FILE NO 2-25890
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM N-1A
__________________________________________________
POST-EFFECTIVE AMENDMENT NO. 59
To The
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
and
POST-EFFECTIVE AMENDMENT NO. 39
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 offering* fee
share
Equity Income 2,022,946 $15.92 $290,000 $100
Portfolio
U.S. Government 340,552 $13.91 $290,000 $100
Securities Portfolio
Income Return 825,403 $9.77 $290,000 $100
Account 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 March 14, 1996.
*Calculation of the proposed maximum offering price has been made pursuant to
Rule 24e-2.
During its fiscal year ended December 31, 1995, the fund redeemed 9,416,121
shares of the Equity Income Portfolio. During its current fiscal year, the
fund used 7,411,391 shares of the Equity Income Portfolio it redeemed during
its fiscal year ended December 31, 1995, for a reduction pursuant to Rule 24f-
2(c).
The fund currently is registering 2,022,946 shares for the Equity Income
Portfolio, which is equal to the remaining 2,004,730 shares redeemed during
its fiscal year ended December 31, 1995, plus 18,216 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, 1995, the fund redeemed 6,965,474
shares of the U.S. Government Securities Portfolio. During its current fiscal
year, the fund used 6,645,770 shares of the U.S. Government Securities
Portfolio it redeemed during its fiscal year ended December 31, 1995, for a
reduction pursuant to Rule 24f-2(c).
The fund currently is registering 340,552 shares for the U.S. Government
Securities Portfolio, which is equal to the remaining 319,704 shares redeemed
during its fiscal year ended December 31, 1995, plus 20,848 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, 1995, the fund redeemed 1,190,720
shares of the Income Return Account Portfolio. During its current fiscal year,
the fund used 395,000 shares of the Income Return Account Portfolio it
redeemed during its fiscal year ended December 31, 1995, for a reduction
pursuant to Rule 24f-2(c).
The fund currently is registering 825,403 shares for the Income Return Account
Portfolio, which is equal to the remaining 795,720 shares redeemed during its
fiscal year ended December 31, 1995, plus 29,683 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).
Rule 24f-2 (1) Declaration:
Registrant filed its Rule 24f-2 Notice on February 29, 1996 for its most
recent fiscal year ended December 31, 1995.
It is proposed that this Post-Effective Amendment will become effective April
1, 1996 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, Distributions
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 Prototype
Retirement Plans"
See Prospectus --
"Valuation of
Shares"
"Financial Statements"
"Redemption of Shares"
20. Tax Status See Prospectus --
"Dividends, Distributions
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.
Equity Income
Portfolio
APRIL 1, 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS
APRIL 1, 1996
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Equity Income Portfolio (the "Portfolio") is one of four investment
portfolios that currently comprise Smith Barney Funds, Inc. (the "Fund"). The
Equity Income Portfolio (the "Portfolio") seeks current income and long-term
growth of income and capital. It invests primarily, but not exclusively, in
common stocks.
This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, 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 1, 1996, 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 10
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 12
- -------------------------------------------------
VALUATION OF SHARES 13
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 14
- -------------------------------------------------
PURCHASE OF SHARES 15
- -------------------------------------------------
EXCHANGE PRIVILEGE 26
- -------------------------------------------------
REDEMPTION OF SHARES 30
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 33
- -------------------------------------------------
PERFORMANCE 34
- -------------------------------------------------
MANAGEMENT OF THE FUND 34
- -------------------------------------------------
DISTRIBUTOR 36
- -------------------------------------------------
ADDITIONAL INFORMATION 37
- -------------------------------------------------
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 Equity Income Portfolio is an open-end, management
investment company whose investment objective is to seek current income and
long-term growth of income and capital by investing primarily, but not exclu-
sively, in common stocks. See "Investment Objectives and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The 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. 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. The Class B shares' distribution fee may cause that Class to have
higher expenses and pay lower dividends than Class A shares.
3
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
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 Portfolio 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
redemptions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of 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 the Portfolio. Any investment
return on these additional invested amounts may partially or wholly offset the
higher annual expenses of these Classes. Because the Portfolio's future return
cannot be predicted, however, there can be no assurance that this would be the
case.
4
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
Finally, investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion 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 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
5
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
sponsors in the creation and operation of retirement plans under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), as well as other
types of participant directed, tax-qualified employee benefit plans (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, First Data Investor Services Group, Inc.
("First Data"), 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 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."
6
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
MANAGEMENT OF THE PORTFOLIO Smith Barney Mutual Funds Management 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 Travelers Group 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 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 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 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 the
Portfolio's investment objective will be achieved. The value of the Portfolio's
investments, and thus the net asset value of the Portfolio's shares, will fluc-
tuate in response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Portfolio invests.
The Portfolio may invest in foreign securities. Investments in foreign securi-
ties incur higher costs than investments in U.S. securities, including higher
costs in making securities transactions as well as foreign government 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
7
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
and political instability. See "Investment Objective and Management Policies"
and "Appendix."
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 on the maximum sales charge or maximum CDSC that may
be incurred at the time of purchase or redemption and, the Portfolio's operat-
ing expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is None* 5.00% 1.00% None
lower)
</TABLE>
<TABLE>
<CAPTION>
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*** 0.19 0.15 0.21 0.11
- --------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES 1.02% 1.73% 1.79% 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, 1995.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of the Portfolio's shares and
investors may actually pay lower or no charges, depending on the amount pur-
chased 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
8
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
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.
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 $60 $81 $104 $169
Class B 68 84 104 185
Class C 28 56 97 211
Class Y 7 22 38 86
An investor
would pay the
following
expenses on the
same investment,
assuming the
same annual
return and no
redemption:
Class A $60 $81 $104 $169
Class B 18 54 94 185
Class C 18 56 97 211
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.
9
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS
The following information for the ten-year period ended December 31, 1995 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 1995 financial statements and the independent auditors' report thereon
appear in the December 31, 1995 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:
<TABLE>
<CAPTION>
CLASS A SHARES 1995 1994(1) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $12.18 $13.31 $12.48 $12.51 $10.54
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income 0.39 0.43 0.46 0.50 0.56
Net realized and
unrealized gain (loss) 3.59 (1.00) 1.56 0.38 2.19
- --------------------------------------------------------------------------------
Total Income (Loss) from
Operations 3.98 (0.57) 2.02 0.88 2.75
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.39) (0.42) (0.46) (0.51) (0.73)
Net realized gains (2) (1.18) (0.14) (0.73) (0.40) (0.05)
- --------------------------------------------------------------------------------
Total Distributions (1.57) (0.56) (1.19) (0.91) (0.78)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $14.59 $12.18 $13.31 $12.48 $12.51
- --------------------------------------------------------------------------------
TOTAL RETURN (P) 33.05% (4.31)% 16.38% 7.23% 26.57%
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $617,431 $544,572 $627,870 $573,085 $583,686
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.02% 0.96% 0.91% 0.92% 0.84%
Net investment income 2.78 3.31 3.42 3.97 4.80
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 51.27% 26.77% 46.10% 39.16% 44.50%
- --------------------------------------------------------------------------------
<CAPTION>
CLASS A SHARES (CONTINUED) 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $12.69 $11.00 $10.05 $11.40 $10.10
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income 0.67 0.70 0.61 0.71 0.69
Net realized and
unrealized gain (loss) (1.87) 2.00 1.14 (0.93) 1.41
- --------------------------------------------------------------------------------
Total Income (Loss) from
Operations (1.20) 2.70 1.75 (0.22) 2.10
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.70) (0.70) (0.63) (0.50) (0.67)
Net realized gains (2) (0.25) (0.31) (0.17) (0.63) (0.13)
- --------------------------------------------------------------------------------
Total Distributions (0.95) (1.01) (0.80) (1.13) (0.80)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $10.54 $12.69 $11.00 $10.05 $11.40
- --------------------------------------------------------------------------------
TOTAL RETURN (P) (9.46)% 25.11% 17.67% (2.83)% 21.04%
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $513,586 $589,952 $517,948 $546,974 $379,345
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.45% 0.44% 0.49% 0.45% 0.56%
Net investment income 5.69 5.65 5.58 5.90 5.99
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 47.99% 38.06% 25.76% 51.34% 54.22%
- --------------------------------------------------------------------------------
</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 any sales charges.
10
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
CLASS B SHARES 1995 1994(1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $12.15 $12.54
- ------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.24 0.03
Net realized and unrealized gains
(loss) 3.62 (0.19)
- ------------------------------------------------------------------------------
Total Income (Loss) from
Operations 3.86 (0.16)
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.29) (0.09)
Net realized gains (2) (1.18) (0.14)
- ------------------------------------------------------------------------------
Total Distributions (1.47) (0.23)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.54 $12.15
- ------------------------------------------------------------------------------
TOTAL RETURN (P) 32.07% (1.28)%++
- ------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $6,065 $354
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.73% 1.59%+*
Net investment income 1.83 2.11+
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 51.27% 26.77%
- ------------------------------------------------------------------------------
<CAPTION>
CLASS C SHARES 1995 1994(3) 1993 1992(4)
- ------------------------------------------------------------------------------
<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 0.27 0.31 0.38 0.17
Net realized and unrealized
gain (loss) 3.59 (0.95) 1.53 (0.10)
- ------------------------------------------------------------------------------
Total Income (Loss) from
Operations 3.86 (0.64) 1.91 0.07
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.29) (0.34) (0.36) (0.06)
Net realized gains (2) (1.18) (0.14) (0.73) (0.40)
- ------------------------------------------------------------------------------
Total Distributions (1.47) (0.48) (1.09) (0.46)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.57 $12.18 $13.30 $12.48
- ------------------------------------------------------------------------------
TOTAL RETURN (P) 32.01% (4.91)% 15.46% (0.57)%++
- ------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $29,758 $27,507 $15,408 $1,504
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.79% 1.75% 1.65% 1.58%+
Net investment income 2.00 2.49 2.59 1.80+
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 51.27% 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.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
(P) Total returns do not reflect any sales charges.
* Amount has been restated from the December 31, 1994 Annual Report.
11
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Portfolio seeks current income and long-term growth of income and capi-
tal by investing primarily, but not exclusively, in common stocks.
The Portfolio invests primarily in common stocks offering a current return
from dividends and will also normally include some interest-paying debt obli-
gations (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 cus-
todian). At least 65% of the Portfolio's assets will at times be invested in
equity securities. The Portfolio may also purchase preferred stocks and con-
vertible 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 Portfolio's investment objective and 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 State-
ment 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
12
<PAGE>
Smith Barney Funds, Inc.
DATE
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
any broker/dealer affiliate of Smith Barney that is also a member of a securi-
ties exchange) is reasonable and fair compared to the commission, fee or other
remuneration received by other brokers in connection with comparable transac-
tions involving similar securities being purchased or sold on a securities
exchange during the same or comparable period of time. The Fund normally
expects to allocate to Smith Barney between 50% and 60% of the 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 the 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 Manager
believes that portfolio changes are appropriate. It is expected that the Port-
folio's annual turnover rate will not exceed 100%. As the portfolio turnover
rate increases, so will the 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 the Portfolio will fluctu-
ate with the market values of its securities.
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 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
13
<PAGE>
Smith Barney Funds, Inc.
VALUATION OF SHARES (CONTINUED)
60 days are valued at prices based on market quotations for securities of sim-
ilar 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 the 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 Portfolio 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 First Data should notify First Data 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 the Portfolio may
be lower than the per share dividends on Class A and Class Y shares princi-
pally as a result of the distribution fee applicable with respect to Class B
and Class C shares. The per share dividends on Class A shares of the 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 capi-
tal gains, if any, will be in the same amount for Class A, Class B, Class C
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
its net investment income and realized capital gains which it pays out to its
share-
14
<PAGE>
Smith Barney Funds, Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED) DATE
holders. To qualify, the Portfolio must meet certain tests, including distrib-
uting 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 the Portfolio as ordinary income. The Portfolio's dividends will not
qualify for the dividends received deduction for corporations. Dividends and
distributions declared by the 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
The 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
redemptions. Class Y shares are sold without an initial sales charge or CDSC
and are available only to investors investing a minimum of $5,000,000 (except
for purchases of Class Y shares by Smith Barney Concert Series Inc., for which
there is no minimum purchase amount). The Portfolio also offers a fifth class
of shares: Class Z shares, which 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 Summa-
ry -- Alternative Purchase Arrangements" for a discussion of factors to con-
sider 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-
15
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
ing qualified retirement plans and certain other institutional investors, may
purchase shares directly from the Fund through First Data. 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 the Portfolio's Systematic Investment Plan, the mini-
mum 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 or Trustees of any of the
Smith Barney Mutual Funds, 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 pur-
chased will be held in the shareholder's account by the Fund's transfer agent,
First Data. Share certificates are issued only upon a shareholder's written
request to First Data.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day 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. For shares purchased through Smith Barney or Intro-
ducing Brokers, purchasing through Smith Barney, payment for Portfolio shares
is due on the third business day after the trade date. In all other cases, pay-
ment must be made with the purchase order.
16
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data is authorized through
preauthorized transfers of $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 First Data. 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 Portfolio
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.
17
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
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 to (i) Directors, Trustees
and employees of Travelers and its subsidiaries and any of the Smith Barney
Mutual Funds; the immediate families of such persons; and to a pension, prof-
it-sharing or other benefit plan for such persons and (ii) employees of mem-
bers of the National Association of Securities Dealers, Inc., provided such
sales are made upon the assurance of the purchaser that the purchase is made
for investment purposes and that the securities will not be resold except
through redemption or repurchase; (b) offers of Class A shares to any other
investment company in connection with the combination of such company with the
Portfolio by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Smith Barney Financial Con-
sultant (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 advisory subsidiaries of Travelers. In order to obtain
such discounts, the purchaser must provide sufficient information at the time
of purchase to permit verification that the purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of 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
18
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
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 which
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 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
19
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
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 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 con-
tact a Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.
Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares. Such investors must
make an initial minimum purchase of $1,000,000 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 investment
of $5,000,000 is not made within the six-month period, all Class Y shares pur-
chased to date will be transferred to Class A shares, where they will be sub-
ject to all fees (including a service fee of 0.25%) and expenses applicable to
the Portfolio's Class A shares, which may include a CDSC of 1.00%. Please con-
tact a Smith Barney Financial Consultant or First Data for further information.
20
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
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.
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."
21
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
<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 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 the Port-
folio 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
22
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
reduce the gain or increase the loss, as the case may be, on the amount real-
ized on redemption. The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "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 First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
23
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
SMITH BARNEY 401(K) PROGRAM
Investors may be eligible to participate in the Smith Barney 401(k) Program,
which is generally designed to assist plan sponsors in the creation and opera-
tion of retirement plans under Section 401(a) of the Code. To the extent appli-
cable, the same terms and conditions are offered to all Participating Plans in
the Smith Barney 401(k) Program.
The 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 CDSC. Once a Participating Plan has made an initial investment in the
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 the 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 the 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 the 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 writ-
24
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
ing, 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 Participat-
ing Plan will have the same conversion feature as Class B shares held by other
investors. See "Purchase of Shares -- Deferred Sales Charge Alternatives."
Class C Shares. Class C shares of the 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 Bar-
ney 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) Pro-
gram. Each year after the date a Participating Plan enrolled in the Smith Bar-
ney 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 opportu-
nity 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 fol-
lowing 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 con-
tinue to be subject to the distribution fee.
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 funds of
the Smith Barney Mutual Funds.
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 for the shares which are being redeemed. Where
applicable, the CDSC will be assessed on shares held through the Smith Barney
401(k) Program 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;
provided, however, that shares will not be subject to a CDSC to the extent
that
25
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
the value of such shares represents capital appreciation of Portfolio assets
and/or reinvestments of dividends or capital gain distributions. In addition,
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 the Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First Data.
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 Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
26
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Growth and Income Funds
Smith Barney Convertible Fund
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. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
*Smith Barney Muni Funds -- Florida 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 York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Muncipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
27
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
International Funds
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio Smith
Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Series Inc.
Smith Barney Concert Series Inc. -- High Growth Portfolio
Smith Barney Concert Series Inc. -- Growth Portfolio
Smith Barney Concert Series Inc. -- Balanced Portfolio
Smith Barney Concert Series Inc. -- Conservative Portfolio
Smith Barney Concert Series Inc. -- Income Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc. -- Cash Portfolio
++Smith Barney Money Funds, Inc. -- Government Portfolio
***Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds -- California Money Market Portfolio
+++Smith Barney Muni Funds -- New York Money Market Portfolio.
- -------------------------------------------------------------------------------
*Available for exchange with Class A, 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
appli-
28
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
cable 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 relin-
quished 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 distributions 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 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 differen-
tial.
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 the Portfolio
that have been exchanged.
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 Fund may, at its discretion, decide to limit additional purchases
and/or exchanges by the shareholder. Upon such a determination, the Fund will
provide notice in writing or by telephone to the shareholder at least 15 days
prior to suspending the exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her shares in the Portfolio
or (b) remain invested in the Portfolio or exchange into any of the funds of
the Smith
29
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Barney Mutual Funds ordinarily available, which position the shareholder would
be expected to maintain for a significant period of time. All relevant factors
will be considered in determining what constitutes an abusive pattern of
exchanges.
Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares -- Telephone Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined, plus any applicable
sales charge differential. Redemption procedures discussed below are also
applicable for exchanging shares, and exchanges will be made upon receipt of
all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the
shares of the fund exchanged, no signature guarantee is required. A capital
gain or loss for tax purposes will be realized upon the exchange, depending
upon the cost or other basis of shares redeemed. Before exchanging shares,
investors should read the current prospectus describing the shares to be
acquired. The 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 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 redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Fund's transfer agent
receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third day following receipt of
proper tender, except on any days on which the NYSE is closed or as permitted
under the Investment Company Act of 1940 (the "1940 Act") in extraordinary cir-
cumstances. Generally, if the redemption proceeds are remitted to a Smith Bar-
ney brokerage account, these funds will not be invested for the shareholder's
benefit
30
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES (CONTINUED)
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./(Equity Income Portfolio)
Class A, B, C or Y (please specify)
c/o First Data Investor 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 be endorsed for transfer (or be accompanied by an endorsed
stock power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a written redemption request in excess of
$2,000, share certificate or stock power must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member
firm of a national securities exchange. Written redemption requests of $2,000
or less do not require a signature guarantee unless more than one such redemp-
tion request is made in any 10-day period. Redemption proceeds will be mailed
to an investor's address of record. First Data may require additional support-
ing documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly
received until First Data receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The 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
31
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES (CONTINUED)
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.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Portfolio shares by telephone. To determine if a share-
holder is entitled to participate in this program, he or she should contact
First Data at 1-800-451-2010. Once eligibility is confirmed, the shareholder
must complete and return a Telephone/Wire Authorization Form, along with a sig-
nature guarantee, that will be provided by First Data upon request. (Alterna-
tively, an investor may authorize telephone redemptions on the new account
application with the applicant's signature guarantee when making his/her ini-
tial investment in the Porttfolio.)
