Unrealized Appreciation
(14,304,504) ------------------------------------------------
- ------------------------------
Net Loss on Investments
(12,463,334)
=============================================================
== == ===============
Decrease in Net Assets Resulting From Operations
$(13,507,326)
=============================================================
== == ===============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the years
ended December 31,
1994
1993
=============================================================
== == ==============
<S> <C>
<C>
OPERATIONS:
Net investment loss $ (1,043,992)
$ (535,126)
Net realized gain (loss) 1,841,170
(2,392,884)
Increase (decrease) in net
unrealized appreciation (14,304,504)
17,132,058 --------------------------------------------------
- ---------------------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (13,507,326)
14,204,048
=============================================================
== == ==============
FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares 32,832,929
120,015,859
Net asset value of shares issued for
reinvestment of dividends --
- --
Cost of shares reacquired (72,710,859)
(25,533,429) ------------------------------------------------
- -----------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND
SHARE TRANSACTIONS (39,877,930)
94,482,430
=============================================================
== == ==============
INCREASE (DECREASE) IN NET ASSETS (53,385,256)
108,686,478
NET ASSETS:
Beginning of year 175,817,044
67,130,566 --------------------------------------------------
- ---------------------------
END OF YEAR $122,431,788
$175,817,044
=============================================================
== == ==============
Accumulated net investment loss: -$
(535,126)
=============================================================
== == ==============
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
Notes to Financial Statements
1. Significant Accounting Policies
The Capital Appreciation Portfolio ("Portfolio") is a
separate investment
portfolio of the Smith Barney Funds, Inc. ("Fund"). The Fund
is a Maryland
corporation, registered under the Investment Company Act of
1940, as amended, as
a diversified, open-end management investment company and
consists of this
Portfolio and six other separate investment portfolios:
Income and Growth, U.S.
Government Securities, Income Return Account, Monthly Payment
Government, Short-
Term U.S. Treasury Securities and Utility Portfolios. The
financial statements
and financial highlights for the other portfolios are
presented in separate
annual reports.
The significant accounting policies consistently
followed by the Portfolio
are: (a) securities transactions are accounted for on trade
date; (b) securities
traded on national securities markets are valued at the
closing prices on such
markets; securities for which no sales price was reported and
U.S. Government
and Government Agency obligations are valued at the mean
between the bid and
asked prices; short-term investments that have a maturity of
more than 60 days
are valued at prices based on market quotations for
securities of similar type,
yield and maturity; short-term investments that have a
maturity of 60 days or
less are valued at cost plus accreted discount, or minus
amortized premium, as
applicable; (c) dividend income is recorded on the ex-
dividend date and interest
income is recorded on the accrual basis; (d) gains or losses
on the sale of
securities are calculated by using the specific
identification method; (e)
direct expenses are charged to each portfolio and each class;
management fees
and general fund expenses are allocated on the basis of
relative net assets; (f)
dividends and distributions to shareholders are recorded by
the Portfolio on the
ex-dividend date; (g) the accounting records of the Portfolio
are maintained in
U.S. dollars. All assets and liabilities denominated in
foreign currencies are
translated into U.S. dollars based on the rate of exchange of
such currencies
against U.S. dollars on the date of valuation. Purchases and
sales of
securities, and income and expenses are translated at the
rate of exchange
quoted on the respective date that such transactions are
recorded. Differences
between income and expense amounts recorded and collected or
paid are adjusted
when reported by the custodian bank; (h) the Portfolio
intends to comply with
the requirements of the Internal Revenue Code pertaining to
regulated investment
companies and to make the required distributions to
shareholders; therefore, no
provision for Federal income taxes has been made; and (i)
during 1993, the Fund
adopted
11
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
Notes to Financial Statements (continued)
Statement of Position 93-2 Determination, Disclosure, and
Financial Statement
Presentation of Income, Capital Gain, and Return of Capital
Distributions by
Investment Companies. Accordingly, the net investment loss of
$1,043,992 and
$535,126 at December 31, 1994 and December 31, 1993,
respectively, have been
reclassified to paid-in capital. Net investment income, net
realized gains, and
net assets were not affected by this change.
In addition, the Portfolio may enter into forward
exchange contracts in
order to hedge against foreign currency risk. These contracts
are marked to
market daily, by recognizing the difference between the
contract exchange rate
and the current market rate as an unrealized gain or loss.
Realized gains or
losses are recognized when contracts are settled.
