FILE NO 2-25890
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM N-1A
__________________________________________________
POST-EFFECTIVE AMENDMENT NO. 62
To The
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
and
POST-EFFECTIVE AMENDMENT NO. 42
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)
__________________________________________________
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
XX immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Common Stock.
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 "AdditionalInformation"
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 Proto-
type Retirement Plans"
See Prospectus --
"Valuation of
Shares"
"Financial
Statements" "Redemption of
Shares"
20. Tax Status See Prospectus --
"Dividends, Distribu-
tions and Taxes"
"Additional Tax
Information"
21. Underwriters See Prospectus --
"Management of the
Fund" "Investment
Management Agreement
and Other Services"
22. Calculation of Performance Data "Performance
Information"
23. Financial Statements "Financial Statements"
Part C of
Form N-1A
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Post-Effective Amendment
to the Registration Statement.
<PAGE>
SMITH BARNEY FUNDS, INC.
LARGE CAP
VALUE FUND
APRIL 28, 1998
PROSPECTUS BEGINS ON PAGE ONE
P R O S P E C T U S
LOGO SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
PROSPECTUS April 28, 1998
Smith Barney Funds, Inc.
Large Cap Value Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The Large Cap Value Fund (the "Portfolio") is one of three investment
portfolios that currently comprise Smith Barney Funds, Inc. (the "Fund"). The
Portfolio seeks current income and long-term growth of income and capital. It
invests primarily, but not exclusively, in common stocks of companies that have
a market capitalization of at least $5 billion at the time of investment. The
investment manager seeks common stocks that are considered by the investment
manager (i) to be undervalued by the marketplace, (ii) to offer potential
opportunities not yet recognized by the marketplace, or (iii) to have been out
of favor in the marketplace but that are poised to turn around because of a new
management team, product or business strategy.
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 28, 1998, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by 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
MUTUAL MANAGEMENT CORP.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR DIS-APPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 9
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 12
- -------------------------------------------------
VALUATION OF SHARES 14
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 14
- -------------------------------------------------
PURCHASE OF SHARES 15
- -------------------------------------------------
EXCHANGE PRIVILEGE 25
- -------------------------------------------------
REDEMPTION OF SHARES 28
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 30
- -------------------------------------------------
PERFORMANCE 31
- -------------------------------------------------
MANAGEMENT OF THE FUND 31
- -------------------------------------------------
DISTRIBUTOR 33
- -------------------------------------------------
ADDITIONAL INFORMATION 34
- -------------------------------------------------
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 Smith Barney Inc. (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>
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 Portfolio is an open-end, management investment com-
pany whose investment objective is to seek current income and long-term growth
of income and capital by investing primarily, but not exclusively, in common
stocks. See "Investment Objective 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 $15,000,000. In
addition, a fifth Class, Class Z shares, which is offered pursuant to a sepa-
rate 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 of
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--Reduced
or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. This CDSC may be waived for certain redemp-
tions. 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.
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."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 $15,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to any
service or distribution fees.
In deciding which Class of Portfolio shares to purchase, investors should
consider the following factors, as well as any other relevant facts and cir-
cumstances:
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 regu-
lar investment may wish to consider Class A shares; as the investment accumu-
lates 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 Portfo-
lio's future return cannot be predicted, however, there can be no assurance
that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Portfolio. In addition, Class A
share purchases of $500,000 or more will be made at net asset value with no
initial sales charge, but will be subject to a CDSC of 1.00% on redemptions
made within 12 months of purchase. The $500,000 investment may be met by add-
ing the purchase to the net
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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-
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 different Classes of shares. Investors should understand that the pur-
pose 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) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares -- Smith Barney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through 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"). 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 $15,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes is $25. The minimum investment requirements
for purchase of
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Portfolio shares through the Systematic Investment Plan are described below.
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. The minimum initial
investment requirement for Class A, Class B and Class C shares and the subse-
quent investment requirement for all Classes for shareholders purchasing shares
through the Systematic Investment Plan on a monthly basis is $25 and on a quar-
terly basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE PORTFOLIO Mutual Management Corp., formerly Smith Barney
Mutual Funds Management Inc. (the "Manager"), serves as the Portfolio's
investment manager. The Manager is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers"), a diversified financial services holding
company engaged, through its subsidiaries, principally in four business
segments: Investment Services, including Asset Management, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the 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
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
response to changes in market and economic conditions, as well as the financial
condition and prospects of issuers in which the Portfolio invests. The Portfo-
lio may invest in foreign securities. Investments in foreign securities incur
higher costs than investments in U.S. securities, including higher costs in
making securities transactions as well as foreign government taxes which may
reduce the investment return of the Portfolio. In addition, foreign investments
may include additional risks associated with currency exchange rates, less com-
plete financial information about individual companies, less market liquidity
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 operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
LARGE CAP VALUE FUND 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)
<CAPTION>
- -------------------------------------------------------------------------------
<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 0.09 0.13 0.11 0.02
- -------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES 0.92% 1.71% 1.69% 0.60%
- -------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more, will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
Class A shares of the Portfolio purchased through the Smith Barney Asset One
Program will be subject to an annual asset-based fee, payable quarterly, in
lieu of the initial sales charge. The fee will vary to a maximum of 1.50%,
depending on the amount of assets held through the Program. For more informa-
tion, please call your Smith Barney Financial Consultant.
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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) and ExecChoice(TM) Programs. See "Purchase of Shares" and
"Redemption of Shares." Smith Barney receives an annual 12b-1 service fee of
up to 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 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 indi-
rectly. 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>
LARGE CAP
VALUE
FUND 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 $59 $78 $ 98 $157
Class B 67 84 103 181
Class C 27 53 92 200
Class Y 6 19 33 75
An investor
would pay the
following
expenses on the
same investment,
assuming the
same annual
return and no
redemption:
Class A $59 $78 $ 98 $157
Class B 17 54 93 181
Class C 17 53 92 200
Class Y 6 19 33 75
- ----------------------------------------------
</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 REPRE-
SENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, indepen-
dent auditors, whose report thereon appears in the Fund's annual report dated
December 31, 1997. The information set out below should be read in conjunction
with the financial statements and related notes that also appear in the Fund's
Annual Report to Shareholders, which is incorporated by reference into the
Statement of Additional Information.
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
LARGE CAP VALUE FUND
CLASS A SHARES 1997 1996 1995 1994(1) 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.79 $14.59 $12.18 $13.31 $12.48 $12.51
- ------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.29 0.36 0.39 0.43 0.46 0.50
Net realized and unrealized gain
(loss) 3.80 1.99 3.59 (1.00) 1.56 0.38
- ------------------------------------------------------------------------------------------------
Total Income (Loss) from
Operations 4.09 2.35 3.98 (0.57) 2.02 0.88
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.29) (0.36) (0.39) (0.42) (0.46) (0.51)
Net realized gains (2) (1.50) (1.79) (1.18) (0.14) (0.73) (0.40)
- ------------------------------------------------------------------------------------------------
Total Distributions (1.79) (2.15) (1.57) (0.56) (1.19) (0.91)
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $17.09 $14.79 $14.59 $12.18 $13.31 $12.48
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (P) 27.86% 16.06% 33.05% (4.31)% 16.38% 7.23%
- ------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $758,708 $645,935 $617,431 $544,572 $627,870 $573,085
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.92% 0.95% 1.02% 0.96% 0.91% 0.92%
Net investment income 1.71 2.28 2.78 3.31 3.42 3.97
- ------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49% 51% 27% 46% 39%
- ------------------------------------------------------------------------------------------------
AVERAGE COMMISSION PER SHARE PAID
ON EQUITY TRANSACTIONS(3) $0.06 $0.06 $0.06 -- -- --
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
CLASS A SHARES (CONTINUED) 1991 1990 1989 1988
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.54 $12.69 $11.00 $10.05
- -----------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.56 0.67 0.70 0.61
Net realized and unrealized gain
(loss) 2.19 (1.87) 2.00 1.14
- -----------------------------------------------------------------------------
Total Income (Loss) from Operations 2.75 (1.20) 2.70 1.75
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.73) (0.70) (0.70) (0.63)
Net realized gains (2) (0.05) (0.25) (0.31) (0.17)
- -----------------------------------------------------------------------------
Total Distributions (0.78) (0.95) (1.01) (0.80)
- -----------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $12.51 $10.54 $12.69 $11.00
- -----------------------------------------------------------------------------
TOTAL RETURN (P) 26.57% (9.46)% 25.11% 17.67%
- -----------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $583,686 $513,586 $589,952 $517,948
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.84% 0.45% 0.44% 0.49%
Net investment income 4.80 5.69 5.65 5.58
- -----------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 45% 48% 38% 26%
- -----------------------------------------------------------------------------
</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.
(3)As of September 1995, the SEC instituted new guidelines requiring the
disclosure of the average commissions per share.
(P) Total returns do not reflect any sales charges.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
LARGE CAP VALUE FUND
CLASS B SHARES 1997 1996 1995 1994(1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $14.74 $14.54 $12.15 $12.54
- ------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income 0.16 0.25 0.24 0.03
Net realized and
unrealized gains
(loss) 3.78 1.98 3.62 (0.19)
- ------------------------------------------------------------------------------------------
Total Income (Loss)
from Operations 3.94 2.23 3.86 (0.16)
- ------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
FROM:
Net investment income (0.15) (0.24) (0.29) (0.09)
Net realized gains (2) (1.50) (1.79) (1.18) (0.14)
- ------------------------------------------------------------------------------------------
Total Distributions (1.65) (2.03) (1.47) (0.23)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $17.03 $14.74 $14.54 $12.15
- ------------------------------------------------------------------------------------------
TOTAL RETURN (P) 26.83% 15.22% 32.07% (1.28)%++
- ------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $28,525 $14,883 $6,065 $354
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.71% 1.71% 1.73% 1.59%+*
Net investment income 0.92 1.55 1.83 2.11+
- ------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49% 51% 27%
- ------------------------------------------------------------------------------------------
AVERAGE COMMISSION PER
SHARE PAID ON EQUITY
TRANSACTIONS(3) $0.06 $0.06 $0.06 --
- ------------------------------------------------------------------------------------------
<CAPTION>
CLASS C SHARES 1997 1996 1995 1994(4) 1993 1992(5)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $14.76 $14.57 $12.18 $13.30 $12.48 $12.87
- ------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income 0.16 0.24 0.27 0.31 0.38 0.17
Net realized and
unrealized
gain (loss) 3.79 1.98 3.59 (0.95) 1.53 (0.10)
- ------------------------------------------------------------------------------------------
Total Income (Loss)
from Operations 3.95 2.22 3.86 (0.64) 1.91 0.07
- ------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
FROM:
Net investment income (0.16) (0.24) (0.29) (0.34) (0.36) (0.06)
Net realized gains (2) (1.50) (1.79) (1.18) (0.14) (0.73) (0.40)
- ------------------------------------------------------------------------------------------
Total Distributions (1.66) (2.03) (1.47) (0.48) (1.09) (0.46)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $17.05 $14.76 $14.57 $12.18 $13.30 $12.48
- ------------------------------------------------------------------------------------------
TOTAL RETURN (P) 26.85% 15.15% 32.01% (4.91)% 15.46% (0.57)%++
- ------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $42,115 $33,365 $29,758 $27,507 $15,408 $1,504
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.69% 1.73% 1.79% 1.75% 1.65% 1.58%+
Net investment income 0.93 1.50 2.00 2.49 2.59 1.80+
- ------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49% 51% 27% 46% 39%
- ------------------------------------------------------------------------------------------
AVERAGE COMMISSION PER
SHARE PAID ON EQUITY
TRANSACTIONS(3) $0.06 $0.06 $0.06 -- -- --
- ------------------------------------------------------------------------------------------
</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)As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(4)On November 7, 1994 former Class B shares were renamed Class C shares.
(5) 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.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
LARGE CAP VALUE FUND
CLASS Y SHARES 1997 1996(1)(2)
- -------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.80 $15.06
- -------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.38 0.36
Net realized and unrealized gain 3.76 1.58
- -------------------------------------------------------------------
Total Income from Operations 4.14 1.94
- -------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.35) (0.41)
Net realized gains(3) (1.50) (1.79)
- -------------------------------------------------------------------
Total Distributions (1.85) (2.20)
- -------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $17.09 $14.80
- -------------------------------------------------------------------
TOTAL RETURN 28.21% 12.86%++
- -------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $111,690 $30,169
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.60% 0.66%+
Net investment income 2.06 3.02+
- -------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49%
- -------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY
TRANSACTIONS $0.06 $0.06
- -------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period,
which more appropriately presents per share data for this year since the
use of the undistributed income method did not accord with results of
operations.
(2) For the period from February 6, 1996 (inception date) to December 31,
1996.
(3) 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.
11
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Portfolio seeks current income and long-term growth of income and capital
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 obliga-
tions (such as U.S. Government Obligations, investment grade bonds and deben-
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). Under normal market conditions, at least 65% of the Portfolio's assets
will be invested in common stocks of companies that have a market capitaliza-
tion of at least $5 billion at the time of investment. The Manager seeks common
stocks that are considered by the Manager (i) to be undervalued by the market-
place, (ii) to offer potential opportunities not yet recognized by the market-
place, or (iii) to have been out of favor in the marketplace but that are
poised to turn around because of a new management team, product or business
strategy. The Portfolio may also purchase preferred stocks and convertible
securities. Temporary defensive investments or a higher percentage of debt
securities may be held when deemed advisable by the Manager. To the extent the
Portfolio's assets are invested for temporary defensive purposes, such assets
will not be invested in a manner designed to achieve the Portfolio'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 portion of the assets may be
invested in non-dividend paying stocks. The Portfolio may make investments in
foreign securities, though management currently intends to limit such invest-
ments to 5% of the Portfolio's assets (including European, Continental and
Global Depositary Receipts), and an additional 10% of its assets may be
invested in sponsored American Depositary Receipts representing shares in for-
eign securities that are traded in United States securities markets.
The Portfolio may also invest in options (including swaps, caps, collars and
floors), unseasoned issuers, REITS and other investment companies and may bor-
row money as a temporary measure for extraordinary or emergency purposes.
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 Statement
of Additional Information) or applicable law, and any such change will first be
disclosed in the then current prospectus.
See the Appendix to this Prospectus for a description of certain permissible
investments. Further detail is set forth in the Statement of Additional Infor-
mation.
12
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The investment management services provided to the Fund by the Manager and
the services provided to shareholders by Smith Barney depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That failure
could have a negative impact on the Fund's operations, including the handling
of securities trades, pricing and account services. The Manager and Smith Bar-
ney have advised the Fund that they have been reviewing all of their computer
systems and actively working on necessary changes to their systems to prepare
for the year 2000 and expect that their systems will be compliant before that
date. In addition, the Manager has been advised by PNC Bank, National Associa-
tion, the Fund's custodian, as well as the Fund's transfer agent and accounting
service agent that they are also in the process of modifying their systems with
the same goal. There can, however, be no assurance that the Manager, Smith Bar-
ney or any other service provider will be successful, or that interaction with
other non-complying computer systems will not impair Fund services at that
time.
PORTFOLIO TRANSACTIONS AND TURNOVER
All orders for transactions in securities 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. 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 owner-
ship of any securities and that shares of the Portfolio will fluctuate with the
market values of its securities.
13
<PAGE>
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 domestic 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
foregoing 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
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 quo-
tations for securities of similar type, yield and maturity. Short-term invest-
ments that have a maturity of 60 days or less are valued at amortized cost when
the Board of Directors has determined that amortized cost approximates 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 dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.
Income dividends and capital gain distributions that are invested are cred-
ited to shareholders' accounts in additional shares at the net asset value as
of the close of business on the payment date. A shareholder may change the
option at any time by notifying his or her Smith Barney Financial Consultant.
Accounts held directly by 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 principally as
a result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the 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.
14
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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.
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 the Portfolio's 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 regardless of how long the
shareholder owned his or her shares. 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 $15,000,000 (except
for purchases of Class Y shares by Smith Barney Concert Allocation Series Inc.,
for which there is no minimum purchase amount). 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 Summary -- Alternative Purchase Arrangements" for a discussion
of factors to consider in selecting which Class of shares to purchase.
Purchases of Portfolio shares must be made through a brokerage account main-
tained with Smith Barney, 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 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. Smith
15
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Barney and other broker/dealers may charge their customers an annual account
maintenance fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly at First Data are
not subject to a maintenance fee.
Investors in Class A, Class B and Class C shares may open an account by 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 $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For par-
ticipants 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 shareholders purchasing shares of the
Portfolio through the Systematic Investment Plan on a monthly basis, the mini-
mum initial investment requirement for Class A, Class B and Class C shares and
the subsequent investment requirement for all Classes is $25. For shareholders
purchasing shares of the Portfolio through the Systematic Investment Plan on a
quarterly basis, the minimum initial investment requirement for Class A, Class
B and Class C shares and the 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 or other funds affiliated
with Travelers, and their spouses and children. The Fund reserves the right to
waive or change minimums, to decline any order to purchase its shares and to
suspend the offering of shares from time to time. Shares purchased will be
held in the shareholder's account by the 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
Introducing Brokers purchasing through Smith Barney, payment for Portfolio
shares is due on the third business day after the trade date. In all other
cases, payment must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
16
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Systematic Investment Plan, Smith Barney or First Data is authorized through
preauthorized transfers of at least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the shareholder's account at the bank account or
other financial institution indicated by the shareholder, in order 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 autho-
rizes Smith Barney to apply cash held in the shareholder's Smith Barney broker-
age account or redeem the shareholder's shares of a Smith Barney money market
fund to make additions to the account. Additional information is available from
the Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the 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 of $500,000 or more will be made at net asset
value without any initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
shares is payable to Smith Barney, which compensates Smith Barney Financial
Consultants and other dealers whose clients make purchases of $500,000 or
more. The CDSC is waived in the same circumstances in which the CDSC
applicable to Class B and Class C shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Portfolio made at one time by "any person," which
includes an individual and his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary account.
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries and any of the Smith Barney Mutual
Funds or other
17
<PAGE>
PURCHASE OF SHARES (CONTINUED)
mutual funds affiliated with Travelers (including retired Board Members and
employees); the immediate families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to a pension, profit-shar-
ing or other benefit plan for such persons and (ii) employees of members of the
National Association of Securities Dealers, Inc., provided such sales are made
upon the assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be resold except through redemption
or repurchase; (b) offers of Class A shares to any other investment company to
effect with the combination of such company with the Portfolio by merger,
acquisition of assets or otherwise; (c) purchases of Class A shares by any cli-
ent of a newly employed Smith Barney Financial Consultant (for a period up to
90 days from the commencement of the Financial Consultant's employment with
Smith Barney), on the condition the purchase of Class A shares is made with the
proceeds of the redemption of shares of a mutual fund which (i) was sponsored
by the Financial Consultant's prior employer, (ii) was sold to the client by
the Financial Consultant and (iii) was subject to a sales charge; (d) purchases
by shareholders who have redeemed Class A shares in a Portfolio (or Class A
shares of another fund of the Smith Barney Mutual Funds that are offered with a
sales charge) and who wish to reinvest their redemption proceeds in the Portfo-
lio, provided the reinvestment is made within 60 calendar days of the redemp-
tion; (e) purchases by accounts managed by registered investment advisory sub-
sidiaries of Travelers; (f) purchases by Section 403(b) or Section 401(a) or
(k) accounts associated with Copeland Retirement Programs; (g) direct rollovers
by plan participants of distributions from a 401(k) plan offered to employees
of Travelers or its subsidiaries or a 401(k) plan enrolled in the Smith Barney
401(k) Program (Note: subsequent investments will be subject to the applicable
sales charge); (h) purchases by separate accounts used to fund certain unregis-
tered variable annuity contracts; and (i) purchases by investors participating
in a Smith Barney fee-based arrangement. 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 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 qualifies
for the reduced sales charge. The right of accumulation is subject to modifica-
tion or discontinuance at any time with respect to all shares purchased there-
after.