Redemptions. Redemption requests of up to $10,000 of any class or classes of
the Portfolio's shares, may be made by eligible shareholders by calling First
Data at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00
p.m. (New York City time) on any day the NYSE is open. Redemption requests
received after the close of regular trading on the NYSE are priced at the net
asset value next determined. Redemptions of shares (i) by retirement plans or
(ii) for which certificates have been issued are not permitted under this pro-
gram.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship
32
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES (CONTINUED)
with a member bank. The Fund reserves the right to charge shareholders a nomi-
nal fee for each wire redemption. Such charges, if any, will be assessed
against the shareholder's account from which shares were redeemed. In order to
change the bank account designated to receive redemption proceeds, a share-
holder must complete a new Telephone/Wire Authorization Form and, for the pro-
tection of the shareholder's assets, will be required to provide a signature
guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests
may be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open. Exchange
requests received after the close of regular trading on the NYSE are processed
at the net asset value next determined.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions communicated by telephone that are reasonably believed to be genuine. The
Fund and its agents will employ procedures designed to verify the identity of
the caller and legitimacy of instructions (for example, a shareholder's name
and account number will be required and phone calls may be recorded). The Fund
reserves the right to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service at any time follow-
ing at least seven (7) days prior notice to shareholders.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in 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.
33
<PAGE>
Smith Barney Funds, Inc.
PERFORMANCE
From time to time the 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 Portfolio calculates
current dividend return for each of its Classes by dividing the current divi-
dend 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. The Portfolio may also include comparative per-
formance information in advertising or marketing its shares. Such performance
information may include data from Lipper Analytical Services, Inc. and other
financial publications.
MANAGEMENT OF THE 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 agree-
ments between the Fund and the companies that furnish services to the Fund and
the Portfolio, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the Port-
folio are
34
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
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
Portfolio advice and assistance with respect to the acquisition, holding or
disposal of securities and recommendations with respect to other aspects and
affairs of the Portfolio and furnishes the 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 Portfo-
lio's average net assets. Total operating expenses of the Portfolio were
1.02%, 1.73% and 1.79% of average net assets for Class A, Class B and Class C
shares, respectively.
The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of December 31, 1995 the Manager had aggregate assets under management of
approximately $69 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 Portfolio. Mr. Sargent co-manages the day to day operations of the
Portfolio
35
<PAGE>
Smith Barney Funds, Inc.
PERFORMANCE (CONTINUED)
and has been involved in equity investing for over 25 years. He currently man-
ages over $1 billion of assets.
Ayako Weissman, Managing Director of Smith Barney, serves as co-manager of
the Portfolio. Ms. Weissman has been involved in equity investing for Smith
Barney for over 8 years and currently manages over $250 million of assets.
Management's discussion and analysis, and additional performance information
regarding each Portfolio during the fiscal year ended December 31, 1995 is
included in the Annual Report dated December 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
DISTRIBUTOR
Smith Barney 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 service fee with respect to Class A, Class B and Class C shares of the
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.
36
<PAGE>
Smith Barney Funds, Inc.
DISTRIBUTOR (CONTINUED)
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.
Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actu-
ally incurred by Smith Barney and the payments may exceed distribution
expenses actually incurred. The Fund's Board of Directors will evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
so doing will consider all relevant factors, including expenses borne by Smith
Barney, amounts received under the Plan and proceeds of the CDSC.
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.
37
<PAGE>
Smith Barney Funds, Inc.
ADDITIONAL INFORMATION (CONTINUED)
PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103 serves as custodian of the Portfolio's invest-
ments.
First Data, 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.
38
<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
The Portfolio will ordinarily purchase foreign securities that are traded in
the United States or purchase American Depositary Receipts, which are certifi-
cates issued by U.S. banks representing the right to receive securities of a
foreign issuer deposited with that bank or a correspondent bank. However, the
Portfolio may purchase the securities of foreign issuers directly in foreign
markets. Foreign securities may involve a high degree of risk. Foreign securi-
ties 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 prices. Foreign
companies may not be subject to accounting standards or governmental supervi-
sion comparable to U.S. companies, and there may be less publicly available
information about their operations. There is generally less governmental regu-
lation of foreign securities markets, and security trading practices abroad may
offer less protection to investors such as the Portfolio. 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
The 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 twenty percent of the value of the Portfo-
lio's total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The 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 the 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 the 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
The 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. The 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 the Portfolio amount to more than 15% of the Portfolio's total
assets.
A-2
<PAGE>
SMITH BARNEY
------------
A Member of TravelersGroup [LOGO]
SMITH BARNEY FUNDS, INC.
EQUITY INCOME
PORTFOLIO
388 Greenwich Street
New York, New York 10013
FD 2320 4/96
<PAGE>
P R O S P E C T U S
SMITH BARNEY FUNDS, INC.
U.S. Government
Securities Portfolio
Income Return
Account Portfolio
APRIL 1, 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Everyday.
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS
APRIL 1, 1996
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 four 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 seeks 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 1, 1996, 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 17
- --------------------------------------------------
VALUATION OF SHARES 19
- --------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 19
- --------------------------------------------------
PURCHASE OF SHARES 21
- --------------------------------------------------
EXCHANGE PRIVILEGE 32
- --------------------------------------------------
REDEMPTION OF SHARES 36
- --------------------------------------------------
MINIMUM ACCOUNT SIZE 39
- --------------------------------------------------
PERFORMANCE 40
- --------------------------------------------------
MANAGEMENT OF THE FUND 41
- --------------------------------------------------
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 seeks 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 addi-
tion, a fifth Class, Class Z shares, which is offered pursuant to a separate
prospectus, is offered exclusively to tax-exempt employee benefit and retire-
ment plans of Smith Barney Inc. ("Smith Barney") and its affiliates. See "Pur-
chase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares of the U.S. Government Securities 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 initial 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. 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 "Pro-
spectus Summary--Reduced or No Initial 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, 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 distribution fee of 0.50% of the average daily net
assets of the Class. The Class B shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares. Class B
shares are not available for purchase 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
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge at the time of purchase. Class C shares of the U.S. Government
Securities 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 Portfolio shares, which when combined with cur-
rent 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 serv-
ice 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, First Data Investor Services Group, Inc.
("First Data"), 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
6
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS SUMMARY (CONTINUED)
investment requirement for Class A, Class B and Class C shares and the subse-
quent investment requirement for all Classes is $25. The minimum initial
investment requirement for Class A, Class B and Class C shares and the subse-
quent 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. ("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 Travelers Group Inc. ("Travelers"), a diversified
financial services holding company engaged, through its subsidiaries, princi-
pally in four business segments: Investment Services, Consumer Finance Servic-
es, 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
monthly on shares of the U.S. Government Securities 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
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
PORTFOLIO
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 0.10 0.09 0.11 0.05
- --------------------------------------------------------------
TOTAL PORTFOLIO OPERATING
EXPENSES 0.79% 1.28% 1.25% 0.49%
- --------------------------------------------------------------
<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 0.25 0.23 0.29
- --------------------------------------------------------------
TOTAL PORTFOLIO OPERATING
EXPENSES 0.69% 1.02% 0.73%
- --------------------------------------------------------------
</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.
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, Smith Barney
receives an annual 12b-1 service fee of 0.25% of the value of average daily net
assets of Class A shares. Smith Barney also receives with respect to Class B
shares an annual 12b-1 fee of 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% distri-
bution 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 $53 $69 $87 $138
Class B 58 71 80 141
Class C 23 40 69 151
Class Y 5 16 27 62
</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 $27 $42 $58 $104
Class C 20 32 56 125
Class Y 7 23 41 91
An investor would pay the following expenses on the same
investment, assuming the same annual return and no
redemption:
U.S. Government Securities
Portfolio
Class A $53 $69 $87 $138
Class B 13 41 70 141
Class C 13 40 69 151
Class Y 5 16 27 62
Income Return Account
Portfolio
Class A $27 $42 $58 $104
Class C 10 32 56 125
Class Y 7 23 41 91
- ---------------------------------------------------------------
</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 information for the ten-year period ended December 31, 1995 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
1995 financial statements and the independent auditors' report thereon appear
in the December 31, 1995 Annual Report of Share- holders.
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
CLASS A SHARES 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $12.50 $13.66 $13.87 $14.10 $13.22
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.92 0.91 0.98 1.06 1.26
Net realized and unrealized
gain
(loss) 1.09 (1.11) (0.10) (0.13) 0.80
- --------------------------------------------------------------------------------
Total Income (Loss) from
Operations 2.01 (0.20) 0.88 0.93 2.06
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.92) (0.91) (0.98) (1.08) (1.13)
Net realized gains (1) -- (0.05) (0.11) (0.08) (0.05)
- --------------------------------------------------------------------------------
Total Distributions (0.92) (0.96) (1.09) (1.16) (1.18)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $13.59 $12.50 $13.66 $13.87 $14.10
- --------------------------------------------------------------------------------
TOTAL RETURN (P) 16.52% (1.48)% 6.40% 6.85% 16.29%
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $384,534 $358,045 $468,278 $459,380 $394,412
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
EXPENSES 0.79% 0.76%* 0.49% 0.50% 0.44%
Net investment income 6.82 6.83 7.00 7.65 8.31
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 57.39% 40.22% 57.34% 26.18% 9.29%
- --------------------------------------------------------------------------------
</TABLE>
(1)Represents distributions from paydown gains which are reported as ordinary
income for tax purposes.
(P)Total returns do not reflect any 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) 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $13.17 $12.56 $12.68 $13.89 $13.95
- -----------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 1.15 1.19 1.20 1.23 1.37
Net realized and
unrealized gain
(loss) 0.08 0.63 (0.12) (0.89) 0.05
- -----------------------------------------------------------------------------
Total Income from
Operations 1.23 1.82 1.08 0.34 1.42
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (1.18) (1.21) (1.20) (1.31) (1.44)
Net realized gains (1) -- -- -- (0.24) (0.04)
- -----------------------------------------------------------------------------
Total Distributions (1.18) (1.21) (1.20) (1.55) (1.48)
- -----------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $13.22 $13.17 $12.56 $12.68 $13.89
- -----------------------------------------------------------------------------
TOTAL RETURN (P) 9.95% 15.11% 8.72% 2.67% 10.76%
- -----------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $335,447 $329,186 $328,446 $370,783 $507,243
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
EXPENSES 0.41% 0.41% 0.42% 0.36% 0.35%
Net investment income 8.87 9.19 9.25 9.43 9.95
- -----------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 5.62% 22.88% 1.53% 108.19% 130.92%
- -----------------------------------------------------------------------------
<CAPTION>
CLASS B SHARES 1995 1994(2)
- -----------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.51 $12.47
- -----------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.80 0.08
Net realized and
unrealized gain 1.16 0.17
- -----------------------------------------------------------------------------
Total Income from
Operations 1.96 0.25
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.86) (0.21)
- -----------------------------------------------------------------------------
Total Distributions (0.86) (0.21)
- -----------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $13.61 $12.51
- -----------------------------------------------------------------------------
TOTAL RETURN (P) 16.03% 2.04%++
- -----------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $11,116 $1,529
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
EXPENSES 1.28% 1.21%+*
Net investment income 6.16 6.94+
- -----------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 57.39% 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.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
(PTotal)returns do not reflect any 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 1995 1994(1) 1993 1992(2)
- -----------------------------------------------------------------------
<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 0.86 0.82 0.89 0.15
Net realized and unrealized
gain (loss) 1.09 (1.11) (0.10) --
- -----------------------------------------------------------------------
Total Income (Loss) from
Operations 1.95 (0.29) 0.79 0.15
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.87) (0.83) (0.88) (0.30)
Net realized gains (3) -- (0.04) (0.11) --
- -----------------------------------------------------------------------
Total Distributions (0.87) (0.87) (0.99) (0.30)
- -----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.58 $12.50 $13.66 $13.86
- -----------------------------------------------------------------------
TOTAL RETURN (P) 15.93% (2.11)% 5.74% 1.07%++
- -----------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000S) $21,559 $21,253 $19,938 $1,954
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
EXPENSES 1.25% 1.21% 1.21% 1.14%+
Net investment income 6.36 6.27 6.23 6.56+
- -----------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 57.39% 40.22% 57.34% 26.18%
- -----------------------------------------------------------------------
<CAPTION>
CLASS Y SHARES 1995 1994(4) 1993(5)
- -----------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $12.51 $13.67 $13.97
- -----------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 1.00 0.89 0.86
Net realized and unrealized
gain (loss) 1.06 (1.10) (0.10)
- -----------------------------------------------------------------------
Total Income (Loss) from
Operations 2.06 (0.21) 0.76
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.96) (0.91) (0.95)
Net realized gains (3) -- (0.04) (0.11)
- -----------------------------------------------------------------------
Total Distributions (0.96) (0.95) (1.06)
- -----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.61 $12.51 $13.67
- -----------------------------------------------------------------------
TOTAL RETURN (P) 16.88% (1.53)% 5.55%++
- -----------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000S) $6,992 $13,903 $14,118
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
EXPENSES 0.49% 0.61% 0.69%+
Net investment income 7.22 6.82 7.29+
- -----------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 57.39% 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.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
(PTotal)returns do not reflect any sales charges.
14
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
INCOME RETURN ACCOUNT PORTFOLIO
<TABLE>
<CAPTION>
CLASS A SHARES 1995 1994 1993 1992 1991
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.34 $ 9.59 $ 9.68 $ 9.65 $ 9.38
- -------------------------------------------------------------------
INCOME FROM
OPERATIONS:
Net investment income 0.51 0.46 0.45 0.52 0.67
Net realized and
unrealized gain
(loss) 0.26 (0.26) (0.07) 0.03 0.33
- -------------------------------------------------------------------
Total Income from
Operations 0.77 0.20 0.38 0.55 1.00
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
FROM:
Net investment income (0.51) (0.45) (0.47) (0.52) (0.73)
- -------------------------------------------------------------------
Total Distributions (0.51) (0.45) (0.47) (0.52) (0.73)
- -------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $ 9.60 $ 9.34 $ 9.59 $ 9.68 $ 9.65
- -------------------------------------------------------------------
TOTAL RETURN (P) 8.43% 2.14% 4.00% 5.85% 11.06%
- -------------------------------------------------------------------
NET ASSETS, END OF
YEAR (000S) $16,324 $18,918 $50,874 $48,538 $33,682
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.69% 0.56% 0.53% 0.50% 0.49%
Net investment income 5.38 4.60 4.67 5.33 6.98
- -------------------------------------------------------------------
PORTFOLIO TURNOVER
RATE 107.30% 126.64% 152.04% 84.15% 30.44%
- -------------------------------------------------------------------
<CAPTION>
CLASS A SHARES
(CONTINUED) 1990 1989 1988 1987 1986
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.31 $ 9.12 $ 9.26 $ 9.43 $ 9.51
- -------------------------------------------------------------------
INCOME FROM
OPERATIONS:
Net investment income 0.73 0.75 0.71 0.68 0.72
Net realized and
unrealized gain
(loss) 0.08 0.19 (0.13) (0.19) 0.08
- -------------------------------------------------------------------
Total Income from
Operations 0.81 0.94 0.58 0.49 0.80
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
FROM:
Net investment income (0.74) (0.75) (0.72) (0.60) (0.87)
Net realized gains -- -- -- (0.06) (0.01)
- -------------------------------------------------------------------
Total Distributions (0.74) (0.75) (0.72) (0.66) (0.88)
- -------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD $ 9.38 $ 9.31 $ 9.12 $ 9.26 $ 9.43
- -------------------------------------------------------------------
TOTAL RETURN (P) 9.10% 10.67% 6.48% 5.36% 8.78%
- -------------------------------------------------------------------
NET ASSETS, END OF
PERIOD (000S) $24,058 $27,604 $53,950 $55,494 $54,074
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.43% 0.43% 0.44% 0.35% 0.28%
Net investment income 7.92 8.13 7.78 7.37 7.58
- -------------------------------------------------------------------
PORTFOLIO TURNOVER
RATE 27.90% 33.17% 124.33% 68.21% 304.38%
- -------------------------------------------------------------------
</TABLE>
(1) For the period from March 4, 1985 (commencement of operations) to December
31, 1985.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
(PTotal)returns do not reflect any sales charges.
15
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
INCOME RETURN ACCOUNT PORTFOLIO
<TABLE>
<CAPTION>
CLASS C SHARES CLASS Y SHARES
-------------------------------- ------------------------
1995 1994(1) 1993 1992(2) 1995 1994(3) 1993(4)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
YEAR $ 9.34 $ 9.58 $ 9.68 $ 9.69 $ 9.34 $ 9.59 $ 9.72
- ---------------------------------------------------------------------------------
INCOME FROM
OPERATIONS:
Net investment
income 0.48 0.42 0.45 0.03 0.51 0.44 0.42
Net realized and
unrealized gain
(loss) 0.26 (0.24) (0.12) -- 0.26 (0.25) (0.13)
- ---------------------------------------------------------------------------------
Total Income from
Operations 0.74 0.18 0.33 0.03 0.77 0.19 0.29
- ---------------------------------------------------------------------------------
LESS
DISTRIBUTIONS
FROM:
Net investment
income (0.48) (0.42) (0.43) (0.04) (0.51) (0.44) (0.42)
- ---------------------------------------------------------------------------------
Total
Distributions (0.48) (0.42) (0.43) (0.04) (0.51) (0.44) (0.42)
- ---------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR $ 9.60 $ 9.34 $ 9.58 $ 9.68 $ 9.60 $ 9.34 $ 9.59
- ---------------------------------------------------------------------------------
TOTAL RETURN (P) 8.06% 1.86% 3.53% 0.31%++ 8.43% 2.01% 3.01%++
- ---------------------------------------------------------------------------------
NET ASSETS, END
OF YEAR (000S) $2,520 $3,055 $3,993 $10 $ 9.52 $3,235 $5,412
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses 1.02% 0.94% 0.90% 0.86%+ 0.73% 0.69% 0.75%+
Net investment
income 4.89 4.40 4.25 5.71+ 5.42 4.65 4.78+
- ---------------------------------------------------------------------------------
PORTFOLIO
TURNOVER RATE 107.30% 126.64% 152.04% 84.15% 107.30% 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.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
(PTotal)returns do not reflect any sales charges.