2. Management Agreement and Transactions
with Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
formerly known as
Smith Barney Advisers, Inc., a subsidiary of Smith Barney
Holdings Inc. ("SBH"),
acts as investment manager of the Fund. The Capital
Appreciation Portfolio pays
SBMFM a management fee calculated at the annual rate of 0.90%
on the average
daily net assets. The Portfolio also has a subadvisory
agreement with Janus
Capital Corporation. For its services, Janus receives a fee
from SBMFM
calculated at the annual rate of 0.50% of the average daily
net assets. All fees
are calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
year ended December 31, 1994, SB received brokerage
commissions of $18,203 and
was paid sales charges on Class A share purchases of
approximately $517,000.
Effective November 7, 1994, the Fund adopted a new class
structure,
renaming the existing Class B shares as Class C shares and
exchanging the old
Class C shares into Class A shares. A contingent deferred
sales charge ("CDSC")
was imposed on new Class B shares which begins at 5.00% if
redemption occurs
less than one year from initial purchase and declines by
1.00% per year until no
CDSC is incurred. A CDSC of 1.00% was imposed on Class C
shares if redemption
occurs within the first year from the date such investment
was made. Any CDSC
imposed on redemptions is paid SB.
12
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
Notes to Financial Statements (continued)
For the year ended December 31, 1994, there were
approximately $105,000 in such
charges.
Pursuant to a Distribution Plan the Portfolio pays a
service fee with
respect to its Class A, B and C shares calculated at the
annual rate of 0.25% of
the average daily net assets of each respective class'
shares. The Portfolio
also pays a distribution fee with respect to Class B and C
shares calculated at
the annual rate of 0.75% of the average daily net assets for
that class. All
officers and two directors of the Fund are employees of SB.
3. INVESTMENTS
During the year ended December 31, 1994, the
aggregate cost of purchases
and proceeds from sales of investments (including maturities,
but excluding
short-term securities) was $171,984,312 and $235,779,211,
respectively.
At December 31, 1994, the net unrealized appreciation
of investments for
Federal income tax purposes consisted of the following:
<TABLE>
<CAPTION>
=============================================================
== == ==============
<S>
<C>
Gross unrealized appreciation
$ 8,726,613
Gross unrealized depreciation
(2,438,434) -------------------------------------------------
- ----------------------------
Net unrealized appreciation
$ 6,288,179
=============================================================
== == ==============
</TABLE>
Also, at December 31, 1994, the Portfolio had a
capital loss carryover
of $655,390 which expires on December 31, 2001.
4. REPURCHASE AGREEMENTS
The Portfolio purchases (and its custodian takes
possession of) U.S.
Government securities from banks and securities dealers
subject to agreements
to resell the securities to the sellers at a future date
(generally, the next
business day) at an agreed-upon higher repurchase price. The
Portfolio requires
continual maintenance of the market value of the collateral
in amounts at least
equal to the repurchase price.
13
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
Notes to Financial Statements (continued)
5. Capital Shares
At December 31, 1994, the Fund had two billion shares
of $0.01 par value
capital stock authorized. The Portfolio has the ability to
issue multiple
classes of shares. Each share of a class represents an
identical interest and
has the same rights, except that each class bears certain
expenses, including
those specifically related to the distribution of its shares.
At December 31,
1994, paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class
C
=============================================================
== = <S> <C>
<C> <C>
Total Paid-in Capital $50,990,657 $209,561
$65,598,781
=============================================================
== = </TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
December 31, 1994
December 31, 1993
-------------------------- ------
- -----------------
Shares Amount
Shares
Amount
=============================================================
== ==
===============
<S> <C> <C> <C>
<C>
Class A++
Shares sold 1,359,477 $ 18,681,280
3,646,449
$ 49,126,349
Shares redeemed (3,024,012) (41,590,563)
(888,213)
(12,374,257) ------------------------------------------------
- ------------------------------
Net Increase (Decrease) (1,664,535) $(22,909,283)
2,758,236
$ 36,752,092
=============================================================
== == ===============
Class B*
Shares sold 15,223 $ 209,718
4,600,378
$ 61,879,515
Shares redeemed -- --
(793,804)
(10,997,868) ------------------------------------------------
- ------------------------------
Net Increase 15,223 $ 209,718
3,806,574
$ 50,881,647
=============================================================
== == ===============
Class C+
Shares sold 997,520 $ 13,941,931
666,956
$ 9,009,995
Shares redeemed (2,286,927) (31,120,296)
(157,481)
(2,161,304) -------------------------------------------------
- -----------------------------
Net Increase (Decrease) (1,289,407) $(17,178,365)
509,475
$ 6,848,691
=============================================================
==
== ===============
</TABLE>
++On October 10, 1994 the old Class C shares were exchanged
into Class A shares
and therefore Class C share activity is included with the
Class A share
activity prior to this date.