18
<PAGE>
PURCHASE OF SHARES (CONTINUED)
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership- sanctioned plan
meeting certain requirements. One such requirement is that the plan must be
open to specified partners or employees of the employer and its subsidiaries,
if any. Such plan may, but is not required to, provide for payroll deductions,
IRAs or investments pursuant to retirement plans under Sections 401 or 408 of
the Code. Smith Barney may also offer a reduced sales charge or net asset value
purchase for aggregating related fiduciary accounts under such conditions that
Smith Barney will realize economies of sales efforts and sales related
expenses. An individual who is a member of a qualified group may also purchase
Class A shares at the reduced sales charge applicable to the group as a whole.
The sales charge is based upon the aggregate dollar value of Class A shares
offered with a sales charge that have been previously purchased and are still
owned by the group, plus the amount of the current purchase. A "qualified
group" is one which (a) has been in existence for more than six months, (b) has
a purpose other than acquiring Portfolio shares at a discount and (c) satisfies
uniform criteria which enable Smith Barney to realize economies of scale in its
costs of distributing shares. A qualified group must have more than 10 members,
must be available to arrange for group meetings between representatives of the
Portfolio and the members, and must agree to include sales and other materials
related to the Portfolio in its publications and mailings to members at no cost
to Smith Barney. In order to obtain such reduced sales charge or to purchase at
net asset value, the purchaser must provide sufficient information at the time
of purchase to permit verification that the purchase qualifies for the reduced
sales charge. Approval of group purchase reduced sales charge plans is subject
to the 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
19
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 appli-
cable to the purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed. Please contact a Smith Barney
Financial Consultant or First Data to obtain a Letter of Intent application.
Class Y Shares. A Letter of Intent may also be used as a way for investors
to meet the minimum investment requirement for Class Y shares. Such investors
must make an initial minimum purchase of $5,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of $15,000,000 of Class Y shares of
the same Portfolio within 13 months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-month period, all Class Y
shares purchased to date will be transferred to Class A shares, where they
will be subject to all fees (including a service fee of 0.25%) and expenses
applicable to the 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
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 that were purchased without an initial
sales charge but subject to CDSC.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a
CDSC to the extent that the value of such shares represents: (a) capital
appreciation of 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
20
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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) and ExecChoice(TM) Programs."
<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. See "Prospectus Summary -- Alternative Purchase Arrangements --
Class B Shares Conversion Feature."
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distribu-
tions and finally of other shares held by the shareholder for the longest
period of time. The length of time that CDSC Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and Portfolio shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income tax purposes, the amount
of the CDSC will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any CDSC will be paid to Smith
Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 com-
mences (see "Automatic Cash Withdrawal Plan") (provided, however, that auto-
matic 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 to effect a combination of the
Portfolio with any investment company by merger, acquisition of assets or oth-
erwise. In addition, a shareholder who has redeemed shares from other funds of
the Smith Barney Mutual Funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or holdings, as
the case may be.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice (TM) Program. To the extent applicable, the
same terms and conditions, which are outlined below, are offered to all plans
participating ("Participating Plans") in these Programs.
The Portfolio offers to Participating Plans Class A and Class C shares as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Pro-
grams. Class A and Class C shares acquired through the Participating Plans are
subject to the same service and/or distribution fees as the Class A and Class
C shares acquired by other investors; however, they are not subject to any
initial sales charge or contingent deferred sales charge ("CDSC"). Once a Par-
ticipating 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.
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Class A Shares. Class A shares of the Portfolio are offered without any ini-
tial sales charge or CDSC to any Participating Plan that purchases from
$1,000,000 or more of Class A shares of one or more funds of the Smith Barney
Mutual Funds.
Class C Shares. Class C shares of the Portfolio are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000 of
one or more funds of the Smith Barney Mutual Funds.
401(k) and ExecChoice(TM) Plans On or After June 21, 1996. At the end of the
fifth year after the date the Participating Plan enrolled in the Smith Barney
401(k) Program or the Smith Barney ExecChoice(TM) Program, if its total Class C
holdings in all non-money market Smith Barney Mutual Funds equal at least
$1,000,000, it will be offered the opportunity to exchange all of its Class C
shares for Class A shares of the Portfolio. (For Participating Plans that were
originally established through a Smith Barney retail brokerage account, the
five year period will be calculated from the date the retail brokerage account
was opened.) Such Participating Plans will be notified of the pending exchange
in writing within 30 days after the fifth anniversary of the enrollment date
and, unless the exchange offer has been rejected in writing, the exchange will
occur on or about the 90th day after the fifth anniversary date. If the Partic-
ipating Plan does not qualify for the five year exchange to Class A shares, a
review of the Participating Plan's holdings will be performed each quarter
until either the Participating Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal at
least $500,000 as of the calendar year-end, the Participating Plan will be
offered the opportunity to exchange all of its Class C shares for Class A
shares of the 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.
Any Participating Plan in the Smith Barney 401(k) or ExecChoice(TM) Program,
whether opened before or after June 21, 1996 that has not previously qualified
for an exchange into Class A shares will be offered the opportunity to exchange
all of its Class C shares for Class A shares of the Portfolio, regardless of
asset size, at the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) or ExecChoice Programs. Such Plans will be
notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be eligible
to acquire additional Class C shares of the
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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.
Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any
Participating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
At the end of the eighth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program, it will be offered the opportunity to
exchange all of its Class B shares for Class A shares of the Portfolio. Such
Participating Plan will be notified of the pending exchange in writing approxi-
mately 60 days before the eighth anniversary of the enrollment date and, unless
the exchange has been rejected in writing, the exchange will occur on or about
the eighth anniversary date. Once the exchange has occurred, a Participating
Plan will not be eligible to acquire additional Class B shares of a Fund but
instead may acquire Class A shares of the Fund. If the Participating Plan
elects not to exchange all of its Class B shares at that time, each Class B
share held by the Participating Plan will have the same conversion feature as
Class B shares held by other investors. See "Purchase of Shares--Deferred Sales
Charge Alternatives."
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases in the net asset
value of the shareholder's Class B shares above the purchase payments made dur-
ing the preceding eight years. Whether or not the CDSC applies to the redemp-
tion by a Participating Plan depends on the number of years since the Partici-
pating Plan first became enrolled in the Smith Barney 401(k) Program, unlike
the applicability of the CDSC to redemptions by other shareholders, which
depends on the number of years since those shareholders made the purchase pay-
ment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employ-
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ment of an employee in the Participating Plan; (c) the death or disability of
any 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 Partici-
pating Plan to the extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the Participating Plan
to an employee.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged 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.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Large Cap Blend Fund
Smith Barney Premium Total Return 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. -- Short-Term U.S. Treasury Securities Fund
Smith Barney Funds, Inc. -- U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
25
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
*Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Muncipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Municipal High Income Fund
Global -- International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -- Global Portfolio
Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- Income Portfolio
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc. -- Cash Portfolio
++Smith Barney Money Funds, Inc. -- Government Portfolio
***Smith Barney Money Funds, Inc. -- Retirement Portfolio
+++Smith Barney Municipal Money Market Fund, Inc.
+++Smith Barney Muni Funds -- California Money Market Portfolio
+++Smith Barney Muni Funds -- New York Money Market Portfolio.
- --------------------------------------------------------------------------------
26
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
* Available for exchange with Class A, Class C and Class Y shares of the
Portfolio.
** Available for exchange with Class A and Class B 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, Participating Plans prior to June 21, 1996 and investing in
Class C shares may exchange Portfolio shares for Class C shares of this
fund.
+++ Available for exchange with Class A and Class Y shares of the Portfolio.
Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares in any of the funds imposing a higher CDSC
than that imposed by 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 A and Class Y Exchanges. Class A and Class Y shareholders of the Port-
folio who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without impo-
sition 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 Barney Mutual Funds ordinarily available, which position the share-
holder 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 appli-
27
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
cable 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 share- holders.
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 First Data receives further
instructions from Smith Barney, or if the shareholder's account is not with
Smith Barney, from the shareholder directly. The redemption proceeds will be
remitted on or before the third business day following receipt of proper ten-
der, except on any days on which the NYSE is closed or as permitted under the
Investment Company Act of 1940, as amended (the "1940 Act") in extraordinary
circumstances. Generally, if the redemption proceeds are remitted to a Smith
Barney brokerage account, these funds will not be invested for the sharehold-
er's benefit without specific instruction and Smith Barney will benefit from
the use of temporarily uninvested funds. Redemption proceeds for shares pur-
chased by check, other than a certified or official bank check, will be remit-
ted upon clearance of the check, which may take up to 10 days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney Funds, Inc./(Large Cap Value Fund)
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
28
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a written redemption request in excess of
$10,000, or share certificate stock power must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member firm
of a national securities exchange. Written redemption requests of $10,000 or
less do not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. 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 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.)
29
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 with
a member bank. The Fund reserves the right to charge shareholders a nominal
fee for each wire redemption. Such charges, if any, will be assessed against
the shareholder's account from which shares were redeemed. In order to change
the bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire Authorization Form and, for the protection of
the shareholder's assets, will be required to provide a signature guarantee
and certain other documentation.
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 following at least seven (7) days prior notice to shareholders.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Portfolio if the aggregate net asset value of the shares held
in the Portfolio
30
<PAGE>
MINIMUM ACCOUNT SIZE (CONTINUED)
account is less than $500. (If a shareholder has more than one account in the
Portfolio, each account must satisfy the minimum account size.) The Fund, how-
ever, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
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. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum
sales charge, if any, from the initial amount invested and reinvestment of all
income dividends and capital gain distributions on the reinvestment dates at
prices calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC, is derived from this total return, which provides the
ending redeemable value. Such standard total return information may also be
accompanied with nonstandard total return information for differing periods
computed in the same manner but without annualizing the total return or taking
sales charges into account. The Portfolio calculates current dividend return
for each of its Classes by dividing the current dividend by the net asset
value or the maximum public offering price (including sales charge) on the
last day of the period for which current dividend return is presented. Each
Class' current dividend return may vary from time to time depending on market
conditions, the composition of the 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. 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 finan-
cial publications.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Portfolio rests
with the Fund's Board of Directors. The Board of Directors approves all sig-
nificant agree -
31
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
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 delegated to the Manager. The Statement of Additional Information
contains background information regarding each Director and executive officer
of the Fund.
MANAGER
Mutual Management Corp., formerly 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, 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 Manager with information, advice and assistance
and will be available for consultation on the Portfolios, thus Smith Barney
may also be considered an investment adviser to the Fund. Smith Barney's serv-
ices 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 Portfolio's last fiscal year the effective rate of the management
fee was 0.58% of the Portfolio's average net assets. The management agreement
provides that the Portfolio'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 of
the Portfolio were 0.92%, 1.71%, 1.69% and 0.60% of average net assets for
Class A, Class B, Class C and Class Y shares, respectively.
The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of March 31, 1998 the Manager had aggregate assets under management of
approximately $100.5 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 Managing Director of Smith Barney, is also a Vice Presi-
dent and Director of Smith Barney Funds, Inc. and a co-portfolio manager of
the Portfolio. Mr. Sargent is responsible for the day to day investment opera-
tions of the Portfolio and has been involved in equity investing for over 25
years.
32
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
Ellen C. Sonsino is a Managing Director of Smith Barney and a co-portfolio
manager of the Portfolio. Ms. Sonsino has approximately 20 years of Wall Street
experience, and has been with Smith Barney since 1984.
Management's discussion and analysis, and additional performance information
regarding the Portfolio during the fiscal year ended December 31, 1997, is
included in the Portfolio's Annual Report dated December 31, 1997. A copy of
the Annual Report may be obtained upon request and without charge from a Smith
Barney Financial Consultant or by writing or calling the Fund at the address or
phone number listed on page one of this Prospectus.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also sub-
ject to approval by the stockholders of each of Travelers and Citicorp. Upon
consummation of the merger, the surviving corporation would be a bank holding
company subject to regulation under the Bank Holding Company Act of 1956 (the
"BHCA"), the requirements of the Glass-Steagall Act and certain other laws and
regulations. Although the effects of the merger of Travelers and Citicorp and
compliance with the requirements of the BHCA and the Glass-Steagall Act are
still under review, the Manager does not believe that its compliance with
applicable law following the merger of Travelers and Citicorp will have a mate-
rial adverse effect on its ability to continue to provide the Fund with the
same level of investment advisory services that it currently receives.
DISTRIBUTOR
Smith Barney 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, Class B and Class C shares of the Portfolio at
the annual rate of 0.25% of the average daily net assets attributable to these
Classes. Smith Barney is also paid a distribution fee with respect to Class B
and Class C shares at the annual rate of 0.75% of the average daily net assets
attributable 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 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
33
<PAGE>
DISTRIBUTOR (CONTINUED)
expenses; the cost of printing and mailing prospectuses to potential investors;
payments to and expenses of Smith Barney Financial Consultants and other per-
sons who provide support services in connection with the distribution of
shares; interest and/or carrying charges; and indirect and overhead costs of
Smith Barney associated with the sale of Portfolio shares, including lease,
utility, communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan with respect to Class B and Class C shares are not
tied exclusively to the distribution and shareholder services expenses actually
incurred by Smith Barney and the payments may exceed distribution expenses
actually incurred. The Fund's Board of Directors will evaluate the appropriate-
ness 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 management investment company, was incor-
porated 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 multiple series of shares, each representing
shares in separate investment Portfolios, of which there are currently three,
including the Portfolio. The assets of each Portfolio are segregated and sepa-
rately 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 any provisions of
the Fund's Rule 12b-1 distribution plan which pertain to that 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 the Fund will assist share-
34
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
holders 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, trans-
ferable and nonassessable when issued for payment as described in this Prospec-
tus.
PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia, 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. Shareholders who do not want this consolidation to apply
to their account should contact their Smith Barney Financial Consultant or
First Data.
35
<PAGE>
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 may purchase foreign securities that are traded in the United
States or purchase American Depositary Receipts, which are certificates 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. For-
eign securities may involve a high degree of risk. Foreign securities usually
are denominated in foreign currencies, which means their value will be
affected by changes in exchange rates between other currencies and the U.S.
dollar as well as the other factors that affect securities 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 securi-
ties 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 consist of possible delay in recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Manage-
ment will limit such lending to not more than twenty percent of the value of
the Portfolio's total assets.
A-1
<PAGE>
APPENDIX (CONTINUED)
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 secu-
rities 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 advanta-
geous price and yield to the Portfolio at the time of entering into the trans-
action. The Fund's Custodian will maintain, in a segregated account of the
Portfolio, cash, debt securities of any grade or equity securities, having a
value equal to or greater than the Portfolio's purchase commitments, provided
such securities have been determined by the Manager to be liquid and unencum-
bered, and are marked to market daily, pursuant to guidelines established by
the Directors; the Custodian will likewise segregate securities sold on a
delayed basis.
REPURCHASE AGREEMENTS
The Portfolio may 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 mar-
ket 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 liqui-
dating the collateral. The Portfolio will only enter into repurchase agree-
ments with broker/dealers or other financial institutions that are deemed
creditworthy by the Manager under guidelines approved by the Board of Direc-
tors. 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 the Portfolio amount to more than 15% of the Portfo-
lio's total assets.
Non-Publicly Traded and Illiquid Securities. The sale of securities that are
not publicly traded is typically restricted under the Federal securities laws.
As a result, the Portfolio may be forced to sell these securities at less than
fair market value or may not be able to sell them when the Manager believes it
desirable to do so. The Portfolio's investments in illiquid securities are
subject to the risk that should the Portfolio desire to sell any of these
securities when a ready buyer is not available at a price that the Portfolio
deems representative of their value, the value of the Portfolio's net assets
could be adversely affected.
A-2
<PAGE>
SMITH BARNEY
------------
A Member of TravelersGroup LOGO
SMITH BARNEY
FUNDS, INC.
LARGE CAP
VALUE FUND
388 Greenwich Street
New York, New York 10013
FD 2320 4/98
P R O S P E C T U S
SMITH BARNEY FUNDS, INC.
Large Cap
Value Fund
Class Z Shares Only
APRIL 28, 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
PROSPECTUS April 28, 1998
Smith Barney Funds, Inc.
Large Cap Value Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The Large Cap Value Fund is one of three investment portfolios that currently
comprise Smith Barney Funds, Inc. (the "Fund"). The Large Cap Value Fund seeks
current income and long-term growth of income and capital. It invests primari-
ly, but not exclusively, in common stocks of companies that have a market capi-
talization of at least $5 billion at the time of investment. The investment
manager seeks common stocks that are considered by the investment manager (i)
to be undervalued by the marketplace, (ii) to offer potential opportunities not
yet recognized by the marketplace, or (iii) to have been out of favor in the
marketplace but that are poised to turn around because of a new management
team, product or business strategy.
This Prospectus sets forth concisely certain information about the Fund and
Large Cap Value Fund ("Portfolio"), including 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 refer-
ence.
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 28, 1998, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by 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
MUTUAL MANAGEMENT CORP.
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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO EXPENSES 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 5
- -------------------------------------------------
VALUATION OF SHARES 7
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 7
- -------------------------------------------------
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES 8
- -------------------------------------------------
PERFORMANCE 9
- -------------------------------------------------
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 Smith Barney Inc. (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>
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, 1997.
<TABLE>
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.58%
Other expenses 0.02
- ---------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES 0.60%
- ---------------------------------------------------
</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 indi-
rectly. The example assumes payment by the Portfolio of operating expenses at
the levels set forth in the table above. See "Purchase, Exchange and Redemp-
tion of Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment in Class Z shares of
the Portfolio, assuming (1) a 5.00% annual
return and (2) redemption at the end of each
time period: $6 $19 $33 $75
</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 REPRESEN-
TATION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, indepen-
dent auditors, whose report thereon appears in the Fund's annual report dated
December 31, 1997. The information set out below should be read in conjunction
with the financial statements and related notes that also appear in the Fund's
Annual Report to Shareholders, which is incorporated by reference into the
Statement of Additional Information.
FOR A SHARE OF CLASS Z CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
1997 1996 1995 1994(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.82 $14.61 $12.19 $12.54
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.35 0.42 0.43 0.07
Net realized and unrealized gain
(loss) 3.80 1.99 3.59 (0.16)
- -------------------------------------------------------------------------------
Total Income (Loss) From Operations 4.15 2.41 4.02 (0.09)
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.35) (0.41) (0.42) (0.12)
Net realized gains(2) (1.50) (1.79) (1.18) (0.14)
- -------------------------------------------------------------------------------
Total Distributions (1.85) (2.20) (1.60) (0.26)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $17.12 $14.82 $14.61 $12.19
- -------------------------------------------------------------------------------
TOTAL RETURN 28.27% 16.47% 33.41% (0.73)%++
- -------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $144,008 $113,160 $98,661 $80,010
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.60% 0.62% 0.69% 0.42%+
Net investment income 2.03 2.62 3.11 3.88+
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49% 51% 27%
- -------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON
EQUITY TRANSACTIONS(3) $0.06 $0.06 $0.06 --
- -------------------------------------------------------------------------------
</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) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
4
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
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 obliga-
tions (such as U.S. Government Obligations, investment grade bonds and deben-
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). Under normal market conditions, at least 65% of the Portfolio's assets
will be invested in common stocks of companies that have a market capitaliza-
tion of at least $5 billion at the time of investment. The Manager seeks common
stocks that are considered by the Manager (i) to be undervalued by the market-
place, (ii) to offer potential opportunities not yet recognized by the market-
place, or (iii) to have been out of favor in the marketplace but that are
poised to turn around because of a new management team, product or business
strategy. The Portfolio may also purchase preferred stocks and convertible
securities. Temporary defensive investments or a higher percentage of debt
securities may be held when deemed advisable by the Manager. To the extent the
Portfolio's assets are invested for temporary defensive purposes, such assets
will not be invested in a manner designed to achieve the Portfolio'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 portion of the assets may be
invested in non-dividend paying stocks. The Portfolio may make investments in
foreign securities, though management currently intends to limit such invest-
ments to 5% of the Portfolio's assets (including European, Continental and
Global Depository Receipts), and an additional 10% of its assets may be
invested in sponsored American Depositary Receipts representing shares in for-
eign securities that are traded in United States securities markets.