16
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The U.S. Government Securities Portfolio seeks high current income, liquid-
ity and security of principal by investing in obligations of the U.S. Govern-
ment, 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 "immu-
nization 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 invests primarily in Government
National Mortgage Association ("GNMA") Certificates of the modified pass-
through type and will also normally include other "U.S. Government Obliga-
tions," i.e., obligations issued or guaranteed by the United States, its agen-
cies or its instrumentalities and related repurchase and reverse repurchase
agreements (reverse repurchase agreement transactions are limited to no more
than 5% of the Portfolio's net assets). Under normal market conditions, the
Portfolio will seek to invest substantially all of its assets -- and the Port-
folio will invest not less than 65% of its assets -- in such securities. GNMA
Certificates are debt securities issued by a mortgage banker or other mort-
gagee 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 fluctuations 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 matu-
rities 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 Port-
folio may enter into agreements with dealers in GNMA Certificates to purchase
or sell an agreed-upon principal amount of GNMA Certificates at a specified
price on a certain date; provided, however, that settlement occurs within 120
days of the trade date. For a detailed explanation, see "Appendix."
17
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
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 may seek to increase its net invest-
ment 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. Manage-
ment will limit such lending to not more than one-third of the value of the
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 the U.S. Government Securities Portfolio provided such modification
is not prohibited by the 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. The investment objec-
tive and policies of the Income Return Account Portfolio whose objective and
policies may be changed only by the "vote of a majority of the outstanding vot-
ing securities", as defined in the Investment Company Act of 1940 (the "1940
Act").
18
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
PORTFOLIO TURNOVER
Neither of the Portfolios will engage in the trading of securities for the
purpose of realizing short-term profits; however, each Portfolio will adjust
its portfolio as considered advisable in view of prevailing or anticipated mar-
ket conditions and the Portfolio's investment objective. As the portfolio turn-
over rate increases, so will the Portfolio's dealer mark-ups and other transac-
tion related expenses. Investors should realize that risk of loss is inherent
in the ownership of any securities and that shares of a Portfolio will fluctu-
ate 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 monthly income dividends on shares of the U.S. Government
Securities 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.
19
<PAGE>
Smith Barney Funds, Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 First Data should notify First Data 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 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
20
<PAGE>
Smith Barney Funds, Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 (except
for purchases of Class Y shares by Smith Barney Concert Series Inc., for which
there is no minimum purchase amount). A fifth class, Class Z shares, are also
offered with respect to each of the U.S. Government 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
purchase shares directly from the Fund through First Data. 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
21
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
the Fund in connection with a brokerage account through which an investor pur-
chases 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 or Trustees of any of
the Smith Barney Mutual Funds 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 pur-
chased will be held in the shareholder's account by the Fund's transfer agent,
First Data. Share certificates are issued only upon a shareholder's written
request to First Data.
Purchase orders 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. For shares purchased
through Smith Barney or Introducing Brokers purchasing through Smith Barney,
payment for Portfolio shares is due on the third day after the trade date. In
all other cases, payment must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data is authorized through
preauthorized transfers of $50 or more to charge the regular bank
22
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
account or other financial institution indicated by the shareholder on a
monthly or quarterly basis to provide systematic additions to the sharehold-
er'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 First Data.
The Systematic Investment Plan also authorizes Smith Barney to apply cash held
in the shareholder's Smith Barney brokerage account or redeem the sharehold-
er's shares of a Smith Barney money market fund to make additions to the
account. Additional information is available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the U.S. Gov-
ernment Securities Portfolio:
<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."
23
<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 to (i) Directors, Trustees and
employees of Travelers and its subsidiaries and any of the Smith Barney Mutual
Funds; the immediate families of such persons; and to a pension, profit-sharing
or other benefit plan for such persons and (ii) employees of members of the
National Association of Securities Dealers, Inc., provided such sales are made
upon the assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be resold except through redemption
or repurchase; (b) offers of Class A shares to any other investment company in
connection with the combination of such company with 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;
and (f) purchases of Class A shares by Section 403(b) or Section 401(a) or (k)
accounts associated with Copeland Retirement Programs. In order
24
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
to obtain such discounts, the purchaser must provide sufficient information at
the time of purchase to permit verification that the purchase would qualify
for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of 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 which 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 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
25
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
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 available to arrange for group meetings between representatives of the Port-
folio 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 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 con-
tact a Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.
Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares. Such investors must
make an initial minimum purchase of $1,000,000 in Class Y shares of a Portfolio
and agree to purchase a total of $5,000,000 of Class Y shares of the same Port-
folio 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
26
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
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 Consultant or
First Data for further information.
DEFERRED SALES CHARGE ALTERNATIVES
Class B shares are only available in the U.S. Government Securities Portfo-
lio. 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."
27
<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.
28
<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 First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
SMITH BARNEY 401(K) 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
29
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
of retirement plans under Section 401(a) of the Code. To the extent applica-
ble, the same terms and conditions are offered to all Participating Plans in
the
Smith Barney 401(k) Program.
The U.S. Government Securities Portfolio offers to Participating Plans Class
A, Class B, Class C and Class Y shares as investment alternatives under the
Smith Barney 401(k) Program; 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) 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 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
initial sales charge to any Participating Plan that purchases from $500,000 to
$4,999,999 of Class A shares of one or more funds of the Smith Barney Mutual
Funds. Class A shares acquired through the Smith Barney 401(k) Program after
November 7, 1994 are subject to a CDSC of 1.00% of redemption proceeds, if the
Participating Plan terminates within four years of the date the Participating
Plan first enrolled in the Smith Barney 401(k) Program.
Class B Shares. Class B shares of 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 Par-
ticipating 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-
30
<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.
Whether or not the CDSC applies to a Participating Plan depends on the num-
ber of years since the Participating Plan first became enrolled in the Smith
Barney 401(k) Program, unlike the applicability of the CDSC to other share-
holders, which depends on the number of years since those shareholders made
the purchase payment for the shares which are being redeemed. Where applica-
ble, the CDSC will be assessed on shares held through the Smith Barney 401(k)
Program 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; provided,
however, that shares will not be subject to a CDSC to the extent that the
value of such
31
<PAGE>
Smith Barney Funds, Inc.
PURCHASE OF SHARES (CONTINUED)
shares represents capital appreciation of Portfolio assets and/or reinvestments
of dividends or capital gain distributions. In addition, 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 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 a Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First Data.
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
32
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Equity Income 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. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
*Smith Barney Muni Funds -- Florida 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
33
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
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 Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Series Inc.
Smith Barney Concert Series Inc. -- High Growth Portfolio
Smith Barney Concert Series Inc. -- Growth Portfolio
Smith Barney Concert Series Inc. -- Balanced Portfolio
Smith Barney Concert Series Inc. -- Conservative Portfolio
Smith Barney Concert Series Inc. -- Income Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc. -- Cash Portfolio
++Smith Barney Money Funds, Inc. -- Government Portfolio
***Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds -- California Money Market Portfolio
+++Smith Barney Muni Funds -- New York Money Market Portfolio
- -------------------------------------------------------------------------------
* Available for exchange with Class A, 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.
34
<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
35
<PAGE>
Smith Barney Funds, Inc.
EXCHANGE PRIVILEGE (CONTINUED)
and contrary to the best interests of each Portfolio's other shareholders. In
this event, the Fund may, at its discretion, decide to limit additional pur-
chases and/or exchanges by the shareholder. Upon such a determination, the Fund
will provide notice in writing or by telephone to the shareholder at least 15
days prior to suspending the exchange privilege and during the 15 day period
the shareholder will be required to (a) redeem his or her shares in the Portfo-
lio 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.
Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares -- Telephone Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined, 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
36
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES (CONTINUED)
is not with Smith Barney, from the shareholder directly. The redemption pro-
ceeds will be remitted on or before the third day following receipt of proper
tender, except on any days on which the NYSE is closed or as permitted under
the 1940 Act in extraordinary circumstances. Generally, if the redemption pro-
ceeds are remitted to a Smith Barney brokerage account, these funds will not
be invested for the shareholder's benefit without specific instruction and
Smith Barney will benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other than a certified or
official bank check, will be remitted upon clearance of the check, which may
take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than
those held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Funds, Inc./[Name of Portfolio (please specify)]
Class A,B,C or Y (please specify)
c/o First Data Investor 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 First Data together with the
redemption request. Any signature appearing on a written redemption request in
excess of $2,000, share certificate or stock power must be guaranteed by an
eligible guarantor institution, such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the Federal Reserve System
or member firm of a national securities exchange. Written redemption requests
of $2,000 or less do not require a signature guarantee unless more than one
such redemption request is made in any 10-day period. Redemption proceeds will
be mailed to an investor's address of record. First Data may require addi-
tional supporting documents for redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption request will not be deemed
properly received until First Data receives all required documents in proper
form.
37
<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.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Portfolio shares by telephone. To determine if a share-
holder is entitled to participate in this program, he or she should contact
First Data at 1-800-451-2010. Once eligibility is confirmed, the shareholder
must complete and return a Telephone/Wire Authorization Form, along with a sig-
nature guarantee, that will be provided by First Data upon request. (Alterna-
tively, an investor may authorize telephone redemptions on the new account
application with the applicant's signature guarantee when making his/her ini-
tial investment in the Portfolio.)
Redemptions. Redemption requests of up to $10,000 of any class or classes of
the Portfolio's shares, may be made by eligible shareholders by calling First
Data at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00
p.m. (New York City time) on any day the NYSE is open. Redemption requests
received after the close of regular trading on the NYSE are priced at the net
asset value next determined. Redemptions of shares (i) by retirement plans or
(ii) for which certificates have been issued are not permitted under this pro-
gram.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
38
<PAGE>
Smith Barney Funds, Inc.
REDEMPTION OF SHARES (CONTINUED)
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The Fund reserves the right to charge shareholders a nominal fee
for each wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must com-
plete a new Telephone/Wire Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests
may be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open. Exchange
requests received after the close of regular trading on the NYSE are processed
at the net asset value next determined.
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions communicated by telephone that are reasonably believed to be genuine. The
Fund and its agents will employ procedures designed to verify the identity of
the caller and legitimacy of instructions (for example, a shareholder's name
and account number will be required and phone calls may be recorded). The Fund
reserves the right to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service at any time follow-
ing at least seven (7) days prior notice to shareholders.
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
39
<PAGE>
Smith Barney Funds, Inc.
MINIMUM ACCOUNT SIZE (CONTINUED)
written notice and will be permitted 60 days to bring accounts up to the mini-
mum 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
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. Each Portfolio calculates current dividend
return for each Class 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. 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
40
<PAGE>
Smith Barney Funds, Inc.
PERFORMANCE (CONTINUED)
include comparative performance information in advertising or marketing its
shares. Such performance information may include data from Lipper Analytical
Services, Inc. and other financial publications.
MANAGEMENT OF THE 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 the Portfolios during the month.
Total operating expenses for the U.S. Government Securities Portfolio's average
41
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
net assets for the last fiscal year were: 0.79%, 1.28%, 1.25% and 0.49% for
Class A, Class B, Class C and Class Y shares, respectively. Total operating
expenses for the Income Return Account Portfolio's average net assets for the
last fiscal year were: 0.69%, 1.02% and 0.73% for Class A, Class C and Class Y
shares, respectively.
The Manager was incorporated on March 12, 1968 under the laws of Delaware. As
of December 31, 1995 the Manager had aggregate assets under management of
approximately $69 billion. The Manager, Smith Barney and Holdings are each
located at 388 Greenwich Street, New York, New York 10013. The term "Smith Bar-
ney" 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 Income Return Account Portfo-
lio. Mr. Sheehan manages the day to day operations of this Portfolio, including
making all investment decisions. Prior to January 1992, Mr. Sheehan was a Port-
folio 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.
James Conroy, Vice President of the Manager is Portfolio Manager of U.S. Gov-
ernment Securities Portfolio and is responsible for managing the day-to-day
operations of the Portfolio, including the making of investment decisions since
January 1996. Mr. Conroy is also Portfolio Manager of the Fund's Short-Term
U.S. Treasury Securities Portfolio. Mr. Conroy has also served as Vice Presi-
dent and Investment Officer of Smith Barney Managed Governments Fund Inc. since
February 1990 and as First Vice President and Investment Officer of Smith Bar-
ney Government Securities Fund since its inception in March 1984.
Management's discussion and analysis, and additional performance information
regarding each Portfolio during the fiscal year ended December 31, 1995 is
included in the Annual Report dated December 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
42
<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 under Rule 12b-1
under the 1940 Act (the "Plan") adopted by the U.S. Government Securities
Portfolio, Smith Barney is paid a service fee with respect to Class A, Class B
and Class C shares 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 such Portfolio at the annual
rate of 0.50% and 0.45%, respectively, of the average daily net assets attrib-
utable to these Classes. Class B shares that automatically convert to Class A
shares eight years after the date of original purchase will no longer be sub-
ject to 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
the U.S. Government Securities 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 Consultants may receive different levels of compensation for
selling different Classes of shares.
Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actu-
ally
43
<PAGE>
Smith Barney Funds, Inc.
DISTRIBUTOR (CONTINUED)
incurred by Smith Barney and the payments may exceed distribution expenses
actually incurred. The Fund's Board of Directors will evaluate the appropri-
ateness of the Plan and its payment terms on a continuing basis and in so
doing will consider all relevant factors, including expenses borne by Smith
Barney, amounts received under the Plan and proceeds of the CDSC.
ADDITIONAL INFORMATION
The 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 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.
First Data, 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
44
<PAGE>
Smith Barney Funds, Inc.
ADDITIONAL INFORMATION (CONTINUED)
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.
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 pass-through Cer-
tificates, 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). 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. Prepayments and scheduled payments of principal will be rein-
vested by the U.S. Government Securities Portfolio in then available GNMA Cer-
tificates which may bear interest at a rate lower or higher than the Certifi-
cate 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 potential for prepay-
ment may reduce the general upward price increase of GNMA Certificates that
might otherwise occur. If the U.S. Government Securities 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
United States; and (4) obligations currently or previously sold by the Federal
Home Loan Mortgage Corporation.
A-1
<PAGE>
Smith Barney Funds, Inc.
APPENDIX (CONTINUED)
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 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 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>
Smith Barney
------------
A Member of TravelersGroup [LOGO]
SMITH BARNEY
FUNDS, INC.
U.S. GOVERNMENT
SECURITIES PORTFOLIO
INCOME RETURN
ACCOUNT PORTFOLIO
388 Greenwich Street
New York, New York 10013
FD 2321 4/96
P R O S P E C T U S
SMITH BARNEY FUNDS, INC.
SHORT-TERM
U.S. TREASURY
SECURITIES
PORTFOLIO
APRIL 1, 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PROSPECTUS
APRIL 1, 1996
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Short-Term U.S. Treasury Securities Portfolio (the "Portfolio") is one of
four 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 1, 1996, 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 11
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 11
- -------------------------------------------------
PURCHASE OF SHARES 13
- -------------------------------------------------
EXCHANGE PRIVILEGE 16
- -------------------------------------------------
REDEMPTION OF SHARES 20
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 24
- -------------------------------------------------
PERFORMANCE 24
- -------------------------------------------------
MANAGEMENT OF THE FUND 25
- -------------------------------------------------
DISTRIBUTOR 27
- -------------------------------------------------
ADDITIONAL INFORMATION 28
- -------------------------------------------------
</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, First Data Investors Services
Group, Inc. ("First Data"), a subsidiary of First Data Corporation. See "Pur-
chase 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. (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 Travelers Group Inc. ("Travelers"), a diversi-
fied 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**............................................ 0.18 0.17
- --------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES 0.98% 0.62%
- --------------------------------------------------------------------------------
</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 based on Class A
share expenses because no Class Y shares were outstanding during the fiscal
year ended December 31, 1995.
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.................................... $10 $31 $54 $120
Class Y.................................... 6 20 35 77
</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 information for the five-year period ended December 31, 1995 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
1995 financial statements and the independent auditors' report thereon appear
in the December 31, 1995 Annual Report to Shareholders. No information is pre-
sented 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 1995 1994 1993 1992 1991(a)
- -------------------------------------------------------------------------------
<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 OPERA-
TIONS:
Net investment income 0.22 0.18 0.18 0.19 0.03
Net realized and unrealized
gain (loss) 0.28 (0.25) 0.06 0.04 0.09
- -------------------------------------------------------------------------------
Total Income (Loss) from
Operations 0.50 (0.07) 0.24 0.23 0.12
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.22) (0.18) (0.18) (0.19) (0.03)
Net realized gains -- -- (0.02) (0.01) (0.01)
- -------------------------------------------------------------------------------
Total Distributions (0.22) (0.18) (0.20) (0.20) (0.04)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $4.19 $3.91 $4.16 $4.12 $4.09
- -------------------------------------------------------------------------------
TOTAL RETURN 13.16% (2.15)% 6.01% 5.92% 2.85%++
- -------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000S) $107,099 $88,707 $205,758 $130,280 $93,946
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.98% 0.91% 0.88% 0.91% 0.80%+
Net investment income 5.29 4.54 4.40 4.76 4.89+
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 28.62% 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.
++Total return is 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)
In addition, the Portfolio may invest in zero-coupon Treasury securities,
which may be subject to greater volatility than other types of Treasury securi-
ties. Because zero-coupon securities do not receive interest payments, such
securities may fall more dramatically when interest rates rise than securities
paying out interest on a current basis. However, when interest rates fall,
zero-coupon securities may rise more rapidly in value because the securities
have locked-in a particular rate of reinvestment that becomes more attractive
the further rates fall. These assumptions are based on a comparison of like
maturity securities. Management does not believe that additional risks exist,
however, when comparing securities of like duration (the weighted average time
to full recovery of principal and interest payments), which is the strategy
used by the Manager of the Portfolio.