* Sales of Class B shares commenced November 7, 1994.
+ November 7, 1994 the old Class B shares were renamed Class
C
shares.
14
<PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
Financial Highlights
For a share of each class of capital stock outstanding
throughout each year:
<TABLE>
<CAPTION>
Class A Shares 1994
1993 1992(1)
=============================================================
== == =======================
<S> <C>
<C> <C>
Net Asset Value, Beginning of Year $14.50
$13.16 $12.50 --------------------------------------
- ------------------------------------------------
Income (Loss) from Investment Operations:
Net investment income (loss) (0.04)
- -- 0.01
Net realized and unrealized gain (loss)
on investments (1.09)
1.34 0.65 ----------------------------------------
- ----------------------------------------------
Total Income (Loss) from Investment Operations (1.13)
1.34 0.66 ----------------------------------------
- ----------------------------------------------
Less Distributions --
- -- --
- -------------------------------------------------------------
- -------------------------
Net Asset Value, End of Year $13.37
$14.50 $13.16 --------------------------------------
- ------------------------------------------------
Total Return (7.79)%
10.18% 5.28%++ ------------------------------------
- --------------------------------------------------
Net Assets, End of Year (000s) $54,027
$68,541 $25,885 -------------------------------------
- -------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.62%
1.35% 1.20%+
Net investment income (loss) (0.32)
0.03 0.37+ ---------------------------------------
- -----------------------------------------------
Portfolio Turnover Rate 119.26%
136.98% 8.63%
=============================================================
== == =======================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
(2) Class C Shares (4)(5)
--------------
- --------------------------------
1994(3)
1994 1993 1992(6)
=============================================================
== == =================================
<S> <C>
<C> <C> <C>
Net Asset Value, Beginning of Year $13.88
$14.39 $13.16 $12.50 ---------------------------------
- --
- -------------------------------------------------------------
Income (Loss) from Investment Operations:
Net investment loss (0.02)
(0.15) (0.08) --
Net realized and unrealized loss
on investments (0.50)
(1.07) 1.31 0.66 ----------------------------------
- --
- ------------------------------------------------------------
Total Income (Loss) from Investment Operations (0.52)
(1.22) 1.23 0.66 ----------------------------------
- --
- ------------------------------------------------------------
Less Distributions --
- -- -- ----------------------------------------
- --
- --------------------------------------------------------
Net Asset Value, End of Year $13.36
$13.17 $14.39 $13.16 ---------------------------------
- --
- -------------------------------------------------------------
Total Return
(3.75)%++
(8.48)% 9.35% 5.28%++ -------------------------------
- --
- -------------------------------------------------------------
- --
Net Assets, End of Year (000s) $ 203
$68,201 $93,079 $35,063 --------------------------------
- --
- -------------------------------------------------------------
- -Ratios to Average Net Assets:
Expenses 2.19%+
2.13% 2.11% 1.91%+
Net investment loss (0.77)+
(1.02) (0.74) (0.35)+ --------------------------------
- --
- -------------------------------------------------------------
- -Portfolio Turnover Rate 119.26%
119.26% 136.98% 8.63%
=============================================================
== == =================================
</TABLE>
(1) For the period from November 30, 1992 (inception date) to
December 31, 1992.
(2) On November 7, 1994 the old Class B shares were renamed
Class C shares.
(3) For the period from November 7, 1994 (inception date) to
December 31, 1994.
(4) On October 10, 1994 the old Class C shares were exchanged
in Class A
shares and therefore Class C share activity is included in
Class A share
activity prior to this date.
(5) On November 7, 1994 the old Class B shares were renamed
Class C shares.
(6) For the period from November 30, 1992 (inception date) to
December 31, 1992.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
15 <PAGE>
Smith Barney Funds, Inc.
Capital Appreciation Portfolio
Independent Auditors' Report
To the Shareholders and Board of Directors
of Smith Barney Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities
including the schedule of investments of the Capital
Appreciation Portfolio of
Smith Barney Funds, Inc. as of December 31, 1994, and the
related statement of
operations for the year then ended, the statements of changes
in net assets for
each of the years in the two-year period then ended and the
financial highlights
for each of the years in the two-year period then ended and
the period from
November 30, 1992 (commencement of operations) to December
31, 1992. These
financial statements and financial highlights are the
responsibility of the
Fund's management. Our responsibility is to express an
opinion on these
financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis evidence supporting the amounts and disclosures in
the financial
statements. Our procedures included confirmation of
securities owned as of
December 31, 1994, by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial
highlights referred
to above present fairly, in all material respects, the
financial position of the
Capital Appreciation Portfolio of Smith Barney Funds, Inc. as
of December 31,
1994, and the results of its operations for the year then
ended, the changes in
its net assets for each of the years in the two-year period
then ended and the
financial highlights for each of the years in the two-year
period then ended and
the period from November 30, 1992 (commencement of
operations) to December 31,
1992, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick
LLP New York, New York
February 17, 1995
16
<PAGE>
Smith Barney
Funds, Inc.