The Portfolio may also invest in options (including swaps, caps, collars and
floors), unseasoned issuers, REITS and other investment companies and may bor-
row money as a temporary measure for extraordinary or emergency purposes.
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 Statement
of Additional Information) or applicable law, and any such change will first be
disclosed in the then current prospectus.
See the Appendix to this Prospectus for a description of certain permissible
investments. Further detail is set forth in the Statement of Additional Infor-
mation.
5
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The investment management services provided to the Fund by Mutual Management
Corp. ("MMC"), formerly Smith Barney Mutual Funds Management Inc. and the serv-
ices provided to shareholders by Smith Barney Inc. ("Smith Barney"), the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were
encoded and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. MMC and Smith Barney have advised the Fund that they have been
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, MMC has been advised
by the Fund's custodian, as well as the Fund's transfer agent and accounting
service agent that they are also in the process of modifying their systems with
the same goal. There can, however, be no assurance that MMC, Smith Barney or
any other service provider will be successful, or that interaction with other
non- complying computer systems will not impair Fund services at that time.
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. 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 real-
6
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ize that risk of loss is inherent in the ownership of any securities and that
shares of the Portfolio will fluctuate with the market values of its securi-
ties.
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 outstanding.
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 domestic 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
foregoing 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
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 quo-
tations for securities of similar type, yield and maturity. Short-term invest-
ments that have a maturity of 60 days or less are valued at amortized cost when
the Board of Directors has determined that amortized cost approximates 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.
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 distributions
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
7
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Federal income tax on that part of its net investment income and realized capi-
tal gains which it pays out to its shareholders. To qualify, the Portfolio must
meet certain tests, including distributing at least 90% of its investment com-
pany taxable income.
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. Dividends and distribu-
tions declared by the Portfolio may also be subject to state and local taxes.
Distributions out of the Portfolio's net long-term capital gains are taxable to
shareholders as long-term capital gains regardless of how long the shareholder
owned his or her shares. Information as to the tax status of dividends deemed
paid in each calendar year will be mailed to shareholders as early in the suc-
ceeding year as practical but not later than January 31. Shareholders should
consult their plan document or tax advisers about the tax consequences associ-
ated 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 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.
Shareholders may redeem their shares on any day on which the Portfolio calcu-
lates 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.
8
<PAGE>
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES (CONTINUED)
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 by the SEC is derived from this total return, which provides the
ending redeemable value. Such standard total return information may also be
accompanied with nonstandard total return information for differing periods
computed in the same manner but without annualizing the total return or taking
sales charges into account. The Portfolio calculates current dividend return
for Class Z by dividing the current dividend by the net asset value on the last
day of the period for which current dividend return is presented. The Portfo-
lio'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 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 Class Z shares. Such performance infor-
mation may include data from Lipper Analytical Services, Inc. and other finan-
cial publications.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Portfolio rests
with the Fund's Board of Directors. The Board of Directors approves all signif-
icant agreements 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 Portfolio are delegated to the Portfolio's investment manager. The State-
ment of Additional Information contains background information regarding each
Director and executive officer of the Fund.
9
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
MANAGER
Mutual Management Corp., formerly, 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, 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 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 serv-
ices are paid for by the Manager; there is no charge to the Fund for such
services.
For the Portfolio's last fiscal year the effective rate of the management
fee was 0.58% of the Portfolio's average net assets. The management agreement
provides that the Portfolio'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 0.60% of the Portfolio'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 Salomon Smith Barney Holdings Inc., ("Holdings"),
the parent company of Smith Barney. Holdings is a wholly-owned subsidiary of
Travelers Group Inc. ("Travelers"), which is a financial services holding com-
pany engaged, through its subsidiaries, principally in four business segments:
Investment Services, including Asset Management, Consumer Finance Services,
Life Insurance Services and Property & Casualty Insurance Services. As of
March 31, 1998, the Manager had aggregate assets under management of approxi-
mately $100.5 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
Bruce D. Sargent, a Managing Director of Smith Barney, is also a Vice Presi-
dent and Director of the Fund and the portfolio manager of the Portfolio. Mr.
Sargent is responsible for the day to day investment operations of the Portfo-
lio and has been involved in equity investing for over 25 years.
10
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
Ellen C. Sonsino is a Managing Director of Smith Barney and a co-portfolio
manager of the Portfolio. Ms. Sonsino has approximately 20 years of Wall Street
experience, and has been with Smith Barney since 1984.
Management's discussion and analysis, and additional performance information
regarding the Portfolio during the fiscal year ended December 31, 1997, is
included in the Portfolio's Annual Report dated December 31, 1997. A copy of
the Annual Report may be obtained upon request and without charge from a Smith
Barney Financial Consultant or by writing or calling the Fund at the address or
phone number listed on page one of this Prospectus.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also sub-
ject to approval by the stockholders of each of the Travelers and Citicorp.
Upon consummation of the merger, the surviving corporation would be a bank
holding company subject to regulation under the Bank Holding Company Act of
1956 (the "BHCA"), the requirements of the Glass-Steagall Act and certain other
laws and regulations. Although the effects of the merger of Travelers and
Citicorp and compliance with the requirements of the BHCA and the Glass-
Steagall Act are still under review, the Manager does not believe that its com-
pliance with applicable law following the merger of Travelers and Citicorp will
have a material adverse effect on its ability to continue to provide the Fund
with the same level of investment advisory services that it currently receives.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013,
and serves as the Fund's distributor. Smith Barney is a wholly owned subsidiary
of Travelers.
ADDITIONAL INFORMATION
The Fund, an open-end, diversified management investment company, was incor-
porated 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 multiple series of shares, each representing
shares in separate investment Portfolios, of which there are currently three,
including the Portfolio. The assets of each Portfolio are segregated and sepa-
rately 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
11
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
a Portfolio represent interests in the assets of that Portfolio and have iden-
tical voting, dividend, liquidation and other rights on the same terms and con-
ditions 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 any provisions of the Fund's Rule 12b-1 distribu-
tion plan which pertain to that 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 Investment Company Act of 1940, as
amended, 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.
12
<PAGE>
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 may purchase foreign securities that are traded in the United
States or purchase American Depositary Receipts, which are certificates 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. For-
eign securities may involve a high degree of risk. Foreign securities usually
are denominated in foreign currencies, which means their value will be
affected by changes in exchange rates between other currencies and the U.S.
dollar as well as the other factors that affect securities 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 securi-
ties 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 consist of possible delay in recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Manage-
ment will limit such lending to not more than twenty percent of the value of
the Portfolio's total assets.
A-1
<PAGE>
APPENDIX (CONTINUED)
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 secu-
rities 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 advanta-
geous price and yield to the Portfolio at the time of entering into the trans-
action. The Fund's Custodian will maintain, in a segregated account of each
Portfolio, cash, debt securities of any grade or equity securities, having a
value equal to or greater than the Portfolio's purchase commitments, provided
such securities have been determined by the Manager to be liquid and unencum-
bered, and are marked to market daily, pursuant to guidelines established by
the Directors; the Custodian will likewise segregate securities sold on a
delayed basis.
REPURCHASE AGREEMENTS
The Portfolio may 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 mar-
ket 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 liqui-
dating the collateral. The Portfolio will only enter into repurchase agree-
ments with broker/dealers or other financial institutions that are deemed
creditworthy by the Manager under guidelines approved by the Board of Direc-
tors. 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 the Portfolio amount to more than 15% of the Portfo-
lio's total assets.
Non-Publicly Traded and Illiquid Securities. The sale of securities that are
not publicly traded is typically restricted under the Federal securities laws.
As a result, the Portfolio may be forced to sell these securities at less than
fair market value or may not be able to sell them when the Manager believes it
desirable to do so. The Portfolio's investments in illiquid securities are
subject to the risk that should the Portfolio desire to sell any of these
securities when a ready buyer is not available at a price that the Portfolio
deems representative of their value, the value of the Portfolio's net assets
could be adversely affected.
A-2
<PAGE>
SMITH BARNEY
-------------------------------
A Member of TravelersGroup LOGO
SMITH BARNEY
FUNDS, INC.
LARGE CAP
VALUE FUND
388 Greenwich Street
New York, New York 10013
FD 0661 4/98
PROSPECTUS
SMITH BARNEY FUNDS, INC.
U. S.
Government
Securities
Fund
APRIL 28, 1998
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
Prospectus April 28, 1998
- --------------------------------------------------------------------------------
Smith Barney Funds, Inc.
U. S. Government Securities Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Smith Barney Funds, Inc. (the "Fund") is an investment company consisting
of three different Portfolios. The U.S. Government Securities Fund (the
"Portfolio") seeks high current income, liquidity and security of principal from
a portfolio of U.S. Government Obligations.
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 28, 1998, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
Smith Barney Inc.
Distributor
Mutual Management Corp.
Investment 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>
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Table of Contents
- --------------------------------------------------------------------------------
Prospectus Summary 3
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Financial Highlights 10
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Investment Objective and Management Policies 14
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Valuation of Shares 19
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Dividends, Distributions and Taxes 19
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Purchase of Shares 20
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Exchange Privilege 30
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Redemption of Shares 33
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Minimum Account Size 36
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Performance 36
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Management of the Fund 37
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Distributor 39
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Additional Information 40
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Appendix A-1
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================================================================================
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
Smith Barney Inc.
(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>
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Prospectus Summary
- --------------------------------------------------------------------------------
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, management investment company. The
Portfolio's investment objective is to seek high current income, liquidity and
security of principal from a portfolio of U.S. Government Obligations. See
"Investment Objective 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 $15,000,000. In
addition, a fifth Class, Class Z shares, which is offered pursuant to a separate
prospectus, is offered exclusively to tax-exempt employee benefit and retirement
plans of Smith Barney Inc. ("Smith Barney") and its affiliates. See "Purchase of
Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.50% and are subject to an annual service fee of 0.25% of
the average daily net assets of the Class. The initial sales charges may be
reduced or waived for certain purchases. Purchases of Class A shares of $500,000
or more will be made at net asset value with no initial sales charge, but will
be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary-Reduced
or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 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 Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends
and distributions ("Class B
3
<PAGE>
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Prospectus Summary (continued)
- --------------------------------------------------------------------------------
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. They 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. 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 current holdings of Class C shares of
a Portfolio equal or exceed $500,000 in the aggregate, should be made in Class A
shares at net asset value with no sales charge, and will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $15,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of 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
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Portfolio. In addition, Class A share
purchases of
4
<PAGE>
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Prospectus Summary (continued)
- --------------------------------------------------------------------------------
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase. The $500,000 investment may be met by adding the purchase to the net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney 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 different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both these programs. See "Purchase of
Shares - Smith Barney 401(k) and ExecChoice(TM) Programs."
PURCHASE OF SHARES Shares may be purchased through a brokerage account
maintained 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"). See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open an
account by making an initial investment of at least $1,000 for each account, or
$250 for an individual retirement account ("IRA") or a Self-Employed Retirement
Plan. Investors in Class Y shares may open an account for an initial
5
<PAGE>
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Prospectus Summary (continued)
- --------------------------------------------------------------------------------
investment of $15,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes of shares is $25. The minimum investment
requirements for purchases of portfolio shares through the Systematic Investment
Plan are described below. 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. The minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes for shareholders purchasing
shares through the Systematic Investment Plan on a monthly basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Mutual Management Corp. (the "Manager") (formerly
known as Smith Barney Mutual Funds Management Inc.), serves as the Portfolio's
investment manager. The Manager is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers"), a diversified financial services 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. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Portfolio for the prior day generally
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 Portfolio. Distributions of net realized capital gains,
if any, are paid annually. See "Dividends, Distributions and Taxes."
6
<PAGE>
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Prospectus Summary (continued)
- --------------------------------------------------------------------------------
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
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
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 Objective and Management Policies."
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 operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
U.S. Government Securities Fund 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 original cost or redemption
proceeds, whichever is lower) None* 4.50% 1.00% None
- --------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.45% 0.45% 0.45% 0.45%
12b-1 fees** 0.25 0.75 0.70 None
Other expenses 0.10 0.11 0.12 0.06
- --------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.80% 1.31% 1.27% 0.51%
==================================================================================================
</TABLE>
* Purchases of Class A shares of $500,000 or more will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
7
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
Class A shares of the Portfolio purchased through Smith Barney AssetOne
Program will be subject to an annual asset-based fee, payable quarterly, in lieu
of the initial sales charge. The fee will vary to a maximum of 1.50%, depending
on the amount of assets held through the Program. For more information, please
call your Smith Barney Financial Consultant.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of 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)
and ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of
Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
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% 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.
8
<PAGE>
- --------------------------------------------------------------------------------
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
indirectly. 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>
U.S. Government Securities Fund 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 $53 $69 $87 $140
Class B 58 72 82 144
Class C 23 40 70 153
Class Y 5 16 29 64
An investor would pay the following
expenses on the same investment,
assuming the same annual return
and no redemption:
Class A 53 69 87 140
Class B 13 42 72 144
Class C 13 40 70 153
Class Y 5 16 29 64
====================================================================================
</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Portfolio's actual return will vary and may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be greater or
less than those shown.
9
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The following information has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon appears in the Fund's annual report
dated December 31, 1997. The information set out below should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report to Shareholders, which is incorporated by reference
into the Statement of Additional Information.
For a share of each Class of capital stock outstanding throughout each year:
U.S. Government Securities Fund
<TABLE>
<CAPTION>
Class A Shares 1997 1996 1995 1994 1993 1992
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $13.24 $13.59 $12.50 $13.66 $13.87 $14.10
- ---------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 0.85 0.84 0.92 0.91 0.98 1.06
Net realized and
unrealized gain (loss) 0.38 (0.33) 1.09 (1.11) (0.10) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from
Operations 1.23 0.51 2.01 (0.20) 0.88 0.93
- ---------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.86) (0.86) (0.92) (0.91) (0.98) (1.08)
Net realized gains (0.00)# -- -- (0.05)@ (0.11)@ (0.08)@
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.86) (0.86) (0.92) (0.96) (1.09) (1.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Year $13.61 $13.24 $13.59 $12.50 $13.66 $13.87
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 9.67% 3.97% 16.52% (1.48)% 6.40% 6.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year
(000s) $271,767 $311,875 $384,534 $358,045 $468,278 $459,380
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.80% 0.79%** 0.79% 0.76%* 0.49% 0.50%
Net investment income 6.37 6.34 6.82 6.83 7.00 7.65
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 265% 57% 40% 57% 26%
=================================================================================================================================
</TABLE>
@ Represents distributions from paydown gains which are reported as ordinary
income for tax purposes.
# Amount represents less than $0.01.
* Amount has been restated from the December 31, 1994 Annual Report.
** Amount has been restated from the December 31, 1996 Annual Report.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
U.S. Government Securities Fund
<TABLE>
<CAPTION>
Class A Shares (continued) 1991 1990 1989 1988
============================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.22 $13.17 $12.56 $12.68
- ------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 1.26 1.15 1.19 1.20
Net realized and unrealized gain (loss) 0.80 0.08 0.63 (0.12)
- ------------------------------------------------------------------------------------------------------------
Total Income from Operations 2.06 1.23 1.82 1.08
- ------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (1.13) (1.18) (1.21) (1.20)
Net realized gains (0.05)@ -- -- --
- ------------------------------------------------------------------------------------------------------------
Total Distributions (1.18) (1.18) (1.21) (1.20)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $14.10 $13.22 $13.17 $12.56
- ------------------------------------------------------------------------------------------------------------
Total Return 16.29% 9.95% 15.11% 8.72%
- ------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $394,412 $335,447 $329,186 $328,446
- ------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.44% 0.41% 0.41% 0.42%
Net investment income 8.31 8.87 9.19 9.25
- ------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 9% 6% 23% 2%
============================================================================================================
<CAPTION>
Class B Shares 1997 1996 1995 1994(1)
============================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.26 $13.61 $12.51 $12.47
- ------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.79 0.77 0.80 0.08
Net realized and unrealized gain (loss) 0.38 (0.33) 1.16 0.17
- ------------------------------------------------------------------------------------------------------------
Total Income from Operations 1.17 0.44 1.96 0.25
- ------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.80) (0.79) (0.86) (0.21)
Net realized gains (0.00)# -- -- --
- ------------------------------------------------------------------------------------------------------------
Total Distributions (0.80) (0.79) (0.86) (0.21)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.63 $13.26 $13.61 $12.51
- ------------------------------------------------------------------------------------------------------------
Total Return 9.12% 3.44% 16.03% 2.04%++
- ------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $12,238 $11,212 $11,116 $1,529
- ------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.31% 1.28%** 1.28% 1.21%+*
Net investment income 5.85 5.85 6.16 6.94+
- ------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 265% 57% 40%
============================================================================================================
</TABLE>
@ Represents distributions from paydown gains which are reported as ordinary
income for tax purposes.
(1) For the period from November 7, 1994 (inception date) to December 31,
1994.
# Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
* Amount has been restated from the December 31, 1994 Annual Report.
** Amount has been restated from the December 31, 1996 Annual Report.
11
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
U.S. Government Securities Fund
<TABLE>
<CAPTION>
Class C Shares 1997 1996 1995 1994(1) 1993 1992(2)
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $13.23 $13.58 $12.50 $13.66 $13.86 $14.01
- -----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 0.77 0.78 0.86 0.82 0.89 0.15
Net realized and
unrealized gain (loss) 0.40 (0.33) 1.09 (1.11) (0.10) --
- -----------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from
Operations 1.17 0.45 1.95 (0.29) 0.79 0.15
- -----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.80) (0.80) (0.87) (0.83) (0.88) (0.30)
Net realized gains (0.00)# -- -- (0.04)@ (0.11)@ --
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.80) (0.80) (0.87) (0.87) (0.99) (0.30)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Year $13.60 $13.23 $13.58 $12.50 $13.66 $13.86
- -----------------------------------------------------------------------------------------------------------------------------
Total Return 9.18% 3.49% 15.93% (2.11)% 5.74% 1.07%++
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year
(000s) $14,464 $17,249 $21,559 $21,253 $19,938 $1,954
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.27% 1.26%* 1.25% 1.21% 1.21% 1.14%+
Net investment income 5.91 5.87 6.36 6.27 6.23 6.56+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 265% 57% 40% 57% 26%
=============================================================================================================================
</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.
@ Represents distributions from paydown gains which are reported as ordinary
income for tax purposes.
# Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
* Amount has been restated from the December 31, 1996 Annual Report.