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.
10
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
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
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 First Data should notify First Data in writing at least five
business days prior to the payment date to permit the change to be entered in
the share holder'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.
11
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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
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.
12
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
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 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 Portfo-
lio.) Class Y shares are sold without an initial sales charge or CDSC or serv-
ice or distribution fees, and are available only to investors investing a min-
imum of $5,000,000 (except for purchases of Class Y shares by Smith Barney
Concert Series Inc., for which there is no minimum purchase amount).
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,
including qualified retirement plans and certain other institutional invest-
ors, may purchase shares directly from the Fund through First Data. When pur-
chasing 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 pur-
chases 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 minimum initial investment requirement for Class A shares and the
subsequent investment requirement for both Classes in the Portfolio is $25.
For the Portfolio'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 Bar-
ney, Directors or Trustees of any of the Smith Barney Mutual Funds, and their
spouses and children. The Fund reserves the right to waive or change minimums,
to decline any order to purchase its shares and to suspend the offering of
shares from time to time. Shares purchased will be held in the share
13
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
holder's account by the Fund's transfer agent, First Data. Share certificates
are issued only upon a shareholder's written request to First Data.
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
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 will become effective on
the day following its receipt by the Fund, Smith Barney or the Introducing Bro-
ker. Shares purchased directly through First Data begin to accrue income divi-
dends 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 First Data is authorized through
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 First Data. 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.
14
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
LETTER OF INTENT
Class Y Shares. A Letter of Intent provides an opportunity for investors to
meet the minimum investment requirement for Class Y shares by aggregating
investments over a six-month period. Such investors must make an initial mini-
mum purchase of $1,000,000 in Class Y shares of the 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 a distribution fee of 0.10%) and
expenses applicable to the Portfolio's Class A shares. Please contact a Smith
Barney Financial Consultant or First Data 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.
15
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PURCHASE OF SHARES (CONTINUED)
Class Y Shares. Class Y shares of the Portfolio are offered without any serv-
ice 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.
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 for the shares which are being redeemed. Where applicable, the CDSC
will be assessed on shares held through the Smith Barney 401(k) Program 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; provided, however, that shares
will not be subject to a CDSC to the extent that the value of such shares rep-
resents capital appreciation of Portfolio assets and/or reinvestments of divi-
dends or capital gain distributions. In addition, the CDSC will be waived on
redemptions of Class A shares in connection with lump-sum or other distribu-
tions 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 the Portfolio through the
Smith Barney 401(k) Program must purchase such shares directly from First Data.
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.
16
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Equity Income 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. -- U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
17
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
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 York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Series Inc.
Smith Barney Concert Series Inc. -- High Growth Portfolio
Smith Barney Concert Series Inc. -- Growth Portfolio
Smith Barney Concert Series Inc. -- Balanced Portfolio
Smith Barney Concert Series Inc. -- Conservative Portfolio
Smith Barney Concert Series Inc. -- Income 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.
18
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
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
distributions 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
Fund may, at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination, the Fund will pro vide
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.
Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program." 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
19
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
EXCHANGE PRIVILEGE (CONTINUED)
of all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the
shares of the fund exchanged, no signature guarantee is required. A capital
gain or loss for tax purposes will be realized upon the exchange, depending
upon the cost or other basis of shares redeemed. Before exchanging shares,
investors should read the current prospectus describing the shares to be
acquired. The 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 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 three days
thereafter, except on any days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. Generally, if the redemp-
tion proceeds are remitted to a Smith Barney brokerage account, these funds
will not be invested for the shareholder's benefit without specific instruc-
tion and Smith Barney will benefit from the use of temporarily uninvested
funds. Redemption proceeds for shares purchased by check, other than a certi-
fied 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:
20
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
Smith Barney Funds, Inc./Short-Term U.S. Treasury Securities Portfolio
Class A or Y (please specify)
c/o First Data Investor 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 be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a written redemption request in excess of
$2,000, share certificate or stock power must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member firm
of a national securities exchange. Written redemption requests of $2,000 or
less do not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data may require additional supporting doc-
uments for redemptions made by corporations, executors, administrators, trust-
ees or guardians. A redemption request will not be deemed properly received
until First Data receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The 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 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 with-
drawal plan commences. (With respect to withdrawal plans in effect prior to
November 7, 1994, any applicable CDSC will be waived on amounts withdrawn that
do not exceed 2.00% per month of the value of the shareholder's shares subject
to the CDSC.) For further information regarding the automatic cash withdrawal
plan, shareholders should contact a Smith Barney Financial Consultant.
21
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Portfolio shares by telephone. To determine if a share-
holder is entitled to participate in this program, he or she should contact
First Data at 1-800-451-2010. Once eligibility is confirmed, the shareholder
must complete and return a Telephone/Wire Authorization Form, along with a sig-
nature guarantee, that will be provided by First Data upon request. (Alterna-
tively, an invest or may authorize telephone redemptions on the new account
application with the applicant's signature guarantee when making his/her ini-
tial investment in the Portfolio.)
Redemptions. Redemption requests of up $10,000 of any class or classes of the
Portfolio's shares, may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 and 5:00 p.m. (New
York City time) on any day the NYSE is open. Redemption requests received after
the close of regular trading on the NYSE are priced at the net asset value next
determined. Redemptions of shares (i) by retirement plans or (ii) for which
certificates have been issued are not permitted under this program.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedure, the bank receiving the proceeds must be a mem-
ber of the Federal Reserve System or have a correspondent relationship with a
member bank. The Fund reserves the right to charge shareholders a nominal fee
for each wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must com-
plete a new Telephone/Wire Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests
may be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open.
22
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions communicated by telephone that are reasonably believed to be genuine.
The Fund and its agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may be recorded). The
Fund reserves the right to suspend, modify or discontinue the telephone
redemption and exchange program or to impose a charge for this service at any
time following at least (7) days prior notice to shareholders.
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 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 reinvest-
ment 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
realized on redemption.
The CDSC on Class A shares, if any, will be waived on (a) exchanges (see
"Exchange 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
23
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
REDEMPTION OF SHARES (CONTINUED)
time the withdrawal plan commences (see "Automatic Cash Withdrawal Plan") (pro-
vided, 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 First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
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
liter-
24
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
PERFORMANCE (CONTINUED)
ature the Portfolio may include its current dividend return. These figures are
computed separately for Class A and Class Y shares of the Portfolio. These fig-
ures 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 is calculated according to a formula prescribed by the SEC to facili-
tate comparison with yields quoted by other investment companies. The Portfolio
calculates 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
dividend return for each Class may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating cur-
rent dividend return should be considered when comparing 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.
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
25
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
MANAGEMENT OF THE FUND (CONTINUED)
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
Portfolio advice and assistance with respect to the acquisition, holding or
disposal of securities and recommendations with respect to other aspects and
affairs of the Portfolio and furnishes the 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 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
services; 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 operating expenses
were 0.98% of the average net assets for Class A shares.
The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of December 31, 1995 the Manager had aggregate assets under management of
approximately $69 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
James Conroy, Vice President of the Manager is Portfolio Manager of the
Portfolio and is responsible for managing the day-to-day operations of the
Portfolio, including the making of investment decisions since January 1996.
Mr. Conroy is also Portfolio Manager of the Fund's U.S. Government Securities
Portfolio. Mr. Conroy has also served as Vice President and Investment Officer
of
26
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
MANAGEMENT OF THE FUND (CONTINUED)
Smith Barney Managed Governments Fund Inc. since February 1990 and as First
Vice President and Investment Officer of Smith Barney Government Securities
Fund since its inception in March 1984.
Management's discussion and analysis, and additional performance information
regarding the Portfolio during the fiscal year ended December 31, 1995 is
included in the Annual Report dated December 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
DISTRIBUTOR
Smith Barney 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.
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.
27
<PAGE>
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Portfolio
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 representing
shares in one of fifteen separate Portfolios and may authorize the issuance of
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.
First Data, 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
28
<PAGE>
Smith Barney
------------
A Member of Travelers Group [LOGO]
SMITH BARNEY
FUNDS, INC.
SHORT-TERM
U.S. TREASURY
SECURITIES PORTFOLIO
388 Greenwich Street
New York, New York 10013
FD 2319 4/96
P R O S P E C T U S
SMITH BARNEY FUNDS, INC.
Equity Income
Portfolio
Class Z Shares Only
APRIL 1, 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS
APRIL 1, 1996
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Equity Income Portfolio is one of four investment portfolios that cur-
rently comprise Smith Barney Funds, Inc. (the "Fund"). The Equity Income Port-
folio seeks current income and long-term growth of income and capital. It
invests primarily, but not exclusively, in common stocks.
This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, including expenses, that prospective investors will find helpful
in making an investment decision. Investors are encouraged to read this Pro-
spectus carefully and retain it for future reference.
The Class Z shares described in this Prospectus are currently offered exclu-
sively for sale to tax-exempt employee benefit and retirement plans of
Smith Barney Inc. ("Smith Barney") or any of its affiliates ("Qualified
Plans").
Additional information about the Portfolio is contained in a Statement of
Additional Information dated April 1, 1996, 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>
PORTFOLIO EXPENSES 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 4
- -------------------------------------------------
VALUATION OF SHARES 6
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 7
- -------------------------------------------------
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES 7
- -------------------------------------------------
PERFORMANCE 8
- -------------------------------------------------
MANAGEMENT OF THE FUND 9
- -------------------------------------------------
ADDITIONAL INFORMATION 11
- -------------------------------------------------
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.
PORTFOLIO EXPENSES
The following expense table lists the costs and expenses an investor will incur
either directly or indirectly as a shareholder of Class Z shares of the
Portfolio, based on operating expenses for Class Z shares for the fiscal year
ended December 31, 1995.
<TABLE>
<S> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.58%
Other expenses 0.11
- --------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES.................................. 0.69%
- --------------------------------------------------------------------------------
</TABLE>
The nature of the services for which the Fund pays management fees is
described under "Management of the Fund." "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in the 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 and 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 in Class Z shares of
the Portfolio, assuming (1) a 5.00% annual
return and (2) redemption at the end of each
time period: $7 $22 $38 $86
</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 FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
3
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS
The following information for the two-year period ended December 31, 1995
has been audited in conjunction with the annual audits of the financial state-
ments of Smith Barney Funds, Inc. by KPMG Peat Marwick LLP, independent audi-
tors. The 1995 financial statements and the independent auditors' report
thereon appear in the December 31, 1995 Annual Report to Shareholders.
FOR A SHARE OF CLASS Z CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
1995 1994(1)
- -------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.19 $ 12.54
- -------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.43 0.07
Net realized and unrealized gain (loss) 3.59 (0.16)
- -------------------------------------------------------------
Total Income (Loss) From Operations 4.02 (0.09)
- -------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.42) (0.12)
Net realized gains(2) (1.18) (0.14)
- -------------------------------------------------------------
Total Distributions (1.60) (0.26)
- -------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.61 $ 12.19
- -------------------------------------------------------------
TOTAL RETURN 33.41% (0.73)%++
- -------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $98,661 $80,010
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.69% 0.42%++
Net investment income 3.11 3.88+
- -------------------------------------------------------------
PORTFOLIO TURNOVER RATE 51.27% 26.77%
- -------------------------------------------------------------
</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.
++Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Equity Income Portfolio (the "Portfolio") seeks current income and long-
term growth of income and capital by investing primarily, but not exclusively,
in common stocks. Of course, no assurance can be given that the Portfolio's
objective will be achieved.
The Portfolio invests primarily in common stocks offering a current return
from dividends and will also normally include some interest-paying debt obli-
gations (such as U.S. Government Obligations, investment grade bonds and deben-
4
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
tures) 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 custodi-
an). At least 65% of the Portfolio's assets will at times be invested in
equity securities. The Portfolio may also purchase preferred stocks and con-
vertible 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 Portfolio's investment objective and 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 State-
ment 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 the 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
5
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
those received from Smith Barney for its own account or for any of its direc-
tors, 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 the 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 Manager
believes that portfolio changes are appropriate. It is expected that the Port-
folio's annual turnover rate will not exceed 100%. As the portfolio turnover
rate increases, so will the 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 the Portfolio will fluctu-
ate with the market values of its securities.
VALUATION OF SHARES
The net asset value per share of Class Z shares is determined as of the
close of regular trading on the New York Stock Exchange, Inc. ("NYSE") on each
day that the NYSE is open, by dividing the value of the Portfolio's net assets
attributable to Class Z by the total number of shares of the Class outstand-
ing. The per share net asset value of the Class Z shares may be higher than
those of other Classes because of lower expenses attributable to Class Z
shares.
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 the Portfo-
lio, if any, including restricted securities, are valued at a fair value
determined by the Board of Directors in good faith.
6
<PAGE>
Smith Barney Funds, Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares quarterly income dividends on shares of the Equity Income
Portfolio and makes annual distributions of capital gains, if any, on such
shares.
Unless a shareholder is eligible for qualified distributions and instructs
that dividends and capital gain distributions on shares be paid in cash and
credited to the shareholder's account, dividends and capital gain distribu-
tions will be reinvested automatically in additional shares of the Class at
net asset value as of the close of business on the payment date, subject to no
sales charge or CDSC.
TAXES
The Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, 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 distributing 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 automat-
ically invested in additional shares of the Portfolio, are taxable to share-
holders of the Portfolio as ordinary income. The Portfolio's dividends will
not qualify for the dividends received deduction for corporations. Dividends
and distributions declared by the Portfolio may also be subject to state and
local taxes. Distributions out of net long-term capital gains are taxable to
shareholders as long-term capital gains. Information 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 not later than January 31.
Shareholders should consult their plan document or tax advisers about the tax
consequences associated with participating in a Qualified Plan.
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
Purchases of the Portfolio's Class Z shares must be made in accordance with
the terms of a Qualified Plan. Purchases are effected at the net asset value
next
7
<PAGE>
Smith Barney Funds, Inc.
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES (CONTINUED)
determined after a purchase order is received by Smith Barney (the "trade
date"). Payment is due to Smith Barney on the third business day (the "settle-
ment date") after the trade date. Investors who make payment prior to the set-
tlement date may designate a temporary investment (such as a money market fund
of the Smith Barney Mutual Funds) for such payment until settlement date. The
Fund reserves the right to reject any purchase order and to suspend the offer-
ing of shares for a period of time. There are no minimum investment require-
ments for Class Z shares; however, the Fund reserves the right to vary this
policy at any time.
Purchase orders received by Smith Barney prior to the close of regular trad-
ing on the NYSE on any day that the Portfolio calculates its net asset value,
are priced according to the net asset value determined on that day. Orders
received after the close of regular trading on the NYSE are priced as of the
time that the net asset value per share is next determined. See "Valuation of
Shares." Certificates for Portfolio shares are issued upon request to the
Fund's transfer agent.
Qualified Plans may redeem their shares on any day on which the Portfolio
calculates its net asset value. See "Valuation of Shares." Redemption requests
received in proper form prior to the close of regular trading on the NYSE are
priced at the net asset value per share determined on that day. Redemption
requests received after the close of regular trading on the NYSE are priced at
the net asset value next determined. Shareholders acquiring Class Z shares
should consult the terms of their Qualified Plan for redemption provisions.
Holders of Class Z shares should consult their Qualified Plans for informa-
tion about available exchange options.
PERFORMANCE
From time to time the Portfolio may include its total return, average annual
total return, yield and current dividend return for Class Z shares in adver-
tisements and/or other types of sales literature. These figures are based on
historical earnings and are not intended to indicate future performance. Total
return is computed for a specified period of time assuming deduction of the
maximum sales charge, if any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions on the reinvestment
dates at prices calculated as stated in this Prospectus, then dividing the
value of the investment at the end of the period so calculated by the initial
amount invested and subtracting 100%. The standard average annual total return,
as prescribed
8
<PAGE>
Smith Barney Funds, Inc.
PERFORMANCE (CONTINUED)
by the SEC is derived from this total return, which provides the ending redeem-
able value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Portfolio calculates current dividend return for Class Z by divid-
ing the current dividend 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 may vary from time to time depending on market conditions, the com-
position of its investment portfolio and operating expenses. These factors and
possible differences in the methods used in calculating current dividend return
should be considered when comparing the Portfolio's current return to yields
published for other investment companies and other investment vehicles. The
Portfolio may also include comparative performance information in advertising
or marketing Class Z shares. Such performance information may include data from
Lipper Analytical Services, Inc. and other financial publications.
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 Portfolio's investment manager. The Statement of Addi-
tional 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 serv
9
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
ices of the officers and employees of the Fund. By written agreement research
and other departments and staff of Smith Barney will furnish the Manager with
information, advice and assistance and will be 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;
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 Portfo-
lio's average net assets. The management agreement provides that the Portfo-
lio's management fee will be computed at the following annual rates: 0.60% of
the first $500 million of the Portfolio's average daily net assets, 0.55% of
the next $500 million of average daily net assets and 0.50% of average daily
net assets over $1 billion. Total operating expenses were 0.69% of the Portfo-
lio's average net assets for Class Z shares.
The Manager, incorporated on March 12, 1968 under the laws of Delaware, is a
wholly-owned subsidiary of Smith Barney Holdings Inc., the parent company of
Smith Barney. Smith Barney Holdings Inc. is a wholly-owned subsidiary of Trav-
elers Group Inc. ("Travelers"), which is a 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. As of December 31, 1995, the Manager
had aggregate assets under management of approximately $69 billion. The Manag-
er, Smith Barney and Smith Barney Holdings Inc. are each located at 388 Green-
wich 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
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 Portfolio. Mr. Sargent co-manages the day to day operations of the
Portfolio and has been involved in equity investing for over 25 years. He cur-
rently manages over $1 billion of assets.
Ayako Weissman, Managing Director of Smith Barney, serves as co-manager of
the Portfolio. Ms. Weissman has been involved in equity investing for Smith
Barney for over 7 years and currently manages over $250 million of assets.
10
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
Management's discussion and analysis, and additional performance information
regarding the Portfolio during the fiscal year ended December 31, 1995 is
included in the Annual Report dated December 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013,
and serves as the Fund's distributor. Smith Barney is a wholly owned subsidiary
of Travelers.