Directors
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Roderick C. Rasmussen
Bruce D. Sargent
John P. Toolan
Stephen Treadway, Chairman
C. Richard Youngdahl
Officers
Stephen Treadway
Chief Executive Officer
Heath B. McLendon
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Bruce D. Sargent
Vice President
Ayako Weissman
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Smith Barney
- ------------
A Member of TravelersGroup(UMBRELLA
LOGO]
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the
shareholders of
Smith Barney Funds, Inc. Capital Appreciation Portfolio. It
is not authorized
for distribution to prospective investors unless accompanied
or preceded by a
current Prospectus for the Portfolio, which contains
information concerning the
Portfolio's investment policies and expenses as well as
other pertinent
information.
Smith Barney Funds, Inc.
388 Greenwich Street
New York, New York 10013
FD0851 B5
PART C Other Information Item 24.
Financial Statements and Exhibits (a) Financial Statements
Location In:
Part A Part B
Annual and
SemiAnnual Report
Statement of Assets and Liabilities __ *
Statements of Changes in Net Assets __
* Statement of Operations __
*
Notes to Financial Statements __
*
Supplementary Information __
*
_______________
* See the Annual Reports and Semi-Annual Reports to
Shareholders, which are incorporated by reference in the
Statement of Additional Information .
All other statements and schedules are omitted because they
are not applicable or the required information will be shown
in the financial statements or notes thereto.
(b) Exhibits
(1) (a) Articles Supplementary dated November
16, 1992 are incorporated by reference to
Exhibit 1(a) to Post-Effective Amendment No.
49.
(b) Articles Supplementary dated October
29,
1992 are incorporated by reference to Exhibit 1(b) to Post
Effective Amendment No. 49.
(c) Articles of Amendment dated October
29, 1992 are incorporated by reference to
Exhibit 1(c)
to Post-Effective Amendment No. 49.
(d) Articles Supplementary dated September 6,
1991 are incorporated by reference to Exhibit
1(a) to Post-Effective Amendment No. 46.
(e) Articles Supplementary dated October 31,
1990 are incorporated by reference to Exhibit 1(a) to
Post-Effective Amendment No. 43.
(f) Articles Supplementary dated march 27,
1986, May 15, 1985, December 28, 1984, August 2,
1984, June 8, 1984, February 26, 1972 and April
25, 1967 are incorporated by reference to
Exhibits 1(a) through (g) to Post-Effective
Amendment No. 39.
(g) Articles of Incorporation dated December
1, 1966 are incorporated by reference to Exhibit
1(h) to Post-Effective Amendment No. 39.
(h) Articles Supplementary dated December
14, 1993 are incorporated by reference to
Exhibit 1(h) to Post-Effective Amendment No. 54.
(2) Bylaws of the Fund are incorporated by reference
to Exhibit 2 to Post-Effective Amendment No. 39.
(3) Not applicable.
(4) (a) Specimen Stock Certificates for the
Income and Growth Portfolio, the U.S. Government
Securities Portfolio, the Monthly Payment
Government Portfolio, and the Income Return
Account Portfolio are incorporated by reference
to Exhibit 4 to Post-Effective Amendment No. 39.
(b) Specimen Stock Certificate for the
Utility Portfolio is incorporated by reference
to Exhibit 4(b) to Post-Effective Amendment No.
43.
(c) Specimen Stock Certificate for the Short
Term U.S. Treasury Securities Portfolio is
incorporated by reference to Exhibit 4(c) to Post
Effective Amendment No.53.
(d) Specimen Stock Certificate for the
Capital Appreciation Portfolio is incorporated by
reference to Exhibit 4(d) to Post-Effective
Amendment No.53.
(e) Specimen Stock Certificate for the
Socially Responsible Investment Portfolio is
incorporated by reference to Exhibit 4(e) to Post
Effective Amendment No.53.
(5) (a) Management Agreement between Short-Term U.S.