12
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
U.S. Government Securities Fund
<TABLE>
<CAPTION>
Class Y Shares 1997 1996 1995 1994(1) 1993(2)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.27 $13.61 $12.51 $13.67 $13.97
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.88 0.88 1.00 0.89 0.86
Net realized and
unrealized gain (loss) 0.39 (0.33) 1.06 (1.10) (0.10)
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) from
Operations 1.27 0.55 2.06 (0.21) 0.76
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.90) (0.89) (0.96) (0.91) (0.95)
Net realized gains (0.00)# -- -- (0.04)@ (0.11)@
- ---------------------------------------------------------------------------------------------------------------
Total Distributions (0.90) (0.89) (0.96) (0.95) (1.06)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.64 $13.27 $13.61 $12.51 $13.67
- ---------------------------------------------------------------------------------------------------------------
Total Return 10.00% 4.30% 16.88% (1.53)% 5.55%++
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $5,182 $5,589 $6,992 $13,903 $14,118
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.51% 0.50%* 0.49% 0.61% 0.69%+
Net investment income 6.65 6.64 7.22 6.82 7.29+
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 265% 57% 40% 57%
===============================================================================================================
</TABLE>
@ Represents distributions from paydown gains which are reported as ordinary
income for tax purposes.
(1) On November 7, 1994, the former Class C shares were renamed Class Y
shares.
(2) For the period from January 12, 1993 (inception date) to December 31,
1993.
# Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
* Amount has been restated from the December 31, 1996 Annual Report.
13
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies
- --------------------------------------------------------------------------------
The Portfolio seeks high current income, liquidity and security of
principal by investing in obligations of the U.S. Government, its agencies or
its instrumentalities and related repurchase and reverse repurchase agreements.
Of course, no assurance can be given that the Portfolio's objective will be
achieved.
The Portfolio invests primarily in Government National Mortgage
Association ("GNMA") Certificates of the modified pass-through type and in
mortgage participation certificates issued by the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC")
and will also normally include other "U.S. Government Obligations," i.e.,
obligations issued or guaranteed by the United States, its agencies or its
instrumentalities and related repurchase and reverse repurchase agreements (the
Portfolio will limit its investments in reverse repurchase agreements to no more
than 5% of its net assets).
Under normal market conditions, the Portfolio will seek to invest
substantially all of its assets - and the Portfolio will invest not less than
65% of its assets - in such securities. GNMA Certificates are debt securities
issued by a mortgage banker or other mortgagee representing an interest in a
pool of mortgages insured by the Federal Housing Administration or the Farmers
Home Administration or guaranteed by the Veterans Administration. The National
Housing Act provides that the full faith and credit of the United States is
pledged to the timely payment of principal and interest by GNMA of amounts due
on these GNMA Certificates. Securities of the type to be purchased for these
Portfolios have historically involved no credit risk; however, due to
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 Portfolio 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. FHLMC is a U.S.
Government-created entity controlled by the Federal Home Loan Banks. FNMA is a
government-chartered corporation owned entirely by private stockholders, which
is subject to general regulation by the Secretary of Housing and Urban
Development. Timely payment of principal and interest on these mortgage
participation certificates is guaranteed solely by the issuer of the
certificates. For a detailed explanation, see "Appendix."
14
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
The Portfolio may enter into repurchase agreements secured by U.S.
Treasury securities in order to earn income on available cash. A repurchase
agreement arises when the Portfolio acquires a security and simultaneously agree
to resell it to the vendor at an agreed-upon future date, normally the next
business day. The resale price is greater that 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; however, if the seller defaults,
realization upon the collateral by the Portfolio may be delayed or limited,
or the Portfolio might incur a loss of the value of the collateral
securing the repurchase agreement declines and might incur disposition
costs in connection with liquidating the collateral.
The Portfolio may enter into reverse repurchase agreements with the same
parties with whom it may enter into repurchase agreements. Under a reverse
repurchase agreement, the Portfolio will sell securities and agree to repurchase
them at a particular price at a future date. At the time the Portfolio enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with an approved custodian containing cash or liquid securities that
have a value no less than the repurchase price, including accrued interest.
Reverse repurchase agreements involve the risk that the market value of the
securities retained in lieu of sale by Portfolio may decline below the price of
the securities the Portfolio has sold but is obliged to repurchase. In the event
the buyer of securities under a reserve repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities, and the Portfolio's use of the proceeds
of the reverse repurchase agreements may effectively be restricted pending such
decision. Reverse repurchase agreements will be treated as borrowing and will be
considered in the Portfolio's overall borrowing limitation.
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 Obligations equal to no less than the market
value, determined daily, of the securities loaned. Management will limit such
lending to not more than one-third of the value of 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 Portfolio may purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis. Such transactions arise when securities
are purchased or sold by the Portfolio with payment and delivery taking place in
the
15
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
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. Purchasing
such securities involves the risk of loss if the value of the securities
declines prior to settlement date. The sale of securities for delayed delivery
involves the risk that the prices available in the market on the delivery date
may be greater than those obtained in the sale transaction. The Portfolio's
custodian will maintain, in a segregated account on behalf of the Portfolio,
cash, U.S. Government securities or other liquid securities having a value equal
to or greater than the Portfolio's purchase commitments; the custodian will
likewise segregate securities sold on a delayed basis.
The Portfolio may purchase and sell interest rate futures contracts
("futures contracts") as a hedge against changes in interest rates. A futures
contract is an agreement between two parties to buy and sell a security for a
set price on a future date. Futures contracts are traded on designated
"contracts markets" which, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures contracts based on
securities such as long-term Treasury bonds, Treasury notes, GNMA Certificates
and three-month Treasury bills.
Generally, if market interest rates increase, the value of outstanding
debt securities declines (and vice versa). Entering into a futures contract for
the sale of securities has an effect similar to the actual sale of securities,
although the sale of the futures contract might be accomplished more easily and
quickly. For example, if the Portfolio holds long-term U.S. government
securities and the Manager anticipates a rise in long-term interest rates, it
could, in lieu of disposing of its portfolio securities, enter into futures
contracts for the sale of similar long-term securities. If interest rates
increased and the value of the Portfolio's securities declined, the value of the
Portfolio's futures contracts would increase, thereby protecting the Portfolio
by preventing the net asset value from declining as much as it otherwise would
have. Similarly, entering into futures contracts for the purchase of securities
has an effect similar to actual purchase of the underlying securities, but
permits the continued holding of securities other than the underlying
securities. For example, if the Manager expects long-term interest rates to
decline, the Portfolio might enter into futures contracts for the purchase of
long-term securities, so that it could gain rapid market exposure that may
offset anticipated increases in the cost of securities it intends to purchase,
while continuing to hold higher-yielding short-term securities or waiting for
the long-term market to stabilize.
The Portfolio also may purchase and sell listed put and call options on
futures contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), at a specified exercise price at any time during the option
period. When an option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the difference between the
current market price of the futures contract and the exercise
16
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
price of the option. The Portfolio may purchase put options on interest rate
futures contracts in lieu of, and for the same purpose as, the sale of a futures
contract. It also may purchase such put options in order to hedge a long
position in the underlying futures contract in the same manner as it purchases
"protective puts" on securities. The purchase of call options on interest rate
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contract, and the Portfolio will set aside cash or cash
equivalents sufficient to purchase the amount of portfolio securities
represented by the underlying futures contracts. See "Dividends, Distributions
and Taxes."
The Portfolio may not purchase futures contracts or related options if,
immediately thereafter, more than 30% of the Portfolio's total assets would be
so invested. In purchasing and selling futures contracts and related options,
the Portfolio will comply with rules and interpretations of the Commodity
Futures Trading Commission ("CFTC"), under which the Fund is excluded from
regulation as a "commodity pool." CFTC regulations permit use of commodity
futures and options for bona fide hedging purposes without limitations on the
amount of assets committed to margin and option premiums.
The Portfolio will not engage in transactions involving futures contracts
or related options for speculation but only as a hedge against changes in the
market values of debt securities held, or intended to be purchased, by the
Portfolio and where the transactions are appropriate to reduction of the
Portfolio's risks. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold (or
related put options purchased) to protect against a decline in the price of
securities that the Portfolio owns, or futures contracts (or related call
options) will be purchased to protect the Portfolio against an increase in the
price of securities it is committed to purchase.
There is no assurance that the Portfolio will be able to close out its
futures positions at any time, in which case it would be required to maintain
the margin deposits on the contract. There can be no assurance that hedging
transactions will be successful, as there may be an imperfect correlation (or no
correlation) between movements in the prices of the futures contracts and of the
debt securities being hedged, or price distortions due to market conditions in
the futures markets. Where futures contracts are purchased to hedge against an
increase in the price of long-term securities, but the long-term market declines
and the Portfolio does not invest in long-term securities, the Portfolio would
realize a loss on the futures contracts, which would not be offset by a
reduction in the price of securities purchased. Where futures contracts are sold
to hedge against a decline in the price of the Portfolio's long-term securities
but the long-term market advances, the Portfolio would lose part or all of the
benefit of the advance due to offsetting losses in its futures positions.
17
<PAGE>
- --------------------------------------------------------------------------------
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
securities. 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 borrow money from banks for temporary or emergency
purposes.
Year 2000. The investment management services provided to the Fund by the
Manager and the services provided to shareholders by Smith Barney, the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. The Manager and Smith Barney have advised the Fund that they have been
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, the Manager has been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same goal.
There can, however, be no assurance that the Manager, Smith Barney or any other
service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time.
The Board of Directors of the Fund may modify the investment objective and
policies of the 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.
PORTFOLIO TURNOVER
The Portfolio will not engage in the trading of securities for the purpose
of realizing short-term profits; however, the Portfolio will adjust its
portfolio as considered advisable in view of prevailing or anticipated market
conditions and the
18
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- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
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 the Portfolio will fluctuate with the market value
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.
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
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 approximates fair value, unless market conditions
dictate otherwise. Other investments of the 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 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
credited 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 principally
as a result of the distribution fee applicable with respect to Class B and Class
C shares. The per share dividends on Class A shares of the Portfolio may be
lower than the
19
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- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
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
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
distributing at least 90% of its investment company taxable income.
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. 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 shareholders as
long-term capital gains, regardless of how long the shareholder has held his or
her shares. 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
Revenue Code applicable to regulated investment companies and to distribute all
of the taxable income and net taxable gains of the 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 the
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. The foregoing relates to Federal income
taxation. Dividends 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
The 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 $15,000,000 (except for
20
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
purchases of Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount). A fifth class, Class Z shares, are
also offered with respect to the 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.
Purchases of Portfolio shares must be made through a brokerage account
maintained with Smith Barney, 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 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. Smith Barney and other broker/dealers may charge
their customers an annual account maintenance fee in connection with a brokerage
account through which an investor purchases or holds shares. Accounts held
directly at First Data are not subject to a maintenance fee.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan in the Portfolio. Investors in Class Y
shares may open an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
participants in retirement plans qualified under Section 403(b)(7) or Section
401(a) of the Code, the minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes in the Portfolio is $25. For shareholders purchasing shares of the
Portfolio through the Systematic Investment Plan on a monthly basis, the minimum
initial investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes is $25. For shareholders
purchasing shares of the Portfolio through the Systematic Investment Plan on a
quarterly basis, the minimum initial investment requirement for Class A, Class B
and Class C shares and the 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 Travelers-affiliated funds, including 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
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.
21
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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
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 Introducing Brokers purchasing through Smith Barney,
payment for Portfolio shares is due on the third business day after the trade
date. In all other cases, payment must be made with the purchase order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by
purchasing shares through a service known as the Systematic Investment Plan.
Under the Systematic Investment Plan, Smith Barney or First Data is authorized
through preauthorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the regular bank account or other financial
institution indicated by the shareholder 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 shareholder's Smith Barney brokerage account or redeem the
shareholder's shares of a Smith Barney money market fund to make additions to
the account. Additional information is available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE - CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the
Portfolio:
Sales Sales Dealers
Charge as Charge as Reallowance
% of % of as % of
Amount of Investment Offering Price Amount Invested Offering Price
================================================================================
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 * * *
================================================================================
* Purchases of Class A shares of $500,000 or more will be made at net asset
value without any initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The CDSC on Class
A shares is payable to Smith Barney, which compensates Smith Barney
Financial Consultants and other dealers whose clients make purchases of
$500,000 or more. The CDSC is waived in the same circumstances in which
the CDSC applicable to Class B and Class C shares is waived. See "Deferred
Sales Charge Alternatives" and "Waivers of CDSC."
22
<PAGE>
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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 and his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary account.
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries and any of the Smith Barney Mutual
Funds (including retired Board Members and employees); the immediate families of
such persons (including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan for such
persons and Board Members of any Funds sponsored by Travelers and its
affiliates; and (ii) employees of members of the National Association of
Securities Dealers, Inc., provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes and that the
securities will not be resold except through redemption or repurchase; (b)
offers of Class A shares to any other investment company to effect 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) purchases by
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) and who wish to reinvest their redemption proceeds in a Portfolio,
provided the reinvestment is made within 60 calendar days of the redemption; (e)
purchases by accounts managed by registered investment advisory subsidiaries of
Travelers; (f) purchases by accounts of Section 403(b) or Section 401(a) or (k)
Plans associated with Copeland Retirement Programs; (g) direct rollovers by plan
participants of distributions from a 401(k) plan offered to employees of
Travelers or its subsidiaries or a 401(k) plan enrolled in the Smith Barney
401(k) Program (Note: subsequent investments will be subject to the applicable
sales charge); (h) purchases by separate accounts used to fund certain
unregistered variable annuity contracts; and (i) purchases by investors
participating in a Smith Barney fee based arrangement. In order to obtain such
discounts, the purchaser must provide sufficient information at the time of
purchase to permit verification that the
23
<PAGE>
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Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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 aggregating
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 information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative - Class A Shares" and will be based upon
the aggregate sales of Class A shares of Smith Barney Mutual Funds offered with
a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan must be open
to specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Portfolio shares at a discount and (c) satisfies uniform criteria
which enables Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must be
available to arrange for group meetings between representatives of the Portfolio
and the members, and must agree to include sales and other
24
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
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
purchases of all Class A shares of the Portfolio and other funds of the Smith
Barney Mutual Funds offered with a sales charge over a 13 month period based on
the total amount of intended purchases plus the value of all Class A shares
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or First Data to obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may also be used as a way for investors
to meet the minimum investment requirement for Class Y shares. Such investors
must make an initial minimum purchase of $5,000,000 in Class Y shares of a
Portfolio and agree to purchase a total of $15,000,000 of Class Y shares of the
same Portfolio within 13 months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-month period, all Class Y
shares purchased to date will be transferred to Class A shares, where they will
be subject to all fees (including a service fee of 0.25%) and expenses
applicable to the 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
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 certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares that were purchased without an initial sales
charge but subject to a CDSC.
25
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their account 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) and ExecChoice(TM) Programs."
Year Since Purchase
Payment Was Made CDSC
================================================================================
First 4.50%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
================================================================================
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. See "Prospectus Summary - Alternative Purchase Arrangements
- - Class B Shares Conversion Feature."
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally 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
26
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
calculated from the date that the shares exchanged were initially acquired in
one of the other Smith Barney Mutual Funds, and Portfolio shares being redeemed
will be considered to represent, as applicable, capital appreciation or dividend
and capital gain distribution reinvestments in such other funds. For Federal
income tax purposes, the amount of the CDSC will reduce the gain or increase the
loss, as the case may be, on the amount realized on redemption. The amount of
any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 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 to effect 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) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k)
Program or the Smith Barney ExecChoice(TM) Program. To the extent applicable,
the same terms and conditions, which are outlined below, are offered to all
plans participating
27
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
("Participating Plans") in these programs.
The Portfolio offers to Participating Plans Class A and Class C shares as
investment alternatives under the Smith Barney 401(k) and ExecChoice(TM)
Programs. Class A and Class C shares acquired through the Participating Plans
are subject to the same service and/or distribution fees as the Class A and
Class C shares acquired by other investors; however, they are not subject to any
initial sales charge or CDSC. Once a Participating Plan has made an initial
investment in the 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
sales charge or CDSC to any Participating Plan that purchases $1,000,000 or more
of Class A shares of one or more funds of the Smith Barney Mutual Funds.
Class C Shares. Class C shares of the Portfolio are offered without any
sales charge or CDSC to any Participating Plan that purchases less than
$1,000,000 of Class C shares of one or more funds of the Smith Barney Mutual
Funds.
401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. At the
end of the fifth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, if its
total Class C holdings in all non-money market Smith Barney Mutual Funds equal
at least $1,000,000, it will be offered the opportunity to exchange all of its
Class C shares for Class A shares of a Fund. (For Participating Plans that were
originally established through a Smith Barney retail brokerage account, the five
year period will be calculated from the date the retail brokerage account was
opened.) Such Participating Plans will be notified of the pending exchange in
writing within 30 days after the fifth anniversary of the enrollment date and,
unless the exchange offer has been rejected in writing, the exchange will occur
on or about the 90th day after the fifth anniversary date. If the Participating
Plan does not qualify for the five year exchange to Class A shares, a review of
the Participating Plan's holdings will be performed each quarter until either
the Participating Plan qualifies or the end of the eighth year.
401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal at
least $500,000 as of the calendar year-end, the Participating Plan will be
offered the opportunity to exchange all of its Class C shares for Class A shares
of the 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.
Any Participating Plan in the Smith Barney 401(k) or ExecChoice(TM)
Program whether opened before or after June 21, 1996, that has not previously
qualified for
28
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
an exchange into Class A shares will be offered the opportunity to exchange all
of its Class C shares for Class A shares of the Portfolio, regardless of asset
size, at the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) or ExecChoice(TM) Programs. Such Plans will
be notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be eligible
to acquire additional Class C shares of the 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.
Participating Plans wishing to acquire shares of a Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any
Participating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to a
CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
At the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program, it will be offered the opportunity
to exchange all of its Class B shares for Class A shares of the Portfolio. Such
Participating Plan will be notified of the pending exchange in writing
approximately 60 days before the eighth anniversary of the enrollment date and,
unless the exchange has been rejected in writing, the exchange will occur on or
about the eighth anniversary date. Once the exchange has occurred, a
Participating Plan will not be eligible to acquire additional Class B shares of
a Fund but instead may acquire Class A shares of the Portfolio. If the
Participating Plan elects not to exchange all of its Class B shares at that
time, each Class B share held by the Participating Plan will have the same
conversion feature as Class B shares held by other investors. See "Purchase of
Shares -- Deferred Sales Charge Alternatives" in each Fund's prospectus.
No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased more
than eight years prior to the redemption, plus increases in the net asset value
of the shareholder's Class B shares above the purchase payments made during the
preceding eight years. Whether or not the CDSC applies to the redemption by a
Participating Plan depends
29
<PAGE>
- --------------------------------------------------------------------------------
Purchase of Shares (continued)
- --------------------------------------------------------------------------------
on the number of years since the Participating Plan first became enrolled in the
Smith Barney 401(k) Program, unlike the applicability of the CDSC to redemptions
by other shareholders, which depends on the number of years since those
shareholders made the purchase payment from which the amount is being redeemed.
The CDSC will be waived on redemptions of Class B shares in connection
with lump-sum or other distributions made by a Participating Plan as a result
of: (a) the retirement of an employee in the Participating Plan; (b) the
termination of employment of an employee in the Participating Plan; (c) the
death or disability of an employee in the Participating Plan; (d) the attainment
of age 59 1/2 by an employee in the Participating Plan; (e) hardship of an
employee in the Participating Plan to the extent permitted under Section 401(k)
of the Code; or (f) redemptions of shares in connection with a loan made by the
Participating Plan to an employee.