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
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 shares (where available) of a Portfolio represent interests
in the assets of that Portfolio and have identical voting, dividend, liquida-
tion 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 pro-
visions of the Fund's Rule 12b-1 distribution plan which pertain to a particu-
lar Class. As described under "Voting" in the Statement of Additional Informa-
tion, the Fund ordinarily will not hold shareholder meetings; however, share-
holders have the right to call a meeting upon a vote of 10% of the Fund's out-
standing shares for the purpose of voting to remove directors and, as required
by the Investment Company Act of 1940, the Fund will assist shareholders in
calling such a meeting. Shares do not have cumulative voting rights or preemp-
tive rights and are fully paid, transferable and nonassessable when issued for
payment as described in this Prospectus.
11
<PAGE>
Smith Barney Funds, Inc.
ADDITIONAL INFORMATION (CONTINUED)
PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103, serves as custodian of the Portfolio's invest-
ments.
First Data Investor Services Group, Inc. 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.
12
<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
The Portfolio will ordinarily purchase foreign securities that are traded in
the United States or purchase American Depositary Receipts, which are certifi-
cates issued by U.S. banks representing the right to receive securities of a
foreign issuer deposited with that bank or a correspondent bank. However, the
Portfolio may purchase the securities of foreign issuers directly in foreign
markets. Foreign securities may involve a high degree of risk. Foreign securi-
ties 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 prices. Foreign
companies may not be subject to accounting standards or governmental supervi-
sion comparable to U.S. companies, and there may be less publicly available
information about their operations. There is generally less governmental regu-
lation of foreign securities markets, and security trading practices 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
The 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 twenty percent of the value of the Portfo-
lio's total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The 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 the 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
The 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. The 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 the Portfolio amount to more than 15% of the Portfolio's total
assets.
A-2
<PAGE>
Smith Barney
------------
A Member of Travelers Group [LOGO]
SMITH BARNEY
FUNDS, INC.
EQUITY INCOME
PORTFOLIO
388 Greenwich Street
New York, New York 10013
FD 0661 4/96
P R O S P E C T U S
SMITH BARNEY FUNDS, INC.
U.S. Government
Securities Portfolio
Income Return
Account Portfolio
Class Z Shares Only
APRIL 1, 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
Smith Barney Funds, Inc.
PROSPECTUS
APRIL 1, 1996
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The U.S. Government Securities Portfolio and the Income Return Account Port-
folio (each, a "Portfolio") are two of the investment portfolios that cur-
rently comprise Smith Barney Funds, Inc. (the "Fund"). The U.S. Government
Securities Portfolio seeks 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.
This Prospectus sets forth concisely certain information about the Fund and
each Portfolio, including expenses, that prospective investors will find help-
ful in making an investment decision. Investors are encouraged to read this
Prospectus carefully and retain it for future reference.
The Class Z shares described in this Prospectus are currently offered exclu-
sively for sale to tax-exempt employee benefit and retirement plans of Smith
Barney Inc. ("Smith Barney") or any of its affiliates ("Qualified Plans").
Additional information about each Portfolio is contained in a Statement of
Additional Information dated April 1, 1996, amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement of Additional Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment 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>
THE PORTFOLIOS' EXPENSES 3
- --------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- --------------------------------------------------
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES 6
- --------------------------------------------------
VALUATION OF SHARES 8
- --------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 8
- --------------------------------------------------
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES 9
- --------------------------------------------------
PERFORMANCE 10
- --------------------------------------------------
MANAGEMENT OF THE FUND 11
- --------------------------------------------------
ADDITIONAL INFORMATION 13
- --------------------------------------------------
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.
THE PORTFOLIOS' EXPENSES
The following expense table lists the costs and expenses an investor will
incur either directly or indirectly as a shareholder of Class Z shares of each
Portfolio, based on each Portfolio's operating expenses for Class Z share for
the fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
U.S. GOV'T INCOME RETURN
SECURITIES ACCOUNT
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.44% 0.44%
Other expenses 0.06 0.26
- ---------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES 0.50% 0.70%
- ---------------------------------------------------------------------
</TABLE>
The nature of the services for which the Fund pays management fees is
described under "Management of the Fund." "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to assist an investor in understanding the
various costs that an investor in the 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 and 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 in Class Z shares of
the Portfolio, assuming(1) a 5.00% annual
return and (2) redemption at the end of each
time period:
U.S. Government Securities Portfolio....... $ 5 $16 $28 $63
Income Return Account Portfolio............ 7 22 39 87
</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, 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.
3
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS
The following information for the two-year period ended December 31, 1995 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
1995 financial statements and the independent auditors' report thereon appear
in the December 31, 1995 Annual Report to Shareholders.
FOR A SHARE OF CLASS Z CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO 1995 1994(1)
- ----------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50 $ 12.47
- ----------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.94 0.14
Net realized and unrealized gain 1.11 0.13
- ----------------------------------------------------------
Total Income From Operations 2.05 0.27
- ----------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.95) (0.24)
- ----------------------------------------------------------
Total Distributions (0.95) (0.24)
- ----------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.60 $ 12.50
- ----------------------------------------------------------
TOTAL RETURN 16.89% (2.15)%++
- ----------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $20,093 $18,580
- ----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.50% 0.34%+
Net investment income 7.12 7.55+
- ----------------------------------------------------------
PORTFOLIO TURNOVER RATE 57.39% 40.22%
- ----------------------------------------------------------
</TABLE>
(1) For the period from November 7, 1994 (inception date) to December 31, 1994.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
4
<PAGE>
Smith Barney Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
INCOME RETURN ACCOUNT PORTFOLIO 1995 1994(1)
- ----------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.35 $ 9.42
- ----------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.50 0.07
Net realized and unrealized gain (loss) 0.27 (0.02)
- ----------------------------------------------------------
Total Income From Operations 0.77 0.05
- ----------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.51) (0.12)
- ----------------------------------------------------------
Total Distributions (0.51) (0.12)
- ----------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.61 $ 9.35
- ----------------------------------------------------------
TOTAL RETURN 8.43% 0.38%++
- ----------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $5,769 $7,083
- ----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.70% 0.46%+
Net investment income 5.38 5.29+
- ----------------------------------------------------------
PORTFOLIO TURNOVER RATE 107.30% 126.64%
- ----------------------------------------------------------
</TABLE>
(1) For the period from November 7, 1994 (inception date) to December 31, 1994.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
5
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
The U.S. Government Securities Portfolio seeks high current income, liquid-
ity and security of principal by investing in obligations of the U.S. Govern-
ment, 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 "immu-
nization 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 invests primarily in Government
National Mortgage Association ("GNMA") Certificates of the modified pass-
through type and will also normally include other "U.S. Government Obliga-
tions," i.e., obligations issued or guaranteed by the United States, its agen-
cies or its instrumentalities and related repurchase and reverse repurchase
agreements (reverse repurchase agreement transactions are limited to no more
than 5% of the Portfolio's net assets). Under normal market conditions, the
Portfolio will seek to invest substantially all of its assets -- and will
invest not less than 65% of its assets -- in such securities. GNMA Certifi-
cates are debt securities issued by a mortgage banker or other mortgagee rep-
resenting an interest in a pool of mortgages insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the Veter-
ans 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 this Portfolio 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
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 Port-
folio may enter into agreements with dealers in GNMA Certificates to purchase
or sell an agreed-upon principal amount of GNMA Certificates at a specified
price on a certain date; provided, however, that settlement occurs within 120
days of the trade date. For a detailed explanation, see "Appendix."
6
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
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 may seek to increase its net invest-
ment 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. Manage-
ment will limit such lending to not more than one-third of the value of the
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 the U.S. Government Securities Portfolio provided such modification
is not prohibited by the 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. The Income Return
Account Portfolio may only change its objective and policies by the "vote of a
majority of the outstanding voting securities," as defined in the Investment
Company Act of 1940 (the "1940 Act").
7
<PAGE>
Smith Barney Funds, Inc.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
PORTFOLIO TURNOVER
Neither of the Portfolios will engage in the trading of securities for the
purpose 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
The net asset value per share of Class Z shares is determined as of the
close of regular trading on the New York Stock Exchange, Inc. ("NYSE") on each
day that the NYSE is open, by dividing the value of the Portfolio's net assets
attributable to Class Z by the total number of shares of the Class outstand-
ing. The per share net asset value of the Class Z shares may be higher than
those of other Classes because of the lower expenses attributable to Class Z
shares.
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 sim-
ilar 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 monthly income dividends on shares of the U.S. Government
Securities Portfolio and of the Income Return Account Portfolio and makes
annual distributions of capital gains, if any, on such shares.
8
<PAGE>
Smith Barney Funds, Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Unless a shareholder is eligible for qualified distributions and instructs
that dividends and capital gain distributions on shares be paid in cash and
credited to the shareholder's account, dividends and capital gain distribu-
tions will be reinvested automatically in additional shares of the Class at
net asset value as of the close of business on the payment date, subject to no
sales charge or CDSC.
TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, 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, a Portfolio
must meet certain tests, including distributing at least 90% of its investment
company taxable income, and deriving less that 30% of its gross income from
the sale or other disposition of certain investments held for less than three
months.
It is the policy of the Fund to comply with requirements of the Internal
Revenue 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. Information 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. Shareholders should consult their
plan document or tax advisers about the tax consequences associated with par-
ticipating in a Qualified Plan.
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
Purchases of each Portfolio's Class Z shares must be made in accordance with
the terms of a Qualified Plan. Purchases are effected at the net asset value
next determined after a purchase order is received by Smith Barney (the "trade
date"). Payment is due to Smith Barney on the third business day (the "settle-
ment date") after the trade date. Investors who make payment prior to the set-
tlement date may designate a temporary investment (such as a money market fund
in the Smith Barney Mutual Funds) for such payment until settlement date. The
Fund reserves the right to reject any purchase order and to suspend the offer-
ing of shares for a period of time. There are no minimum investment
9
<PAGE>
Smith Barney Funds, Inc.
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES (CONTINUED)
requirements for Class Z shares; however, the Fund reserves the right to vary
this policy at any time.
Purchase orders received by Smith Barney prior to the close of regular trad-
ing on the NYSE on any day that the Portfolio calculates its net asset value,
are priced according to the net asset value determined on that day. Orders
received after the close of regular trading on the NYSE are priced as of the
time that the net asset value per share is next determined. See "Valuation of
Shares." Certificates for Portfolio shares are issued upon request to the
Fund's transfer agent.
Qualified Plans may redeem their shares on any day on which a Portfolio cal-
culates its net asset value. See "Valuation of Shares." Redemption requests
received in proper form prior to the close of regular trading on the NYSE are
priced at the net asset value per share determined on that day. Redemption
requests received after the close of regular trading on the NYSE are priced at
the net asset value next determined. Shareholders acquiring Class Z shares
should consult the terms of their Qualified Plan for redemption provisions.
Holders of Class Z shares should consult their Qualified Plans for informa-
tion about available exchange options.
PERFORMANCE
From time to time the Portfolio may include its total return, average annual
total return, yield and current dividend return for Class Z shares in adver-
tisements and/or other types of sales literature. 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 reinvest-
ment of all income dividends and capital gain distributions on the reinvest-
ment 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 ini-
tial amount invested and subtracting 100%. The standard average annual total
return, as prescribed by the SEC is derived from this total return, which pro-
vides the ending redeemable value. Such standard total return information may
also be accompanied with nonstandard total return information for differing
periods computed in the same manner but without annualizing the total return
or taking sales charges into account. The 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
10
<PAGE>
Smith Barney Funds, Inc.
PERFORMANCE (CONTINUED)
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 facili-
tate comparison with yields quoted by other investment companies. The U.S. Gov-
ernment Securities Portfolio calculates current dividend return for Class Z by
annualizing the most recent quarterly distribution from investment income,
including net equalization credits or debits, and dividing by the net asset
value on the last day of the period for which current dividend return is pre-
sented. The Income Return Account Portfolio calculates current dividend return
for Class Z by annualizing the most recent monthly distribution, including net
equalization credits or debits, and dividing by the net asset value on the last
day of the period for which current dividend return is presented. Current divi-
dend return may vary from time to time depending on market conditions, the com-
position of its investment portfolio and operating expenses. These factors and
possible differences in the methods used in calculating current dividend return
should be considered when comparing a Class' current return to yields published
for other investment companies and other investment vehicles. Each Portfolio
may also include comparative performance information in advertising or market-
ing Class Z shares. Such performance information may include data from Lipper
Analytical Services, Inc. and other financial publications.
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 investment manager. The Statement of Additional Informa-
tion 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
11
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
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 book-
keeping, accounting and administrative services, office space and equipment,
and the services of the officers and employees of the Fund. By written agree-
ment the research and other departments and staff of Smith Barney will furnish
the Manager with information, advice and assistance and will be available for
consultation on the Fund's Portfolios, thus Smith Barney may also be consid-
ered 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.
The management fee for each Portfolio is 0.44% of each 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 operating
expenses of the Class Z Shares for the U.S. Government Securities Portfolio
and the Income Return Account Portfolio were 0.50% and 0.70% of average net
assets, respectively.
The Manager, incorporated on March 12, 1968 under the laws of Delaware, is a
wholly-owned subsidiary of Smith Barney Holdings ("Holdings"), the parent com-
pany of Smith Barney. Holdings is a wholly owned subsidiary of Travelers Group
Inc. ("Travelers"), which is a 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. As of December 31, 1995, the Manager had aggre-
gate assets under management of approximately $69 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 Income Return Account
Portfolio. Mr. Sheehan manages the day to day operations of this Portfolio,
including making all investment decisions. Prior to January 1992, Mr. Sheehan
12
<PAGE>
Smith Barney Funds, Inc.
MANAGEMENT OF THE FUND (CONTINUED)
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.
James Conroy, Vice President of the Manager, has served as Portfolio Manager
of U.S. Government Securities Portfolio since January 1996 and is responsible
for managing the day-to-day operations of the Portfolio, including the making
of investment decisions. Mr. Conroy also manages the Fund's Short-Term U.S.
Treasury Securities Portfolio. Mr Conroy has also served as Vice President and
Investment Officer of Smith Barney Managed Governments Fund Inc. since February
1990 and as First Vice President and Investment Officer of Smith Barney Govern-
ment Securities Fund since its inception in March 1984.
Management's discussion and analysis, and additional performance information
regarding the Portfolio during the fiscal year ended December 31, 1995 is
included in the Annual Report dated December 31, 1995. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013,
and serves as the Fund's distributor. Smith Barney is a wholly owned subsidiary
of Travelers.
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
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 shares (where available) of a Portfolio represent interests
in the assets of that Portfolio and have identical voting, dividend, liquida-
tion 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
13
<PAGE>
Smith Barney Funds, Inc.
ADDITIONAL INFORMATION (CONTINUED)
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 Additional 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 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.
First Data Investor Services Group Inc., 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.
14
<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 pass-through 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). 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. Prepayments and scheduled payments of principal will be rein-
vested by the 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 potential for prepayment may reduce the general
upward price increase of GNMA Certificates that might otherwise occur. If the
Portfolio buys GNMA Certificates at a premium, mortgage foreclosures or prepay-
ments 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
United States; and (4) obligations currently or previously sold by the Federal
Home Loan Mortgage Corporation.
A-1
<PAGE>
Smith Barney Funds, Inc.
APPENDIX (CONTINUED)
Repurchase Agreements. A repurchase agreement arises when the Fund purchases
a security for a Portfolio and simultaneously agrees to resell it to the ven-
dor at an agreed-upon future date, normally the next business day. The resale
price is greater than the purchase price, which reflects an 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 con-
tinual 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 Fund may be delayed or lim-
ited or the Portfolio might incur a loss if the value of the collateral secur-
ing 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 agree-
ments that do not mature within seven days if any such investment together
with any other illiquid 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
ownership of the security and therefore must maintain with the Custodian a
segregated account with assets of a dollar amount sufficient to make payment
for the securities to be purchased. The value of the securities on the deliv-
ery date may be more or less than their purchase price. Securities purchased
on a delayed delivery basis do not generally earn interest until their sched-
uled delivery date.
A-2
<PAGE>
Smith Barney
------------
A Member of Travelers Group [LOGO]
SMITH BARNEY
FUNDS, INC.
U.S. GOVERNMENT
SECURITIES PORTFOLIO
INCOME RETURN
ACCOUNT PORTFOLIO
388 Greenwich Street
New York, New York 10013
FD 0662 4/96
Part B
April 1, 1996
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 four Portfolios: the Equity Income Portfolio, the U.S. Government
Securities Portfolio, the Income Return Account 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 Shares17
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 thirty-
nine investment companies associated with Smith Barney;
President and Chief Executive Officer of Smith Barney Mutual Funds Management,
Inc. (the "Manager"). Prior to January 1994, Director of
Sales and Marketing for Prudential Mutual Funds;
Prior to September 1991,Director, Salomon Brothers Inc.; 36.
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; 78.
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); 73.
PAUL HARDIN, Director
Professor of Law at University of North Carolin at Chapel Hill, 103 S.
Building, Chapel Hill, North Carolina 27599; a Director of twelve investment
companies associated with Smith Barney; and a Director of The Summit
Bancorporation; Formerly, Chancellor of the University of North Carolina at
Chapel Hill, University of North Carolina; 64.
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.; 71.
*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; Chairman of 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; 62.
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); 69.
* 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 three investment companies associated with Smith Barney; 52.
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; 65.
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;
80.
*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; 38.
*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; 48.
*THOMAS M. REYNOLDS, Controller and Assistant Secretary
Director of Smith Barney and Controller and Assistant Secretary of thirty-seven
investment companies associated with Smith Barney. Prior to September 1991,
Assistant Treasurer of Aquila Management Corporation and its associated
investment companies; 36.
*CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney and Secretary of forty-one investment
companies associated with Smith Barney; Secretary and General Counsel of
the Manager; 45.
On March 15, 1996, 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
Aggregate Benefits 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
Joseph H. Fleiss 4,650 0 53,300 10
Donal R. Foley 5,050 0 56,100 10
Paul Hardin 4,250 0 68,200 12
Heath B. McLendon* 0 0 0 41
Francis P. Martin 5,050 0 56,100 10
Roderick C. Rasmussen 5,050 0 56,100 10
Bruce D. Sargent* 0 0 0 3
John P. Toolan 5,050 0 56,100 10
C. Richard Youngdahl 4,650 0 53,300 10
* Designates an "interested director".