Treasury Securities Portfolio and Smith, Barney Advisers,
Inc.1
(b) Management Agreement between the Income and
Growth Portfolio and Smith, Barney Advisers, Inc.**
(c) Management Agreement between U.S.
Government Securities Portfolio and Smith, Barney Advisers,
Inc.**
(d) Management Agreement between Monthly
Payment Government Portfolio and Smith, Barney
Advisers, Inc.**
(e) Management Agreement between Income
Return Account Portfolio and Smith, Barney
Advisers, Inc.**
(f) Management Agreement between the Utility
Portfolio and Smith, Barney Advisers, Inc.**
(g) Management Agreement between the Capital
Appreciation Portfolio and Smith, Barney
Advisers, Inc. is incorporated herein by
reference to Exhibit 5(g) to Post-Effective
Amendment No. 48.
(h) Subadvisory Agreement between Smith,
Barney Advisers, Inc. and Janus Capital
Corporation on behalf of Capital Appreciation
Portfolio is incorporated herein by reference to
Exhibit 5(h) to Post-Effective Amendment No. 48.
(6) (a) Distribution Agreement between Smith
Barney Funds and Smith Barney, Harris Upham & Co.
Incorporated is incorporated by reference to
Exhibit 6(a) to Post-Effective Amendment No. 39.
(b) Distribution Agreement between Smith Barney
Funds, Inc. and Smith Barney Shearson Inc.
(7) Not applicable.
(8) Custodian Agreement between Registrant and
Provident National Bank is incorporated by
reference to Exhibit 8 to Post-Effective
Amendment No. 39.
(9) (a) Transfer Agency Agreement between
Registrant and Provident Financial Processing
Corp. is incorporated herein by reference to
Exhibit 9 to Post-Effective Amendment No. 39.
(10)Not applicable.
(11)(a) Auditors' Report (See the Annual Report
to Shareholders which is incorporated by
reference in the Statement of Additional
Information)
(b) Auditors' Consent
(12)Previously filed.
(13)Not applicable
(14)Previously filed.
(15)(a) Plan of Distribution Pursuant to Rule
12b1 on behalf of the Short-Term U.S. Treasury
Securities Portfolio is incorporated by reference
to Exhibit 15(a) to Post-Effective Amendment
No. 46.
(b) Plan of Distribution Pursuant to Rule
12b-1 on behalf of the Utility Portfolio is
incorporated by reference to Exhibit 15(b) to Post
Effective Amendment No. 48.
(c) Plan of Distribution Pursuant to Rule 12b-
1 on behalf of the Income and Growth Portfolio is
incorporated by reference to Exhibit 15(c) to Post
Effective Amendment No.48.
(d) Plan of Distribution Pursuant to Rule 12b-
1 on behalf of the U.S. Government Securities
Portfolio is incorporated by reference to Exhibit
15(d) to Post-Effective Amendment No. 48.
(e) Plan of Distribution Pursuant to Rule 12b-
1 on behalf of the Monthly Payment Government
Portfolio is incorporated by reference to Exhibit
15(e) to Post-Effective Amendment No. 48.
(f) Plan of Distribution Pursuant to Rule
12b-1 on behalf of the Income Return Account
Portfolio is incorporated by reference to Exhibit
15(f) to Post-Effective Amendment No. 48.
(g) Plan of Distribution Pursuant to Rule
12b-1 on behalf of the Capital Appreciation
Portfolio is incorporated by reference to Exhibit
15(g) to Post-Effective Amendment No. 48.
(h) Amended Plan of Distribution Pursuant to
Rule 12b-1 on behalf of the Short-Term U.S.
Treasury Securities Portfolio is incorporated by
reference to Exhibit 15(h) to Post-Effective
Amendment No. 56.
(i) Amended Plan of Distribution Pursuant to
Rule 12b-1 on behalf of the Utility Portfolio is
incorporated by reference to Exhibit 15(i) to Post
Effective Amendment No. 56.
(j) Amended Plan of Distribution Pursuant to
Rule 12b-1 on behalf of the Income and Growth
Portfolio is incorporated by reference to Exhibit
15(j) to Post-Effective Amendment No. 56.
(k) Amended Plan of Distribution Pursuant to
Rule 12b-1 on behalf of the U.S. Government
Securities Portfolio is incorporated by reference
to Exhibit 15(k) to Post-Effective Amendment No.
56.
(l) Amended Plan of Distribution Pursuant to
Rule 12b-1 on behalf of the Monthly Payment
Government Portfolio is incorporated by reference
to Exhibit 15(l) to Post-Effective Amendment No.
56.