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the Smith Barney Mutual
Funds, to the extent shares are offered for sale in the shareholder's state of
residence. Exchanges of Class A, Class B and Class C shares are subject to
minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc. - Large Cap Value Fund
Smith Barney Premium Total Return Fund
Smith Barney Utilities Fund
30
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
+++ Smith Barney Funds, Inc. - Short-Term U.S. Treasury Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Municipal High Income Fund
Smith Barney Muni Funds - Florida Portfolio
Smith Barney Muni Funds - Georgia Portfolio
* Smith Barney Muni Funds - Limited Term Portfolio
Smith Barney Muni Funds - National Portfolio
Smith Barney Muni Funds - New York Portfolio
Smith Barney Muni Funds - Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc. - Emerging Markets Portfolio
Smith Barney World Funds, Inc. - European Portfolio
Smith Barney World Funds, Inc. - Global Government Bond Portfolio
Smith Barney World Funds, Inc. - International Balanced Portfolio
Smith Barney World Funds, Inc. - International Equity Portfolio
Smith Barney World Funds, Inc. - Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -- Global Portfolio
Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- Income Portfolio
31
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. - Cash Portfolio
++ Smith Barney Money Funds, Inc. - Government Portfolio
*** Smith Barney Money Funds, Inc. - Retirement Portfolio
+++ Smith Barney Municipal Money Market Fund, Inc.
+++ Smith Barney Muni Funds - California Money Market Portfolio
+++ Smith Barney Muni Funds - New York Money Market Portfolio
- --------------------------------------------------------------------------------
* Available for exchange with Class A, Class C and Class Y shares of the
Portfolio.
** Available for exchange with Class A and Class B shares of the 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 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, Participating Plans opened prior to June 21, 1996 and
investing in Class C shares may exchange Portfolio shares for Class C
shares of this fund.
+++ Available for exchange with Class A and Class Y shares of the Portfolio.
Class B Exchanges. In the event a Class B shareholder wishes to exchange
all or a portion of his or her shares in any of the funds imposing a higher CDSC
than that imposed by 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 A and Class Y Exchanges. Class A and Class Y shareholders of the
Portfolio who wish to exchange all or a portion of their shares for shares of
the respective class in any of the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the Exchange Privilege. Excessive
exchange transactions may 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 Barney
32
<PAGE>
- --------------------------------------------------------------------------------
Exchange Privilege (continued)
- --------------------------------------------------------------------------------
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. 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 redemption
proceeds will be remitted on or before the third business day following receipt
of proper tender, except on any days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney brokerage account, these funds will not
be invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
33
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
submitting a written request for redemption to:
Smith Barney Funds, Inc./U.S. Government Securities Fund
Class A,B,C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to First Data together with the redemption request. Any
signature appearing on a written redemption request in excess of $10,000 or
share certificate stock power must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $10,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly received
until First Data receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Portfolio. Any applicable CDSC will not be
waived on amounts withdrawn by a shareholder that exceed 1.00% per month of the
value of the shareholder's shares subject to the CDSC at the time the withdrawal
plan commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts 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.
34
<PAGE>
- --------------------------------------------------------------------------------
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
shareholder is entitled to participate in this program, he or she should contact
First Data at 1-800-451-2010. Once eligibility is confirmed, the shareholder
must complete and return a Telephone/Wire Authorization Form, along with a
signature guarantee, that will be provided by First Data upon request.
(Alternatively, an investor may authorize telephone redemptions on the new
account application with the applicant's signature guarantee when making his/her
initial 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
program.
A shareholder will have the option of having the redemption proceeds
mailed to his/her address of record or wired to a bank account predesignated by
the shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In order
to use the wire procedures, the bank receiving the proceeds must be a member of
the Federal Reserve System or have a correspondent relationship with a member
bank. The Fund reserves the right to charge shareholders a nominal fee for each
wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a signature guarantee and
certain other documentation.
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
instructions communicated by telephone that are reasonably believed to be
genuine. The Fund
35
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares (continued)
- --------------------------------------------------------------------------------
and its agents will employ procedures designed to verify the identity of the
caller and legitimacy of instructions (for example, a shareholder's name and
account number will be required and phone calls may be recorded). The Fund
reserves the right to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service at any time
following at least seven (7) days prior notice to shareholders.
- --------------------------------------------------------------------------------
Minimum Account Size
- --------------------------------------------------------------------------------
The Fund reserves the right to redeem involuntarily any shareholder's
account in a Portfolio if the aggregate net asset value of the shares held in
that Portfolio account is less than $500. (If a shareholder has more than one
account in any Portfolio, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reductions in
net asset value. Before the Fund exercises such right, shareholders will receive
written notice and will be permitted 60 days to bring accounts up to the minimum
to avoid involuntary liquidation.
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
From time to time a Portfolio may include its total return, average annual
total return, yield and current dividend return in advertisements and/or other
types of sales literature. These figures are computed separately for Class A,
Class B, Class C and Class Y shares of the Portfolio. These figures are based on
historical earnings and are not intended to indicate future performance. Total
return is computed for a specified period of time assuming deduction of the
maximum sales charge, if any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions on the reinvestment dates
at prices calculated as stated in this Prospectus, then dividing the value of
the investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC is derived from this total return, which provides the
ending redeemable value. Such standard total return information 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
36
<PAGE>
- --------------------------------------------------------------------------------
Performance (continued)
- --------------------------------------------------------------------------------
SEC to facilitate comparison with yields quoted by other investment companies.
The 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 calculating current dividend return should be
considered when comparing a Class' current return to yields published for other
investment companies and other investment vehicles. The Portfolio may also
include comparative performance information in advertising or marketing its
shares. Such performance information may include data from Lipper Analytical
Services, Inc. and other financial publications.
- --------------------------------------------------------------------------------
Management of the Fund
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Portfolio
rests with the Fund's Board of Directors. The Board of Directors approves 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 manager, custodian and transfer agent. The day-to-day operations of
the Portfolio is delegated to the investment manager. The Statement of
Additional Information contains background information regarding each Director
and executive officer of the Fund.
MANAGER
Mutual Management Corp. (the "Manager") (formerly known as Smith Barney
Mutual Funds Management Inc.) 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 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 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.
37
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
The Portfolio pays the Manager an investment advisory fee calculated
at an annual rate of 0.50% of the first $200 million of the average daily
net assets, and 0.40% of the average daily net assets of the Portfolio in
excess of $200 million. This fee is calculated daily and paid monthly.
For the Portfolio's last fiscal year the effective rate of the management
fee was 0.45% of the Portfolio's average net assets. Payment under the
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 Portfolio
during the month. Total operating expenses for the Portfolio's average net
assets for the last fiscal year were: 0.80%, 1.31%, 1.27% and 0.51% for Class A,
Class B, Class C and Class Y shares, respectively.
The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of March 31, 1998 the Manager had aggregate assets under management of
approximately $100.5 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
James Conroy, Managing Director of Smith Barney 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 Short-Term U.S. Treasury
Securities Fund. Mr. Conroy has also served as Vice President and Investment
Officer of Smith Barney Managed Governments Fund Inc. since February 1990 and as
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,
1997 is included in the Annual Report dated December 31, 1997. A copy of the
Annual Report may be obtained upon request and without charge from a Smith
Barney Financial Consultant or by writing or calling the Fund at the address or
phone number listed on page one of this Prospectus.
On April 6, 1998, Travelers announced that it had
entered into a Merger Agreement with Citicorp. The transaction, which is
expected to be completed during the third quarter of 1998, is subject to various
regulatory approvals, including approval by the Federal Reserve Board. The
transaction is also subject to approval by the stockholders of each of
Travelers and Citicorp. Upon consummation of the merger, the surviving
corporation would be a bank holding company subject to regulations under the
Bank Holding Company Act of
38
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
1956 (the "BHCA"), the requirements of the Glass-Steagall Act and certain other
laws and regulations. Although the effects of the merger of Travelers and
Citicorp and compliance with the requirements of the BHCA and the Glass-Steagall
Act are still under review, the Manager does not believe
that its compliance with applicable law following the merger of Travelers and
Citicorp will have adverse effects on its ability to continue to provide the
Fund with the same level of investment advisory services that it currently
receives.
- --------------------------------------------------------------------------------
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 under Rule 12b-1
under the 1940 Act (the "Plan") adopted by the 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 attributable 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 subject to a distribution fee.
The fees are used by Smith Barney to pay its Financial Consultants for
servicing shareholder accounts and, in the case of Class B and Class C shares,
to cover expenses primarily intended to result in the sale of those shares.
These expenses include: advertising expenses; the cost of printing and mailing
prospectuses to potential investors; payments to and expenses of Smith Barney
Financial Consultants and other persons who provide support services in
connection with the distribution of shares; interest and/or carrying charges;
and indirect and overhead costs of Smith Barney associated with the sale of
Portfolio shares, including lease, utility, communications and sales promotion
expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to the Class A, Class B and Class C shares of the
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 actually
incurred by Smith Barney and the payments may exceed distribution expenses
39
<PAGE>
- --------------------------------------------------------------------------------
Distributor (continued)
- --------------------------------------------------------------------------------
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 Fund has
outstanding three series of shares, each representing shares in separate
portfolios, and may authorize the issuance of additional series of shares in the
future. The assets of each portfolio are segregated and separately managed and a
shareholder's interest is in the assets of the portfolio in which he or she
holds shares. Class A, Class B, Class C, Class Y and Class Z (where available)
shares of any portfolio represent interests in the assets of the 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 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,
Philadelphia, Pennsylvania 19103, serves as custodian of the Portfolio's
investments.
First Data, located at 53 State Street, 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. Shareholders who do not want this consolidation to apply to
their account should contact their Smith Barney Financial Consultant or First
Data.
40
<PAGE>
- --------------------------------------------------------------------------------
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
Securities Portfolio. Prepayments and scheduled payments of principal will be
reinvested by the U.S. Government Securities 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 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.
FHLMC and FNMA Securities. FHLMC is a U.S. Government-created entity
controlled by the Federal Home Loan Banks. FNMA is a government-chartered
corporation owned entirely by private stockholders, which is subject to general
regulation by the Secretary of Housing and Urban Development. Timely payment of
principal and interest on these mortgage participation certificates is
guaranteed solely by the issuer of the certificates.
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)
obligations 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 and (2) other
securities fully guaranteed as to principal and interest by the United States of
America.
Repurchase Agreements. A repurchase agreement arises when the Fund
purchases a security for the Portfolio and simultaneously agrees to resell it to
the
A-1
<PAGE>
- --------------------------------------------------------------------------------
Appendix (continued)
- --------------------------------------------------------------------------------
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
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 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 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 the Portfolio amount to more than 15% of the 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 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 Fund
388 Greenwich Street
New York, New York 10013
FD 02321 4/98
PROSPECTUS
SMITH BARNEY FUNDS,INC.
U. S.
Government
Securities
Fund
Class Z Shares Only
APRIL 28, 1998
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
Prospectus April 28, 1998
- --------------------------------------------------------------------------------
Smith Barney Funds, Inc.
U. S. Government Securities Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The U.S. Government Securities Fund (the "Portfolio") is one of the
investment portfolios that currently comprises Smith Barney Funds, Inc. (the
"Fund"). The Portfolio seeks high current income, liquidity and security of
principal from a portfolio of U.S. Government Obligations.
This Prospectus sets forth concisely certain information about the Fund
and each Portfolio, including 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. The Class Z shares
described in this Prospectus are currently offered exclusively 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 28, 1998, amended or supplemented from time
to time, that is available upon request and without charge by calling or writing
the Fund at the telephone number or address set forth above or by contacting a
Smith Barney Financial Consultant. The Statement of Additional Information has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus in its entirety.
Smith Barney Inc.
Distributor
Mutual Management Corp.
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>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
The Portfolio's Expenses 3
- --------------------------------------------------------------------------------
Financial Highlights 4
- --------------------------------------------------------------------------------
Investment Objective and Management Policies 5
- --------------------------------------------------------------------------------
Valuation of Shares 9
- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes 10
- --------------------------------------------------------------------------------
Purchase, Exchange and Redemption of Shares 10
- --------------------------------------------------------------------------------
Performance 11
- --------------------------------------------------------------------------------
Management of the Fund 12
- --------------------------------------------------------------------------------
Additional Information 14
- --------------------------------------------------------------------------------
Appendix A-1
- --------------------------------------------------------------------------------
================================================================================
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
Smith Barney Inc. (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>
- --------------------------------------------------------------------------------
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 Class Z shares of the
Portfolio, based on the Portfolio's operating expenses for Class Z shares for
the fiscal year ended December 31, 1997:
U.S. Government Securities Fund
- --------------------------------------------------------------------------------
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management fees 0.45%
Other expenses 0.06
- --------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES 0.51%
================================================================================
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
indirectly. The example assumes payment by the Portfolio of operating expenses
at the levels set forth in the table above. See "Purchase, Exchange and
Redemption of Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
U.S. Government Securities Fund 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: $5 $16 $29 $64
===============================================================================================
</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
representation of past or future expenses and actual expenses may be greater or
less than those shown.
3
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The following information has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon appears in the Fund's Annual Report
dated December 31, 1997. The information set out below should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report to Shareholders, which is incorporated by reference
into the Statement of Additional Information.
For a share of Class Z capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
U.S. Government Securities Fund 1997 1996 1995 1994(1)
=========================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.26 $13.60 $12.50 $12.47
- ---------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.89 0.88 0.94 0.14
Net realized and unrealized gain (loss) 0.38 (0.33) 1.11 0.13
- ---------------------------------------------------------------------------------------------------------
Total Income From Operations 1.27 0.55 2.05 0.27
- ---------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.90) (0.89) (0.95) (0.24)
- ---------------------------------------------------------------------------------------------------------
Net realized gains (0.00)# -- -- --
- ---------------------------------------------------------------------------------------------------------
Total Distributions (0.90) (0.89) (0.95) (0.24)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.63 $13.26 $13.60 $12.50
- ---------------------------------------------------------------------------------------------------------
Total Return 9.98% 4.31% 16.89% (2.15)%++
- ---------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $22,815 $19,511 $20,923 $18,580
- ---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.51% 0.49% 0.50% 0.34%+
Net investment income 6.64 6.64 7.12 7.55+
- ---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 265% 57% 40%
=========================================================================================================
</TABLE>
(1) For the period from November 7, 1994 (inception date) to December 31,
1994.
# Amount represents less than $0.01
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
4
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies
- --------------------------------------------------------------------------------
The Portfolio seeks high current income, liquidity and security of
principal by investing in obligations of the U.S. Government, its agencies or
its instrumentalities and related repurchase and reverse repurchase agreements.
Of course, no assurance can be given that the Portfolio's objective will be
achieved.
The Portfolio invests primarily in Government National Mortgage
Association ("GNMA") Certificates of the modified pass-through type and in
mortgage participation certificates issued by the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC")
and will also normally include other "U.S. Government Obligations," i.e.,
obligations issued or guaranteed by the United States, its agencies or its
instrumentalities and related repurchase and reverse repurchase agreements (the
Portfolio will limit its investments in reverse repurchase agreements to no more
than 5% of its 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 Certificates are debt securities issued by a
mortgage banker or other mortgagee representing an interest in a pool of
mortgages insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. The National
Housing Act provides that the full faith and credit of the United States is
pledged to the timely payment of principal and interest by GNMA of amounts due
on these GNMA Certificates. Securities of the type to be purchased for 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 Portfolio 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. FHLMC is a U.S. Government-created entity
controlled by the Federal Home Loan Banks. FNMA is a government-chartered
corporation owned entirely by private stockholders, which is subject to general
regulation by the Secretary of Housing and Urban Development. Timely payment of
principal and interest on these mortgage participation certificates is
guaranteed solely by the issuer of the certificates. For a detailed explanation,
see "Appendix."
5
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
The Portfolio may enter into repurchase agreements secured by U.S.
Treasury securities in order to earn income on available cash. A repurchase
agreement arises when the Portfolio acquires a security and simultaneously agree
to resell it to the vendor at an agreed-upon future date, normally the next
business day. The resale price is greater that 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; however, if the seller defaults,
realization upon the collateral by the Portfolio may be delayed or limited,
or the Portfolio might incur a loss of the value of the collateral
securing the repurchase agreement declines and might incur disposition
costs in connection with liquidating the collateral.
The Portfolio may enter into reverse repurchase agreements with the same
parties with whom it may enter into repurchase agreements. Under a reverse
repurchase agreement, the Portfolio will sell securities and agree to repurchase
them at a particular price at a future date. At the time the Portfolio enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with an approved custodian containing cash or liquid securities that
have a value no less than the repurchase price, including accrued interest.
Reverse repurchase agreements involve the risk that the market value of the
securities retained in lieu of sale by Portfolio may decline below the price of
the securities the Portfolio has sold but is obliged to repurchase. In the event
the buyer of securities under a reserve repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities, and the Portfolio's use of the proceeds
of the reverse repurchase agreements may effectively be restricted pending such
decision. Reverse repurchase agreements will be treated as borrowing and will be
considered in the Portfolio's overall borrowing limitation.
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 Obligations equal to no less than the market
value, determined daily, of the securities loaned. Management will limit such
lending to not more than one-third of the value of 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 Portfolio may purchase and sell interest rate futures contracts
("futures contracts") as a hedge against changes in interest rates. A futures
contract is an agreement between two parties to buy and sell a security for a
set price on a future date. Futures contracts are traded on designated
"contracts markets" which, through
6
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
their clearing corporations, guarantee performance of the contracts. Currently,
there are futures contracts based on securities such as long-term Treasury
bonds, Treasury notes, GNMA Certificates and three-month Treasury bills.
Generally, if market interest rates increase, the value of outstanding
debt securities declines (and vice versa). Entering into a futures contract for
the sale of securities has an effect similar to the actual sale of securities,
although the sale of the futures contract might be accomplished more easily and
quickly. For example, if the Portfolio holds long-term U.S. government
securities and Mutual Management Corp. ("MMC" or the "Manager") anticipates a
rise in long-term interest rates, it could, in lieu of disposing of its
portfolio securities, enter into futures contracts for the sale of similar
long-term securities. If interest rates increased and the value of the
Portfolio's securities declined, the value of the Portfolio's futures contracts
would increase, thereby protecting the Portfolio by preventing the net asset
value from declining as much as it otherwise would have. Similarly, entering
into futures contracts for the purchase of securities has an effect similar to
actual purchase of the underlying securities, but permits the continued holding
of securities other than the underlying securities. For example, if MMC expects
long-term interest rates to decline, the Portfolio might enter into futures
contracts for the purchase of long-term securities, so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase, while continuing to hold higher-yielding short-term
securities or waiting for the long-term market to stabilize.
The Portfolio also may purchase and sell listed put and call options on
futures contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), at a specified exercise price at any time during the option
period. When an option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the difference between the
current market price of the futures contract and the exercise price of the
option. The Portfolio may purchase put options on interest rate futures
contracts in lieu of, and for the same purpose as, the sale of a futures
contract. It also may purchase such put options in order to hedge a long
position in the underlying futures contract in the same manner as it purchases
"protective puts" on securities. The purchase of call options on interest rate
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contract, and the Portfolio will set aside cash or cash
equivalents sufficient to purchase the amount of portfolio securities
represented by the underlying futures contracts. See "Dividends, Distributions
and Taxes."
The Portfolio may not purchase futures contracts or related options if,
immediately thereafter, more than 30% of the Portfolio's total assets would be
so invested. In purchasing and selling futures contracts and related options,
the Portfolio will comply with rules and interpretations of the Commodity
Futures
7
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
Trading Commission ("CFTC"), under which the Fund is excluded from regulation as
a "commodity pool." CFTC regulations permit use of commodity futures and options
for bona fide hedging purposes without limitations on the amount of assets
committed to margin and option premiums.