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 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 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 and the
U.S. Government Securities Portfolio. The Fund does not currently intend to
commit to such agreements more than 5% of the net assets of any of these two
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 the U.S. Government Securities Portfolio,
and the investment restriction of the Equity Income 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 Equity Income Portfolio 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 non-U.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. dollar-denominated 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.
Additional Policies - Equity Income Portfolio
Although the Equity Income Portfolio may, as described below, sell short
"against the box," buy or sell puts or calls and borrow money, the Equity
Income 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 Equity Income 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 short-term loans.
While the Equity Income 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 Equity Income 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.
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 Equity Income 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 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; 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; and 13. 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 operation for less than three years or
in equity securities for which market quotations are not readily available.
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, 1995 the unused capital loss carryovers of the Fund by
Portfolio were approximately as follows: U.S. Government Securities
Portfolio, $4,584,000; Income Return Account Portfolio, $1,695,000; and Short-
Term U.S. Treasury
Securities Portfolio, $8,073,000. 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)
1996 1997 2001 2002 2003
U.S. Government Securities Portfolio $ 392 $898 $430 $2,864 -----
Income Return Account Portfolio 930 218 --- 547 -----
Short-Term U.S. Treasury --- --- 1,477 5,472 1,124
Securities Portfolio
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, as amended, (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 employer-sponsored 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 employer-sponsored
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 non-corporate
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 Equity
Income Portfolio, Income Return Account Portfolio
and U.S. Government Securities Portfolio which displays performance
data for ten years) ended December 31, 1995 is as follows:
One Year Five Years Life Inception Date
Equity Income 26.40% 13.82% 11.59%*1/1/72
Income Return 6.27 5.88 6.92* 3/4/85
U.S. Government 11.28 7.71 8.53* 10/9/84
Short-Term U.S. 13.16 N/A 6.26 11/11/91
* Representative of ten years, not life of the Equity Income Portfolio, the
Income Return Portfolio and the U.S. Government Securities Portfolio.
Each Portfolio's average annual total return with respect to its Class B
Shares (where applicable) for the
one-year period and for
life of such Portfolio's Class B shares
through December 31, 1995 is as follows:
Portfolio One Year Life Inception Date
Equity Income 27.07% 22.62% 11/7/94
U.S. Gov't 11.53 12.43 11/7/94
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, 1995 is as follows:
Portfolio One Year Life Inception Date
Equity Income 31.01% 13.01% 12/2/92
Income Return 7.06 4.50 12/16/92
U.S. Government 14.93 6.47 12/2/92
Each Portfolio's average annual total return with respect to its Class Y
Shares (where applicable) for the
one-year period and for the
life of such Portfolio's Class Y shares
through December 31, 1995 is as follows:
Portfolio One Year Life Inception Date
Income Return 8.43% 4.59% 2/1/93
U.S. Government 16.88 6 .78 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, 1995 is as follows:
Portfolio One Year Life Inception Date
Income Return 8.43% 7.75% 11/7/94
U.S. Government 16.89 16.67 11/7/94
Equity Income 33.41 27.72 11/7/94
Note that effective October 10, 1994 Class C shares were reclassified as
additional Class A shares with respect to the Equity Income Portfolio and that
effective November 7, 1994 Class C shares were redesignated Class Y shares
with respect to the U.S. Government Securities 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 Equity Income
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 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.
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 fiscal years ended December 31, 1993, 1994 and 1995, the management
fees for each Portfolio were as follows:
Portfolio 1993 1994 1995
U.S. Gov't $2,178,838 $1,987,629 $1,869,768
Income Return 257,413 208,151 125,055
Equity Income 3,654,378 4,079,437 4,093,396
Short-Term U.S. 808,698 735,555 403,161
Pursuant to the Management Agreement, the management fee for the Equity
Income 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 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 two 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, 1995, 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 1995 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 $914,410 $45,752 $152,207 $N/A $1,112,369
Income Return N/A N/A 9,541 N/A 9,541
Equity Income 1,442,402 23,501 275,007 N/A 1,740,910
Short-Term Treas.313,569 N/A N/A N/A 313,569
During the fiscal years 1993 and 1994 aggregate sales commissions of
$8,756,000 and $1,992,000 respectively, were paid to Smith Barney by the
purchasers of Fund shares. For the fiscal year 1995, aggregate sales
commissions of approximately $364,000 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 the Equity Income 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 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 10, 1994 Class C shares were reclassified as
additional Class A shares with respect to the Equity Income Portfolio and that
effective November 7, 1994 Class C shares were redesignated Class Y shares
with respect to the U.S. Government Securities 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 Equity Income Portfolio (no
commissionable transactions have been paid to date on behalf of the U.S.
Government Securities 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
Equity Income Portfolio during 1993, 1994 and 1995 (the fees for 1993 and
1994 include fees on behalf of the Utility Portfolio which has been merged
into the Smith Barney Utilities Fund). 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 1995, the total amount
of commissionable transactions was $667,359,552; $247,133,082 (37.0%) of which
was directed to Smith Barney and executed by unaffiliated brokers and
$420,226,470 (63.0%) of which was directed to other brokers.
Commissions
To Others For
Execution,
For Execution Only
Research and
Statistical
Total To Smith Barney To Others Services
1993 $1,169,691 $342,492* 29.3% $242,492 20.7% $584,707 50.0%
1994 1,062,407 177,691* 16.7 271,982 25.6 613,334 57.7
1995 896,018 312,572* 34.9 496,622 55.4 86,824 9.7
* 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, has been
selected as the Fund's independent auditors for its fiscal year ending
December 31, 1996 to exammine and report on the Fund's financial statements
and highlights.
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 March 15, 1996, the Smith
Barney 401(k) Employee Savings Plan, 388 Greenwich Street, New York, New York,
10013, owned of record, but not beneficially, 6,945,952.470 (100%) of the
outstanding Class Z shares of the Equity Income Portfolio; the Smith Barney
401(k) Employee Savings Plan, 388 Greenwich Street, New York, New York, 10013,
owned of record, but not beneficially, 1,583,135.712 (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, 589,405.696 (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:
Equity Income Portfolio
Class Y
Smith Barney Concert Series, Inc.
Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 73,927.493 (68.44%) shares
Smith Barney Concert Series, Inc.
Conservative Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 18,862.330 (17.46%) shares
Smith Barney Concert Series, Inc.
Income Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 15,228.410 (14.10%) shares
U.S. Government Securities Portfolio
Class B
The American National Red Cross Blood Services
Northeast Region
Attn. Donald Knowles.
180 Rustcraft Road
Dedham, MA 02026
owned 101,479.375 (12.18%) 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 (12.23%) shares
Frederick L. Swindal Tr.
UAD 4-9-92
Frederick L. Swindal Trust
5111 South Nichols Street
Tampa, FL 33611-4132
owned 28,591.000 (5.76%) 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 (15.61%) shares
Arthur Smith Corporation
c/o Phyllis Smith
4888 Loop Central Drive
Suite 500
Houston, TX 77081-2214
owned 105,560.000 (21.26%) shares
Raul Cuadrado
3250 Riveria Drive
Coral Gables, FL 33134-6477
owned 28,999.119 (5.84%) shares
Charles Dockery
Smith Barney Inc. Rollover Cust
338 Deauville Road
Statesville, NC 28677-7501
owned 38,228.012 (7.70%) shares
Avron Wahl
Smith Barney Inc. Sep Custodian
5 Evergreen Drive
Ocean, NJ 07712
owned 31,133.384 (6.27%) shares
Luby Enterprises Inc.
c/o Joe Luby
1900 E. Girard Place
Englewood, CO 80110
ownewd 26, 489.915 (5.33%) shares
Short-Term U.S. Treasury Securities Portfolio
Class Y shares
Smith Barney Concert Series, Inc.
Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 293,963.105 (56.68%) shares
Smith Barney Concert Series, Inc.
Conservative Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 87,815.497 (16.93%) shares
Smith Barney Concert Series, Inc.
Income Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 136,877.849 (26.39%) shares
Income Return Account Portfolio
Class A
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 451,588.896 (27.08%) shares
Class C
Marshall E. Redding / IRA
Smith Barney IRA Cust.
2530 Atlantic Avenue, Suite - A
Long Beach, CA 90806-2741
owned 21,996.538 (9.34%) shares
Brendan T. Cremen
Susan Delany Cremen
c/o Delany
17 Libarary Road
Shankill
County Dublin, Ireland
owned 19,9731.108 (8.48%) shares
Process Supplies And
Accessories Incorporated
Profit Sharing Plan
Attn. Larry E. Wright
P.O. 11025
Knoxville, TN 37939
owned 16,874.713 (7.16%) shares
Iona Trimble Trust
U/A/ 8-18-93
Iona Trimble Rev Trust
HC 72 Box 164
Cookson, OK 74427-9707
owned 12, 861 (5.46%) shares
Class Y
Beatrice S. Wind
Smith Barney IRA Cust.
8101 S.W. 72nd Avenue
Miami, FL 33143-7609
owned 47,098.760 (49.92%) shares
Elizabeth Lynn Schneider &
Theodre J. Vittoria
Beatrice S. Wind Charitable
630 Fifth Avenue
New York, NY 10111
owned 23,227.630 (24.62%) 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 (19.91) shares
William J. Roberts IRA
Smith Barney Inc. IRA Custodian
2175 Hudson Terrace
Fort Lee, NJ 07024
owned 5,232.646 (5.55%) shares
FINANCIAL STATEMENTS
The following financial information is hereby incorporated by reference to
the indicated pages of the Fund's 1995 Annual Reports to Shareholders, copies
of which are furnished with this Statement of Additional Information.
Page(s) in
Annual Report:
Equity Income U.S.Gov't
Average Annual Total Return 7 3-5
Line Graph Showing Growth of $10,000 Investment 9 6
Schedules of Investments 10-12 7
Statements of Assets and Liabilities
dated December 31, 1995 13 8
Statements of Operations
for the year ended December 31, 1995 14 9
Statements of Changes in Net Assets
for the years ended December 31, 1995 and 1994 15 10
Notes to Financial Statements 16-20 11-17
Financial Highlights 21-22 18-19
Independent Auditors' Report 23 20
Page(s) in
Annual Report:
Income Return
Average Annual Total Return 4-6, 8
Line Graph Showing Growth of $10,000 Investment 7,9
Schedule of Investments 10-11
Statement of Assets and Liabilities
dated December 31, 1995 12
Statement of Operations
for the year ended December 31, 1995 13
Statement of Changes in Net Assets
for the years ended December 31, 1995 and 1994 14-15
Notes to Financial Statements 16-21
Financial Highlights 22-26
Independent Auditors' Report 27-28
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 short-term promissory obligations. Prime-1
repayment will normally be evidenced by the following characteristics:
leading market positions in well-established 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; well-
established 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.
PART C Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements Location In:
Part A Part B
Annual Report
Statement of Assets and Liabilities __ *
Statements of Changes in Net Assets __ *
Statement of Operations __ *
Notes to Financial Statements __ *
Supplementary Information __ *
_______________
* The Registrant's Annual Reports for the fiscal year ended December 31, 1995
and the Reports of Independent Accountants dated February 13, 1996 are
incorporated by reference to the N-30D filed on March 6, 1996 as Accession #
000091155-96-104.
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. *
(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.
* 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
(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.
(b) Transfer Agency Agreement between the Registrant and First
Data Investors Services Group Inc.
(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 12b-1 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.
(17) Financial Data Schedule
(18) Plan pursuant to Rule 18f-3 Plan is incorporated herein by reference to
Exhibit 9(b) to Post-Effective Amendment No. 58.
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 March 15, 1996
Equity Income Portfolio 38,858
U.S. Government Securities Portfolio 14,199
Income Return Account Portfolio 657
Monthly Payment Government Portfolio 0
Short-Term U.S. Treasury Securities Portfolio5,651
Utility Portfolio 0
Capital Appreciation Portfolio 0
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 Portfolio 0
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.; Greenwich Street 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.; 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 Natural Resources 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;
Smith Barney Institutional Cash Management Funds Inc.; and
Smith Barney Concert Series Fund Inc.
(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 First Data Investor
Services 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 29th day of March 1996.
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 March 29, 1996
(Heath B. McLendon) Chief Executive Officer
/s/ Jessica M. Bibliowicz President and Director March 29, 1996
(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 March 29, 1996
(Lewis E. Daidone) Financial Officer
*By: /s/ Christina T. Sydor March 29, 1996
Christina T. Sydor
Pursuant to Power of Attorney
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
9(b) Form of Transfer Agency Agreement
11(b) Auditor's Consent
FORM OF
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of ___________, 1995 between Smith Barney
Funds, Inc.., (the "Fund"), a corporation organized under the laws
of Maryland and having its principal place of business at 388 Greenwich
Street New York, NY 10013, and The Shareholder Services Group, Inc.Inc. (MA)
(the "Transfer Agent"), a Massachusetts corporation with principal offices
at One Exchange Place, 53 State Street, Boston, Massachusetts 02109.
W I T N E S S E T H
That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Fund as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Fund, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Fund as indicated in a certificate furnished to the Transfer Agent pursuant
to Section 4(c) hereof as may be received by the Transfer Agent from time to
time.
(c) "Board of Directors" shall mean the Board of Directors, Board
of Trustees or, if the Fund is a limited partnership, the General Partner(s)
of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit,
or cause to be deposited or held under the name or account of such a
custodian pursuant to a Custodian Agreement.
(f) "Fund" shall mean the entity executing this Agreement, and if
it is a series fund, as such term is used in the 1940 Act, such term shall
mean each series of the Fund hereafter created, except that appropriate
documentation with respect to each series must be presented to the
Transfer Agent before this Agreement shall become effective with respect
to each such series.
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by the Transfer Agent from a person
reasonably believed by the Transfer Agent to be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933
and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital stock,
beneficial interest or limited partnership interests, as the case may be, of
the Fund as may be issued from time to time and, if the Fund is a closed-end or
a series fund, as such terms are used in the 1940 Act any other classes or
series of stock, shares of beneficial interest or limited partnership
interests that may be issued from time to time.
(k) "Shareholder" shall mean a holder of shares of capital stock,
beneficial interest or any other class or series, and also refers to partners
of limited partnerships.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an
Authorized Person and actually received by the Transfer Agent. Written
Instructions
shall include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original or
other process.
2. Appointment of the Transfer Agent. The Fund hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Fund and as shareholder servicing agent
for the Fund. The Transfer Agent accepts such appointments and agrees to
perform the duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause the Transfer Agent to
be compensated for the performance of its obligations hereunder in accordance
with the fees set forth in the written schedule of fees annexed hereto as
Schedule A and incorporated herein. The Transfer Agent will transmit an
invoice to the Fund as soon as practicable after the end of each calendar
month which will be detailed in accordance with Schedule A, and the Fund
will pay to the Transfer Agent the amount of such invoice within thirty
(30) days after the Fund's receipt of the invoice.
In addition, the Fund agrees to pay, and will be billed separately for,
reasonable out-of-pocket expenses incurred by the Transfer Agent in the
performance of its duties hereunder. Out-of-pocket expenses shall include,
but shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule B and incorporated herein.
Unspecified out-of-pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by the Transfer Agent in the performance of its
obligations hereunder. Reimbursement by the Fund for expenses incurred by
the Transfer Agent in any month shall be made as soon as practicable but no
later than 15 days after the receipt of an itemized bill from the Transfer
Agent.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A, a revised fee schedule executed and
dated by the parties hereto.
4. Documents. In connection with the appointment of the Transfer Agent
the Fund shall deliver or caused to be delivered to the Transfer Agent the
following documents on or before the date this Agreement goes into effect,
but in any case within a reasonable period of time for the Transfer Agent to
prepare to perform its duties hereunder:
(a) If applicable, specimens of the certificates for Shares of
the Fund;
(b) All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the Fund;
(c) A signature card bearing the signatures of any officer of the
Fund or other Authorized Person who will sign Written Instructions or is
authorized to give Oral Instructions.
(d) A certified copy of the Articles of Incorporation, as
amended;
(e) A certified copy of the By-laws of the Fund, as amended;
(f) A copy of the resolution of the Board of Directors
authorizing the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each Shareholder, and the
number of Shares of the Fund held by each, certificate numbers and
denominations (if
any certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and the
number of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with respect to the
validity of the Shares and the status of such Shares under the Securities
Act of 1933, as amended.
5. Further Documentation. The Fund will also furnish the Transfer
Agent with copies of the following documents promptly after the same shall
become available:
(a) each resolution of the Board of Directors authorizing the
issuance of Shares;
(b) any registration statements filed on behalf of the Fund and
all pre-effective and post-effective amendments thereto filed with the
Commission;
(c) a certified copy of each amendment to the Articles of
Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of the Board of Directors
or other authorization designating Authorized Persons; and
(e) such other certificates, documents or opinions as the
TransferAgent may reasonably request in connection with the performance
of its duties hereunder.
6. Representations of the Fund. The Fund represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and non-
assessable. When Shares are hereafter issued in accordance with the terms
of the
Fund's Articles of Incorporation and its Prospectus, such Shares shall be
validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board of
Directors of the Fund shall declare a distribution payable in Shares,
the Fund shall deliver or cause to be delivered to the Transfer Agent
written notice of such
declaration signed on behalf of the Fund by an officer thereof, upon which
the Transfer Agent shall be entitled to rely for all purposes, certifying (i)
the identity of the Shares involved, (ii) the number of Shares involved, and
(iii) that all appropriate action has been taken.
8. Duties of the Transfer Agent. The Transfer Agent shall be
responsible for administering and/or performing those functions typically
performed by a
transfer agent; for acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance, transfer and
redemption or repurchase (including coordination with the Custodian) of
Shares in accordance with the terms of the Prospectus and applicable law.