(m) Amended Plan of Distribution Pursuant to
Rule 12b-1 on behalf of the Income Return Account
Portfolio is incorporated by reference to Exhibit
15(m) to Post-Effective Amendment No. 56.
(n) Amended Plan of Distribution Pursuant to
Rule 12b-1 on behalf of the Capital Appreciation
Portfolio is incorporated by reference to Exhibit
15(n) to Post-Effective Amendment No. 56.
(16)Schedule of Computation of Performance
Quotation for the Income and Growth Portfolio,
the U.S. Government Securities Portfolio, the
Monthly Payment Government Portfolio, and the
Income Return Account Portfolio are incorporated
herein by reference to Exhibit 16 to Post-
Effective Amendment No. 37.
(18) Plan pursuant to Rule 18f-3
Item 25. Persons Controlled by or under Common Control with
Registrant
(None)
Item 26. Number of Holders of Securities
Number of Recordholders
on Title of Class April 11, 1995
Income and Growth Portfolio 41,775
U.S. Government Securities Portfolio 14,888
Income Return Account Portfolio
795
Monthly Payment Government Portfolio
1,322 Short-Term U.S. Treasury Securities
Portfolio 2,188 Utility Portfolio
5,806
Capital Appreciation Portfolio
13,597 Appreciation Portfolio
0
European Portfolio 0
Fundamental Value Portfolio 0
Special Equities Portfolio 0
Diversified Strategic Income Portfolio 0
Investment Grade Bond Portfolio 0
High Income Portfolio 0
Socially Responsible Investment
Portfolio0
Item 27. Indemnification
Reference is made to Article SEVENTH, paragraph
7(e) of Registrant's Articles of Incorporation for a
complete statement of its terms.
Registrant is a named assured on a joint insured
bond pursuant to Rule 17g-1 of the Investment
Company Act of 1940. Other assureds include Smith
Barney Mutual Funds Management Inc.and (Registrant's
Adviser) and affiliated investment companies.
Item 28. Business and other Connections of Investment Adviser
See the material under the caption "Management of the
Fund" included in Part A (Prospectus) of this
Registration Statement and the material appearing
under the caption "Management Agreement" included in
Part B (Statement of Additional Information) of this
Registration Statement.
Information as to the Directors and Officers of Smith
Barney Mutual Funds Management Inc. is included in its
Form ADV (File No. 801-8314), filed with the
Commission, which is incorporated herein by reference
thereto.
Item 29. Principal Underwriters
(a) Smith Barney Inc. ("Smith Barney ") also
acts as principal underwriter for the Smith Barney Money
Funds, Inc.; Smith Barney Municipal Money Market
Fund, Inc.; Smith Barney Muni Funds; Smith Barney
Funds, Inc.; Smith Barney World Funds, Inc.; Smith
Barney
Variable Account Funds; Smith
Barney/Travelers Series Fund Inc.; Smith Barney
Intermediate Municipal Fund, Inc.; Smith Barney
Municipal Fund, Inc.; High Income Opportunity Fund
Inc.; Greenwich Street California Municipal Fund
Inc.; The Inefficient-Market Fund Inc.; Smith Barney
Investment Funds, Inc.; Smith Barney Adjustable Rate
Government Income Fund; Smith Barney Income Funds;
Smith Barney Massachusetts Municipals Fund; Smith
Barney Small Capitalization Fund; Zenix Income Fund
Inc; Smith Barney Arizona Municipals Fund Inc.;
Smith Barney Principal Return Fund; Smith Barney
1990s Fund; Municipal High Income Fund Inc.; Pacific
Corinthian Variable Annuity Fund; The Trust for TRAK
Investments; Smith Barney Series Fund; Smith Barney
Income Trust; Smith Barney Aggressive Growth Fund
Inc.; Smith Barney Appreciation Fund Inc.; Smith
Barney California Municipals Fund Inc.; Smith Barney
Fundamental Value Fund Inc.; Smith Barney Managed
Governments Fund Inc.; Smith Barney Managed
Municipals Fund Inc.; Smith Barney New Jersey
Municipals Fund Inc.; Smith Barney Precious Metals
and Minerals Fund Inc.; Smith Barney Investment
Funds
Inc.; Smith Barney FMA (R) Trust; The Italy Fund Inc.;
Smith Barney Telecommunications Trust; Managed Municipals
Portfolio Inc.; Managed Municipals Portfolio II Inc.;
Managed High Income Portfolio Inc. Smith Barney Managed
Growth Fund.
(b) The information required by this Item
29 with respect to each director and officer
of Smith Barney is incorporated by reference to
Schedule A of Form BD filed by Smith Barney
pursuant to the Securities Exchange Act of 1934
(SEC File No. 8-8177).