The Portfolio will not engage in transactions involving futures contracts
or related options for speculation but only as a hedge against changes in the
market values of debt securities held, or intended to be purchased, by the
Portfolio and where the transactions are appropriate to reduction of the
Portfolio's risks. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold (or
related put options purchased) to protect against a decline in the price of
securities that the Portfolio owns, or futures contracts (or related call
options) will be purchased to protect the Portfolio against an increase in the
price of securities it is committed to purchase.
There is no assurance that the Portfolio will be able to close out its
futures positions at any time, in which case it would be required to maintain
the margin deposits on the contract. There can be no assurance that hedging
transactions will be successful, as there may be an imperfect correlation (or no
correlation) between movements in the prices of the futures contracts and of the
debt securities being hedged, or price distortions due to market conditions in
the futures markets. Where futures contracts are purchased to hedge against an
increase in the price of long-term securities, but the long-term market declines
and the Portfolio does not invest in long-term securities, the Portfolio would
realize a loss on the futures contracts, which would not be offset by a
reduction in the price of securities purchased. Where futures contracts are sold
to hedge against a decline in the price of the Portfolio's long-term securities
but the long-term market advances, the Portfolio would lose part or all of the
benefit of the advance due to offsetting losses in its futures positions.
In addition, the Portfolio may invest in zero-coupon Treasury securities,
which may be subject to greater volatility than other types of Treasury
securities. 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.
In addition, the Portfolio may borrow money from banks for temporary or
emergency purposes.
Year 2000. The investment management services provided to the Fund by the
8
<PAGE>
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
Manager and the services provided to shareholders by Smith Barney, the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. The Manager and Smith Barney have advised the Fund that they have been
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, the Manager has been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same goal.
There can, however, be no assurance that the Manager, Smith Barney or any other
service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time.
The Board of Directors of the Fund may modify the investment objective and
policies of the 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.
PORTFOLIO TURNOVER
The Portfolio will not engage in the trading of securities for the purpose
of realizing short-term profits; however, the 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 outstanding.
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
similar type, yield and maturity. Short-term investments that have a maturity of
more than 60
9
<PAGE>
- --------------------------------------------------------------------------------
Valuation of Shares (continued)
- --------------------------------------------------------------------------------
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 approximates fair value, unless market conditions dictate
otherwise. Other investments of the 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 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 distributions
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, a Portfolio
must meet certain tests, including distributing at least 90% of its investment
company taxable income.
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 the 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 the
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
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 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
"settlement date")
10
<PAGE>
- --------------------------------------------------------------------------------
Purchase, Exchange and Redemption of Shares (continued)
- --------------------------------------------------------------------------------
after the trade date. Investors who make payment prior to the settlement 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 offering of shares for
a period of time. There are no minimum investment 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
trading 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.
Shareholders 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
information 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
advertisements 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 by the SEC is derived from this total return, which
provides the ending redeemable value. Such standard total return information may
also be accompanied with nonstandard total return information for differing
periods computed in the same manner but without annualizing the total return or
taking sales charges into account. The 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
11
<PAGE>
- --------------------------------------------------------------------------------
Performance (continued)
- --------------------------------------------------------------------------------
investments.The yield quotation is calculated according to a formula prescribed
by the SEC to facilitate comparison with yields quoted by other investment
companies. The 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
presented. 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 a Class'
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 Portfolio
rests with the Fund's Board of Directors. The Board of Directors approves 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 manager, custodian and transfer agent. The day-to-day
operations of the Portfolio are delegated to the investment manager. The
Statement of Additional Information contains background information regarding
each Director and executive officer of the Fund.
MANAGER
Mutual Management Corp. (formerly known as Smith Barney
Mutual Funds Management Inc.) 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 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 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 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 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 Portfolio pays MMC an investment advisory fee calculated at an annual
12
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
rate of 0.50% of the first $200 million of the average daily net assets,
and 0.40% of the average daily net assets of the Portfolio in excess
of $200 million. This fee is calculated daily and paid monthly.
For the last fiscal year, the effective rate of the management fee for the
Portfolio was 0.45% of the Portfolio's average net assets. Payment under the
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. For the last fiscal year, total operating expenses of the
Class Z Shares for the Portfolio were 0.49% of average net assets.
The Manager, incorporated on March 12, 1968 under the laws of Delaware, is
a wholly-owned subsidiary of Salomon Smith Barney Holdings ("Holdings"), the
parent company 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, including Asset Management, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services. As
of March 31, 1998, the Manager had aggregate assets under management of
approximately $100.5 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
James Conroy, Managing Director of Smith Barney, has served as Portfolio
Manager of the 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 Fund. Mr Conroy has also served as Vice President and Investment
Officer of Smith Barney Managed Governments Fund Inc. since February 1990 and as
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,
1997 is included in the Annual Report dated December 31, 1997. 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.
13
<PAGE>
- --------------------------------------------------------------------------------
Management of the Fund (continued)
- --------------------------------------------------------------------------------
On April 6, 1998, Travelers announced that it had
entered into a Merger Agreement with Citicorp. The transaction, which is
expected to be completed during the third quarter of 1998, is subject to various
regulatory approvals, including approval by the Federal Reserve Board. The
transaction is also subject to approval by the stockholders of each of
Travelers and Citicorp. Upon consummation of the merger, the surviving
corporation would be a bank holding company subject to regulations under the
Bank Holding Company Act of 1956 (the "BHCA"), the requirements of the
Glass-Steagall Act and certain other laws and regulations. Although the effects
of the merger of Travelers and Citicorp and compliance with the requirements of
the BHCA and the Glass-Steagall Act are still under review, the Manager
does not believe that its compliance with applicable law
following the merger of Travelers and Citicorp will have adverse effects on its
ability to continue to provide the Fund with the same level of investment
advisory services that currently receives.
- --------------------------------------------------------------------------------
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 Fund has
outstanding three series of shares, each representing shares in 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 any portfolio represent interests in the assets of the 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 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,
Philadelphia, Pennsylvania 19103, serves as custodian of the Portfolio's
investments.
First Data Investor Services Group Inc., located at 53 State Street,
Boston, Massachusetts 02109, serves as the Fund's transfer agent.
14
<PAGE>
- --------------------------------------------------------------------------------
Additional Information (continued)
- --------------------------------------------------------------------------------
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.
15
<PAGE>
- --------------------------------------------------------------------------------
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
Securities Portfolio. Prepayments and scheduled payments of principal will be
reinvested 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
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.
FHLMC and FNMA Securities. FHLMC is a U.S. Government-created entity
controlled by the Federal Home Loan Banks. FNMA is a government-chartered
corporation owned entirely by private stockholders, which is subject to general
regulation by the Secretary of Housing and Urban Development. Timely payment of
principal and interest on these mortgage participation certificates is
guaranteed solely by the issuer of the certificates.
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)
obligations 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 and (2) other
securities fully guaranteed as to principal and interest by the United States of
America.
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
A-1
<PAGE>
- --------------------------------------------------------------------------------
Appendix (continued)
- --------------------------------------------------------------------------------
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
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 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 the Portfolio amount to more than 15% of the 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 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 Fund
388 Greenwich Street
New York, New York 10013
FD 0662 4/98
<PAGE>
SMITH BARNEY FUNDS, INC.
SHORT-TERM
U.S. TREASURY
SECURITIES
FUND
APRIL 28, 1998
PROSPECTUS BEGINS ON PAGE ONE
P R O S P E C T U S
LOGO SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
PROSPECTUS
April 28, 1998
Smith Barney Funds, Inc.
Short-Term U.S. Treasury Securities Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
The Short-Term U.S. Treasury Securities Fund (the "Portfolio") is one of
three 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 guaran-
teed, as to value or yield, by the U.S. Government or its agencies or instru-
mentalities.
This Prospectus sets forth concisely certain information about the Fund and
the Portfolio, including distribution and service fees and expenses, that pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
Additional information about the Portfolio is contained in a Statement of
Additional Information dated April 28, 1998, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by con-
tacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment 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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 7
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 9
- -------------------------------------------------
VALUATION OF SHARES 13
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 13
- -------------------------------------------------
PURCHASE OF SHARES 14
- -------------------------------------------------
EXCHANGE PRIVILEGE 17
- -------------------------------------------------
REDEMPTION OF SHARES 20
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 24
- -------------------------------------------------
PERFORMANCE 24
- -------------------------------------------------
MANAGEMENT OF THE FUND 25
- -------------------------------------------------
DISTRIBUTOR 27
- -------------------------------------------------
ADDITIONAL INFORMATION 27
- -------------------------------------------------
</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 Smith Barney Inc. (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>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, management investment company.
The Portfolio's investment objective is to seek 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. 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 $15,000,000. 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
initial investment minimum of $15,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to any
service or distribution fees.
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) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A shares are available as investment alterna-
tives under both of these programs. See "Purchase of Shares -- Smith Barney
401(k) and ExecChoice(TM) Programs."
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 Investors Services Group, Inc.
("First Data"). See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A shares may open an account by making
an initial investment of at least $1,000 for each account, or $250 for an
individual retirement account ("IRA") or a Self-Employed Retirement Plan.
Investors in Class Y shares may open an account for an initial investment of
$15,000,000. 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 investments requirement for Class A
shares and the subsequent investment requirement for both Class A and Class Y
shares is $25. The minimum investment requirements for purchases of Portfolio
Shares through the Systematic Investment Plan are described below. See "Pur-
chase 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. The minimum initial
investment requirement for Class A shares and the subsequent investment
requirement for all Classes for Shareholders purchasing shares through the
Systematic Investment Plan on a monthly basis is $25 and on a quarterly basis
is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Mutual Management Corp., formerly, Smith Barney
Mutual Funds Management Inc. (the "Manager"), serves as the Portfolio's
investment manager. The Manager is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers"), a diversified financial services holding
company engaged, through its subsidiaries, principally in four business seg-
ments: 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-
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
tive net asset values next determined, plus any applicable sales charge differ-
ential. 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. 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 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.
See "Investment Objective and Management Policies."
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>
SHORT-TERM U.S. TREASURY SECURITIES FUND 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 0.15 0.05
- ----------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES 0.95% 0.50%
- ----------------------------------------------------------------------
</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.
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Class A shares of the Portfolio purchased through the Smith Barney AssetOne
Program will be subject to an annual asset-based fee, payable quarterly. The
fee will vary to a maximum of 1.50%, depending on the amount of assets held
through the Program. For more information, please call your Smith Barney Finan-
cial Consultant.
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.
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>
SHORT-TERM U.S. TREASURY SECURITIES FUND 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 $30 $53 $117
Class Y.................................... 5 16 28 63
- -------------------------------------------------------------------------------
</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.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, indepen-
dent auditors, whose report thereon appears in the Fund's annual report dated
December 31, 1997. The information set out below should be read in conjunction
with the financial statements and related notes that also appear in the Fund's
Annual Report to Shareholders, which is incorporated by reference into the
Statement of Additional Information.
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
SHORT-TERM U.S. TREASURY
SECURITIES FUND
CLASS A SHARES 1997 1996 1995 1994 1993 1992 1991(A)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $4.05 $4.19 $3.91 $4.16 $4.12 $4.09 $4.01
- ----------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income 0.22 0.23 0.22 0.18 0.18 0.19 0.03
Net realized and
unrealized gain (loss) 0.04 (0.14) 0.28 (0.25) 0.06 0.04 0.09
- ----------------------------------------------------------------------------------------------
Total Income (Loss)
from Operations 0.26 0.09 0.50 (0.07) 0.24 0.23 0.12
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.22) (0.23) (0.22) (0.18) (0.18) (0.19) (0.03)
Net realized gains -- -- -- -- (0.02) (0.01) (0.01)
- ----------------------------------------------------------------------------------------------
Total Distributions (0.22) (0.23) (0.22) (0.18) (0.20) (0.20) (0.04)
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR $4.09 $4.05 $4.19 $3.91 $4.16 $4.12 $4.09
- ----------------------------------------------------------------------------------------------
TOTAL RETURN 6.73% 2.17% 13.16% (2.15)% 6.01% 5.92% 2.85%++
- ----------------------------------------------------------------------------------------------
NET ASSETS,
END OF YEAR (000S) $71,361 $83,324 $107,099 $88,707 $205,758 $130,280 $93,946
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses 0.95% 0.98% 0.98% 0.91% 0.88% 0.91% 0.80%+
Net investment income 5.53 5.62 5.29 4.54 4.40 4.76 4.89+
- ----------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 145% 130% 29% 25% 41% 45% 5%
- ----------------------------------------------------------------------------------------------
</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.
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<S> <C> <C>
SHORT-TERM U.S. TREASURY SECURITIES FUND
CLASS Y SHARES 1997 1996(1)
- --------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $4.05 $4.19
- --------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.24 0.22
Net realized gain (loss) 0.04 (0.14)
- --------------------------------------------------------------
Total Income From Operations 0.28 0.08
- --------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.24) (0.22)
- --------------------------------------------------------------
Total Distributions (0.24) (0.22)
- --------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $4.09 $4.05
- --------------------------------------------------------------
TOTAL RETURN 7.20% 2.08%++
- --------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $29,786 $32,114
- --------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.50% 0.58%+
Net investment income 6.00 5.99+
- --------------------------------------------------------------
PORTFOLIO TURNOVER RATE 145% 130%
- --------------------------------------------------------------
</TABLE>
(1) For the period February 7, 1996 (inception date) through December 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
8
<PAGE>
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 mar-
ket value due to fluctuations in interest rates. Changes in the value of port-
folio 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 Port-
folio's shares. Conversely, during periods of rising interest rates, the value
of the Portfolio's shares will generally decline. In an effort to minimize
fluctuations in market value of its portfolio securities, the dollar-weighted
average maturity of the Portfolio's securities shall normally not be less than
two nor more than five years. The maximum remaining maturity of the securities
in which the Portfolio shall normally invest will be no greater than ten
years.
The Portfolio may enter into repurchase agreements secured by U.S. Treasury
securities in order to earn income on available cash. A repurchase agreement
arises when the Portfolio acquires a security and simultaneously agrees to
resell it to the vendor at an agreed-upon future date, normally the next busi-
ness 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 temporar-
ily available cash at no market risk. The Portfolio requires continual mainte-
nance 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; 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 may enter into reverse repurchase agreements with the same
parties with whom it may enter into repurchase agreements. Under a reverse
repurchase agreement, the Portfolio will sell securities and agree to repur-
chase them at a particular price at a future date. At the time the Portfolio
enters into a reverse
9
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
repurchase agreement, it will establish and maintain a segregated account with
an approved custodian containing cash or liquid securities that have a value no
less than the repurchase price, including accrued interest. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale by the Portfolio may decline below the price of the securities the
Portfolio has sold but it obliged to repurchase. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce the Portfolio's obligation to repurchase
the securities, and the Portfolio's use of the proceeds of the reverse repur-
chase agreements may effectively be restricted pending such decision. Reverse
repurchase agreements will be treated as borrowings and will be considered in
the Portfolio's overall borrowing limitation.
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.
The Portfolio may purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis. Such transactions arise when securities
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. Pur-
chasing such securities involves the risk of loss if the value of the securi-
ties declines prior to settlement date. The sale of securities for delayed
delivery involves the risk that the prices available in the market on the
delivery date may be greater than those obtained in the sale transaction. The
Portfolio's custodian will maintain, in a segregated account on behalf of the
Portfolio, cash, U.S. Government securities or other liquid securities having a
value equal to or greater than the Portfolio's purchase commitments; the custo-
dian will likewise segregate securities sold on a delayed basis.
10
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Portfolio may borrow money from banks for temporary or emergency purpos-
es.
The Portfolio may purchase and sell interest rate futures contracts ("futures
contracts") as a hedge against changes in interest rates. A futures contract is
an agreement between two parties to buy and sell a security for a set price on
a future date. Futures contracts are traded on designated "contracts markets"
which, through their clearing corporations, guarantee performance of the con-
tracts. Currently, there are futures contracts based on securities such as
long-term Treasury bonds, Treasury notes, GNMA Certificates and three-month
Treasury bills.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although the sale of the futures contract might be accomplished more easily and
quickly. For example, if the Portfolio holds long-term U.S. government securi-
ties and the Manager anticipates a rise in long-term interest rates, it could,
in lieu of disposing of its portfolio securities, enter into futures contracts
for the sale of similar long-term securities. If interest rates increased and
the value of the Portfolio's securities declined, the value of the Portfolio's
futures contracts would increase, thereby protecting the Portfolio by prevent-
ing the net asset value from declining as much as it otherwise would have. Sim-
ilarly, entering into futures contracts for the purchase of securities has an
effect similar to actual purchase of the underlying securities, but permits the
continued holding of securities other than the underlying securities. For exam-
ple, if the Manager expects long-term interest rates to decline, the Portfolio
might enter into futures contracts for the purchase of long-term securities, so
that it could gain rapid market exposure that may offset anticipated increases
in the cost of securities it intends to purchase, while continuing to hold
higher-yielding short-term securities or waiting for the long-term market to
stabilize.
The Portfolio may not purchase futures contracts if, immediately thereafter,
more than 30% of the Portfolio's total assets would be so invested. In purchas-
ing and selling futures contracts, the Portfolio will comply with rules and
interpretations of the Commodity Futures Trading Commission ("CFTC"), under
which the Fund is excluded from regulation as a "commodity pool." CFTC regula-
tions permit use of commodity futures for bona fide hedging purposes without
limitations on the amount of assets committed to margin.
The Portfolio will not engage in transactions involving futures contracts for
speculation but only as a hedge against changes in the market values of debt
securities held, or intended to be purchased, by the Portfolio and where the
transactions are appropriate to reduction of the Portfolio's risks. The Portfo-
lio's futures transactions will be entered into for traditional hedging purpos-
es-- that is, futures contracts will
11
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
be sold to protect against a decline in the price of securities that the Port-
folio owns, or futures contracts will be purchased to protect the Portfolio
against an increase in the price of securities it is committed to purchase.
There is no assurance that the Portfolio will be able to close out its
futures positions at any time, in which case it would be required to maintain
the margin deposits on the contract. There can be no assurance that hedging
transactions will be successful, as there may be an imperfect correlation (or
no correlation) between movements in the prices of the futures contracts and of
the debt securities being hedged, or price distortions due to market conditions
in the futures markets. Where futures contracts are purchased to hedge against
an increase in the price of long-term securities, but the long-term market
declines and the Portfolio does not invest in long-term securities, the Portfo-
lio would realize a loss on the futures contracts, which would not be offset by
a reduction in the price of securities purchased. Where futures contracts are
sold to hedge against a decline in the price of the Portfolio's long-term secu-
rities but the long-term market advances, the Portfolio would lose part or all
of the benefit of the advance due to offsetting losses in its futures posi-
tions.
The Portfolio's investment objective may be changed only by the "vote of a
majority of the outstanding voting securities" as defined in the 1940 Act.
Except as specifically noted, the Portfolio's investment policies are not fun-
damental 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.
Year 2000. The investment management services provided to the Fund by the
Manager and the services provided to shareholders by Smith Barney, the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were
encoded and calculated. That failure could have a negative impact on the Fund's
operations, including the handling of securities trades, pricing and account
services. The Manager and Smith Barney have advised the Fund that they have
been reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, the Manager has been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same
goal. There can, however, be no assurance that the Manager, Smith Barney or any
other service provider will be successful, or that interaction with other non-
complying computer systems will not impair Fund services at that time.
12
<PAGE>
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 quo-
tations for securities of similar type, yield and maturity. Short-term invest-
ments with a remaining maturity of 60 days or less are valued at amortized cost
where the Board has determined that amortized cost approximates 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 dis-
tributions 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 shareholder's account. If a shareholder redeems in full an account between
payment dates, all dividends accrued to the date of liquidation will be paid
with the proceeds from the redemption of shares.