The operating standards and procedures to be followed shall be determined
from time to time by
agreement between the Fund and the Transfer Agent and shall initially be as
described in Schedule C attached hereto. In addition, the Fund shall
deliver to the Transfer Agent all notices issued by the Fund with respect to
the Shares in accordance
with and pursuant to the Articles of Incorporation or By-laws of the Fund
or as required by law and shall perform such other specific duties as are
set forth in the
9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties
hereunder and as set forth in Schedule C in accordance with all applicable
laws, rules and regulations, including records required by Section 31(a) of
the 1940 Act. All records shall be available during regular business hours
for inspection and use by the Fund. Where applicable, such records shall
be maintained by the Transfer
Agent for the periods and in the places required by Rule 31a-2 under the 1940
Act.
Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this
Agreement for reasonable visitation by the Fund, or any person retained by
the Fund as may be necessary for the Fund to evaluate the quality of the
services performed by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule C,
the Transfer Agent shall perform such other duties and functions, and
shall be paid such amounts therefor, as may from time to time be agreed
upon in writing between the Fund and the Transfer Agent. The compensation
for such other duties and functions shall be reflected in a written amendment
to Schedule A or B and the duties and functions shall be reflected in an
amendment to Schedule C, both dated and signed by authorized persons of the
parties hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice
of any change of authority of any person until receipt of a Written
Instruction thereof from the Fund pursuant to Section 4(c). The Transfer
Agent will also have no
liability when processing Share certificates which it reasonably believes to
bear the proper manual or facsimile signatures of the officers of the Fund
and the proper countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to any Authorized
Person of the Fund for Written Instructions and may seek advice from legal
counsel for the Fund, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and it shall not be liable for any
action taken or not taken or suffered by it in good faith in accordance
with such Written Instructions or in accordance with the opinion of counsel
for the Fund or for the Transfer Agent. Written Instructions requested by
the Transfer Agent will be provided by the Fund within a reasonable period of
time. In addition, the Transfer Agent, its officers, agents or employees,
shall accept Oral Instructions or
Written Instructions given to them by any person representing or acting on
behalf of the Fund only if said representative is an Authorized Person.
The Fund agrees
that all Oral Instructions shall be followed within one business day by
confirming Written Instructions, and that the Fund's failure to so confirm
shall not impair in any respect the Transfer Agent's right to rely on Oral
Instructions. The Transfer
Agent shall have no duty or obligation to inquire into, nor shall the Transfer
Agent be responsible for, the legality of any act done by it upon the request
or direction of a person reasonably believed by the Transfer Agent to be an
Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor;
(ii) the legality of the redemption of any Shares, or the propriety of the
amount to be paid therefor; (iii) the legality of the declaration of any
dividend by the Board of Directors, or the legality of the issuance of any
Shares in payment of any dividend; or (iv)
the legality of any recapitalization or readjustment of the Shares.
12. Acts of God, etc. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war,
riots, or failure or unavailability of transportation, communication or
power supply, fire, flood or other catastrophe.
13. Duty of Care and Indemnification. Each party hereto (the
"Indemnifying Party') will indemnify the other party
(the "Indemnified Party") against and hold it harmless from any and all
losses, claims, damages,
liabilities or expenses of any sort or kind (including reasonable counsel
fees and expenses) resulting from any claim, demand, action or suit or other
proceeding (a "Claim") unless such Claim has resulted from a negligent
failure to act or omission to act or bad faith of the Indemnified Party in
the performance of its duties hereunder. In addition, the Fund will
indemnify the Transfer Agent against and hold it
harmless from any Claim, damages, liabilities or expenses (including
reasonable counsel fees) that is a result of: (i) any action taken in
accordance with Written or Oral Instructions, or any other instructions, or
share certificates reasonably
believed by the Transfer Agent to be genuine and to be signed, countersigned
or executed, or orally communicated by an Authorized Person; (ii) any
action taken in accordance with written or oral advice reasonably believed
by the Transfer Agent to have been given by counsel for the Fund or its own
counsel; or (iii) any action taken as a result of any error or omission in
any record (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
delivered, or caused to be delivered by the Fund to the Transfer Agent in
connection with this Agreement.
In any case in which the Indemnifying Party may be asked to indemnify or
hold the Indemnified Party harmless, the Indemnifying Party shall be advised
of all pertinent facts concerning the situation in question. The
Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification
against the Indemnifying Party although the failure to do so shall not
prevent recovery by the Indemnified Party. The Indemnifying Party shall
have the option to defend the Indemnified Party against any Claim which may
be the subject of this indemnification, and, in the event that the
Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the Claim and the Indemnified Party
shall sustain no further legal or other expenses in respect of such Claim.
The Indemnified Party will not confess any Claim or make any compromise in
any case in which the Indemnifying Party will be asked to provide
indemnification, except with the Indemnifying Party's prior written consent.
The obligations of the parties
hereto under this Section shall survive the termination of this Agreement.
14. Consequential Damages. In no event and under no circumstances
shall either party under this Agreement be liable to the other party for
indirect loss of profits, reputation or business or any other special
damages under any provision of this Agreement or for any act or failure to
act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date first written
above and shall continue until September 2, 1994, and thereafter shall
automatically continue for successive annual periods ending on the
anniversary of the date first written above, provided that it may be
terminated by either party upon written notice given at least 60 days prior
to termination.
(b) In the event a termination notice is given by the Fund, it
shall be accompanied by a resolution of the Board of Directors, certified by
the Secretary of the Fund, designating a successor transfer agent or
transfer agents. Upon such termination and at the expense of the Fund, the
Transfer Agent will deliver to such successor a certified list of
shareholders of the Fund (with names and addresses), and all other relevant
books, records, correspondence and
other Fund records or data in the possession of the Transfer Agent, and the
Transfer Agent will cooperate with the Fund and any successor transfer
agent or agents in the substitution process.
16. Confidentiality. Both parties hereto agree that any non public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other
party, except as may be required by applicable law or at the request of the
Commission or other governmental agency. The parties further agree that a
breach of this provision would irreparably damage the other party and
accordingly agree that each of
them is entitled, without bond or other security, to an injunction or
injunctions to prevent breaches of this provision.
17. Amendment. This Agreement may only be amended or modified by a
written instrument executed by both parties.
18. Subcontracting. The Fund agrees that the Transfer Agent may, in
its discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer Agent shall not relieve the Transfer Agent of its responsibilities
hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund or the Transfer
Agent,shall be sufficiently given if addressed to that party and received by
it at its office set forth below or at such other place as it may from time
to time designate in writing.
To the Fund:
Smith Barney/Travelers Series Fund Inc.
388 Greenwich Street, 22 Floor
New York, NY 10013
Attention:Heath B. McLendon
To the Transfer Agent:
The Shareholder Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
(b) Successors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned to any person
other than a person controlling, controlled by or under common control with
the assignor without the written consent of the other party, which consent
shall not be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed
exclusively by the laws of the State of New York without reference to the
choice of law provisions thereof. Each party hereto hereby agrees that (i)
the Supreme Court of New York sitting in New York County shall have exclusive
jurisdiction over any and all disputes arising hereunder; (ii) hereby
consents to the personal jurisdiction of such court over the parties hereto,
hereby waiving any defense of lack of personal jurisdiction; and (iii)
appoints the person to whom notices
hereunder are to be sent as agent for service of process.
(d) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hreof or otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. The Fund shall not use the
name of the Transfer Agent in any Prospectus, Statement of Additional
Information, shareholders' report, sales literature or other material
relating to the Fund in a manner not approved prior thereto in writing;
provided, that the
Transfer Agent need only receive notice of all reasonable uses of its name
which merely refer in accurate terms to its appointment hereunder or which
are required by any government agency or applicable law or rule.
Notwithstanding the
foregoing, any reference to the Transfer Agent shall include a statement to
the effect that it is a wholly owned subsidiary of First Data Corporation.
(g) Use of Fund's Name. The Transfer Agent shall not use the
name of the Fund or material relating to the Fund on any documents or forms
for other than internal use in a manner not approved prior thereto in
writing;provided, that the Fund need only receive notice of all reasonable
uses of its name which merely refer in accurate terms to the appointment of
the Transfer Agent or which are required by any government agency or
applicable law or rule.
(h) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.
(i) Entire Agreement; Severability. This Agreement and the
Schedules attached hereto constitute the entire agreement of the parties
hereto relating to the matters covered hereby and supersede any previous
agreements. If any provision is held to be illegal, unenforceable or
invalid for any reason,
the remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers, as of the
day and year first above written.
SMITH BARNEY FUNDS INC.
By: _______________
Heath B. McLendon
President
THE SHAREHOLDER SERVICES GROUP, INC.
By:__________________
Michael G. McCarthy
Vice President
A-1
Transfer Agent Fee
Schedule A
Class A shares
The Fund shall pay the Transfer Agent an annualized fee of $11.00 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12
of the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
Class B shares
The Fund shall pay the Transfer Agent an annualized fee of $12.50 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12
of the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
Class C shares
The Fund shall pay the Transfer Agent an annualized fee of $8.50 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12
of the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
A-2
Class D shares
The Fund shall pay the Transfer Agent an annualized fee of $9.50 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12
of the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct
pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including
all lease, maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment
and any expenses incurred in connection with such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record keeping vendors
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably incurred by the
Transfer Agent in performing its duties and responsibilities under this
Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with the Transfer Agent. In addition,
the Fund will promptly reimburse the Transfer Agent for any other
unscheduled expenses incurred by the Transfer Agent whenever the Fund and
the Transfer Agent mutually agree that such expenses are not otherwise
properly borne by the Transfer Agent as part of its duties and obligations
under the Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer Agent or its agent
shall maintain a record of the number of Shares held by each holder of
record which shall include name, address, taxpayer identification and which
shall indicate whether such Shares are held in certificates or
uncertificated form.
2. Shareholder Services. The Transfer Agent or its agent will
investigate all inquiries from shareholders of the Fund relating to
Shareholder accounts and will respond to all communications from Shareholders
and others relating to its duties hereunder and such other correspondence as
may from time to time be mutually agreed upon between the Transfer Agent and
the Fund. The Transfer Agent shall provide the Fund with reports concerning
shareholder inquires and the responses thereto by the Transfer Agent, in
such form and at such times as are agreed to by the Fund and the Transfer
Agent.
3. Share Certificates.
(a) At the expense of the Fund, it shall supply the Transfer
Agent or its agent with an adequate supply of blank share certificates to
meet the Transfer Agent or its agent's requirements therefor. Such Share
certificates shall be properly signed by facsimile. The Fund agrees that,
notwithstanding the death, resignation, or removal of any officer of the Fund
whose signature appears on
such certificates, the Transfer Agent or its agent may continue to
countersign certificates which bear such signatures until otherwise directed
by Written Instructions.
(b) The Transfer Agent or its agent shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent or its agent of properly
executed affidavits and lost certificate bonds, in form satisfactory to
the Transfer Agent or its agent,
with the Fund and the Transfer Agent or its agent as obligees under the
bond.
(c) The Transfer Agent or its agent shall also maintain a record
of each certificate issued, the number of Shares represented thereby and the
holder of record. With respect to Shares held in open accounts or
uncertificated form, i.e., no certificate being issued with respect thereto,
the Transfer Agent or its agent shall maintain comparable records of the
record holders thereof, including their names, addresses and taxpayer
identification. The Transfer Agent or its agent
shall further maintain a stop transfer record on lost and/or replaced
certificates.
C-2
4. Mailing Communications to Shareholders; Proxy Materials. The
Transfer Agent or its agent will address and mail to
Shareholders of the Fund, all reports to Shareholders, dividend and
distribution notices and proxy material for the Fund's meetings of
Shareholders. In connection with meetings of Shareholders, the Transfer
Agent or its Agent will prepare Shareholder lists, mail and certify as to
the mailing of proxy materials, process and tabulate returned proxy cards,
report on proxies voted prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
5. Sales of Shares
(a) Suspension of Sale of Shares. The Transfer Agent or its
agent shall not be required to issue any Shares of the Fund where it has
received a Written Instruction from the Fund or official notice from any
appropriate authority that the sale of the Shares of the Fund has been
suspended or discontinued. The existence of such Written Instructions or
such official notice shall be conclusive evidence of the right of the
Transfer Agent or its agent
to rely on such Written Instructions or official notice.
(b) Returned Checks. In the event that any check or other order
for the payment of money is returned unpaid for any reason, the Transfer
Agent or its agent will: (i) give prompt notice of such return to the Fund
or its designee; (ii) place a stop transfer order against all Shares issued
as a result of such check or order; and (iii) take such actions as the
Transfer Agent may from time to time deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase of Shares. The
Transfer Agent or its agent shall process all requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth in
the Fund's Prospectus.
The Transfer Agent or its agent will transfer or repurchase Shares
upon receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent or its agent
reasonably may deem necessary.
The Transfer Agent or its agent reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on
the instructions is valid and genuine. The Transfer Agent or its agent also
reserves the right to refuse to transfer or repurchase Shares until it is
satisfied that the requested transfer or repurchase is legally authorized,
and it shall incur no liability for the refusal, in good faith, to make
transfers or repurchases which the TransferAgent or its agent, in
C-3
its good judgement, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse
to such transfer or repurchase.
(b) Notice to Custodian and Fund. When Shares are redeemed, the
Transfer Agent or its agent shall, upon receipt of the instructions and
documents in proper form, deliver to the Custodian and the Fund or its
designee a notification setting forth the number of Shares to be repurchased.
Such repurchased shares shall be reflected on appropriate accounts maintained
by the Transfer Agent or its agent reflecting outstanding Shares of the Fund
and Shares attributed to individual accounts.
(c) Payment of Repurchase Proceeds. The Transfer Agent or its
agent shall, upon receipt of the moneys paid to it by the Custodian for the
repurchase of Shares, pay such moneys as are received from the Custodian, all
in accordance with the procedures described in the written instruction
received by the Transfer Agent or its agent from the Fund.
The Transfer Agent or its agent shall not process or effect any
repurchase with respect to Shares of the Fund after receipt by the Transfer
Agent or its agent of notification of the suspension of the determination of
the net asset value of the Fund.
7. Dividends
(a) Notice to Agent and Custodian. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of the
Fund with respect to Shares of the Fund, the Fund shall furnish or cause to
be furnished to the Transfer Agent or its agent a copy of a resolution of
the Fund's Board of Directors certified by the Secretary of the Fund setting
forth the date of the declaration of such dividend or distribution, the
ex-dividend date, the date of payment thereof, the record date as of which
shareholders entitled to payment
shall be determined, the amount payable per Share to the shareholders of
record as of that date, the total amount payable to the Transfer Agent or its
agent on the payment date and whether such dividend or distribution is to be
paid in Shares of such class at net asset value.
On or before the payment date specified in such resolution of the
Board of Directors, the Custodian of the Fund will pay to the Transfer Agent
sufficient cash to make payment to the shareholders of record as of such
payment date.
(b) Insufficient Funds for Payments. If the Transfer Agent or
its agent does not receive sufficient cash from the Custodian to make total
dividend and/or distribution payments to all shareholders of the Fund as of
the record date, the Transfer
C-4
Agent or its agent will, upon notifying the Fund, withhold payment to all
Shareholders of record as of the record date until sufficient cash is
provided to the Transfer Agent or its agent.
C-5
Exhibit
1
to
Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its agent shall be
as follows:
A. DAILY RECORDS
Maintain daily the following information with respect to each
Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant,
etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of
Shares and other management policy questions will be
referred to the Fund).
o Process additional payments into established Shareholder
accounts in accordance with Written Instruction from the
Agent.
o Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
o Identify redemption requests made with respect to accounts
in which Shares have been purchased within an
agreed-upon period of time for determining whether good
funds have been collected with respect to such purchase
and process as agreed by the Agent in accordance with
written instructions set forth by the Fund.
o Examine and process all transfers of Shares, ensuring that
all transfer requirements and legal documents have been
supplied.
C-6
o Issue and mail replacement checks.
o Open new accounts and maintain records of exchanges
between accounts
C. DIVIDEND ACTIVITY
o Calculate and process Share dividends and distributions as
instructed by the Fund.
o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested by the
Fund. Report to the Fund reinvestment plan share
purchases and determination of the reinvestment price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related material for all
meetings of Shareholders. Tabulate returned proxies
(proxies must be adaptable to mechanical equipment of the
Agent or its agents) and supply daily reports when
sufficient proxies have been received.
o Prepare and submit to the Fund an Affidavit of Mailing.
o At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche and, if
requested by the Fund, Inspection of Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and any other enclosures
requested by the Fund (material must be adaptable to mechanical
equipment of Agent or its agents).
o Receive all notices issued by the Fund with respect to the
Preferred Shares in accordance with and pursuant to the Articles of
Incorporation and the Indenture and perform such other specific
duties as are set forth in the Articles of Incorporation including a
giving of notice of a special meeting and notice of redemption in
the circumstances and otherwise in accordance with all relevant
provisions of the Articles of Incorporation.
Independent Auditors' Consent
To the Shareholders and Directors of
Smith Barney Funds, Inc.:
We consent to the use of our reports dated February 13, 1996 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 and "Independent Auditors" in the Statement
of Additional Information.