(c) Not applicable
Item 30. Location of Accounts and Records
PNC Bank, National Association, 17th and
Chestnut Streets, Philadelphia, Pennsylvania
19103, and The Shareholder Service Group Inc., Exchange
Place, Boston, Massachusetts 02109, will maintain the
custodian and the shareholder servicing agent records,
respectively, required by Section 31 (a).
All other records required by Section 31 (a)
are maintained at the offices of the Registrant
at 388 Greenwich Street, New York, New York
10013 (and preserved for the periods specified
by Rule
31a-2).
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Not applicable
(b) Registrant undertakes, if requested
to do so by the holders of at least 10% of
Registrant's outstanding shares, to call a
meeting of shareholders for the purpose of
voting upon the questions of removal of a
director or directors and to assist in
communications with other shareholders as
required by Section 16(c).
(c) Registrant undertakes to furnish each
person to whom a prospectus is delivered with a
copy of Registrant's latest report to
shareholders, upon request and without
charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-
Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned,
and where applicable, the true and lawful attorney-in-fact,
thereto duly authorized, in the City of New York and State of
New York on the 22nd day of December 1995.
SMITH BARNEY FUNDS, INC.
BY /s/ Heath B.
McLendon (Heath B. McLendon, Chief Executive Officer)
Pursuant to the requirements of the Securities Act of
1933, this Post-Effective Amendment to the Registration
Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signatures Title Date
/s/ Heath B. McLendon Director, Chairman
and
December 22, 1995
(Heath B. McLendon) Chief Executive Officer
/s/ Jessica M. Bibliowicz President December
22,
1995
(Jessica M. BIbliowicz)
Joseph H. Fleiss* Director
(Joseph H. Fleiss)
Donald R. Foley* Director
(Donald R. Foley)
Director
(Paul Hardin III)
Francis P. Martin* Director
(Francis P. Martin)
Roderick C. Rasmussen * Director
(Roderick C. Rasmussen)
/s/ Bruce D. Sargent Director
(Bruce D. Sargent)
Signatures Title Date
John P. Toolan*
Director
(John P. Toolan)
C. Richard Youngdahl* Director
(C. Richard Youngdahl)
/s/ Lewis E. Daidone Treasurer and Principal
December 22, 1995
(Lewis E. Daidone) Financial Officer
*By: /s/ Christina T.
Sydor
December 22, 1995
Christina T. Sydor
Pursuant to Power of Attorney
EXHIBIT INDEX
Exhibit No. Exhibit Page
No.
11(b) Auditor's Consent
18 Rule 18f-3 Plan
_______________________________
1 Exhibit 5(a) is incorporated by reference to
Exhibit 5(a) to Post-Effective Amendment No. 46.
** Exhibits 5(b) through (f) are incorporated by
reference to Exhibits 5(a) through (e) to Post-
Effective Amendment No.43
EXHIBIT 18
Rule 18f-3 (d) Multiple Class Plan
for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940
Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on
Schedule A (the "Funds" and each a "Fund") distributed by Smith
Barney Inc. ("Smith Barney") under the Funds' existing order of
exemption (Investment Company Act Release Nos. 20042 (January
28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure.
In addition, pursuant to Rule 12b-1 under the 1940 Act (the
"Rule"), the Funds have each adopted a plan (the "Services and
Distribution Plan") under which shares of the Classes are
subject
to the services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and
under
the Services and Distribution Plan are subject to a service fee
of up to 0.25% of average daily net assets. In addition, the
Funds are permitted to asses a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant
to a complete waiver of front-end sales loads applicable to
large
purchases, if the shares are redeemed within one year of the
date
of purchase. This waiver applies to sales of Class A shares
where the amount of purchase is equal to or exceeds $500,000
although this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but
are subject to a five-year declining CDSC and under the
Services
and Distribution Plan are subject to a service fee at an annual
rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.75% of average
daily net assets.
3. Class C Shares
Class C shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual
rate
of up to 0.25% of average daily net assets and a distribution
fee
at an annual rate of up to 0.75% of average daily net assets.
Unlike Class B shares, Class C shares do not have the
conversion
feature as discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period of time.
The Funds reserve the right to impose these fees at such higher
rates as may be determined.
4. Class Y Shares
Class Y shares are offered without impositions of either a
sales
charge or a service or distribution fee for investments where
the
amount of purchase is equal to or exceeds $5 million.
5. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Smith Barney and its
affiliates, (ii) by certain unit investment trusts sponsored by
Smith Barney and its affiliates, and (iii) although not
currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a
distributor
and, for each of (x) and (y), their spouses and minor children.
6. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of
the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a
Fund
are allocated among the various Classes of shares based on the
net assets of the Fund attributable to each Class, except that
each Class's net assets value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with
obtaining
shareholder approval of the Services and Distribution Plan (or
an
amendment thereto) and any expenses specific to that Class.
Such
expenses are limited to the following:
(I) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing
and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services
as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely
to
one Class of shares; and
(vii) fees of members of the governing boards of the
funds
incurred as a result of issues relating to one Class of
shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are
borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be,
in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except
those purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the
Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which
the issuance of the Class B shares occurred or (ii) for Class B
shares obtained through an exchange, or a series of exchanges,
the date on which the issuance of the original Class B shares
occurred.
Shares purchased through the reinvestment of dividends and
other
distributions paid in respect of Class B shares are also Class
B
shares. However, for purposes of conversion to Class A, all
Class B shares in a shareholder's Fund account that were
purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares (and that have
not converted to Class A shares as provided in the following
sentence) are considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account referred to in the
preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class
B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and
distributions.
The conversion of Class B shares to Class A shares is subject
to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and
Class
B shares does not result in the Fund's dividends or
distributions
constituting "preferential dividends" under the Internal
Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under
the Code. The conversion of Class B shares to Class A shares
may
be suspended if this opinion is no longer available, In the
event that conversion of Class B shares of not occur, Class B
shares would continue to be subject to the distribution fee and
any incrementally higher transfer agency costs attending the
Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the
Smith
Barney Mutual Funds as set forth in the prospectus for such
Fund.
Class A shareholders who wish to exchange all or part of their
shares for Class A shares of a Fund sold subject to a sales
charge equal to or lower that that assessed with respect to the
shares of the Fund being exchanged may do so without paying a
sales charge. Class A shareholders of a Fund who wish to
exchange all or part of their shares for Class A shares of a
Fund
sold subject to a sales charge higher than that assessed with
respect to the shares of the Fund being exchanged are charged
the
appropriate "sales charge differential." Funds only permit
exchanges into shares of money market funds having a plan under
the Rule if, as permitted by paragraph (b) (5) of Rule 11a-3
under the 1940 Act, either (i) the time period during which the
shares of the money market funds are held is included in the
calculations of the CDSC or (ii) the time period is not
included
but the amount of the CDSC is reduced by the amount of any
payments made under a plan adopted pursuant to the Rule by the
money market funds with respects to those shares. Currently,
the
Funds include the time period during which shares of the money
market fund are held in the CDSC period. The exchange
privileges
applicable to all Classes of shares must comply with Rule 11a-3
under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of August 25, 1995)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Equity Funds -
Smith Barney Strategic Investors Fund
Smith Barney Growth and Income Fund
Smith Barney Florida Municipals Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Income and Growth Portfolio
Utilities Portfolio
Income Return Account Portfolio
Monthly Payment Government Portfolio
Short-Term U.S. Treasury Securities Portfolio
U.S. Government Securities Portfolio
Smith Barney Income Funds -
Smith Barney Premium Total Return Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney High Income Fund
Smith Barney Tax-Exempt Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney Utilities Fund
Smith Barney Income Trust -
Smith Barney Limited Maturity Municipals Fund
Smith Barney Limited Maturity Treasury Fund
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity
New York Municipals Fund
Smith Barney Investment Funds Inc. -
Smith Barney Special Equities Fund
Smith Barney Government Securities Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Institutional Cash Management Fund Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Portfolio
California Limited Portfolio
California Money Market Portfolio
Florida Portfolio
Florida Limited Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New Jersey Portfolio
New York Portfolio
New York Money Market Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Growth Fund
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
u:\legal\data\18f3plan.txt 08/25/95 1:55 PM
Independent Auditors' Consent
To the Shareholders and Directors of
Smith Barney Funds, Inc.:
We consent to the use of our reports dated February 17,
1995, with respect to the Portfolios listed below of Smith
Barney Funds, Inc. incorporated herein by reference and to
the references to our Firm under the headings "Financial
Highlights" in the Prospectuses of the Portfolios listed
below and "Independent Auditors" in the Statement of
Additional Information.
Portfolios
Short-Term U.S. Treasury Securities Portfolio
U.S. Government Securities Portfolio
Monthly Payment Government Portfolio
Income Return Account Portfolio
Income and Growth Portfolio
Utility Portfolio
KPMG PEAT MARWICK LLP
New York, New York
December 22, 1995