The per share dividends on Class A shares of the Portfolio may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice and distribution fees applicable to Class A shares. Distributions of capi-
tal gains, if any, will be in the same amount for Class A and Class Y shares.
13
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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.
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, regardless of how long the shareholder has held his or her shares.
Information as to the tax status of dividends paid or deemed paid in each cal-
endar year will be mailed to shareholders as early in the succeeding year as
practical but not later than January 31.
The Fund is required to withhold and remit to the U.S. Treasury 31% of divi-
dends, distributions and redemption proceeds to shareholders who fail to pro-
vide a correct taxpayer identification number (the Social Security number in
the case of an individual) or to make the required certifications, or who have
been notified by the Internal Revenue Service that they are subject to backup
withholding and who are not otherwise exempt. The 31% withholding tax is not an
additional tax, but is creditable against a shareholder's Federal income tax
liability.
State Taxes. The Fund believes that dividends paid by the Portfolio are
exempt from state income taxation.
Prior to investing in shares of the Portfolio, investors should consult with
their tax advisors concerning the Federal, state and local tax consequences of
such an investment.
PURCHASE OF SHARES
GENERAL
The Portfolio offers two Classes of shares. Class A shares are sold to
investors without an initial sales charge or CDSC but are subject to annual
service and distribution fees. (In addition, Class A shares acquired as part of
an exchange privilege transaction, which were originally acquired in one of the
other funds of the Smith Barney Mutual Funds at net asset value subject to a
CDSC, remain subject to the original fund's CDSC while held in the Portfolio.)
Class Y shares are sold without an initial sales charge or CDSC or service or
distribution fees, and are available
14
<PAGE>
PURCHASE OF SHARES (CONTINUED)
only to investors investing a minimum of $15,000,000 (except for purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount).
Purchases of Portfolio shares must be made through a brokerage account main-
tained with Smith Barney, 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 First Data. When purchasing shares of the Portfolio,
investors must specify whether the purchase is for Class A or Class Y shares.
Smith Barney and other broker/dealers may charge their customers an annual
account maintenance fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly at First Data are
not subject to a maintenance fee.
Investors in Class A 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 $15,000,000. Subsequent investments
of at least $50 may be made for each Class. For participants in retirement
plans qualified under Section 403(b)(7) or Section 401(a) of the Code, the min-
imum initial investment requirement for Class A shares and the subsequent
investment requirement for both Classes in the Portfolio is $25. For sharehold-
ers purchasing shares of the Portfolio through the Systematic Investment Plan
on a monthly basis, the minimum initial investment requirement for Class A
Shares and the subsequent investment requirement for both Classes is $25. For
shareholders purchasing shares of the Portfolio through the Systematic Invest-
ment Plan on a quarterly basis, the minimum initial investment requirement for
Class A shares and the subsequent 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
Travelers-affiliated funds, including the Smith Barney Mutual Funds, and their
spouses and children. Share certificates are issued only upon a shareholder's
written request to First Data. The Fund reserves the right to waive or change
minimums, to decline any order to purchase its shares and to suspend the offer-
ing of shares from time to time. Shares purchased will be held in the share-
holder's account by the Fund's transfer agent, First Data.
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 invest-
15
<PAGE>
PURCHASE OF SHARES (CONTINUED)
or'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 next time the net asset value is
determined. When orders for the purchase of Portfolio shares are paid for
other than in Federal funds, Smith Barney or the Introducing 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 Broker. Shares purchased
directly through First Data begin to accrue income dividends on the day that
the purchase order becomes effective. All other shares purchased begin to
accrue dividends on the next business day following the day the purchase order
becomes effective.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data is authorized through
preauthorized transfers of at least $25 on a monthly basis or at least $50 on
a quarterly basis to charge the regular bank account or other financial insti-
tution indicated by the shareholder 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 shareholder's Smith Barney brokerage account or redeem
the shareholder's shares of a Smith Barney money market fund to make additions
to the account. Additional information is available from the Fund or a Smith
Barney Financial Consultant.
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 13-month period. Such investors must make an initial mini-
mum purchase of $5,000,000 in Class Y shares of the Portfolio and agree to
purchase a total of $15,000,000 of Class Y shares of the same Portfolio within
13 months from the date of the Letter. If a total investment of $15,000,000 is
not made within the 13 month period, all Class Y shares purchased to date will
be transferred to Class A shares, where they will be subject to all fees (in-
cluding 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.
16
<PAGE>
PURCHASE OF SHARES (CONTINUED)
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable, the same
terms and conditions which are outlined below, are offered to all plans partic-
ipating ("Participating Plans") in these programs.
The Portfolio offers to Participating Plans Class A shares as an investment
choice under the Smith Barney 401(k) and ExecChoice(TM) Programs, provided the
Participating Plan makes an initial investment of $1,000,000 or more of Class A
shares of one or more funds of the Smith Barney Mutual Funds. Class A shares
acquired through the Participating Plans are subject to the same service and/or
dis-
tribution fees as the Class A shares acquired by other investors; however, they
are not subject to any initial sales charge or contingent deferred sales charge
("CDSC").
Participating Plans wishing to acquire shares of the Portfolio through the
Smith Barney 401(k) Program or Smith Barney ExecChoice(TM) Program must pur-
chase such shares directly from First Data. For further information regarding
these Programs, 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 or
residence. Exchanges of Class A shares are subject to minimum investment
requirements and all shares are subject to the other requirements of the fund
into which exchanges are made and a sales charge differential may apply.
FUND NAME
Growth Funds
Concert Peachtree Growth Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund, Inc.
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
17
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Large Cap Value Fund
Smith Barney Premium Total Return 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. -- U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Municipal High Income Fund
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
18
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -- Global Portfolio
Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- Income Portfolio
Money Market Funds
Smith Barney Money Funds, Inc. -- Cash Portfolio
Smith Barney Money Funds, Inc. -- Government Portfolio
*Smith Barney Money Funds, Inc. -- Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -- California Money Market Portfolio
Smith Barney Muni Funds -- New York Money Market Portfolio
- --------------------------------------------------------------------------------
* Available only for exchange with Class A shares of the Portfolio.
Class A Exchanges. Class A shares of the Portfolio will be subject to the
appropriate "sales charge differential" upon the exchange of such shares for
Class A shares of another fund of the Smith Barney Mutual Funds sold with a
sales charge. The "sales charge differential" is limited to a percentage rate
no greater than the excess of the sales charge rate applicable to purchases of
shares of the mutual fund being acquired in the exchange over the sales charge
rate(s) actually paid on the mutual fund shares relinquished in the exchange
and on any predecessor of those shares. For purposes of the exchange privilege,
shares obtained through automatic reinvestment of dividends and capital gain
distributions are treated as having paid the same sales charges applicable to
the shares in which the dividends or distributions were paid; however, except
in the case of the Smith Barney 401(k) Program and ExecChoice (TM) Program, if
no sales charge was imposed upon the initial purchase of shares, any shares
obtained through automatic reinvestment will be subject to a sales charge dif-
ferential upon exchange. Class A shares held in the 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 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. Excessive exchange
transactions may be detrimental to the Portfolio's performance and its share-
holders. The Manager may determine that a pattern of frequent exchanges is
excessive and contrary to the best interests of the Portfolio's other share-
holders. In this event, the
19
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 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 support-
ing 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 business
days thereafter, except on any days on which the NYSE is closed or as permit-
ted under the 1940 Act in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without spe-
20
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
cific 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./Short-Term U.S. Treasury Securities Fund
Class A or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are 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
$10,000, or share certificate stock power must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member firm
of a national securities exchange. Written redemption requests of $10,000 or
less do not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. 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 share-
21
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
holder'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 $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>
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 account value
at the time of redemption, and will not be imposed on increases in value above
the initial purchase price in the original fund. In addition, no charge will
be assessed on shares derived from reinvestment of dividends or capital gain
distributions.
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestments of dividends and capital gain distribu-
tions and finally of other shares held by the shareholder for the longest
period of time. The length of time that Class A shares acquired through an
exchange have been held will be calculated from the date that the Class A
shares were initially acquired in one of the other Smith Barney Mutual Funds,
and the amount of shares being redeemed will be considered to represent, as
applicable, the value of capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal income tax purpos-
es, 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 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;
23
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
(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 to effect a combination of a Port-
folio with any investment company by merger, acquisition of assets or other-
wise. 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 or Smith Barney ExecChoice(TM) Pro-
gram. See "Purchase of Shares --Smith Barney 401(k) and Smith Barney
ExecChoice(TM) Programs."
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, share-
holders 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- ature the Portfolio may include its current dividend return. These fig-
ures are computed separately for Class A and Class Y shares of the Portfolio.
These figures are based on historical earnings and are not intended to indi-
cate future performance. Total return is computed for a specified period of
time assuming reinvestment of all income dividends and capital gain distribu-
tions on the reinvestment dates at prices calculated as stated in this Pro-
spectus, 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.
24
<PAGE>
PERFORMANCE (CONTINUED)
Such standard total return information may also be accompanied with nonstan-
dard total return information for differing periods computed in the same man-
ner 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 facilitate 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 divi-
dend return is presented. The Portfolio's current dividend return for each
Class may vary from time to time depending on market conditions, the composi-
tion 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 adver-
tising 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 Portfolio rests
with the Fund's Board of Directors. The Board of Directors approves 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 manager, 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
Mutual Management Corp. 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 securi-
ties 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
25
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
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 effective rate of the management
fee was 0.45% of the Portfolio's average net assets and the Portfolio's total
operating expenses were 0.95% and 0.50% of the average net assets for Class A
shares and Class Y shares, respectively.
The Manager was incorporated on March 12, 1968 under the laws of Delaware.
As of March 31, 1998 the Manager had aggregate assets under management in
excess of $100 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, Managing Director of Smith Barney, 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 Smith Barney Managed Governments Fund Inc. since February 1990 and as a
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, 1997 is
included in the Annual Report dated December 31, 1997. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also sub-
ject to approval by the stockholders of each of Travelers and Citicorp. Upon
consummation of the merger, the surviving corporation would be a bank holding
company subject to regulation under the Bank Holding Company Act of 1956 (the
"BHCA"), the requirements of
26
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
the Glass-Steagall Act and certain other laws and regulations. Although the
effects of the merger of Travelers and Citicorp and compliance with the
requirements of the BHCA and the Glass-Steagall Act are still under review,
the Manager does not believe that its compliance with applicable law following
the merger of Travelers and Citicorp will have a material adverse effect on
its ability to continue to provide the Fund with the same level of investment
advisory services that it currently receives.
DISTRIBUTOR
Smith Barney 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 shares of the Portfolio at the
annual rate of 0.25% of the average daily net assets of that Class. Smith Bar-
ney 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 printing and mailing prospectuses to potential invest-
ors; 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.
Amounts expended by Smith Barney but not reimbursed by the Portfolio in any
year will not be a continuing liability of the Portfolio in subsequent years.
Because the Portfolio reimburses Smith Barney only for actual expenditures,
Smith Barney realizes no profit from the Plan.
ADDITIONAL INFORMATION
The Fund, an open-end, diversified investment company, was incorporated in
Maryland on December 2, 1966. The Fund has an authorized capital of
2,000,000,000 shares with a par value of $.01 per share. The Fund has out-
standing three series of shares, each representing shares in separate portfo-
lios, 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
27
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
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
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 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 53 State Street, 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. Shareholders who do not want this consolidation to apply
to their account should contact their Smith Barney Financial Consultant or
First Data.
28
<PAGE>
SMITH BARNEY
------------
A Member of TravelersGroup LOGO
SMITH BARNEY
FUNDS, INC.
SHORT-TERM
U.S. TREASURY
SECURITIES FUND
388 Greenwich Street
New York, New York 10013
FD 2319 4/98
Part B
April 28, 1998
SMITH BARNEY FUNDS, INC.
388 Greenwich Street
New York, New York 10013
STATEMENT OF ADDITIONAL INFORMATION
Smith Barney Funds, Inc. (the "Fund") currently consists of three
Portfolios: the Large Cap Value Fund, the U.S. Government Securities
Fund and the Short-Term U.S. Treasury Securities Fund (collectively
referred to as "Portfolios" and each individually as a "Portfolio").
The Large Cap Value Fund had been named the "Equity Income Portfolio"
prior to February 20, 1998; prior to December 11, 1995, it had been
named the "Income and Growth 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 6
Additional Tax Information 8
IRA and Other Prototype Retirement Plans 10
Performance Information 11
Valuation of Shares 13
Purchase and Redemption of Shares 13
Investment Management Agreement
and Other Services 13
Custodian 16
Independent Auditors 16
Voting 17
Financial Statements 18
Appendix - Ratings of Debt Obligations 19
DIRECTORS AND OFFICERS
DONALD R. FOLEY, Director
Retired, 3668 Freshwater Drive, Jupiter, Florida 33477. Director of ten
investment companies associated with Smith Barney Inc. ("Smith Barney").
Formerly Vice President of Edwin Bird Wilson, Incorporated
(advertising); 75.
PAUL HARDIN, Director
Professor of Law at University of North Carolina at Chapel Hill, 103 S.
Building, Chapel Hill, North Carolina 27599; 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; 66.
*HEATH B. McLENDON, Chairman of the Board, President and Chief Executive
Officer
Managing Director of Smith Barney ; Director of forty-two 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; 64.
RODERICK C. RASMUSSEN, Director
Investment Counselor, 9 Cadence Court, Morristown, New Jersey 07960.
Director of ten investment companies associated with Smith Barney.
Formerly Vice President of Dresdner and Company Inc. (investment
counselors); 71.
*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; 54.
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; 67.
LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Smith Barney, Senior Vice President and Treasurer
of forty-two investment companies associated with Smith Barney, and
Director and Senior Vice President the Manager; 40.
JAMES E. CONROY, Vice President
Managing Director of Smith Barney and Vice President of four investment
companies associated with Smith Barney; prior to July 1993, Managing
Director of Shearson Lehman Advisors; 46.
THOMAS M. REYNOLDS, Controller
Director of Smith Barney and Controller and Assistant Secretary of
thirty-seven investment companies associated with Smith Barney; 38.
_________________________
* Designates a Director of the Fund who is an "interested person" of the
Fund as defined in the Investment Company Act of 1940. The business
address of each such Director is 388 Greenwich Street, New York, New
York 10013.
CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney, Secretary of forty-two investment
companies associated with Smith Barney; Secretary and General Counsel of
the Manager; 47.
On April 3, 1998, directors and officers owned in the aggregate less
than 1% of the outstanding shares of each Portfolio.
The business address of each officer indicated above is 388 Greenwich
Street, New York, New York 10013.
The following table shows the compensation paid by the Fund to each
director during the Fund's last fiscal year. None of the
officers 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
Pension or Number of
Retirement Total Funds for
Aggregate Benefits Accrued Compensation Which Person
Compensation as part of from Fund Serves Within
Name of Person from Fund Fund Expenses Complex Fund Complex
Joseph H. Fleiss+@ $4,213 0 $54,900 10
Donald R. Foley+ 4,113 0 55,400 10
Paul Hardin 4,413 0 73,000 12
Francis P. Martin+ 0 53,000 10
Heath B. McLendon* 0 0 0 42
Roderick C. Rasmussen 4,213 0 55,400 10
Bruce D. Sargent* 0 0 0 3
John P. Toolan+ 4,213 0 55,400 10
* Designates an "interested director".
+ Pursuant to the Fund's deferred compensation plan, the indicated
Directors have elected to defer payment of the following amounts of
their compensation from the Fund: Joseph H. Fleiss - $658; Donald R.
Foley - $658; and John P. Toolan - $4,213, and the following amounts of
their compensation from the Fund Complex: Joseph H. Fleiss: $21,000,
Donald R. Foley: $21,000, Francis P. Martin: $53,000 and John P. Toolan:
$55,400.
@ Effective January 1, 1998, Mr. Fleiss became a Director Emeritus.
Upon attainment of age 72 the Fund's current Directors may elect to
change to emeritus status. Any directors elected or appointed to the
Board in the future will be required to change to emeritus status upon
attainment of age 80. Directors Emeritus are entitled to serve in
emeritus status for a maximum of 10 years during which time they are
paid 50% of the annual retainer fee and meeting fees otherwise
applicable to the Fund's Directors, together with reasonable out-of-
pocket expenses for each meeting attended. For the last Fiscal year,
the total pound to emeritus directors by the Fund was $_____.
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.
Each Portfolio effects portfolio transactions with a view towards
attaining the investment objectives of the Portfolio 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 Fund,
may invest in investment grade bonds, i.e. U.S. Government Obligations
or bonds rated, at the time of purchase, in the four highest ratings
categories by a nationally recognized statistical rating organization
("NRSRO"), such as those rated Aaa, Aa, A and Baa by Moody's Investors
Service, Inc. ("Moody's") or AAA, AA, A and BBB by Standard & Poor's
Corporation ("S&P").
Repurchase and Reverse Repurchase Agreements. Each Portfolio may
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.
Reverse repurchase agreements involve the sale of Fund 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 a Portfolio 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 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. A 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 a Portfolio may
pay reasonable finders, administrative and custodial fees. 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 Large Cap Value Fund may invest in
securities of foreign issuers. Such investments 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 or market value of securities. 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.
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
Each of the Portfolios is subject to certain restrictions and policies
that are "fundamental," which may not be changed without a "vote of a
majority of the outstanding voting securities" of the Portfolio, as
defined under the Investment Company Act of 1940, as amended (the "Act")
and Rule 18f-2 thereunder (see "Voting"). The Portfolios are subject to
other restrictions and policies that are "non-fundamental" and which may
be changed by the Fund's Board of Directors without shareholder
approval, subject to any applicable disclosure requirements.
Fundamental Policies - All Portfolios. Without the approval of a
majority of its outstanding voting securities, no Portfolio may:
1. invest in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules, regulations
and orders thereunder taking into account any rule or order of the SEC
exempting the Portfolio from the limitation imposed by Section
12(d)(1) of the Act.
2. issue "senior securities" as defined in the Act and the rules,
regulations and orders thereunder, except as
permitted under the Act and the rules, regulations and
orders thereunder.
3. invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities in the
same industry. For purposes of this limitation, securities of the U.S.
government (including its agencies and instrumentalities) and
securities of state or municipal governments and their political
subdivisions are not considered to be issued by members of any industry.
4. borrow money, except that (a) the Portfolio may borrow from banks
for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests which might otherwise require
the untimely disposition of securities, and (b) the Portfolio may,
to the extent consistent with its investment policies, enter into
reverse repurchase agreements, forward roll transactions and
similar investment strategies and techniques. To the extent that
it engages in transactions described in (a) and (b), the
Portfolio will be limited so that no more than 33 -1/3% of
the value of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) valued at the time the borrowing is
made, is derived from such transactions.
5. make loans. This restriction does not apply to: (a) the purchase
of debt obligations in which the Portfolio may invest consistent
with its investment objectives and policies; (b) repurchase agreements;
and (c) loans of its portfolio securities, to the fullest extent
permitted under the Act.
6. engage in the business of underwriting securities issued by other
persons, except to the extent that the Portfolio may technically be
deemed to be an underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
7. for the Large Cap Value Fund and the U.S. Government Securities
Fund: purchase or sell real estate, real estate mortgages, commodities
or commodity contracts, but this restriction shall not prevent the
Portfolio from (a) investing in securities of issuers engaged in the
real estate business or the business of investing in real estate
(including interests in limited partnerships owning or otherwise
engaging in the real estate business or the business of investing in
real estate) and securities which are secured by real estate or
interests therein; (b) holding or selling real estate received in
connection with securities it holds or held; (c) trading in
futures contracts and options on futures contracts (including options on
currencies to the extent consistent with the Funds' investment
objective and policies); or (d) investing in real estate investment
trust securities.
for the Short-Term U.S. Treasury Securities Fund only: purchase or
sell real estate, real estate mortgages, real estate investment
trust securities, commodities or commodity contracts, but this
restriction shall not prevent the Fund from (a) investing in
securities of issuers engaged in the real estate business or the
business of investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate business
or the business of investing in real estate) and securities which
are secured by real estate or interests therein; (b) holding or selling
real estate received in connection with securities it holds or
held; or (c) trading in futures contracts and options on futures
contracts (including options on currencies to the extent
consistent with the Funds' investment objective and policies).