Portfolio
Equity Income Portfolio
U.S. Government Securities Portfolio
Income Return Account Portfolio
Short-Term U.S. Treasury Securities Portfolio
KPMG PEAT MARWICK LLP
New York, New York
April 1, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 011
<NAME> EQUITY INCOME PORTFOLIO - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 575,962,374
<INVESTMENTS-AT-VALUE> 750,260,558
<RECEIVABLES> 2,933,688
<ASSETS-OTHER> 80,792
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 753,275,038
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,360,286
<TOTAL-LIABILITIES> 1,360,286
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 576,729,268
<SHARES-COMMON-STOCK> 42,324,270
<SHARES-COMMON-PRIOR> 40,953,900
<ACCUMULATED-NII-CURRENT] 19,447,507
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,593,756
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 174,298,184
<NET-ASSETS> 751,914,752
<DIVIDEND-INCOME> 21,517,038
<INTEREST-INCOME> 4,714,644
<OTHER-INCOME> 0
<EXPENSES-NET> 6,784,175
<NET-INVESTMENT-INCOME> 19,447,507
<REALIZED-GAINS-CURRENT> 56,593,756
<APPREC-INCREASE-CURRENT> 123,193,695
<NET-CHANGE-FROM-OPS> 199,234,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD 1,257,466
<NUMBER-OF-SHARES-REDEEMED> 7,565,480
<SHARES-REINVESTED> 3,940,421
<NET-CHANGE-IN-ASSETS> 99,471,852
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 371,933
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,093,396
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,784,175
<AVERAGE-NET-ASSETS> 576,045,664
<PER-SHARE-NAV-BEGIN> 12.18
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 3.59
<PER-SHARE-DIVIDEND> 0.39
<PER-SHARE-DISTRIBUTIONS> 1.18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.59
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 012
<NAME> EQUITY INCOME PORTFOLIO - CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 575,962,374
<INVESTMENTS-AT-VALUE> 750,260,558
<RECEIVABLES> 2,933,688
<ASSETS-OTHER> 80,792
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 753,275,038
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,360,286
<TOTAL-LIABILITIES> 1,360,286
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 576,729,268
<SHARES-COMMON-STOCK> 417,083
<SHARES-COMMON-PRIOR> 122,283
<ACCUMULATED-NII-CURRENT> 19,447,507
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,593,756
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 174,298,184
<NET-ASSETS> 751,914,752
<DIVIDEND-INCOME> 21,517,038
<INTEREST-INCOME> 4,714,644
<OTHER-INCOME> 0
<EXPENSES-NET> 6,784,175
<NET-INVESTMENT-INCOME> 19,447,507
<REALIZED-GAINS-CURRENT> 56,593,756
<APPREC-INCREASE-CURRENT> 123,193,695
<NET-CHANGE-FROM-OPS> 199,234,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 383,746
<NUMBER-OF-SHARES-REDEEMED> 28,716
<SHARES-REINVESTED> 32,917
<NET-CHANGE-IN-ASSETS> 99,471,852
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 371,933
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,093,396
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,421,647
<PER-SHARE-NAV-BEGIN> 12.15
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 3.57
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS 1.18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.54
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 013
<NAME> EQUITY INCOME PORTFOLIO - CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 575,962,374
<INVESTMENTS-AT-VALUE> 750,260,558
<RECEIVABLES> 2,933,688
<ASSETS-OTHER> 80,792
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 753,275,038
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,360,286
<TOTAL-LIABILITIES> 1,360,286
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 576,729,268
<SHARES-COMMON-STOCK > 2,042,769
<SHARES-COMMON-PRIOR> 1,899,724
<ACCUMULATED-NII-CURRENT> 19,447,507
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,593,756
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 174,298,184
<NET-ASSETS> . 751,914,752
<DIVIDEND-INCOME> 21,517,038
<INTEREST-INCOME> 4,714,644
<OTHER-INCOME> 0
<EXPENSES-NET> 6,784,175
<NET-INVESTMENT-INCOME> 19,447,507
<REALIZED-GAINS-CURRENT> 56,593,756
<APPREC-INCREASE-CURRENT> 123,193,695
<NET-CHANGE-FROM-OPS> 199,234,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 240,559
<NUMBER-OF-SHARES-REDEEMED> 636,749
<SHARES-REINVESTED> 180,858
<NET-CHANGE-IN-ASSETS> 99,471,852
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 371,933
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,093,396
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 27,568,013
<PER-SHARE-NAV-BEGIN> 12.18
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 3.57
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 1.18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.57
<EXPENSE-RATIO> 1.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 015
<NAME> EQUITY INCOME PORTFOLIO - CLASS Z
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 575,962,374
<INVESTMENTS-AT-VALUE> 750,260,558
<RECEIVABLES> 2,933,688
<ASSETS-OTHER> 80,792
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 753,275,038
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,360,286
<TOTAL-LIABILITIES> 1,360,286
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 576,729,268
<SHARES-COMMON-STOCK> 6,752,593
<SHARES-COMMON-PRIOR> 6,609,585
<ACCUMULATED-NII-CURRENT> 19,447,507
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,593,756
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 174,298,184
<NET-ASSETS> 751,914,752
<DIVIDEND-INCOME> 21,517,038
<INTEREST-INCOME> 4,714,644
<OTHER-INCOME> 0
<EXPENSES-NET> 6,784,175
<NET-INVESTMENT-INCOME> 19,447,507
<REALIZED-GAINS-CURRENT> 56,593,756
<APPREC-INCREASE-CURRENT> 123,193,695
<NET-CHANGE-FROM-OPS> 199,234,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 665,866
<NUMBER-OF-SHARES-REDEEMED> 1,185,176
<SHARES-REINVESTED> 709,558
<NET-CHANGE-IN-ASSETS> 99,471,852
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 371,933
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES] 4,093,396
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 91,429,642
<PER-SHARE-NAV-BEGIN> 12.19
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 3.60
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 1.18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.61
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 021
<NAME> US GOVERNMENT PORTFOLIO - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 451,885,990
<INVESTMENTS-AT-VALUE> 464,046,485
<RECEIVABLES> 3,011,760
<ASSETS-OTHER> 5,416
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467,063,661
<PAYABLE-FOR-SECURITIES> 20,468,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,470,646
<TOTAL-LIABILITIES> 21,939,396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 442,743,006
<SHARES-COMMON-STOCK> 28,289,208
<SHARES-COMMON-PRIOR> 28,644,268
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (100,007)
<ACCUMULATED-NET-GAINS> (9,679,229)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,160,495
<NET-ASSETS> 445,124,265
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,195,158
<OTHER-INCOME> 0
<EXPENSES-NET> 3,395,346
<NET-INVESTMENT-INCOME. 28,799,812
<REALIZED-GAINS-CURRENT> 9,369,017
<APPREC-INCREASE-CURRENT> 26,284,851
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,086,601
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,881,014
<NUMBER-OF-SHARES-REDEEMED> 5,309,396
<SHARES-REINVESTED> 1,073,322
<NET-CHANGE-IN-ASSETS> 31,814,982
<ACCUMULATED-NII-PRIOR> 27,604
<ACCUMULATED-GAINS-PRIOR> 33,354,060
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,869,768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,395,346
<AVERAGE-NET-ASSETS> 365,829,137
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII > 0.92
<PER-SHARE-GAIN-APPREC> 1.09
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.92)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.59
<EXPENSE-RATIO> 0.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 022
<NAME> US GOVERNMENT PORTFOLIO - CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 451,885,990
<INVESTMENTS-AT-VALUE> 464,046,485
<RECEIVABLES> 3,011,760
<ASSETS-OTHER > 5,416
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467,063,661
<PAYABLE-FOR-SECURITIES> 20,468,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,470,646
<TOTAL-LIABILITIES> 21,939,396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 442,743,006
<SHARES-COMMON-STOCK> 816,870
<SHARES-COMMON-PRIOR> 122,195
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (100,007)
<ACCUMULATED-NET-GAINS> (9,679,229)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,160,495
<NET-ASSETS> 445,124,265
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,195,158
<OTHER-INCOME> 0
<EXPENSES-NET> 3,395,346
<NET-INVESTMENT-INCOME> 28,799,812
<REALIZED-GAINS-CURRENT> 9,369,017
<APPREC-INCREASE-CURRENT> 26,284,851
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 438,330
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 800,188
<NUMBER-OF-SHARES-REDEEMED> 129,358
<SHARES-REINVESTED> 23,845
<NET-CHANGE-IN-ASSETS> 31,814,982
<ACCUMULATED-NII-PRIOR> 27,604
<ACCUMULATED-GAINS-PRIOR> 33,354,060
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,869,768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,395,346
<AVERAGE-NET-ASSETS> 6,126,523
<PER-SHARE-NAV-BEGIN> 12.51
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.86)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.61
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<[AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE>6
<CIK>000091157
<NAME>SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 023
<NAME> US GOVERNMENT PORTFOLIO - CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 451,885,990
<INVESTMENTS-AT-VALUE> 464,046,485
<RECEIVABLES> 3,011,760
<ASSETS-OTHER> 5,416
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467,063,661
<PAYABLE-FOR-SECURITIES> 20,468,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,470,646
<TOTAL-LIABILITIES> 21,939,396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 442,743,006
<SHARES-COMMON-STOCK> 1,587,202
<SHARES-COMMON-PRIOR> 1,700,884
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (100,007)
<ACCUMULATED-NET-GAINS] (9,679,229)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,160,495
<NET-ASSETS> 445,124,265
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,195,158
<OTHER-INCOME> 0
<EXPENSES-NET> 3,395,346
<NET-INVESTMENT-INCOME> 28,799,812
<REALIZED-GAINS-CURRENT> 9,369,017
<APPREC-INCREASE-CURRENT> 26,284,851
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,388,048
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 458,383
<NUMBER-OF-SHARES-REDEEMED> 641,755
<SHARES-REINVESTED> 69,690
<NET-CHANGE-IN-ASSETS> 31,814,982
<ACCUMULATED-NII-PRIOR> 27,604
<ACCUMULATED-GAINS-PRIOR> 33,354,060
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,869,768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,395,346
<AVERAGE-NET-ASSETS> 21,744,504
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.86
<PER-SHARE-GAIN-APPREC> 1.09
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.87)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.58
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 024
<NAME> US GOVERNMENT PORTFOLIO - CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 451,885,990
<INVESTMENTS-AT-VALUE> 464,046,485
<RECEIVABLES> 3,011,760
<ASSETS-OTHER> 5,416
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467,063,661
<PAYABLE-FOR-SECURITIES> 20,468,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,470,646
<TOTAL-LIABILITIES> 21,939,396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 442,743,006
<SHARES-COMMON-STOCK> 513,698,262
<SHARES-COMMON-PRIOR> 1,111,451
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (100,007)
<ACCUMULATED-NET-GAINS> (9,679,229)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,160,495
<NET-ASSETS> 445,124,265
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,195,158
<OTHER-INCOME> 0
<EXPENSES-NET> 3,395,346
<NET-INVESTMENT-INCOME> 28,799,812
<REALIZED-GAINS-CURRENT> 9,369,017
<APPREC-INCREASE-CURRENT> 26,284,851
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 550,065
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,330
<NUMBER-OF-SHARES-REDEEMED> 613,583
<SHARES-REINVESTED> 12,500
<NET-CHANGE-IN-ASSETS> 31,814,982
<ACCUMULATED-NII-PRIOR> 27,604
<ACCUMULATED-GAINS-PRIOR> 33,354,060
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,869,768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,395,346
<AVERAGE-NET-ASSETS> 8,772,449
<PER-SHARE-NAV-BEGIN> 12.51
<PER-SHARE-NII> 1.00
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.96)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.61
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 025
<NAME> US GOVERNMENT PORTFOLIO - CLASS Z
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 451,885,990
<INVESTMENTS-AT-VALUE> 464,046,485
<RECEIVABLES> 3,011,760
<ASSETS-OTHER> 5,416
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467,063,661
<PAYABLE-FOR-SECURITIES> 20,468,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,470,646
<TOTAL-LIABILITIES> 21,939,396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 442,743,006
<SHARES-COMMON-STOCK> 1,538,469
<SHARES-COMMON-PRIOR> 1,486,353
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (100,007)
<ACCUMULATED-NET-GAINS> (9,679,229)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,160,495
<NET-ASSETS> 445,124,265
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,195,158
<OTHER-INCOME> 0
<EXPENSES-NET> 3,395,346
<NET-INVESTMENT-INCOME> 28,799,812
<REALIZED-GAINS-CURRENT> 9,369,017
<APPREC-INCREASE-CURRENT> 26,284,851
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,464,379
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 212,929
<NUMBER-OF-SHARES-REDEEMED> 271,382
<SHARES-REINVESTED> 110,569
<NET-CHANGE-IN-ASSETS> 31,814,982
<ACCUMULATED-NII-PRIOR> 27,604
ACCUMULATED-GAINS-PRIOR> 33,354,060
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,869,768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,395,346
<AVERAGE-NET-ASSETS> 20,233,352
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.94
<PER-SHARE-GAIN-APPREC> 1.11
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.95)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.60
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 031
<NAME> INCOME RETURN ACCOUNT PORTFOLIO - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 24,994,070
<INVESTMENTS-AT-VALUE> 25,255,580
<RECEIVABLES> 453,401
<ASSETS-OTHER> 726
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,709,707
<PAYABLE-FOR-SECURITIES> 89,066
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,126
<TOTAL-LIABILITIES> 145,192
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,689,033
<SHARES-COMMON-STOCK> 1,700,013
<SHARES-COMMON-PRIOR> 2,026,123
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 17,808
<ACCUMULATED-NET-GAINS> (1,713,384)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 261,510
<NET-ASSETS> 25,564,515
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,719,313
<OTHER-INCOME> 0
<EXPENSES-NET> 205,925
<NET-INVESTMENT-INCOME> 1,513,388
<REALIZED-GAINS-CURRENT> 102,837
[APPREC-INCREASE-CURRENT> 724,801
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (933,516)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 225,444
<NUMBER-OF-SHARES-REDEEMED> 629,762
<SHARES-REINVESTED> 78,208
<NET-CHANGE-IN-ASSETS> (6,726,780)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 17,393,778
<PER-SHARE-NAV-BEGIN> 9.34
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.51)
<RETURNS-OF-CAPITAL> 8.43
<PER-SHARE-NAV-END> 9.60
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
[SERIES]
[NUMBER] 033
[NAME] INCOME RETURN ACCOUNT PORTFOLIO - CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 24,994,070
<INVESTMENTS-AT-VALUE> 25,255,580
<RECEIVABLES> 453,401
<ASSETS-OTHER> 726
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,709,707
<PAYABLE-FOR-SECURITIES> 89,066
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,126
<TOTAL-LIABILITIES> 145,192
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,689,033
<SHARES-COMMON-STOCK> 262,459
<SHARES-COMMON-PRIOR> 327,182
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 17,808
<ACCUMULATED-NET-GAINS> (1,713,384)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 261,510
<NET-ASSETS> 25,564,515
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,719,313
<OTHER-INCOME> 0
<EXPENSES-NET> 205,925
<NET-INVESTMENT-INCOME> 1,513,388
<REALIZED-GAINS-CURRENT> 102,837
<APPREC-INCREASE-CURRENT> 724,801
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (137,074)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,564
<NUMBER-OF-SHARES-REDEEMED> 106,686
<SHARES-REINVESTED> 10,399
<NET-CHANGE-IN-ASSETS> (6,726,780)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,710,661
<PER-SHARE-NAV-BEGIN> 9.34
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.48)
<RETURNS-OF-CAPITAL> 8.06
<PER-SHARE-NAV-END> 9.60
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 034
<NAME> INCOME RETURN ACCOUNT PORTFOLIO - CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 24,994,070
<INVESTMENTS-AT-VALUE> 25,255,580
<RECEIVABLES> 453,401
<ASSETS-OTHER> 726
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,709,707
<PAYABLE-FOR-SECURITIES> 89,066
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,126
<TOTAL-LIABILITIES> 145,192
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,689,033
<SHARES-COMMON-STOCK> 99,116
<SHARES-COMMON-PRIOR> 346,380
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 17,808
<ACCUMULATED-NET-GAINS> (1,713,384)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 261,510
<NET-ASSETS> 25,564,515
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,719,313
<OTHER-INCOME> 0
<EXPENSES-NET> 205,925
<NET-INVESTMENT-INCOME> 1,513,388
<REALIZED-GAINS-CURRENT> 102,837
<APPREC-INCREASE-CURRENT> 724,801
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (83,679)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 254,016
<SHARES-REINVESTED> 6,753
<NET-CHANGE-IN-ASSETS> (6,726,780)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,529,677
<PER-SHARE-NAV-BEGIN> 9.34
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.51)
<RETURNS-OF-CAPITAL> 8.43
<PER-SHARE-NAV-END> 9.60
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 035
<NAME> INCOME RETURN ACCOUNT PORTFOLIO - CLASS Z
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 24,994,070
<INVESTMENTS-AT-VALUE> 25,255,580
<RECEIVABLES> 453,401
<ASSETS-OTHER> 726
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,709,707
<PAYABLE-FOR-SECURITIES> 89,066
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,126
<TOTAL-LIABILITIES> 145,192
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,689,033
<SHARES-COMMON-STOCK> 600,282
<SHARES-COMMON-PRIOR> 757,905
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 17,808
<ACCUMULATED-NET-GAINS> (1,713,384)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 261,510
<NET-ASSETS> 25,564,515
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,719,313
<OTHER-INCOME> 0
<EXPENSES-NET> 205,925
<NET-INVESTMENT-INCOME> 1,513,388
<REALIZED-GAINS-CURRENT> 102,837
<APPREC-INCREASE-CURRENT> 724,801
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (356,550)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,206
<NUMBER-OF-SHARES-REDEEMED> 200,256
<SHARES-REINVESTED> 37,427
<NET-CHANGE-IN-ASSETS> (6,726,780)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,638,649
<PER-SHARE-NAV-BEGIN> 9.35
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.51)
<RETURNS-OF-CAPITAL> 8.89
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> 0.70
[AVG-DEBT-OUTSTANDING> 0
[AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
<NUMBER> 041
<NAME> SHORT-TERM US TREASURY PORTFOLIO - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 102,100,725
<INVESTMENTS-AT-VALUE> 106,024,492
<RECEIVABLES> 1,244,211
<ASSETS-OTHER> 110,445
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 107,379,148
<PAYABLE-FOR-SECURITIES> 77,249
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 202,805
<TOTAL-LIABILITIES> 280,054
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,229,353
<SHARES-COMMON-STOCK> 25,568,994
<SHARES-COMMON-PRIOR> 22,684,266
<ACCUMULATED-NII-CURRENT> 7,334,575
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,054,026
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,923,767
<NET-ASSETS> 107,099,094
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,624,350
<OTHER-INCOME> 0
<EXPENSES-NET> 877,418
<NET-INVESTMENT-INCOME> 4,746,932
<REALIZED-GAINS-CURRENT> (1,124,138)
<APPREC-INCREASE-CURRENT> 7,502,923
<NET-CHANGE-FROM-OPS> 11,125,717
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,203,747
<DISTRIBUTIONS-OF-GAINS> (547,137)
<DISTRIBUTIONS-OTHER> 313,569
<NUMBER-OF-SHARES-SOLD> 10,999,038
<NUMBER-OF-SHARES-REDEEMED> (56,878,050)
<SHARES-REINVESTED> 3,983,544
<NET-CHANGE-IN-ASSETS> 12,013,716
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 403,161
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 877,418
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 3.91
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 0.28
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 13.16
<PER-SHARE-NAV-END> 4.19
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