Nonfundamental Policies. As a nonfundamental policy, no Portfolio may:
1. purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
portfolio securities) or sell any securities short (except "against the
box"). For purposes of this restriction, the deposit or payment by the
Portfolio of underlying securities and other assets in escrow and
collateral agreements with respect to initial or maintenance margin in
connection with futures contracts and related options and options on
securities, indexes or similar items is not considered to be the
purchase of a security on margin;
2. invest in securities of another investment company except as
permitted by Section 12(d)(1) of the Act or as part of a merger,
consolidation, or acquisition;
3. purchase or otherwise acquire any security if, as a result, more
than 15% of its net assets would be invested in securities that
are illiquid.
Additional Nonfundamental Policies - Large Cap Value Fund. As a
nonfundamental policy, the Large
Cap Value Fund may not:
1. 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;
2. invest in any company for the purpose of exercising control of
management;
3. 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;
or
4. invest in interests in oil or gas or other mineral exploration or
development programs.
All of the foregoing restrictions which are stated in terms of
percentages will apply at the time an investment is made; a subsequent
increase or decrease in the percentage that may result from changes in
values or net assets will not result in a violation of the restriction.
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 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, therefore, net long-term and short-term capital gains, net
income and operating expenses will be determined separately for each
Portfolio.
Each Portfolio 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; and (ii) diversify its
holding so that, at the end of each quarter of its taxable year, 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, 1997 the unused capital loss carryovers of the Fund by
Portfolio were approximately as follows: Short-Term U.S. Treasury
Securities Fund: $6,900,000. 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)
2001 2002 2003 2004
Short-Term U.S. Treasury Securities Fund --- 4,805 1,124 $971
Distributions
If the net asset value of shares of a Portfolio is reduced below a
shareholder's cost 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 gain or loss if the shares have been
held for more than one year, as short-term capital gain or loss if held
for up to one year.
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 Small Business Job Protection Act of 1996 changed the
eligibility requirements for participants in Individual Retirement
Accounts ("IRAs"). Under these new provisions, if you or your spouse
have earned income, each of you may establish an IRA and make maximum
annual contributions equal to the lesser of earned income or $2,000. As
a result of this legislation, married couples where one spouse is non-
working may now contribute a total of $4,000 annually to their IRAs.
The Taxpayer Relief Act of 1997 has changed the requirements for
determining whether or not you are eligible to make a deductible IRA
contribution. Under the new rules effective beginning January 1, 1998,
if you are considered an active participant in an employer-sponsored
retirement plan, you may still be eligible for a full or partial
deduction depending upon your combined adjusted gross income ("AGI").
For married couples filing jointly, a full deduction is permitted if your
combined AGI is $50,000 or less ($30,000 for unmarried individuals); a
partial deduction will be allowed when AGI is between $50,000-$60,000
($30,000-$40,000 for an unmarried individual); and no deduction when AGI
is $60,000 ($40,000 for an unmarried individual). However, if you are
married and your spouse is covered by a employer-sponsored retirement
plan, but you are not, you will be eligible for a full deduction if your
combined AGI is $150,000 or less. A partial deduction is permitted if
your combined AGI is between $150,000-$160,000 and no deduction is
permitted after $160,000.
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 $24,000) of each
participant's compensation. Compensation is capped at $160,000 for 1998.
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 Large Cap Value Fund and
U.S. Government Securities Fund which displays performance data for ten
years) ended December 31, 1997 is as follows:
One Year Five Years Life Inception Date
Large Cap Value 21.45% 15.87% 14.22%* 5/18/67
U.S. Government 4.77 5.88 8.56* 10/9/84
Short-Term U.S. 6.73 5.20 5.67 11/11/91
* Representative of ten years, not life of the Large Cap Value Fund and
the U.S. Government Securities Fund.
Each Portfolio's average annual total return with respect to its Class B
Shares (where applicable) for the one-year period and the life of such
Portfolio's Class B shares through December 31, 1997 is as follows:
Portfolio One Year Life Inception Date
Large Cap Value 21.83% 22.29% 11/7/94
U.S. Government 4.62 9.12 11/7/94
Each Portfolio's average annual total return with respect to its Class C
Shares (where applicable) for the one-year period, five-year period and
for the life of such Portfolio's Class C shares through December 31,
1997 is as follows:
Portfolio One Year Five Years Life Inception Date
Large Cap Value 25.85% 16.18% 16.02% 12/2/92
U.S. Government 8.18 6.28 6.40 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, 1997 is as follows:
Portfolio One Year Life Inception Date
Large Cap Value 28.21% 21.48% 2/07/96
U.S. Government 10.00 6.91 1/12/93
Short-Term U.S. 7.20 4.87 2/07/96
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, 1997 is as follows:
Portfolio One Year Life Inception Date
Large Cap Value 28.27% 24.18% 11/07/94
U.S. Government 9.98 10.50 11/07/94
Note that effective October 10, 1994 Class C shares were
reclassified as additional Class A shares with respect to the Large Cap
Value Fund and that effective November 7, 1994 Class C shares were
redesignated Class Y shares with respect to the U.S. Government
Securities Fund. In addition, 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
Fund) 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
annualizing 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 Fund 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 Large Cap Value Fund 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 and the Short-Term U.S. Treasury
Securities Fund 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
Short-Term U.S. Treasury Securities Fund 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, Martin Luther King, Jr. 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, 1995, 1996 and 1997, the
investment management fees paid by each Portfolio were as follows:
Portfolio 1995 1996 1997
U.S. Government $1,869,768 $1,770,235 $ 1,571,535
Large Cap Value 4,093,396 4,622,817 5,536,984
Short-Term U.S. 403,161 479,559 538,831
Pursuant to the Management Agreement, the management fee for the
Large Cap Value Fund 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 Fund 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 Portfolio, and 0.40% of the aggregate average daily net
assets of the Portfolio in excess of $200 million. The management fee
for the Short-Term U.S. Treasury Securities Fund is calculated at the
annual rate of 0.45% of such Portfolio's 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, 1997, 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 1997 included compensation of Financial
Consultants and printing costs of prospectuses and marketing materials.
Portfolio Class A Class B Class C
Class Y Total
Large Cap Value $1,785,010 $212,156 $375,116 N/A
$2,372.282
U.S. Government 720,768 88,018 106,129 N/A
914,915
Short-Term U.S. Treas. 272,848 N/A N/A
N/A 272,848
For the fiscal years 1995, 1996 and 1997, aggregate sales
commissions of approximately $364,000, $689,000 and $608,000,
respectively, 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 Large Cap Value Fund 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 Fund 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 Large Cap
Value Fund and that effective November 7, 1994 Class C shares were
redesignated Class Y shares with respect to the U.S. Government
Securities Fund. 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
Fund) began to offer new Class B shares on November 7, 1994.
Portfolio Transactions
Large Cap Value Fund - Brokerage
The Manager is responsible for allocating the Large Cap Value
Fund's brokerage transactions inequity securities. 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 Large Cap Value Fund and
has received a substantial portion of brokerage fees paid by such
Portfolio. The Portfolio will not 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,
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 Manager 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 Manager takes into
consideration the fact that a particular broker may, in addition to
execution capability, provide other services to the Portfolio 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 or Smith Barney in connection with services
rendered to other advisory clients and not all such services may be used
in connection with the Portfolio.
Shown below are the total brokerage fees paid by the Large Cap
Value Fund during 1995, 1996 and 1997. 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
1997, the total amount of commissionable transactions was $750,403,262;
$230,114,604 (31%) of which was directed to Smith Barney and executed by
unaffiliated brokers and $520,288,658 (69%) of which was directed to
other brokers.
To Others For
For Execution Only Execution,
Research and
Statistical
Total To Smith Barney To Others Services
1995........ $896,018 $312,572* 34.9% $496,622 55.4% $86,824 9.7%
1996........ 956,742 441,702* 46.2 493,445 51.6 21,595 2.2
1997 892,140 279,132* 31.3 572,298 64.1 40,710 4.6
_________________
*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.
All Portfolios - Other Portfolio Transactions
The Fund's fixed income securities ordinarily are purchased from
and sold to parties acting as either principal or agent. Newly issued
securities ordinarily are purchased directly from the issuer or from an
underwriter; other purchases and sales usually are placed with those
dealers from which the Manager determines that the best execution will
be obtained. Usually no brokerage commissions, as such, are paid for
purchases and sales of fixed-income securities, which are typically
undertaken through principal transactions, although the price paid
usually includes compensation to the dealer acting in the form of a
spread or mark-up. The prices paid to underwriters of newly issued
securities (other than U.S. Treasury Securities) typically include a
concession paid by the issuer to the underwriter, and purchasers of
after-market fixed-income securities from dealers ordinarily are
executed at a price between the bid and asked price.
Transactions in fixed-income securities are allocated to various
broker-dealers by the Investment Manager in its best judgment. The
primary consideration is prompt and effective execution of orders at the
most favorable price. Subject to that primary consideration, broker-
dealers may be selected for research, statistical or other services to
enable the Investment Manager to supplement its own research and
analysis with the views and information of other securities firms. The
Fund may utilize Smith Barney Inc. ("Smith Barney") as a commodities
broker in connection with entering into options and futures contracts.
Research services furnished by broker-dealers through which the
Fund effects securities transactions may be used by the Manager in
managing other investment funds and, conversely, research services
furnished to the Manager by broker-dealers in connection with other
funds the Manager advises may be used by the Manager in advising the
Fund. Although it is not possible to place a dollar value on these
services, the Manager is of the view that the receipt of the services
should not reduce the overall costs of its research services.
Investment decisions for each Portfolio are made independently
from those of other Portfolios, and other investment companies managed
by the Manager. If those investment companies are prepared to invest
in, or desire to dispose of, investments at the same time as the Fund,
however, available investments or opportunities for sales will be
allocated equitably to each client of the Investment Manager. In some
cases, this procedure may adversely affect the size of the position
obtained for or disposed of by the Fund or the price paid or received by
the Fund.
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, 1998 to examine 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.
The approval of a management agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a
Portfolio only if approved by a "vote of a majority of the outstanding
voting securities" of the Portfolio affected by the matter; however, the
ratification of independent accountants, the election of directors, and
the approval of a distribution agreement that is submitted to
shareholders are not subject to the separate voting requirements and may
be effectively acted upon by a vote of the holders of a majority of all
Fund shares voting without regard to Portfolio.
As of April 3, 1998, 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:
Large Cap Value Fund
Class Y
Smith Barney Concert Allocation Series, Inc.
Growth Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 3,918,422.686 # (54.64%) shares
Smith Barney Concert Allocation Series, Inc.
High Growth Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 1,566,837.698 (21.85%) shares
Smith Barney Concert Allocation Series, Inc.
Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 1,136,415.762 (15.85%) shares
U.S. Government Securities Fund
Class Y
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 (28.13%) shares
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 (22.05%) shares
Avron Wahl
Smith Barney Inc. Sep Custodian
5 Evergreen Drive
Ocean, NJ 07712
owned 34,728.657 (12.60%) shares
Luby Enterprises Inc.
c/o Joe Luby
1900 E. Girard Place
Englewood, CO 80110
owned 30,511.892 (11.07%) 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 (10.37%) shares
E. J. Browder
And Mrs. Peggy J. Browder JTWROS
2208 Kristin Lane
Bartlesville, OK 74006-6313
Owned 23,580.247 # (8.56%)shares
Short-Term U.S. Treasury Securities Fund
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 4,734,806.272 (56.42%) shares
Smith Barney Concert Series, Inc.
Income Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 1,467,214.159 (17.48%) shares
Smith Barney Concert Series, Inc.
Conservative Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 1,254,412.306 (14.95%) shares
Smith Barney Concert Series, Inc.
Select Balanced Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
owned 647,064.207 (7.71%) shares
FINANCIAL STATEMENTS
The following financial information is hereby incorporated by
reference to the indicated pages of the Fund's 1997 Annual Reports to
Shareholders, copies of which are furnished with this Statement of
Additional Information.
Page(s) in
Annual Report:
Large Cap Value U.S.Gov't
Average Annual Total Return 5
6
Line Graph Showing Growth of $10,000 Investment 6-7
7
Schedules of Investments 8-10
8
Statements of Assets and Liabilities
dated December 31, 1997 11
9
Statements of Operations
for the year ended December 31, 1997 12
10
Statements of Changes in Net Assets
for the years ended December 31, 1997 and 1996 13
11
Notes to Financial Statements 14-17 12-
16
Financial Highlights 18-22 17-
19
Independent Auditors' Report 23
20
Page(s) in
Annual Report:
Short-Term
Average Annual Total Return 4
Line Graph Showing Growth of $10,000 Investment 5
Schedule of Investments 6
Statement of Assets and Liabilities
dated December 31, 1997 7
Statement of Operations
for the year ended December 31, 1997 8
Statement of Changes in Net Assets
for the years ended December 31, 1997 and 1996 9
Notes to Financial Statements 10-13
Financial Highlights 14
Independent Auditors' Report 15
APPENDIX - RATINGS FOR 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 Ratings Group
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 Ratings Group
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.
31
U:\legal\funds\sbfi\1998\secdocs\sai498.doc
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 year
ended December 31, 1997 and the Report of
Independent Accountants are incorporated by
reference to the Definitive 30b-1 filed on
March 9, 1998
as Accession # 91155-98-154.
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 (now, Large Cap Value Fund), and the U.S.
Government Securities Portfolio are incorporated by
reference to Exhibit 4 to Post-Effective Amendment No.
39.
(b) 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.
(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.**
(6) Distribution Agreement between the Registrant and
Smith Barney, Harris Upham & Co. Incorporated is
incorporated by reference to Exhibit 6(a) to Post-
Effective Amendment No. 39.
(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) Rule 18f-3 Plan is incorporated herein by reference
to Exhibit 9(b) to Post-Effective Amendment No. 58.
(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 is filed herein.
(12) Previously filed.
(13) Not applicable
(14) Previously filed.
(15) (a) 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.
(b) 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.
(c) 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.
(16) Schedule of Computation of Performance Quotation for
the Income and Growth Portfolio, the U.S. Government
Securities Portfolio and the Short-Term U.S. Treasury
Securities Portfolio are incorporated herein by
reference to Exhibit 16 to Post-Effective Amendment
No. 37.
(17) Financial Data Schedules filed herein.
Item 25. Persons Controlled by or under Common Control with
Registrant
(None)
Item 26. Number of Holders of Securities
Number of Recordholders on
Title of Class April 3, 1998
Large Cap Value Fund (f/k/a Equity Income Portfolio) 36,987
U.S. Government Securities Fund 10,155
Short-Term U.S. Treasury Securities Fund 3,756
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 Mutual Management
Corp.(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 Mutual Management
Corp. (Formerly 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 Consulting Group Capital Markets Funds;
Global Horizons Investment Series (Cayman Islands);
Greenwich Street California Municipal Fund Inc.; Greenwich Street
Municipal Fund Inc.;
High Income Opportunity Fund Inc.; The Italy Fund Inc.;
Managed High Income Portfolio Inc.;
Managed Municipals Portfolio II Inc.; Managed Municipals Portfolio
Inc.;
Municipal High Income Fund Inc.; Puerto Rico Daily Liquidity Fund Inc.;
Smith Barney Puerto Rico Equity Index and Income Fund
Smith Barney Adjustable Rate Government Income Fund;
Smith Barney Aggressive Growth Fund Inc.; Smith Barney Appreciation Fund
Inc.;
Smith Barney Arizona Municipals Fund Inc.;
Smith Barney California Municipals Fund Inc.;
Smith Barney Concert Allocation Series Inc.;
Smith Barney Small Cap Blend Fund, Inc.;
Smith Barney Equity Funds; Smith Barney Fundamental Value Fund Inc.;
Smith Barney Income Funds; Smith Barney Income Trust;
Smith Barney Institutional Cash Management Fund, Inc.;
Smith Barney Intermediate Municipal Fund, Inc.; Smith Barney Investment
Funds Inc.;
Smith Barney Investment Trust; Smith Barney Managed Governments Fund
Inc.;
Smith Barney Managed Municipals Fund Inc.;
Smith Barney Massachusetts Municipals Fund;
Smith Barney Money Funds, Inc.; Smith Barney Muni Funds;
Smith Barney Municipal Fund, Inc.;
Smith Barney Municipal Money Market Fund, Inc.;
Smith Barney Natural Resources Fund Inc.;
Smith Barney New Jersey Municipals Fund Inc.;
Smith Barney Oregon Municipals Fund ;
Smith Barney Principal Return Fund; Greenwich Street Series Fund;
Smith Barney Telecommunications Trust; Smith Barney Variable Account
Funds;
Smith Barney World Funds, Inc.; Smith Barney Worldwide Special Fund N.V.
(Netherlands Antilles); Travelers Series Fund Inc.; The USA High Yield
Fund N.V.; Worldwide Securities Limited (Bermuda); Zenix Income Fund
Inc. and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc., which in turn is a wholly owned subsidiary of Travelers
Group Inc. The information required by this
Item 29 with respect to each director, officer and partner of Smith
Barney is incorporated by reference to Schedule A of FORM BD filed by
Smith Barney pursuant to the Securities Exchange Act of 1934 (SEC File
No. 812-8510).
(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
28th day of April, 1998.
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, April 28, 1998
(Heath B. McLendon) President and Chief Executive Officer
Donald R. Foley* Director April 28, 1998
(Donald R. Foley)
Paul Hardin* Director April 28, 1998
(Paul Hardin III)
Roderick C. Rasmussen * Director April 28, 1998
(Roderick C. Rasmussen)
/s/ Bruce D. Sargent Director April 28, 1998
(Bruce D. Sargent)
John P. Toolan* Director April 28, 1998
(John P. Toolan)
/s/ Lewis E. Daidone Treasurer and Principal April 28 , 1998
(Lewis E. Daidone) Financial Officer
*By: /s/ Christina T. Sydor April 28, 1998
Christina T. Sydor
Pursuant to Power of Attorney
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
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Funds, Inc.:
We consent to the use of our reports dated February 10, 1998 for the
Large Cap Value Fund, U.S. Government Securities Fund, and Short-Term
U.S. Treasury Securities Fund 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.
KPMG Peat Marwick LLP
New York, New York
April 24, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 781,551,345
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> SMITH BARNEY FUNDS, INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
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<NAME> EQUITY INCOME PORTFOLIO, CLASS C
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</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>
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<TABLE> <S> <C>
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<NAME> SMITH BARNEY FUNDS, INC.
<SERIES>
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<NAME> EQUITY INCOME PORTFOLIO, CLASS Z
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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> 2
<NAME> U.S. GOVERNMENT SECURITIES PORTFOLIO, CLASS A
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</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> 2
<NAME> U.S. GOVERNMENT SECURITIES PORTFOLIO, CLASS B
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</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>
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<NAME> U.S. GOVERNMENT SECURITIES PORTFOLIO, CLASS C
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000091157
<NAME> SMITH BARNEY FUNDS, INC.
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<NAME> U.S. GOVERNMENT SECURITIES PORTFOLIO, CLASS Y
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